SUPPLEMENT DATED SEPTEMBER 1, 1998
TO THE PROSPECTUS DATED MAY 1, 1998 OF
TOMORROW FUNDS RETIREMENT TRUST
Tomorrow Long-Term Retirement Fund
Tomorrow Medium-Term Retirement Fund
Tomorrow Short-Term Retirement Fund
------------------------------------------------
Weiss, Peck & Greer, L.L.C. ("WPG"), the investment adviser to the
above-referenced funds (the "Funds"), has entered into an agreement pursuant to
which Robeco Groep N.V., a Dutch public limited liability company ("Robeco"),
will acquire all of the outstanding equity interests of WPG from its prior
owners (the "Acquisition"). In connection with the Acquisition, a majority of
the outstanding voting securities of each Fund approved a new investment
advisory agreement with WPG at a joint meeting of shareholders held on July 29,
1998 and August 13, 1998. The Acquisition is expected to be consummated on or
about September 9, 1998.
The following disclosure is added to the end of the fourth footnote to
the expense tables, marked by an asterisk, under the section titled "EXPENSE
INFORMATION," on page 5 of the Prospectus:
Adviser Class shares of each Fund incurred 12b-1 fees for the fiscal
year ended December 31, 1997 in an amount equal to 0.50% of the assets
attributable to the Adviser Class shares. These 12b-1 fees were not
subject to any expense limitations. The Institutional Class shares do
not pay any 12b-1 fees.
The following disclosure replaces the fourth sentence of the first
paragraph under the section titled "DISTRIBUTION PLANS," on page 22 of the
Prospectus:
The distribution fee is intended to compensate WPG for its distribution
services and expenses associated with the Adviser Class shares of the
Tomorrow Funds, including the payment of commissions by WPG to
Authorized Firms.
The following disclosure replaces the paragraph of the subsection
titled "Principal Underwriter" of the section titled "ADDITIONAL INFORMATION" on
page 34 of the Prospectus:
First Data Distributors, Inc., 4400 Computer Drive, Westboro
Massachusetts 01581-5120, serves as the Tomorrow Funds' principal
underwriter.
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
One New York Plaza
New York, New York 10004
TOMORROW LONG-TERM RETIREMENT FUND ("Long-Term Fund")
SEEKS TO SATISFY THE RETIREMENT GOALS OF INVESTORS WHO ARE CURRENTLY
BETWEEN 22 AND 35 YEARS OF AGE AND WITH AN AVERAGE REMAINING LIFE
EXPECTANCY OF 50 YEARS OR MORE.
TOMORROW MEDIUM-TERM RETIREMENT FUND ("Medium-Term Fund")
SEEKS TO SATISFY THE RETIREMENT GOALS OF INVESTORS WHO ARE CURRENTLY
BETWEEN 36 AND 50 YEARS OF AGE AND WITH AN AVERAGE REMAINING LIFE
EXPECTANCY IN THE RANGE OF 35-50 YEARS.
TOMORROW SHORT-TERM RETIREMENT FUND ("Short-Term Fund")
SEEKS TO SATISFY THE RETIREMENT GOALS OF INVESTORS WHO ARE CURRENTLY
BETWEEN 51 AND 65 YEARS OF AGE AND WITH AN AVERAGE REMAINING LIFE
EXPECTANCY IN THE RANGE OF 20-30 YEARS.
TOMORROW POST-RETIREMENT FUND ("Post-Retirement Fund") *
SEEKS TO SATISFY THE GOALS OF INVESTORS WHO SEEK TO MAXIMIZE TOTAL
RETURN, WITH AN EMPHASIS ON CURRENT INCOME, CONSISTENT WITH CAPITAL
PRESERVATION.
PROSPECTUS -- Adviser Class and Institutional Class Shares
May 1, 1998
This Prospectus describes Adviser Class and Institutional Class shares
of four mutual funds - the Long-Term Fund, Medium-Term Fund, Short-Term Fund and
Post-Retirement Fund (together, the "Tomorrow Funds"). Institutional Class
shares of the Tomorrow Funds are designed to provide investment vehicles for
variable annuity and variable life insurance contracts ("Variable Contracts") of
various insurance companies. Adviser Class shares, as well as Institutional
Class shares of the Tomorrow Funds, may be purchased by "qualified" pension or
retirement plans, including trustees of such plans for certain individuals
funding their individual retirement accounts or other qualified plans. Each
Tomorrow Fund, a series of Tomorrow Funds Retirement Trust (the "Trust"), is a
diversified asset allocation mutual fund advised by Weiss, Peck & Greer, L.L.C.
(the "Adviser" or "WPG").
Please read this Prospectus before investing, and keep it on file for
future reference. It contains important information, including how the Tomorrow
Funds invest and the services available to shareholders. If applicable, this
Prospectus should be read in conjunction with the separate account prospectus of
the specific insurance product which accompanies this Prospectus. To learn more
about the Tomorrow Funds, you can obtain a copy of the Statement of Additional
Information (the "SAI"), also dated May 1, 1998. The SAI has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated by reference
into this Prospectus. A free copy of the SAI is available upon request by
calling Weiss, Peck & Greer, L.L.C. at 1-800- 223-3332 (toll free). The SEC
maintains a Web site (http:\\www.sec.gov) that contains the SAI and other
information regarding the Tomorrow Funds. Shares of a Tomorrow Fund may not be
available for sale in your state due to various insurance or other regulations.
Please check with your insurance company or qualified plan fiduciary for
Tomorrow Funds that are available in your state. Inclusion of a Tomorrow Fund in
this Prospectus which is not available in your state is not to be considered a
solicitation. Shareholder inquiries regarding the Tomorrow Funds may be made in
writing to the Trust at the address set forth above.
* As of the date of this Prospectus, the Post-Retirement Fund is not available
for purchase. Contact WPG for the latest information.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENT AGENCY. AN INVESTMENT IN SHARES OF THE FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Tomorrow Funds seek to provide investors of all ages who
participate in qualified retirement plans or who are holders of Variable
Contracts with an asset allocation strategy designed to address their retirement
funding needs. Each Tomorrow Fund invests its assets, in varying amounts, in
equity and fixed-income securities of all types. The Long-Term, Medium-Term and
Short-Term Funds seek to maximize total return while also increasingly
emphasizing current income and capital preservation as the average age of the
target class of investors in that particular Tomorrow Fund increases. As the
average age of the target class of investors in a Tomorrow Fund increases over
time, the particular Tomorrow Fund adjusts the mix of its assets invested in
equity and fixed-income securities to reflect a level of risk that the Adviser
considers appropriate for investors in that target age class, in general, given
their investment time horizon. The Post-Retirement Fund seeks to provide
investors with an asset allocation strategy designed to maximize total return,
with an emphasis on current income, consistent with capital preservation.
You are encouraged to select a particular Tomorrow Fund based on your
current age and the length of the period during which you expect to maintain
your investment. You may select more than one Tomorrow Fund in order to achieve
a personalized investment program.
Because the investment portfolio of each Tomorrow Fund will change over
time to reflect the investment needs of a target class of investors with an
increasing average age, it will normally not be necessary for you to change your
Tomorrow Fund selection as you grow older. Just as your age increases over time,
the average age of the target class of investors of each of the Long-Term,
Medium- Term and Short-Term Funds will increase over time. However, if your
investment needs change other than by reason of the passage of time, you should
consider whether your particular Tomorrow Fund remains an appropriate selection.
TABLE OF CONTENTS
Page
----
Expense Information......................................................... 3
Financial Highlights........................................................ 6
Investment Objectives and Policies.......................................... 8
Eligible Investors.......................................................... 13
Insurance Company Separate Accounts......................................... 13
Qualified Plans............................................................. 14
Alternative Purchase Arrangements........................................ 14
How to Buy Shares........................................................ 14
How to Sell Shares....................................................... 17
How to Exchange Shares................................................... 19
How Each Tomorrow Fund's Share Price is Determined.......................... 20
Management of the Tomorrow Funds............................................ 21
Distribution Plans.......................................................... 22
Service Plans............................................................... 22
Dividends and Taxes......................................................... 23
Portfolio Brokerage......................................................... 24
The Trust................................................................... 24
Investment Performance...................................................... 26
Risk Considerations and Other Investment Practices and Policies............. 27
Additional Information...................................................... 34
-2-
<PAGE>
EXPENSE INFORMATION
Operating a mutual fund, such as each Tomorrow Fund, involves a variety
of expenses for portfolio management, shareholder statements, tax reporting and
other services. These costs are paid from a fund's assets and their effect is
factored into any quoted share price or performance information.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares
of either class of a Tomorrow Fund.
<TABLE>
<CAPTION>
ADVISER AND INSTITUTIONAL CLASS SHARES
--------------------------------------
POST-
LONG-TERM MEDIUM-TERM SHORT-TERM RETIRE-
FUND FUND FUND MENT FUND+
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None None None None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fees None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES are paid out of the Tomorrow Funds'
assets. Each Tomorrow Fund's expenses are factored into its share price or
dividends and are not charged directly to shareholder accounts. The following
expenses, expressed as a percentage of average net assets, are based on expenses
incurred during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES
--------------------------
POST-
LONG-TERM MEDIUM-TERM SHORT-TERM RETIRE-
FUND FUND FUND MENT FUND+
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Management Fee (after voluntary waiver) 0.00%* 0.00%* 0.00%* 0.00%*
12b-1 Fee 0.00% 0.00% 0.00% 0.00%
Other Expenses (after expense limitation)(1) 1.50%* 1.50%* 1.50%* 1.40%*
-------- -------- -------- -------
Total Fund Operating Expenses
(after expense limitation) 1.50%* 1.50%* 1.50%* 1.40%*
====== ====== ====== ======
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
ADVISER CLASS SHARES
--------------------
RETIRE-
LONG-TERM MEDIUM-TERM SHORT-TERM MENT
FUND FUND FUND FUND+
---- ---- ---- -----
<S> <C> <C> <C> <C>
Management Fee (after voluntary waiver) 0.00%* 0.00%* 0.00%* 0.00%*
12b-1 Fee2 0.50% 0.50% 0.50% 0.50%
Other Expenses (after expense limitation) 1.25%* 1.25%* 1.25%* 1.15%*
------ ------ ------ ------
Total Fund Operating Expenses 1.75%* 1.75%* 1.75%* 1.65%*
====== ====== ====== ======
(after expense limitation)
</TABLE>
EXAMPLE: Hypothetically assume that each Tomorrow Fund's annual return is 5% and
that its operating expenses are exactly as just described. For every $1,000 you
invested, you would have paid the following expenses if you closed your account
after the number or years indicated:
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Long-Term Fund
Institutional Class $15 $46 $79 $172
Adviser Class $18 $55 $95 $206
Medium-Term Fund
Institutional Class $14 $44 $79 $166
Adviser Class $18 $55 $95 $205
Short-Term Fund
Institutional Class $15 $46 $79 $172
Adviser Class $18 $55 $95 $205
Post-Retirement Fund+
Institutional Class $14 $45 N/A N/A
Adviser Class $17 $52 N/A N/A
The purpose of the above table and Example is to assist you in
understanding the various costs and expenses of the Tomorrow Funds that an
investor will bear directly or indirectly. See page 22. The figures shown in the
table under the caption "Other Expenses" and in the hypothetical example are
based on the Tomorrow Funds' expenses for the fiscal year ended December 31,
1997. The expenses set forth above do not reflect charges and expenses that may
be applicable to a holder of a Variable Contract or participant in a qualified
plan. Please refer to your separate account prospectus or qualified plan
documents, as the case may be.
-4-
<PAGE>
---------------
+ As of the date of this Prospectus, the Post-Retirement Fund is not
available for purchase. Contact WPG for the latest information.
(1) Other expenses of Institutional Class shares include service fees
payable under a non-Rule 12b-1 service plan for the benefit of qualified pension
or retirement plans. See "Service Plans" on page 23.
(2) Rule 12b-1 Fees consist of a 0.25% distribution fee and a 0.25%
service fee. See "Distribution Plans" on page 22.
* The Adviser has voluntarily and temporarily agreed to limit the
operating expenses (excluding Rule 12b-1 fees applicable to Adviser Class
shares, service fees applicable to Institutional Class shares, any other
class-specific expenses, litigation, indemnification and other extraordinary
expenses) of the Long-Term, Medium-Term and Short-Term Funds to 1.25% of their
respective average daily net assets and such operating expenses of the
Post-Retirement Fund to 1.15% of its average daily net assets. Each Tomorrow
Fund will reimburse the Adviser for fees foregone or other expenses paid by the
Adviser pursuant to this expense limitation in later years in which operating
expenses for that Tomorrow Fund are less than the expense limitations set forth
above for any such year. See page 22.
In addition, for the fiscal year ended December 31, 1997, in the
absence of the expense limitation, Management Fees, Other Expenses and Total
Fund Operating Expenses (expressed as a percentage of average daily net assets)
of the Tomorrow Funds would have been as set forth below. Management Fees, Other
Expenses and Total Fund Operating Expenses of the Post-Retirement Fund are
estimates.
MANAGEMENT OTHER TOTAL FUND
FEES EXPENSES OPERATING EXPENSES
---- -------- ------------------
LONG-TERM FUND
Institutional Class 0.75% 6.77% 7.52%
Adviser Class 0.75% 4.86% 5.61%
MEDIUM-TERM FUND
Institutional Class 0.75% 3.66% 4.41%
Adviser Class 0.75% 2.17% 2.92%
SHORT-TERM FUND
Institutional Class 0.75% 3.26% 4.01%
Adviser Class 0.75% 1.90% 2.65%
POST-RETIREMENT FUND
Institutional Class 0.65% 4.60% 5.25%
Adviser Class 0.65% 4.35% 5.00%
The Tomorrow Funds' imposition of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the maximum
front-end sales charge permitted under the Conduct Rules of the National
Association of Securities Dealers, Inc.
THE INFORMATION IN THE TABLE AND HYPOTHETICAL EXAMPLE ABOVE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables represent a condensed financial history for each
Tomorrow Fund since inception. This condensed financial information has been
derived from the financial statements of each Fund, which financial statements
have been audited by the Funds' independent auditors, KPMG Peat Marwick, LLP,
independent certified public accountants, whose unqualified reports thereon are
incorporated by reference into each Fund's SAI. The tables express the
information for each Tomorrow Fund in terms of a single share for the Tomorrow
Fund outstanding throughout the period. The Tomorrow Funds' Annual Report
includes more information about the Tomorrow Funds' performance and is available
free of charge by writing to the Trust at the address shown on the cover of this
Prospectus.
