WEISS, PECK & GREER
MUTUAL FUNDS
Prospectus
May 1, 1999
WPG GOVERNMENT MONEY MARKET FUND
WPG TAX FREE MONEY MARKET FUND
WPG INTERMEDIATE MUNICIPAL BOND FUND
WPG CORE BOND FUND
WPG GROWTH AND INCOME FUND
WEISS, PECK & GREER INTERNATIONAL FUND
WPG TUDOR FUND
WPG QUANTITATIVE EQUITY FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
800-223-3332
The Securities and Exchange Commission has not
approved or disapproved these securities or determined
whether this prospectus is accurate or complete.
Any statement to the contrary is a crime.
<PAGE>
CONTENTS
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Risk/Return Summary...........................................................1
WPG Government Money Market Fund.....................................1
WPG Tax Free Money Market Fund ......................................3
WPG Intermediate Municipal Bond Fund.................................5
WPG Core Bond Fund ................................................. 7
WPG Growth and Income Fund ......................................... 9
Weiss, Peck & Greer International Fund .............................11
WPG Tudor Fund......................................................13
WPG Quantitative Equity Fund........................................ 5
More About the Funds' Investments and Risks..................................17
Management of the Funds......................................................19
How to Buy Shares............................................................21
How to Exchange Shares.......................................................22
How to Redeem shares.........................................................23
Other Shareholder Service Information........................................24
Share Price..................................................................25
Dividends, Distributions and Taxes ..........................................26
Financial Highlights.........................................................27
For More Information.........................................................29
ABOUT THE INVESTMENT ADVISER
Weiss, Peck & Greer, L.L.C. (WPG) serves as the investment adviser to each of
the funds. Robeco Institutional Asset Management US Inc. (RIAM) serves as the
investment subadviser to the International Fund. WPG and RIAM are headquartered
in New York and are subsidiaries of Robeco Groep N.V., a Dutch public limited
liability company (Robeco). Founded in 1929, Robeco is one of the world's oldest
asset management organizations. As of the date of this prospectus, Robeco,
through its investment management subsidiaries, had approximately $95 billion in
assets under management, including approximately $17 billion managed directly by
WPG. WPG, which has over 28 years experience as an investment adviser to
institutional and individual clients, is a member firm of the NYSE.
A WORD ABOUT RISK
An investment in the funds is not a bank deposit and is not insured or
guaranteed by the FDIC or any other government agency.
<PAGE>
RISK/RETURN SUMMARY WPG GOVERNMENT MONEY MARKET FUND
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INVESTMENT GOAL
Current income, consistent with preservation of capital and liquidity.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests substantially all, but at least 65% of assets, in
money market securities issued or guaranteed by the U.S. government and its
agencies and instrumentalities. The fund's other investments consist primarily
of repurchase agreements, although it may invest in all types of money market
securities.
CREDIT QUALITY: Ratings in the rating agencies' two highest short term rating
categories or equivalent quality for unrated securities.
MATURITY: Average dollar weighted portfolio maturity of 90 days or less.
Maturity of 397 days or less for individual securities.
- --------------------------------------------------------------------------------
STRATEGIES: The fund seeks to maintain a stable share price of $1 by investing
in securities that the adviser believes present minimal credit risks to the
fund. In structuring the fund's portfolio, the adviser "ladders" the maturity of
the fund's investments. As securities mature at different intervals, the adviser
reinvests the proceeds in additional money market securities so as to maintain
the fund's duration within a target that the adviser believes is appropriate
based on the then current market environment. By laddering the maturity of the
fund's investments, the adviser maintains liquidity without causing the fund to
incur transaction costs associated with selling portfolio securities.
The adviser focuses on improving the fund's yield by actively managing the
fund's allocations among different government agencies and instrumentalities.
The adviser monitors the difference in yield of these securities and purchases
those securities for the fund that provide a higher yield relative to the amount
of risk involved. The adviser also considers a security's relative value based
on its interest rate sensitivity.
================================================================================
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the past ten years.
WPG GOVERNMENT MONEY MARKET FUND
TOTAL RETURN
CALENDAR YEAR ENDED DECEMBER 31
1989 8.84%
1990 7.74%
1991 5.33%
1992 2.95%
1993 2.80%
1994 3.58%
1995 5.16%
1996 4.56%
1997 4.76%
1998 4.80%
The table shows the fund's average annual returns for different calendar
periods.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Fund 4.80% 4.57% 5.04%
As of December 31, 1998, the fund's 7-day yield was 4.17%. Call 1-800-223-3332
for the fund's current 7-day yield.
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 2.26% in the 2nd quarter of 1989
Worst: 0.65% in the 4th quarter of 1991
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-1-
<PAGE>
RISK/RETURN SUMMARY WPG GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- The issuer or guarantor of a security owned by the fund defaults on its
payment obligations.
-- Interest rates rise sharply or suddenly causing the securities in the
fund's portfolio to drop in value.
-- The adviser's judgments about the relative values of securities selected
for the fund's portfolio prove to be wrong.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED
BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE
THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you want:
-- Stability of principal and liquidity
-- A temporary investment
WHO MAY NOT WANT TO INVEST
---
The fund may not be appropriate if you want:
-- Long-term growth of capital
-- A rate of return that consistently exceeds the rate of inflation
================================================================================
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.50%
12b-1 distribution fees None
Other expenses 0.23%
----
Total annual operating expenses 0.73%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU OWN YOUR SHARES
1 year 3 years 5 years 10 years
Expenses: $75 $233 $406 $906
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge o
The fund's operating expenses have not been capped or reduced and remain
the same
-- Your investment has a 5% return each year
-2-
<PAGE>
RISK/RETURN SUMMARY WPG TAX FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High current income exempt from federal income tax, consistent with preservation
of capital and liquidity.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests substantially all, but at least 80% of assets, in
U.S. dollar denominated, tax-exempt money market securities. Tax-exempt means
that the securities pay interest that is excluded from gross income for federal
income tax purposes. Tax-exempt securities are issued by states, territories and
possessions of the U.S., the District of Columbia and their political
subdivisions, agencies and instrumentalities.
The fund may invest in all types of tax-exempt money market securities,
including:
-- Municipal notes, such as tax anticipation notes, revenue anticipation
notes, bond anticipation notes and construction loan notes.
-- Municipal bonds, such as general obligation bonds, revenue bonds and
pre-refunded and escrowed bonds.
CREDIT QUALITY: Ratings in the rating agencies' two highest short term rating
categories or equivalent quality for unrated securities.
MATURITY: Average dollar weighted portfolio maturity of 90 days or less.
Maturity of 397 days or less for individual securities.
- --------------------------------------------------------------------------------
STRATEGIES: The fund seeks to maintain a stable share price of $1 by investing
in securities that the adviser believes present minimal credit risks to the
fund. The adviser focuses on improving the fund's yield by:
-- Allocating the fund's assets to sectors that the adviser believes are
undervalued.
-- Taking advantage of opportunities which are identified by WPG's
proprietory municipal reseach
-- Focusing on municipal money market securities that appear to offer the
best relative value based on the adviser's analysis of credit quality
and interest sensitivity.
-- De-emphasizing interest rate forecasting.
================================================================================
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the past ten years.
WPG TAX FREE MONEY MARKET FUND
TOTAL RETURN
CALENDAR YEAR ENDED DECEMBER 31
1989 6.31%
1990 5.70%
1991 4.63%
1992 2.95%
1993 2.32%
1994 2.61%
1995 3.63%
1996 3.14%
1997 3.23%
1998 3.05%
The table shows the fund's average annual returns for different calendar
periods.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Fund 3.05% 3.13% 3.75%
As of December 31, 1998, the fund's 7-day yield was 3.16% and its 7-day
tax-equivalent yield ws 5.23% (using the maximum federal individual income tax
rate). Call 1-800-223-3332 for current yield.
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 1.66% in the 2nd quarter of 1989
Worst: 0.53% in the 4th quarter of 1991
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-3-
<PAGE>
RISK/RETURN SUMMARY WPG TAX FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- The issuer or guarantor of a security owned by the fund defaults on its
payment obligations, becomes insolvent or has its credit rating
downgraded.
-- Interest rates rise sharply or suddenly causing the securities in the
fund's portfolio to drop in value.
-- The adviser's judgments about the relative values of securities selected
for the fund's portfolio prove to be wrong.
Distributions of the fund's income and, if any, gains will generally be subject
to state taxation. Some of the fund's distributions of tax-exempt interest may
be subject to the federal alternative minimum tax.
AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED
BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE
THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you want:
-- Stability of principal and liquidity
-- Tax-exempt interest
-- A temporary investment
WHO MAY NOT WANT TO INVEST
---
The fund may not be appropriate if you want:
-- Long-term growth of capital
-- A rate of return that consistently exceeds the rate of inflation
================================================================================
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.50%
12b-1 distribution fees None
Other expenses(1) 0.26%
----
Total annual operating expenses(1) 0.76%
====
- -----------------
(1) Because custodian fees were reduced by credits for cash balances, the fund's
actual expenses for fiscal 1998 were:
Other expenses 0.25%
Total annual operating expenses 0.75%
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses: $78 $243 $422 $942
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have not been capped or reduced and remain
the same
-- Your investment has a 5% return each year
-4-
<PAGE>
RISK/RETURN SUMMARY WPG INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High current income exempt from federal income tax, consistent with relative
stability of principal.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests substantially all, but at least 80% of assets, in
U.S. dollar denominated, investment grade, tax-exempt bonds. Tax-exempt means
that the bonds pay interest that is excluded from gross income for federal
income tax purposes. Tax-exempt bonds are issued by states, territories and
possessions of the U.S., the District of Columbia and their political
subdivisions, agencies and instrumentalities.
The fund may invest in all types of tax-exempt bonds, including:
-- General obligation bonds, revenue bonds and pre- refunded and escrowed
bonds.
-- Variable and floating rate securities, auction rate securities and zero
coupon bonds.
-- Municipal notes, such as tax anticipation notes, revenue anticipation
notes, bond anticipation notes and construction loan notes.
CREDIT QUALITY: Exclusively investment grade. This means that the bonds are
rated in one of the top four long-term rating categories by a rating agency or
are of comparable credit quality.
MATURITY: Average dollar weighted portfolio maturity between four and ten years,
but individual bonds may be of any maturity.
- --------------------------------------------------------------------------------
STRATEGIES: The adviser focuses on improving the fund's tax-
exempt yield and return by:
-- Exploiting inefficiencies in the valuation of risk and reward in the
market by selecting attractive issuers, sectors, geographical regions
and securities.
-- Seeking to find value at any given point in the interest rate cycle.
-- De-emphasizing interest rate forecasting.
-- Performing fundamental research and analysis. For example, the adviser
analyzes securities with complex or unique structural features seeking
to capture value for the fund resulting from a general lack of
understanding of those features and other market inefficiencies.
================================================================================
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the life of the fund.
WPG INTERMEDIATE MUNICIPAL BOND FUND
TOTAL RETURN
CALENDAR YEAR ENDED DECEMBER 31
1994 - 2.29%
1995 12.05%
1996 4.20%
1997 7.85%
1998 5.72%
The table shows how the fund's average annual returns for different calendar
periods and since inception on July 1, 1993 compared to those of the Lehman
Brothers 3-10 Year Municipal Bond Index, an unmanaged index of tax-exempt bonds.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Fund 5.72% 5.40% 5.55%
Lehman
Brothers 3-10 6.03% 5.66% 5.92%
Year Municipal
Bond Index
As of December 31, 1998, the fund's 30-day yield wqs 3.84% and its 30-day tax-
equivalent yield was 6.36% (using the maximum federal individual income tax
rate). Call 1-800-223-3332 for current yields.
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 4.59% in the 1st quarter of 1995
Worst: -3.61% in the 1st quarter of 1994
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-5-
<PAGE>
RISK/RETURN SUMMARY WPG INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- The issuer or guarantor of a bond owned by the fund defaults on its
payment obligations, becomes insolvent or has its credit rating
downgraded.
-- Interest rates rise, causing the bonds in the fund's portfolio to
decline.
-- As a result of declining interest rates, the issuer of a bond exercises
its right to prepay principal earlier than scheduled, forcing the fund
to reinvest in lower yielding bonds. This is known as call or prepayment
risk.
-- Municipal bonds fall temporarily out of favor with investors.
-- Unfavorable legislation affects the tax-exempt status of municipal
bonds.
-- The adviser's judgments about the attractiveness, relative value or
yield of particular bonds prove to be wrong.
The fund may realize taxable gains on the sale of bonds or in other
transactions. Distributions of the fund's income and gains will generally be
subject to state taxation. Some of the fund's distributions of tax-exempt
interest may be subject to the federal alternative minimum tax.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you want:
-- Higher potential returns than a money market fund and are willing to
accept more risk of price volatility
-- Tax-exempt interest
-- Diversification within the municipal securities market that is not
readily achievable by investing directly in individual securities
WHO MAY NOT WANT TO INVEST
---
The fund may not be appropriate if you want:
-- Complete stability of principal
-- Long-term growth of capital
================================================================================
FEES AND EXPENSES This table describes the fees and expenses that you
may pay if you buy and hold shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.50%
12b-1 distribution fees None
Other expenses 0.56%
----
Total annual operating expenses 1.06%
Fee Waiver (1) (0.21%)
-----
Net annual operating expenses 0.85%
=====
- -----------------
(1) The adviser has agreed to cap the fund's operating expenses. The adviser may
not discontinue or modify this cap without the approval of the fund's
trustees.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses: $87 $272 $473 $1,052
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have been capped by the adviser and remain
the same
-- Your investment has a 5% return each year
-6-
<PAGE>
RISK/RETURN SUMMARY WPG CORE BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High current income, consistent with capital preservation.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests substantially all, but at least 80% of its assets,
in U.S. denominated or quoted debt securities, or "bonds." These bonds are
denominated in U.S. dollars and may be issued by domestic and foreign companies
or governmental entities. The fund may invest in all types of bonds and other
fixed income securities, including notes, mortgage-backed and asset-backed
securities (including mortgage-backed derivative securities), convertible
securities, preferred stock, municipal securities, and short-term debt
securities.
CREDIT QUALITY: Exclusively investment grade bonds. This means that they are
rated in one of the top four long-term rating categories by at least one major
rating agency or are of comparable credit quality.
DURATION: Average dollar weighted portfolio duration between three and seven
years, but individual bonds may be of any duration. The fund's duration will
generally be in a narrow range relative to the duration of its benchmark, the
Lehman Brothers Aggregate Index.
- --------------------------------------------------------------------------------
STRATEGIES: There are three principal factors in the adviser's selection process
- -- maturity allocation, sector allocation and individual security selection.
-- The adviser studies the relationship between bond yields and maturities
under current market conditions and identifies maturities with high
yields relative to the amount of risk involved.
-- The adviser uses qualitative and quantitative methods to identify bond
sectors that it believes are undervalued or will outperform other
sectors. Sectors include corporate securities, U.S. Treasury securities,
U.S. government agency securities, and mortgage-backed and asset-backed
securities.
-- After the fund's maturity and sector allocations are made, the adviser
selects individual bonds within each sector. The adviser performs both
fundamental and quantitative analysis, looking at:
-- Stable or improving issuer credit quality
-- Market inefficiencies that cause individual bonds to have high
relative values
-- Structural features of securities, such as callability, liquidity,
and prepayment characteristics and expectations.
================================================================================
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the past ten years.
WPG CORE BOND FUND
TOTAL RETURN
1989 13.91%
1990 8.95%
1991 13.95%
1992 7.90%
1993 8.96%
1994 - 8.70%
1995 13.25%
1996 3.85%
1997 7.37%
1998 9.26%
The table shows how the fund's average annual returns for different calendar
periods compared to those of the Lehman Brothers Aggregate Index, an unmanaged
index of bonds.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 Year 5 Years 10 Years
------ ------- --------
Fund 9.26% 4.72% 7.67%
Lehman Bros.
Aggregate Index* 8.69% 7.27% 9.26%
- --------------
*Prior to January 20, 1998, the fund was subject to different investment
policies than those described in this prospectus. The fund's benchmark prior to
January 20, 1998 was the Lehman Brothers Intermediate Government/Mortgage Backed
Securities Index, an unmanaged index of U.S. government securities, whose
performance is as follows:
Lehman Bros.
Inter. Gov't/
Mortgage-Backed
Securities Index 7.75% 6.68% 8.62%
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 7.61% in the 2nd quarter of 1989
Worst: -4.64% in the 2nd quarter of 1994
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-7-
<PAGE>
RISK/RETURN SUMMARY WPG CORE BOND FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- Interest rates rise, causing the bonds in the fund's portfolio to drop
in value.
-- The issuer or guarantor of a bond owned by the fund defaults on its
payment obligations, becomes insolvent or has its credit rating
downgraded.
-- As a result of declining interest rates, the issuer of a bond exercises
the right to prepay principal earlier than scheduled, forcing the fund
to reinvest in lower yielding bonds. This is known as call or prepayment
risk.
-- When interest rates are rising, the average life of a bond is generally
extended because of slower than expected principal payments. This will
lock in a below-market interest rate, increase the bond's duration and
reduce the value of the bond. This is known as extension risk.
-- The adviser's judgments about the attractiveness, relative value or
potential income of particular sectors or bonds proves to be wrong.
There is a greater risk that the fund will lose money due to prepayment and
extension risks because the fund may invest heavily in asset-backed and
mortgage-related securities. Mortgage derivatives in the fund's portfolio may
have especially volatile prices because of imbedded leverage or unusual interest
rate reset terms.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you want:
-- Higher potential income than a money market fund with higher potential
risk
-- To diversify by investing in a portfolio of investment grade, fixed
income securities
WHO MAY NOT WANT TO INVEST
The fund may not be appropriate if you want:
-- A temporary investment
-- Complete stability of principal
-- Long-term growth of capital
================================================================================
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee(1) 0.60%
12b-1 distribution fees 0.00%
Other expenses(1) 0.29%
-----
Total annual operating expenses(1) 0.89%
Fee Waiver(2) (0.38%)
-----
Net annual operating expenses 0.51%
=====
- -----------------------
(1) Because custodian fees were reduced by credits for cash balances, the fund's
actual expenses for fiscal 1998 were:
Other expenses 0.28%
Total annual operating expenses 0.88%
Net annual operating expenses 0.50%
(2) The adviser has agreed to cap the fund's operating expenses. The adviser may
not discontinue or modify this cap without the approval of the fund's
trustees.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses: $51 $161 $280 $629
EXAMPLE:
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have been capped by the adviser and remain
the same
-- Your investment has a 5% return each year
-8-
<PAGE>
RISK/RETURN SUMMARY WPG GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Long-term growth of capital, a reasonable level of current income and an
increase in future income.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests primarily in equity securities of U.S. large
capitalization companies that offer the prospect of capital appreciation and
growth of income, while paying current income.
The fund also may purchase equity securities that do not pay current dividends
but offer prospects for growth of capital and future income.
Although the fund invests primarily in common stocks, it may invest in all types
of equity and equity-related securities, including:
-- Preferred stocks
-- Securities convertible into common stocks
-- Shares of REITs
-- Warrants and rights to purchase common stock
-- American depositary receipts (ADRs)
The fund may also invest, to a lesser extent, in fixed income securities
(primarily of investment grade quality).
- --------------------------------------------------------------------------------
STRATEGIES: In selecting stocks for investment, the adviser uses a "bottom-up"
strategy, which begins with individual stock selection, while diversifying the
fund's investments among various industries and sectors. Using a growth
investment style, the adviser:
-- Identifies promising companies by employing fundamental company and
industry analysis and valuation methods.
-- Evaluates historic and forecasted earnings growth, cash flows and
relative and absolute values by employing quantitative techniques.
In selecting stocks for the fund's portfolio, the adviser looks for:
-- Established companies with experienced management.
-- Better than average prospects for long-term growth of capital.
-- Growth rates that are faster than the growth rate of the U.S. economy at
the time of purchase.
-- Companies with historically high returns on equity.
A security's valuation influences the timing of the fund's purchase and sale.
The adviser also considers the tax implications to the fund's shareholders in
making portfolio security decisions.
================================================================================
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the past ten years.
WPG GROWTH & INCOME FUND
TOTAL RETURN
CALENDAR YEARS ENDED DECEMBER 31
1989 27.64%
1990 -10.38%
1991 40.72%
1992 13.80%
1993 9.53%
1994 - 5.47%
1995 32.73%
1996 24.42%
1997 36.27%
1998 27.51%
The table shows how the fund's average annual returns for different calendar
periods compared to those of the S&P 500 Index and the Lipper Growth & Income
Funds Average.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 Year 5 Years 10 Years
------ ------- --------
Fund 27.51% 22.09% 18.47%
S&P 500 Index 28.76% 24.15% 19.22%
Lipper Growth
& Income
Funds Avg. 15.61% 18.53% 15.76%
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 19.82% in the 2nd quarter of 1997
Worst: -21.05% in the 3rd quarter of 1990
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-9-
<PAGE>
RISK/RETURN SUMMARY WPG GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- The U.S. stock market goes down.
-- Growth stocks or stocks of large capitalization companies temporarily
fall out of favor with investors.
-- Companies in which the fund invests suffer unexpected losses or lower
than expected earnings.
-- The adviser's judgment about the attractiveness or potential
appreciation or potential income of a particular security or sector
proves to be wrong.
The risks associated with the fund's investments in fixed income securities are
similar to the risks associated with an investment in the WPG Core Bond Fund.
These risks are:
-- Interest rates rise, causing the bonds in the fund's portfolio to drop
in value.
-- The issuer or guarantor of a bond owned by the fund defaults on its
payment obligations, becomes insolvent or has its credit rating
downgraded.
-- As a result of declining interest rates, the issuer of a bond exercises
the right to prepay principal earlier than scheduled, forcing the fund
to reinvest in lower yielding bonds. This is known as call or prepayment
risk.
-- When interest rates are rising, the average life of a bond is generally
extended because of slower than expected principal payments. This will
lock in a below-market interest rate, increase the bond's duration and
reduce the value of the bond. This is known as extension risk.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you:
-- Are seeking a long-term investment that may also provide some current
income
-- Want to diversify your portfolio
WHO MAY NOT WANT TO INVEST
---
The fund may not be appropriate if you:
-- Are pursuing a short-term investment goal
-- Want complete stability of principal
-- Seek income as your primary goal
================================================================================
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.75%
12b-1 distribution fees None
Other expenses 0.29%
----
Total annual operating expenses 1.04%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses: $106 $331 $574 $1,271
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have not been capped or reduced and remain
the same
-- Your investment has a 5% return each year
-10-
<PAGE>
RISK/RETURN SUMMARY WEISS, PECK & GREER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Long-term capital growth and, to a lesser extent, current income.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests primarily in common stocks of foreign companies
with medium and large market capitalizations located in the countries
represented in its benchmark, the Morgan Stanley Capital International
Europe Australia Far East (EAFE) Index. The fund's subadviser diversifies the
fund's holdings by the number of companies, the number of industries of such
companies and the number of foreign countries. The fund may invest in emerging
countries to a limited extent. Although the fund invests primarily in common
stocks, it may invest in other types of equity securities, including:
-- Preferred stocks
-- securities convertible into common stocks
-- warrants and rights to purchase common stocks
-- depositary receipts for common stocks
The fund may use derivative contracts on foreign currencies for both hedging and
non-hedging purposes.
- --------------------------------------------------------------------------------
STRATEGIES: Taking advantage of the international investing resources of its
parent company--Robeco, the subadviser employs an investment process that
combines top-down country selection with bottom-up stock selection to determine
the optimal country, sector and security risk within the fund's portfolio. The
subadviser's top-down strategy focuses on general macro economic events
affecting geographical regions, particular countries and security sectors. In
its bottom-up strategy, the subadviser performs fundamental research to select
particular securities for investment. The subadviser may, to a limited extent,
invest more or less of the fund's assets in particular regions, countries and
sectors relative to the composition of the EAFE Index. The EAFE Index consists
of 20 countries outside of North America and represents approximately 60% of the
total market value of all publicly traded stocks in these countries.
The subadviser selects stocks for inclusion in the two distinct portions of the
fund's portfolio--"core" holdings and "tilt" holdings. The fund's portfolio
consists primarily of core holdings, which are securities of large cap companies
that exhibit strong fundamental characteristics. The subadviser selects core
holdings with a 2-3 year investment horizon. Tilt holdings represent a smaller
portion of the fund's portfolio and consist of both medium and large cap
companies. The subadviser selects tilt stocks with a shorter investment horizon,
seeking to capture higher performance for the fund relative to the EAFE Index
based on a company's short-term fundamentals and quantitative characteristics.
================================================================================
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the life of the fund.
WEISS, PECK & GREER INTERNATIONAL FUND
TOTAL RETURN
CALENDAR YEARS ENDED DECEMBER 31
1990 -14.83%
1991 1.01%
1992 - 5.53%
1993 37.24%
1994 - 6.31%
1995 10.92%
1996 4.64%
1997 2.89%
1998 16.28%
The table shows how the fund's average annual returns for different calendar
periods and since inception on June 1, 1989 compared to those of the EAFE Index,
an unmanaged index of foreign stocks.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 Year 5 Years Since inception
------ ------- ---------------
Fund* 16.28% 5.41% 5.06%
EAFE Index 20.33% 9.50% 6.59%
- --------------
* During the periods shown, the fund was managed by a different subadviser than
RIAM.
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 19.21% in the 4th quarter of 1998
Worst: -17.82% in the 3rd quarter of 1990
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-11-
<PAGE>
RISK/RETURN SUMMARY WEISS, PECK & GREER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- Foreign stock markets go down, or perform poorly relative to the U.S.
stock market.
-- Foreign stocks temporarily fall out of favor with investors.
-- The adviser's judgments about the attractiveness, value or potential
appreciation of a particular company's stock, currency or foreign market
prove to be wrong.
- --------------------------------------------------------------------------------
SPECIAL RISKS
There is a higher risk that the fund will lose money because it invests
primarily in stocks of foreign companies. There are additional risks associated
with investing in foreign companies compared to investing in U.S. companies.
These risks include:
-- Less information may be available about foreign companies and markets
due to relaxed disclosure or accounting standards or regulatory
practices.
-- Many foreign markets are smaller, less liquid and more volatile than
U.S. markets. As a result, the adviser may not be able to sell the
fund's securities in amounts and at prices it considers reasonable.
-- The U.S. dollar appreciates against foreign currencies causing the value
of the fund's foreign stocks to be worth less.
-- Economic, political or social instability in foreign countries disrupts
the markets where the fund's foreign stocks are traded.
These risks are greater to the extent that the fund invests in emerging market
countries. In addition, you could lose money by investing in the fund as a
result of adverse changes in foreign currency exchange rates relative to the
fund's currency exposures. To the extent the fund uses currency derivative
contracts, the fund's risk of loss may be increased.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you:
-- Are pursuing a long-term goal, such as investing for retirement.
-- Are seeking higher potential long term returns and can accept a higher
level of potential risk.
-- Are seeking to diversify your exposure to the U.S. stock market by
investing in foreign companies.
WHO MAY NOT WANT TO INVEST
The fund may not be appropriate if you:
-- Are pursuing a short-term investment goal.
-- Want stability of principal.
-- Are uncomfortable with the risk and price volatility in foreign stock
markets.
================================================================================
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.50%
12b-1 distribution fees None
Other expenses(1) 1.88%
----
Total annual operating expenses(1) 2.38%
====
- -----------------
(1) Because custodian fees were reduced by credits for cash balances, the fund's
actual expenses for fiscal 1998 were:
Other expenses 1.85%
Total annual operating expenses 2.35%
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Expenses: $241 $742 $1,270 $2,716
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have not been capped or reduced and remain
the same
-- Your investment has a 5% return each year
-12-
<PAGE>
RISK/RETURN SUMMARY WPG TUDOR FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Capital appreciation by investing primarily in common stocks, securities
convertible into common stocks and in special situations.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests primarily common stocks of U.S. companies with
market capitalizations of less than $2 billion.
Although the fund invests primarily in common stocks, the fund may invest in all
types of equity and equity-related securities, including:
-- Securities convertible into common stocks.
-- Shares of REITs.
-- Warrants and rights to purchase common stocks.
-- American depositary receipts (ADRs).
-- Preferred stocks.
SPECIAL SITUATIONS: The fund may invest in companies that may experience unusual
and possibly unique developments which may create a special opportunity for
significant returns. Special situations include: significant technological
improvements or important discoveries; reorganizations, recapitalizations or
mergers; favorable resolutions of litigation; new management or material changes
in company policies; and actual or potential changes in control of a company.
- --------------------------------------------------------------------------------
STRATEGIES: In selecting stocks for investment, the adviser uses a "bottom-up"
process, which begins with individual stock selection, while diversifying the
fund's investments among various industries and sectors to control risk.
The adviser performs fundamental research to seek small companies with prospects
for sustainable above-average growth in earnings, revenues, cash flow, asset
value and other measures of a company's growth prospects.
The adviser also uses quantitative tools to minimize sector selection risk,
ensure the fund is abiding by its growth discipline and as a guide to assist in
maximizing the expected return from stock selection. A security's valuation
influences the timing of the fund's purchase and sale of a security. The adviser
uses the inherent volatility in the market for these high growth stocks to
acquire positions at reasonable prices relative to their long-term growth
potential.
The adviser emphasizes for investment by the fund financially sound,
well-managed, attractively-valued U.S. companies with strong growth prospects.
The adviser considers the tax implications to the fund's shareholders in making
portfolio security decisions.
- --------------------------------------------------------------------------------
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the past ten years.
WPG TUDOR FUND
TOTAL RETURN
CALENDAR YEARS ENDED DECEMBER 31
1989 25.05%
1990 - 5.16%
1991 45.84%
1992 5.13%
1993 13.38%
1994 - 9.81%
1995 41.18%
1996 18.82%
1997 11.11%
1998 -22.01%
The table shows how the fund's average annual returns for different calendar
periods compared to those of the Russell 2500 Growth Index, an unmanaged index
of small company stocks.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 Year 5 Years 10 Years
------ ------- --------
Fund -22.01% 5.57% 10.45%
Russell 2500
Growth Income 3.10% 12.41% 13.69%
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 22.68% in the 1st quarter of 1991
Worst: -29.35% in the 3rd quarter of 1998
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-13-
<PAGE>
RISK/RETURN SUMMARY WPG TUDOR FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- The stock market goes down.
-- Small capitalization stocks temporarily fall out of favor with
investors.
-- Companies in which the fund invests suffer unexpected losses or lower
than expected earnings which, in addition to causing the fund to be less
liquid, will reduce the fund's net asset value.
-- The adviser's judgments about the attractiveness, value or potential
appreciation of a particular company's stock selected for the fund's
portfolio prove to be wrong or the special situation that the adviser
anticipated does not occur.
- --------------------------------------------------------------------------------
SPECIAL RISKS
THERE IS A HIGHER RISK THAT THE FUND WILL LOSE MONEY BECAUSE IT INVESTS
PRIMARILY IN SMALL CAPITALIZATION STOCKS. SMALLER COMPANIES MAY HAVE LIMITED
PRODUCT LINES, MARKETS AND FINANCIAL RESOURCES. THE PRICES OF SMALL
CAPITALIZATION STOCKS TEND TO BE MORE VOLATILE THAN THOSE OF OTHER STOCKS. SMALL
CAPITALIZATION STOCKS ARE NOT PRICED AS EFFICIENTLY AS STOCKS OF LARGER
COMPANIES. IN ADDITION, IT MAY BE HARDER TO SELL THESE STOCKS, ESPECIALLY DURING
A DOWN MARKET OR UPON THE OCCURRENCE OF ADVERSE COMPANY-SPECIFIC EVENTS, WHICH
CAN REDUCE THEIR SELLING PRICES.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you:
-- Are seeking to diversify by investing in a portfolio of common stocks of
small companies
-- Are pursuing a long-term goal, such as investing for retirement
-- Are seeking potentially higher long term returns and can accept a higher
level of risk
WHO MAY NOT WANT TO INVEST
---
The fund may not be appropriate if you:
-- Are pursuing a short-term investment goal
-- Want stability of principal
-- Are uncomfortable with the risk and price volatility of the stock market
and small capitalization stocks
================================================================================
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.90%
12b-1 distribution fees None
Other expenses 0.38%
----
Total annual operating expenses 1.28%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Expenses: $130 $406 $702 $1,545
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have not been capped or reduced and
remain the same
-- Your investment has a 5% return each year
-14-
<PAGE>
RISK/RETURN SUMMARY WPG QUANTITATIVE EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Investment results that exceed the aggregate performance of publicly traded
common stocks, as represented by the S&P 500 Index.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENTS: The fund invests primarily in common stocks traded in the U.S. of
companies with large market capitalizations. The fund's portfolio generally will
consist of common stocks of between 80 and 120 companies.
In order to remain fully invested and instead of purchasing and selling
securities directly, the fund may invest in depository receipts which seek to
replicate the price performance and dividend yield of the S&P 500 Index and use
derivative contracts (such as futures on the S&P 500 Index).
- --------------------------------------------------------------------------------
STRATEGIES: The adviser uses quantitative techniques to analyze a universe of
approximately 900 companies, including those in the S&P 500 Index and about 400
other large and medium companies. Using a proprietary multi-factor model, the
adviser:
-- Identifies stocks with rising earnings expectations that the adviser
believes will outperform their peers.
-- Identifies stocks from among this group that are selling at low relative
prices in light of their earnings expectations.
-- Assesses the level of risk associated with each stock, and identifies
stocks with the maximum expected return at each acceptable level of
risk.
Based on this information, the adviser selects the combination of stocks,
together with their appropriate weightings, that it believes will optimize the
fund's risk/return ratio. The adviser seeks to maintain the market
capitalization, sector allocations and style characteristics of the fund's
portfolio similar to those of the S&P 500 Index.
The portfolio is rebalanced regularly to maintain the optimal risk/return
trade-off. The adviser assesses each stock's changing characteristics relative
to its contribution to portfolio risk. A stock is sold when it no longer offers
an appropriate return-to-risk tradeoff.
================================================================================
PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the fund.
The bar chart shows changes in the performance of the fund from year to year
over the life of the fund.
WPG QUANTITIVE EQUITY FUND
TOTAL RETURN
CALENDAR YEARS ENDED DECEMBER 31
1993 13.90%
1994 0.34%
1995 33.37%
1996 18.51%
1997 25.47%
1998 26.71%
The table shows how the fund's average annual returns for different calendar
periods, and since inception on January 1, 1993, compared to those of the S&P
500 Index, an unmanaged index of common stocks.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 Year 5 Years Since inception
------ ------- ---------------
Fund 26.71% 20.31% 19.22%
S&P 500 28.76% 24.15% 21.67%
Index
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 22.31% in the 4th quarter of 1998
Worst: -10.37% in the 3rd quarter of 1998
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
-15-
<PAGE>
RISK/RETURN SUMMARY WPG QUANTITATIVE EQUITY FUND
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
You could lose money on your investment in the fund or the fund could
underperform other possible investments if any of the following occurs:
-- The U.S. stock market goes down.
-- Stocks of large capitalization companies temporarily fall out of favor
with investors.
-- Companies in which the fund invests suffer unexpected losses or lower
than expected earnings which, in addition to causing the fund to be less
liquid, will reduce the fund's net asset value.
-- The adviser's judgment about the attractiveness, value or potential
appreciation of a particular company's common stock proves to be wrong.
-- The factors considered by the multi-factor model fail to select stocks
with better relative performance than those included in the S&P 500
Index.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The fund may be appropriate if you:
-- Are pursuing a long-term goal, such as investing for retirement
-- Are seeking higher long-term returns and can accept a higher level of
risk
-- Are seeking to diversify your portfolio by investing in a portfolio of
common stocks of large companies
-- Are seeking an objective, disciplined investment process
WHO MAY NOT WANT TO INVEST
The fund may not be appropriate if you:
-- Are pursuing a short-term investment goal
-- Want stability of principal
-- Desire a high level of current income
================================================================================
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES None
(paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of fund net assets)
Management fee 0.75%
12b-1 distribution fees None
Other expenses(1) 0.32%
----
Total annual operating expenses(1) 1.07%
====
- -----------------------
(1) Because custodian fees were reduced by credits for cash balances, the fund's
actual expenses for fiscal 1998 were:
Other expenses 0.31%
Total annual operating expenses 1.06%
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. Your actual costs may be
higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses: $109 $340 $590 $1,306
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have not been capped or reduced and remain
the same
-- Your investment has a 5% return each year
-16-
<PAGE>
MORE ABOUT THE FUNDS' INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
The Risk/Return Summary for each fund describes the fund's investment objective
and its principal investment strategies and risks. This section provides some
additional information about the funds' investments and certain portfolio
management techniques that the funds may use. More information about the funds'
investments and portfolio management techniques, some of which entail risks, is
included in the Statement of Additional Information (SAI).
EQUITY INVESTMENTS
The equity oriented funds may invest in all types of equity securities. Equity
securities include exchange-traded and over-the-counter common and preferred
stocks, warrants, rights, convertible securities, depositary receipts and
shares, trust certificates, limited partnership interests, shares of other
investment companies and REITs, and equity participations.
FIXED INCOME INVESTMENTS
The Core Bond Fund may invest in all types of fixed income securities. The
equity oriented funds may invest a portion of their assets in fixed income
securities. Fixed income investments include bonds, notes (including structured
notes), mortgage-backed securities, asset-backed securities, convertible
securities, Eurodollar and Yankee dollar instruments, preferred stocks and money
market instruments. Fixed income securities may be issued by corporate and
governmental issuers and may have all types of interest rate payment and reset
terms, including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment-in-kind and auction rate features.
The credit quality of securities held in a fund's portfolio is determined at the
time of investment. If a security is rated differently by multiple ratings
organizations, a fund treats the security as being rated in the higher rating
category. A fund may choose not to sell securities that are downgraded below the
fund's minimum accepted credit rating after their purchase.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities may be issued by private companies or by agencies of
the U.S. government. Mortgage-backed securities represent direct or indirect
participation in, or are collateralized by and payable from, mortgage loans
secured by real property.