<TABLE>
<CAPTION>
$ PER SHARE
NET NET TOTAL DIVIDENDS DISTRI- NET
ASSET REALIZED INCOME FROM BUTIONS ASSETS
VALUE AT NET AND FROM NET FROM TOTAL VALUE AT NET
BEGINNING INVESTMENT UNREALIZED INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL ASSETS
OF PERIOD INCOME GAINS OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN (000'S)
--------- ------ ----- ---------- ------ ----- ------- ------ ------ -------
LONG-TERM RETIREMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ADVISER SHARES
For the period March 7, 1996*
through December 31, 1996 $ 6.50 $ 0.04 $ 0.55 $ 0.59 $ (0.06) $ (0.05) $ (0.11) $ 6.98 9.08% $ 978
For the year ended
December 31, 1997 6.98 0.09 1.62 1.71 (0.08) (0.63) (0.71) 7.98 24.50 4,194
INSTITUTIONAL SHARES
For the period April 2, 1996*
through December 31, 1996 6.51 0.04 0.55 0.59 0.00 (0.05) (0.05) 7.05 9.03 282
For the year ended
December 31, 1997 7.05 0.06 1.69 1.75 (0.10) (0.63) (0.73) 8.07 24.84 1,088
MEDIUM-TERM RETIREMENT
ADVISER SHARES
For the period March 7, 1996*
through December 31, 1996 7.50 0.04 0.63 0.67 (0.03) (0.07) (0.10) 8.07 8.89 3,416
For the year ended
December 31, 1997 8.07 0.13 1.40 1.53 (0.13) (0.62) (0.75) 8.85 18.96 11,987
INSTITUTIONAL SHARES
For the period April 2, 1996*
through December 31, 1996 7.53 0.10 0.55 0.65 (0.25) (0.07) (0.32) 7.86 8.54 265
For the year ended
December 31, 1997 7.86 0.24 1.29 1.53 (0.15) (0.61) (0.76) 8.63 19.48 1,665
</TABLE>
<TABLE>
<CAPTION>
RATIOS
RATIO INFORMATION
ASSUMING NO FEE WAIVERS
REIMBURSEMENTS OR
RATIO OF CUSTODY FEE
RATIO OF NET EARNINGS CREDIT RECEIVED
EXPENSES INCOME TO RATIO OF RATIO OF
TO AVERAGE AVERAGE PORTFOLIO AVERAGE EXPENSES NET INCOME
NET NET TURNOVER COMMISSIONS TO AVERAGE TO AVERAGE
ASSETS+ ASSETS RATE PER SHARE NET ASSETS+ NET ASSETS+
------- ------ ---- --------- ----------- -----------
LONG-TERM RETIREMENT
ADVISER SHARES
For the period March 7, 1996*
<S> <C> <C> <C> <C> <C> <C>
through December 31, 1996 1.75% 1.63% 25.09% $ 0.03 45.36% (41.98)%
For the year ended
December 31, 1997 1.75 1.30 66.64 0.03 5.61 (2.56)
INSTITUTIONAL SHARES
For the period April 2, 1996*
through December 31, 1996 1.50 1.97 25.09 0.03 40.49 (37.02)
For the year ended
December 31, 1997 1.45 1.67 66.64 0.03 7.52 (4.40)
MEDIUM-TERM RETIREMENT
ADVISER SHARES
For the period March 7, 1996*
through December 31, 1996 1.75 1.73 22.56 0.03 15.88 (12.40)
For the year ended
December 31, 1997 1.75 1.80 90.67 0.03 2.92 0.64
INSTITUTIONAL SHARES
For the period April 2, 1996*
through December 31, 1996 1.50 1.96 22.56 0.03 20.86 (17.40)
For the year ended
December 31, 1997 1.39 2.33 90.67 0.03 4.41 (0.69)
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
$ PER SHARE
NET NET TOTAL DIVIDENDS DISTRI- NET
ASSET REALIZED INCOME FROM BUTIONS ASSETS
VALUE AT NET AND FROM NET FROM TOTAL VALUE AT NET
BEGINNING INVESTMENT UNREALIZED INVESTMENT INVESTMENT CAPITAL DISTRI- END OF TOTAL ASSETS
OF PERIOD INCOME GAINS OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN (000'S)
--------- ------ ----- ---------- ------ ----- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM RETIREMENT
ADVISER SHARES
For the period March 7, 1996*
through December 31, 1996 $ 8.50 $ 0.06 $ 0.72 $ 0.78 $(0.06) $(0.06) $(0.12) $ 9.16 8.54%++ $4,459
For the year ended
December 31, 1997 9.16 0.22 1.47 1.69 (0.20) (0.87) (1.07) 9.78 18.46 13,786
INSTITUTIONAL SHARES
For the period March 7, 1996*
through December 31, 1996 8.51 0.00 0.70 0.70 0.00 0.00 0.00 9.21 8.23++ 304
For the year ended
December 31, 1997 9.21 0.17 1.55 1.72 (0.24) (0.87) (1.11) 9.82 18.69 1,823
</TABLE>
<TABLE>
<CAPTION>
RATIOS
RATIO INFORMATION
ASSUMING NO FEE WAIVERS
REIMBURSEMENTS OR
RATIO OF CUSTODY FEE
RATIO OF NET EARNINGS CREDIT RECEIVED
EXPENSES INCOME TO RATIO OF RATIO OF
TO AVERAGE AVERAGE PORTFOLIO AVERAGE EXPENSES NET INCOME
NET NET TURNOVER COMMISSIONS TO AVERAGE TO AVERAGE
ASSETS+ ASSETS RATE PER SHARE NET ASSETS+ NET ASSETS+
------- ------ ---- --------- ----------- -----------
SHORT-TERM RETIREMENT
ADVISER SHARES
For the period March 7, 1996*
<S> <C> <C> <C> <C> <C> <C>
through December 31, 1996 1.75% 2.08% 14.16%++ 0.03 15.68% (11.85)%
For the year ended
December 31, 1997 1.75 2.41 145.44 0.03 2.65 1.51
INSTITUTIONAL SHARES
For the period March 7, 1996*
through December 31, 1996 1.50 2.31 14.16++ 0.03 19.10 (15.29)
For the year ended
December 31, 1997 1.44 2.87 145.44 0.03 4.01 0.30
<FN>
+ Annualized.
++ Not annualized.
* Commencement of operations.
</FN>
</TABLE>
-7-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE TOMORROW FUNDS?
The Tomorrow Funds seek to provide investors of all ages who purchase
Variable Contracts or who participate in qualified retirement plans with an
asset allocation strategy designed to address their retirement funding needs.
Each Tomorrow Fund other than the Post-Retirement Fund seeks to maximize total
return while also increasingly emphasizing current income and capital
preservation as the average age of the target class of investors in that
particular Tomorrow Fund increases. The Post-Retirement Fund seeks to provide
investors with an asset allocation strategy designed to maximize total return,
with an emphasis on current income, consistent with capital preservation.
LONG-TERM FUND
seeks to satisfy the retirement goals of investors who are currently
between 22 and 35 years of age and with an average remaining life
expectancy of 50 years or more.
MEDIUM-TERM FUND
seeks to satisfy the retirement goals of investors who are currently
between 36 and 50 years of age and with an average remaining life
expectancy in the range of 35-50 years.
SHORT-TERM FUND
seeks to satisfy the retirement goals of investors who are currently
between 51 and 65 years of age and with an average remaining life
expectancy in the range of 20-30 years.
POST-RETIREMENT FUND
seeks to satisfy the goals of investors who seek to maximize total
return, with an emphasis on current income, consistent with capital
preservation.
Each Tomorrow Fund invests its assets, in varying amounts, in equity and
fixed-income securities of all types (the "Categories"). The amount of assets
allocated to equity securities is currently invested, in varying amounts, among
large capitalization stocks, medium capitalization stocks, small capitalization
stocks and, indirectly through other investment companies, foreign securities
(the "Subcategories"). From time to time, the Adviser may select Subcategories
for the fixed-income Category. Further Subcategories may be selected in addition
to or as a substitute for any of the current Subcategories.
As the average age of the target class of investors in a Tomorrow Fund
increases over time, the particular Tomorrow Fund adjusts the mix of its assets
allocated between equity and fixed-income securities, and further allocated,
directly or indirectly, among large, medium and small capitalization stocks and
foreign securities, to reflect a level of risk that the Adviser considers
appropriate for investors in that target age class, in general, given their
investment time horizon. The Post-Retirement Fund maintains a stable mix of its
assets invested (within defined ranges) in equity and fixed-income securities
based on the current outlook for such securities.
Typically, the longer the average life expectancy of the target class of
investors in a Tomorrow Fund, the greater the allocation of assets of that
Tomorrow Fund to securities with higher growth potential and, correspondingly,
more risk, such as small capitalization stocks. Conversely, the shorter the
average life expectancy of the target class of investors in a Tomorrow Fund, the
greater the emphasis on current income and capital preservation of assets and,
therefore, the greater the allocation of assets of that Tomorrow Fund to
fixed-income securities. Each Tomorrow Fund will be managed more conservatively
as the average age of its target class of investors increases. For example,
assuming that current market conditions remain the same, at a point fifteen
years from now, the strategic asset composition of the Long-Term Fund could
-8-
<PAGE>
be expected to look like the current strategic asset composition of the
Medium-Term Fund. On the date of this Prospectus, the anticipated strategic
asset allocation mix within the Tomorrow Funds' portfolios would be
approximately as follows:
Graphic shown here. Graphic depicts asset composition of the Funds.
LONG-TERM FUND
Large Capitalization - 45.0%
Fixed Income - 20.0%
Medium Capitalization - 15.0%
Small Capitalization - 15.0%
Foreign* - 5.0%
MEDIUM-TERM FUND
Large Capitalization - 40.0%
Fixed Income - 40.0%
Medium Capitalization - 10.0%
Small Capitalization - 5.0%
Foreign* - 5.0%
SHORT-TERM FUND
Large Capitalization - 35.0%
Fixed Income - 65.0%
POST-RETIREMENT FUND
Large Capitalization - 30.0%
Fixed Income - 70.0%
- -------------
* The Long-Term Fund and the Medium-Term Fund will currently invest their assets
allocated to foreign securities in shares of other open-end and/or closed-end
investment companies that will invest primarily in equity securities of foreign
issuers. See "Foreign Securities" on page 12.
The strategic asset allocation mix represents the way that the Tomorrow
Funds' investments will generally be allocated in the near-term. A Tomorrow
Fund's actual asset allocation mix between equity and fixed-income securities
and among large, medium and small capitalization stocks and foreign securities,
as applicable, are expected to vary based on the Adviser's evaluation of
anticipated relative returns and risks between and among such securities in the
near-term future. In addition, a Tomorrow Fund's actual asset allocation will
vary from that shown above based on the relative performance of the
Subcategories. The Adviser will review strategic asset allocations at least
semiannually and will adjust the asset allocations, if necessary, at that time.
Additionally, the strategic asset allocation mix of each Tomorrow Fund (other
than the Post-Retirement Fund) will be adjusted as necessary to reflect a level
of risk that the Adviser considers appropriate for investors in that target
class, in general, given their investment time horizon.
The Trustees of the Trust anticipate that it will be necessary to change,
from time to time, the names of each of the Long-Term, Medium-Term and
Short-Term Funds to reflect the decreasing time period to retirement of each
such Fund's target class of investors. As the average age of the target class of
investors in a Tomorrow Fund approaches that of the Post-Retirement Fund, it is
also anticipated that each Tomorrow Fund's assets may begin to decrease as a
result of investor withdrawals. At such time, the Trustees of the Trust will
consider what action would be appropriate
-9-
<PAGE>
to protect the interests of remaining shareholders, including a combination with
the Post-Retirement Fund.
You are encouraged to select a particular Tomorrow Fund for investment
based on your current age and the length of the period during which you expect
to maintain your investment. You may invest in more than one Tomorrow Fund in
order to achieve a personalized investment program. Before investing in the
Tomorrow Funds, you should consider your personal tolerance for risk recognizing
that each Tomorrow Fund is designed and managed to satisfy the retirement goals
of investors in a target age group with a corresponding average life expectancy
who anticipate retiring at approximately age 65. You should also recognize that
the strategic asset allocation of each Tomorrow Fund and the particular
securities in which each Tomorrow Fund invests are determined based upon the
average age of the particular Tomorrow Fund's target class of investors. Because
the Tomorrow Funds are managed to satisfy retirement goals based upon average
life expectancy, the Tomorrow Funds may invest their assets in higher
risk/higher reward securities than mutual funds designed for investors based
solely on retirement dates. In addition, you should recognize that each Tomorrow
Fund is managed with the goal of achieving a different risk/reward ratio, with
the Long-Term Fund seeking the highest risk/reward ratio and the Post-Retirement
Fund seeking the lowest risk/reward ratio among the Tomorrow Funds. Each
Tomorrow Fund (other than the Post-Retirement Fund) will be managed to achieve
an increasingly conservative risk/reward ratio as the average age of the target
class of investors in that particular Tomorrow Fund increases.
RISK/REWARD RATIO
Higher Lower
- -------------------------------------------------------------------------------
Long-Term Medium-Term Short-Term Post-Retirement
Fund Fund Fund Fund
The investment policies, including each Tomorrow Fund's investment
objective, described in this Prospectus are non- fundamental policies which may
be changed by the Trustees without the approval of shareholders. If there is a
change in a Tomorrow Fund's investment objective, shareholders should consider
whether that Tomorrow Fund remains an appropriate investment in light of their
then current financial positions and needs. Each Tomorrow Fund has adopted
certain fundamental policies which may not be changed without the approval of
the applicable Tomorrow Fund's shareholders. See "Investment Restrictions" on
page 34.
IN WHAT TYPES OF SECURITIES DO THE TOMORROW FUNDS INVEST?
Each Tomorrow Fund allocates its assets between equity and fixed-income
securities. The equity Category includes equity securities of all types. The
fixed-income Category includes all varieties of fixed-income instruments. Some
types of securities can be considered as both equity and fixed-income
securities, such as shares of real estate investment trusts. The Tomorrow Funds
may also make other investments that are not considered either an equity or
fixed-income security, such as options and futures. For further information
concerning the equity and fixed-income securities in which the Tomorrow Funds
may invest, see "Risk Considerations and Other Investment Practices and
Policies" beginning on page 27 of this Prospectus.
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<PAGE>
While each Tomorrow Fund invests in substantially the same equity and
fixed-income securities, the amount of each Tomorrow Fund's assets allocated to
equity and fixed-income securities, and thus in particular securities, differs.
However, it is expected that the relative percentage that a particular equity or
fixed-income security represents within the equity and fixed-income Categories
and the large, medium and small capitalization stock and foreign securities
Subcategories ordinarily will remain substantially the same.
Each Tomorrow Fund may, but is not required to, utilize various
investment strategies and techniques to seek to hedge various market risks (such
as broad or specific equity or fixed-income market movements and interest rate
risk), to manage the effective maturity or duration of fixed-income securities,
or to enhance potential gain. The investment strategies and techniques used by
the Tomorrow Funds and the instruments in which they invest may change over time
as new techniques, strategies and instruments are developed or regulatory
changes occur. In the course of pursuing their investment objectives, the
Tomorrow Funds may: (i) purchase and write (sell) put and call options on
securities and indices; (ii) purchase and sell financial futures contracts and
options thereon; (iii) lend portfolio securities; (iv) enter into repurchase
agreements and mortgage dollar roll transactions; (v) purchase securities on a
forward commitment, when-issued or delayed delivery basis; (vi) invest in
restricted, illiquid and structured securities; (vii) invest in other investment
companies and shares of real estate investment trusts ("REITs"); and (viii)
invest in securities of unseasoned issuers. For further information concerning
the securities in which the Tomorrow Funds may invest and the investment
strategies and techniques they may employ, see "Risk Considerations and Other
Investment Practices and Policies" beginning on page 27 of this Prospectus.
EQUITY SECURITIES
A Tomorrow Fund's assets allocated to equity securities are currently
invested, in varying amounts, among large capitalization stocks, medium
capitalization stocks, small capitalization stocks and, indirectly through other
investment companies, foreign securities. Please refer to the charts on page 8
of this Prospectus for the current strategic allocation of a Tomorrow Fund's
assets among these securities.
LARGE, MEDIUM AND SMALL CAPITALIZATION STOCKS.
- -----------------------------------------------
With respect to the assets of each Tomorrow Fund allocated to large,
medium and small capitalization stocks, the Adviser seeks to provide, using a
quantitative methodology, investment results that exceed the performance of an
appropriate "Benchmark Index." To seek to achieve this objective, the assets
that are allocated separately to large, medium and small capitalization stocks
will, under normal market conditions, be invested in a portfolio of securities
that is considered more "efficient" than the applicable Benchmark. An efficient
portfolio is one that has the maximum expected return for any level of risk. The
efficient mix of securities is established mathematically, taking into account
the expected return and volatility of returns for each security in a given
universe, as well as the historical price relationships between different
securities in the universe.
SUBCATEGORY BENCHMARK
----------- ---------
Large Capitalization Stocks Standard & Poor's 500 Composite Stock Price Index
Medium Capitalization Stocks Standard & Poor's 400 MidCap Index.
Small Capitalization Stocks Russell 2000 Index
To implement this strategy with respect to a Subcategory, the Adviser
compiles the historical price data of all securities which comprise the
applicable Benchmark. The Adviser may eliminate a security from consideration if
it considers the security to have an inadequate or misleading price history.
Using historical price data, the Adviser constructs and analyzes a complete
matrix of all the possible price relationships between the securities in the
applicable Benchmark.
Using a sophisticated software program that incorporates risk reduction
techniques developed by investment professionals of the Adviser, the Adviser
constructs a number of portfolios separately with respect to each Tomorrow
Fund's assets that are allocated to large, medium and small capitalization
stocks, which portfolios are believed to have optimized risk/reward ratios. From
these alternative portfolios, the Adviser selects the combination of securities,
together with their appropriate weightings, that the Adviser believes will
comprise the optimal portfolio for each Subcategory. It is expected that the
optimal portfolio for each Subcategory will not include all the stocks in and
will be weighted differently
-11-
<PAGE>
than the applicable Benchmark. The optimal portfolio for each Subcategory is
designed to have a return greater than, but highly correlated with, the return
of its Benchmark. Please see "Quantitative Methodology" in the SAI for a further
description of how the Adviser constructs and maintains an optimal portfolio for
the large, medium and small capitalization Subcategories.
FOREIGN SECURITIES
The Adviser intends to invest the Long-Term Fund's and the Medium-Term
Fund's assets allocated to foreign securities in shares of other open-end and/or
closed-end investment companies. Such other investment companies will invest
their assets primarily in equity securities of foreign issuers. It is
anticipated that none of the Tomorrow Funds, including the Long-Term Fund and
the Medium-Term Fund, will currently invest directly in foreign securities. The
Adviser will seek to select for investment other investment companies whose
underlying securities, when aggregated, resemble the composition of the Morgan
Stanley Europe, Australia, Far East Index ("EAFE Index"). There can be no
assurance that the Adviser will be successful in selecting such investment
companies. See "Risk Considerations and Other Investment Practices and Policies
- - Other Investment Companies" on page 27 of this Prospectus and "Foreign
Securities" in the SAI.
FIXED-INCOME SECURITIES
Each Tomorrow Fund will invest those assets which are allocated to
fixed-income securities in a broad range of fixed-income securities, including
bonds, notes, mortgaged-backed and asset-based securities, preferred stock,
convertible debt securities, zero coupon and capital appreciation bonds issued
by U.S. corporations or other entities or by the U.S. Government or its
agencies, authorities, instrumentalities or sponsored enterprises. The Tomorrow
Funds limit their investments in fixed-income securities to those that are
rated, at the time of purchase, investment grade or, if not rated, determined by
the Adviser to be of equivalent credit quality to securities so rated.
Fixed-income securities may pay interest on a fixed, variable, floating,
contingent, in-kind or deferred basis. There is no limit on the average
dollar-weighted maturity or duration of a Tomorrow Fund's portfolio or on the
maturity or duration of any individual fixed-income security purchased by a
Tomorrow Fund. Because each Tomorrow Fund will invest in substantially the same
fixed-income securities but in different amounts based on the particular
Tomorrow Fund's strategic asset allocation, the average dollar-weighted
effective maturity and duration of the Tomorrow Funds' fixed-income securities
will be substantially the same. Currently, it is expected that under normal
circumstances, the average duration of the Tomorrow Funds' assets allocated to
fixed-income securities will be in the intermediate range. For further
information concerning the fixed-income securities in which the Tomorrow Funds
may invest, see "Risk Considerations and Other Investment Practices and
Policies" beginning on page 27 of this Prospectus.
RISK FACTORS
There is no assurance that any Tomorrow Fund will achieve its investment
objective. Because each Tomorrow Fund owns different types of investments, its
performance is affected by a variety of factors. The value of a Tomorrow Fund's
investments and the income they generate (and, therefore, its net asset value)
will vary from day to day, and generally reflect interest rates, market
conditions, and other company, political and economic news. The Tomorrow Funds'
performance also depends on the Adviser's skill in allocating assets. When you
sell your shares, they may be worth more or less than what you paid for them.
-12-
<PAGE>
In general, the value of the Tomorrow Funds' investments in fixed-income
securities rises when interest rates fall, and vice versa. Although fixed-income
securities have varying degrees of quality and varying levels of sensitivity to
changes in interest rates, longer-term fixed-income securities are generally
more sensitive to interest changes than shorter-term fixed-income securities.
Investing in REITs involves risks in addition to those associated with
fixed-income securities. REITs may be affected by changes in the value of the
underlying property and by the quality of any credit extended, are dependent
upon management skills, are not diversified, and are subject to heavy cash flow
dependency. The risks associated with the Tomorrow Funds' transactions in
options, futures and other types of derivative securities including
mortgage-backed, asset-backed and structured securities may include some or all
of the following: market risk, leverage and volatility risk, correlation risk,
credit risk and liquidity and valuation risk.
For a further discussion of the risks associated with an investment in
the Tomorrow Funds, please see "Risk Considerations and Other Investment
Practices and Policies" beginning on page 27 of this Prospectus.
ELIGIBLE INVESTORS
Institutional Class shares of the Tomorrow Funds are designed to provide
investment vehicles for variable annuity and variable life insurance contracts
("Variable Contracts") of various insurance companies' separate accounts
("Separate Accounts"). Separate Accounts may not invest in Adviser Class shares.
Adviser Class shares and Institutional Class shares of the Tomorrow Funds
may be purchased for the account of qualified pension or retirement plans
("Qualified Plans"). Qualified Plans include: Qualified plans and trusts under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), annuity plans under Code Section 403(a), Code Section 403(b)
annuities and custodial accounts, certain governmental plans, simplified
employee pension plans, deferred compensation arrangements under Code Section
457(b) and certain Individual Retirement Accounts ("IRAs"). IRAs that may invest
in shares of the Tomorrow Funds are limited to those established for the benefit
of: (a) current and former Trustees and officers of the Trust; (b) current and
former directors and employees of the Adviser; (c) directors, officers and
employees of companies and their affiliates that have an advisory relationship
with the Adviser; (d) directors, officers and employees of companies and their
affiliates serving in an advisory capacity to sponsors of Qualified Plans and
(e) members of the immediate families of any of the foregoing persons.
Should you have any questions as to whether you are an eligible investor
in shares of the Tomorrow Funds, please call WPG at 1-800-223-3332.
INSURANCE COMPANY SEPARATE ACCOUNTS
Insurance Company Separate Accounts may only invest in Institutional
Class shares of the Tomorrow Funds. Because holders of Variable Contracts may
not purchase or redeem Institutional Class shares of the Tomorrow Funds
directly, you should read the prospectus of your insurance company Separate
Account to obtain instructions for purchasing a Variable Contract. Variable
Contracts may or may not make investments in all the Tomorrow Funds described in
this Prospectus.
Separate Accounts purchase and redeem Institutional Class shares of the
Tomorrow Funds at their respective net asset values. Redemptions will be
effected by Separate Accounts to meet obligations under Variable Contracts.
Insurance companies who wish to designate Institutional Class shares of the
Tomorrow Funds as investment vehicles for their Separate Accounts should contact
WPG at 1-800-223-3332.
-13-
<PAGE>
QUALIFIED PLANS
The following information describes how participants in Qualified Plans
may arrange to buy, sell (redeem) and exchange Adviser and Institutional Class
shares of the Tomorrow Funds for the account of their Qualified Plans.
A. ALTERNATIVE PURCHASE ARRANGEMENTS
Each Tomorrow Fund continuously offers through this Prospectus Adviser
and Institutional Class shares to Qualified Plans. If the trustee, custodian,
plan administrator or other fiduciary (each, a "Plan Fiduciary") responsible for
making investments on behalf of a Qualified Plan does not specify in the
instructions to the Tomorrow Funds which class of shares to purchase, the
Tomorrow Funds will assume that the instructions apply to Adviser Class shares.
Both Adviser Class and Institutional Class shares are sold without a
sales charge. Adviser Class shares are subject to distribution fees of up to
0.25% and service fees of up to 0.25% of each Tomorrow Fund's average daily net
assets attributable to Adviser Class Shares. Institutional Class shares are
subject to service fees of up to 0.25% of each Tomorrow Fund's average daily net
assets attributable to Institutional Class Shares. See "Distribution Plans" and
"Service Plans" below in this Prospectus.
B. HOW TO BUY SHARES
THROUGH WHOM MAY SHARES OF THE TOMORROW FUNDS BE PURCHASED FOR QUALIFIED PLANS?
Because you may not purchase shares of the Tomorrow Funds directly, all
orders to purchase shares must be made through the Plan Fiduciary of your
Qualified Plan. If the monies you wish to invest in the Tomorrow Funds are
maintained in a Qualified Plan sponsored by your employer, please consult with
your employer for information about how to purchase shares of the Tomorrow
Funds. If the monies you wish to invest in the Tomorrow Funds are maintained by
your Plan Fiduciary in an IRA or other self-administered Qualified Plan, please
consult with your Plan Fiduciary for information about how to purchase shares of
the Tomorrow Funds.
You may establish an IRA with the Trust's custodian, Boston Safe Deposit
and Trust Company ("Boston Safe"), through which you may invest in the Tomorrow
Funds. Additionally, you may invest in the Tomorrow Funds by "rolling over" an
existing IRA into an IRA maintained by Boston Safe. Please call WPG at
1-800-223-3332 for information regarding how to establish an IRA with Boston
Safe.
WHAT IS THE MINIMUM INVESTMENT BY QUALIFIED PLANS IN SHARES OF THE TOMORROW
FUNDS?
Plan Fiduciaries may invest in the Tomorrow Funds for the account of
Qualified Plans with as little as $250. There is no minimum amount required for
subsequent investments.
AT WHAT PRICE ARE SHARES OF THE TOMORROW FUNDS OFFERED?
Shares of each class of the Tomorrow Funds are sold at the net asset
value (NAV) of such class of shares next determined after First Data Investor
Services Group, Inc., the Tomorrow Funds' "Transfer Agent," receives and accepts
a purchase order. Purchase orders received and accepted by the Transfer Agent by
the close of regular trading on the New York Stock Exchange on any Business Day
(normally 4:00 p.m. New York City time) will be effected as of the close of
regular trading on the New York Stock Exchange on that day. Otherwise, orders
will be effected at the NAV determined on the next Business Day.
-14-
<PAGE>
HOW MAY PLAN FIDUCIARIES INVEST IN THE TOMORROW FUNDS FOR THE ACCOUNT OF THEIR
QUALIFIED PLANS?
In order to make an initial investment in a Tomorrow Fund for a Qualified
Plan, Plan Fiduciaries must open an account with the Tomorrow Funds by
furnishing to WPG the information in the applicable Account Information Form
included with this Prospectus. Please note that there is an Account Information
Form applicable to IRAs and an Account Information Form applicable to other
Qualified Plans and to insurance company Separate Accounts. Shares of the
Tomorrow Funds may be purchased by Plan Fiduciaries for the account of Qualified
Plans on any day during which the New York Stock Exchange is open for business
(a "Business Day").
- --------------------------------------------------------------------------------
PLAN FIDUCIARIES: TO MAKE AN INITIAL INVESTMENT FOR A QUALIFIED PLAN
- --------------------------------------------------------------------------------
BY MAIL: 1. Make a check payable to the Tomorrow Fund in
which you wish to invest.