Certain debt instruments may only pay principal at maturity or may only
represent the right to receive payments of principal or payments of interest on
underlying pools of mortgage or government securities, but not both. The value
of these types of instruments may change more drastically than debt securities
that pay both principal and interest during periods of changing interest rates.
Principal only mortgage-backed securities are particularly subject to prepayment
risk. A fund may obtain a below market yield or incur a loss on such instruments
during periods of declining interest rates. Interest only instruments are
particularly subject to extension risk. For mortgage derivatives and structured
securities that have imbedded leverage features, small changes in interest or
prepayment rates may cause large and sudden price movements. Mortgage
derivatives can also become illiquid and hard to value in declining markets.
The Core Bond Fund may use mortgage dollar rolls to finance the purchase of
additional investments. Dollar rolls expose a fund to the risk that it will lose
money if the additional investments do not produce enough income to cover the
fund's dollar roll obligations. In addition, if the adviser's prepayment
assumptions are incorrect, a fund may have performed better had the fund not
entered into the mortgage dollar roll.
FOREIGN SECURITIES
ALL FUNDS EXCEPT TAX FREE MONEY
MARKET FUND AND INTERMEDIATE
MUNICIPAL BOND FUND
All of the funds except Tax Free Money Market Fund and Intermediate Municipal
Bond Fund may invest in U.S.Ddollar denominated securities of foreign issuers.
In addition, International Fund invests primarily, and Tudor Fund may invest to
a lesser extent, in securities denominated in foreign currencies. Investments in
securities of foreign entities and securities denominated in foreign currencies
involve special risks. These include possible political and economic instability
and the possible imposition of exchange controls or other restrictions on
investments. Changes in foreign currency rates relative to the U.S. dollar will
affect the U.S. dollar value of a fund's assets denominated or quoted in
currencies other than the U.S. dollar. Emerging market investments offer the
potential for significant gains but also involve greater risks than investing in
more developed countries. Political or economic instability, lack of market
liquidity and government actions such as currency controls or seizure of private
business or property may be more likely in emerging markets. In Europe, Economic
and Monetary Union (EMU) and the introduction of a single currency began on
January 1, 1999. There are significant political and economic risks associated
with EMU, which may increase the volatility of a fund's European securities and
present valuation problems.
-17-
<PAGE>
MORE ABOUT THE FUNDS' INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
BELOW INVESTMENT
GRADE SECURITIES
GROWTH AND INCOME FUND
AND TUDOR
Growth and Income Fund and Tudor Fund may invest in debt securities rated below
investment grade by a ratings organization, or if unrated, of comparable
quality. These bonds, commonly known as "junk bonds," are considered speculative
because they have a higher risk of issuer default, are subject to greater price
volatility and may be illiquid. Securities Lending Each fund may seek to
increase its income by lending portfolio securities to institutions, such as
certain broker-dealers. Portfolio securities loans are secured continuously by
collateral maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The value of the securities loaned by a
fund will not exceed 33 1/3% of the value of the fund's total assets. A fund may
experience a loss or delay in the recovery of its securities if the borrowing
institution breaches its agreement with the fund.
DERIVATIVE CONTRACTS
ALL FUNDS EXCEPT GOVERNMENT
MONEY MARKET FUND AND TAX
FREE MONEY MARKET FUND
Each fund except Government Money Market Fund and Tax Free Money Market Fund
may, but need not, use derivative contracts for any of the following purposes:
- -- To hedge against adverse changes caused by changes in stock market prices,
currency exchange rates or interest rates in the market value of its
securities or securities to be bought
- -- As a substitute for buying or selling currencies or securities
- -- To enhance the fund's return in non-hedging situations
Examples of derivative contracts include: futures and options on securities,
securities indices or currencies; options on these futures; forward foreign
currency contracts; and interest rate or currency swaps. Only the International
Fund and the Tudor Fund may use derivative contracts involving foreign
currencies. A derivative contract will obligate or entitle the fund to deliver
or receive an asset or cash payment that is based on the change in value of one
or more securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on a fund's stock market, currency and interest
rate exposure. Therefore, using derivatives can disproportionately increase
losses and reduce opportunities for gains when stock prices, currency rates or
interest rates are changing. A fund may not fully benefit from or may lose money
on derivatives if changes in their value do not correspond accurately to changes
in the value of the fund's holdings. The other parties to certain derivative
contracts present the same types of default risk as issuers of fixed income
securities. Derivatives can also make the fund less liquid and harder to value,
especially in declining markets.
TEMPORARY
INVESTMENTS
ALL FUNDS EXCEPT GOVERNMENT
FREE MONEY MARKET FUND
Each fund except Government Money Market Fund and Tax Free Money Market Fund may
depart from its principal investment strategies in response to adverse market,
economic or political conditions by taking temporary defensive positions in all
types of money market and short-term debt securities. If a fundTwere to take a
temporary defensive position, it may be unable for a time to achieve its
investment goal.
PORTFOLIO
TURNOVER
CORE BOND FUND AND
TUDOR FUND
The Core Bond Fund and the Tudor Fund may engage in active and frequent trading,
resulting in high portfolio turnover. This may lead to the realization and
distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading may also increase transaction costs, which could
detract from the funds' performance.
INVESTMENT GOALS
Each fund's investment goal is not fundamental and may be changed without
shareholder approval by the fund's board of trustees. The Tax Free Money Market
Fund's policy of investing at least 80% of assets in tax-exempt money market
securities is fundamental and may only be changed with the approval of that
fund's shareholders. If there is a change in your fund's investment goal, you
should consider whether the fund remains an appropriate investment.
DEFINITIONS
As used in this prospectus, "duration" means the weighted-average term to
maturity of a fixed income security's cash flows, based on their present values;
"small cap companies" generally means companies having market capitalizations of
less than $2 billion; "medium cap companies" generally means companies having
market capitalizations of at least $2 billion but not more than $20 billion; and
"large cap companies" generally means companies having market capitalizations in
excess of $20 billion.
-18-
<PAGE>
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
THE ADVISER
Weiss, Peck & Greer, L.L.C. serves as the investment adviser to each of the
funds. Robeco Institutional Asset Management US Inc. (RIAM) serves as the
investment subadviser to the International Fund. WPG and RIAM are headquartered
at One New York Plaza, New York, New York 10004, and are subsidiaries of Robeco
Groep N.V., a Dutch public limited liability company. Founded in 1929, Robeco is
one of the world's oldest asset management organizations.
Subject to the general supervision of the funds' boards of trustees, WPG manages
the funds' portfolios and is responsible for the selection and management of all
portfolio investments of each fund (other than as described below for the
International Fund) in accordance with each fund's investment objective and
policies. For the International Fund, WPG is responsible for the selection and
management of the fund's U.S. securities, oversees and assists in the management
of the fund's assets by RIAM and monitors RIAM's selection and management of the
fund's investments in non-U.S. securities, and determines, in consultation with
RIAM, the percentage allocation of the fund's assets between U.S. and non-U.S.
securities.
THE PORTFOLIO
MANAGERS
THE PORTFOLIO MANAGERS
ARE PRIMARILY RESPONSIBLE
FOR THE DAY-TO-DAY
OPERATION OF THE FUNDS
INDICATED BESIDE THEIR NAMES.
<TABLE>
<CAPTION>
FUND PORTFOLIO MANAGER(S) SINCE PAST 5 YEARS' BUSINESS EXPERIENCE
- ---- -------------------- ----- ---------------------------------
<S> <C> <C> <C>
WPG Government
Money Market Fund Daniel S. Vandivort 1994 Managing director of the adviser.
Thomas J. Girard 1996 Principal of the adviser since 1996.
Prior thereto, Mr. Girard served as
a vice president and portfolio manager
with Bankers Trust Company.
WPG Tax Free Money
Market Fund Janet A. Fiorenza 1988 Managing director of the adviser.
WPG Intermediate
Municipal Bond S. Blake Miller 1993 Principal of the adviser.
WPG Core Bond Fund Daniel S. Vandivort 1995 Managing director of the adviser.
Sid Bakst 1998 Principal of the adviser. Prior thereto,
vice president and portfolio manager for
New York Life Asset Management.
WPG Growth and Income
Fund A. Roy Knutsen 1992 Managing director of the adviser.
Weiss, Peck & Greer
International Fund Eric Van Der Maarel 1999 Portfolio manager of the subadviser
since 1999 and Fund senior portfolio
manager of Robeco, the adviser's parent
company since 1990.
WPG Tudor Fund Laurence Zuriff 1999 Managing director of the adviser. Prior thereto,
Mr. Zuriff was a vice president of York Capital
Management and a growth equity analyst at Granite
Capital.
WPG Quantitative
Equity Fund Daniel J. Cardell 1996 Managing director of the adviser. Prior thereto,
senior vice president and director of equities
for the Bank of America.
</TABLE>
-19-
<PAGE>
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
MANAGEMENT FEES MANAGEMENT FEES PAID DURING THE FISCAL YEAR ENDED
PAID BY EACH FUND DECEMBER 31, 1998 (AS % OF AVERAGE DAILY NET ASSETS)
WPG Government Money Market Fund 0.50%
WPG Tax Free Money Market Fund 0.50%
WPG Intermediate Municipal Bond Fund 0.29%
WPG Core Bond Fund 0.28%
WPG Growth and Income Fund 0.75%
Weiss, Peck & Greer International Fund 0.50%
WPG Tudor Fund 0.90%
WPG Quantitative Equity Fund 0.75%
ADMINISTRATION AND
SERVICE PLANS
CORE BOND FUND AND
INTERNATIONAL FUND
Core Bond Fund and International Fund have adopted Rule 12b-1 plans for their
shares. Under the plans, the funds pay distribution and service fees for the
sale of their shares and for administrative and shareholder services in an
aggregate amount of up to 0.05% of their average daily net assets. These fees
are an ongoing expense and over time will increase the cost of your investment
and may cost you more than other types of sales charges. For the year ended
December 31, 1998, the International Fund did not pay any fees under its plan
and the amount paid by the Core Bond Fund represented less than 0.01% of its
average daily net assets.
YEAR 2000
CHALLENGE
Many computer software systems in use today cannot properly process date-related
information after December 31, 1999. This failure, commonly referred to as the
"Year 2000 Issue," could adversely affect the handling of securities trades,
pricing and account servicing for the funds. In addition, the cost of addressing
Year 2000 compliance may adversely affect the issuers of individual securities
held by the funds. The adviser has made Year 2000 compliance a high priority and
is taking steps that it believes are reasonably designed to address the Year
2000 Issue for its computer systems. The adviser has also been informed that
comparable steps are being taken by the funds' other major service providers.
The adviser does not currently anticipate that the Year 2000 Issue will have a
material impact on its ability to continue to fulfill its duties as investment
adviser. However, non-compliant computer systems in general could have a
material adverse effect on a fund's business, operations or financial condition.
Additionally, a fund's performance could be hurt if a computer system failure at
a company or governmental unit affects the prices of portfolio securities.
-20-
<PAGE>
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
IN GENERAL
You may make an initial purchase of shares of any fund by mail, by wire, or
through any authorized securities dealer. Shares of the funds may be purchased
on any day on which the New York Stock Exchange is open for business. A
completed and signed application is required for each new account you open with
any fund regardless of how you choose to make your initial purchase. The funds
reserve the right to reject any purchase for any reason and to cancel any
purchase due to nonpayment. All purchases must be made in U.S. dollars and, to
avoid fees and delays, all checks must be drawn only on U.S. banks. No cash will
be accepted.
INVESTMENT
MINIMUMS
<TABLE>
<CAPTION>
ALL FUNDS EXCEPT CORE BOND FUND CORE BOND FUND
------------------------------- -------------- AUTOMATIC
UNIFORM GIFTS TO INVESTMENT
ORDINARY MINOR (UGMA) RETIREMENT PLAN
INVESTMENT ACCOUNTS ACCOUNTS ACCOUNTS (ALL FUNDS)
- ---------- -------- -------- -------- -----------
<S> <C> <C> <C> <C>
Initial Investment $2,500 $250 $250 $25,000 n/a
Subsequent Investment $100 $100 $100 $5,000 $50
</TABLE>
The funds may waive these minimums at their discretion.
BY MAIL
You may purchase shares of the funds by mailing the completed application, with
your check(s) or money order(s) made payable to the particular fund(s) in which
you have chosen to invest, to the funds' transfer agent, First Data Investor
Services Group, Inc., Attention: WPG Mutual Funds, P.O. Box 60448, King of
Prussia, PA 19406-0448.
BY WIRE
You may also purchase shares of the funds by wiring your investment to a fund's
wire bank account with the funds' custodian. Please call the adviser toll free
at 1-800-223-3332 to receive instructions as to how and where to wire your
investment. Please remember to return your completed application to the transfer
agent, as described above.
THROUGH AN
AUTHORIZED
BROKER-DEALER
Broker-dealers approved by the adviser are authorized to sell you shares of the
funds. You also may obtain copies of the application from any such authorized
securities dealer. Shares purchased through securities dealers may be subject to
transaction fees, no part of which will be received by the funds or the adviser.
IN KIND
PURCHASES
Shares of the funds may be purchased in whole or in part by delivering to the
funds' custodian securities determined by the adviser to be suitable for that
fund's portfolio.
AUTOMATIC
INVESTMENT
PLAN
The Automatic Investment Plan is a convenient way for you to purchase a fixed
dollar amount of shares at regular intervals selected by you. Through the plan,
you may automatically transfer funds (minimum of $50 per transaction per fund)
from your designated bank account on a monthly or quarterly basis. The plan is
not available to shareholders of the Quantitative Equity Fund.
GOOD ORDER
Orders to buy shares are not considered received until received "in good order."
For Government Money Market Fund, the Tax Free Money Market Fund, the Core Bond
Fund and the Intermediate Municipal Bond Fund, this means that your investment
has been received or converted into federal funds (which, in the case of a check
drawn on a bank that is not a member of the Federal Reserve System, may take
several days). You will begin to earn dividends on the business day following
the date your order is converted to federal funds. For Government Money Market
Fund and Tax Free Money Market Fund, if you purchase shares by federal funds
wire, you may qualify for a dividend on the same date if your wire is received
prior to 12:00 noon Eastern time. For the other funds, receipt of federal funds
is not necessary for a request to be in good order.
If your purchase is cancelled due to nonpayment or because your check does not
clear (and as a result, shares in your account must be redeemed), you will be
responsible for any loss incurred by the fund(s) affected.
-21-
<PAGE>
HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
IN GENERAL
You may exchange shares of a fund for shares of any other WPG Mutual Fund
described in this prospectus provided all accounts are identically registered.
Shares exchanged will be valued at their respective net asset values next
determined after the receipt of a proper exchange request. Exchange requests may
be delayed up to 15 days if shares of your initial fund were purchased by check
and your check has not yet cleared.
BY TELEPHONE
You may authorize telephone exchanges by marking the appropriate boxes on your
account application and providing the information requested in the application.
To exchange shares by telephone, simply call 1-800-223-3332 between 9:00 a.m.
and 4:00 p.m. Eastern time on any day that the funds are open. Telephone
exchange requests made after 4:00 p.m. Eastern time will not be accepted.
The telephone exchange privilege is not available with respect to (i) shares for
which certificates have been issued or (ii) accounts requiring supporting legal
documents for redemptions.
BY MAIL
You may exchange fund shares by mailing a written exchange request to the fund's
transfer agent, First Data Investor Services Group, Inc., Attention: WPG Funds;
P.O. Box 60448, King of Prussia, PA 19406-04448.When making a written exchange
request, please provide:
-- Name of the fund
-- Account number
-- Dollar amount or number of shares to exchange
-- Signature of each owner exactly as account is registered
-- Your share certificates, if any, properly endorsed or with proper powers
of attorney
-- Signature guarantees, if the account in the fund whose shares are being
purchased will not be identically registered
-- Any other documentation required by the transfer agent or adviser
OTHER INFORMATION
ABOUT EXCHANGES
No sales charge or other fee is imposed on exchanges. An exchange involves a
redemption of the shares exchanged and may therefore result in a tax liability
for you except, generally, for exchanges from Government Money Market Fund or
Tax Free Money Market Fund to another fund. Unless waived by the funds, you must
satisfy the initial and subsequent minimum investment for each fund you are
exchanging into.
Certain qualified retirement plans (E.G., 401(k) and 403(b) plans and other
plans but not Individual Retirement Accounts) may exchange their fund shares for
shares of the Tomorrow Funds, consisting of Tomorrow Long-Term Retirement Fund,
Tomorrow Medium-Term Retirement Fund and Tomorrow Short-Term Retirement Fund.
Please call 1-800-223-3332 to obtain a free copy of the Tomorrow Funds'
prospectus, including fees and expenses. You should read the Tomorrow Funds'
prospectus carefully before requesting any exchange into the Tomorrow Funds.
MORE ABOUT
TELEPHONE
TRANSACTIONS
The funds may use identification procedures, such as providing written
confirmation of telephone exchange and redemption transactions and tape
recording of telephone requests, to confirm that a telephone request is genuine.
The funds reserve the right to refuse any request made by telephone and may
limit the amount involved or the numbers of telephone requ4ests made by any
shareholder. (Such exchange or redemption requests may, however, be made in
writing in accordance with procedures described below). During periods of
extreme economic conditions or market changes, requests by telephone may be
difficult to make due to heavy volume. During such times, please consider
placing your order by mail.
-22-
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
IN GENERAL
Subject to the restrictions outlined below, you may redeem all or some of your
shares in the funds at a price equal to the net asset value next computed
following receipt in proper form of your redemption request by the transfer
agent or other fund agent. A redemption is a taxable transaction that may result
in a tax liability for you, except, generally, redemptions of the shares of
Government Money Market Fund or Tax Free Money Market Fund.
Except under certain emergency conditions, your redemption payment will be sent
to you (net of any required withholding taxes) within three business days after
receipt of your written redemption request in proper form by the funds or their
agents. You may elect in writing to have your redemption proceeds wired to your
checking or bank account. Currently, the transfer agent charges a fee for wire
transfers.
The funds cannot accept requests which specify a particular date or price for
redemption or which specify any other special conditions.
BY TELEPHONE
You may authorize telephone redemptions by marking the appropriate boxes on your
account application and providing the information requested in the application.
To redeem shares by telephone, simply call 1-800-223-3332 between 9:00 a.m. and
4:00 p.m. Eastern time on any day that the funds are open. Telephone redemption
requests made after 4:00 p.m. Eastern time will not be accepted. See "More about
Telephone Transactions" above.
The telephone redemption privilege is not available with respect to (i)
redemptions in excess of $50,000 during any 30-day period, (ii) accounts that
are registered jointly or requiring supporting legal documents or (iii) shares
for which certificates have been issued. Proceeds from telephone redemptions
will be mailed by check payable to the shareholder of record to the address of
record or wired to the bank as directed, on the account application.
BY MAIL
Unless you are redeeming by telephone or through an authorized broker-dealer,
you must submit a written request in "proper form" directly to First Data
Investor Services Group, Inc., Attention: WPG Mutual Funds, P.O. Box 60448, King
of Prussia, PA 19406-0448. No charge is imposed on any redemption request
processed by the transfer agent.
THROUGH AN
AUTHORIZED
BROKER-DEALER
You may transmit your redemption request to the funds through an authorized
broker-dealer. The broker-dealer may charge you a transaction fee for this
service.
PROPER FORM
To be in proper form, your redemption request must include:
-- Name of the fund
-- Account number
-- Dollar amount or number of shares to redeem
-- Signature of each owner exactly as account is registered
-- Your share certificates, if any, properly endorsed or with proper powers
of attorney
-- Signature guarantees, if your proceeds are being sent to an address or
person other than those listed on the account registration, or if you
are redeeming shares represented by certificates
-- Any other documentation required by the transfer agent or adviser
(generally required for redemptions by corporations, estates, trusts,
guardianships, custodianships, partnerships, and pension and profit
sharing plans)
If you make a redemption request within 15 days of the date you purchased shares
by means of a personal, corporate or government check, the redemption payment
will be held until the check has cleared (up to 15 days). Nevertheless, the
shares redeemed will be priced for redemption at the price next determined after
receipt of your redemption request. You can avoid the inconvenience of this
check clearing period by purchasing shares with a certified, treasurer's or
cashier's check, or with a federal funds or bank wire.
SYSTEMATIC
WITHDRAWAL PLAN
The systematic withdrawal plan allows you to establish automatic monthly or
quarterly transfers of a fixed amount ($50 or more) from your account(s) in the
fund(s) to you or your designated bank account. You must have a minimum balance
of $15,000 in a fund account to use this feature.
-23-
<PAGE>
OTHER SHAREHOLDER SERVICE INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER
INQUIRIES
If you have any questions about the funds or the shareholder services described
below, please call the funds at 1-800-223-3332. Written inquiries should be sent
to First Data Investor Services Group, Inc., Attention: WPG Mutual Funds, P.O.
Box 60448, King of Prussia, PA 19406-0448.
The funds may amend the shareholder services described in this prospectus or
change the terms or conditions relating to such services upon 60 days' notice to
shareholders. You may discontinue any service you select, provided that with
respect to the automatic investment and systematic withdrawal plans, the funds'
transfer agent receives your notification to discontinue such service(s) at
least ten days before the next scheduled investment or withdrawal date.
CONFIRMATIONS,
SHAREHOLDER
STATEMENTS
AND REPORTS
Each time you buy or sell shares you will receive a confirmation statement for
that transaction. In addition, following each distribution from your fund, you
will receive a shareholder statement reflecting any reinvestment of a dividend
or distribution in shares of the fund, including your current share balance with
the fund. The funds will also send you shareholder reports no less frequently
than semi-annually. You also will receive, shortly after year-end, tax
information about your account(s) with each fund.
CHECKWRITING
SERVICE
Checkwriting is available for shareholders of the Government Money Market Fund
and Tax Free Money Market Fund. There is no charge for this service. The minimum
amount of each check must be $500. The checkwriting service may not be used for
a complete redemption of your account. If the amount of the check is greater
than the value of your account, the check will be returned unpaid. In addition,
checks written on amounts subject to the 15-day check clearing period, described
below under "How to Redeem Shares," will be returned unpaid. All notices with
respect to checks must be given to the funds' transfer agent. The checkwriting
service is not available for Individual Retirement Accounts or other retirement
accounts.
THE SWEEP
PROGRAM
The sweep program is a convenient way for you to invest automatically excess
credit balances in any of your brokerage accounts with Weiss, Peck & Greer in
shares of the Government Money Market Fund or the Tax Free Money Market Fund.
Under the Sweep Program, if you have a brokerage account with Weiss, Peck &
Greer you may elect to have credit balances automatically invested in shares of
the Government Money Market Fund or Tax Free Money Market Fund. Weiss, Peck &
Greer will transmit orders for the purchase of a fund's shares on the same day
that excess credit balances are available in your brokerage account. To obtain
further information concerning this service, please call 1-800-223-3332.
MINIMUM
ACCOUNT SIZE
Due to the relatively high cost of maintaining smaller accounts, the funds may
redeem shares in any account if, as the result of redemptions, the value of that
account drops below $100 ($15,000 for the Core Bond Fund.) You will be allowed
at least 60 days, after written notice by the funds, to make an additional
investment to bring your account value up to at least the specified minimum
before the redemption is processed.
EXCESSIVE TRADING
To protect shareholders, the funds have adopted a trading policy limiting the
number of exchanges and purchase/redemption transactions (as described below) by
any one shareholder account (or group of accounts under common management) to a
total of six such transactions per year. This trading policy applies to: (i)
exchanges into or out of any fund described in this prospectus (other than
between certain fixed income funds), and (ii) any pair of transactions involving
a purchase of shares of any one fund followed by a redemption of an offsetting
or substantially equivalent dollar amount of shares of that same fund. If you
violate this policy, your future purchases of, or exchanges into, the funds may
be permanently refused. This trading policy does not prohibit you from redeeming
shares of any fund. The funds may waive the trading policy in their discretion.
SIGNATURE
GUARANTEES
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
IN-KIND
REDEMPTIONS
Although the funds generally intend to satisfy redemption requests in cash, they
may, under certain circumstances, satisfy redemption requests in-kind by
delivering portfolio securities. See the SAI.
-24-
<PAGE>
SHARE PRICE
- --------------------------------------------------------------------------------
HOW SHARES OF THE
FUNDS ARE VALUED
Each fund's net asset value per share is calculated as of the close of regular
trading on the New York Stock Exchange, normally 4:00 p.m. Eastern time, every
day the Exchange is open for regular trading. In addition, Government Money
Market Fund and Tax Free Money Market Fund calculate their net asset values per
share as of 12:00 p.m. Eastern time on those days on which the Exchange is open
for regular trading and on which a purchase order for fund shares and related
federal funds wire is received prior to 12:00 p.m. Eastern time. The net asset
value per share, calculated as described below, is effective for all orders
received in good order (as previously described) by the funds or their agents
prior to the close of regular trading on the Exchange for that day. Orders
received by the funds or their agents after the close of regular trading on the
Exchange or on a day when the Exchange is not open for business will be priced
at the net asset value per share next computed. The Exchange is generally open
Monday through Friday except for most national holidays.
The net asset value (NAV) of each fund's shares is determined by adding the
value of all securities, cash and other assets of the fund, subtracting
liabilities (including accrued expenses and dividends payable), and dividing the
result by the total number of outstanding shares in the fund.
For the Government Money Market Fund and the Tax Free Money Market Fund,
securities are valued using the "amortized cost" method, which does not consider
fluctuations in the market value of the funds' portfolio securities. Instead the
securities are valued at cost, and then marked up or down each day, at a
constant rate, to eliminate any discount or premium over time, until the
security reaches its full maturity. This method provides certainty in valuation,
but it may result in periods where the "amortized cost" method results in a
valuation that is higher or lower than the price the Government Money Market
Fund or the Tax Free Money Market Fund would receive if the fund sold the
security. The Board of Trustees has established procedures to monitor any such
deviation between amortized cost and market value and to take corrective action
should the deviation exceed specified amounts.
For purposes of calculating each non-money market fund's NAV, securities (other
than certain money market instruments) are valued primarily based on market
quotations. If market quotations are not available, then the fair value of the
securities is determined by a valuation committee appointed by the Board of
Trustees. When the values of securities in the International Equity Fund's
portfolio have been materially affected by events occurring after the close of a
foreign securities exchange, the fund may price those securities at fair value.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund that uses market quotations to price the same
securities. The funds may use pricing services to value bonds and other fixed
income investments. Money market instruments with a remaining maturity of 60
days or less at the time of purchase are generally valued at amortized cost.
SHARE CERTIFICATES
The Government Money Market Fund, Tax Free Money Market Fund, Municipal Bond
Fund, Core Bond Fund and Quantitative Equity Fund will not issue share
certificates. Each other fund will not issue share certificates unless you have
been a shareholder of the fund for at least 30 days and you specifically request
share certificates in writing. The funds will issue certificates only for full
shares. Most shareholders elect not to receive share certificates. If you lose a
share certificate you may incur an expense to replace it.
-25-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The funds normally pay dividends and distribute capital gains, if any, as
follows:
<TABLE>
<CAPTION>
FUND INCOME DIVIDEND CAPITALGAIN DISTRIBUTIONS ARE
DISTRIBUTIONS DISTRIBUTIONS PRIMARILY FROM
---- ------------- ------------- --------------
<S> <C> <C> <C>
WPG Government Money Market Fund Monthly (declared daily) Annually* Income
WPG Tax-Free Money Market Fund Monthly (declared daily) Annually* Income
WPG Intermediate Municipal Bond Fund Monthly (declared daily) Annually Income
WPG Core Bond Fund Monthly (declared daily) Annually Income
WPG Growth and Income Fund Quarterly Annually Both
WPG Tudor Fund Annually Annually Capital gain
Weiss, Peck & Greer International Fund Annually Annually Capital gain
WPG Quantitative Equity Fund Annually Annually Capital gain
<FN>
- -------------------
*These funds do not expect to make any capital gain distributions.
</FN>
</TABLE>
The funds may pay additional distributions and dividends at other times if
necessary for a fund to avoid federal tax. Unless you instruct otherwise,
capital gain distributions and dividends are reinvested in additional shares of
the same fund that you hold. The funds' distributions and dividends (except for
"exempt-interest dividends" paid by Tax Free Money Market Fund or Intermediate
Municipal Bond Fund), whether received in cash or reinvested in additional fund
shares, are subject to federal income tax. You do not pay a sales charge on
reinvested distributions or dividends.
TAXES
In general, distributions and share transactions are taxed as follows:
TRANSACTION FEDERAL INCOME TAX STATUS
Redemption or exchange of shares
Usually capital gain or loss (except
usually no gain or loss for Tax Free
Money Market Fund and Government
Money Market Fund); long-term only if
shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income (for all funds except
Tax-Free Money Market Fund and
Intermediate Municipal Bond Fund)*
- --------------------
* Tax-Free Money Market Fund and Intermediate Municipal Bond Fund intend to
distribute the interest they earn on tax-exempt municipal securities as
"exempt-interest dividends," which are excludable from gross income for
federal income tax purposes but may be subject to state and local income tax.
These funds' distributions from other sources, if any, would be taxable as
described above.
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when a fund is about to declare a capital gain distribution or a
taxable dividend (other than a dividend declared daily), because it will be
taxable to you even though it may actually be a return of a portion of your
investment.
After the end of each year, the funds will provide you with information about
the distributions and dividends that you received and any reportable redemptions
of shares during the previous year. If you do not provide a fund with your
correct taxpayer identification number and any required certifications, you may
be subject to back-up withholding of 31% of your distributions, dividends (other
than exempt-interest dividends), and, except for redemptions of shares of Tax
Free Money Market Fund and Government Money Market Fund, redemption proceeds.
Because each shareholder's circumstances are different and special tax rules may
apply, you should consult your tax adviser about your investment in a fund.
-26-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
performance of the funds for the past five years. Certain information reflects
financial results for a single share for the funds' fiscal years ended December
31. Total returns represent the rate that a shareholder would have earned (or
lost) on a fund share assuming reinvestment of all dividends and distributions.
The information in the following tables was audited by KPMG LLP, independent
auditors, whose report, along with the funds' financial statement are included
in the annual report (available upon request).
<TABLE>
<CAPTION>
$ per share ratios
- ----------------------------------------------------------------------------------------------------------------------------
Net Total Ratio of
Real- Income/ Distri- Net
Net Net ized (Loss) Dividends butions Net Net Investment
Asset Invest- and From From From Asset Assets Ratio of Income/
Value ment Unreal- invest- Net Net Total Contri- Value at at End Expenses (Loss) Portfolio
At Income ized ment Invest- Real- Distri- butions End of Total of Year To To Turnover
Begin- (Loss) Gains or Opera- ment ized butions to Year Return ($000's) Average Average Rate
ning (Losses) tions Income Gains Capital Net Net
of Year on Secur- Assets Assets
ities
- ----------------------------------------------------------------------------------------------------------------------------
Government Money Market
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $1.00 $0.05 $0.00 $0.05 ($0.05) $0.00 ($0.05) $0.00 $1.00 4.80% $428,44 0.73% 4.62% N/A
1997 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 0.00 1.00 4.76 207,817 0.81 4.68 N/A
1996 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 0.00 1.00 4.56 152,786 0.83 4.48 N/A
1995 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 0.00 1.00 5.16 131,210 0.82 5.06 N/A
1994 1.00 0.04 (0.01) 0.03 (0.04) 0.00 (0.04) 0.01 1.00 3.58 188,197 0.80 3.54 N/A
Tax Free Money Market
1998 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03) 0.00 1.00 3.05 131,268 0.75 3.01 N/A
1997 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03) 0.00 1.00 3.23 130,083 0.74 3.17 N/A
1996 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03) 0.00 1.00 3.14 117,423 0.72 3.10 N/A
1995 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 0.00 1.00 3.63 121,754 0.76 3.56 N/A
1994 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03) 0.00 1.00 2.61 152,501 0.73 2.59 N/A
Intermediate Municipal Bond
1998 10.45 0.45 0.14 0.59 (0.47) (0.02) (0.49) 0.00 10.55 5.72 25,341 0.85 4.23 45.7%
1997 10.14 0.47 0.31 0.78 (0.47) 0.00 (0.47) 0.00 10.45 7.85 23,508 0.85 4.55 39.8
1996 10.20 0.48 (0.06) 0.42 (0.48) 0.00 (0.48) 0.00 10.14 4.20 15,214 0.85 4.72 44.4
1995 9.51 0.44 0.69 1.13 (0.44) 0.00 (0.44) 0.00 10.20 12.05 12,730 0.85 4.38 51.2
1994 10.15 0.41 (0.64) (0.23) (0.41) 0.00 (0.41) 0.00 9.51 (2.29) 14,005 0.85 4.20 30.9
Core Bond
1998 9.34 0.54 0.30 0.84 (0.54) 0.00 (0.54) 0.00 9.64 9.26 139,463 0.50 5.71 684.9
1997 9.19 0.51 0.15 0.66 (0.51) 0.00 (0.51) 0.00 9.34 7.37 108,443 0.86 5.56 330.3
1996 9.38 0.64 (0.29) 0.35 (0.54) 0.00 (0.54) 0.00 9.19 3.85 120,804 0.81 5.87 333.1
1995 8.83 0.60 0.54 1.14 (0.59) 0.00 (0.59) 0.00 9.38 13.25 171,578 0.82 6.52 375.0
1994 10.37 0.68 (1.56) (0.88) (0.64) (0.02) (0.66) 0.00 8.83 (8.70) 216,364 0.80 7.18 115.9
Growth and Income
1998 35.11 0.26 9.38 9.64 (0.26) (3.85) (4.11) 0.00 40.64 27.51 160,698 1.04 0.71 64.6
1997 29.32 0.24 10.30 10.54 (0.24) (4.51) (4.75) 0.00 35.11 36.27 117,146 1.06 0.88 69.6
1996 26.02 0.24 6.11 6.35 (0.39) (2.66) (3.05) 0.00 29.32 24.42 82,937 1.15 1.50 75.8
1995 21.36 0.51 6.44 6.95 (0.53) (1.76) (2.29) 0.00 26.02 32.73 67,357 1.22 2.10 79.4
1994 23.34 0.56 (1.83) (1.27) (0.62) (0.09) (0.71) 0.00 21.36 (5.47) 61,045 1.23 2.49 71.9
International
1998 10.15 0.00 1.65 1.65 0.00 (2.55) (2.55) 0.00 9.25 16.28 6,375 2.35 0.06 98.8
1997 10.29 0.01 0.29 0.30 (0.01) (0.43) (0.44) 0.00 10.15 2.89 8,555 1.89 0.02 55.1
1996 11.01 (0.07) 0.57 0.50 (0.04) (1.18) (1.22) 0.00 10.29 4.64 13,161 1.71 0.31 85.2
1995 10.93 0.04 1.15 1.19 (0.15) (0.96) (1.11) 0.00 11.01 10.92 14,194 1.74 0.39 55.9
1994 11.72 0.01 (0.75) (0.74) 0.00 (0.05) (0.05) 0.00 10.93 (6.32) 17,102 1.95 0.12 69.8
Tudor
1998 21.90 (0.02) (4.86) (4.88) 0.00 (1.28) (1.28) 0.00 15.74 (22.01) 86,817 1.28 (0.22) 143.6
1997 23.28 0.06 2.46 2.52 0.00 (3.90) (3.90) 0.00 21.90 11.11 166,459 1.24 (0.44) 106.3
1996 22.95 (0.14) 4.41 4.27 0.00 (3.94) (3.94) 0.00 23.28 18.82 181,370 1.25 (0.57) 105.4
1995 19.34 (0.10) 8.03 7.93 0.00 (4.32) (4.32) 0.00 22.95 41.18 165,534 1.30 (0.47) 123.1
1994 23.40 (0.13) (2.14) (2.27) 0.00 (1.79) (1.79) 0.00 19.34 (9.81) 144,207 1.28 (0.62) 109.1
Quantitative Equity
1998 5.84 0.05 1.46 1.51 (0.06) (1.50) (1.56) 0.00 5.79 26.71 73,884 1.06 0.49 89.4
1997 5.89 0.08 1.42 1.50 (0.08) (1.47) (1.55) 0.00 5.84 25.47 96,055 1.03 1.03 77.7
1996 6.85 0.16 1.13 1.29 (0.15) (2.10) (2.25) 0.00 5.89 18.51 102,450 0.95 1.52 60.8
1995 5.44 0.13 1.70 1.83 (0.12) (0.30) (0.42) 0.00 6.85 33.37 133,201 1.00 2.00 26.1
1994 5.58 0.13 (0.11) 0.02 (0.11) (0.05) (0.16) 0.00 5.44 0.34 73,484 1.14 2.36 46.8
</TABLE>
-27-
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
The adviser agreed to reimburse other operating expenses and not to impose its
full fee for certain periods. Had the adviser not so agreed, and had the funds
not received a custody fee earnings credit, the total return would have been
lower and the ratio of expenses to average net assets and ratio of net
investment income to average net assets would have been:
Ratio of
Net
Ratio of Investment
Expenses Income
to Average to Average
Net Assets Net Assets
---------- ----------
Quantitative Equity
1998 1.07% 0.48%
International
1998 2.38% 0.03%
1997 1.92% (0.01%)
1996 1.76% 0.26%
1995 1.76% 0.39%
1994 2.35% (0.28%)
Core Bond
1998 0.89% 5.32%
Intermediate Municipal Bond
1998 1.06% 4.02%
1997 1.15% 4.25%
1996 1.01% 4.56%
1995 0.97% 4.25%
1994 1.45% 3.60%
Tax Free Money Market
1998 0.76% 3.00%
For the Tudor, Growth and Income, Government Money Market Funds custody fee
earnings credit had an effect of less than 0.01% per share on the above ratios.
The custody fee earnings credit had an effect of less than 0.01% on the above
ratios in 1994, 1995, 1996 and 1997 for the Quantitatvie Equity, Core Bond,
Intermediate Municipal Bond and Tax Free Money Market Funds.