2. Mail the completed Account Information Form and check
to WPG.
BY WIRE: 1. Call 1-800-223-3332 to open an account and to
receive an application. Funds may be wired after the
application has been received.
2. Instruct your bank to wire funds to:
Boston Safe Deposit and Trust Company
WPG Deposit Account No. 12-816-3
Bank Routing No. 011-00123-4
Specify:
Name of Tomorrow Fund
Class of shares
Account Number
Name(s) in which account is to be registered
3. Mail the completed Account Information Form to WPG.
- --------------------------------------------------------------------------------
PLAN FIDUCIARIES: TO MAKE FURTHER INVESTMENTS FOR A QUALIFIED PLAN
- --------------------------------------------------------------------------------
AUTOMATICALLY: 1. Use the Automatic Investment Plan. Sign up for
this service when opening an account, or call
1-800-223-3332 to receive a Services Form to add
this privilege. Designate the bank or credit
union account from which funds will be drawn.
2. The amount to be invested will automatically be
withdrawn from the designated bank or credit
union account on or about the first Business Day
of the month or quarter selected.
BY TELEPHONE: 1. Sign up for this service when
opening an account, or call 1-800-223-3332 to
receive a Services Form to add this privilege.
Designate the bank or credit union account from
which funds will be drawn. Note that in order to
invest by phone, the account must be in a bank or
credit union that is a member of the Automated
Clearing House system (ACH).
-15-
<PAGE>
2. Once this service has been selected, Plan
Fiduciaries may purchase additional shares for
the account of their Qualified Plans by calling
the Tomorrow Funds' Transfer Agent, toll-free at
1-800-223-3332.
3. Give the Transfer Agent representative the
name(s) in which the account is registered, the
Tomorrow Fund name, Class of shares,
number, and the amount of the investment.
4. An investment will normally be credited to the
Qualified Plan account upon receipt of payment.
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 purchase
orders by mail.
BY MAIL: 1. Include a note with the investment specifying:
Name of the Tomorrow Fund
Class of shares
Account Number
Name(s) in which account is registered
2. Make the check payable to the Tomorrow Fund in
which you wish to or are instructed to invest.
Indicate the account number on the check.
3. Mail the account information and check to the
Transfer Agent at the address indicated on the
back cover of this Prospectus.
BY WIRE: Instruct the bank to wire funds to:
Boston Safe Deposit and Trust Company
WPG Deposit Account No. 12-816-3
ABA Routing No. 011-00123-4
For credit to:
Name of Tomorrow Fund
Class of shares
Your Account Number
Name(s) in which account is registered
OTHER PURCHASE INFORMATION. Each Tomorrow Fund reserves the right to
reject any purchase for any reason and to cancel any purchase due to nonpayment.
As a condition of this offering, if your purchase is cancelled due to nonpayment
or because your check does not clear (and, therefore, your account is required
to be redeemed), you will be responsible for any loss incurred by the Tomorrow
Fund(s) affected. All purchases must be made in U.S. dollars. Checks drawn on
foreign banks will delay purchases until U.S. funds are received and a
collection charge may be imposed. In such cases, shares of the Tomorrow Funds
are priced at the net asset value computed after the Transfer Agent receives
notification of the dollar equivalent from the Tomorrow Funds' custodian bank.
Wire purchases normally take two or more hours to complete and, to be accepted
the same day, must be received by 4:00 p.m. New York City time. Your bank may
charge a fee to wire funds. Telephone transactions are recorded to verify
information.
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<PAGE>
ACQUIRING SHARES OF THE TOMORROW FUNDS IN EXCHANGE FOR SECURITIES. Shares
of the Tomorrow Funds may be purchased in whole or in part by delivering to the
Tomorrow Funds' custodian, Boston Safe, securities acceptable to WPG. Please see
"In-Kind Purchases" in the SAI for the terms and conditions of these
transactions.
C. HOW TO SELL SHARES
HOW MAY SHARES OF THE TOMORROW FUNDS BE REDEEMED FOR QUALIFIED PLANS?
Subject to the restrictions (if any) imposed by your Qualified Plan, you
can arrange to sell or "redeem" some or all of your shares on any Business Day.
All orders to redeem shares of the Tomorrow Funds held for the account of
Qualified Plans must be made through your Plan Fiduciary. If the shares you wish
to redeem are held for the account of a Qualified Plan sponsored by your
employer, please consult with your employer for information about how to redeem
shares of the Tomorrow Funds. If the shares you wish to redeem are maintained by
your Plan Fiduciary in an IRA or other self-administered Qualified Plan, please
consult with your Plan Fiduciary for information about how to redeem shares of
the Tomorrow Funds. Please note that shares may not be redeemed by telephone or
telegram, except for exchanges which can be requested by Plan Fiduciaries by
telephone or in writing in the case of payments made by check.
AT WHAT PRICE ARE SHARES OF THE TOMORROW FUNDS REDEEMED?
Shares of each Class of the Tomorrow Funds will be redeemed at the share
price (NAV) of such Class of shares next calculated after a redemption order is
received in good order by the Transfer Agent. Once shares are redeemed, sale
proceeds generally are available the next Business Day, but may take up to three
Business Days. For your protection, redemption proceeds will not be released
until a shareholder's account has been opened and payment for the shares to be
redeemed have been received by the Tomorrow Fund, which may take up to fifteen
days in the case of payments made by check.
The net asset value per share received upon redemption or repurchase may
be more or less than the original cost of the shares, depending on the market
value of the portfolio at the time of redemption or repurchase.
- --------------------------------------------------------------------------------
Plan Fiduciaries: To Redeem Shares for a Qualified Plan
- --------------------------------------------------------------------------------
BY MAIL: 1. In a written request specify:
Name of the Tomorrow Fund
Class of shares
Account Number
Name(s) in which account is registered
The dollar amount or the number of shares to
be redeemed
2. Mail the redemption request to the Transfer Agent
at the address indicated on the back cover of
this Prospectus.
AUTOMATICALLY 1. Use the Automatic Withdrawal Plan if the
(POST-RETIREMENT Qualified Plan account has a total value of at
FUND ONLY): least $10,000. Sign up for this service when
opening an account, or call 1-800-223-3332 to
receive a Services Form to add this privilege.
-17-
<PAGE>
2. The redemption proceeds of $100 or more will
automatically be transferred from the shareholder
account to the designated address or bank account
on or about the first Business Day of the month
or quarter selected.
- --------------------------------------------------------------------------------
GENERAL REDEMPTION INFORMATION. Redemption requests must be received by
the Transfer Agent before the close of business on the New York Stock Exchange
to receive that day's share price (NAV). A written redemption request must be
signed by all registered shareholders for the account using the exact names in
which the account is registered or accompanied by executed power(s) of attorney.
Unless otherwise specified, redemption proceeds will be sent by check to the
record address. Plan Fiduciaries may elect to have redemption proceeds wired to
a checking or bank account if wire redemptions were authorized when the account
was opened or have subsequently been authorized.
Redemptions may be suspended or postponed during any period in which any
of the following conditions exist: the New York Stock Exchange is closed or
trading on the Exchange is restricted; an emergency exists during which it is
not reasonably practicable for a Tomorrow Fund to dispose of its portfolio
securities or to fairly determine its net asset value; or the SEC, by order, so
permits. Although the Tomorrow Funds generally intend to satisfy redemption
requests in cash, they may, under certain circumstances, satisfy redemptions
requests in kind by delivering portfolio securities. See the SAI.
CERTAIN REDEMPTION REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. A
signature guarantee is a widely accepted way to protect you and the Tomorrow
Funds from fraud by verifying the signature on your redemption request. A
signature guarantee is required if (a) the redemption proceeds are to be sent to
an address other than the address of record or to a person other than the
registered shareholder(s) for the account, (b) the redemption request is made
for the account of an IRA or (c) the net asset value of the shares redeemed is
$100,000 or more (this requirement may be waived by the Adviser in its
discretion).
The following institutions may provide a signature guarantee, provided
that the institution meets credit standards established by the 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, a federal savings bank or
association; or (v) a national securities exchange, a registered securities
exchange or a clearing agency. Signature guarantees may not be provided by a
notary public.
SMALL ACCOUNTS. In order to reduce the expense of maintaining numerous
small accounts, the Trust reserves the right to redeem any shareholder account
(other than an IRA) if, as a result of redemptions, the value of the account is
less than $100. Shareholders will be allowed at least 60 days, after written
notice by the Trust, to make an additional investment to bring the account value
up to at least $100 before the redemption is processed.
CHANGE IN TAX STATUS. Insurance companies and Plan Fiduciaries are
required to notify the Trust through the Transfer Agent if the tax status of
their Separate Account or Qualified Plan is revoked or challenged by the
Internal Revenue Service. The Trust reserves the right to redeem any fund
account of any shareholder whose qualification as a diversified segregated asset
account or a qualified pension or retirement plan satisfying the requirements of
Treasury Regulation ss. 1.817-5 is revoked or challenged. The Trust will not
treat an investor as a qualified pension or retirement plan for this purpose
unless the investor is among the categories specifically enumerated in Revenue
Ruling 94-62, 1994-2 C.B. 164. An Insurance Company or Qualified Plan whose tax
status is revoked or challenged by the Internal Revenue Service may be liable to
the Trust or the Adviser for losses incurred by the Trust or the Adviser as a
result of such action.
-18-
<PAGE>
D. HOW TO EXCHANGE SHARES
MAY SHARES BE EXCHANGED FOR SHARES OF OTHER MUTUAL FUNDS?
Subject to the terms of your Qualified Plan, shares of a Tomorrow Fund may
be exchanged for shares of the same class of any other Tomorrow Fund as well as
for shares of any of the WPG mutual funds. Please contact WPG at the address
listed on the cover page for a copy of the WPG mutual funds' prospectus. Please
consider the differences in investment objectives and expenses of a fund as
described in its prospectus before making an exchange.
DO SALES CHARGES APPLY TO EXCHANGES?
As is the case with initial purchases of shares of the Tomorrow Funds,
exchanges of shares are made WITHOUT the imposition of a sales charge.
HOW MAY I MAKE AN EXCHANGE FOR MY QUALIFIED PLAN?
Because shares of the Tomorrow Funds are held for the account of Qualified
Plans, all orders to exchange shares must be made through your Plan Fiduciary.
If the shares you wish to exchange are held for the account of a Qualified Plan
sponsored by your employer, please consult with your employer for information
about how to exchange shares of the Tomorrow Funds. If the shares you wish to
exchange are maintained by your Plan Fiduciary in an IRA or other
self-administered Qualified Plan, please consult with your Plan Fiduciary for
information about how to exchange shares of the Tomorrow Funds.
- --------------------------------------------------------------------------------
PLAN FIDUCIARIES: TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
BY PHONE: 1. Use the telephone exchange privilege. The
telephone exchange privilege is not available
automatically. It is necessary to sign up for
this privilege on the Account Application Form
when opening an account, or call 1-800-223-3332
to receive a Services Form to add this privilege.
2. Once this privilege has been selected, simply
call the Transfer Agent toll free at
1-800-223-3332 between 9:00 a.m. and 4:00 p.m.
New York City time on any Business Day.
3. Give the following information to the Transfer
Agent representative:
Name of current Tomorrow Fund
Class of shares
Name of the fund into which the current
Tomorrow Fund shares will be exchanged
Account Number
Name(s) in which your account is registered
The dollar amount or the number of shares
to be exchanged
BY MAIL: 1. Mail a written request to the Transfer Agent at
the address listed on the back cover of this
Prospectus specifying:
Name of current Tomorrow Fund
Class of shares
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<PAGE>
Name of the fund into which the current Tomorrow
Fund shares will be exchanged
Account Number
Name(s) in which your account is registered
The dollar amount or the number of shares to be
exchanged
2. The exchange request must be signed by all
registered holders for the account using the
exact names in which the account is registered or
accompanied by executed power(s) of attorney.
GENERAL EXCHANGE INFORMATION. Shares exchanged are valued at their
respective net asset values per share next determined after the exchange request
is received by the Transfer Agent. All exchanges are subject to the following
exchange restrictions: (i) the fund into which shares are being exchanged must
be available for sale in your state; (ii) exchanges may be made only between
funds that are registered in the same name, address and, if applicable, taxpayer
identification number; (iii) the minimum amount for exchanging from one fund
into another fund is $100 or the total value of your fund account (if less than
$100) and must satisfy the minimum account size of the fund to be exchanged
into; and (iv) exchanges may only be made for the same class of shares.
To confirm that telephone exchange requests are genuine, the Trust employs
reasonable procedures, such as providing written confirmation of telephone
exchange transactions and tape recording of telephone exchange requests. If the
Trust does not employ such reasonable procedures, it may be liable for any loss
incurred by a shareholder due to a fraudulent or unauthorized telephone exchange
request. Otherwise, neither the Trust nor its agents will be liable for any loss
incurred by a shareholder as the result of following instructions communicated
by telephone that they reasonably believed to be genuine. The Trust reserves the
right to refuse any request made by telephone and may limit the dollar amount
involved or the number of telephone requests made by any shareholder. 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.
To prevent abuse of the exchange privilege to the detriment of other
shareholders, the Trust limits the number of exchanges and purchase/redemption
transactions by any one shareholder account (or group of accounts under common
management) to a total of six transactions per year. This policy applies to
exchanges into or out of any series of the Trust and any pair of transactions
involving a purchase of shares of any series of the Trust followed by a
redemption of an offsetting or substantially equivalent dollar amount of shares
of that same series. If a Plan Fiduciary violates this policy, his/her future
purchases of, or exchanges into, the series of the Trust may be permanently
refused. This policy does not prohibit redemptions of shares of any series. This
policy may be waived by WPG in its discretion. Further, the exchange privilege
may be changed or discontinued and may be subject to additional limitations upon
sixty (60) days' notice to shareholders, including certain restrictions on
purchases by market-timer accounts.
HOW EACH TOMORROW FUND'S SHARE PRICE IS DETERMINED
The net asset value per share of a class of a Tomorrow Fund is determined
by dividing the value of its assets, less liabilities attributable to that
class, by the number of shares of that class outstanding. The net asset value is
calculated as of the close of regular trading of the New York Stock Exchange
(normally 4:00 p.m. New York City time)
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on each Business Day. Adviser Class shares and Institutional Class shares of the
Tomorrow Funds may have different net asset values.
Portfolio securities (other than certain money market instruments) are
valued primarily based on market quotations or, if market quotations are not
available, at fair market value as determined in good faith by a valuation
committee appointed by the Trustees. In accordance with procedures adopted by
the Trustees, each Tomorrow Fund may use pricing services to value fixed-income
investments.
MANAGEMENT OF THE TOMORROW FUNDS
TRUSTEES
Each Tomorrow Fund is a separate investment series of Tomorrow Funds
Retirement Trust, a Delaware business trust (the "Trust"). Under the terms of
the Agreement and Declaration of Trust establishing the Trust, the Trustees of
the Trust are ultimately responsible for the management of its business and
affairs.
INVESTMENT ADVISER
Weiss, Peck & Greer, L.L.C., One New York Plaza, New York, New York 10004
serves as the investment adviser to each Tomorrow Fund pursuant to an investment
advisory agreement. The Adviser, a privately held limited liability company with
over 27 years' experience as an investment adviser to individual and
institutional clients, has, together with its affiliates, approximately $14
billion under management. Subject to the supervision and direction of the
Trustees, the Adviser manages each Tomorrow Fund's portfolio in accordance with
its stated investment objective and policies, recommends investment decisions
for the Tomorrow Fund and places orders to purchase and sell securities on
behalf of the Tomorrow Fund. For these services, Post-Retirement Fund pays the
Adviser a monthly fee equal on an annual basis to 0.65% of its average daily net
assets and the other Tomorrow Funds each pay the Adviser a monthly fee equal on
an annual basis to 0.75% of the Tomorrow Fund's average daily net assets.
The Adviser supervises the portfolio management of the Tomorrow Funds
through the Adviser's Asset Allocation Committee, which meets on a regular basis
to evaluate, among other things, the strategic asset allocation mix between
equity and fixed-income securities and among large, medium and small
capitalization and foreign stocks. Daniel J. Cardell is primarily responsible
for the day-to-day management of the assets of each Tomorrow Fund allocated to
large, medium and small capitalization stocks. Mr. Cardell has been a Managing
Director of WPG since May 1996. Prior to joining the Adviser, Mr. Cardell was
Senior Vice President and Director of Equities for the Bank of America. Daniel
S. Vandivort has been primarily responsible since the Tomorrow Funds' inception
for the day-to-day management of the assets of each Tomorrow Fund allocated to
fixed-income securities. Mr. Vandivort has been a Managing Director of the
Adviser since November, 1994. Prior thereto, Mr. Vandivort served in various
capacities with CS First Boston Investment Management, including Managing
Director and Head of U.S. Fixed Income and Senior Portfolio Manager and
Director, Global Product Development and Marketing.
The Adviser has voluntarily and temporarily agreed to limit the operating
expenses (excluding Rule 12b-1 fees applicable to the Adviser Class shares,
service fees applicable to the Institutional Class shares, any other
class-specific expenses, litigation, indemnification and other extraordinary
expenses) of the Long-Term, Mid-Term and Short-Term Funds to 1.25% of their
respective average daily net assets and such operating expenses of the
Post-Retirement Fund to 1.15% of its average daily net assets. The Adviser may
discontinue or modify such limitation in the future at its discretion, although
it has no current intention to do so.
From time to time, the Adviser may compensate insurance companies or their
affiliates who hold Institutional Class shares of the Tomorrow Funds for the
account of their customers for providing a variety of record-keeping,
administrative, marketing and/or shareholder support services. This
compensation, which may be paid at a rate up to 0.25% of the net asset value of
Institutional Class shares held for the account of those customers depending on
the nature, extent and quality of the services provided, will be paid from the
Adviser's own resources and not from the
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assets of any Tomorrow Fund.
ADMINISTRATOR
Pursuant to an administration agreement with each Tomorrow Fund, WPG
provides personnel for supervisory, administrative, accounting, shareholder
services and clerical functions; oversees the performance of administrative and
professional services to the Tomorrow Funds by others; provides office
facilities, furnishings and office equipment; and prepares, but does not pay
for, reports to shareholders, the SEC and other regulatory authorities. As
compensation for the services rendered to the Tomorrow Funds as Administrator,
WPG is entitled to a fee, computed daily and payable monthly, at an annual rate
equal to 0.09% of each Tomorrow Fund's average daily net assets. The
administrative fee for each Tomorrow Fund is reviewed and approved annually by
the Trustees.
EXPENSES
Each Tomorrow Fund bears all expenses of its operation, subject to the
expense limitation agreement described above. In particular, each Tomorrow Fund
pays: investment advisory fees; administration fees; service fees with respect
to the Institutional Class shares; distribution and service fees with respect to
the Adviser Class shares; custodian and transfer agent expenses; legal and
accounting fees and expenses; expenses of preparing, printing, and distributing
Prospectuses and SAIs to existing shareholders, and shareholder communications
and reports; expenses of computing its net asset value per share; federal and
state registration fees and expenses with respect to its shares; proxy and
shareholder meeting expenses; expenses of issuing and redeeming its shares;
independent trustee fees and expenses; expenses of bond, liability, and other
insurance coverage; brokerage commissions; taxes; trade association fees; and
certain non-recurring and extraordinary expenses. In addition, the expenses of
organizing the Tomorrow Funds and initially registering and qualifying their
shares under federal and state securities laws are being charged to the Tomorrow
Funds' operations, as an expense, over a period not to exceed 60 months from the
Tomorrow Funds' inception date.
Each Tomorrow Fund will reimburse the Adviser for fees foregone or other
expenses paid by the Adviser pursuant to this expense limitation in later years
in which operating expenses for that Tomorrow Fund are less than the expense
limitations set forth above for any such year. No interest, carrying or finance
charge will be paid by a Tomorrow Fund with respect to the amounts representing
fees foregone or other expenses paid. In addition, no Tomorrow Fund will pay any
unreimbursed amounts to the Adviser upon termination of its investment advisory
agreement.
DISTRIBUTION PLANS
The Trust, on behalf of the Adviser Class shares of each Tomorrow Fund,
has adopted a Distribution Plan (the "Distribution Plans") pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
Under the Distribution Plans, each Tomorrow Fund pays distribution and service
fees at an aggregate annual rate of 0.50% of a Tomorrow Fund's average daily net
assets attributable to Adviser Class shares. Up to 0.25% is for service fees and
the remaining amount is for distribution expenses. The distribution fee is
intended to compensate WPG for its services and expenses associated with serving
as principal underwriter of the Adviser Class shares of the Tomorrow Funds,
including the payment of commissions by WPG to Authorized Firms. The service fee
is intended to be compensation for personal services and/or account maintenance
services with respect to the Adviser Class shares.
WPG makes monthly payments to Authorized Firms based on the average net
asset value of the Adviser Class shares which are attributable to Qualified
Plans for whom the Authorized Firms are designated as the dealer of record. WPG
makes such payments in amounts up to the distribution fee it receives with
respect to such Adviser Class shares. WPG may suspend or modify such payments to
Authorized Firms.
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The Trust, on behalf of the Institutional Class shares of each Tomorrow
Fund, has adopted a service plan pursuant to which each Tomorrow Fund pays
service fees at an aggregate annual rate of up to 0.25% of a Tomorrow Fund's
average daily net assets attributable to Institutional Class shares (the
"Service Plans"). The service fee is payable for the benefit of Qualified Plans
and is intended to be compensation to Plan Fiduciaries for providing personal
services and/or account maintenance services to participants in Qualified Plans
who beneficially own Institutional Class shares of the Tomorrow Funds. The
Trust, on behalf of the applicable Tomorrow Fund, will make monthly payments to
Plan Fiduciaries, for the benefit of their Qualified Plans, based on the average
net asset value of the Institutional Class shares which are attributable to the
Qualified Plans.
DIVIDENDS AND TAXES
Each Tomorrow Fund is treated as a separate entity for federal income tax
purposes and has elected and has qualified to be treated as a "regulated
investment company" under the Internal Revenue Code and intends to qualify for
such treatment for each taxable year. To qualify as such, each Tomorrow Fund
must satisfy certain requirements relating to the sources of its income,
diversification of its assets and distribution of its income to shareholders.
Each Tomorrow Fund also intends to satisfy certain additional diversification
requirements applicable under Section 817(h) of the Internal Revenue Code in
order to permit investments in Institutional Class shares of the Tomorrow Funds
by insurance company Separate Accounts that fund Variable Contracts, which are
subject to such requirements. It is possible that in order to satisfy the
applicable diversification requirements, investment decisions may be made which
would affect either positively or negatively the investment performance of a
Tomorrow Fund. As a regulated investment company, each Tomorrow Fund will not be
subject to federal income tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Internal Revenue Code.
Each Tomorrow Fund intends to distribute all of its net investment income
and net capital gains each year. Income dividends, if any, will be declared and
distributed monthly for Post-Retirement Fund. Income dividends, if any, will be
declared and distributed at least annually by each other Tomorrow Fund. Net
short-term and long-term capital gains of each Tomorrow Fund, if any, realized
during the taxable year will be distributed no less frequently then annually.
Dividends derived from each Tomorrow Fund's net investment income (including
dividends, interest and recognized market discount income), and from any net
short- term capital gain in excess of net long-term capital loss are treated as
ordinary income under the Internal Revenue Code. Distributions from each
Tomorrow Fund's net long-term capital gains are treated as long-term capital
gain, if any, in excess of net short-term capital loss under the Internal
Revenue Code, regardless of how long shares of the Tomorrow Funds have been
held.
Participants in Qualified Plans may be eligible for tax deferral or
exemption on distributions a Qualified Plan receives from a Tomorrow Fund and
gains that arise from a Qualified Plan's dispositions of Fund shares. This
Prospectus does not describe in any respect such tax treatment. Please consult
your Plan Fiduciary or tax adviser. For a discussion of the tax status of a
Variable Contract, including the tax consequences of withdrawals or other
payments, refer to the prospectus of the insurance company Separate Account.
It is suggested that holders of Variable Contracts and participants in
Qualified Plans keep all statements received from their insurance company or
Qualified Plan to assist in personal recordkeeping.
REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless a Plan Fiduciary elects otherwise, as permitted in the Account
Information Form, income dividends and capital gains distributions with respect
to a Tomorrow Fund will be reinvested in additional shares of the same Class of
that Tomorrow Fund and will be credited to the Qualified Plan's account with
that Tomorrow Fund at the net asset
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value per share next determined as of the ex-dividend date. Both income
dividends and capital gains distributions are paid by the Tomorrow Fund on a per
share basis. As a result, at the time of such payment, the net asset value per
share of a Tomorrow Fund will be reduced by the amount of such payment. Although
income dividends and capital gains distributions by the Tomorrow Funds may not
give rise to current tax liability for the categories of shareholders permitted
to invest in the Tomorrow Funds, participants in Qualified Plans may be subject
to tax on all or a portion of their distributions from such Plans or upon the
failure of such Plans to maintain their qualified status under complex Internal
Revenue Code provisions concerning which a tax adviser should be consulted.
Withdrawals or other payments to Variable Contract holders from insurance
company Separate Accounts may also be taxable. Participants in Qualified Plans
who wish to change the manner in which income dividends and capital gains
distributions are received by their Qualified Plans should contact their Plan
Fiduciaries. Written notification of such change must be received by the
Transfer Agent at least ten days before the next scheduled distribution.
PORTFOLIO BROKERAGE
In effecting securities transactions, the Tomorrow Funds generally seek to
obtain the best price and execution of orders under the circumstances.
Commission rates are a component of price and are considered along with other
factors, including the ability of the broker to effect the transaction, and the
broker's facilities, reliability and financial responsibility. Subject to the
foregoing, the Tomorrow Funds intend to utilize WPG as their primary broker in
connection with the purchase and sale of exchange-traded portfolio securities.
As the Tomorrow Funds' primary broker, WPG will receive brokerage commissions
from the Tomorrow Funds, limited to the "usual and customary broker's
commission" specified by the 1940 Act. The Tomorrow Funds intend to continue to
use WPG as their primary broker on exchange-traded securities, provided WPG is
able to provide execution at least as favorable as that provided by other
qualified brokers.
The Trustees of the Trust have developed procedures to limit the
commissions received by WPG to the "usual and customary broker's commission"
standard specified by the 1940 Act. On a quarterly basis, the Trustees review
the securities transactions of each Tomorrow Fund effected by WPG to assure
their compliance with such procedures.
The Tomorrow Funds may also execute their portfolio transactions through
qualified brokers other than WPG. In selecting such other brokers, WPG considers
the quality and reliability of brokerage services, including execution
capability and performance and financial responsibility, and may consider the
research and other investment information provided by such brokers. Accordingly,
the commissions paid to any such broker may be greater than the amount another
firm might charge, provided WPG determines in good faith that the amount of such
commission is reasonable in relation to the value of the brokerage services and
research information provided by such broker. Such information may be used by
WPG (and its affiliates) in managing all of its accounts and not all of such
information may be used by WPG in managing the Tomorrow Funds. In selecting
other brokers for a Tomorrow Fund, WPG may also consider the sale of shares of
the Tomorrow Fund effected through such other brokers as a factor in its
selection, provided that Tomorrow Fund obtains the best price and execution of
orders under the circumstances.
Money market securities and other fixed-income securities, as well as
certain equity securities, in which the Tomorrow Funds invest are traded
primarily in the over-the-counter ("OTC") market. For transactions effected in
the OTC market, financial intermediaries (i.e., dealers) act as principal rather
than as agent and receive a "spread" or mark-up rather than a commission. The
Tomorrow Funds intend to deal with the primary market-makers with respect to OTC
securities, unless a more favorable result is obtainable elsewhere.
THE TRUST
Tomorrow Funds Retirement Trust is an open-end management investment
company (commonly referred to as a
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mutual fund) organized as a Delaware business trust under an Agreement and
Declaration of Trust dated June 21, 1995 (the "Declaration"). The Trust has
authorized an unlimited number of shares of beneficial interest.
As of the date of this Prospectus, the shares of the Trust are divided
into four series: Tomorrow Long-Term Retirement Fund, Tomorrow Medium-Term
Retirement Fund, Tomorrow Short-Term Retirement Fund and Tomorrow
Post-Retirement Fund. The Trust reserves the right to create and issue
additional series of shares. No series is entitled to share in the assets of any
other series or is liable for the expenses or liabilities of any other series.