-28-
<PAGE>
- --------------------------------------------------------------------------------
WEISS, PECK & GREER
MUTUAL FUNDS
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
If you want more information about the Weiss, Peck & Greer Mutual Funds, the
following documents are available upon request:
SHAREHOLDER REPORTS
Annual and semiannual reports to shareholders provide additional information
about the funds' investments. These reports discuss the market conditions and
investment strategies that significantly affected each fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information (SAI) provides more detailed information
about each fund. It is incorporated into this prospectus by reference.
Investment Company Act file numbers 811-
Government Money Market Fund
Tax-free Money Market Fund
Intermediate Municipal Bond Fund
Core Bond Fund
Quantitative Equity Fund 4404
Growth And Income Fund 1447
Tudor Fund 1745
International Fund 5759
HOW TO OBTAIN THIS INFORMATION
You may get free copies of the funds' shareholder reports and the SAI by
contacting the funds at:
Address: WPG Mutual Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 60448
King of Prussia, PA 19406-0448
Telephone: 1-800-223-3332
You can review the funds' shareholder reports, prospectus and SAI at the Public
Reference Room of the Securities and Exchange Commission. You can get text-only
copies of these documents for free from the SEC's website at HTTP://WWW.SEC.GOV,
or for a fee by writing to or calling:
Address: Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009
Telephone: 1-800-733-0330
================================================================================
IF SOMEONE MAKES A STATEMENT THAT IS NOT IN THIS PROSPECTUS ABOUT ANY OF THE
FUNDS, YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE FUNDS NOR THEIR
DISTRIBUTOR IS OFFERING TO SELL SHARES OF THE FUNDS TO ANY PERSON TO WHOM THE
FUNDS MAY NOT LAWFULLY SELL THEIR SHARES.
<PAGE>
WPG GOVERNMENT MONEY MARKET FUND
WPG TAX FREE MONEY MARKET FUND
WPG INTERMEDIATE MUNICIPAL BOND FUND
WPG CORE BOND FUND
WPG GROWTH AND INCOME FUND
WPG TUDOR FUND
WEISS, PECK & GREER INTERNATIONAL FUND
WPG QUANTITATIVE EQUITY FUND
One New York Plaza
New York, New York 10004
(800) 223-3332
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This combined Statement of Additional Information (SAI) is not a
prospectus, but expands upon and supplements the information contained in the
combined prospectus dated May 1, 1999, as amended and/or supplemented from time
to time, of WPG Government Money Market Fund, WPG Tax Free Money Market Fund,
WPG Intermediate Municipal Bond Fund, WPG Core Bond Fund, WPG Growth and Income
Fund, WPG Tudor Fund, Weiss, Peck & Greer International Fund, and WPG
Quantitative Equity Fund.
This Statement of Additional Information should be read in conjunction
with the fund's prospectus. Additional information about each fund's investments
is available in the funds' annual and semi-annual reports to shareholders.
Investors can obtain free copies of reports and prospectuses by contacting the
funds at the phone number above. Each fund's financial statements, which are
included in the 1998 annual reports to shareholders, are incorporated by
reference into this SAI.
THE STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
PAGE
----
The Funds' Investment Objectives, Policies and Techniques......................1
Investment Restrictions ......................................................33
Advisory, Subadvisory and Administrative Services ............................41
Trustees and Officers ........................................................52
How to Purchase Shares .......................................................60
Redemption of Shares .........................................................62
Net Asset Value ..............................................................63
Investor Services ............................................................66
Dividends, Distributions and Tax Status ......................................68
Portfolio Brokerage ..........................................................78
Portfolio Turnover ...........................................................83
Organization .................................................................83
Custodian ....................................................................85
Transfer Agent ...............................................................85
Legal Counsel ................................................................86
Independent Auditors .........................................................86
Calculation of Performance Data ..............................................86
Financial Statements .........................................................92
Appendix A - Bond Ratings and Glossary ......................................A-1
Appendix B - Investors Services..............................................B-1
-i-
<PAGE>
THE FUNDS' INVESTMENT
OBJECTIVES, POLICIES AND
TECHNIQUES
The WPG Government Money Market Fund (the "Government Money Market
Fund"), WPG Tax Free Money Market Fund (the "Tax Free Money Market Fund"), WPG
Intermediate Municipal Bond Fund (the "Municipal Fund"), WPG Core Bond Fund (the
"Core Bond Fund"), WPG Growth and Income Fund (the "Growth and Income Fund"),
WPG Tudor Fund (the "Tudor Fund"), Weiss, Peck & Greer International Fund (the
"International Fund"), and WPG Quantitative Equity Fund (the "Quantitative
Fund") each have their own investment objective and investment policies. Tax
Free Money Market Fund and Government Money Market Fund are sometimes referred
to herein as the "Money Market Funds".
Weiss, Peck & Greer, L.L.C. (the "Adviser") serves as each fund's
investment adviser and administrator.
Each fund is a diversified, open-end, management investment company (or
series thereof). The investment objectives, policies and restrictions of each
fund may be changed or altered by the Board of Trustees of their respective fund
(each, a "Board" and collectively, the "Boards") without shareholder approval,
except to the extent such policies and restrictions have been adopted as
fundamental. See "Investment Restrictions." The securities in which each fund
may invest and certain other investment policies are further described in the
prospectus. There can be no assurance that any of the funds' investment
objectives will be achieved.
Any investment limitation of a Fund that is expressed as a percentage is
determined at the time of investment by the Fund. An increase or decrease in a
Fund's net asset value or a company's market capitalization subsequent to a
Fund's initial investment will not affect the Fund's compliance with the
percentage limitation or the company's status as small, medium or large cap.
From time to time, the adviser may include as small, medium or large cap certain
companies having market capitalizations outside the definitions described in the
prospectus.
The Appendix to this SAI contains a description of the quality categories
of corporate bonds and municipal obligations in which the funds may invest and a
Glossary describing some of the funds' investments.
GOVERNMENT MONEY MARKET FUND
In addition to the types of investments described in the prospectus, the
Government Money Market Fund may invest in the following types of money market
instruments:
(1) Short-term obligations, including certificates of deposit, loan
participations, bankers' acceptances and time deposits of banks and savings
and loan associations whose deposits are federally insured and that have
total assets in excess of $1 billion (except that obligations of smaller
institutions may be held in amounts not exceeding federal insurance
coverage);
(2) Short-term corporate obligations, including notes and bonds with remaining
actual or effective maturities of 13 months or less;
(3) Commercial paper (unsecured promissory notes having maturities of nine
months or less) issued by corporations and finance companies;
(4) U.S. dollar-denominated obligations of for eign issuers. Up to 20% of the
Government Money Market Fund's assets may be invested in obligations of
foreign branches of U.S. banks (Eurodollar obligations) and U.S. branches
of foreign banks (Yankee
- 1 -
<PAGE>
dollar obligations), if in the opinion of the Adviser such obligations are
of comparable quality to obligations of domestic banks the fund may
purchase; and
(5) Privately issued obligations collateralized by a portfolio of U.S.
Government securities or by a portfolio of privately issued asset-backed
securities.
Certain of these money market securities may have adjustable or floating
rates of interest or periodic demand features.
TAX FREE MONEY MARKET FUND
Although it has no current intention of doing so, the Tax Free Money
Market Fund may, under normal market circumstances, invest up to 20% of its net
assets in obligations the interest on which is subject to regular federal income
tax. To the extent the fund invests in these securities, a portion of the income
the fund receives and distributes to shareholders would be subject to regular
federal, as well as state and local, income tax. The fund's distributions from
its tax-exempt interest income may also be subject to alternative minimum tax
and/or state and local income taxes. Such taxable short-term obligations will be
of the same type as are permissible investments for the Government Money Market
Fund.
MUNICIPAL FUND
As a temporary defensive measure during times of adverse market
conditions, the Municipal Fund may invest up to 50% of its assets in (a)
corporate commercial paper and other short-term commercial obligations rated
Prime-1 or MIG by Moody's Investors Service, Inc. ("Moody's") or A-1 or AAA by
Standard & Poor's Ratings Group ("Standard & Poor's"); (b) obligations of banks
(including certificates of deposit, bankers' acceptances and repurchase
agreements) with $1 billion or more of assets; (c) U.S. Government securities;
and (d) other taxable investment grade securities. Distributions from the income
earned on those investments would be taxable to shareholders.
INTERNATIONAL FUND
The International Fund's investment objective is long-term capital growth
and, to a lesser extent, current income. The Fund expects that the income
component of its investment objective generally will be commensurate with the
level of dividends it receives from investing in equity securities of companies
included in the Morgan Stanley Capital International Europe Australia Far East
Index, the Fund's benchmark. The Fund currently does not intend to invest in
fixed income securities to increase the size of the income component of its
investment objective.
"SPECIAL SITUATIONS"
The Tudor Fund may invest in "Special Situations" as defined in, and
subject to, its fundamental investment restriction set forth under "Investment
Restrictions." Since every Special Situation involves, to some extent, a break
with past experience, the uncertainties in the appraisal of future value and the
risk of possible loss of capital are greater than in the experienced,
well-established companies carrying on business according to long-established
patterns. The market price of a Special Situation may decline significantly if
an anticipated development does not materialize. For the very same reasons,
however, the fund believes that if a Special Situation is carefully studied by
the Adviser and an investment is made at the appropriate time, maximum
appreciation may be achieved.
- 2 -
<PAGE>
REPURCHASE AND REVERSE REPURCHASE
AGREEMENTS
Subject to its investment restrictions and policies, each fund may enter
into repurchase agreements with banks, broker-dealers or other financial
institutions in order to generate additional current income. A repurchase
agreement is an agreement under which a fund acquires a security from a seller
subject to resale to the seller at an agreed upon price and date. The resale
price reflects an agreed upon interest rate effective for the time period the
security is held by a fund. The repurchase price may be higher than the purchase
price, the difference being income to the fund, or the purchase and repurchase
price may be the same, with interest at a stated rate due to the fund together
with the repurchase price on repurchase. In either case, the income to the fund
is unrelated to the interest rate on the security. Typically, repurchase
agreements are in effect for one week or less, but may be in effect for longer
periods of time. Repurchase agreements of more than one week's duration are
subject to each fund's respective limitation on investments in illiquid
securities.
Repurchase agreements are considered by the Securities and Exchange
Commission (the "SEC") to be loans by the purchaser collateralized by the
underlying securities. For the Government Money Market Fund and the Tax Free
Money Market Fund, the underlying security must be either a U.S. Government
security or a security rated in the highest rating category. In an attempt to
reduce the risk of incurring a loss on a repurchase agreement, the funds will
generally enter into repurchase agreements only with domestic banks with total
assets in excess of one billion dollars or primary U.S. Government securities
dealers reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the funds may invest. The funds will monitor the
value of the underlying securities throughout the term of the agreement to
ensure that their market value always equals or exceeds the agreed-upon
repurchase price to be paid to a fund. Each fund will maintain a segregated
account with the Custodian for the securities and other collateral, if any,
acquired under a repurchase agreement with a broker-dealer for the term of the
agreement.
In addition to the risk of the seller's default or a decline in value of
the underlying security, a fund also might incur disposition costs in connection
with liquidating the underlying securities. If the seller becomes insolvent and
subject to liquidation or reorganization under the Bankruptcy Code or other
laws, a court may determine that the underlying security is collateral for a
loan by a fund not within the control of that fund and therefore subject to sale
by the seller's trustee in bankruptcy. Finally, it is possible that a fund may
not be able to perfect its interest in the underlying security and may be deemed
an unsecured creditor of the seller. While the funds acknowledge these risks, it
is expected that they can be controlled through careful monitoring procedures.
The Core Bond Fund may enter into reverse repurchase agreements with
domestic banks or broker-dealers, subject to its policies and restrictions.
Under a reverse repurchase agreement, the fund sells a security held by it and
agrees to repurchase the instrument on a specified date at a specified price,
which includes interest. The fund will use the proceeds of a reverse repurchase
agreement to purchase other securities which either mature at a date
simultaneous with or prior to the expiration of the reverse repurchase agreement
or which are held under an agreement to resell maturing as of that time.
- 3 -
<PAGE>
The Core Bond Fund will enter into reverse repurchase agreements only when the
Adviser believes the interest income and fees to be earned from the investment
of the proceeds of the transaction will be greater than the interest expense of
the transaction.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
reverse repurchase agreements may be considered borrowings by the seller. The
Core Bond Fund may not enter into a reverse repurchase agreement if as a result
its current obligations under such agreements would exceed one-third of the
current market value of its total assets (less its liabilities other than under
reverse repurchase agreements).
In connection with entering into reverse repurchase agreements, the fund
will segregate U.S. Government securities, cash or cash equivalents with an
aggregate current value sufficient to repurchase the securities or equal to the
proceeds received upon the sale, plus accrued interest.
FOREIGN SECURITIES
The International Fund invests primarily, and the Tudor Fund may invest,
in securities of foreign issuers. The Government Money Market Fund, the Core
Bond Fund, Growth and Income Fund and Quantitative Fund may also invest in
securities of foreign issuers that are denominated in U.S. dollars. Investment
in foreign issuers involves certain special considerations, including those set
forth below, which are not typically associated with investment in U.S. issuers.
Since foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a domestic company.
Foreign stock markets, while growing in volume of trading activity, have
substantially less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Similarly, volume and liquidity in most foreign bond
markets are less than in the United States and, at times, volatility of price
can be greater than in the United States. Although fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, the funds will endeavor to achieve the most favorable net results on
their foreign portfolio transactions.
There is generally less government supervision and regulation of stock
exchanges, brokers and listed companies in foreign countries than in the United
States. In some foreign transactions there may be a greater risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. In addition, it may be more
difficult to obtain and enforce a judgment against a foreign issuer or a foreign
custodian. The U.S. dollar value of foreign securities will be favorably or
adversely affected by exchange rate fluctuations between the dollar and the
applicable foreign currency. A fund will incur costs in converting foreign
currencies into U.S. dollars.
- 4 -
<PAGE>
INVESTING IN EMERGING MARKETS
The International Fund may invest in countries with emerging economies or
securities markets.
MARKET CHARACTERISTICS. Debt securities of most emerging markets issuers
may be less liquid and are generally subject to greater price volatility than
securities of issuers in the U.S. and other developed countries. The markets for
securities of emerging markets may have substantially less volume than the
market for similar securities in the U.S. and may not be able to absorb, without
price disruptions, a significant increase in trading volume or trade size.
Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The less liquid the market, the more
difficult it may be for the fund to accurately price its portfolio securities or
to dispose of such securities at the times determined to be appropriate. The
risks associated with reduced liquidity may be particularly acute to the extent
that the fund needs cash to meet redemption requests, to pay dividends and other
distributions or to pay its expenses.
Securities markets of emerging markets may also have less efficient
clearance and settlement procedures than U.S. markets, making it difficult to
conduct and complete transactions. Delays in settlement could result in
temporary periods when a portion of the fund's assets is uninvested and no
return is earned thereon. Inability to make intended security purchases could
cause the fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities could result either in losses to the fund due to
subsequent declines in value of the portfolio security or, if the fund has
entered into a contract to sell the security, could result in possible liability
of the fund to the purchaser.
Transaction costs, including brokerage commissions and dealer mark-ups,
in emerging markets may be higher than in the U.S. and other developed
securities markets. As legal systems in emerging markets develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
ECONOMIC, POLITICAL AND SOCIAL FACTORS. Emerging markets may be subject
to a greater degree of economic, political and social instability that could
significantly disrupt the principal financial markets than are the U.S., Japan
and most Western European countries. Such instability may result from, among
other things: (i) authoritarian governments or military involvement in political
and economic decision-making, including changes or attempted changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved economic, political and social conditions; (iii)
internal insurgencies; (iv) hostile relations with neighboring countries; and
(v) ethnic, religious and racial disaffection and conflict. Many emerging
markets have experienced in the past, and continue to experience, high rates of
inflation. In certain countries inflation has at times accelerated rapidly to
hyperinflationary levels, creating a negative interest rate environment and
sharply eroding the value of outstanding financial assets in those countries.
The economies of many emerging markets are heavily dependent upon international
trade and are accordingly affected by protective trade barriers and the economic
conditions of their trading partners. In addition, the economies of some
emerging markets may differ unfavorably from the U.S. economy in such respects
as growth of gross domestic product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position.
- 5 -
<PAGE>
RESTRICTIONS ON INVESTMENT AND REPATRIATION. Certain emerging markets
require governmental approval prior to investments by foreign persons or limit
investments by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the issuer available for
purchase by nationals. Repatriation of investment income and capital from
certain emerging markets is subject to certain governmental consents. Even where
there is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect the operation of the fund.
EURODOLLAR AND YANKEE DOLLAR INVESTMENTS
The funds may invest in obligations of foreign branches of U.S. banks
(Eurodollars) and U.S. branches of foreign banks (Yankee dollars) as well as
foreign branches of foreign banks. These investments involve risks that are
different from investments in securities of U.S. banks, including potential
unfavorable political and economic developments, different tax provisions,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions which might affect payment of principal or interest.
DEPOSITORY RECEIPTS
With respect to certain foreign securities, the funds may purchase
depository receipts of all kinds, including American Depository Receipts (ADRs),
European Depository Receipts (EDRs), Global Depository Receipts (GDRs) and
International Depository Receipts (IDRs). ADRs are U.S. dollar-denominated
certificates issued by a U.S. bank or trust company and represent the right to
receive securities of a foreign issuer deposited in a domestic bank or foreign
branch of a U.S. bank. EDRs, GDRs and IDRs are receipts issued in Europe,
generally by a non-U.S. bank or trust company, and evidence ownership of
non-U.S. securities. ADRs are traded on domestic exchanges or in the U.S.
over-the-counter (OTC) market and, generally, are in registered form. EDRs, GDRs
and IDRs are traded on non-U.S. exchanges or in non-U.S. OTC markets and,
generally, are in bearer form. Investments in ADRs have certain advantages over
direct investment in the underlying non-U.S. securities because (i) ADRs are
U.S. dollar-denominated investments which are registered domestically, easily
transferable, and for which market quotations are readily available, and (ii)
issuers whose securities are represented by ADRs are subject to the same
auditing, accounting and financial reporting standards as domestic issuers. To
the extent a fund acquires ADRs through banks which do not have a contractual
relationship with the foreign issuer of the security underlying the ADR to issue
and service such ADRs, there may be an increased possibility that the fund would
not become aware of and be able to respond to corporate actions such as stock
splits or rights offerings involving the foreign issuer in a timely manner.
RISK CONSIDERATIONS OF MEDIUM GRADE
SECURITIES
Obligations in the lowest investment grade (I.E., BBB or Baa), referred
to as "medium grade" obligations, have speculative characteristics, and changes
in economic conditions and other factors are more likely to lead to weakened
capacity to make interest payments and repay principal on these obligations than
is the case for higher rated securities. In the event that a security purchased
by a fund is subsequently downgraded below investment grade, the Adviser will
consider such event in its determination of whether the fund should
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continue to hold the security. However, at no time may the Municipal Fund have
more than 5% of its net assets invested in securities rated below investment
grade as a result of such downgrades.
RISK CONSIDERATIONS OF LOWER RATED
SECURITIES
The Growth and Income Fund and Tudor Fund may invest in fixed income
securities that are not investment grade but are rated as low as B by Moody's or
B by Standard & Poor's (or their equivalents or, if unrated, determined by the
Adviser to be of comparable credit quality). In the case of a security that is
rated differently by two or more rating services, the higher rating is used in
connection with the foregoing limitation. In the event that the rating on a
security held in a fund's portfolio is downgraded by a rating service, such
action will be considered by the Adviser in its evaluation of the overall
investment merits of that security, but will not necessarily result in the sale
of the security. The widespread expansion of government, consumer and corporate
debt within the U.S. economy has made the corporate sector, especially
cyclically sensitive industries, more vulnerable to economic downturns or
increased interest rates. An economic downturn could severally disrupt the
market for high yield fixed income securities and adversely affect the value of
outstanding fixed income securities and the ability of the issuers to repay
principal and interest.
High yield fixed income securities (commonly known as "junk bonds") are
considered speculative investments and, while generally providing greater income
than investments in higher rated securities, involve greater risk of loss of
principal and income (including the possibility of default or bankruptcy of the
issuers of such securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or change) than securities in
the higher rating categories. However, since yields vary over time, no specific
level of income can ever be assured.
The prices of high yield fixed income securities have been found to be
less sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a fixed income security owned by a fund defaulted,
the fund could incur additional expenses to seek recovery. In addition, periods
of economic uncertainty and changes can be expected to result in increased
volatility of market prices of high yield fixed income securities and a fund's
net asset value, to the extent it holds such securities.
High yield fixed income securities also present risks based on payment
expectations. For example, high yield fixed income securities may contain
redemption or call provisions. If an issuer exercises these provisions in a
declining interest rate market, a fund may, to the extent it holds such fixed
income securities, have to replace the securities with a lower yielding
security, which may result in a decreased return for investors. Conversely, a
high yield fixed income security's value will decrease in a rising interest rate
market, as will the value of a fund's assets, to the extent it holds such fixed
income securities.
In addition, to the extent that there is no established retail secondary
market, there may be thin trading of high yield fixed
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income securities, and this may have an impact on the Adviser's ability to
accurately value such securities and a fund's assets and on the fund's ability
to dispose of such securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of high yield fixed income securities, especially in a thinly traded
market.
New laws and proposed new laws may have an impact on the market for high
yield securities. For example, legislation requiring federally-insured savings
and loan associations to divest their investments in high yield securities could
have an adverse effect on a fund's net asset value and investment practices, to
the extent it holds such securities.
Finally, there are risks involved in applying credit or dividend ratings
as a method for evaluating high yield securities. For example, ratings evaluate
the safety of principal and interest or dividend payments, not market value risk
of high yield securities. Also, since rating agencies may fail to timely change
the credit ratings to reflect subsequent events, a fund will continuously
monitor the issuers of high yield securities in its portfolio, if any, to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to assure the security's liquidity
so the fund can meet redemption requests.
FORWARD COMMITMENT AND WHEN-ISSUED
TRANSACTIONS
Each fund may purchase or sell securities on a when-issued or forward
commitment basis (subject to its investment policies and restrictions). These
transactions involve a commitment by a fund to purchase or sell securities at a
future date (ordinarily one or two months later). The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases and forward
commitments are negotiated directly with the other party, and such commitments
are not traded on exchanges. A fund will not enter into such transactions for
the purpose of leverage.
When-issued purchases and forward commitments enable a fund to lock in
what is believed by the Adviser to be an attractive price or yield on a
particular security for a period of time, regardless of future changes in
interest rates. For instance, in periods of rising interest rates and falling
prices, a fund might sell securities it owns on a forward commitment basis to
limit its exposure to falling prices. In periods of falling interest rates and
rising prices, a fund might sell securities it owns and purchase the same or a
similar security on a when-issued or forward commitment basis, thereby obtaining
the benefit of currently higher yields. When-issued securities or forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
The value of securities purchased on a when-issued or forward commitment
basis and any subsequent fluctuations in their value are reflected in the
computation of a fund's net asset value starting on the date of the agreement to
purchase the securities, and the fund is subject to the rights and risks of
ownership of the securities on that date. A fund does not earn interest on the
securities it has committed to purchase until they are paid for and delivered on
the settlement date. When a fund makes a forward commitment to sell securities
it owns, the proceeds to be received upon settlement are included in the fund's
assets. Fluctuations in the market value of the underlying securities are not
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reflected in the fund's net asset value as long as the commitment to sell
remains in effect. Settlement of when-issued purchases and forward commitment
transactions generally takes place within two months after the date of the
transaction, but a fund may agree to a longer settlement period.
A fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
a fund may dispose of or renegotiate a commitment after it is entered into. A
fund also may sell securities it has committed to purchase before those
securities are delivered to the fund on the settlement date. A fund may realize
a capital gain or loss in connection with these transactions, and its
distributions from any net realized capital gains will be taxable to
shareholders.
When a fund purchases securities on a when-issued or forward commitment
basis, the fund or the Custodian will maintain in a segregated account cash or
liquid securities having a value (determined daily) at least equal to the amount
of the fund's purchase commitments. These procedures are designed to ensure that
the fund will maintain sufficient assets at all times to cover its obligations
under when-issued purchases and forward commitments.
LOANS OF PORTFOLIO SECURITIES
Subject to its investment restrictions, each fund may seek to increase
its income by lending portfolio securities. Under present regulatory policies,
such loans may be made to financial institutions, such as broker-dealers, and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. The rules of
the New York Stock Exchange, Inc. give a fund the right to call a loan and
obtain the securities loaned at any time on five days' notice. For the duration
of a loan, a fund would receive the equivalent of the interest or dividends paid
by the issuer on the securities loaned and would also receive compensation from
the investment of the collateral. A fund would not, however, have the right to
vote any securities having voting rights during the existence of the loan, but
the fund would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their consent
on a material matter affecting the investment. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Adviser to be of good standing,
and when, in the judgment of the Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk.
At the present time the staff of the SEC does not object if an investment
company pays reasonable negotiated fees to its custodian in connection with
loaned securities as long as such fees are pursuant to a contract approved by
the investment company's trustees.
OPTIONS ON SECURITIES AND SECURITIES INDICES
WRITING COVERED OPTIONS. The Core Bond Fund, Growth and Income Fund,
Tudor Fund, International Fund and Quantitative Fund may each write covered call
and (except Growth and Income Fund) put options on any securities in which it
may invest or on any securities index based on securities in which it may
invest. In addition,
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International Fund may write call and put options on currencies. A fund may
purchase and write such options on securities that are listed on national
domestic securities exchanges or foreign securities exchanges or traded in the
over-the-counter market. A call option written by a fund obligates the fund to
sell specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. All call options
written by a fund are covered, which means that the fund will own the securities
subject to the option so long as the option is outstanding or use the other
methods described below. The purpose of a fund in writing covered call options
is to realize greater income than would be realized in portfolio securities
transactions alone. However, in writing covered call options for additional
income, a fund may forego the opportunity to profit from an increase in the
market price of the underlying security.
A put option written by a fund obligates the fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. The purpose of writing such
options is to generate additional income. However, in return for the option
premium, the fund accepts the risk that it will be required to purchase the
underlying securities at a price in excess of the securities' market value at
the time of purchase.
All call and put options written by a fund are covered. A written call
option or put option may be covered by (i) maintaining cash or liquid
securities, either of which, in the case of the International Fund, may be
quoted or denominated in any currency, in a segregated account noted on the
fund's records or maintained by the fund's custodian with a value at least equal
to the fund's obligation under the option, (ii) entering into an offsetting
forward commitment and/or (iii) purchasing an offsetting option or any other
option which, by virtue of its exercise price or otherwise, reduces the fund's
net exposure on its written option position.
A fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
A fund may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security.
The funds may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of other
securities in its portfolio. A fund may also cover call and put options on a
securities index by using the other methods described above.
PURCHASING OPTIONS. The Core Bond Fund, Tudor Fund, International Fund
and Quantitative Fund may each purchase put and call options on any securities
in which it
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may invest or on any securities index based on securities in which it may
invest, and a fund may enter into closing sale transactions in order to realize
gains or minimize losses on options it had purchased. In addition, the
International Fund may purchase put and call options on currencies.
A fund would normally purchase call options in anticipation of an
increase, or put options in anticipation of a decrease ("protective puts") in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle a fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. A
fund would ordinarily realize a gain on the purchase of a call option if, during
the option period, the value of such securities exceeded the sum of the exercise
price, the premium paid and transaction costs; otherwise the fund would realize
either no gain or a loss on the purchase of the call option. The purchase of a
put option would entitle a fund, in exchange for the premium paid, to sell
specified securities at a specified price during the option period. The purchase
of protective puts is designed to offset or hedge against a decline in the
market value of a fund's securities. Put options may also be purchased by a fund
for the purpose of affirmatively benefiting from a decline in the price of
securities which it does not own. A fund would ordinarily realize a gain if,
during the option period, the value of the underlying securities decreased below
the exercise price sufficiently to cover the premium and transaction costs;
otherwise the fund would realize either no gain or a loss on the purchase of the
put option. Gains and losses on the purchase of put options may be offset by
countervailing changes in the value of the underlying portfolio securities.
A fund may purchase put and call options on securities indices for the
same purposes as it may purchase options on securities. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Transactions by a fund in options on securities and securities indices
will be subject to limitations established by each of the exchanges, boards of
trade or other trading facilities on which such options are traded governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written or purchased on the same or different exchanges, boards
of trade or other trading facilities or are held or written in one or more
accounts or through one or more brokers. Thus, the number of options which a
fund may write or purchase may be affected by options written or purchased by
other investment advisory clients of the Adviser. An exchange, board of trade or
other trading facility may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. The International
Fund may write covered put and call options and purchase put and call options on
foreign currencies to seek to protect against declines in the dollar value of
portfolio securities and against increases in the dollar cost of securities to
be acquired.
A call option written by the fund obligates the fund to sell specified
currency to the holder of the option at a specified price if
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the option is exercised at any time before the expiration date. A put option
written by the fund obligates the fund to purchase specified currency from the
option holder at a specified price if the option is exercised at any time before
the expiration date. The writing of currency options involves a risk that the
fund will, upon exercise of the option, be required to sell currency subject to
a call at a price that is less than the currency's market value or be required
to purchase currency subject to a put at a price that exceeds the currency's
market value.
The fund may terminate its obligations under a written call or put option
by purchasing an option identical to the one written. Such purchases are
referred to as "closing purchase transactions." The fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on purchased options.
The fund would normally purchase call options in anticipation of an
increase in the U.S. dollar value of currency in which securities to be acquired
by the fund are denominated or quoted. The purchase of a call option would
entitle the fund, in return for the premium paid, to purchase specified currency
at a specified price during the option period. The fund would ordinarily realize
a gain if, during the option period, the value of such currency exceeded the sum
of the exercise price, the premium paid and transaction costs; otherwise the
fund would realize either no gain or a loss on the purchase of the call option.
The fund would normally purchase put options in anticipation of a decline
in the U.S. dollar value of currency in which securities in its portfolio are
denominated or quoted ("protective puts"). The purchase of a put option would
entitle the fund, in exchange for the premium paid, to sell specified currency
at a specified price during the option period. The purchase of protective puts
is designed merely to offset or hedge against a decline in the U.S. dollar value
of the fund's portfolio securities due to currency exchange rate fluctuations.
The fund would ordinarily realize a gain if, during the option period, the value
of the underlying currency decreased below the exercise price sufficiently to
more than cover the premium and transaction costs; otherwise the fund would
realize either no gain or a loss on the purchase of the put option. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying currency.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. Although the funds may use
option transactions to seek to generate additional income and to seek to reduce
the effect of any adverse price movement in the securities or currency subject
to the option, they do involve certain risks that are different in some respects
from investment risks associated with similar mutual funds which do not engage
in such activities. These risks include the following: for writing call options,
the inability to effect closing transactions at favorable prices and the
inability to participate in the appreciation of the underlying securities or
currencies above the exercise price; for writing put options, the inability to
effect closing transactions at favorable prices and the obligation to purchase
the specified securities or currencies or to make a cash settlement on the
securities index at prices which may not reflect current market values or
exchange rates; and for purchasing call and put options, the possible loss of
the entire premium paid. In addition, the effectiveness of hedging through the
purchase or sale of securities index options, including options on the S&P 500
Index, will depend upon the extent to which price movements in the portion of
the securities portfolio being hedged correlate with the price movements in the
selected securities
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index. Perfect correlation may not be possible because the securities held or to
be acquired by a fund may not exactly match the composition of the securities
index on which options are written. If the forecasts of the Adviser or HSAM
regarding movements in securities prices, interest rates or currency exchange
rates are incorrect, a fund's investment results may have been better without
the hedge transactions.
There is no assurance that a liquid secondary market on a domestic or
foreign options exchange will exist for any particular exchange-traded option or
at any particular time. If a fund is unable to effect a closing purchase
transaction with respect to covered options it has written, the fund will not be
able to sell the underlying securities or currencies or dispose of assets held
in a segregated account until the options expire or are exercised. Similarly, if
a fund is unable to effect a closing sale transaction with respect to options it
has purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of underlying
securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The fund's ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will monitor the liquidity of over-the-counter options and, if it
determines that such options are not readily marketable, a fund's ability to
enter such options will be subject to the fund's limitation on investments on
illiquid securities.
The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The successful use of options
for hedging purposes depends in part on the Adviser's ability to predict future
price fluctuations and the degree of correlation between the options and
securities markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or, in the case of the International Fund (but only for
hedging purposes), currency exchange rates, Core Bond Fund, Tudor Fund,
International Fund and Quantitative Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. A fund may also enter into closing purchase and sale
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transactions with respect to any of such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
securities), securities indices, foreign currencies (in the case of the
International Fund) and any other financial instruments and indices. A fund will
engage in futures and related options transaction only for bona fide hedging
purposes as defined below or for purposes of seeking to increase total return to
the extent permitted by regulations of the Commodity Futures Trading Commission
("CFTC"). All futures contracts entered into by a fund are traded on U.S.
exchanges or boards of trade that are licensed and regulated by the CFTC or on
foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
or currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
When interest rates are rising or securities prices are falling, a fund
can seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, a fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be available in
the market when it effects anticipated purchases. The International Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities or currency will usually
be liquidated in this manner, a fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
on securities or currency are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish with more certainty than would otherwise be possible the effective
price or rate of return on portfolio securities or securities that a fund
proposes to acquire or the exchange rate of currencies in which portfolio
securities are quoted or denominated. A fund may, for example, take a "short"
position in the futures market by selling futures contracts to seek to hedge
against an anticipated rise in interest rates or a decline in market prices or
(in the case of the International Fund) foreign currency rates that would
adversely affect the U.S. dollar value of the fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by a fund or securities with characteristics similar to those of the fund's
portfolio securities. Similarly, the International Fund may sell futures
contracts on any currencies in which its portfolio securities are quoted or
denominated or in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if there is an established
historical pattern of correlation between the two currencies. If, in the opinion
of the Adviser, there is a sufficient degree of correlation between price trends
for a fund's portfolio securities and futures contracts based on other financial
instruments, securities indices or other indices, the fund
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may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in a fund's portfolio may
be more or less volatile than prices of such futures contracts, the Adviser will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having the fund enter into
a greater or lesser number of futures contracts or by seeking to achieve only a
partial hedge against price changes affecting the fund's portfolio securities.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a fund may take a "long" position by purchasing
futures contracts. This would be done, for example, when a fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a fund the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a fund's assets. By writing
a call option, a fund becomes obligated, in exchange for the premium, (upon
exercise of the option) to sell a futures contract if the option is exercised,
which may have a value higher than the exercise price. Conversely, the writing
of a put option on a futures contract generates a premium which may partially
offset an increase in the price of securities that a fund intends to purchase.
However, the fund becomes obligated (upon exercise of the option) to purchase a
futures contract if the option is exercised, which may have a value lower than
the exercise price. Thus, the loss incurred by a fund in writing options on
futures is potentially unlimited and may exceed the amount of the premium
received. The funds will incur transaction costs in connection with the writing
of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. The funds will engage in futures and related
options transactions only for bona fide hedging or, except for purchases or
sales by the International Fund of futures on currencies, to seek to increase
total return as permitted by the CFTC regulations which permit principals of an
investment company registered under the Act to engage in such transactions
without registering as commodity pool operators. A fund will determine that the
price fluctuations in the futures contracts and options on futures used
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for hedging purposes are substantially related to price fluctuations in
securities held by the fund or securities or instruments which it expects to
purchase. Except as stated below, a fund's futures transactions will be entered
into for traditional hedging purposes -- i.e., futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the fund owns or futures contracts will be
purchased to protect the fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase. As
evidence of this hedging intent, each fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when the
futures or option position is closed out. However, in particular cases, when it
is economically advantageous for a fund to do so, a long futures position may be
terminated or an option may expire without the corresponding purchase of
securities or other assets.
As an alternative to compliance with the bona fide hedging definition, a
CFTC regulation permits a fund to elect to comply with a different test under
which the aggregate initial margin and premiums required to establish positions
to seek to increase total return in futures contracts and options on futures
will not exceed 5% of the net asset value of the fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. Each
fund will engage in transactions in currency forward contracts, futures
contracts and options only to the extent such transactions are consistent with
the requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
for maintaining its qualification as a regulated investment company for federal
income tax purposes. See "Taxation."
Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating the International Fund to purchase securities or currencies,
require the fund to establish a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
The use of futures contracts entails certain risks, including but not
limited to the following: no assurance that futures contracts transactions can
be offset at favorable prices; possible reduction of the fund's income due to
the use of hedging; possible reduction in value of both the securities hedged
and the hedging instrument; possible lack of liquidity due to daily limits on
price fluctuations; imperfect correlation between the contract and the
securities being hedged; and potential losses in excess of the amount initially
invested in the futures contracts themselves. If the expectations of the Adviser
regarding movements in securities prices, interest rates or currency exchange
rates are incorrect, the fund may have experienced better investment results
without hedging. The use of futures contracts and options on futures contracts
requires special skills in addition to those needed to select portfolio
securities.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or securities prices or currency
exchange rates may result in a poorer overall performance
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for the fund than if it had not entered into any futures contracts or options
transactions. In the event of an imperfect correlation between a futures
position and a portfolio position which is intended to be protected, the desired
protection may not be obtained and the fund may be exposed to risk of loss. In
addition, it is not possible to hedge fully or protect against currency
fluctuations affecting the value of securities denominated in foreign currencies
because the value of such securities is likely to fluctuate as a result of
independent factors not related to currency fluctuations.
Perfect correlation between a fund's futures positions and portfolio
positions will be impossible to achieve. There are no futures contracts based
upon individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the fund's portfolio are various futures on
Eurodollars, U.S. Government securities, securities indices and foreign
currencies.
FORWARD FOREIGN CURRENCY TRANSACTIONs
The International Fund, Growth and Income Fund and Tudor Fund may each,
to the extent that it invests in foreign securities, enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the level
of future foreign currency exchange rates. A fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days (usually less
than one year) from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the spread) between the price at which they are
buying and selling various currencies.
The funds are permitted to enter into forward contracts under two
circumstances. First, when a fund enters into a contract for the purchase or
sale of a security quoted or denominated in a foreign currency, it may desire to
"lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed number of U.S. dollars, of the
amount of foreign currency involved in the underlying security transactions, the
fund will be able to insulate itself from a possible loss resulting from a
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is purchased
or sold and the date on which payment is made or received.
Second, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
cause a fund to enter a forward contract to sell, for a fixed U.S. dollar
amount, the amount of foreign currency approximating the value of some or all of
the fund's portfolio securities quoted or denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.
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Although the funds have no current intention to do so, the funds may
engage in cross-hedging by using forward contracts in one currency to hedge
against fluctuations in the value in securities denominated or quoted in a
different currency if the Adviser determines that there is a pattern of
correlation between the two currencies. Cross-hedging may also include entering
into a forward transaction involving two foreign currencies, using one foreign
currency as a proxy for the U.S. dollar to hedge against variations in the other
U.S. foreign currency, if the Adviser determines that there is a pattern of
correlation between the proxy currency and the U.S. dollar.
The funds will not enter into forward contracts to sell currency or
maintain a net exposure to such contracts if the consummation of such contracts
would obligate the funds to deliver an amount of foreign currency in excess of
the value of the funds' respective portfolio securities or other assets quoted
or denominated in that currency. At the consummation of the forward contract, a
fund may either make delivery of the foreign currency or terminate its
contractual obligation by purchasing an offsetting contract obligating it to
purchase at the same maturity date, the same amount of such foreign currency. If
a fund chooses to make delivery of foreign currency, it may be required to
obtain such delivery through the sale of portfolio securities quoted or
denominated in such currency or through conversion of other assets of the fund
into such currency. If a fund engages in an offsetting transaction, the fund
will realize a gain or a loss to the extent that there has been a change in
forward contract prices. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is party to the
original forward contract.
The funds' transactions in forward contracts will be limited to those
described above. Of course, no fund is required to enter into such transactions
with regard to its foreign currency quoted or denominated securities, and a fund
will not do so unless deemed appropriate by the Adviser.
When entering into a forward contract, a fund will segregate either cash
or liquid securities quoted or denominated in any currency in an amount equal to
the value of the fund's total assets committed to the consummation of forward
currency exchange contracts which require the fund to purchase a foreign
currency. If the value of the segregated securities declines, additional cash or
securities will be segregated by the fund on a daily basis so that the value of
the segregated securities will equal the amount of the fund's commitments with
respect to such contracts.
This method of protecting the value of a fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which can be achieved at some future point in time. The precise
projection of short-term currency market movements is not possible, and
short-term hedging provides a means of fixing the U.S. dollar value of only a
portion of a fund's foreign assets. It also reduces any potential gain which may
have otherwise occurred had the currency value increased above the settlement
price of the contract.
While the funds may enter into forward contracts to seek to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Thus, while a fund may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for a fund than if it had not engaged in any such transactions.
Moreover, there may be
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imperfect correlation between a fund's portfolio holdings or securities quoted
or denominated in a particular currency and forward contracts entered into by
the fund. Such imperfect correlation may cause the fund to sustain losses which
will prevent the fund from achieving a complete hedge or expose the fund to the
risk of foreign exchange loss.
Forward contracts are subject to the risks that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearing house, a default
on the contract would deprive a fund of unrealized profits, transaction costs or
the benefits of a currency hedge or force the fund to cover its purchase or sale
commitments, if any, at the current market price.
The funds' foreign currency transactions (including related options,
futures and forward contracts) may be limited by the requirements of Subchapter
M of the Code for qualification as a regulated investment company.
MORTGAGE-BACKED SECURITIES
Certain funds, and in particular the Government Money Market Fund and the
Core Bond Fund, may invest in mortgage pass-through certificates and
multiple-class pass-through securities, such as real estate mortgage investment
conduits ("REMIC") pass-through certificates and collateralized mortgage
obligations ("CMOs").
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the Ginnie Mae, Fannie Mae and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the U.S. Government for timely payment of principal and
interest on the certificates. Fannie Mae certificates are guaranteed by Fannie
Mae, a federally chartered and privately owned corporation, for full and timely
payment of principal and interest on the certificates. Freddie Mac certificates
are guaranteed by Freddie Mac, a corporate instrumentality of the U.S.
Government, for timely payment of interest and the ultimate collection of all
principal of the related mortgage loans.
MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie
Mac certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
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A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages primarily secured by interests in real property
and other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the funds do not
intend to invest in residual interests.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Certain funds, and in particular
the Government Money Market Fund and the Core Bond Fund, may invest in
mortgage-backed securities issued by trusts or other entities formed or
sponsored by private originators of and institutional investors in mortgage
loans and other non-governmental entities (or representing custodial
arrangements administered by such institutions). These private originators and
institutions include savings and loan associations, mortgage bankers, commercial
banks, insurance companies, investment banks and special purpose subsidiaries of
the foregoing.
Privately issued mortgage-backed securities are generally backed by pools
of conventional (i.e., non-government guaranteed or insured) mortgage loans.
Since such mortgage-backed securities normally are not guaranteed by an entity
having the credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to
receive a high quality rating from the rating organizations (e.g., Standard &
Poor's or Moody's), they often are structured with one or more types of "credit
enhancement." Such credit enhancement falls into two categories: (1) liquidity
protection and (2) protection against losses resulting after default by a
borrower and liquidation of the collateral (e.g., sale of a house after
foreclosure). Liquidity protection refers to the payment of cash advances to
holders of mortgage-backed securities when a borrower on an underlying mortgage
fails to make its monthly payment on time. Protection against losses resulting
after default and liquidation is designed to cover losses resulting when, for
example, the proceeds of a foreclosure sale are insufficient to cover the
outstanding amount on the mortgage. Such protection may be provided through
guarantees, insurance policies or letters of credit, through various means of
structuring the securities or through a combination of such approaches.
Examples of credit enhancement arising out of the structure of the
transaction include "senior- subordinated securities" (multiple class securities
with one or more classes entitled to receive payment before other classes, with
the result that defaults on the underlying mortgages are borne first by the
holders of the subordinated class), creation of "spread accounts" or "reserve
funds" (where cash or investments are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on the underlying
mortgages in a pool exceed the amount required to be paid on the mortgage-backed
securities). The degree of credit enhancement for a particular issue of
mortgage-backed securities is based on the level of credit risk associated with
the particular mortgages in the related pool. Losses on a pool in excess of
anticipated levels could nevertheless result in losses to security holders since
credit enhancement rarely covers every dollar owed on a pool.
RISK FACTORS ASSOCIATED WITH MORTGAGE- BACKED SECURITIES. Investing in
Mortgage-Backed Securities (such as those described above) involves certain
risks, including the failure of a counter-party to meet its commitments, adverse
interest rate changes and the effects of prepayments on mortgage cash flows.
Further, the yield characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major differences typically
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include more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and
a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental or agency guarantee. When a Fund reinvests amounts representing
payments and unscheduled prepayments of principal, it may receive a rate of
interest that is lower than the rate on existing adjustable rate mortgage
pass-through securities. Thus, Mortgage-Backed Securities, and adjustable rate
mortgage pass-through securities in particular, may be less effective than other
types of U.S. Government securities as a means of "locking in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment
rate will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates. The market for certain types of
Mortgage-Backed Securities (I.E., certain CMOs) may not be liquid under all
interest rate scenarios, which may prevent a fund from selling such securities
held in its portfolio at times or prices that it desires.
RISKS ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
Planned amortization class ("PAC") and target amortization class ("TAC")
CMO bonds involve less exposure to prepayment, extension and interest rate risk
than other Mortgage-Backed Securities, provided that prepayment rates remain
within expected prepayment ranges or "collars." To the extent that prepayment
rates remain within these prepayment ranges, the residual or support tranches of
PAC and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
The Core Bond Fund may invest in floating rate securities based on the
Cost of Funds Index ("COFI floaters"), other "lagging rate" floating rate
securities, floating rate securities that are subject to a maximum interest rate
("capped floaters"), and Mortgage-Backed Securities purchased at a discount. The
primary risks associated with these derivative debt securities are the potential
extension of average life and/or depreciation due to rising interest rates.
MORTGAGE DOLLAR ROLL TRANSACTIONS
The Core Bond Fund may enter into mortgage dollar roll transactions in
which the fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity), but not identical securities on a specified future
date.
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During the roll period, the Core Bond Fund will not receive principal and
interest paid on the securities sold. However, the fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest on the cash proceeds of the securities
sold until the settlement date of the forward purchase. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of the
mortgage dollar roll, the use of this technique will diminish the investment
performance of the Core Bond Fund compared with what such performance would have
been without the use of mortgage dollar rolls. The Core Bond Fund will hold and
maintain in a segregated account until the settlement date cash or liquid, high
grade debt securities in an amount equal to the forward purchase price. Any
benefits derived from the use of mortgage dollar rolls may depend upon mortgage
prepayment assumptions, which will be affected by changes in interest rates.
There is no assurance that mortgage dollar rolls can be successfully employed.
ASSET-BACKED SECURITIES
Certain funds, and in particular the Government Money Market Fund, Core
Bond Fund and Growth and Income Fund, may invest in asset-backed securities,
which represent participations in, or are secured by and payable from, pools of
assets such as motor vehicle installment sale contracts, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Asset-backed securities may also be collateralized by a portfolio
of U.S. Government securities, but are not direct obligations of the U.S.
Government, its agencies or instrumentalities. Such asset pools are securitized
through the use of privately- formed trusts or special purpose corporations.
Payments or distributions of principal and interest on asset-backed securities
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit or a pool insurance policy issued by a financial institution
unaffiliated with the trust or corporation, or other credit enhancements may be
present; however privately issued obligations collateralized by a portfolio of
privately issued asset-backed securities do not involve any government-related
guarantee or insurance. In addition to risks similar to those associated with
Mortgage-Backed Securities, asset-backed securities present further risks that
are not presented by Mortgage-Backed Securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. See "Risk Factors Associated with Mortgage-Backed
Securities."
CONVERTIBLE SECURITIES AND PREFERRED STOCKS
Certain funds may invest in debt securities or preferred stocks that are
convertible into or exchangeable for common stock. Preferred stocks are
securities that represent an ownership interest in a company and provide their
owner with claims on the company's earnings and assets prior to the claims of
owners of common stock but after those of bond owners. Preferred stocks in which
the funds may invest include sinking fund, convertible, perpetual fixed and
adjustable rate (including auction rate) preferred stocks. There is no minimum
credit rating applicable to a fund's investment in preferred stocks and
securities convertible into or exchangeable for common stocks.
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STRUCTURED OR HYBRID NOTES
The Growth and Income Fund may invest in "structured" or "hybrid" notes.
The distinguishing feature of a structured or hybrid note is that the amount of
interest and/or principal payable on the note is based on the performance of a
benchmark asset or market other than fixed-income securities or interest rates.
Examples of these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows the fund to
gain exposure to the benchmark market while fixing the maximum loss that the
fund may experience in the event that market does not perform as expected.
Depending on the terms of the note, the fund may forego all or part of the
interest and principal that would be payable on a comparable conventional note;
the fund's loss cannot exceed this foregone interest and/or principal.
It is expected that not more than 5% of the fund's net assets will be at
risk as a result of investments in structured or hybrid notes. In addition to
the risks associated with a direct investment in the benchmark asset,
investments in structured and hybrid notes involve the risk that the issuer or
counterparty to the obligation will fail to perform its contractual obligations.
Certain structured or hybrid notes may also be leveraged to the extent that the
magnitude of any change in the interest rate or principal payable on the
benchmark asset is a multiple of the change in the reference price. Leverage
enhances the price volatility of the security and, therefore, the volatility of
the fund's net asset value. Further, certain structured or hybrid notes may be
illiquid for purposes of the fund's limitation on investments in illiquid
securities.
VARIABLE AMOUNT MASTER DEMAND NOTES
The Government Money Market Fund, Tax Free Money Market Fund and
Municipal Fund may invest in variable amount master demand notes, which are a
form of commercial paper. These are obligations that permit the investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between a fund, as lender, and the borrower. These notes permit daily changes in
the amounts borrowed. The lender has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may prepay up to the full amount of the
note without penalty. Because variable amount master demand notes are direct
lending arrangements between the lender and borrower, it is not generally
contemplated that such instruments will be traded, and there is no secondary
market for these notes. However, they are redeemable (and thus immediately
repayable by the borrower) at face value, plus accrued interest, at any time. In
connection with master demand note arrangements, the Adviser will consider, on
an ongoing basis, the earning power, cash flow, and other liquidity ratios of
the borrower and its ability to pay principal and interest on demand. These
notes generally are not rated by Moody's or Standard & Poor's. A fund may invest
in them only if the Adviser believes that, at the time of investment, the notes
are of comparable quality to the other commercial paper in which that fund may
invest, including, in the case of the Government Money Market Fund and Tax Free
Money Market Fund, the requirements of the rules of the SEC applicable to the
use of the amortized cost method of securities valuation.
For the purpose of limitations on the maturities of the investments of a
fund, variable amount master demand notes will be
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considered to have a maturity of one day unless the Adviser has reason to
believe that the borrower could not make immediate repayment upon demand.
VARIABLE RATE DEMAND INSTRUMENTS
The Government Money Market Fund, Tax Free Money Market Fund and
Municipal Fund may purchase variable rate demand instruments that are tax-exempt
municipal obligations and other debt securities providing for a periodic
adjustment in the interest rate paid on the instrument according to changes in
interest rates generally. These instruments also permit a fund to demand payment
of the unpaid principal balance plus accrued interest upon a specified number of
days' notice to the issuer or its agent. The demand feature may be backed by a
bank letter of credit or guarantee issued with respect to such instrument. A
bank that issues a repurchase commitment may receive a fee from a fund for this
arrangement. The issuer of a variable rate demand instrument may have a
corresponding right to prepay in its discretion the outstanding principal of the
instrument plus accrued interest upon notice comparable to that required for the
holder to demand payment.
The variable rate demand instruments that these funds may purchase are
payable on demand on not more than thirty calendar days' notice. The terms of
the instruments provide that interest rates are adjustable at intervals ranging
from daily up to six months, and the adjustments are based upon the prime rate
of a bank or other appropriate interest rate adjustment index as provided in the
respective instruments. The funds intend to exercise the demand only (1) upon a
default under the terms of the debt security, (2) as needed to provide
liquidity, or (3) to maintain the respective quality standards of each fund's
investment portfolio. A fund will determine the variable rate demand instruments
that it will purchase in accordance with procedures approved by the Boards to
minimize credit risks. The Adviser may determine that an unrated variable rate
demand instrument meets a fund's quality criteria by reason of being backed by a
letter of credit or guarantee issued by a bank that meets the quality criteria
for the fund. Thus, either the credit of the issuer of the obligation or the
guarantor bank or both will meet the quality standards of a fund. The Adviser
will reevaluate each unrated variable rate demand instrument held by a fund on a
quarterly basis to determine that it continues to meet the fund's quality
criteria.
The value of the underlying variable rate demand instruments may change
with changes in interest rates generally, but the variable rate nature of these
instruments should decrease changes in value due to interest rate fluctuations.
Accordingly, as interest rates decrease or increase, the potential for capital
gain and the risk of capital loss on the disposition of portfolio securities are
less than would be the case with a comparable portfolio of fixed income
securities. The funds may purchase variable rate demand instruments on which
stated minimum or maximum rates, or maximum rates set by state law, limit the
degree to which interest on such variable rate demand instruments may fluctuate;
to the extent a fund purchases such instruments, increases or decreases in value
of such variable rate demand notes may be somewhat greater than would be the
case without such limits. Because the adjustment of interest rates on variable
rate demand instruments is made in relation to changes in the applicable rate
adjustment index, variable rate demand instruments are not comparable to
long-term fixed interest rate securities. Accordingly, interest rates on
variable rate demand instruments may be higher or lower than current market
rates for fixed rate obligations of comparable quality with similar final
maturities.
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The maturity of the variable rate demand instruments held by the funds
will ordinarily be deemed to be the longer of (1) the notice period required
before a fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment.
The acquisition of variable rate demand notes for the Government Money
Market Fund and the Tax Free Money Market Fund must also meet the requirements
of rules issued by the SEC applicable to the use of the amortized cost method of
securities valuation.
PARTICIPATION INTERESTS
Subject to their respective investment objective and policies, Government
Money Market Fund and Tax Free Money Market Fund may purchase from banks
participation interests in all or part of specific holdings of municipal or
other debt obligations. Each participation interest is backed by an irrevocable
letter of credit or guarantee of the selling bank that the Adviser has
determined meets the prescribed quality standards of each fund. Thus, even if
the credit of the issuer of the debt obligation does not meet the quality
standards of a fund, the credit of the selling bank will, subject in each
instance to the requirements of rules issued by the SEC applicable to the use by
these funds of the amortized cost method of valuation. Each fund will have the
right to sell the participation interest back to the bank after seven days'
notice for the full principal amount of a fund's interest in the municipal or
debt obligation plus accrued interest, but only (1) as required to provide
liquidity to that fund, (2) to maintain the quality standards of each fund's
investment portfolio or (3) upon a default under the terms of the debt
obligation. The selling bank may receive a fee from a fund in connection with
the arrangement. Tax Free Money Market Fund will not purchase participation
interests in municipal obligations unless it receives an opinion of issuer's
counsel or a ruling of the Internal Revenue Service (the "Service") satisfactory
to its Board that interest earned by the fund on municipal obligations in which
it holds participation interests is excluded from gross income for Federal
income tax purposes in the hands of such fund.
MUNICIPAL OBLIGATIONS
Tax Free Money Market Fund and Municipal Fund may invest in municipal
obligations. Government Money Market Fund and Core Bond Fund may invest in
municipal obligations, but generally to a lesser extent than Tax Free Money
Market Fund and Municipal Fund. Municipal obligations are issued by or on behalf
of states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities to obtain funds for various public
purposes. The interest on most of these obligations is generally exempt from
regular Federal income tax in the hands of most individual investors, although
it may be subject to the individual and corporate alternative minimum tax. The
two principal classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term capital
needs and generally have maturities of one year or less. Municipal notes include
tax anticipation notes, revenue anticipation notes, bond anticipation notes, and
construction loan notes. Tax anticipation notes are sold to finance working
capital needs of municipalities. They are generally payable from specific tax
revenues expected to be received at a future date. Revenue
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anticipation notes are issued in expectation of receipt of other types of
revenue such as federal revenues available under the Federal Revenue Sharing
Program. Tax anticipation notes and revenue anticipation notes are generally
issued in anticipation of various seasonal revenues such as income, sales, use,
and business taxes. Bond anticipation notes are sold to provide interim
financing. These notes are generally issued in anticipation of long-term
financing in the market. In most cases, these monies provide for the repayment
of the notes. Construction loan notes are sold to provide construction
financing. After the projects are successfully completed and accepted, many
projects receive permanent financing through the Federal Housing Administration
under "Fannie Mae" (the Federal National Mortgage Association) or "Ginnie Mae"
(the Government National Mortgage Association). There are, of course, a number
of other types of notes issued for different purposes and secured differently
from those described above.
Municipal bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have two principal
classifications, "general obligation" bonds and "revenue" bonds. Issuers of
general obligation bonds include states, counties, cities, towns and regional
districts. The proceeds of these obligations are used to fund a wide range of
public projects including the construction or improvement of schools, highways
and roads, water and sewer systems and a variety of other public purposes. The
basic security of general obligation bonds is the issuer's pledge of its faith,
credit, and taxing power for the payment of principal and interest. The taxes
that can be levied for the payment of debt service may be limited or unlimited
as to rate or amount or special assessments.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Revenue
obligations are not backed by the credit and taxing authority of the issuer, but
are payable solely from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source. In addition, revenue obligations may be backed by
a letter of credit, guarantee or insurance. Revenue obligations include private
activity bonds, resource recovery bonds, certificates of participation and
certain municipal notes. Although the principal security behind these bonds
varies widely, many provide additional security in the form of a debt service
reserve fund whose monies may also be used to make principal and interest
payments on the issuer's obligations. Housing finance authorities have a wide
range of security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are secured by annual
lease rental payments from the state or locality to the authority sufficient to
cover debt service on the authority's obligations.
Industrial development bonds (now a subset of a class of bonds known as
"private activity bonds"), although nominally issued by municipal authorities,
are generally not secured by the taxing power of the municipality but are
secured by the revenues
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of the authority derived from payments by the industrial user. Distributions by
the Tax Free Money Market Fund and the Municipal Fund of interest income from
private activity bonds may subject certain investors to the federal alternative
minimum tax.
These funds may also invest in municipal securities in the form of notes
which generally are used to provide for short-term capital needs in anticipation
of an issuer's receipt of other revenues or financing, and typically have
maturities of up to three years. Such instruments may include tax anticipation
notes, revenue anticipation notes, bond anticipation notes and construction loan
notes. The obligations of an issuer of municipal notes are generally secured by
the anticipated revenues from taxes, grants or bond financing. An investment in
such instruments, however, presents a risk that the anticipated revenues will
not be received or that such revenues will be insufficient to satisfy the
issuer's payment obligations under the notes or that refinancing will be
otherwise unavailable.
There is, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the security of municipal
obligations both within and between the two principal classifications above.
An entire issue of municipal obligations may be purchased by one or a
small number of institutional investors such as one of the funds. Thus, the
issue may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933, as amended (the "1933 Act"), prior
to offer and sale unless an exemption from such registration is available,
municipal obligations which are not publicly offered may nevertheless be readily
marketable. A secondary market exists for municipal obligations which were not
publicly offered initially.
The Adviser determines whether a municipal obligation is readily
marketable based on whether it may be sold in a reasonable time consistent with
the customs of the municipal markets (usually seven days) at a price (or
interest rate) which accurately reflects its value. The Adviser believes that
the quality standards applicable to the Tax Free Money Market Fund's investments
enhance marketability. In addition, stand-by commitments and demand obligations
also enhance marketability.
For the purpose of a fund's investment restrictions, the identification
of the "issuer" of municipal obligations which are not general obligation bonds
is made by the Adviser on the basis of the characteristics of the obligation as
described above, the most significant of which is the source of funds for the
payment of principal of and interest on such obligations.
Yields on municipal obligations depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the quality of the
issue. High grade municipal obligations tend to have a lower yield than lower
rated obligations. Municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or municipalities to levy taxes. There is also the
possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay when due principal of and interest on
its or their municipal obligations may be materially affected.
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The Tax Free Money Market Fund expects that it will not invest more than
25% of its total assets in municipal obligations whose issuers are located in
the same state or more than 25% its total assets in municipal obligations the
security of which is derived from any one of the following categories: hospitals
and health facilities; turnpikes and toll roads; ports and airports; or colleges
and universities. The Tax Free Money Market Fund may invest more than 25% of its
total assets in municipal obligations of one or more of the following types:
public housing authorities; general obligations of states and localities; lease
rental obligations of states and local authorities; state and local housing
finance authorities; municipal utilities systems; bonds that are secured or
backed by the Treasury or other U.S. Government guaranteed securities to the
extent such securities are tax-exempt as defined in the Code; or industrial
development and pollution control bonds. The Municipal Fund will not invest 25%
or more of its total assets in municipal obligations whose issuers are located
in the same state. There could be economic, business or political developments,
which might affect all municipal obligations of a similar type. However, the
Adviser believes that the most important consideration affecting risk is the
quality of particular issues of municipal obligations rather than factors
affecting all, or broad classes of, municipal obligations.
The acquisition of municipal securities by the Tax Free Money Market
Fund will also be subject to the rules of the SEC applicable to use of the
amortized cost method of securities valuation.
A fund may invest in variable, floating rate and other municipal
securities on which the interest may fluctuate based on changes in market rates.
The interest rates payable on variable rate securities are adjusted at
designated intervals (e.g., daily, monthly, semi-annually) and the interest
rates payable on floating rate securities are adjusted whenever there is a
change in the market rate of interest on which the interest payable is based.
The interest rate on variable and floating rate securities is ordinarily
determined by reference to or is a percentage of a bank's prime rate, the 90-day
U.S. Treasury bill rate, the rate of return on commercial paper or bank
certificates of deposit, an index of short-term interest rates, or some other
objective measure. The value of floating and variable rate securities generally
is more stable than that of fixed rate securities in response to changes in
interest rate levels. A fund may consider the maturity of a variable or floating
rate municipal security to be shorter than its ultimate maturity if that fund
has the right to demand prepayment of its principal at specified intervals prior
to the security's ultimate maturity.
MUNICIPAL LEASES. Funds that may invest in municipal securities may
invest in municipal leases and certificates of participation in municipal
leases. A municipal lease is an obligation in the form of a lease or installment
purchase which is issued by a state or local government to acquire equipment and
facilities. Certificates of participation represent undivided interests in
municipal leases, installment purchase agreements or other instruments. The
certificates are typically issued by a trust or other entity which has received
an assignment of the payments to be made by the state or political subdivision
under such leases or installment purchase agreements. The primary risk
associated with municipal lease obligations and certificates of participation is
that the governmental lessee will fail to appropriate funds to enable it to meet
its payment obligations under the lease. Although the
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obligations may be secured by the leased equipment or facilities, the
disposition of the property in the event of nonappropriation or foreclosure
might prove difficult, time consuming and costly, and may result in a delay in
recovering, or the failure to fully recover, the fund's original investment. To
the extent that a fund invests in unrated municipal leases or participates in
such leases, the Adviser will monitor on an ongoing basis the credit quality
rating and risk of cancellation of such unrated leases. Certain municipal lease
obligations and certificates of participation may be deemed illiquid for the
purposes of the Municipal Fund's 15% (10% with respect to the Money Market
Funds) limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES.
Funds that invest in municipal securities may invest in pre-refunded
municipal securities. The principal of and interest on pre-refunded municipal
securities are no longer paid from the original revenue source for the
securities. Instead, the source of such payments is typically an escrow fund
consisting of U.S. Government securities. The assets in the escrow fund are
derived from the proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities. Issuers of municipal securities use this
advance refunding technique to obtain more favorable terms with respect to
securities that are not yet subject to call or redemption by the issuer. For
example, advance refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or eliminate restrictive
covenants in the indenture or other governing instrument for the pre-refunded
municipal securities. However, except for a change in the revenue source from
which principal and interest payments are made, the pre-refunded municipal
securities remain outstanding on their original terms until they mature or are
redeemed by the issuer. Pre-refunded municipal securities are usually purchased
at a price which represents a premium over their face value.
STAND-BY COMMITMENTS
The Tax Free Money Market Fund and Municipal Fund may acquire stand-by
commitments. Acquisition of stand-by commitments by a fund may improve portfolio
liquidity by making available same-day settlements on sales of portfolio
securities (and thus facilitate the same-day payments of redemption proceeds in
federal funds). A fund may engage in such transactions subject to the
limitations in the rules under the 1940 Act. A stand-by commitment is a right
acquired by a fund, when it purchases a municipal obligation from a broker,
dealer or other financial institution ("seller"), to sell up to the same
principal amount of such securities back to the seller, at that fund's option,
at a specified price. Stand-by commitments are also known as "puts." The
exercise by a fund of a stand-by commitment is subject to the ability of the
other party to fulfill its contractual commitment.
Stand-by commitments acquired by the funds will generally have the
following features: (1) they will be in writing and will be physically held by
the fund's custodian; (2) the funds' rights to exercise them will be
unconditional and unqualified; (3) they will be entered into only with sellers
which in the Adviser's opinion present a minimal risk of default; (4) although
stand-by commitments will not be transferable, municipal obligations purchased
subject to such commitments may be sold to a third party at any time, even
though the commitment is outstanding; and (5) their exercise price will be (i) a
fund's acquisition cost (excluding the cost, if any, of the stand-by commitment)
of the municipal obligations which are subject to the commitment (excluding any
accrued interest which the fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount
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during the period the fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date.
The Trust, on behalf of the Tax Free Money Market Fund and the Municipal
Fund, expects that stand-by commitments generally will be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the funds will pay for stand-by commitments, either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitments. If the fund pays additional consideration for a
stand-by commitment, the yield on the security to which the stand-by commitment
relates will, in effect, be lower than if the fund had not acquired such
stand-by commitment.
It is difficult to evaluate the likelihood of use or the potential
benefit of a stand-by commitment. Therefore, it is expected that the Boards will
determine that stand-by commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. When a fund
has paid for a stand-by commitment, its cost will be reflected as unrealized
depreciation for the period during which the commitment is held.
The Adviser understands that the IRS has issued a favorable revenue
ruling to the effect that, under specified circumstances, a registered
investment company will be the owner of tax-exempt municipal obligations
acquired subject to a put option. The IRS has subsequently announced that it
will not ordinarily issue advance ruling letters as to the identity of the true
owner of property in cases involving the sale of securities or participation
interests therein if the purchaser has the right to cause the security, or the
participation interest therein, to be purchased by either the seller or a third
party. Each fund intends to take the position that it is the owner of any
municipal obligations acquired subject to a stand-by commitment and that
tax-exempt interest earned with respect to such municipal obligations will be
tax-exempt in its hands. There is no assurance that the IRS will agree with this
position in any particular case or that stand-by commitments will be available
to the funds, nor have the funds assumed that such commitments would continue to
be available under all market conditions.
A fund, subject to its investment policies and restrictions, may also
enter into stand-by commitments in which the fund may bind itself to accept
delivery of a municipal obligation with a stated price and fixed yield upon the
exercise of an option held by the other party to the agreement at a stated
future date. The fund will receive a commitment fee in consideration of its
agreement to "stand-by" to purchase the municipal obligation. This stand-by
commitment may be deemed to be the sale by the fund of a put. The stand-by
commitment agreement creates a risk of loss to the investment company and its
shareholders well in excess of the commitment fees the fund would receive as
consideration for entering into the agreement. For example, if interest rates in
the marketplace increase after the agreement is made, it is likely that the
contract price on the delivery date will exceed the then current market value of
the municipal obligation. The broker-dealer can be expected to exercise its
option and, in effect, pass the decline in the value of the municipal obligation
to the investment company. That decline in value may significantly exceed the
fee received by the investment company for entering into the agreement. In
accordance with the SEC's General Statement of Policy (IC-10666), and in order
to limit risk of loss, if a fund engages in a stand-by commitment transaction,
such fund will maintain in a segregated account, commencing on the date the fund
enters into the stand-by commitment agreement, liquid assets equal to the value
of the purchase price under the stand-by commitment.
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ZERO COUPON AND CAPITAL APPRECIATION BONDS
Funds that may invest in debt securities may invest in zero coupon and
capital appreciation bonds. Zero coupon and capital appreciation bonds are debt
securities issued or sold at a discount from their face value that do not
entitle the holder to any payment of interest prior to maturity or a specified
redemption date (or cash payment date). The amount of the discount varies
depending on the time remaining until maturity or cash payment date, prevailing
interest rates, the liquidity of the security and the perceived credit quality
of the issuer. These securities also may take the form of debt securities that
have been stripped of their unmatured interest coupons, the coupons themselves
or receipts or certificates representing interests in such stripped debt
obligations or coupons. A portion of the discount with respect to stripped
tax-exempt securities or their coupons may be taxable. The market prices of zero
coupon and capital appreciation bonds generally are more volatile than the
market prices of interest-bearing securities and are likely to respond to a
greater degree to changes in interest rates than interest-bearing securities
having similar maturities and credit quality.
REAL ESTATE INVESTMENT TRUSTS
Each fund, other than the Money Market Funds and Municipal Fund, may
invest in shares of real estate investment trusts ("REITs"). REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Like investment companies such
as the Funds, REITs are not taxed on income distributed to shareholders provided
they comply with several requirements of the Code. Funds that invest in REITs
will indirectly bear their proportionate share of any expenses paid by such
REITs in addition to the expenses paid by the Funds.
Investing in REITs involves certain risks: equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, are not diversified, and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, and the possibilities of failing to
qualify for the exemption from tax for distributed income under the Code and
failing to maintain their exemptions from the 1940 Act. REITs whose underlying
assets include long-term health care properties, such as nursing, retirement and
assisted living homes, may be impacted by federal regulations concerning the
health care industry.
Investing in REITs may involve risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the S&P 500.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are either (i) backed by the full faith and
credit of the U.S. Government (E.G., U.S. Treasury bills), (ii) guaranteed by
the U.S. Treasury (E.G.,
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Ginnie Mae mortgage-backed securities), (iii) supported by the issuing agency's
or instrumentality's right to borrow from the U.S. Treasury (E.G., Fannie Mae
discount notes) or (iv) supported only by the issuing agency's or
instrumentality's own credit (E.G. securities of each of the Federal Home Loan
Banks). Such guarantees of U.S. Government securities held by a fund do not,
however, guarantee the market value of the shares of the fund. There is no
guarantee that the U.S. Government will continue to provide support to its
agencies or instrumentalities in the future.
RESTRICTED AND ILLIQUID SECURITIES
Each fund may purchase securities that are not registered or offered in
an exempt non-public offering ("Restricted Securities") under the 1933 Act,
including securities eligible for resale to "qualified institutional buyers"
pursuant to Rule 144A under the 1933 Act. However, a fund will not invest more
than 15% of its net assets (10% of total assets in the case of the Government
Money Market Fund and the Tax Free Money Market Fund) in illiquid investments,
which include repurchase agreements maturing in more than seven days, interest
rate, currency and mortgage swaps, interest rate caps, floors and collars,
certain SMBS, municipal leases, certain over-the-counter options, securities
that are not readily marketable and Restricted Securities, unless the Boards
determine, based upon a continuing review of the trading markets for the
specific Restricted Securities, that such Restricted Securities are liquid.
Certain commercial paper issued in reliance on Section 4(2) of the 1933 Act is
treated like Rule 144A Securities. The Boards have adopted guidelines and
delegated to the Adviser the daily function of determining and monitoring the
liquidity of the fund's portfolio securities. The Boards, however, retain
sufficient oversight and are ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
Restricted Securities sold and offered under Rule 144A or Section 4(2) will
develop, the Boards will carefully monitor the funds' investments in these
securities, focusing on such important factors, among others, as valuation,
liquidity and availability of information. This investment practice could have
the effect of increasing the level of illiquidity in a fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these Restricted Securities.
The purchase price and subsequent valuation of Restricted Securities
normally reflect a discount from the price at which such securities trade when
they are not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market price is expected to vary
depending upon the type of security, the character of the issuer, the party who
will bear the expenses of registering the Restricted Securities and prevailing
supply and demand conditions.
OTHER INVESTMENT COMPANIES
Each fund, subject to authorization by its Board, may invest all of its
investable assets in the securities of a single open-end investment company (a
"Portfolio"). If authorized by the Board, a fund would seek to achieve its
investment objective by investing in a Portfolio, which Portfolio would invest
in a portfolio of securities that complies with the fund's investment
objectives, policies and restrictions. The ability of the funds to convert to
the so-called master-feeder fund structure has been approved by the funds'
shareholders. The Boards do not intend to authorize investing in this manner at
this time.
Each fund may invest up to 10% of its total assets in the securities of
other investment companies not affiliated with WPG, but not invest more than 5%
of its total assets in the securities of any one investment company or acquire
more than 3% of the voting securities of
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any other investment company. For example, the Quantitative Fund may invest in
Standard & Poor's Depositary Receipts (commonly referred to as "Spiders"), which
are exchange-traded shares of a closed-end investment company that are designed
to replicate the price performance and dividend yield of the Standard & Poor's
500 Composite Stock Price Index. The Municipal Fund will only invest in
investment companies that are money market funds which invest in municipal
obligations. A fund will indirectly bear its proportionate share of any
management fees and other expenses paid by investment companies in which it
invests in addition to the advisory and administration fees paid by the fund.
MARKET CHANGES
The market value of the funds' investments, and thus the funds' net asset
values, will change in response to market conditions affecting the value of its
portfolio securities. When interest rates decline, the value of fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of fixed rate obligations can be expected to decline. In contrast, as
interest rates on adjustable rate loans are reset periodically, yields on
investments in such loans will gradually align themselves to reflect changes in
market interest rates, causing the value of such investments to fluctuate less
dramatically in response to interest rate fluctuations than would investments in
fixed rate obligations.
PORTFOLIO TURNOVER
Although no fund purchases securities with a view to rapid turnover,
there are no limitations on the length of time that securities must be held by
any fund and a fund's annual portfolio turnover rate may vary significantly from
year to year. A high rate of portfolio turnover (100% or more) involves
correspondingly greater transaction costs which must be borne by the applicable
fund and its shareholders. The actual portfolio turnover rates for each fund are
noted in the prospectus.
INVESTMENT RESTRICTIONS
Each fund has adopted the following investment restrictions, which may not
be changed without approval of the holders of a majority of the outstanding
voting securities of the applicable fund. As defined in the 1940 Act and as used
in the prospectus and this SAI, "a majority of the outstanding voting
securities" of a fund, means the lesser of (1) 67% of the shares of the fund
present at a meeting if the holders of more than 50% of the outstanding shares
of the fund are present in person or by proxy, or (2) more than 50% of the
outstanding shares of the fund. So long as these fundamental restrictions are in
effect, each fund may not:
FOR THE GOVERNMENT MONEY MARKET FUND, TAX FREE MONEY MARKET FUND, MUNICIPAL
FUND AND CORE BOND FUND:
1. With respect to 75% of its total assets, purchase securities of an issuer
(other than U.S. Government securities or, with respect to each fund other
than the Municipal Fund, repurchase agreements collateralized by U.S.
Government securities and shares of other investment companies), if:
(a) such purchase would cause more than 5% of the fund's total assets
taken at market value to be invested in the securities of such issuer;
or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund;
provided, however, that each fund may invest all or part of its investable
assets in
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an open-end investment company with substantially the same investment objective,
policies and restrictions as such fund.