Shares of a particular series vote separately on matters affecting only that
series, including the approval of an investment advisory agreement and changes
in fundamental policies or restrictions of a particular series.
As of the date of this Prospectus, the Trustees have authorized the
issuance of two classes of shares for each series, designated as Institutional
Class and Adviser Class. The shares of each Class represent an interest in the
same portfolio of investments of that series. Each Class has equal rights as to
voting, redemption, dividends and liquidation, except that each Class bears
different distribution fees and may bear other expenses properly attributable to
the particular Class. Adviser Class shareholders of a Tomorrow Fund have
exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted
by holders of Adviser Class shares of that Tomorrow Fund. The Trustees have the
authority, without further shareholder approval, to classify and reclassify the
shares of a series of the Trust into additional classes. In addition, subject to
Trustee approval and shareholder approval (if then required), each Tomorrow Fund
may pursue its investment objective by investing all of its investable assets in
a pooled fund. See "Other Investment Companies" on page 31 of this Prospectus.
An insurance company issuing a Variable Contract that participates in
Institutional Class shares of a Tomorrow Fund will vote such shares held by the
insurance company Separate Accounts as required by law. In accordance with
current law and interpretations thereof, participating insurance companies are
required to request voting instructions from policy owners and must vote shares
of the Tomorrow Funds in proportion to the voting instructions received. For a
further discussion of voting rights, please refer to your insurance company
Separate Account prospectus.
When issued and paid for in accordance with the terms of the Prospectus
and Statement of Additional Information, shares of the Trust are fully paid and
non-assessable. The Trust is not required, and does not intend, to hold annual
shareholder meetings. Shareholders have certain rights, as set forth in the
Declaration, including the right to call a meeting of shareholders for the
purpose of voting on the removal of one or more Trustees. Such removal can be
effected upon the action of two-thirds of the outstanding shares of the Trust.
In addition to the requirements under Delaware law, the Declaration
provides that a shareholder of the Trust may bring a derivative action on behalf
of the Trust only if the following conditions are met: (a) shareholders eligible
to bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the Trust, or 10% of the outstanding shares of the series
or class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and investigate
the basis of such claim. The Trustees shall be entitled to retain counsel or
other advisers in considering the merits of the request and shall require an
undertaking by the shareholders making such request to reimburse the Trust for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The Trustees of the Trust do not expect any disadvantages to investors
arising out of the fact that each Tomorrow Fund may offer a class of its shares
to Separate Accounts that serve as investment medium for Variable Contracts or
that each Tomorrow Fund may offer its shares to Qualified Plans. Nevertheless,
the Trustees intend to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise, and to determine what action,
if any, should be taken in response to such conflicts. If such a conflict were
to occur, one or more Separate Accounts or Qualified Plans might be required to
withdraw their investments in one or more Tomorrow Funds and shares of another
series of the Trust may be substituted. This might force a Tomorrow Fund to sell
securities at disadvantageous prices.
In the interests of economy and convenience, the Trust does not issue
certificates representing the Tomorrow Funds' shares. Instead, the Transfer
Agent maintains a record of each shareholder's ownership. Although each Tomorrow
Fund is offering only its own shares, since the Tomorrow Funds use this combined
Prospectus, it is possible that one Tomorrow Fund might become liable for a
misstatement or omission in this Prospectus regarding another Tomorrow Fund. The
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Trustees have considered this factor in approving the use of this combined
Prospectus.
As of March 31, 1998, Sheet Metal Workers Local #73, c/o CIGNA, Attn:
Trading Unit, 280 Trumbull Street HO6A, Hartford, CT 06103, beneficially owned
in excess of 25% of the outstanding shares of the Short Term Fund. Accordingly,
such entity is deemed to be a controlling person.
INVESTMENT PERFORMANCE
Each Tomorrow Fund may illustrate in advertisements and sales literature
its average annual total return, which is the rate of growth of the Tomorrow
Fund that would be necessary to achieve the ending value of an assumed initial
investment of $1,000 kept in shares of a Class of the Tomorrow Fund for the
period specified and is based on the following assumptions: (1) all dividends
and distributions by the Tomorrow Fund are reinvested in shares of the Tomorrow
Fund at net asset value; and (2) all recurring fees are included for applicable
periods.
Each Tomorrow Fund may also illustrate in advertisements the cumulative
total return for several time periods throughout the Tomorrow Fund's life based
on an assumed initial investment of $1,000. Any such cumulative total return for
a Tomorrow Fund will assume the reinvestment of all income dividends and capital
gains distributions in shares of the Tomorrow Fund for the indicated periods and
will include all recurring fees.
Each Tomorrow Fund may also illustrate in advertisements and sales
literature its yield and effective yield. Yield is based on income generated by
an investment in shares of a Class of the Tomorrow Fund during a 30-day (or
one-month) period. To calculate yield, this income is annualized, that is, the
amount of income generated during the 30-day (or one-month) period is assumed to
be generated each 30-day (or one-month) period over a one-year period, and
expressed as an annual percentage rate. Effective yield for shares of a Class of
the Tomorrow Funds is calculated in a similar manner but, when annualized, the
income earned from an investment is assumed to be reinvested. Effective yield
for each Tomorrow Fund will be slightly higher than its current yield because of
the compounding effect of this assumed reinvestment.
Yields and total returns quoted for the Tomorrow Funds include the effect
of deducting each Tomorrow Fund's expenses, but may not include charges and
expenses attributable to any particular Qualified Plan or Variable Contract. You
should carefully review the prospectus of the insurance product you have chosen
or consult with your Plan Fiduciary for information on relevant charges and
expenses. Because these charges and expenses are excluded from a Tomorrow Fund's
quoted performance, the investment return received by a participant in a
Qualified Plan or a holder of a Variable Contract, investing in the Tomorrow
Fund may be lower than the quoted performance of the Tomorrow Fund. You should
bear in mind the effect of these charges when comparing a Tomorrow Fund's
performance to that of other mutual funds.
Each Tomorrow Fund's yield and total return will be calculated separately
for Adviser Class and Institutional Class shares. Because each Class of shares
is subject to different expenses, the yield and total return calculations with
respect to each Class of shares of a Tomorrow Fund will differ. The investment
performance of the Adviser Class and Institutional Class shares will be affected
by the payment of distribution and service fees.
The performance of the Tomorrow Funds will vary from time to time and past
results are not necessarily representative of future results. Performance is a
function of the type and quality of a Tomorrow Fund's portfolio securities and
is affected by operating expenses. Performance information may not provide a
basis for comparison with other investments or other mutual funds using a
different method of calculating performance. An investment in any Tomorrow Fund
involves the risk of loss.
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RISK CONSIDERATIONS AND OTHER INVESTMENT PRACTICES AND POLICIES
FIXED-INCOME SECURITIES. Each Tomorrow Fund may invest in a broad range of
fixed-income securities, including bonds, notes, mortgage-backed and
asset-backed securities, preferred stock and convertible debt securities issued
by U.S. corporations or other entities or by the U.S. Government or its
agencies, authorities, instrumentalities or sponsored enterprises. The interest
payable on so-called fixed-income securities purchased by a Tomorrow Fund is not
necessarily paid at a fixed rate and may be payable on a variable, floating,
contingent, in-kind or deferred basis.
Fixed-income securities are subject to the risk of the issuers' inability
to meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the credit worthiness of the issuer and
general market liquidity (market risk). Generally, when interest rates decline,
the value of fixed-income securities can be expected to rise. Conversely, when
interest rates rise the value of fixed-income securities can be expected to
decline.
CORPORATE DEBT OBLIGATIONS. Each Tomorrow Fund may invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
In addition to obligations of corporations, corporate debt obligations include
bank obligations and zero coupon securities, issued by financial institutions
and corporations.
The debt securities in which the Tomorrow Funds may invest will be rated
investment grade at the time of purchase. Investment grade securities are
securities rated within the four highest grades as determined by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or by Standard & Poor's
Ratings Group ("Standard & Poor's") (AAA, AA, A or BBB) or their respective
equivalent ratings or, if not rated, determined by the Adviser to be of
equivalent credit quality to securities so rated. A security will be deemed to
have met a rating requirement if it receives the minimum required rating from at
least one such rating organization even though it has been rated below the
minimum rating by one or more other rating organizations, or if unrated by such
rating organizations, is determined by the Adviser to be of comparable credit
quality. Securities rated Baa by Moody's or BBB by Standard & Poor's and unrated
securities of equivalent credit quality are considered medium grade obligations
with speculative characteristics. Adverse changes in economic conditions or
other circumstances are more likely to weaken the issuer's capacity to pay
interest and repay principal on these securities than is the case for issuers of
higher rated securities. In the event that the rating on a security held in a
Tomorrow Fund's portfolio is downgraded below investment grade 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.
CONVERTIBLE SECURITIES AND PREFERRED STOCKS. Each Tomorrow Fund 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 Tomorrow Funds may invest
include convertible, perpetual fixed and adjustable rate (including auction
rate) preferred stocks.
U.S. GOVERNMENT SECURITIES. Each Tomorrow Fund may invest in all types of U.S.
Government securities, including obligations issued or guaranteed by the U.S.
Government or its agencies, authorities, instrumentalities or sponsored
enterprises. Some U.S. Government securities, such as Treasury bills, notes and
bonds, which differ only in their interest rates, maturities and times of
issuance, are supported by the full faith and credit of the United States of
America. Others, such as obligations issued or guaranteed by U.S. Government
agencies, authorities, instrumentalities or sponsored enterprises are supported
either by (a) the full faith and credit of the U.S. Government (such as
securities of the Small Business Administration), (b) the right of the issuer to
borrow from the U.S. Treasury (such as securities of the Federal Home Loan
Banks), (c) the discretionary authority of the U.S. Government to purchase the
agency's obligations (such as securities of the Federal National Mortgage
Association), or (d) only the credit of the issuer.
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The Tomorrow Funds may invest in U.S. Government securities which are zero
coupon or deferred interest securities. For example, each Tomorrow Fund may
invest in separately traded principal and interest components of securities
guaranteed or issued by the U.S. Government or its agencies, instrumentalities
or sponsored enterprises if such components are traded independently under the
Separate Trading of Registered Interest and Principal of Securities program
("STRIPS") or any similar program sponsored by the U.S. Government.
ZERO COUPON AND CAPITAL APPRECIATION BONDS. The Tomorrow Funds 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. 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. A Tomorrow Fund's investments in zero coupon
securities or other stripped securities may require the Tomorrow Fund to sell
certain of its portfolio securities to generate sufficient cash in order to
satisfy certain income distribution requirements. See "Dividends, Distributions
and Tax Status" in the SAI.
MORTGAGE-BACKED SECURITIES. Each Tomorrow 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").
MORTGAGE PASS-THROUGH SECURITIES. 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
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("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
Internal Revenue 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 Tomorrow Funds do not intend to invest in residual
interests.
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in
Mortgage-Backed Securities 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 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 Tomorrow Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental or agency guarantee. When a Tomorrow 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.
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 for
these securities may be less than for more leveraged Mortgage-Backed Securities,
such as inverse floating rate and Super Principal Only (PO) Mortgage-Backed
Securities. The Tomorrow Funds will not invest in inverse floating rate or Super
Principal Only (PO) 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. To the extent that prepayment
rates do not remain within these prepayment ranges, PAC and TAC CMO bonds
involve prepayment, extension and interest rate risk similar to those of the
residual or support tranches.
ASSET-BACKED SECURITIES. Each Tomorrow 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.
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<PAGE>
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.
REAL ESTATE INVESTMENT TRUSTS. Each Tomorrow 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 Tomorrow Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
several requirements of the Internal Revenue Code. Any Tomorrow Fund that
invests in REITs will indirectly bear its proportionate share of any expenses
paid by such REITs in addition to the expenses paid by the Tomorrow Fund.
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 Internal
Revenue 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
Index.
STRUCTURED SECURITIES. Each Tomorrow Fund may invest in "structured" securities,
such as notes, bonds or debentures. The distinguishing feature of a structured
security is that the value of the principal of and/or interest payable on the
security is determined by reference to the value of a benchmark or the relative
change in two or more benchmarks. These benchmarks include stock prices and
indices, currency exchange rates and physical commodity prices. Structured
securities may be positively or negatively indexed, so that appreciation of the
benchmark may produce an increase or decrease in the interest rate or value of
the structured security at maturity. Certain structured securities 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 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. See "Restricted and Illiquid Securities" on page 33.
EURODOLLAR AND YANKEE DOLLAR INVESTMENTS. Each Tomorrow Fund 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 interest.
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<PAGE>
INVESTING IN SMALL CAPITALIZATION COMPANIES. Each Tomorrow Fund may invest in
varying degrees in smaller, lesser known companies which the Adviser believes
offer a greater growth potential than larger, more mature, better known firms.
Investing in the securities of such companies, however, involves greater risk
and a possibility of greater portfolio price volatility. Historically, small
capitalization stocks and stocks of recently organized companies have been more
volatile in price than the larger capitalization stocks, such as those included
in the S&P 500. Among the reasons for the greater price volatility of these
small company and unseasoned stocks are the less certain growth prospects of
smaller firms and the lower degree of liquidity in the markets for such stocks.
OTHER INVESTMENT COMPANIES. Each Tomorrow Fund may invest up to 10% of its total
assets in the securities of other investment companies but may 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 any other investment company.
For example, the Tomorrow Funds may invest in Standard & Poor's Depository
Receipts ("Spiders"), shares of a closed-end investment company, whose
performance is designed to replicate the performance of the S&P 500 Index. A
Tomorrow 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 Tomorrow Fund.
Each Tomorrow Fund is authorized to invest all of its assets in the
securities of a single open-end investment company (a "pooled fund") having
substantially identical investment objectives, policies and restrictions as such
Fund, notwithstanding any other investment restriction or policy. Such a
structure is commonly referred to as "master/feeder." If authorized by the
Trustees and subject to shareholder approval (if then required by applicable
law), a Tomorrow Fund would seek to achieve its investment objective by
investing in a pooled fund which would invest in a portfolio of securities that
complies with the Tomorrow Fund's investment objective, policies and
restrictions. The Trustees currently do not intend to authorize investing in a
pooled fund in connection with a master/feeder structure.