2. Purchase or sell real estate (other than securities secured by real estate
or interests therein, or issued by entities which invest in real estate or
interests therein or, for Municipal Bond Fund, real estate acquired by the
fund as a result of the ownership of securities), but it may lease office
space for its own use and invest up to 15% of its assets in publicly held
real estate investment trusts.
3. Borrow amounts in excess of 33% of its total assets (including the amount
borrowed) and then only as a temporary measure for extraordinary or
emergency purposes. This restriction shall not apply to reverse repurchase
agreements entered into in accordance with a Fund's investment policies.
4. Make loans, except that this restriction shall not prohibit the purchase of
or investment in bank certificates of deposit or bankers acceptances, the
purchase and holding of all or a portion of an issue of publicly
distributed debt securities, the lending of portfolio securities and the
entry into repurchase agreements.
5. Engage in the business of underwriting securities of others, except to the
extent that the fund may be deemed to be an underwriter under the 1933 Act,
when it purchases or sells portfolio securities in accordance with its
investment objectives and policies; provided, however, that the fund may
invest all or part of its investable assets in an open-end investment
company with substantially the same investment objective, policies and
restrictions as the fund.
6. Purchase securities, excluding U.S. Government securities, of one or more
issuers conducting their principal business activity in the same industry,
if immediately after such purchase the value of its investments in such
industry would exceed 25% of its total assets (except securities of banks
and bank holding companies in the case of the Government Money Market Fund
and the Tax Free Money Market Fund and except municipal securities, U.S.
Government securities and securities the payment of which is secured by
U.S. Government securities in the case of the Municipal Bond Fund);
provided, however, that the fund may invest all or part of its investable
assets in an open-end investment company with substantially the same
investment objective, policies and restrictions as the fund. In addition,
in the case of the Municipal Bond Fund, for purposes of this restriction,
state and municipal governments and their agencies and instrumentalities
are not deemed to be industries.
7. Issue senior securities, except as permitted under the 1940 Act and except
that the fund may issue shares of beneficial interest in multiple classes
or series.
FOR THE QUANTITATIVE FUND:
1. Purchase or sell real estate, but the fund may lease office space for its
own use as its principal office and may invest in securities of companies
engaged in the real estate business.
2. Borrow amounts in excess of 33% of its total assets (including the amount
borrowed) and then only as a temporary measure for extraordinary or
emergency purposes.
3. Make loans, except that this restriction shall not prohibit the purchase of
or investment in bank certificates of deposits or bankers acceptances, the
purchase and holding of all or a portion of an issue of publicly
distributed debt securities, the lending of portfolio securities and the
entry into repurchase agreements.
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4. Engage in the business of underwriting securities of others, except to the
extent that the fund may be deemed to be an underwriter under the 1933 Act,
when it purchases or sells portfolio securities in accordance with its
investment objectives and policies; provided, however, that the fund may
invest all or part of its investable assets in an open-end investment
company with substantially the same investment objective, policies and
restrictions as the fund.
5. Purchase securities, excluding U.S. Government securities, of one or more
issuers conducting their principal business activity in the same industry,
if immediately after such purchase the value of its investments in such
industry would exceed 25% of its total assets except that the fund may
concentrate its assets in securities of issuers in any industry to the
extent the S&P 500 Index is so concentrated; provided, however, that the
fund may invest all or part of its investable assets in an open-end
investment company with substantially the same investment objective,
policies and restrictions as the fund.
6. Invest in commodities or in commodities contracts except that the fund may
purchase and sell financial futures contracts on securities, indices and
currencies and options on such futures contracts, and the fund may purchase
securities on a forward commitment or when-issued basis.
7. Issue senior securities except as permitted under the 1940 Act and except
that the fund may issue shares of beneficial interest in multiple classes
or series.
8. With respect to 75% of its total assets, the fund may not purchase
securities of an issuer (other than the U.S. Government, its agencies,
instrumentalities or authorities or repurchase agreements collateralized by
U.S. Government securities and other investment companies), if:
(a) such purchase would cause more than 5% of the fund's total assets
taken at market value to be invested in the securities of such issuer;
or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund;
provided, however, that the fund may invest all or part of its investable assets
in an open-end investment company with substantially the same investment
objective, policies and restrictions as the fund.
FOR THE GROWTH AND INCOME FUND:
1. Purchase securities of an issuer if such purchase would result in more than
10% of the voting securities of any one issuer, other than the U.S.
Government and its instrumentalities, being held by the fund; provided,
however, that the fund may invest all or part of its investable assets in
an open-end investment company with substantially the same investment
objective, policies and restrictions as the fund.
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2. Purchase securities of an issuer if such purchase would result in more than
5% of the fund's total assets being invested in the securities of any one
issuer other than the U.S. Government and its agencies and
instrumentalities; provided, however, that the fund may invest all or part
of its investable assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as
the fund.
3. Purchase, sell or invest in commodities or commodity contracts or real
estate or interests in real estate, except futures contracts on securities
and securities indices and options on such futures, forward foreign
currency exchange contracts and except that the fund may purchase, sell or
invest in marketable securities of companies holding real estate or
interests in real estate, including real estate investment trusts.
4. Purchase securities of one or more issuers conducting their principal
business activity in the same industry, if immediately after such purchase
the value of its investments in such industry would exceed 25% of its total
assets, provided that this restriction shall not apply to securities issued
or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities; provided, however, that the fund may invest
all or part of its investable assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as
the fund.
5. Lend its funds to other persons, except through the purchase of all or a
portion of an issue of debt securities publicly distributed or other
securities or debt obligations in accordance with its objective or through
entering into repurchase agreements; provided that each such repurchase
agreement has a duration of no more than seven days and that the value of
all of the fund's outstanding repurchase agreements, together with the
value of all illiquid investments of the fund, does not exceed 15% of the
fund's total assets at any time.
6. Lend its portfolio securities unless the borrower is a broker, dealer or
financial institution; provided that the terms, the structure and the
aggregate amount of such loans are not inconsistent with the 1940 Act or
the rules and regulations or interpretations of the SEC thereunder.
7. Borrow money, except from banks as a temporary measure to facilitate the
meeting of redemption requests which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes, provided that the aggregate amount of such borrowings may not
exceed 33% of the value of the fund's total assets (including amounts
borrowed) at the time of borrowing, or mortgage, pledge or hypothecate its
assets, except in an amount sufficient to secure any such borrowing.
8. Issue senior securities, except as permitted under the 1940 Act and except
that the fund may issue shares of beneficial interest in multiple classes
or series.
9. Engage in the business of underwriting the securities of other issuers
(except as the fund may be deemed an underwriter under the 1933 Act in
connection with the purchase and sale of portfolio securities in accordance
with its investment objective and policies); provided, however, that the
fund may invest all or part of its investable assets in an open-end
investment company with substantially the same investment objective,
policies and restrictions as the fund.
- 36 -
<PAGE>
FOR THE TUDOR FUND:
1. Purchase securities of one or more issuers conducting their principal
business activity in the same industry, if immediately after such purchase
the value of its investments in such industry would exceed 25% of its total
assets provided that this restriction shall not apply to securities issued
or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities; provided, however, that the fund may invest
all or part of its investable assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as
the fund. In this connection, the fund may invest in "Special Situations."
The term "Special Situation" shall be deemed to refer to a security of a
company in which an unusual and possibly nonrepetitive development is
taking place which, in the opinion of the investment adviser of the fund,
may cause the security to attain a higher market value independently, to a
degree, of the trend in the securities market in general. The particular
development (actual or prospective) which may qualify a security as a
"Special Situation" may be one of many different types. Such developments
may include, among others, a technological improvement or important
discovery or acquisition which, if the expectation for it materialized,
would effect a substantial change in the company's business; a
reorganization; a recapitalization or other development involving a
security exchange or conversion; a merger, liquidation or distribution of
cash, securities or other assets; a breakup or workout of a holding
company; litigation which, if resolved favorably, would improve the value
of the company's stock; a new or changed management; or material changes in
management policies. A "Special Situation" may often involve a
comparatively small company which is not well known and which has not been
closely watched by investors generally, but it may also involve a large
company. The fact, if it exists, that an increase in the company's
earnings, dividends or business is expected, or that a given security is
considered to be undervalued, would not in itself be sufficient to qualify
as a "Special Situation." The fund may invest in securities (even if not
"Special Situations") which, in the opinion of the investment adviser of
the fund, are appropriate investments for the fund, including securities
which the investment adviser of the fund believes are undervalued by the
market. The fund shall not be required to invest any minimum percentage of
its aggregate portfolio in "Special Situations," nor shall it be required
to invest any minimum percentage of its aggregate portfolio in securities
other than "Special Situations."
2. With respect to 75% of its total assets, the fund may not purchase
securities of an issuer (other than the U.S. Government, its agencies,
instrumentalities or authorities or repurchase agreements collateralized by
U.S. Government securities and other investment companies), if:
(a) such purchase would cause more than 5% of the fund's total assets
taken at market value to be invested in the securities of such issuer;
or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund;
- 37 -
<PAGE>
provided, however, that the fund may invest all or part of its investable
assets in an open-end investment company with substantially the same
investment objective, policies and restrictions as the fund.
3. Lease, acquire, purchase, sell or hold real estate, but it may lease office
space for its own use and invest in marketable securities of companies
holding real estate or interests in real estate, including real estate
investment trusts.
4. Purchase or sell commodities or commodities contracts, except futures
contracts, including but not limited to contracts for the future delivery
of securities and contracts based on securities indices and options on such
futures contracts, and forward foreign currency exchange contracts.
5. Lend money, except that it may (i) invest in all or a portion of an issue
of bonds, debentures and other obligations distributed publicly or of a
type commonly purchased by financial institutions (e.g., certificates of
deposit, bankers' acceptances or other short-term debt obligations) or
other debt obligations in accordance with its objectives or (ii) enter into
repurchase agreements; provided that the fund will not enter into
repurchase agreements of more than one week's duration if more than 15% of
its net assets would be invested therein together with other illiquid or
not readily marketable securities.
6. Lend its portfolio securities unless the borrower is a broker, dealer, bank
or other qualified financial institution; provided that the terms, the
structure and the aggregate amount of such loans are not inconsistent with
the 1940 Act or the Rules and Regulations or interpretations of the SEC
thereunder.
7. Engage in the business of underwriting the securities of others, except to
the extent that the fund may be deemed to be an underwriter under the 1933
Act when it purchases or sells portfolio securities; provided, however,
that the fund may invest all or part of its investable assets in an
open-end investment company with substantially the same investment
objective, policies and restrictions as the fund.
8. Borrow money except as a temporary measure to facilitate the meeting of
redemption requests or for extraordinary or emergency purposes, provided
that the aggregate amount of such borrowings may not exceed 33% of the
value of the fund's total assets (including the amount borrowed), at the
time of such borrowing.
9. Issue senior securities except as permitted under the 1940 Act and except
that the fund may issue shares of beneficial interest in multiple classes
or series.
FOR THE INTERNATIONAL FUND:
1. With respect to 75% of its total assets, invest more than 5% of its total
assets in securities of any one issuer, excluding securities issued or
guaranteed by the U.S. Government or by its agencies and instrumentalities
except that the fund may invest up to 10% of its total assets in repurchase
agreements with any member bank of the Federal Reserve System or member of
the NASD which is a primary dealer in U.S. Government securities; or
purchase more than 10% of the voting securities of any class of any issuer;
provided, however, that the fund may
- 38 -
<PAGE>
invest all or part of its investable assets in an open-end investment
company with substantially the same investment objective, policies and
restrictions as the fund.
2. Make an investment that would result in more than 25% of its total assets
being invested in securities of issuers in the same industry, except U.S.
Government securities; provided, however, that the fund may invest all or
part of its investable assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as
the fund.
3. Purchase or sell commodities or commodities contracts, except that the fund
may enter into or purchase futures contracts, including but not limited to
contracts for the future delivery of securities, contracts based on
securities indices, forward foreign currency contracts, foreign currency
futures and options, and options on securities.
4. Lend money, except that it may (i) invest in all or a portion of an issue
of bonds, debentures and other obligations distributed publicly or of a
type commonly purchased by financial institutions (e.g., certificates of
deposit, bankers' acceptances or other short-term debt obligations) or
other debt obligations in accordance with its objectives or (ii) enter into
repurchase agreements; provided that the fund will not enter into
repurchase agreements of more than one week's duration if more than 15% of
its net assets would be invested therein together with other illiquid or
not readily marketable securities.
5. Lend its portfolio securities unless the borrower is a broker, dealer or
financial institution; provided that the terms, the structure and the
aggregate amount of such loans are not inconsistent with the 1940 Act or
the rules and regulations or interpretations of the SEC thereunder.
6. Engage in the business of underwriting the securities of other issuers
(except as the fund may be deemed an underwriter under the 1933 Act in
connection with the purchase and sale of portfolio securities in accordance
with its investment objective and policies); provided, however, that the
fund may invest all or part of its investable assets in an open-end
investment company with substantially the same investment objective,
policies and restrictions as the fund.
7. Invest in the securities of an issuer for the purpose of exercising control
or management, but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment; provided, however, that the
fund may invest all or part of its investable assets in an open-end
investment company with substantially the same investment objective,
policies and restrictions as the fund.
8. Invest its assets in securities of other open-end investment companies but
the fund may invest in closed-end investment companies to the extent
permitted by the 1940 Act or rules, regulations or orders issued
thereunder; provided, however, that the fund may invest all or part of its
investable assets in an open-end investment company with substantially the
same investment objective, policies and restrictions as the fund.
9. Participate on a joint or joint and several basis in any securities trading
account; provided, however, that combining or "bunching" of orders of other
accounts
- 39 -
<PAGE>
under the investment management of the Adviser shall not be considered
participation in a joint securities trading account.
10. Invest in or retain the securities of any issuer, if, to the knowledge
of the fund, those officers and trustees of the fund who individually
own in excess of 1/2 of 1% of the issuer's securities own more than 5%
of such securities in the aggregate.
11. Issue senior securities, except as permitted under the 1940 Act and
except that the fund may issue shares of beneficial interest in multiple
classes or series.
12. Purchase securities on margin except as short-term credits may be necessary
for the clearance of transactions; provided, however, that this restriction
shall not prohibit the fund from entering into repurchase agreements or
option contracts, nor from entering into transactions pursuant to
investment restriction 14 below.
13. Make short sales of securities except short sales against the box;
provided, however, that this restriction shall not prohibit the fund from
writing or entering into option contracts.
14. Borrow money, except as a temporary or emergency measure, and then only
from banks and trust companies in an aggregate amount not exceeding 10% of
the value of its total assets taken at cost. The fund may pledge, mortgage,
or hypothecate no more than 15% of its total assets in connection with such
borrowings.
15. Lease, acquire, purchase, sell or hold real estate (including limited
partnership interests which are not readily marketable), but it may lease
office space for its own use and invest in (1) readily marketable interests
of real estate investment trusts or readily marketable securities of
issuers whose business involves the purchase and sale of real estate; and
(2) securities secured by real estate or interests therein.
Each fund may, notwithstanding any other fundamental or non-fundamental
investment restriction or policy, invest all of its assets in the securities of
a single open-end investment company with substantially the same investment
objectives, restrictions and policies as that fund.
For purposes of the above fundamental investment restrictions regarding
industry concentration, the Adviser generally classifies issuers by industry in
accordance with classifications set forth in the Standard & Poor's Stock Guide.
In the absence of such classification or if the Adviser determines in good faith
based on its own information that the economic characteristics affecting a
particular issuer make it more appropriately considered to be engaged in a
different industry, the Adviser may classify an issuer according to its own
sources.
In addition to the fundamental policies mentioned above, the Board has
adopted the following non-fundamental policies which may be changed or amended
by action of the Board without approval of shareholders. So long as these
non-fundamental restrictions are in effect, the fund may not:
(a) Invest in the securities of an issuer for the purpose of exercising
control or management, but it may do so where it is deemed advisable
to protect or enhance the value of an existing investment.
- 40 -
<PAGE>
(b) Purchase securities of any other investment company except as
permitted by the 1940 Act.
(c) Purchase securities on margin, except any short-term credits which
may be necessary for the clearance of transactions and the initial or
maintenance margin in connection with options and futures contracts
and related options.
(d) Invest more than 15% of its net assets in securities which are
illiquid (10% of total assets for Government Money Market Fund and
Tax Free
Market Fund).
(e) Purchase additional securities if the fund's borrowings exceed 5% of
its net assets.
All percentage limitations apply only at the time a transaction is
entered into. Accordingly, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in the percentage which results from
a relative change in values or from a change in a fund's net assets will not be
treated as a violation. Under the 1940 Act, each fund will be required to
maintain continuous asset coverage of at least 300% for borrowings from a bank.
In the event that such asset coverage is below 300%, the applicable fund will be
required to reduce the amount of its borrowings to obtain 300% asset coverage,
within three days (not including Sundays and holidays) or such longer period as
the rules and regulations of the SEC prescribe.
ADVISORY, SUBADVISORY AND
ADMINISTRATIVE SERVICES
INVESTMENT ADVISER
Weiss, Peck & Greer, L.L.C. (the "Adviser" or "WPG"), One New York Plaza,
New York, New York 10004, serves as investment adviser and administrator to each
fund.
On or about September 9, 1998, Robeco Groep N.V., a Dutch public limited
liability company ("Robeco"), acquired all of the outstanding equity interests
of WPG from its prior owners (the "Acquisition"). As a result of the
Acquisition, WPG is an indirect, wholly-owned subsidiary of Robeco. Robeco is
the holding company for 100% of the shares of Robeco International B.V. and
Robeco Nederland B.V. ("Robeco Nederland") (collectively referred to as the
"Robeco Group"). Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank
Nederland owns 50% of the shares of Robeco and the balance is owned by
shareholders of the Robeco Group funds.
The Robeco Group is a fund management group. Robeco Nederland advises and
manages investment funds, some of whose shares are traded primarily on the
Amsterdam Stock Exchange, which funds include (1) Robeco N.V., (2) Rolinco N.V.,
(3) Rorento N.V., (4) RG Rente Mixfund N.V., (5) RG Obligatie Mixfund N.V., (6)
RG Aandelen Mixfund N.V., (7) RG Florente Fund N.V., (8) RG Divirente Fund N.V.,
(9) RG America Fund N.V., (10) RG Europe Fund N.V., (11) RG Pacific Fund N.V.,
(12) Nettorente Fund N.V., (13) RG Hollands Bezit N.V., (14) RG Emerging Markets
Fund N.V., (15) RG Tactimix Funds, and (16) RG Zelfselect Landen Fund N.V.
Robeco Nederland also advises and manages a number of institutional funds. The
Robeco Group operates primarily outside of the United States, although it
currently holds significant ownership interests in three U.S. investment
advisers, in addition to being the parent company of WPG.
- 41 -
<PAGE>
The Robeco Group, through its subsidiaries, has approximately 2,500
employees worldwide. Of the approximately $95 billion in assets under management
at December 31, 1998, approximately $17 billion was managed in the U.S.
In connection with the Acquisition, the funds' Boards, including a
majority of the Trustees who are not "interested persons" (as such term is
defined in the 1940 Act) of the funds or WPG (the "non-Interested Trustees"),
approved the funds' current investment advisory agreements (the "Advisory
Agreements") at a meeting held on May 19, 1998. The Advisory Agreements were
approved by a "majority of the outstanding voting securities" (as defined in the
1940 Act) of each fund at a joint special meeting of shareholders held on July
29, 1998, and became effective upon the consummation of the Acquisition. Except
for the dates of execution, effectiveness and termination, the terms of each
fund's Advisory Agreement are substantially identical to the terms of such
fund's investment advisory agreement which was in effect immediately prior to
the Acquisition.
Pursuant to the Advisory Agreements, the Adviser supervises and assists
in the management of the assets of each fund and furnishes each fund with
research, statistical and advisory services. In managing the assets of the funds
(except as described below under "Subadviser to the International Fund"), the
Adviser furnishes continuously an investment program for each fund consistent
with the investment objectives and policies of that fund. More specifically, the
Adviser determines from time to time what securities shall be purchased for the
fund, what securities shall be held or sold by the fund and what portion of the
fund's assets shall be held uninvested as cash, subject always to the provisions
of the applicable fund's Declaration of Trust, By-Laws and registration
statement and to its investment objectives, policies and restrictions, as each
of the same shall be from time to time in effect, and subject, further, to such
policies and instructions as the applicable fund's Board may from time to time
establish. To carry out such determinations, the Adviser places orders for the
investment and reinvestment of each fund's assets. (See "Portfolio Brokerage.")
For its investment advisory services under the Advisory Agreements, the
Adviser receives an annual fee, payable monthly, which varies in accordance with
the average daily net assets of the funds under the management of the Adviser.
The advisory fee is accrued daily and will be prorated if the Adviser shall not
have acted as a fund's investment adviser during any entire monthly period.
The annual fee rates under the Advisory Agreements and the advisory fees
paid to the Adviser under the prior investment advisory agreements for the
fiscal years ended December 31, 1996, 1997 and 1998 are as set forth on the
following page.
- 42 -
<PAGE>
<TABLE>
<CAPTION>
ADVISORY FEES PAID
DECEMBER 31,
ANNUAL
FUND FEE RATE 1996 1997 1998
- ---- -------- ---- ---- ----
<S> <C> <C> <C> <C>
GOVERNMENT MONEY 0.50% of net assets up to $ 684,845 $ 780,088 $1,279,834
MARKET FUND AND TAX $500 million
FREE MONEY MARKET 0.45% of net assets $500,000 637,124 650,081 601,613
FUND million to $1 billion
0.40% of net assets $1
billion to $1.5 billion
0.35% of net assets in
excess $1.5 billion
MUNICIPAL FUND(1) 0.00% of average daily -0- 39,8631 73,997
net assets while net
assets are less than
$17 million
0.50% of average
daily net assets
while net assets are
$17 million or more
CORE BOND FUND(1) 0.60% of net assets 864,402 702,166 337,351
up to $300 million
0.55% of net assets $300
million to $500 million
0.50% of net assets in
excess of $500 million
GROWTH AND INCOME 0.75% of net assets 551,520 759,489 1,058,219
FUND
TUDOR FUND 0.90% of net assets up 1,634,978 166,458,723 1,155,406
to $300 million
0.80% of net assets $300
million to $500 million
0.75% of net assets in
excess of $500 million
INTERNATIONAL FUND(2) 0.50% of net assets 66,670 61,731 41,449
while net assets are
less than $15 million
0.85% of net assets
while net assets are
between $15 million
and $20 million
1.00% of net assets while
net assets are $20
million or more
QUANTITATIVE FUND 0.75% of net assets 1,097,250 783,469 612,722
<FN>
- -------------
(1) During the fiscal years ended December 31, 1998 and 1997, WPG
agreed not to impose a portion of its advisory fees and to assume certain other
expenses on the Municipal Fund. During the fiscal year ended December 31, 1998,
WPG agreed to impose the same restriction on the Core Bond Fund. Had WPG not so
agreed, the Municipal Fund would have paid advisory fees of $126,054 and $96,169
and the Core Bond Fund would have paid $732,856.
(2) See "Subadviser to the International Fund" below for a discussion
of the subadvisory fees paid by the Adviser to the International Fund's
subadviser.
</FN>
</TABLE>
- 43 -
<PAGE>
Each Advisory Agreement provides that the Adviser will not be liable for
any loss sustained by a fund by reason of the adoption or implementation of any
investment policy or the purchase, sale or retention of any security, whether or
not such purchase, sale or retention shall have been based upon the
investigation and research of the Adviser, or upon investigation and research
made by any other individual, firm or corporation if such recommendation shall
have been made and such other individual, firm or corporation shall have been
selected with due care and in good faith, except for a loss resulting from
willful misfeasance, bad faith, or gross negligence in the performance by the
Adviser of its duties or by reason of the Adviser's reckless disregard of its
obligations and duties thereunder.
Each Advisory Agreement may be modified or amended only with the approval
of the holders of a "majority of the outstanding voting securities" (as defined
in the 1940 Act) of the applicable fund and by a vote of the majority of the
non-Interested Trustees of the fund. Each Advisory Agreement's continuance after
its initial two-year term must be approved annually by a majority vote of the
applicable Board or by a vote of the holders of a "majority of the outstanding
voting securities" of the applicable fund, but in either event it also must be
approved by a vote of a majority of the non-Interested Trustees of the
applicable fund, cast in person at a meeting called for the purpose of voting on
such approval. Each Advisory Agreement may be terminated without penalty, by
either party, upon not more than 60 days' written notice and will terminate
automatically in the event of its assignment.
As of December 31, 1998, WPG had capital of approximately $72 million.
WPG consists of 33 Managing Directors, one of whom is a member of the NYSE, and
certain principals. WPG has approximately 250 full-time employees in addition to
its Managing Directors. As of December 31, 1998, WPG and its affiliates had
assets under management of approximately $16 billion, primarily for institutions
and high net worth individuals.
Roger J. Weiss is a Senior Managing Director of WPG and Chairman of the
Board and Trustee of each of the funds and President of the International Fund.
Stephen H. Weiss, brother of Roger J. Weiss, is also a Senior Managing Director
of WPG. Ronald M. Hoffner is a Managing Director of WPG, and Executive Vice
President and Treasurer of each of the funds. Joseph J. Reardon is a Senior Vice
President of WPG and a Vice President and Secretary of each of the funds. Mr. R.
Scott Richter is a Managing Director of WPG and Vice President of Tax Free Money
Market Fund and Municipal Fund. Ms. Janet A. Fiorenza is a Managing Director of
WPG and a Vice President of Tax Free Money Market Fund. A. Roy Knutsen is a
Managing Director of WPG and President of the Growth and Income Fund. Laurence
Zuriff is a Managing Director of WPG and President of Tudor Fund.
The persons responsible for the day-to-day management of each fund's
portfolio are listed in the prospectus. Messrs. Stephen H. Weiss and Roger J.
Weiss may also participate in each fund's investment decisions and all of the
Managing Directors in WPG consult on a regular basis among themselves about
general market conditions, as well as specific securities and industries.
In the management of the funds and their other accounts, WPG and its
affiliates allocate investment opportunities to all accounts for which they are
appropriate subject to the availability of cash in any particular account and
the final decision of the individual or individuals in charge of such
- 44 -
<PAGE>
accounts. Where market supply is inadequate for a distribution to all such
accounts, securities are allocated on a pro rata basis. In some cases this
procedure may have an adverse effect on the price or volume of the security as
far as the funds are concerned. However, it is the judgment of the Board that
the desirability of continuing the funds' advisory arrangements with the Adviser
outweighs any disadvantages that may result from contemporaneous transactions.
See "Portfolio Brokerage."
SUBADVISER TO THE INTERNATIONAL FUND
Robeco Institutional Asset Management US Inc. (RIAM) serves as the
investment subadviser to the International Fund. RIAM, which is headquartered at
One New York Plaza, New York, New York 10004, is an affiliate of WPG and an
indirect wholly owned subsidiary of WPG's parent company, Robeco. The ownership
of Robeco is described above under "Investment Adviser." RIAM serves as the
International Fund's subadviser pursuant to an investment subadvisory agreement
among WPG, RIAM and the International Fund (the "Subadvisory Agreement"). The
Subadvisory Agreement was approved by a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the International Fund's
shareholders.
Under the Subadvisory Agreement, RIAM provides the International Fund and
WPG portion of the International Fund's portfolio invested in non-U.S.
securities. In return for these services, WPG pays RIAM a quarterly subadvisory
fee equal on an annual basis to 40% of the advisory fee paid by the
International Fund to WPG. In the event that the amount payable to WPG is
reduced, the amount payable by WPG to RIAM will be likewise reduced by a
proportionate amount. The International Fund has no responsibility to pay RIAM's
fees and pays only WPG's advisory fees.
In connection with providing investment subadvisory services to the
International Fund, in addition to using its own personnel, RIAM utilizes the
services of certain personnel ("Shared Personnel") of Robeco Nederland, B.V.
("RN BV") and Robeco Institutional Asset Management, B.V. ("RIAM BV"). When
providing investment advisory services to the International Fund, the Shared
Personnel act solely in their capacity as associated persons of RIAM. RIAM also
uses certain administrative services of RN BV and RIAM BV, including data
processing and related recordkeeping services, and client report preparation
services. RN BV and RIAM BV are both located at Coolsingel 120, 3011 AG
Rotterdam, The Netherlands.
The Subadvisory Agreement provides that the Subadviser is not liable for any
loss sustained by the International Fund by reason of the adoption or
implementation of any investment policy or the purchase, sale or retention of
any security, whether or not such purchase, sale or retention shall have been
based upon investigation and research made by any other individual, firm or
corporation if such recommendation shall have been made and such other
individual firm or corporation shall have been selected with due care and in
good faith, except for a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance by the Subadviser of its duties or by reason
of the Subadviser's reckless disregard of its obligations and duties thereunder.
The International Fund's prior subadviser was Hill Samuel Asset
Management Limited ("Hill Samuel"). Two of Hill Samuel's affiliates, Hill Samuel
Investment Management Limited and Lloyds Investment Management International
- 45 -
<PAGE>
Limited, respectively, preceded Hill Samuel as the International Fund's
subadviser, and each eventually merged into Hill Samuel. Hill Samuel is a United
Kingdom corporation and an indirect wholly owned subsidiary of Lloyds TSB of
London, a U.K. banking institution. Hill Samuel served as subadviser to the
International Fund pursuant to a subadvisory agreement which was substantially
similar to the Subadvisory Agreement, except for the parties, dates of
execution, effectiveness and termination.
Hill Samuel's predecessors agreed not to impose all or a portion of their
subadvisory fee (payable by WPG) from time to time since the International
Fund's inception. For the years ended December 31, 1996, 1997 and 1998, WPG paid
Hill Samuel or its predecessors, as the case may be, $26,668, $24,753 and
$16,580, respectively, in subadvisory fees.
ADMINISTRATOR
WPG, in its capacity as administrator to the funds, performs
administrative, transfer agency related and shareholder relations services and
certain clerical and accounting services for each fund under separate
administration agreements (the "Administration Agreements"). More specifically,
these obligations pursuant to the Administration Agreements include, subject to
the general supervision of the Boards, (a) providing supervision of all aspects
of the funds' non-investment operations (the parties giving due recognition to
the fact that certain of such operations are performed by others pursuant to
agreements with the funds), (b) providing the funds, to the extent not provided
pursuant to their custodian and transfer agency agreements or agreements with
other institutions, with personnel to perform such executive, administrative,
accounting and clerical services as are reasonably necessary to provide
effective administration of the funds, (c) arranging, to the extent not provided
pursuant to such agreements, for the preparation, at the funds' expense, of
their tax returns, reports to shareholders, periodic updating of the
prospectuses and reports filed with the SEC and other regulatory authorities,
(d) providing the funds, to the extent not provided pursuant to such agreements,
with adequate office space and certain related office equipment and services,
(e) maintaining all of the funds' records other than those maintained pursuant
to such agreements or the Advisory Agreements, and (f) providing to the funds
transfer agency-related and shareholder relations services and facilities and
the services of one or more of its employees or officers, or employees or
officers of its affiliates, relating to such functions (including salaries and
benefits, office space and supplies, equipment and teaching).
- 46 -
<PAGE>
For its services under the Administration Agreements, WPG is entitled to
receive a fee, computed daily and payable monthly, at an annual rate based on
each fund's average daily net assets, and the annual fee rates are as set forth
below.
<TABLE>
<CAPTION>
ADMINISTRATION FEES PAID
FOR THE YEAR ENDED DECEMBER 31,
PRESENT
FUND ANNUAL RATE(1) 1996 1997 1998
- ---- ----------- ---- ---- ----
<S> <C> <C> <C> <C>
Government Money Market 0.01% $ 82,182 $71,476 $102,376
Fund
Tax Free Money 0.04% 38,227 47,012 56,398
Market Fund
Municipal Fund 0.00% while net -0- -0- -0-
assets are less
than $50 million
0.12% while net
assets are $50
million or more
Core Bond Fund(2) 0.05% 43,212 50,727 -0-
Growth and Income Fund 0.04% 66,182 69,393 84,658
Tudor Fund 0.08% 127,165 99,436 64,189
International Fund 0.00% while net -0- -0- -0-
$25 million
0.06% while net
assets are $25 million
or more
Quantitative Fund 0.07% 29,280 42,169 46,029
<FN>
- ------------
(1) The Trustees review the rate at which the administration fees are
paid at least annually and may change the rate of compensation without
shareholder approval. The administration fees were paid at different rates than
those set forth above at various times during the periods shown.
(2) The fund waived its entire administration fee of $61,432 for the
year.
</FN>
</TABLE>
- 47 -
<PAGE>
Each Administration Agreement provides that WPG will not be liable for
any error of judgment or mistake of law or for any loss suffered by a fund in
connection with the matters to which the Agreements relate, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
WPG in the performance of its duties or from the reckless disregard by WPG of
its obligations and duties thereunder. Each Administration Agreement's
continuance must be approved annually by a majority vote of the Board and may be
terminated without penalty, by either party, upon not more than 60 days' written
notice.
PRINCIPAL UNDERWRITER
First Data Distributors, Inc., P.O. Box 61503, King of Prussia, PA
19406-0903. (the "Underwriter") serves as the principal underwriter in
connection with the continuous offering of shares of each fund pursuant to an
Underwriting Agreement dated August 1998. The Underwriting Agreement's
continuance after its initial two-year term must be approved annually by the
Trustees, including a majority of the non- Interested Trustees, cast in person
at a meeting called for the purpose of voting on such approval. The Underwriting
Agreement was approved by the Trustees at a meeting held on July 22, 1998. As
the funds' principal underwriter, the Underwriter performs certain services
related to the distribution of shares of the funds to the public.
The Underwriter bears all expenses in providing services under the
Underwriting Agreement. Such expenses include compensation to its employees and
representatives to any investment dealers and financial firms for distribution
related services. The Underwriter also pays certain expenses in connection with
the distribution of the funds' shares, including the cost of preparing, printing
and distributing advertising materials, and the cost of printing and
distributing prospectuses and supplements to prospective shareholders. WPG, and
not the funds, bears the fees charged by the Underwriter. Each fund bears, among
other things, the cost of registering its shares under federal, state and
foreign securities law.
EXPENSES
With respect to each fund, the fund pays: (i) fees and expenses of any
investment adviser or administrator of the fund; (ii) organization expenses of
the fund; (iii) fees and expenses incurred by the fund in connection with
membership in investment company organizations; (iv) brokers' commissions; (v)
payment for portfolio pricing services to a pricing agent, if any; (vi) legal,
accounting or auditing expenses (including an allocable portion of the cost of
the Adviser's employees rendering legal services to the fund); (vii) interest,
insurance premiums, taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the fund; (ix) the cost of preparing stock certificates or
any other expenses, including, without limitation, clerical expenses of issue,
redemption or repurchase of shares of the fund; (x) the expenses of and fees for
registering or qualifying shares of the fund for sale and of maintaining the
registration of the fund and registering the fund as a broker or a dealer; (xi)
the fees and expenses of Trustees of the fund who are not affiliated with the
Adviser; (xii) the cost of preparing and distributing reports and notices to
shareholders, the SEC and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the fund's assets, including expenses incurred in
the performance of any obligations enumerated by the Declaration of Trust or
By-Laws of the fund insofar as they govern agreements with any such custodian;
(xiv) costs in connection with annual or special meetings of shareholders,
including
- 48 -
<PAGE>
proxy material preparation, printing and mailing; and (xv) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the fund's business.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Adviser voluntarily reimbursed the Municipal Fund in the amount of $21,096,
$4,292 and $0, respectively, and voluntarily did not impose its management fee
in the amount of $56,306 and $52,057 during the fiscal years ended December 31,
1997 and 1998. See the prospectus regarding current fee waivers and expense
limitations.
Each fund may also enter into arrangements with third parties that
provide omnibus accounting and transfer agency-related services (including
recordkeeping and nondistribution-related shareholder servicing) for the benefit
of fund shareholders who are the beneficial owners of fund shares held in
nominee form with the third parties. A fund may compensate such third parties
for the provision of subaccounting and transfer agency-related services based on
a percentage of the fund's assets for which such entities perform such services.
To the extent that a fund compensates a third party for the provision of these
services, it will not incur duplicative fees with its transfer agent. As of the
date of this SAI, the funds have entered into arrangements with the following
third parties omnibus account service providers: Jack White (Growth and Income
Fund, Tudor Fund, Core Bond Fund, International Fund, Quantitative Fund and
Municipal Fund), Corroon (each Fund), Schwab (Quantitative Fund and Municipal
Fund) and Fidelity (Growth and Income Fund, Tudor Fund, Core Bond Fund,
Quantitative Fund and Municipal Fund).
The funds' Advisory and Administration Agreements each provide that WPG,
in its capacities as investment adviser and administrator, may render similar
services to others so long as the services provided thereunder are not impaired
thereby.
In an attempt to avoid any potential conflict with portfolio transactions
for a fund, the Adviser and the funds have adopted extensive restrictions on
personal securities trading by personnel of the Adviser and its affiliates.
These restrictions include: pre-clearance of all personal securities
transactions and a prohibition of purchasing initial public offerings of
securities. These restrictions are a continuation of the basic principle that
the interests of the funds and their shareholders come before those of the
Adviser and its employees.
ADMINISTRATION AND SERVICE PLANS
Under the administration and service plans of the Core Bond Fund and the
International Fund (each, a "Plan" and together, the "Plans"), these funds may
enter into contracts ("Servicing Agreements") with banks (other than the
Custodian), trust companies, broker-dealers (other than WPG) or other financial
organizations ("Service Organizations") to provide certain administrative and
shareholder services ("Services") on behalf of the funds. In connection with the
Acquisition, the Boards of the International Fund and Funds Trust, including a
majority of the non-Interested Trustees, approved the current Plans at a meeting
held on May 19, 1998. Each Plan was approved by a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the applicable fund at a
joint special meeting held on July 29, 1998, and became effective upon the
consummation of the Acquisition. The terms of the Plans are substantially
identical to the terms of the funds' administration and service plans in effect
prior to the consummation of the Acquisition.
- 49 -
<PAGE>
A Service Organization will receive a fee payable by the applicable fund
in respect of shares held by or through such Service Organization for its
customers for Services performed pursuant to the Plan and the applicable
Servicing Agreement. The schedule of fees and the basis upon which such fees
will be paid will be determined by the Trustees of the applicable fund;
provided, however, that the aggregate annual fees to be paid to all Service
Organizations and a fund's expenses under the Plans will not exceed 0.05% of the
fund's average daily net assets per year. Neither the Custodian nor WPG will be
a Service Organization or receive fees for Services. During the year ended
December 31, 1998, the Core Bond Fund paid or incurred fees to Service
Organizations of $310 pursuant to its prior Plan, all of which was paid to
dealers. During the year ended December 31, 1998, no fees were paid by the
International Fund pursuant to its prior Plan.
Rule 12b-1 (the "Rule") under the 1940 Act regulates the circumstances
under which an investment company may, directly or indirectly, bear the expenses
of distributing its shares. The Rule defines such distribution expenses to
include the cost of "any activity which is primarily intended to result in the
sale of fund shares." The Rule provides, among other things, that an investment
company may bear such expenses only pursuant to a plan adopted in accordance
with the Rule. Because some or all of the fees to be paid to certain Service
Organizations, in some cases, could be deemed to be payment of distribution
expenses, and because the Core Bond Fund and the International Fund bear the
expense of preparing, printing and distributing the prospectus and Statement of
Additional Information, the Boards have adopted the Plans and will enter into
Service Agreements pursuant thereto. In adopting the Plans, the Boards concluded
that there is a reasonable likelihood that the Plans will benefit the Core Bond
Fund and the International Fund and their respective shareholders by the
provision of the services described above. Specifically, the Boards determined
that the Plans may increase the assets of the funds which may reduce each fund's
expense ratio, reduce securities transaction costs, reduce the advisory fee
rates, prevent untimely disposition of portfolio securities to meet redemption
requests and increase the diversification of the fund's investments.
The Plans permit, among other things, the payments to Service
Organizations and the reimbursement by the funds, as well as the payment by the
funds, of the costs of preparing, printing and distributing prospectuses and
statements of additional information for prospective and existing shareholders
and of implementing and operating the Plans as described above. A report of the
amounts so expended, and the purposes for which such expenditures were incurred,
must be made to the Trustees for their review at least quarterly. In addition,
the Plans provide that they may not be amended to increase materially the costs
which a fund may bear for distribution pursuant to its Plan without shareholder
approval and that the other material amendments of the Plan must be approved by
the Trustees, and by the non-Interested Trustees who do not have any direct or
indirect financial interest in the operation of the Plan or in the related
Service Agreements, by vote cast in person at a meeting called for the purpose
of considering such amendments. The selection and nomination of the
non-Interested Trustees of Funds Trust and the International Fund has been
committed to the discretion of the non-Interested Trustees of Funds Trust and
the International Fund. Each Plan is subject to annual approval, by the
applicable Board and by the non-Interested Trustees who do not have any direct
or indirect financial interest in the operation of the Plan or in any of such
Service Agreements, by vote cast in person at a meeting called for the purpose
of voting on the Plan.
- 50 -
<PAGE>
Each Plan is terminable at any time by a vote of a majority of the
non-Interested Trustees who have no direct or indirect financial interest in the
operation of the Plan or in any of the related Service Agreements or by vote of
the holders of a "majority of the outstanding voting securities" of the
applicable fund. Any Service Agreement will be terminable without penalty, at
any time, by vote of a majority of the non-Interested Trustees who have no
direct or indirect financial interest in the operation of the applicable Plan or
in any of the related Service Agreements, or upon not more than 60 days' written
notice to the Service Organization by vote of the holders of a majority of the
outstanding voting securities of the applicable fund. Each Service Agreement
will terminate automatically in the event of its assignment.
The Glass-Steagall Act and other applicable statutes and regulations
prohibit certain types of banks from engaging in the business of underwriting,
selling or distributing securities. While the scope of this prohibition has not
been clearly defined by the courts or appropriate regulatory agencies, the
Trustees believe that such laws should not preclude a bank from acting as a
Service Organization. Accordingly, the Core Bond Fund and the International Fund
may engage banks to perform administrative and shareholder servicing functions.
Judicial or administrative decisions or interpretations of such laws, as well as
changes in either federal or state statutes or regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, could
prevent a bank from continuing to perform all or a part of its servicing
activities. If a bank were prohibited from so acting, its shareholder clients
would be permitted to remain shareholders of the funds and alternative means for
continuing the servicing of such shareholders would be sought. In that event,
changes in the operation of the funds might occur and a shareholder serviced by
such bank might no longer be able to avail itself of any automatic investment or
other services then being provided by the bank. In addition, state securities
laws on this issue may differ from the interpretations of federal law expressed
herein, and banks and other financial institutions purchasing shares on behalf
of their customers may be required to register as dealers pursuant to state law.
- 51 -
<PAGE>
TRUSTEES AND OFFICERS
Each Board has responsibility for management of the business of its
fund(s). The executive officers of each fund are responsible for its day to day
operation. Set forth below is certain information concerning the Trustees and
officers of the funds. Unless otherwise noted, each individual serves in the
capacity indicated with each fund. Trustees and executive officers deemed to be
"interested persons" of the funds for purposes of the 1940 Act are indicated by
an asterisk. Each of the non-Interested Trustees is a member of each fund's
Audit Committee and Special Nominating Committee.
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRINCIPAL OCCUPATIONS
DATE OF BIRTH POSITION(S) HELD DURING PAST FIVE YEARS
- ------------- ---------------- ----------------------
<S> <C> <C>
Roger J. Weiss* Chairman of the Senior Managing Director, WPG;
One New York Plaza Board and Chairman of the Board and Trustee,
New York, NY 10004 Trustee; RWB/WPG U.S. Large Stock Fund and
President1 Tomorrow Funds Retirement Trust;
4/29/39 Executive Vice President and Director,
WPG Advisers, Inc.
Raymond R. Herrmann, Jr. Trustee Chairman of the Board, Sunbelt Beverage
654 Madison Avenue Corporation (distributor of wines and
Suite 1400 liquors); Former Vice Chairman and
New York, NY 10017 Director, McKesson Corporation (U.S.
distributor of drugs and health care
9/11/20 products, wine and spirits); Life Member,
Board of Overseers of Cornell Medical
College; Member of Board and Executive
Committee, Sky Ranch for Boys; Member,
Evaluation Advisory Board, Biotechnology
Investments, Ltd.; Trustee, RWB/WPG
U.S. Large Stock Fund and Tomorrow
Funds Retirement Trust
Lawrence J. Israel Trustee Private Investor; Director and Trustee of
200 Broadway, Suite 249 the Touro Infirmary; Member of the
New Orleans, LA 70018 Intercollegiate Athletics Committee of the
Administrators of the Tulane Educational
12/13/34 Fund; Trustee, RWB/WPG U.S. Large
Stock Fund and Tomorrow Funds
Retirement Trust
- 52 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATIONS
DATE OF BIRTH POSITION(S) HELD DURING PAST FIVE YEARS
- ------------- ---------------- ----------------------
Graham E. Jones Trustee Senior Vice President, BGK Realty Inc.,
330 Garfield Street, since 1995; Financial Manager, Practice
Suite 200 Management Systems (Medical Services
Santa Fe, NM 87501 Company); Director, the Malaysia Fund;
Director, twelve closed-end funds managed
1/31/33 by Morgan Stanley Asset Management;
Trustee, various investment companies
managed by Morgan Grenfell Capital
Management, Inc. and Morgan Grenfell
Investment Services, Ltd., since 1993;
Trustee, RWB/WPG U.S. Large Stock
Fund and Tomorrow Funds Retirement
Trust
Paul Meek Trustee Financial and Economic Consultant to
5837 Cove Landing Road foreign central banks under the auspices of
Burke, VA 22015 each of the Harvard Institute for
International Development, the
11/12/25 International Monetary Fund and the
World Bank; President, PM Consulting
(financial and economic consulting);
Former Consultant, Fischer, Francis, Trees
& Watts ("FFTW") (fixed income
investment managers); Trustee, FFTW
Funds; Former Vice President and
Monetary Adviser, Federal Reserve Bank of
New York; Trustee, RWB/WPG U.S.
Large Stock Fund
William B. Ross Trustee Financial Consultant; Former Senior Vice
2733 E. Newton Avenue President, Mortgage Guaranty Insurance
Shorewood, WI 53211 Corporation (mortgage credit insurer);
Former Senior Vice President, MGIC
8/22/27 Investment Corporation (financial services
holding company); Trustee, RWB/WPG
U.S. Large Stock Fund
Robert A. Straniere Trustee Member, New York State Assembly; Sole
182 Rose Avenue Proprietor, Straniere Law Firm; Director,
Staten Island, NY 10306 various Reich and Tang Funds; Trustee,
RWB/WPG U.S. Large Stock Fund
3/28/41
Daniel S. Vandivort President (1,4,5,6,7)Managing Director, WPG
One New York Plaza
New York, NY 10004
7/4/54
- 53 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATIONS
DATE OF BIRTH POSITION(S) HELD DURING PAST FIVE YEARS
- ------------- ---------------- ----------------------
A. Roy Knutsen* Vice President(2) Managing Director, WPG
One New York Plaza
New York, NY 10004
6/10/40
Laurence Zuriff* Vice President(3) Managing Director, WPG; President, WPG
One New York Plaza Tudor Fund and WPG Growth Fund;
New York, NY 10004 Analyst and Portfolio Manager for the
Farber Fund prior thereto
4/16/51
Ronald M. Hoffner* Executive Vice Managing Director, WPG;
One New York Plaza President and Vice President, York Capital
New York, NY 10004 Treasurer Management; Growth Equity Analyst,
Granite Capital
10/06/50
Daniel Cardell* Vice President(4) Managing Director, WPG; Senior Vice
One New York Plaza President and Director of Equities for the
New York, NY 10004 Bank of America prior thereto
7/31/57
Janet A. Fiorenza* Vice President(1) Managing Director, WPG
One New York Plaza
New York, NY 10004
6/9/49
S. Blake Miller* Vice President(5) Principal, WPG
One New York Plaza
New York, NY 10004
3/4/65
R. Scott Richter* Vice President(1,5) Managing Director, WPG; Vice President,
One New York Plaza WPG Tax Free Money Market Fund
New York, NY 10004
12/6/50
- 54 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATIONS
DATE OF BIRTH POSITION(S) HELD DURING PAST FIVE YEARS
- ------------- ---------------- ----------------------
Joseph J. Reardon Vice President Senior Vice President, Mutual Fund
One New York Plaza and Secretary Operations, WPG; Vice President,
New York, NY 10004 Tomorrow Funds Retirement Trust
4/4/60
Steven M. Pires* Assistant Vice Assistant Manager, Mutual Fund
One New York Plaza President Operations, Weiss, Peck & Greer L.L.C.
New York, NY 10004 since February 1999.
Assistant Vice President Smith Barney
9/12/56 Asset Management 1996-1999
Senior Accountant, United Continental
Corp. 1992-1996
Therese Hogan Assistant Manager, State Regulation, First Data
First Data Investor Secretary Investor Services Group, Inc. since June
Services Group 1994; Senior Legal Assistant, Palmer &
53 State Street Dodge prior thereto
Boston, MA 02109
2/27/62
<FN>
- ------------
1. Tax Free Money Market Fund.
2. Growth and Income Fund.
3. Tudor Fund.
4. Quantitative Fund.
5. Municipal Fund.
6. Government Money Market Fund.
7. Core Bond Fund.
8. International Fund.
</FN>
</TABLE>
COMPENSATION OF TRUSTEES AND OFFICERS
The funds pay no compensation to their Trustees affiliated with the
Adviser or to their officers. None of the Trustees or officers have engaged in
any financial transactions with any fund or with the Adviser during the past
fiscal year (other than the purchase and redemption of fund shares) and except
that certain Trustees and officers who are managing directors or directors of
the Adviser may, from time to time, purchase and sell ownership interests in the
Adviser.
The table on the following page sets forth the compensation paid to the Trustees
for the funds' fiscal years ended December 31, 1998.
- 55 -
<PAGE>
AGGREGATE COMPENSATION FROM*
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
GOVERN- TAX BENEFITS COMPENSATION
MENT FREE GROWTH ACCRUED AS FROM THE FUNDS
MONEY MONEY CORE AND PART OF AND OTHER
MARKET MARKET MUNICIPAL BOND INCOME TUDOR INTERNA- QUANTI- FUNDS' FUNDS IN
TIONAL TATIVE --
NAME OF TRUSTEE FUND FUND FUND FUND FUND FUND FUND FUND EXPENSES COMPLEX**
- --------------- ---- ---- ---- ---- ---- ---- ---- ---- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Roger J. Weiss $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Raymond R. Herrmann, Jr. 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 0 29,000
Lawrence J. Israel 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 0 29,000
Graham E. Jones 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 0 23,375
Paul Meek 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 0 21,500
William B. Ross 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 0 21,500
Robert A. Straniere 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 0 21,500
Harvey Sampson*** 1,625 1,625 1,625 1,625 1,625 1,625 1,625 1,625 0 19,125
<FN>
- ------------
*In addition to the compensation paid during 1998 by the funds to the Trustees,
the funds paid deferred compensation to Willis Winn, a former Trustee, as
follows: Growth and Income Fund - $1,045; Tudor Fund - $1,045; Core Bond Fund -
$799; Government Money Market Fund - $583; Tax Free Money Market Fund - $583;
International Iund - $390; and Quantitative Fund - $74.
**AS of December 31, 1998, there were 12 mutual funds in the Weiss, Peck & Greer
group of funds (including the Tomorrow(r) Funds) that publicly offer their
shares.
***Effective April 23, 1998, Mr. Sampson is no longer a trustee of the funds.
</FN>
</TABLE>
- 56 -
<PAGE>
BENEFICIAL OWNERSHIP
AS OF FEBRUARY 28, 1999
<TABLE>
<CAPTION>
SHARES (PERCENTAGE OF OUTSTANDING) HELD BY
------------------------------------------
WPG ADVISORY
TRUSTEES AND ACCOUNTS IN WHICH
OFFICERS WPG ADVISORY WPG DISCLAIMS
FUND (AS A GROUP) WPG ACCOUNTS(1) BENEFICIAL OWNERSHIP
- ---- ------------ --- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT MONEY MARKET FUND * 0 323,361,000 82.5% 321,548,000 99.4%
TAX FREE MONEY MARKET FUND * 0 78,054,000 51.7% 78,054,000 100.0%
MUNICIPAL FUND * 0 1,021,429 49.6% 1,021,429 100.0%
CORE BOND FUND * 1,136 0.0% 7,196,381 50.4% 7,179,628 99.8%
GROWTH AND INCOME FUND * 278 0.0% 1,590,425 39.9% 1,550,391 97.5%
TUDOR FUND * 5,472 0.1% 590,050 11.4% 574,343 97.3%
INTERNATIONAL FUND 13,327 2.1% 1,148 0.2% 396,017 60.9% 391,066 98.7%
QUANTITATIVE FUND * 0 0 6,079,299 48.8% 5,948,414 97.8%
<FN>
- -----------------
*As of January 31, 1999, the Trustees and officers of each fund as a group
beneficially owned not more than 1% of the outstanding shares of each fund.
(1) WPG Advisory Accounts are advisory accounts over which WPG or its affiliates
have discretionary investment authority and/or discretionary authority to vote
the securities held in such accounts.
</FN>
</TABLE>
- 57 -
<PAGE>
CERTAIN SHAREHOLDERS
As of February 28, 1999, no person within the knowledge of the management
of the funds directly or indirectly owned, controlled or held with power to vote
5% or more of the outstanding voting securities (i.e., shares) of any fund,
except as set forth below:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
- ---------------- ------------------
<S> <C>
CORE BOND FUND
9.1%
Key Trust Co Ttee FBO
Bricklayers Allied Craftsmen
Local 83 Pen/PL
A/C 40009500
P. O. Box 94871
Cleveland, OH 44101-4871
The Trust Co. of Toledo 7.7%
Successor Ttee for
Toledo Roofers Local 134
Pen Plan dtd 7/6/83
6135 Trust Drive Ste. 206
Holland, OH 43528
The Trust Co. of Toledo NA 7.4%
Ttee. Toledo Plumbers Local
#50 Pension & Retirement Option C
Attn: Lenore Peterson
6135 Trust Drive, Suite #206
Holland, OH 43528
LaSalle National Bank 6.5%
Custodian Edgewater Medical Center
P. O. Box 1443
Chicago, IL 60690
Oneal Steel Co. Pension Trust 5.8%
Southtrust Corp - Trust Ops
Attn: Lisa Dark
P.O. Box 2554
Birmingham, AL 35290
- 58 -
<PAGE>
PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
- ---------------- ------------------
GROWTH AND INCOME FUND
Star Creations Hong Kong Ltd. 10.8%
Ugland House
P.O. Box 309
Georgetown Grand Cayman BWI
Sunbelt Beverage Corporation* 6.6%
Profit Sharing Plan
4601 Hollins Ferry Rd.
Baltimore, MD 21227
Charles Schwab & Co., Inc. 6.0%
Reinvestment Account
101 Montgomery Street
San Francisco, CA 94101
WPG GOVERNMENT MONEY MARKET FUND
Stephen H. Weiss 7.8%
One New York Plaza
New York, NY 10004
INTERNATIONAL FUND
Gussman Investments 11.2%
Nadel & Gussman Oil Producers
First National Tower 32nd Floor
Tulsa, OK 74103
Petropower 7.2%
Nadel & Gussman Oil Producers
First National Tower
Tulsa, OK 74103
Boston and Co. 5.1%
FPRF 1744332
Mutual Fund Operations
P. O. Box 3198
Pittsburgh, PA 15230-3198
<FN>
- --------
*Mr. Herrmann, a non-interested Trustee of each fund, is Chairman of the
Board of Sunbelt Beverage Corporation. Mr. Herrmann disclaims beneficial
ownership of more than 99% of the shares held by the Sunbelt Beverage
Corporation's Profit Sharing Plan.
</FN>
</TABLE>
- 59 -
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
- ---------------- ------------------
MUNICIPAL FUND
<S> <C>
James J. Shea Jr. & 6.4%
Marisa Shea Ttees
FBO The Shea Family Trust
UTD 06/15/87
42-600 Bob Hope Drive. #406
Rancho Mirage, CA 92270
QUANTITATIVE FUND
The Trust Co. of Toledo NA 34.1%
Ttee. Toledo Plumbers Local
#50 Pension & Retirement Pool A
Attn: Lenore Peterson
6135 Trust Drive, Suite #206
Holland, OH 43528
Star Creations Hong Kong Ltd. 12.5%
Ugland House
P.O. Box 309
Georgetown Grand Cayman BWI
</TABLE>
HOW TO PURCHASE SHARES
(See "How to Purchase Shares" in the prospectus.)
The offering of shares of each fund is continuous. A fund may terminate
the continuous offering of its shares and may refuse to accept any purchase
order at any time at the discretion of its Trustees. Shares of the funds may be
purchased from the funds directly by an investor or may be purchased on behalf
of an investor by WPG or another broker-dealer or, in the case of Core Bond Fund
and International Fund, by a Service Organization. An investor directly
purchasing a fund's shares should complete and execute the subscription form
included with the prospectus in accordance with the instructions in the
prospectus. Investors purchasing a fund's shares through WPG, another
broker-dealer or a Service Organization should contact WPG, the broker-dealer or
the Service Organization, as appropriate, directly by mail or by telephone for
appropriate instructions.
In the case of telephone subscriptions, if full payment for telephone
subscriptions is not received by the fund within the customary time period for
settlement then in effect after the acceptance of the order by the fund, the
order is subject to cancellation and the purchaser will be liable to the
affected fund for any loss suffered as a result of such cancellation. To recoup
such loss each fund reserves the right to redeem shares owned by any shareholder
whose purchase order is cancelled for non-payment, and such purchaser may be
prohibited from placing further telephone orders.
- 60 -
<PAGE>
The purchaser of a fund's shares pays no sales load or underwriting
commission with respect to an investment in the fund. If a subscription or
redemption is arranged and settlement made through a member of the National
Association of Securities Dealers, Inc. ("NASD"), then that member may, in its
discretion, charge a fee for this service. Service Organizations may receive
fees for certain administrative services which they perform for the Core Bond
Fund and International Fund and may also charge their customers fees for
automatic investment, redemption or other services provided to the customers.
Information concerning services and customer charges will be provided by the
particular Service Organization to any customer who must authorize the purchase
of a fund's shares prior to such purchase.
Shares of the funds may be transferred upon delivery to the Transfer
Agent of appropriate written instructions which clearly identify the account and
the number of shares to be transferred. Such instructions must be signed by the
registered owner and must be accompanied by certificates for the shares, if any,
which are being transferred, duly endorsed, or with an executed stock power. No
signature guarantee will be required on a transfer request if the proceeds of
the transfer are requested to be made payable to the shareholder of record and
sent to the record address of such shareholder. Otherwise, the signature on the
letter of instructions and the share certificates or the stock power must be
guaranteed, and otherwise be in good order for purposes of transfer. The funds
are not bound to record any transfer until all required documents have been
received by the Transfer Agent.
Signature guarantees, when required, must be obtained from any one of the
following institutions, provided that such institution meets credit standards
established by the Funds' Transfer Agent: (i) a bank; (ii) a securities broker
or dealer, including a government or municipal securities broker or dealer, that
is a member of a clearing corporation or has net capital of at least $100,000;
(iii) a credit union having authority to issue signature guarantees; (iv) a
savings and loan association, a building and loan association, a cooperative
bank, or a federal savings bank or association; or (v) a national securities
exchange, a registered securities exchange or a clearing agency.
In addition to the Transfer Agent, each fund has authorized one or more
brokers and dealers to accept on its behalf orders for the purchase and
redemption of fund shares. Under certain conditions, such authorized brokers and
dealers may designate other intermediaries to accept orders for the purchase and
redemption of fund shares. In accordance with a position taken by the staff of
the SEC, such purchase and redemption orders are considered to have been
received by a fund when accepted by the authorized broker or dealer or, if
applicable, the authorized broker's or dealer's designee. Also in accordance
with the position taken by the staff of the SEC, such purchase and redemption
orders will receive the appropriate fund's net asset value per share next
computed after the purchase or redemption order is accepted by the authorized
broker or dealer or, if applicable, the authorized broker's or dealer's
designee.
LIMITS ON FUND SHARE TRANSACTIONS
In order to reduce the investment performance effect of excessive
shareholder trading in shares of the Weiss, Peck & Greer Equity Funds (as
defined below) and to minimize the funds' transaction expenses, WPG has adopted
a policy of limiting the number of shareholder exchange and purchase/redemption
transactions by any one account (or group of accounts under common management)
involving Weiss, Peck & Greer Equity Funds ("Equity Share Transactions"), to
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a total of six such transactions per calendar year, computed on a multi-fund
basis. Equity Share Transactions subject to this limit are: (a) exchanges into
or out of any Weiss, Peck & Greer Equity Fund; and (b) any pair of transactions
involving a purchase followed by a redemption for offsetting or substantially
similar amounts, in any one Weiss, Peck & Greer Equity Fund.
The "Weiss, Peck & Greer Equity Funds" currently include WPG Tudor Fund,
WPG Growth and Income Fund, Weiss, Peck & Greer International Fund and WPG
Quantitative Equity Fund. This limit does not apply to any transactions solely
among or solely involving WPG Core Bond Fund, WPG Government Money Market Fund,
WPG Tax Free Money Market Fund and the WPG Intermediate Municipal Bond Fund.
If the transaction activity in any account or group of accounts under
common management exceeds this limit, the applicable fund may, at its
discretion, refuse additional purchase orders, or the purchase portion of
additional exchange orders, as the case may be, with respect to such account or
group of accounts for the remainder of the calendar year. Redemption orders will
not be refused.
"IN-KIND" PURCHASES
The shares of a fund may be purchased, in whole or in part, by delivering
to the fund securities that (a) meet the investment objective and policies of
that fund, (b) have readily available market prices and quotations, (c) are
liquid securities not restricted as to transfer and (d) are otherwise acceptable
to the Adviser and the fund, which reserve the right to reject all or any part
of the securities offered in exchange for shares of such fund. An investor who
wishes to make an "in-kind" purchase should furnish to the fund a list with a
full and exact description of all of the securities which he proposes to
deliver. The market value of securities accepted in exchange must be at least
equal to the initial or additional purchase minimum. The fund will specify those
securities which it is prepared to accept and will provide the investor with the
necessary forms to be completed and signed by the investor. The investor should
then send the securities, in proper form for transfer, with the necessary forms
to the fund's custodian and certify that there are no legal or contractual
restrictions on the free transfer and sale of the securities. The securities
will be valued as of the close of business on the day of receipt by the fund in
the same manner as portfolio securities of the fund are valued. See "Net Asset
Value." The number of full and fractional fund shares having a net asset value
(as next determined following receipt of the securities) equal to the value of
the securities delivered by the investor will be issued to the investor, less
any applicable stock transfer taxes. A fund will acquire such securities for
investment purposes only and not for immediate resale. The exchange of
securities by the investor for shares of a fund is a taxable transaction that
may result in recognition of gain or loss on the securities so exchanged for
federal, state and local income tax purposes. Investors should consult their own
tax advisers in light of their particular tax situations.
REDEMPTION OF SHARES
(See "How to Redeem Shares" in the prospectus.")
Any shareholder of a fund is entitled to require the fund to redeem all
or part of his shares. It is suggested that all redemption requests be sent by
certified mail, return receipt requested. Investors whose shares are purchased
through their accounts at WPG, a broker-dealer or a Service Organization may
redeem all or a part of their shares in accordance with instructions pertaining
to such accounts. It is the responsibility of WPG, the broker-dealer or the
Service Organization to
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transmit the redemption order and credit its customer's account with the
redemption proceeds on a timely basis. Other investors may redeem all or part of
their shares in accordance with the procedures detailed in the prospectus.
The redemption price, which may be more or less than the price paid by
the shareholder for his shares, is the net asset value per share next determined
after a written request for redemption in proper form is received by First Data
Investor Services Group, Inc. (the "Transfer Agent") or the fund. Redemptions
are taxable transactions for shareholders who are subject to tax. There is no
redemption charge imposed by any fund with respect to the redemption of shares.
Redemption requests which are not in proper form will be returned to the
shareholder for correction. Redemptions will not become effective until all
documents in proper form have been received by the Transfer Agent. The Transfer
Agent will reject redemption requests unless checks (including certified checks
or cashier's checks) received for shares purchased have cleared (which may take
up to fifteen days). To prevent such rejection, an investor may contact the fund
or the Transfer Agent to arrange for payment for shares in cash or another form
of immediately available funds.
The redemption price may be paid in cash or portfolio securities, at each
fund's discretion. The funds have, however, elected to be governed by Rule 18f-1
under the 1940 Act pursuant to which each fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
fund during any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, a fund will have the option of redeeming the
excess in cash or portfolio securities. In the latter case, the securities are
taken at their value employed in determining the redemption price and the
shareholder may incur a brokerage charge when the shareholder sells the
securities he receives. The selection of such securities will be made in such
manner as the officers of the affected fund deem fair and reasonable.
Payment for redeemed shares normally will be made after receipt by the
Transfer Agent of a written request for redemption in proper form as more fully
described in the prospectus. Normally redemption proceeds are paid by check and
mailed to the shareholder of record. Shareholders may elect to have payments
wired to their bank, unless their bank cannot receive federal reserve wires.
(Please contact the funds for further information on wire charges.) Such payment
may be postponed, and the right of redemption suspended during any period when:
(a) trading on the New York Stock Exchange ("NYSE") is restricted as determined
by the applicable rules and regulations of the SEC or the NYSE is closed for
other than weekends and holidays; (b) the SEC has, by order, permitted such
suspension; or (c) an emergency, as defined by rules and regulations of the SEC,
exists, making disposal of portfolio securities or valuation of net assets of
the fund not reasonably practicable.
NET ASSET VALUE
(See "How Each Fund's Net Asset Value is Determined" in the prospectus.)
The net asset value of each Fund is determined once daily, Monday through
Friday (when the NYSE is open for regular trading) on each day (other than a day
during which no shares of the applicable Fund were tendered for redemption and
no order to purchase or sell shares of that Fund was received) in which there is
a sufficient degree of trading in that Fund's portfolio securities that the
current net asset value of that Fund's shares might be materially affected. Such
determination is made as of the close of regular trading on the NYSE, normally
4:00 P.M. New York City
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time. In addition, Government Money Market Fund and Tax Free Money Market Fund
calculate their net asset value per share as of 12:00 P.M. New York City time on
those days on which the NYSE is open for regular trading and on which a purchase
order for fund shares and related federal funds wire is received prior to 12:00
P.M. New York City time. The net asset value per share is calculated by dividing
the value of a fund's securities, cash and other assets (including dividends
accrued but not collected) less all of its liabilities (including options and
accrued expenses but excluding capital and surplus), by the total number of
shares outstanding, the result being rounded to the nearest cent. All expenses
of a fund are accrued daily and taken into account for the purpose of
determining the net asset value. The NYSE is not open for trading on weekends or
on New Year's Day (January 1), Dr. Martin Luther King, Jr. Day (the third Monday
in January), Presidents' Day (the third Monday in February), Good Friday,
Memorial Day (the last Monday in May), Independence Day (July 4), Labor Day (the
first Monday in September), Thanksgiving Day (the fourth Thursday in November)
and Christmas Day (December 25).
The public offering price of a fund's shares is the net asset value per
share next determined after receipt of an order. Orders for shares which have
been received by a fund or the Transfer Agent prior to the close of regular
trading of the NYSE are confirmed at the offering price effective at the close
of regular trading of the NYSE on that day, while orders received subsequent to
the close of regular trading of the NYSE will be confirmed at the offering price
effective at the close of regular trading of the NYSE on the next day on which
the net asset value is calculated.
Portfolio securities traded on more than one U.S. national securities
exchange or on a U.S. exchange and a foreign securities exchange are valued at
the last sale price from the exchange representing the principal market for such
securities on the business day when such value is determined. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at currency exchange rates determined by the fund's custodian
to be representative of fair levels at times prior to the close of trading on
the NYSE. Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on the NYSE and may not take place on all business days that the NYSE
is open and may take place on days when the NYSE is closed. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and the close of regular trading on the NYSE will not be reflected in
a fund's calculation of net asset value unless the Adviser determines that the
particular event would materially affect net asset value, in which case an
adjustment may be made.
THE NON-MONEY MARKET FUNDS
In determining the net asset value of each non-Money Market Fund,
securities, options on securities, futures contracts and options thereon which
are listed or admitted to trading on a national exchange, are valued at their
last sale on such exchange prior to the time of determining net asset value; or
if no sales are reported on such exchange on that day, at the mean between the
most recent bid and asked price. Securities listed on more than one exchange
shall be valued on the exchange on which the security is most extensively
traded. Unlisted securities for which market quotations are readily available
are valued at the mean between the most recent bid and asked prices. Other
securities and assets for which market quotations are not readily available are
valued at their fair value as determined in good faith by the funds' Valuation
Committee as authorized by the Boards.
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Bonds and other fixed income securities (other than short-term
obligations but including listed issues) in a fund's portfolio are valued at
fair market value on the basis of valuations furnished by a pricing service
which utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, when such valuations are believed to reflect the fair
value of such securities.
For purposes of determining the net asset value of the funds' shares,
options transactions will be treated as follows: When a fund sells an option, an
amount equal to the premium received by that fund will be included in that
fund's accounts as an asset and a deferred liability will be created in the
amount of the option. The amount of the liability will be marked to the market
to reflect the current market value of the option. If the option expires or if
that fund enters into a closing purchase transaction, that fund will realize a
gain (or a loss if the cost of the closing purchase exceeds the premium
received), and the related liability will be extinguished. If a call option
contract sold by a fund is exercised, that fund will realize the gain or loss
from the sale of the underlying security and the sale proceeds will be increased
by the premium originally received.
THE MONEY MARKET FUNDS
Pursuant to a Rule of the SEC, each Money Market Fund's portfolio
securities are valued using the amortized cost method of valuation to seek to
maintain a constant net asset value of $1.00 per share. This method involves
valuing a security at cost on the date of acquisition and thereafter assuming a
constant accretion of a discount or amortization of a premium to maturity,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price that a Money Market Fund would receive if it sold the
instrument. During such periods, the yield to investors in a Money Market Fund
may differ somewhat from that obtained in a similar investment company which
uses available market quotations to value all of its portfolio securities.
During periods of declining interest rates, the quoted yield on shares of a
Money Market Fund may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its portfolio instruments.
Thus, if the use of amortized cost by a Money Market Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
fund would be able to obtain a somewhat higher yield if he or she purchased
shares of the fund on that day, than would result from investment in a fund
utilizing solely market values, and existing investors in the fund would receive
less investment income. The converse would apply in a period of rising interest
rates.
The Board of Trustees of Funds Trust has established procedures designed
to stabilize, to the extent reasonably possible, each Money Market Fund's price
per share as computed for the purpose of sales and redemptions at $1.00. Such
procedures include review of the Money Market Funds' respective portfolio by the
Board, at such intervals as they deem appropriate, to determine whether the
funds' net asset values per share calculated by using available market
quotations or market equivalents (the determination of value by reference to
interest rate levels, quotations of comparable securities and other factors)
deviate from $1.00 per share based on amortized cost. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event that the Board determines that a deviation exists which
may
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result in material dilution or other unfair results to investors or existing
shareholders of either Money Market Fund, it will take such corrective action as
it regards to be necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding part or all of dividends or payment of
distributions from capital or capital gains; redemptions of shares in kind; or
establishing a net asset value per share by using available market quotations or
equivalents. In addition, in order to stabilize the net asset value per share at
$1.00 the Board has the authority (1) to reduce or increase the number of shares
outstanding on a pro rata basis, and (2) to offset each shareholder's pro rata
portion of the deviation between the net asset value per share and $1.00 from
the shareholder's accrued dividend account or from future dividends. Further,
the Board may authorize an affiliate of the Money Market Funds to purchase from
a Money Market Fund any security that is not an "eligible security" in
accordance with Rule 2a-7 under the 1940 Act. Each Money Market Fund may hold
cash for the purpose of stabilizing its net asset value per share. Holdings of
cash, on which no return is earned, would tend to lower the yield on a Money
Market Fund's shares.
Generally, in order to continue to use the amortized cost method of
valuation, the Money Market Funds' respective investments, including repurchase
agreements, must be U.S. dollar-denominated instruments which the Board
determines present minimal credit risks and which are of high quality (i.e., two
highest ratings) as determined by two nationally recognized statistical rating
organizations or, in the case of any instrument that is not so rated, of
comparable quality as determined by the Board. Each Money Market Fund must also
comply with certain other conditions, including certain diversification
requirements, and must maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to its objective of maintaining a stable net
asset value of $1.00 per share and generally may not purchase any instrument
with a remaining maturity of more than 397 days. Should the disposition of a
portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, a Money Market Fund will invest its available cash in such a
manner as to reduce such maturity to 90 days or less as soon as reasonable
practicable. The Adviser will periodically review this method of valuation and
recommend changes to the Board which may be necessary to assure that the
portfolio instruments are valued at their fair value as determined by the Board
in good faith.
INVESTOR SERVICES
The funds offer a variety of services, as described in Appendix B and in
the sections that follow, designed to meet the needs of their shareholders. The
costs of providing such services are borne by the funds, except as otherwise
specified below. Further information on each service is set forth in the
prospectus under the caption "Shareholder Services."
AUTOMATIC REINVESTMENT PLAN
For the convenience of a fund's shareholders and to permit shareholders
to increase their shareholdings in a fund, the funds' Transfer Agent is, unless
otherwise specified, appointed in the subscription form by the investor as an
agent to receive all dividends and capital gains distributions and to reinvest
them in shares (or fractions thereof) of the applicable fund, at the net asset
value per share next determined after the record date for the dividend or
distribution. The investor may, of course, terminate such agency agreement at
any time by written notice to the Transfer Agent, and direct the Transfer Agent
to have dividends or capital gains distributions, or both, if any, sent to him
in cash rather than reinvested in shares of the applicable fund. The
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funds or Transfer Agent may also terminate such agency agreement, and the funds
have the right to appoint a successor Transfer Agent.
EXCHANGE PRIVILEGE
Shares of a fund may be exchanged by mail for shares of any other fund at
their relative net asset values. Shareholders may exchange shares by telephone
or telegram once the Telephone Authorization Section of the account application
has been completed and filed with the Transfer Agent and it has been accepted.
To exchange shares by telephone, call 1-800-223-3222 between the hours of 9:00
A.M. and 4:00 P.M. Eastern time on any day that the funds are open for business.
A current prospectus, which may be obtained from a fund, should be read in
advance of any investment in any fund. For tax purposes, an exchange involves a
redemption of shares, which is a taxable transaction for shareholders who are
subject to tax. Signatures on the written authorization to exchange by telephone
or telegram must be guaranteed in the same manner as set forth under "How to
Purchase Shares." However, for exchanges by mail, no guarantee is required if
the exchange is being made into an identically registered account. The exchange
privilege is available only in those jurisdictions where shares of the funds may
be legally sold. When establishing a new account by an exchange, the value of
the shares redeemed must meet the minimum initial investment requirement of the
funds involved. In addition, the exchange privilege is available only when
payment for the shares to be redeemed has been made. Exchange requests will not
be accepted for shares purchased by check until such check clears which could be
up to 15 days from the date that the shares were purchased. If for these or
other reasons the exchange cannot be effected, the shareholder will be so
notified.