SHORT-TERM DEBT SECURITIES. Each Tomorrow Fund may establish and maintain cash
balances for temporary purposes in order to maintain liquidity to meet
shareholder redemptions. Each Tomorrow Fund may also establish and maintain cash
balances for defensive purposes without limitation to hedge against potential
stock market declines. A Tomorrow Fund's cash balances, including uncommitted
cash balances, may be invested in investment grade money market instruments and
short-term interest-bearing securities. These securities consist of U.S.
Government securities, instruments of U.S. banks (including negotiable
certificates of deposit, non-negotiable fixed-time deposits and bankers'
acceptances), repurchase agreements, prime commercial paper of U.S. companies
and debt securities that make periodic interest payments at variable or floating
rates.
MORTGAGE DOLLAR ROLLS. Each Tomorrow Fund may enter into mortgage dollar roll
transactions. In a mortgage dollar roll, a Tomorrow Fund sells securities for
delivery in the current month and simultaneously contracts with the same counter
party to repurchase similar (same type, coupon and maturity), but not identical
securities on a specified future date. During the roll period, the Tomorrow Fund
will not receive principal and interest paid on the securities sold. However,
the Tomorrow 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 a Tomorrow Fund
compared with what such performance would have been without the use of mortgage
dollar rolls. The Tomorrow Funds will hold and maintain in a segregated account
until the settlement date cash or liquid 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.
WRITING AND PURCHASING PUT AND CALL OPTIONS ON SECURITIES AND SECURITIES
INDICES. To seek additional income or to minimize anticipated declines in the
value of its securities or to seek to hedge various market risks (such as
interest rates and broad or specific equity or fixed-income market movements),
each Tomorrow Fund may purchase and write
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<PAGE>
(i.e., sell) call and put options on securities and securities indices. Option
transactions in which the Tomorrow Funds may engage may be traded on securities
exchanges or in the over-the-counter market. Each Tomorrow Fund currently
intends to limit its option transactions during the current fiscal year so that
no more than 5% of the Tomorrow Fund's net assets will be at risk as a result of
such transactions. Please see the SAI for a further discussion of option
transactions and associated risks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Tomorrow Fund may
engage in futures transactions and related options. Future contracts may be
based on various securities (such as U.S. Government securities), securities
indices and other financial instruments and indices. A Tomorrow Fund will engage
in futures and related options transactions only for bona fide hedging and
non-hedging purposes to the extent permitted by regulations of the Commodity
Futures Trading Commission. A Tomorrow Fund will not enter into futures
contracts or options thereon for non-hedging purposes if, immediately
thereafter, the aggregate initial margin and premiums required to establish
non-hedging positions in futures contracts and options on futures would exceed
5% of the Tomorrow Fund's net assets, 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 Tomorrow Fund may also
enter into closing purchase and sale transactions with respect to futures
contracts and related 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 Tomorrow Fund's income
due to the use of hedging; possible reduction in value of the 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 or interest rates are
incorrect, the Tomorrow 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. A further discussion of futures contracts and their associated risks
is contained in the SAI.
FORWARD COMMITMENT, DELAYED DELIVERY AND WHEN-ISSUED TRANSACTIONS. Each Tomorrow
Fund may purchase securities on a when-issued, delayed delivery or forward
commitment basis (collectively, "when-issued securities"). When such
transactions are negotiated, the price of such securities is fixed at the time
of the commitment, but delivery and payment for the securities may take place up
to 90 days after the date of the commitment to purchase. The securities so
purchased are subject to market fluctuation, and no interest accrues to the
purchaser during this period. When-issued securities involve a risk of loss if
the value of the security to be purchased declines prior to the settlement date.
When a Tomorrow Fund purchases securities on a when-issued basis, the Tomorrow
Fund or the Fund's custodian will maintain in a segregated account cash or
liquid securities having a value (determined daily) at least equal to the amount
of the Tomorrow Fund's purchase commitment. A Tomorrow Fund may close out a
position in securities purchased on a when-issued basis prior to the settlement
date.
LENDING OF PORTFOLIO SECURITIES. Each Tomorrow Fund may also seek to increase
its income by lending portfolio securities. Such loans may be made to
institutions, such as certain broker-dealers, and are 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. If the Adviser determines to make
securities loans, the value of the securities loaned would not exceed 33 1/ 3%
of the value of the total assets of the Tomorrow Fund. Although the Tomorrow
Funds may loan portfolio securities on a short-term, medium-term and long-term
basis, any such loan may be called at any time for reacquisition by the
respective Tomorrow Fund within the normal settlement period for the security. A
Tomorrow Fund may experience a loss or delay in the recovery of its securities
if the borrowing institution breaches its agreement with the Tomorrow Fund.
RESTRICTED AND ILLIQUID SECURITIES. Each Tomorrow Fund may invest up to 15% of
its net assets in illiquid investments, which includes repurchase agreements
maturing in more than seven days, securities that are not readily marketable,
certain over-the-counter options, certain structured securities and "restricted
securities" (i.e., securities that would be required to be registered under the
Securities Act of 1933, as amended ("1933 Act"), prior to distribution to the
general public) including restricted securities eligible for resale to
"qualified institutional buyers" under Rule 144A under the 1933 Act, unless the
Trustees determine, based upon a continuing review of the trading markets for
the
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<PAGE>
specific restricted security, that such restricted securities are liquid. The
Trustees have adopted guidelines and delegated to the Adviser the daily function
of determining and monitoring the liquidity of portfolio securities. The
Trustees, however, retain sufficient oversight and are ultimately responsible
for the determinations. Since it is not possible to predict with assurance
exactly how this market for restricted securities sold and offered under Rule
144A will develop, the Trustees carefully monitor each Tomorrow Fund's
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
Tomorrow Fund to the extent that qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
REPURCHASE AGREEMENTS. Each Tomorrow Fund may enter into repurchase agreements
through which the Tomorrow Fund purchases a security (the "underlying security")
from a domestic securities dealer or bank that is a member of the Federal
Reserve System. Under the agreement, the seller of the repurchase agreement
(i.e., the securities dealer or bank) agrees to repurchase the underlying
security at a mutually agreed upon time and price. In repurchase transactions,
the underlying security, which must be a high- quality debt security, is held by
the Tomorrow Fund's custodian through the federal book-entry system as
collateral and marked-to-market on a daily basis to ensure full
collateralization of the repurchase agreement. In the event of bankruptcy or
default of certain sellers of repurchase agreements, a Tomorrow Fund could
experience costs and delays in liquidating the underlying security held as
collateral and might incur a loss if such collateral declines in value during
this period.
MARKET CHANGES. The market value of the Tomorrow Funds' investments, and thus
each Tomorrow Fund's net asset value, will change in response to market
conditions affecting the value of portfolio securities. When interest rates
decline, the value of fixed rate obligations can be expected to increase.
Conversely, when interest rates increase, 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 Tomorrow Fund purchases securities with a view
to rapid turnover, there are no limitations on the length of time that
securities must be held by a Tomorrow Fund and a Tomorrow 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 Tomorrow Fund and its shareholders .
See "Financial Highlights" for the portfolio turnover rates of the Tomorrow
Funds.
DIVERSIFICATION. Each Tomorrow Fund is diversified, as defined in the 1940 Act.
As such, each Tomorrow Fund has a fundamental policy that limits its investments
so that, with respect to 75% of its assets (i) no more than 5% of the Tomorrow
Fund's total assets will be invested in the securities of a single issuer and
(ii) each Tomorrow Fund will purchase no more than 10% of the outstanding voting
securities of a single issuer. These limitations do not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
repurchase agreements collateralized by U.S. Government securities or
investments in other investment companies. In addition to the diversification
requirements under the 1940 Act, the Tomorrow Funds must satisfy the
diversification requirements under Subchapter M of the Internal Revenue Code
applicable to regulated investment companies and the additional diversification
requirements applicable under Section 817(h) of the Internal Revenue Code to
Separate Accounts that fund Variable Contracts. These requirements place certain
limitations on the assets of a Tomorrow Fund that may be invested in securities
of a single issuer or a small number of issuers or interests in the same
commodity. More specific information on these diversification requirements is
contained in the SAI.
INVESTMENT RESTRICTIONS. Each Tomorrow Fund is subject to further investment
policies and restrictions that are described in the SAI. As previously
described, the foregoing investment policies, including each Tomorrow Fund's
investment objective, are non-fundamental policies which may be changed by the
Trustees without the approval of shareholders. If there is a change in a
Tomorrow Fund's investment objective, shareholders should consider whether that
Tomorrow Fund remains an appropriate investment in light of their then current
financial positions and needs. Each Tomorrow Fund has adopted certain
fundamental policies which may not be changed without the approval of the
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<PAGE>
applicable Tomorrow Fund's shareholders. Among other fundamental restrictions
listed in the SAI, no Tomorrow Fund may (1) with respect to 75% of its total
assets, purchase securities of any one issuer (other than U.S. Government
securities and securities of other investment companies) if more than 5% of its
total assets would be invested in such issuer, (2) act as an underwriter except
in certain circumstances, (3) purchase or sell real estate except in certain
circumstances, (4) issue senior securities except as permitted by the 1940 Act
or (5) invest more than 25% of its total assets in the securities of issuers
(including any one foreign government, but excluding the U.S. government) in any
one industry.
If any percentage restriction described above or in the SAI is adhered to
at the time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of a Tomorrow Fund's assets will not
constitute a violation of the restriction.
ADDITIONAL INFORMATION
REPORTS TO SHAREHOLDERS
As shareholders in the Tomorrow Funds, Separate Accounts and Qualified
Plans will receive an annual report containing audited financial statements and
semi-annual reports. Each Separate Account and Qualified Plan will also be
provided with a printed confirmation for each transaction in their shareholder
account. Holders of Variable Contracts and participants in Qualified Plans may
receive additional reports from their insurance company or Plan Fiduciary, as
the case may be.
PRINCIPAL UNDERWRITER
WPG serves as the Tomorrow Funds' principal underwriter.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
First Data Investor Services Group, Inc., 4400 Computer Drive, Westboro,
MA 01581 serves as transfer agent and dividend disbursing agent for the Tomorrow
Funds. The Tomorrow Funds may also enter into agreements with and compensate
other transfer agents and financial institutions who process shareholder
transactions and maintain shareholder accounts.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, serves
as the independent accountants for the Trust and audits each Tomorrow Fund's
financial statements annually.
LEGAL COUNSEL
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust.
----------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND
THE SAI, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE
LAWFULLY MADE.
-34-
<PAGE>
SUPPLEMENT DATED SEPTEMBER 1, 1998
TO THE STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1998, AS REVISED SEPTEMBER 1, 1998, OF
TOMORROW FUNDS RETIREMENT TRUST
Tomorrow Long-Term Retirement Fund
Tomorrow Medium-Term Retirement Fund
Tomorrow Short-Term Retirement Fund
------------------------------------------------
Weiss, Peck & Greer, L.L.C. ("WPG"), the investment adviser to the
above-referenced funds (the "Funds"), has entered into an agreement pursuant to
which Robeco Groep N.V., a Dutch public limited liability company ("Robeco"),
will acquire all of the outstanding equity interests of WPG from its prior
owners (the "Acquisition"). In connection with the Acquisition, a majority of
the outstanding voting securities of each Fund approved a new investment
advisory agreement with WPG at a joint meeting of shareholders held on July 29,
1998 and August 13, 1998. Although the Acquisition is not expected to be
consummated until September 9, 1998, the attached Statement of Additional
Information ("SAI") describes the Acquisition as consummated. Accordingly, the
following changes are made to the SAI until the Acquisition is consummated:
The following disclosure replaces the second and third paragraph of the
subsection titled "Investment Adviser" of the section titled "ADVISORY AND
ADMINISTRATIVE SERVICES," on page 24 of the SAI:
The Funds' investment advisory agreements with the Adviser (the
"Advisory Agreements") were initially approved by the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not
parties to such agreements or "interested persons" (as such term is
defined in the 1940 Act) of any party thereto (the "Independent
Trustees"), on July 19, 1995 and became effective upon each Fund's
commencement of operations. The Advisory Agreements were approved by
the sole initial shareholder of each Fund immediately prior to that
Fund's commencement of operations.
In connection with the Acquisition, the Board of Trustees of the Trust,
including a majority of the Independent Trustees, approved new
investment advisory agreements for the Funds (the "New 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 August 13, 1998, and will become effective upon
the consummation of the Acquisition. Except for the dates of execution,
effectiveness and termination, the terms of
<PAGE>
each Fund's New Agreement is substantially identical to the terms of
such Fund's Advisory Agreement which is currently in effect.
The last sentence of the second full paragraph on page 27 of the SAI,
also under the section titled "ADVISORY AND ADMINISTRATIVE SERVICES" and the
subsection titled "Investment Adviser," is revised to delete the phrase, "in
addition to being the parent company of WPG."
The last three sentences of the first paragraph under the subsection
titled "Distribution Plans" of the section titled "ADVISORY, SUBADVISORY AND
ADMINISTRATIVE SERVICES," on page 31 of the SAI, are replaced in their entirety
with the following:
In connection with the Acquisition, the Trustees, including a majority
of the Independent Trustees, approved new plans of distribution
pursuant to Rule 12b-1 (the "New Plans") at a meeting held on May 19,
1998. Each New Plan was approved by a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Adviser Class
shares of the applicable Fund at a joint special meeting held on July
29, 1998 and August 13, 1998, and will become effective upon the
consummation of the Acquisition. The terms of the New Plans are
substantially identical to the terms of the Plans which are currently
in effect.
<PAGE>
PART B
WEISS, PECK & GREER INVESTMENTS
TOMORROW FUNDS RETIREMENT TRUST
TOMORROW LONG-TERM RETIREMENT FUND
TOMORROW MEDIUM-TERM RETIREMENT FUND
TOMORROW SHORT-TERM RETIREMENT FUND
TOMORROW POST-RETIREMENT FUND
(EACH A "FUND" AND COLLECTIVELY, THE "FUNDS"
OR THE "TOMORROW FUNDS")
-------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
ADVISER CLASS SHARES AND
INSTITUTIONAL CLASS SHARES
May 1, 1998, as revised September 1, 1998
-------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of the Funds, dated May 1, 1998, as revised
September 1, 1998, and as amended and/or supplemented from time to time (the
"Prospectus"), copies of which may be obtained without charge by writing to
Tomorrow Funds Retirement Trust (the"Trust"), One New York Plaza, New York, NY
10004 or by calling 1-800-223-3332.