This service is intended to provide shareholders with a convenient way
to switch their investments when their objectives or perceived market conditions
suggest a change. The exchange privilege is not meant to afford shareholders an
investment vehicle to play short-term swings in the stock market by engaging in
frequent transactions in and out of the funds. Shareholders who engage in such
frequent transactions may be prohibited from or restricted in placing future
exchange orders. See "HOW TO REDEEM SHARES --Excessive Trading" in the
prospectus and "HOW TO PURCHASE SHARES --Limits On Fund Share Transactions"
above for limitations on exchanges and trading in the funds' shares.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan enables investors to make regular (monthly
or quarterly) investments of $50 or more in shares of any fund (except for the
Quantitative Fund) through an automatic withdrawal from your designated bank
account by simply completing the Automatic Investment Plan application. Please
call 1-800-223-3332 or write to WPG to receive this form. By completing the
form, you authorize the funds' Custodian to periodically draw money from your
designated account, and to invest such amounts in account(s) with the fund(s)
specified. The transaction will be automatically processed to your mutual fund
account on or about the first business day of the month or quarter you
designate.
If you elect the Automatic Investment Plan, please be aware that: (1) the
privilege may be revoked without prior notice if any check is not paid upon
presentation; (2) the funds' Custodian is under no obligation to notify you as
to the non-payment of any check, and (3) this service may be modified or
discontinued by the funds' Custodian upon thirty (30) days' written notice to
you prior to any payment date, or may be discontinued by you by written
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notice to the Transfer Agent at least ten (10) days before the next payment
date.
SWEEP PROGRAM
Shares may be purchased through a sweep program under which funds in a
customer's private account with WPG are automatically invested in shares of the
Government Money Market Fund or the Tax Free Money Market Fund. Under this
program, funds deposited in a private account with WPG usually are invested
daily in the customer's account with the Government Money Market Fund or the Tax
Free Money Market Fund. The funds expect that WPG will transmit orders for the
purchase of a fund's shares on the same day that funds are swept from the
private account. The Sweep Program is serviced by WPG's outside service bureau,
ADP, in connection with the funds' Custodian. An account statement will be
generated through WPG.
SYSTEMATIC WITHDRAWAL PLAN
Redemption of shares for such purposes may reduce or even liquidate the
account, particularly in a declining market. Such payments paid to a shareholder
cannot be considered a yield or income on the investment. Payments to a
shareholder in excess of distributions of investment income will constitute a
return of his invested principal, and liquidation of shares pursuant to this
Plan is a redemption, which is a taxable transaction for shareholders who are
subject to tax.
Withdrawals at the same time as regular purchases of a fund's shares
ordinarily will not be permitted since purchases are intended to accumulate
capital and the Systematic Withdrawal Plan is designed for the regular
withdrawal of funds, except that a shareholder may make lump sum investments, of
$5,000 or more. The Systematic Withdrawal Plan may be terminated by the
shareholder, without penalty, at any time and the funds may terminate the Plan
at will. There are no contractual rights on the part of either party with
respect to the Plan.
DIVIDENDS, DISTRIBUTIONS AND
TAX STATUS
Each fund is separate for investment and accounting purposes and is
treated as a separate entity for federal income tax purposes. A regulated
investment company qualifying under Subchapter M of the Code is not subject to
federal income tax on distributed amounts to the extent that it distributes its
taxable and tax-exempt net investment income and net realized capital gains in
accordance with the timing and other requirements of the Code. Each fund intends
to qualify and be treated as a regulated investment company for each taxable
year.
Qualification of a fund for treatment as a regulated investment company
under the Code requires, among other things, that (a) at least 90% of the fund's
gross income for its taxable year, without offset for losses from the sale or
other disposition of stock or securities or other transactions, be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) the fund distribute for its taxable year
(in accordance with the Code's timing and other requirements) to its
shareholders as dividends at least 90% of the sum of its taxable and tax-exempt
net investment income, the excess of net short-term capital gain over net
long-term capital loss earned in such year and any other net income (except for
the excess, if any, of net long-term capital gain over net short-term capital
loss, which need not be
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distributed in order for the fund to qualify as a regulated investment company
but is taxed to the fund if it is not distributed); and (c) the fund diversify
its assets so that, at the close of each quarter of its taxable year, (i) at
least 50% of the fair market value of its total (gross) assets is comprised of
cash, cash items, U.S. Government securities, securities of other regulated
investment companies and other securities, with such other securities limited in
respect of any one issuer to no more than 5% of the fair market value of the
fund's total assets and 10% of the outstanding voting securities of such issuer
and (ii) no more than 25% of the fair market value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies) or of two or
more issuers controlled by the fund and engaged in the same, similar, or related
trades or businesses.
Each fund intends to distribute at least annually to its shareholders all
or substantially all of its taxable income (if any) (including net realized
capital gains) and any net tax-exempt interest. Exchange control or other
foreign laws, regulations or practices may restrict repatriation of investment
income, capital or the proceeds of securities sales by foreign investors and may
therefore make it more difficult for a fund that invests in foreign securities,
such as the International Fund, to satisfy the distribution requirements
described above, as well as the excise tax distribution requirements described
below. However, each fund generally expects to be able to obtain sufficient cash
to satisfy such requirements from new investors, the sale of securities or other
sources. If for any taxable year a fund does not qualify as a regulated
investment company, it will be taxed on all of its taxable income at corporate
rates, its net tax-exempt interest (if any) may be subject to the alternative
minimum tax, and its distributions to shareholders will be taxable as ordinary
dividends to the extent of its current and accumulated earnings and profits.
Each fund is subject to a 4% nondeductible federal excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires that a fund distribute (or be deemed to have distributed) to
shareholders during a calendar year at least 98% of the fund's ordinary income
(not including tax-exempt interest) for the calendar year, at least 98% of the
excess of its capital gains over its capital losses realized during the one-year
period ending October 31 during such year, as well as any income or gain (as so
computed) from the prior calendar year that was not distributed for such year
and on which the fund paid no federal income tax. Each fund has distribution
policies that should generally enable it to avoid liability for this tax.
Net investment income for a fund is the fund's investment income less its
expenses. Dividends from taxable net investment income, certain net realized
foreign currency gains, and the excess, if any, of net short-term capital gain
over net long-term capital loss of a fund will be taxed to shareholders as
ordinary income, and dividends from net long-term capital gain in excess of net
short-term capital loss ("capital gain dividends") will be taxed to shareholders
as long-term capital gain, for federal income tax purposes. Dividends, including
capital gain dividends, declared in October, November or December as of a record
date in such a month and paid in the following January are treated under the
Code as if they were received on December 31 of the year in which they are
declared. These dividends are paid after taking into account, and reducing the
distribution to the extent of, any available capital loss carryforwards. The
funds have the following capital loss carryforwards as of December 31, 1998,
showing amount(s) and expiration date(s) for each fund:
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<TABLE>
<CAPTION>
AMOUNT YEAR OF
FUND (000'S) EXPIRATION
- ---- ------- ----------
<S> <C> <C>
Tax Free Money Market Fund $ 11 2001
Government Money Market Fund 2,014 2003
Core Bond Fund 14,662 2002
Tax Free Money Market Fund 1 2003
Core Bond Fund 20,113 2003
Core Bond Fund 753 2004
Tax Free Money Market Fund 3 2004
Tax Free Money Market Fund 4 2005
Tax Free Money Market Fund 1 2006
</TABLE>
Long-term capital gains of a fund are taxable to shareholders as
long-term capital gains if they are either distributed in the form of capital
gain dividends or retained by the fund and designated for treatment as capital
gains distributed to the shareholders. Capital gain dividends are not eligible
for the dividends-received deduction, which is described below. If any net
realized long-term capital gain in excess of net realized short-term capital
loss is retained by a fund for reinvestment, requiring federal income taxes to
be paid thereon by the fund, the fund will elect to treat such capital gains as
having been distributed to shareholders. As a result, each shareholder will
report such long-term capital gains as capital gains, will be able to claim his
share of federal income taxes paid by the fund on such gains as a credit against
his own federal income tax liability, and will be entitled to increase the
adjusted tax basis of his fund shares by the difference between his pro rata
share of such gains and his tax credit.
Each year, each fund will notify shareholders of the tax status of its
dividends and distributions including, in the case of the Tax-Free Money Market
Fund and the Municipal Fund, a statement of the percentage of the prior calendar
year's distributions which the fund has designated as tax-exempt, the percentage
(if any) of such tax-exempt distributions treated as a tax-preference item for
purposes of the federal alternative minimum tax, and the source on a
state-by-state basis of all distributions of tax-exempt interest. Distributions
of interest income exempt for federal income tax purposes may also be exempt
under the tax laws of certain states or localities if derived from obligations
of such states or localities. Such an exemption may be subject to certain
concentration, designation, reporting or other requirements in certain
jurisdictions, which in some cases may not be satisfied by a fund. You may wish
to consult your tax adviser concerning the status in the states and localities
where you pay tax of exempt-interest dividends from the Tax-Free Money Market
Fund and the Municipal Bond Fund.
A portion of the dividends from the Growth andIncome Fund, Tudor Fund,
International Fund and Quantitative Fund may qualify for the 70%
dividends-received deduction for corporate shareholders. The portion of such
dividends which qualifies for such deduction is the portion, properly designated
by the funds, which is derived from dividends of U.S. domestic corporations with
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respect to shares held by the funds that are not debt-financed and have been
held for tax purposes at least a minimum period, generally 46 days, extending
before and after each such dividend. The International Fund does not expect to
have any significant investment in U.S. domestic corporations. The
dividends-received deduction for corporations will be reduced to the extent the
shares of a fund with respect to which the dividends are received are treated as
debt-financed under the Code and will be eliminated if such shares are deemed to
have been held (for tax purposes) for less than the minimum period referred to
above with respect to each dividend. Shareholders will be informed of the
percentages of dividends which may qualify for the dividends-received deduction.
Dividends from funds other than the Growth and Income Fund, Tudor Fund,
International Fund and Quantitative Fund will not qualify for the
dividends-received deduction.
Section 1059 of the Code provides for a reduction in a stock's basis for
the untaxed portion (i.e., The portion qualifying for the dividends-received
deduction) of an "extraordinary dividend" if the stock has not been held at
least two years prior to the extraordinary dividend. Extraordinary dividends are
dividends paid during a prescribed period which equal or exceed 10 percent (5
percent for preferred stock) of the recipient corporation's adjusted basis in
the stock of the payor or which meet an alternative fair market value test. To
the extent that dividend payments by the Growth and Income Fund, Tudor Fund,
International Fund and Quantitative Fund to their corporate shareholders
constitutes extraordinary dividends, such shareholders' basis in their shares
will be reduced, and to the extent such basis would be reduced below zero,
current recognition of income may be required.
The excess, if any, of a corporation's "adjusted current earnings" over
its "alternative minimum taxable income" includes the amount of dividends, if
any, excluded from income by virtue of the 70% dividends-received deduction,
which may increase its alternative minimum tax liability.
If you invest in the Core Bond Fund, Government Money Market Fund, or
Growth and Income Fund, you should know that many states and local taxing
authorities allow an exemption from state or local income tax for distributions
derived from interest received by a fund from direct obligations of the U.S.
Government, such as U.S. Treasury obligations, or an exemption from intangible
property taxes based on the extent of a fund's investment in such direct U.S.
Government obligations. Such an exemption may be subject to certain
concentration, designation, reporting or other requirements in certain
jurisdictions, which in some cases may not be satisfied by a fund. You may wish
to consult your tax adviser concerning the possible existence of such an
exemption in the states and localities where you pay tax.
Dividends, including capital gain dividends, paid by a fund (except for
daily dividends paid by the Money Market Funds, the Core Bond Fund and the
Municipal Bond Fund) shortly after a shareholder's purchase of shares have the
effect of reducing the net asset value per share of his shares by the amount per
share of the dividend distribution. Although such dividends are, in effect, a
partial return of the shareholder's purchase price to the shareholder, they will
be subject to federal income tax as described above, except for exempt-interest
dividends (as defined below). Therefore, prior to purchasing shares an investor
should consider the impact of an anticipated dividend distribution.
Distributions from a fund's current or accumulated earnings and profits
("E&P"), as computed for federal income tax purposes, will be taxable as
described above whether taken in
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shares or in cash. Amounts that are not allowable as a deduction in computing
taxable income, including expenses associated with earning tax-exempt interest
income, do not reduce current E&P for this purpose. Distributions, if any, in
excess of E&P will constitute a return of capital, which will first reduce an
investor's tax basis in fund shares and thereafter (after such basis is reduced
to zero) will generally give rise to capital gains. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in the shares so received equal to the amount of
cash they would have received had they elected to receive cash.
All dividends and capital gain dividends, whether received in shares or
in cash, must be reported by each taxable shareholder on his or her federal
income tax return. Shareholders are also required to report tax-exempt interest,
including exempt-interest dividends. Redemptions of shares, including exchanges
for shares of another fund, may result in tax consequences to the shareholder
and are also subject to these reporting requirements, except for the redemption
or other disposition of shares of the Money Market Funds with respect to which
no gain or loss is realized.
Equity options (including options on stock and options on narrow-based
stock indices) and over-the-counter options on debt securities written or
purchased by a fund will be subject to tax under section 1234 of the Code. In
general, no loss is recognized by a fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., Long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the fund's holding period for the option, and
in the case of an exercise of the option, on the fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, possibly requiring the recognition of gain in
an appreciated substantially identical portfolio stock or security or causing an
adjustment in the holding period of such a stock or security in the fund's
portfolio. If a fund writes a put or call option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
generally treated as a short-term capital gain or loss. If a call option is
exercised, whether the gain or loss is long-term or short-term depends on the
holding period of the underlying stock or security. The exercise of a put option
written by a fund is not a taxable transaction for the fund.
Futures contracts, including certain foreign currency futures contracts,
that are "regulated futures contracts," entered into by a fund and listed
non-equity options written or purchased by a fund (including options on debt
securities, options on futures contracts, options on securities indices, options
on broad-based stock indices, and certain foreign currency options), will be
governed by section 1256 of the Code. Absent a tax election to the contrary,
gain or loss attributable to the lapse, exercise or closing out of any such
position (with the exceptions stated in the next paragraph) will be treated as
60% long-term and 40% short-term capital gain or loss, and on the last trading
day of a fund's taxable year, all outstanding section 1256 positions will be
marked to market (i.e., Treated as if such positions were closed out at their
closing price on such day), and any resulting gain or loss will be recognized as
60% long-term and 40% short-term capital gain or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in a
fund's portfolio. Additionally, a fund may be required to recognize gain (which
is subject to tax distribution requirements) if an
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option, future, forward contract, short sale or other transaction that is not
marked to market under Section 1256 of the Code is treated as a constructive
sale of an appreciated financial position in the fund's portfolio.
Certain foreign currency forward contracts entered into by a fund may
also be subject to section 1256 of the Code, which as described above generally
requires that contracts governed by Section 1256 be marked to market (i.e.,
Treated as if they were closed out at their closing price) on the last day of
the fund's taxable year, with any resulting gain or loss taken into account for
such year. Absent a tax election to the contrary that may be available for any
such contract that is not part of a straddle, this mark to market gain or loss,
as well as gain or loss from the actual closing out of or delivery under such a
contract, will generally be treated as ordinary income or loss. Gain or loss
from any foreign currency forward contracts, foreign currency futures contracts
or foreign currency options that are not subject to Section 1256 will also
generally be treated as ordinary income or loss.
Certain tax rules governing foreign currency activities and foreign
currency options, futures and forward contracts not directly related to a fund's
principal business of investing in stock or securities could require that these
activities be limited, under possible future Treasury regulations, in order to
satisfy the 90% test described above.
Positions of a fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by a fund.
Positions of a fund which consist of at least one debt security not
governed by Section 1256 and at least one futures contract or listed non-equity
option governed by Section 1256 which substantially diminishes a fund's risk of
loss with respect to such debt security will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. Each fund will monitor its transactions in options,
futures and forward contracts and may make certain tax elections in order to
mitigate the operation of these rules.
Foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts,
foreign currency-denominated payables and receivables and foreign currency
options and futures contracts (other than foreign currency options and futures
contracts that are governed by Section 1256 of the Code and for which no
election is made) are generally treated as ordinary income or loss under Section
988 of the Code.
The tax rules applicable to options, futures, currency forward contracts,
foreign currency transactions and constructive sales may affect the amount,
timing and character of a fund's income and, consequently, its distributions to
shareholders by causing holding period adjustments, converting short-term
capital losses into long-term capital losses, converting capital gain or loss
into ordinary income or loss, and accelerating a fund's income or gains or
deferring its losses.
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The federal income tax rules applicable to dollar rolls and certain
structured or hybrid securities are not or may not be settled, and a fund may be
required to account for these transactions or investments in a manner that,
under certain circumstances, may limit the extent of its use of such
transactions or investments.
A fund's investment in zero coupon securities, capital appreciation
bonds, or other securities having original issue discount (or market discount,
if the fund elects to include market discount in income currently) will
generally cause it to realize income prior to the receipt of cash payments with
respect to these securities. The mark to market and constructive sale rules
described above may also require a fund to recognize income or gains without a
concurrent receipt of cash. In order to distribute this income or gains,
maintain its qualification as a regulated investment company, and avoid federal
income or excise taxes, the fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.
Investments in lower-rated securities, in which the Growth and Income
Fund and Tudor Fund may invest, may present special tax issues for a fund to the
extent actual or anticipated defaults may be more likely with respect to such
securities. Tax rules are not entirely clear about issues such as when a fund
may cease to accrue interest, original issue discount, or market discount; when
and to what extent deductions may be taken for bad debts or worthless
securities; how payments received on obligations in default should be allocated
between principal and income; and whether exchanges of debt obligations in a
workout context are taxable. These and other issues will be addressed by the
funds, in the event they invest in such securities, in order to reduce the risk
of distributing insufficient income to preserve their status as regulated
investment companies and seek to avoid becoming subject to federal income or
excise tax.
A fund, to the extent it invests in foreign securities, may be subject to
foreign withholding or other foreign taxes with respect to income (possible
including, in some cases, capital gains) derived from foreign securities. These
taxes may be reduced or eliminated under the terms of an applicable U.S. income
tax treaty in some cases. However, the funds, other than the international fund,
generally will not be eligible to pass through to shareholders these taxes and
any associated foreign tax credits or deductions for foreign taxes paid by such
funds that are not thus reduced or eliminated. Such funds generally will,
however, be entitled to deduct such taxes in computing their income subject to
tax (if any).
The International Fund may qualify for and make the election permitted
under Section 853 of the Code so that shareholders will be able to claim a
credit or deduction on their federal income tax returns for, and will be
required to treat as amounts distributed to them (in addition to the dividends
and distributions they actually received), their pro rata portion of qualified
taxes paid by the fund to foreign countries (not in excess of the fund's actual
tax liability). Qualified taxes generally include only taxes that are treated as
income taxes under united states tax principles and therefore would not include,
for example, stamp taxes, securities transaction taxes, and similar taxes. The
shareholders of the international fund may claim a foreign tax credit or
deduction by reason of the fund's election under Section 853 of the Code, if the
fund makes such an election, which is permitted only if more than 50% of the
value of the total assets of the fund at the close of its taxable year consists
of stocks or securities of foreign corporations. The foreign tax credit or
deduction available to shareholders is subject
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to the satisfaction of holding period requirements (applicable to the credit at
both the fund and shareholder levels) and certain other requirements and
limitations imposed under the Code. For instance, under Section 63 of the Code,
no deduction for foreign taxes may be claimed by shareholders who do not itemize
deductions on their federal income tax returns, although any such shareholder
may claim a credit for foreign taxes and in any event will be treated as having
taxable income increased by the shareholder's pro rata share of qualified
foreign taxes paid by the fund if the fund makes the election permitted under
Section 853. If a shareholder chooses to take a credit for the foreign taxes
deemed paid by such shareholder, the amount of the credit that may be claimed in
any year may not exceed the same proportion of the U.S. tax against which such
credit is taken which the shareholder's taxable income from foreign sources (but
not in excess of the shareholder's entire taxable income) bears to his entire
taxable income. For this purpose, long-term and short-term capital gains the
fund realizes and distributes to shareholders will generally not be treated as
income from foreign sources in their hands, nor will distributions of certain
foreign currency gains subject to Section 988 of the Code and of any other
income realized by the fund that is deemed, under the Code, to be U.S.-Source
income in the hands of the fund. This foreign tax credit limitation does not
apply to individuals that meet certain requirements for an exemption, including
the requirement that the amount of creditable foreign taxes not exceed $300
($600 in the case of a joint return). This foreign tax credit limitation may
also be applied separately to certain specific categories of foreign-source
income and the related foreign taxes. As a result of these rules, which have
different effects depending upon each shareholder's particular tax situation,
certain shareholders may not be able to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the fund. It should also
be noted that, if the election is made, a tax-exempt shareholder, like other
shareholders, will be required to treat as part of the amounts distributed its
pro rata portion of the income taxes paid by the fund to foreign countries.
However, that income will generally be exempt from taxation by virtue of such
shareholder's tax-exempt status, and such a shareholder will not be entitled to
either a tax credit or a deduction with respect to such income.
If a fund acquires stock (including, under proposed regulations, an
option to acquire stock such as is inherent in a convertible bond) in certain
foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, certain rents and royalties, or
capital gain) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), the fund could be
subject to federal income tax and additional interest charges on "excess
distributions" received from such companies or gain from the sale of stock in
such companies, even if all income or gain actually received by the fund is
distributed on a timely basis to its shareholders. The fund would not be able to
pass through to its shareholders any credit or deduction for such tax and
interest charges. Certain elections may be available to ameliorate these adverse
tax consequences, but any such election could require the fund to include
certain amounts as income or gain (subject to the distribution requirements
described above) without a concurrent receipt of cash. These investments could
also result in the treatment of associated capital gains as ordinary income.
Each fund that is permitted to acquire foreign investments may limit and/or
manage its investments in passive foreign investment companies to minimize its
tax liability or maximize its return from these investments.
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Subchapter M of the Code permits the character of tax-exempt interest
distributed by a regulated investment company to flow through as
"exempt-interest dividends" that are treated as tax-exempt interest to its
shareholders, provided that at least 50% of the value of its assets at the end
of each quarter of its taxable year is invested in state, municipal and other
obligations the interest on which is excluded from gross income under Section
103(a) of the Code. Each of the Municipal Bond Fund and Tax Free Money Market
Fund intends to satisfy this 50% requirement in order to permit its
distributions of tax-exempt interest to be treated as exempt-interest dividends
under the Code. Distributions to shareholders of tax-exempt interest earned by
Municipal Bond Fund and Tax Free Money Market Fund for the taxable year are
therefore not subject to regular federal income tax, although they may be
subject to the individual and corporate alternative minimum taxes described
below.
A portion of the income that Municipal Bond Fund and Tax Free Money
Market Fund receive and distribute to shareholders may be subject to regular
federal, alternative minimum, state and local income taxes. Investments or
transactions that produce taxable income or gain would include options or
futures transactions, securities loans, repurchase agreements and when-issued or
forward- commitment transactions disposed of at a gain. Accrued market discount
that is required to be included in income with respect to securities acquired at
a market discount, e.g., Upon a disposition of these securities, and a portion
of the discount from certain stripped tax-exempt obligations or their coupons is
also taxable.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Municipal Bond Fund and Tax Free Money Market Fund will not be
deductible for federal income tax purposes to the extent it is deemed related to
exempt-interest dividends paid by such funds. Under rules used by the Internal
Revenue Service to determine when borrowed funds are used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.
Section 147(a) of the Code prohibits exemption from taxation of
interest on certain governmental obligations to persons who are "substantial
users" (or persons related thereto) of facilities financed by such obligations.
Neither Municipal Bond Fund and Tax Free Money Market Fund has undertaken or
will undertake any investigation as to the users of the facilities financed by
bonds in their respective portfolios, and these funds may not be appropriate
investments for substantial users (or related persons) of such facilities.
Distributions of tax exempt income are taken into account in computing
the portion, if any, of Social Security and Railroad Retirement benefits subject
to federal and, in
some cases, state taxes.
Several provisions of federal tax law were enacted principally in the
1970's and 1980's that may affect the supply of, and the demand for, tax-exempt
bonds, as well as the tax-exempt nature of interest paid thereon.
For example:
(i) Interest on certain private activity bonds issued after August 15,
1986 (or, in certain cases, on or after September 1, 1986) is generally not
exempt from regular federal income tax, although it might have been exempt under
prior law. These include bonds the proceeds of which are used to finance sports
facilities, convention facilities,
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industrial parks and nuclear waste disposal facilities;
(ii) Interest (including exempt-interest dividends attributable to such
interest) on all private activity bonds issued on or after August 8, 1986 (or,
in certain cases, September 1, 1986) other than qualified Section 501(c)(3)
bonds or refundings of bonds originally issued before such dates is an item of
tax preference that is subject to the individual alternative minimum tax and the
alternative minimum tax on corporations;
(iii) Interest (including exempt-interest dividends attributable to such
interest) on all tax-exempt bonds, regardless of when issued, may increase
liability for the corporate alternative minimum tax because 75% of the excess of
adjusted current earnings over alternative minimum taxable income is an
adjustment that, except to the extent already taken into account as private
activity bond interest, increases the alternative minimum taxable income subject
to the corporate alternative minimum tax; and
(iv) Due to the substantial number and range of requirements to be
satisfied by tax-exempt bonds after their issuance, the risk of retroactive
revocation of the tax-exempt status of bonds due to acts or omissions on the
part of issuers after the date of issuance is in general greater than under
prior law but varies for different types of bonds.
It is not possible to predict with certainty the effect of these tax
law changes upon the tax-exempt bond market, including the availability of
obligations appropriate for investment by the Tax Free Money Market Fund and
Municipal Bond Fund.
Different tax treatment, including a penalty on certain distributions,
excess contributions or other transactions is accorded to accounts maintained as
IRAs or other retirement plans. Investors should consult their tax advisors for
more information. See also Appendix B.
All or a portion of a loss realized upon the redemption or other
disposition of shares of a fund may be disallowed under "wash sale" rules to the
extent shares of the same fund are purchased (including shares acquired by means
of reinvested dividends) within a 61-day period beginning 30 days before and
ending 30 days after such redemption or other disposition. Any loss realized
upon a shareholder's sale, redemption or other disposition of shares with a tax
holding period of six months or less will be disallowed, in the case of a
disposition of shares of Tax Free Money Fund and Municipal Bond Fund, to
the extent of the amount of any exempt-interest dividends paid with respect to
such shares and, for such shares of all funds, any portion of such loss that is
not disallowed will be treated as a long-term capital loss to the extent of any
capital gain dividend paid with respect to such shares. Exchanges and
withdrawals under the Systematic Withdrawal Plan are treated as redemptions for
federal income tax purposes. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
the shares of a fund is properly treated as a sale for tax purposes, as is
assumed in the foregoing discussion.
The funds may be required to pay state taxes in states that have
jurisdiction to tax them, except to the extent an exemption may be available,
but the funds do not anticipate that their state tax liabilities will be
substantial.
The foregoing discussion of U.S. Federal income tax law relates solely
to the application of that law to U.S. Persons, i.e., U.S. citizens and
residents and U.S. domestic corporations, partnerships, trusts and
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estates subject to tax under such law. The discussion does not address the
special tax rules applicable to certain classes of investors, such as tax-exempt
entities, financial institutions, and insurance companies. Each shareholder who
is not a U.S. person should consider the u.S. And foreign tax consequences of
ownership of shares of the funds, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on fund distributions treated
as ordinary dividends and, unless an effective IRS Form W-8BEN or other
authorized withholding certificate is on file, to 31% backup withholding on
certain other payments from a fund.
This discussion of the federal income tax treatment of the fund and its
shareholders is based on the federal income tax law in effect as of the date of
this SAI. Shareholders should consult their tax advisers about the application
of the provisions of tax law described in this SAI and about the possible
application of state, local and foreign taxes in light of their particular tax
situations.
PORTFOLIO BROKERAGE
It is the general policy of the Adviser and RIAM not to employ any broker
in the purchase or sale of securities for a fund's portfolio unless the Adviser
believes that the broker will obtain the best results for the fund, taking into
consideration such relevant factors as price, the ability of the broker to
effect the transaction and the broker's facilities, reliability and financial
responsibility. Commission rates, being a component of price, are considered
together with such factors.
U.S. Government and debt securities are traded primarily in the
over-the-counter market. Transactions in the over-the-counter market are
generally principal transactions with dealers and the costs of such transactions
involve dealer spreads rather than brokerage commissions. With respect to
over-the-counter transactions, the funds, where possible, deal directly with the
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. Under
the 1940 Act, persons affiliated with a fund are prohibited from dealing with
the fund as a principal in the purchase and sale of securities. Since
transactions in the over-the-counter market usually involve transactions with
dealers acting as principal for their own account, affiliated persons of the
funds, including WPG and RIAM, may not serve as a fund's dealer in connection
with such transactions. However, affiliated persons of a fund may serve as its
broker in transactions conducted on an exchange or over-the-counter transactions
conducted on an agency basis. Subject to the foregoing, where transactions are
effected on securities exchanges, the funds employ WPG as principal broker. A
fund is not obligated to deal with any broker or group of brokers in the
execution of transactions in portfolio securities. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
The commission rate on all U.S. exchange orders is subject to
negotiation. Section 17(e) of the 1940 Act limits to "the usual and customary
broker's commission" the amount which can be paid by a fund to an affiliated
person, such as WPG, acting as broker in connection with transactions effected
on a securities exchange. The Board, including a majority of the Trustees who
are not "interested persons" of the fund or the Adviser, has adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 thereunder to ensure that a broker's
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commission is "reasonable and fair compared to the commission, fee or other
remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time ...." Rule 17e-1 also
requires the Boards, including a majority of the non-Interested Trustees, to
adopt procedures reasonably designed to provide that the commission paid is
consistent with the above standard, review those procedures at least annually to
determine that they continue to be appropriate and determine at least quarterly
that transactions have been effected in compliance with those procedures. The
Boards, including a majority of the non-Interested Trustees, have adopted
procedures designed to comply with the requirements of Rule 17e-1.
Pursuant to these procedures, commissions paid to WPG must be at least as
favorable as those believed to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange. A transaction is not placed with WPG
if a fund would have to pay a commission rate less favorable than WPG's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which WPG acts as a clearing
broker for another brokerage firm, and any customers of WPG determined by a
majority of the non-Interested Trustees not to be comparable to the funds. With
regard to comparable customers, in isolated situations, subject to the approval
of a majority of the non-Interested Trustees, exceptions may be made. Since WPG,
as investment adviser to the funds, is obligated to provide management, which
includes elements of research and related skills, such research and related
skills will not be used by WPG as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria. When
appropriate, orders for the account of the funds are combined with orders for
other clients advised by WPG, and orders for the account of the International
Fund are combined with orders for other clients advised by RIAM in order to
obtain a more favorable commission rate. When the same security is purchased for
two or more funds or accounts on the same day, each fund or account pays the
average price and commissions paid are allocated in direct proportion to the
number of shares purchased.
It is contemplated that the International Fund may employ brokers
affiliated with the Subadviser, as primary brokers in agency transactions on
non-U.S. securities exchanges. The above discussion regarding Rule 17e-1 and the
procedures adopted by the Boards to comply with the requirements thereof applies
equally to exchange orders effected by such affiliates.
In selecting brokers other than WPG (and brokers affiliated with RIAM
with respect to securities transactions by the International Fund) to effect
transactions on securities exchanges, the funds consider the factors set forth
in the first paragraph under this heading and any investment products or
services provided by such brokers, subject to the criteria of Section 28(e) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When more
than one firm is believed to meet the factors set forth in the first paragraph
under this heading, preference may be given to firms that also sell shares of
the respective fund. Section 28(e) specifies that a person with investment
discretion shall not be "deemed to have acted unlawfully or to have breached a
fiduciary duty" solely because such person has caused the account to pay a
higher commission than the lowest rate available. To obtain the benefit of
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Section 28(e), the person so exercising investment discretion must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided viewed in terms of either
that particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion." Accordingly, if the
Adviser (or RIAM with respect to the International Fund) determines in good
faith that the amount of commissions charged by a broker is reasonable in
relation to the value of the brokerage and research products and services
provided by such broker, the Adviser or RIAM may cause the funds to pay
commissions to such broker in an amount greater than the amount another firm
might charge. Research services may include (i) furnishing advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (ii) furnishing seminars, information, analyses and reports
concerning issuers, industries, securities, trading markets and methods,
legislative developments, changes in accounting practices, economic factors and
trends, portfolio strategy, access to research analysts, corporate management
personnel, industry experts and economists, comparative performance evaluation
and technical measurement services and quotation services, and products and
other services (such as third party publications, reports and analysis, and
computer and electronic access, equipment, software, information and accessories
that deliver, process or otherwise utilize information, including the research
described above) providing lawful and appropriate assistance to the Adviser or
RIAM, as the case may be, (and their affiliates) in carrying out their
decision-making responsibilities and (iii) effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). The
investment advisory and subadvisory fees paid by the funds under the advisory
and subadvisory agreements will not be reduced as a result of the Adviser's or
RIAM's receipt of research services.
Each year, the Adviser considers the amount and nature of the research
products and services provided by other brokers as well as the extent to which
such products and services are relied upon, and attempts to allocate a portion
of the brokerage business of its clients, such as the funds, on the basis of
that consideration. In addition, brokers sometimes suggest a level of business
they would like to receive in return for the various services they provide.
Actual brokerage business received by any broker may be less than the suggested
allocations, but can (and often does) exceed the suggestions, because total
brokerage is allocated on the basis of all the considerations described above.
For the fiscal year ended December 31, 1998, the International Fund paid
commissions in the amount of $43,000 to unaffiliated brokers on the basis of
research services they afforded to such fund. The foregoing amounts do not
include or take into account any profits or losses realized by such brokers on
"net" transactions for the account of a fund such as transactions in U.S.
Government securities and transactions executed through market makers and in the
third market. In no instance is a broker excluded from receiving business
because it has not been identified as providing research services. As permitted
by Section 28(e), the investment information received from other brokers may be
used by the Adviser and RIAM (and their affiliates) in servicing all of its
accounts and not all such information may be used by the Adviser or RIAM in
connection with the fund generating the brokerage credits. Nonetheless, the
funds believe that such investment information provides the funds with benefits
by
- 80 -
<PAGE>
supplementing the research otherwise available to the Adviser and RIAM.
As set forth above, each fund employs WPG, a member firm of the NYSE, as
its principal broker on U.S. exchange transactions. Section 11(a) of the
Exchange Act provides that a member firm of a national securities exchange (such
as WPG) may not effect transactions on such exchange for the account of an
investment company (such as a fund) of which the member firm or its affiliate is
the investment adviser unless certain conditions are met. These conditions
require that the investment company authorize the practice and that the
investment company receive from the member firm at least annually a statement of
all commissions paid in connection with such transactions. WPG's transactions on
behalf of the funds are effected in compliance with these conditions.
In certain instances there may be securities which are suitable for a
fund's portfolio as well as for that of another fund or one or more of the other
clients of the Adviser or RIAM. Investment decisions for a fund and for the
Adviser's or RIAM's other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client. When
two or more clients are simultaneously engaged in the purchase or sale of the
same security, the securities are allocated among clients in a manner believed
to be equitable to each. It is recognized that in some cases this system could
have a detrimental effect on the price or volume of the security in a particular
transaction as far as a fund is concerned. The funds believe that over time
their ability to participate in volume transactions will produce better
executions for the funds.
WPG and RIAM furnish to the funds at least quarterly statements setting
forth the total amount of all compensation retained by them or their affiliates
any associated person of it in connection with effecting transactions for the
account of the funds, and the Boards review and approve all fund portfolio
transactions and the compensation received by WPG or RIAM in connection
therewith.
- 81 -
<PAGE>
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
TRANSACTIONS
INVOLVING THE
PERCENTAGE OF PAYMENT OF
AGGREGATE COMMISSIONS
COMMISSIONS EFFECTED THROUGH
AGGREGATE BROKERAGE PAID TO WPG WPG
COMMISSIONS DURING 1998 DURING 1998
----------- -----------
FUND 1996 1997 1998
- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Government Money Market $0 $0 $0 N/A N/A
Tax Free Money Market 0 0 0 N/A N/A
Municipal Fund 0 0 0 N/A N/A
Core Bond Fund 0 0 0 N/A N/A
Growth and Income Fund 110,111 125,690 262,000 78% 78%
Tudor Fund 400,178 258,048 508,000 30% 30%
International Fund 82,181 58,693 43,000 0% 0%
Quantitative Fund 157,358 215,632 160,000 60% 60%
157,358 215,632 160,000 60% 60%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE DOLLAR
AMOUNT OF TRANSACTIONS
INVOLVING THE PAYMENT OF
PERCENTAGE OF AGGREGATE COMMISSIONS EFFECTED DURING
COMMISSIONS PAID DURING 1998 TO 1998 THROUGH LLOYDS BANK
FUND LLOYDS BANK STOCKBROKERS STOCKBROKERS
- ---- ------------------------ ------------
<S> <C> <C>
INTERNATIONAL FUND 0% 0%
</TABLE>
THE FOREGOING AMOUNTS DO NOT INCLUDE ANY PROFITS OF LOSSES REALIZED BY
BROKERS OR DEALERS ON "NET" TRANSACTIONS FOR THE ACCOUNT OF ANY FUND (SUCH AS
TRANSACTIONS IN U.S. GOVERNMENT SECURITIES AND TRANSACTIONS EXECUTED THROUGH
MARKET MAKERS AND IN THE OVER-THE-COUNTER MARKET).
WPG DOES NOT KNOWINGLY PARTICIPATE IN COMMISSIONS PAID BY THE FUNDS TO
OTHER BROKERS OR DEALERS AND DOES NOT SEEK OR KNOWINGLY RECEIVE ANY RECIPROCAL
BUSINESS AS THE RESULT OF THE PAYMENT OF SUCH COMMISSIONS. IN THE EVENT THAT WPG
AT ANY TIME LEARNS THAT IT HAS KNOWINGLY RECEIVED RECIPROCAL BUSINESS, IT WILL
SO INFORM THE BOARDS.
TO THE EXTENT THAT WPG RECEIVES BROKERAGE COMMISSIONS ON A FUND'S
PORTFOLIO TRANSACTIONS, OFFICERS AND TRUSTEES OF A FUND WHO ARE ALSO MANAGING
DIRECTORS OF WPG MAY RECEIVE INDIRECT COMPENSATION FROM THE FUND THROUGH THEIR
PARTICIPATION IN SUCH BROKERAGE COMMISSIONS.
- 82 -
<PAGE>
SUBJECT TO THE SUPERVISION OF THE BOARDS, ALL INVESTMENT DECISIONS OF THE
FUNDS ARE EXECUTED THROUGH WPG'S TRADING DEPARTMENT.
PORTFOLIO TURNOVER
See "Financial Highlights" in the prospectus for the funds' portfolio
turnover rates.
In determining such portfolio turnover, U.S. Government securities and
all other securities (including options) which have maturities at the time of
acquisition of one year or less ("short-term securities") are excluded. The
annual portfolio turnover rate is calculated by dividing the lesser of the cost
of purchases or proceeds from sales of portfolio securities for the year by the
monthly average of the value of the portfolio securities owned by the applicable
fund during the year. The monthly average is calculated by totalling the values
of the portfolio securities as of the beginning and end of the first month of
the year and as of the end of the succeeding 11 months and dividing the sum by
13. A turnover rate of 100% would occur if all of a fund's portfolio securities
(other than short-term securities) were replaced once in a period of one year.
It should be noted that if a fund were to write a substantial number of options
which are exercised, the portfolio turnover rate of that fund would increase.
Increased portfolio turnover results in increased brokerage costs which a fund
must pay and the possibility of more short-term gains, distributions of which
are taxable as ordinary income.
The non-Money Market Funds will trade their portfolio securities without
regard to the length of time for which they have been held. To the extent that a
fund's portfolio is traded for short-term market considerations and portfolio
turnover rate exceeds 100%, the annual portfolio turnover rate of the fund could
be higher than most mutual funds.
Although the Money Market Funds intend normally to hold securities
purchased until maturity, at which time they will be redeemable at their full
principal value plus accrued interest, either fund may, at times, sell portfolio
securities prior to maturity based on a revised evaluation of the issuer, to
meet redemptions, or in anticipation of a change in short-term interest rates.
In the event there are unusually heavy redemption requests due to changes in
interest rates or otherwise, a Money Market Fund may have to sell a portion of
its investment portfolio at a time when it may be disadvantageous to do so.
However, the Adviser believes that a fund's ability to borrow money to
accommodate redemption requests may mitigate the necessity for such portfolio
sales during these periods.
ORGANIZATION
(See "Organization and Capitalization," "How to Purchase Shares," and
"Redemption of Shares" in the prospectus.)
Government Money Market Fund, Tax Free Money Market Fund, Municipal Fund,
Core Bond Fund and Quantitative Fund are each separate investment portfolios of
Weiss, Peck & Greer Funds Trust ("Funds Trust"). Each fund in Funds Trust
represents a separate series of shares in Funds Trust having different
objectives, programs, policies, and restrictions. Funds Trust was organized as a
business trust under the laws of the Commonwealth of Massachusetts
("Massachusetts business trust") on September 11, 1985. Prior to January 20,
1998, the Core Bond Fund was named WPG Government Securities Fund. Each share of
beneficial interest of each of these five funds represents an equal
proportionate interest in that fund with each other share in that fund. Each
share of each of these five funds is entitled to one vote on all matters
submitted to a vote of all shareholders of Funds Trust, such as the election of
Trustees and ratification of the selection of auditors. Shares of a particular
fund
- 83 -
<PAGE>
vote separately on matters affecting only that fund, including approval of an
investment advisory agreement for a particular fund and changes in fundamental
policies or restrictions of a particular fund. Funds Trust is authorized to
issue an unlimited number of full and fractional shares of beneficial interest,
having a par value of $.001 per share, in one or more portfolios.
The Growth and Income Fund was organized as a Delaware corporation in
December 1966 and reorganized as a Massachusetts business trust on April 29,
1988. The Growth and Income Fund is authorized to issue an unlimited number of
full and fractional shares of beneficial interest, par value $1.00 per share.
The Tudor Fund was organized as a Delaware corporation in June 1968 and
reorganized as a Massachusetts business trust on April 29, 1988. The Tudor Fund
is authorized to issue an unlimited number of full and fractional shares of
beneficial interest, par value $.33 1/3 per share.
The International Fund was organized as a Massachusetts business trust on
January 24, 1989. The International Fund is authorized to issue an unlimited
number of full and fractional shares of beneficial interest, par value $.01 per
share.
Each fund, including each of the five funds in Funds Trust, currently
issues one class of shares all of which have equal rights with regard to voting,
redemptions, dividends and distributions.
Each fund's Declaration of Trust ("Declaration of Trust") was amended and
restated on May 1, 1993 and further amended from time to time.
Under Massachusetts law, shareholders of a business trust, unlike
shareholders of a corporation, could be held personally liable as partners for
the obligations of the trust under certain circumstances. The Declarations of
Trust, however, provide that fund shareholders shall not be subject to any
personal liability for the acts or obligations of the funds and that every
written obligation, contract, instrument or undertaking made by the funds may
contain a provision to that effect. The Boards intend to conduct the operations
of the funds, with the advice of counsel, in such a way so as to avoid, to the
extent possible, ultimate liability of the shareholders for liabilities of the
funds.
The Declarations of Trust further provide that no Trustee, officer,
employee or agent of a fund is liable to the fund or to a shareholder, nor is
any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the fund, except as such liability may arise from
his or its own bad faith, willful misfeasance, gross negligence or reckless
disregard of his or its duties. They each also provide that all third parties
shall look solely to the property of the particular fund for satisfaction of
claims arising in connection with the affairs of that fund. With the exceptions
stated, the Declarations of Trust permit the Boards to provide for the
indemnification of Trustees, officers, employees or agents of the funds against
all liability in connection with the affairs of the funds. All persons dealing
with a fund must look solely to the property of that fund for the enforcement of
any claims against that fund as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the funds. No fund is liable for the obligations of any other fund.
Under the Declarations of Trust, the funds are not required to hold
annual meetings to elect Trustees or for other purposes. It is not anticipated
that the funds will hold shareholders' meetings unless required by law
- 84 -
<PAGE>
or the Declarations of Trust. Nevertheless, special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental policies,
or approving an investment advisory agreement. A fund will be required to hold a
meeting to elect Trustees to fill any existing vacancies on its Board if, at any
time, fewer than a majority of the Trustees have been elected by the
shareholders of the fund. The Boards are required to call a meeting for the
purpose of considering the removal of persons serving as Trustee if requested in
writing to do so by the holders of not less than 10 percent of the outstanding
shares of a fund.
Fund shares do not have cumulative voting rights, so that the holders of
more than 50% of the outstanding shares may elect all of the Trustees. Each fund
share is entitled to such dividends and distributions out of the income earned
on the assets belonging to that fund as are declared in the discretion of the
Board. In the event of the liquidation or dissolution of a fund, fund shares are
entitled to receive their proportionate share of the assets which are available
for distribution as the Trustees in their sole discretion may determine.
Shareholders are not entitled to any preemptive or subscription rights. All
shares, when issued, will be fully paid and non-assessable by the funds.
Pursuant to the Declarations of Trust, the Boards may create additional
funds by establishing additional series of shares. The establishment of
additional series would not affect the interests of current shareholders in the
existing funds. Also pursuant to the Declarations of Trust, the Boards may
establish and issue multiple classes of shares. Also pursuant to the
Declarations of Trust, the Boards may also authorize a fund to invest all or
part of its investable assets in a single open-end investment company that has
substantially the same investment objectives, policies and restrictions as the
fund.
Upon the initial purchase of shares, the shareholder agrees to be bound
by the applicable fund's Declaration of Trust, as amended from time to time. The
Declarations of Trust are on file at the Office of the Secretary of State of The
Commonwealth of Massachusetts in Boston, Massachusetts.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Trustee as if Section 16(c) of the 1940 Act were
applicable.
Although each fund is offering only its own shares, since the funds use a
combined prospectus, it is possible that one fund (or Funds Trust) might become
liable for a misstatement or omission in the prospectus regarding another fund.
The Trustees for each fund and Funds Trust have considered this factor in
approving the use of a combined prospectus.
CUSTODIAN
The Custodian for the funds is Boston Safe Deposit and Trust Company at
One Exchange Place, Boston, Massachusetts 02109. In its capacity as Custodian,
Boston Safe Deposit and Trust Company performs accounting services, holds the
assets of the funds and is responsible for calculating the net asset value per
share. The custodian may appoint subcustodians from time to time to hold certain
securities purchased by a fund in foreign countries and to hold cash and
currencies for the funds.
TRANSFER AGENT
First Data Investor Services Group, Inc., P.O. Box 61503, King of
Prussia, PA 19406-0903 acts as transfer agent for the funds and in such
capacity, processes purchases, transfers and redemptions of shares, acts as
dividend disbursing agent, and maintains
- 85 -
<PAGE>
records and handles correspondence with respect to shareholder accounts.
LEGAL COUNSEL
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, serves
as legal counsel to each fund.
INDEPENDENT AUDITORS
KPMG LLP ("KPMG"), 345 Park Avenue, New York, New York 10154, serves as
the funds' independent accountants and in that capacity audits the fund's annual
financial
statements.
CALCULATION OF PERFORMANCE
DATA
TOTAL RETURN
NON-MONEY MARKET FUNDS
Each Non-Money Market Fund, may calculate current return for a
twelve-month period by determining the "net change in value" of a hypothetical
account having a balance of one share at the beginning of the period, dividing
the net change in value by the value of the account at the end of the base
period, with the resulting return figure carried to the nearest hundredth of one
percent. "Net change in value" of an account will consist of the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares (not
including long-term realized gains or losses and unrealized appreciation or
depreciation) less applicable expenses of a fund.
The average annual total return of each fund is determined for a
particular period by calculating the actual dollar amount of the investment
return on a $1,000 investment in the fund made at the maximum public offering
price (i.e., net asset value) at the beginning of the period, and then
calculating the annual compounded rate of return which would produce that
amount. Total return of a fund for a period of one year is equal to the actual
return of the fund during that period. This calculation assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Total return information for each of the non-Money Market Funds is set
forth on the following page.
- 86 -
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN
ONE YEAR FIVE YEARS TEN YEARS
ENDED ENDED 12/31/98 ENDED 12/31/98
FUND 12/31/98 ANNUALIZED CUMULATIVE ANNUALIZED CUMULATIVE
- ---- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Municipal Fund(1) 5.72% 5.40% 30.09% 5.55% 34.61%
Core Bond Fund(2) 9.26% 4.72% 25.96% 7.67% 109.48%
Tudor Fund -22.03% 5.56% 31.10% 10.46% 170.28%
International Fund(3) 16.28% 5.40% 30.11% 5.05% 60.41%
Quantitative Fund(4) 26.71% 20.30% 152.11% 19.22% 187.16%
Growth and Income Fund 27.51% 22.08% 171.27% 18.45% 444.31%
<FN>
- -------------
(1) The Municipal Fund commenced operations on July 1, 1993. The Municipal
Fund's advisory fee was not imposed, in whole or in part, and the Adviser
reimbursed certain operating expenses during various periods since inception of
the fund. Had the Adviser imposed its entire fee, the Municipal Fund's total
returns for the periods ended December 31, 1998 would be lower. Prior to October
19, 1994, the Municipal Fund paid an advisory fee at a different rate.
(2) The Core Bond Fund's management fee was increased by 0.10% of the fund's
average daily net assets effective July 31, 1991. The performance data set forth
herein includes periods during which the lower management fee was in effect. The
Core Bond Fund's advisory fee was not imposed, in whole or in part, and the
Adviser reimbursed certain operating expenses during various periods. Had the
Adviser imposed its entire fee, the Core Bond Fund's total returns for the
period ended December 31, 1998 would be lower.
(3) During the periods shown, the International Fund's portfolio was managed by
a different subadviser than RIAM. The International Fund commenced operations on
June 1, 1989. The International Fund's advisory fee was not imposed, in whole or
in part, during various periods since inception of the fund. Had the Adviser
imposed its entire fee, the International Fund's total returns for the periods
ended December 31, 1998 would be lower.
(4) The Quantitative Fund commenced operations on January 1, 1993.
</FN>
</TABLE>
- 87 -
<PAGE>
YIELD
MUNICIPAL FUND, CORE BOND FUND AND GROWTH AND INCOME FUND
The 30-day yield quotation of Municipal Fund, Core Bond Fund and Growth and
Income Fund is computed by dividing the net investment income for the period by
the maximum offering price per share on the last day of the period, according to
the following formula:
YIELD=2[(A - B +1) 6-1]
CD
Where:
a = Dividends and interest earned during the period.
b = Expenses accrued for the period.
c = The average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = The maximum offering price (i.e., net asset value) per share on the
last day of the period.
YIELD FOR
30-DAY PERIOD
ENDED 12/31/98
1. Municipal Fund 3.84%
2. Core Bond Fund 5.34%
3. Growth and Income Fund 0.37%
THE MONEY MARKET FUNDS
The Money Market Funds' yield quotations are calculated by a standard
method prescribed by the rules of the SEC. Under this method, the yield
quotation is based on a hypothetical account having a balance of exactly one
share at the beginning of a seven-day period.
The yield quotation is computed as follows: the net change, exclusive of
capital changes (i.e., realized gains and losses from the sale of securities and
unrealized appreciation and depreciation), in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the base
period is determined by dividing the net change in account value by the value of
the account at the beginning of the base period. This base period return is then
multiplied by 365/7 with the resulting yield figure carried to the nearest 100th
of 1%. The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and any such additional shares, and all fees
that are charged to that fund, in proportion to the length of the base period
and that fund's average account size.
The Money Market Funds also may advertise quotations of effective yield
for a 7 calendar day period. Effective yield is computed by compounding the
unannualized base period return determined as described in the preceding
paragraph by adding 1 to that return, raising the sum to the 365/7 power and
subtracting one from the result, according to the following formula:
Effective Yield = [(Base Period Return + 1) 365/7-1
- 88 -
<PAGE>
YIELD
7-DAY PERIOD
ENDED 12/31/98
SEVEN
SEVEN DAY
DAY EFFECTIVE
YIELD YIELD
Government Money Market Fund 4.17% 4.26%
Tax Free Money Market Fund 3.16% [___]%
HYPOTHETICAL TAX EQUIVALENT YIELD
TAX FREE MONEY MARKET FUND AND MUNICIPAL FUND
Tax Free Money Market Fund and Municipal Fund may also publish their
tax-equivalent yield, which is the net annualized taxable yield needed to
produce a specified tax-exempt yield at a given tax rate based on a specified 7
day period in the case of Tax Free Money Market Fund, and a specified 30-day
period in the case of Municipal Fund. Tax-equivalent yield is calculated by
dividing that portion of the fund's yield which is tax-exempt by one minus a
stated income tax rate and adding that quotient to the remaining portion, if
any, of the yield of the fund which is not tax-exempt.
- 89 -
<PAGE>
<TABLE>
<CAPTION>
A TAX-EXEMPT YIELD OF
5%, 7% AND 9% IS EQUIVALENT TO
A FULLY TAXABLE YIELD OF*
1999 TAXABLE INDIVIDUAL 1999 FEDERAL TAX
----------------------- ----------------
RETURN INCOME BRACKET 5% 7% 9%
------------- ------- -- -- --
<S> <C> <C> <C> <C>
$ 0- 25,750 15.0% 5.88% 8.24% 10.59%
$ 25,751- 62,450 28.0% 6.94% 9.72% 12.50%
$ 62,451-130,250 31.0% 7.25% 10.14% 13.04%
$130,251-283,150 36.0% 7.81% 10.94% 14.06%
Over $283,150 39.6% 8.28% 11.59% 14.90%
JOINT RETURN
------------
$ 0- 43,050 15.0% 5.88% 8.24% 10.59%
$ 43,051-104,050 28.0% 6.94% 9.72% 12.50%
$104,051-158,550 31.0% 7.25% 10.14% 13.04%
$158,551-283,150 36.0% 7.81% 10.94% 14.06%
Over $283,150 39.6% 8.28% 11.59% 14.90%
<FN>
- --------------
*These illustrations assume the Federal alternative minimum tax is not
applicable and that an individual is not a "head of household," a "married
individual filing a separate return," or a "surviving spouse." Note also that
these Federal income tax brackets and rates do not take into account the effects
of (i) a reduction in the deductibility of itemized deductions for taxpayers
whose federal adjusted gross income exceeds $126,600 (or, in the case of a
separate return by a married individual, $63,300), or (ii) the gradual phase-out
of the personal exemption amount for taxpayers whose federal adjusted gross
income exceeds $126,600 (for single individuals) or $189,950 (for married
individuals filing jointly). The effective federal tax rates and equivalent
yields for such taxpayers would be higher than those shown above.
</FN>
</TABLE>
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELD (1)
ENDED DECEMBER 31, 1998
SEVEN DAY 30-DAY
SEVEN DAY TAX EQUIVALENT TAX
TAX EQUIVALENT EFFECTIVE EQUIVALENT
YIELD YIELD YIELD
----- ----- -----
<S> <C> <C> <C>
Tax Free Money Market Fund 5.23% 3.21% N/A
Municipal Fund N/A N/A 6.36%
<FN>
- -----------
(1) Assumes a 39.6% Federal marginal tax rate.
</FN>
</TABLE>
- 90 -
<PAGE>
GENERAL
Each fund may from time to time advertise comparative performance as
measured by various independent sources, including, but not limited to, Lipper
Analytical Services, Inc., Donaghues Money Fund Report, Barron's, The Wall
Street Journal, Weisenberger Investment Companies Service, Business Week,
Changing Times, Financial World, Forbes, Fortune, Morningstar Mutual Funds, The
New York Times, Personal Investor, Sylvia Porter's Personal Finance and Money.
Each fund may from time to time advertise its performance relative to
certain indices and benchmark investments, including: (a) the Lipper Analytical
Services, Inc. Mutual Fund Performance Analysis, Fixed Income Analysis and
Mutual Fund Indices (which measure total return and average current yield for
the mutual fund industry and rank mutual fund performance); (b) the CDA Mutual
Fund Report published by CDA Investment Technologies, Inc. (which analyzes
price, risk and various measures of return for the mutual fund industry); (c)
the Consumer Price Index published by the U.S. Bureau of Labor Statistics (which
measures changes in the price of goods and services); (d) Stocks, Bonds, Bills
and Inflation published by Ibbotson Associates (which provides historical
performance figures for stocks, government securities and inflation); (e) the
Standard & Poor's Indices; (f) other taxable investments including certificates
of deposit (CDs), money market deposit accounts (MMDAs), checking accounts,
savings accounts, money market mutual funds and repurchase agreements; and (g)
historical investment data supplied by the research departments of various
research and brokerage firms. In addition, each fund may from time to time
advertise its performance relative to the following benchmark indices: Core Bond
Fund -- Lehman Aggregate Index; Municipal Fund -- Lipper Intermediate Municipal
Bond Funds Average and Lehman Brothers 3-10 Year Municipal Bond Index;
Quantitative Fund -- S&P 500 Index; Growth and Income Fund -- S&P 500 and Lipper
Capital Growth and Income Funds Average; Tudor Fund -- Lipper Capital
Appreciation Index and Russell 2500 Growth Index; and International Fund --
Morgan Stanley Europe, Australia, Far East (EAFE) Index.
The composition of the investments in the above-referenced indices and the
characteristics of a fund's benchmark investments are not identical to, and in
some cases may be very different from, those of a fund's portfolio. These
indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by a fund to calculate its performance figures.
From time to time advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of a fund), as well as the views of the
Adviser as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
regulated matters believed to be of relevance to a fund.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by the Adviser and/or its
affiliates, certain attributes or benefits to be derived from asset allocation
strategies and the WPG mutual funds that may be offered as investment options
for the strategic asset allocations. Such advertisements and information may
also include the Adviser's current economic outlook and domestic and
international market views to suggest periodic tactical modifications to current
asset allocation strategies. Such advertisements and information may include
other materials which highlight or summarize the services provided in support of
an asset allocation program.
In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in a
fund. Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
Performance data is based on historical results and is not intended to
indicate future performance. Total return, thirty-day yield, 7-day yield and
7-day effective yield, tax equivalent yield and distribution rate will vary
based on changes in market conditions, portfolio expenses, portfolio
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investments and other factors. The value of a fund's shares will fluctuate and
an investor's shares may be worth more or less than their original cost upon
redemption. Each fund may also, at its discretion, from time to time make a list
of its portfolio holdings available to investors upon request. Performance
information of a fund may not provide a basis for comparison with other
investments using a different method of calculating performance.
Return for a fund will fluctuate from time to time, unlike bank deposits or
other investments which pay a fixed yield or return for a stated period of time,
and do not provide a basis for determining future returns.
FINANCIAL STATEMENTS
Each fund's audited financial statements and related report of KPMG,
independent auditors, included in the Annual Report to Shareholders of the funds
for the year ended December 31, 1998, is attached hereto and hereby incorporated
by reference into this SAI.
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APPENDIX A
Description of Bond Ratings Moody's Investors Service, Inc.
AAA: Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds which are rated AA are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated BAA are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds rated BA are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's also provides credit ratings for preferred stocks. It should be
borne in mind that preferred stock occupies a junior position to bonds within a
particular capital structure and that these securities are rated within the
universe of preferred stocks.
AAA: An issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
BAA: An issue which is rated "BAA" is considered to be a medium grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
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Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG 1 are of the best quality, enjoying strong protection by
establishing cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG 2 are of high quality, with margins of protection ample although
not so large as in the preceding group. A short term issue having a demand
feature (i.e. payment relying on external liquidity and usually payable on
demand rather than fixed maturity dates) is differentiated by Moody's with the
use of the Symbol VMIG, instead of MIG.
Moody's also provides credit ratings for tax-exempt commercial paper. These
are promissory obligations (1) not having an original maturity in excess of nine
months, and (2) backed by commercial banks. Notes bearing the designation P-1
have a superior capacity for repayment. Notes bearing the designation P-2 have a
strong capacity for repayment.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the higher rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
interest or principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures.
BB: Debt rated BB has less near-term vulnerability to default that other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
S&P's top ratings for municipal notes issued after July 29, 1984 are SP-1
and SP-2. The designation SP-1 indicates a very strong capacity to pay principal
and interest. A"+" is added for those issues determined to possess overwhelming
safety characteristics. An "SP-2" designation indicates a satisfactory capacity
to pay principal and interest.
Commercial paper rated A-2 or better by S&P is described as having a very
strong degree of safety regarding timeliness and capacity to repay.
Additionally, as a precondition for receiving an S&P commercial paper rating, a
bank credit line and/or liquid assets must be present to cover the amount of
commercial paper outstanding at all times.
The Moody's Prime-2 rating and above indicates a strong capacity for
repayment of short-term promissory obligations.
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GLOSSARY
Commercial Paper: Short-term promissory notes of large corporations with
excellent credit ratings issued to finance their current operations.
Certificates of Deposit: Negotiable certificates representing a commercial
bank's obligations to repay funds deposited with it, earning specified rates of
interest over given periods.
Bankers' Acceptances: Negotiable obligations of a bank to pay a draft which has
been drawn on it by a customer. These obligations are backed by large banks and
usually are backed by goods in international trade.
Time Deposits: Non-negotiable deposits in a banking institution earning a
specified interest rate over a given period of time.
Corporate Obligations: Bonds and notes issued by corporations and other business
organizations in order to finance their long-term credit needs0.
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APPENDIX B
ADDITIONAL INVESTOR SERVICES
(Each fund other than Tax Free Money Market Fund and Municipal Fund)
PROTOTYPE RETIREMENT PLAN FOR EMPLOYERS AND SELF-EMPLOYED INDIVIDUALS
Prototype retirement plans (the "Retirement Plan") are available for those
entities or self-employed individuals who wish to purchase shares in a fund
(other than the Tax Free Money Market Fund and the Municipal Fund) in connection
with a money purchase plan or a profit sharing plan maintained by their
employer. The Retirement Plans were designed to conform to the requirements of
the Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Retirement Plans received opinion letters from the Internal
Revenue Service (the "IRS") on March 29, 1990 that the form of the Retirement
Plans is acceptable under Section 401 of the Code.
Annual tax-deductible contributions to the Retirement Plan may be made up
to the lesser of $30,000 or 25% of the participant's earned income (disregarding
any compensation in excess of $160,000 (as adjusted by the IRS for inflation)).
Under the terms of the Retirement Plan, contributions by or on behalf of
participants may be invested in a fund's shares with the designated custodian
under the Retirement Plan (the "Retirement Plan's Custodian"). Investment in
other mutual funds advised by the Adviser or one of its affiliates may also be
available. Employers adopting the Retirement Plan may elect either that a
participant shall specify the investments to be made with contributions by or on
behalf of such participant or that the employer shall specify the investments to
be made with all such contributions. Since no fund is intended as a complete
investment program it is important, in connection with such election, that
employers give careful consideration to the fiduciary obligation requirements of
ERISA.
All dividends and distributions received by the Retirement Plan's Custodian
on the funds' shares held by the Plan's Custodian will be reinvested in the
applicable fund's shares at net asset value. Distributions of benefits to
participants, when made, will be paid first in cash, to the extent that any
amount credited to a participant's account is not invested in the applicable
fund's shares, and then in full fund shares (and cash in lieu of fractional
shares).
Boston Safe Deposit and Trust Company serves as the Retirement Plan's
Custodian under a Custodial Agreement. Custodian fees which are payable by the
employer to the Retirement Plan's Custodian under such Custodial Agreement are a
$10 application fee for processing the Retirement Plan application, an annual
maintenance fee of $15 per participant, and a distribution fee of $10 for each
distribution from a participant's account. Such fees may be altered from time to
time by agreement of the employer and the Retirement Plan's Custodian. For
further details see the terms of the Retirement Plan which are available from
the Trust.
Distributions must be made pursuant to the terms of the Retirement Plan and
generally may not commence before retirement, disability, death, termination of
employment, or termination of the Retirement Plan and must commence no later
than April 1 of the year following the year in which the participant attains age
70 1/2 (the "required beginning date"). Distributions are taxed as ordinary
income when received, except the portion, if any, considered a return of a
participant's nondeductible contributions. Certain distributions before age 59
1/2 may be subject to a 10% nondeductible penalty on the taxable portion of the
distribution. Failure to make minimum required distributions by the required
beginning date may be subject to a 50% excise tax.
It should be noted that the Retirement Plan is a retirement investment
program involving commitments covering future years. In deciding whether to
utilize the Retirement Plan, it is important that the employer consider his or
her needs and those of the Retirement Plan participants and whether the
investment objectives of the funds are likely to fulfill such needs. Termination
or curtailment of the Retirement Plan for other than business reasons within a
few years after its adoption may result in adverse tax consequences.
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Employers who contemplate adoption of the Retirement Plan should consult an
attorney or financial adviser regarding all aspects of the Plan as a retirement
plan vehicle (including fiduciary obligations under ERISA).
INDIVIDUAL RETIREMENT ACCOUNT
Persons with earned income, whether or not they are active participants in
a pension, profit-sharing or stock bonus plan described in Code Section 401(a),
Federal, state or local pension plan, an annuity plan described in Code Section
403(a), an annuity contract or custodial account described in Code Section
403(b), a simplified employee pension plan described in Code Section 408(k), or
a trust described in Code Section 501(c)(18) ("active participant"), generally
are eligible to establish an Individual Retirement Account ("IRA"). An
individual may make a deductible IRA contribution only if (i) the individual is
not an active participant, or (ii) the individual has an adjusted gross income
below a certain level ($50,000 for married individuals filing a joint return,
with a phase-out for adjusted gross income between $50,000 and $60,000; $30,000
for a single individual, with a phase-out for adjusted gross income between
$30,000 and $40,000). The phase-out ranges for deductibility are increased in
years after 1998 until they reach $50,000 to $60,000 for single taxpayers for
the year 2005 and thereafter and $80,000 to $100,000 for married taxpayers
filing jointly for the years 2007 and thereafter. The phase-out range of $0 to
$10,000 of AGI for an active participant, married and filing separately does not
increase. An individual whose spouse is an active participant may still be able
to make a deductible contribution if he or she is not an active participant,
subject to a phase-out range of $150,000 to $160,000 of modified AGI if filing
jointly. An individual who is not permitted to make a deductible contribution to
an IRA for a taxable year may nonetheless make annual nondeductible
contributions to an IRA up to the lesser of 100% of the individual's earned
income or $2,000 to an IRA (up to $4,000 to IRAs for an individual and his or
her spouse) for that year. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Also, annual contributions may
be made to a spousal IRA even if the spouse has no earnings in a given year.
Withdrawals from the IRA (other than the portion treated as a return of
nondeductible contributions) are taxed as ordinary income when received, may be
made without penalty after the participant reaches age 59 1/2 and must commence
no later than the required beginning date (see discussion of Prototype
Retirement Plans above). Withdrawals before age 59 1/2 may involve the payment
of a 10% nondeductible penalty on the taxable portion of the amount withdrawn.
The time and rate of withdrawal must conform with Code requirements in order to
avoid adverse tax consequences. All dividends and distributions on shares held
in IRA accounts are reinvested in full and fractional shares and are not subject
to federal income tax until withdrawn from the IRA. Investors should consult
their tax advisers for further tax information, including information with
respect to the imposition of state and local income taxes and the effects of tax
law changes.
The funds have arranged for Boston Safe Deposit and Trust Company to
furnish the required custodial services for IRAs using any of a fund's shares as
the underlying investment. The Bank will charge an acceptance fee of $10 for
each new IRA and an annual maintenance fee of $15 for each year that an IRA is
in existence. There is a $10 fee for processing a premature distribution. These
fees will be deducted from the IRA account and may be changed by the Custodian
upon 30 days' prior notice.
To establish an IRA for investment in a fund's shares, an investor must
complete an application and a custodial agreement that includes IRS Form 5305-A
(which has been supplemented to provide certain additional custodial provisions)
and must make an initial cash contribution to the IRA, subject to the limitation
on contributions described above. Pursuant to IRS regulations, an investor may
for seven days following establishment of an IRA revoke the IRA. Detailed
information on IRAs, together with the necessary form of application and
custodial agreement, is available from the Trust and should be studied carefully
by
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persons interested in utilizing a fund for IRA investments. Such persons should
also consult their own advisers regarding all aspects of the funds as an
appropriate IRA investment vehicle.
ROTH INDIVIDUAL RETIREMENT ACCOUNT
Like the traditional IRA described above, a Roth Individual Retirement
Account ("Roth IRA") is a program through which taxpayers may obtain certain
income tax benefits for themselves. Unlike a traditional IRA, contributions to a
Roth IRA are not deductible. However, a Roth IRA is a tax-sheltered account and,
if certain conditions are met, distributions from a Roth IRA will be tax free.
Annual contributions to a Roth IRA must be in cash and (other than rollover
or conversion contributions) when combined with contributions to both
traditional IRAs and other Roth IRAs may not exceed the lesser of $2,000 or 100
percent of compensation. The $2,000 maximum amount is reduced and phased out for
a single taxpayer with modified adjusted gross income (AGI) between $95,000 and
$110,000, and for a husband and wife who file joint returns and have AGIs
between $150,000 and $160,000. The $2,000 maximum is reduced and phased out for
married taxpayers filing separately with AGIs between zero and $10,000.
Participation in a Roth IRA contribution is not limited by participation in
a retirement plan or program other than a traditional IRA, as discussed above.
In addition, unlike traditional IRAs, contributions to a Roth IRA may be made
after age 70 1/2 so long as the IRA owner has compensation and an AGI below the
maximum thresholds discussed above.
Provided that all of the applicable rollover rules are followed, a Roth IRA
may be rolled over to another Roth IRA, or may receive rollover contributions
from either a traditional IRA or Roth IRA.
If AGI is less than $100,000, an individual may rollover (or convert) all
or any portion of any existing traditional IRA into a Roth IRA. The conversion
amount or the amount of the rollover from the traditional IRA to the Roth IRA is
treated as a distribution for income tax purposes and is includible in gross
income (except for any nondeductible contributions). Although the rollover
amount is generally included in income, the 10 percent early distribution excise
tax does not apply to rollovers or conversions from a traditional IRA to a Roth
IRA.
For a rollover of assets from a traditional IRA to a Roth IRA prior to
January 1, 1999, the taxable amount of the distribution is included in gross
income ratably over a four year period beginning with 1998.
In limited circumstances, taxpayers who comply with certain tax law
requirements may, before the due date (including extensions) for the filing of
their annual tax return, elect to recharacterize a contribution made during the
year to a Roth IRA as a contribution to a traditional IRA or vice versa.
Qualified distributions from a Roth IRA are NOT includable in income.
Qualified distributions are distributions made AFTER the five taxable year
period beginning with the first taxable year for which a contribution (or
conversion from a traditional IRA) was made to the Roth IRA, and which is made
after age 59 1/2, death, disability, or for first-time home buyer expenses.
SIMPLIFIED EMPLOYEE PENSION PLAN
A simplified employee pension (a "SEP") allows an employer to make
contributions toward his or her own (if a self-employed individual) and his or
her employees' retirement and, for certain SEPs established prior to 1997, may
permit the employees to make elective deferrals by salary reduction. A SEP
requires an Individual Retirement Account (a "SEP-IRA") to be established for
each "qualifying employee," although the employer may include additional
employees if it wishes. A qualifying employee is one who: (a) is at least age
21, (b) has worked for the employer during at least 3 of 5 years immediately
preceding the tax year, and (c) has received at least $400 for 1998 (as indexed
for inflation) in compensation in the tax year.
An employer is not required to make any contribution to the SEP-IRA. However, if
the
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employer does make a contribution, the contribution must be based on a written
allocation formula and must not discriminate in favor of highly compensated
employees, as defined in Code Section 414(q). The employer may make annual
contributions on behalf of each qualifying employee, provided that the
contributions, when combined with the employee's elective deferrals, do not
exceed 15% of the employee's compensation or $30,000, whichever is less.
A SEP-IRA that is part of a SEP established before 1997 may include a
salary reduction arrangement under which the employee can choose to have the
employer make contributions ("elective deferrals") to his or her SEP-IRA out of
his or her salary. However, employees may make elective deferrals only if (i) at
least 50% of the employer's eligible employees choose elective deferrals; (ii)
the employer did not have more than 25 eligible employees at any time during the
preceding year; and (iii) the amount deferred each year by each eligible highly
compensated employee as a percentage of pay is no more than 125% of the average
deferral percentage of all other eligible employees. An elective deferral
arrangement is not available for a SEP maintained by a state or local
government, or any of their political subdivisions, agencies, or
instrumentalities, or to exempt organizations.
In general, the total income which an employee can defer under a salary
reduction arrangement included in a SEP and certain other elective deferral
arrangements is limited to $10,000 (indexed annually for inflation). This dollar
limit applies only to the elective deferrals, not to any contributions from
employer funds. The Code may require that contributions be further limited to
prevent discrimination in favor of highly compensated employees. An employee may
also make regular IRA contributions to his or her SEP-IRA (see discussion of
IRAs, above).
Under the terms of the SEP-IRA, contributions by or on behalf of
participants may be invested in fund shares (or shares of other funds designated
by the Adviser as eligible investments), as specified by the participant. All
dividends and distributions on shares held in SEP-IRAs are reinvested in full
and fractional shares. Since no fund is intended as a complete investment
program it is important, in connection with the adoption of a SEP-IRA, that
employers give careful consideration to the fiduciary obligation requirements of
ERISA, particularly those pertaining to diversification of investments.
Withdrawals before age 59 1/2 may involve the payment of a 10%
nondeductible penalty on the amount withdrawn. Withdrawals must commence no
later than the required beginning date (see discussions of Prototype Retirement
Plans, above). The time and rate of withdrawal must conform with Code
requirements in order to avoid adverse tax consequences. Contributions to a
SEP-IRA by an employer are excluded from the employee's income rather than
deducted from it. Elective deferrals made to an employee's SEP-IRA generally are
excluded from his income in the year of deferral, but are included in wages for
social security (FICA) and unemployment (FUTA) tax purposes. However, if the
employee makes regular IRA contributions to his SEP-IRA, (other than elective
deferrals), he can deduct them the same way as contributions to a regular IRA,
up to the amount of his deduction limit. Investors should consult their tax
advisers for further tax information including information with respect to the
imposition of state and local income taxes and the effects of tax law changes.
The funds have arranged for Boston Safe Deposit and Trust Company to
furnish the required custodial services for SEP-IRAs using the fund's shares as
the underlying investment. Boston Safe Deposit and Trust Company will charge an
acceptance fee of $10 for each new SEP-IRA and an annual maintenance fee of $15
for each year that a SEP-IRA is in existence. There is a $10 fee for each
premature distribution. These fees will be deducted from the SEP-IRA account and
may be changed by the Custodian upon 30 days' prior written notice.
To establish a SEP-IRA, an employer and employee should complete the Weiss,
Peck & Greer IRA application materials, as well as IRS Form 5305-SEP. Pursuant
to IRS regulations, an investor may for seven days following establishment of a
SEP-IRA revoke the SEP-IRA. Detailed information on SEP-IRAs, together with the
necessary form of application and custodial agreement, is available from the
fund and should be
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studied carefully by persons interested in utilizing the fund for SEP-IRA
investments. Such persons should also consult their own advisers regarding all
aspects of the fund as an appropriate SEP-IRA investment vehicle.
SIMPLE RETIREMENT PLANS
Effective for plan years after 1996, an employer may establish a SIMPLE
retirement plan under new Section 408(p) of the Code. Under such plan, the
employer may make contributions to individual retirement accounts established
for each employee. Such individual retirement accounts must, by their terms, be
limited to contributions under a SIMPLE retirement program. THE WEISS, PECK &
GREER IRA IS NOT SO LIMITED AND MAY NOT BE USED TO FUND A SIMPLE RETIREMENT
PROGRAM.
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