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 AND POLICIES.................................1
Quantitative Methodology.................................................1
INVESTMENT TECHNIQUES.........................................................2
Repurchase Agreements....................................................2
Forward Commitment, Delayed Delivery and
When-Issued Transactions............................................. 3
Loans of Portfolio Securities........................................... 4
Options................................................................. 5
Futures Transactions.................................................... 8
Limitations on the Use of Futures Contracts
and Options on Futures................................................ 9
Special Considerations and Risks
Related to Options and Futures Transactions...........................10
Privately Issued Mortgage-Backed Securities.............................12
Risks Associated with Specific Types
of Derivative Securities.............................................13
Participation Interests.................................................13
Securities of Foreign Issuers...........................................13
Restricted and Illiquid Securities......................................14
Other Investment Companies..............................................15
CALCULATION OF THE FUNDS' RETURNS............................................15
Total Return............................................................15
Yield...................................................................18
Other Quotations, Comparisons and
General Information...................................................19
INVESTMENT RESTRICTIONS ....................................................21
ADVISORY AND ADMINISTRATIVE SERVICES.........................................24
Investment Adviser......................................................24
Administrator...........................................................28
Principal Underwriter...................................................30
DISTRIBUTION PLANS...........................................................30
TRUSTEES AND OFFICERS........................................................34
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HOW TO PURCHASE SHARES...................................................... 41
Acquiring Shares of the Funds in Exchange
for Securities....................................................... 41
REDEMPTION OF SHARES ....................................................... 42
Systematic Withdrawal Plan............................................. 42
NET ASSET VALUE............................................................. 43
INVESTOR SERVICES........................................................... 44
Automatic Investment Plan.............................................. 44
Prototype Retirement Plan for Employers
and Self-Employed Individuals........................................ 45
Individual Retirement Account.......................................... 46
Roth Individual Retirement Account..................................... 48
Simplified Employee Pension Plans (SEP-IRA)............................ 48
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS..................................... 50
PORTFOLIO BROKERAGE......................................................... 55
BROKERAGE COMMISSIONS....................................................... 59
PORTFOLIO TURNOVER.......................................................... 59
ORGANIZATION................................................................ 60
CUSTODIAN................................................................... 62
TRANSFER AGENT.............................................................. 62
LEGAL COUNSEL............................................................... 62
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS............................... 63
APPENDIX.................................................................... 64
GLOSSARY.................................................................... 66
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THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES
(See "Investment Objectives and Policies," and "Risk Considerations and
Other Investment Practices and Policies" in the Prospectus.)
All capitalized terms not defined herein shall have the meanings set forth
in the Prospectuses.
The securities in which each Fund may invest and certain other investment
policies are described in the Funds' Prospectus. This Statement of Additional
Information should be read in conjunction with the Prospectus.
The Appendix to this Statement of Additional Information contains a
description of the quality categories of corporate bonds in which the Funds may
invest, and a Glossary describing some of the Funds' investments.
QUANTITATIVE METHODOLOGY
Each Fund invests the amount of its assets allocated to Large-Cap,
Medium-Cap and SmallCap Subcategories (as described in the Prospectus) in a
portfolio of securities that is considered more "efficient" than an applicable
Benchmark. The Benchmarks for the Large-Cap, Medium- Cap and Small-Cap
Subcategories are the Standard & Poor's 500 Stock Index (the "S&P 500"), the
Standard & Poor's 400 MidCap Index (the "S&P 400") and the Russell 2000,
respectively.
An efficient portfolio is one that has the maximum expected return for any
level of risk. The efficient mix of securities is established mathematically,
taking into account the expected return and volatility of returns for each
security in a given universe, as well as the historical price relationships
between the different securities in the universe.
To implement this strategy with respect to the Subcategories of the Funds,
Weiss, Peck & Greer, L.L.C. (the "Adviser" or "WPG") compiles the historical
price data of all securities which comprise the applicable Benchmark. The
Adviser may eliminate a security from consideration if it considers the security
to have an inadequate or misleading price history. Using this historical price
data, the Adviser constructs and analyzes a complete matrix of all the possible
price relationships between the securities in the applicable Benchmark.
Using a sophisticated software program that incorporates risk reduction
techniques developed by investment professionals of the Adviser, the Adviser
constructs a number of portfolios with respect to the Subcategories, which
portfolios are believed to have optimized risk/reward ratios. From these
alternative portfolios, the Adviser selects the combination of securities,
together with their appropriate weightings, that the Adviser believes will
comprise the optimal portfolio for the Subcategories. The respective optimal
portfolios for the Subcategories are designed to have returns greater than, but
highly correlated with, the return of the applicable Benchmark.
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After each optimal portfolio is constructed, it may be rebalanced to
maintain the original optimal weights. The Adviser will sell a security when the
security's weight within an actual portfolio becomes significantly greater than
its optimal weight. The Adviser will buy a security when the security's weight
within an actual portfolio becomes significantly less than its optimal weight.
The Adviser repeats the entire optimization process at least semi-annually, at
which point a new portfolio is constructed with respect to the Subcategories
adding the most recent historical data, and deleting the oldest data. When a
security is removed from a Benchmark, it will not necessarily be removed from
the Funds' portfolios within a predetermined length of time.
The Adviser's research personnel will monitor and occasionally make changes
in the way the optimal portfolios are constructed or traded. Such changes may
include determining better ways to eliminate issues from consideration in the
matrix, improving the manner in which the matrix is calculated, altering
constraints in the optimization process and effecting changes in trading
procedure (to reduce transaction costs or to enhance the effects of
rebalancing). Any such changes are intended to be consistent with the basic
philosophy of seeking higher returns with respect to each Subcategory than those
that could be obtained by investing directly in all the stocks of each
Benchmark. Investors should be aware that no quantitative methodology or
technical analysis, including the Adviser's, has ever been proven to provide
enhanced investment return and reduced investment risk in actual long-term
portfolio results.
INVESTMENT TECHNIQUES
The following description of the Funds' investment techniques supplements
the discussion contained in the Prospectus. (See "Risk Considerations and Other
Investment Practices and Policies" in the Prospectus.)
REPURCHASE AGREEMENTS
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 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. In an attempt to reduce the risk of incurring a loss on a
repurchase agreement, the Funds will generally enter into
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repurchase agreements only with domestic banks with total assets in excess of
one billion dollars, primary dealers in U.S. Government securities reporting to
the Federal Reserve Bank of New York or broker-dealers approved by the Trust's
Board of Trustees, with respect to securities of the type in which the Funds may
invest. The Adviser 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 its custodian, Boston Safe Deposit
and Trust Company (the "Custodian"), or a subcustodian for the securities and
other collateral, if any, acquired under a repurchase agreement 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 (see "Risk Considerations and Other Investment Practices
and Policies -- Repurchase Agreements" in the Prospectus), 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 Trust acknowledges these risks, it is expected that they
can be controlled through careful monitoring procedures.
FORWARD COMMITMENT, DELAYED DELIVERY AND WHEN-ISSUED TRANSACTIONS
Each Fund may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Securities transactions settled on when-issued or
forward commitment basis are also know as delayed delivery transactions. The
phrase "delayed delivery" is not intended to address transactions involving the
purchase of securities where the delay in delivery involves only the brief
period usually required by the selling party and its agent solely to locate
appropriate certificates and prepare them for submission for clearance and
settlement in the customary way. Forward commitment and when-issued transactions
involve a commitment by the Fund to purchase or sell securities at a future date
(ordinarily up to 90 days 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 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,
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thereby obtaining the benefit of currently higher yields.
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 the 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. The 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 the 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
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 up to 90 days 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. The Funds may realize a
capital gain or loss in connection with these transactions.
When a Fund purchases securities on a when-issued or forward commitment
basis, the Fund will note on its records, or the Custodian will maintain in a
segregated account, securities having a value (determined daily) at least equal
to the amount of the Fund's purchase commitments. In the case of a forward
commitment to sell portfolio securities, the Fund will note on its records, or
the Custodian will hold in a segregated account, the portfolio securities while
the commitment is outstanding. 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
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. See "Risk Considerations and Other
Investment Practices and Policies --Lending of Portfolio Securities" in the
Prospectus. The rules of the New York Stock Exchange ("NYSE") give the 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, the 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. The Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but the Fund would
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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. If the Adviser
determines to make securities loans, it is intended that the value of the
securities loaned would not exceed 33 1/3% of the value of the total assets of
the Fund.
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
Each Fund currently intends to limit its options transactions during the
current fiscal year so that no more than 5% of the Fund's net assets will be at
risk as a result of such transactions.
WRITING COVERED CALL OPTIONS ON SECURITIES. Each Fund may write (sell)
covered call options on securities ("calls") at such time or times as the
Adviser shall determine to be appropriate. When a Fund writes a call, it
receives a premium and sells to the purchaser the right to buy the underlying
security at any time during the call period (usually between three and nine
months) at a fixed exercise price regardless of market price changes during the
call period. If the call is exercised, the Fund forgoes any gain but is not
subject to any loss on any change in the market price of the underlying security
relative to the exercise price. A Fund will write such options subject to any
applicable limitations or restrictions imposed by law.
PURCHASING CALL OPTIONS. Each Fund may purchase a call option when the
Adviser believes the value of the underlying security will rise or to effect a
"closing purchase transaction." A Fund will realize a profit (or loss) from a
closing purchase transaction if the amount paid to purchase a call is less (or
more) than the amount received from the sale thereof.
PUT OPTIONS. Each Fund may also write and purchase put options on
securities ("puts"). A put written by a Fund obligates it to purchase the
specified security at a specified price if the option is exercised at any time
before the expiration date. All put options written by a Fund would be covered.
A Fund may purchase a put option when the Adviser believes the value of the
underlying security will decline. A Fund may purchase put options on securities
in its portfolio in order to hedge against a decline in the value of such
securities ("protective puts").
The purpose of writing covered put and call options is to hedge against
fluctuations in the market value of a Fund's portfolio securities. Each Fund may
purchase or sell call and put options on securities indices for a similar
purpose. Such a hedge is limited to the degree that the price
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change of the underlying security is in an amount which is less than the
difference between the option premium received by the Fund and the option strike
price. To the extent that the underlying security's price change exceeds this
amount, written put and call options will not provide an effective hedge.
A written call option would be covered if the Fund owns the security
underlying the option. A written put option may be covered by the Fund
segregating cash or liquid securities, either on its records or with the
Custodian. While this will ensure that the Fund will have sufficient assets to
meet its obligations under the option contract should it be exercised, it does
not reduce the potential loss to the Fund should the value of the underlying
security decrease and the option be exercised. A written call option or put
option may also be covered by 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. Further, instead of "covering" a
written call option, the Fund may simply segregate cash or liquid securities,
either on its records or with the Custodian, in amounts sufficient to ensure
that it is able to meet its obligations under the written call should it be
exercised. This method does not reduce the potential loss to the Fund should the
value of the underlying security increase and the option be exercised.
OPTIONS ON SECURITIES INDICES. Each Fund may purchase call and put options
on securities indices for the purpose of hedging against the risk of unfavorable
price movements adversely affecting the value of the Fund's securities or
securities the Fund intends to buy or to seek to increase total return. Such
Fund's net assets will be at risk as a result of such transactions. Unlike a
stock option, which gives the holder the right to purchase or sell a specified
stock at a specified price, an option on a securities index gives the holder the
right to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying
securities index on the exercise date multiplied by (ii) a fixed "index
multiplier."
A securities index fluctuates with changes in the market values of the
stocks included in the index. For example, some securities index options are
based on a broad market index such as the S&P 500 or the Value Line Composite
Index, or a narrower market index such as the Standard & Poor's 100 Stock Index
("S&P 100"). Indices may also be based on an industry or market segment such as
the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options
on securities indices are currently traded on the Chicago Board Options
Exchange, the NYSE and the American Stock Exchange.
The Funds may purchase put options to seek to hedge against an anticipated
decline in stock market prices that might adversely affect the value of a Fund's
portfolio securities. If a Fund purchases a put option on a securities index,
the amount of the payment it would receive upon exercising the option would
depend on the extent of any decline in the level of the securities index below
the exercise price. Such payments would tend to offset a decline in the value of
the Fund's portfolio securities. However, if the level of the securities index
increases and remains above the exercise price while the put option is
outstanding, a Fund will not be able to profitably
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exercise the option and will lose the amount of the premium and any transaction
costs. Such loss may be partially or wholly offset by an increase in the value
of a Fund's portfolio securities.
The Funds may purchase call options on securities indices in order to
participate in an anticipated increase in stock market prices or to offset
anticipated price increases on securities that it intends to buy in the future.
If a Fund purchases a call option on a securities index, the amount of the
payment it receives upon exercising the option depends on the extent of any
increase in the level of the securities index above the exercise price. Such
payments would in effect allow the Fund to benefit from stock market
appreciation even though it may not have had sufficient cash to purchase the
underlying stocks. Such payments may also offset increases in the price of
stocks that the Fund intends to purchase. If, however, the level of the
securities index declines and remains below the exercise price while the call
option is outstanding, a Fund will not be able to exercise the option profitably
and will lose the amount of the premium and transaction costs. Such loss may be
partially or wholly offset by a reduction in the price a Fund pays to buy
additional securities for its portfolio.
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 segregated
either on the Fund's records or by its custodian) upon conversion or exchange of
other securities in their respective portfolio. The Funds may also cover call
and put options on a securities index by segregating cash or liquid securities
with a value equal to the exercise price either on the Fund's records or with
their custodian or by using the other methods described above. When purchased,
options on securities indices may not enable the Fund to hedge effectively
against interest rate or stock market risk if the stocks comprising the index
subject to the option are not highly correlated with the composition of the
Fund's portfolio. Moreover, the ability to hedge effectively depends upon the
ability to predict movements in interest rates or the stock market. Some options
on securities indices may not have a broad and liquid secondary market, in which
case options purchased by the Fund may not be closed out and the Fund could lose
more than its option premium when the option expires.
The purchase and sale of option contracts is a highly specialized activity
which involves investment techniques and risks different from those ordinarily
associated with investment companies. It should be noted that transaction costs
relating to options transactions may tend to be higher than the transaction
costs with respect to transactions in securities. In addition, if a Fund were to
write a substantial number of option contracts which are exercised, the
portfolio turnover rate of that Fund could increase.
Securities for each Fund's portfolio will continue to be bought and sold
solely on the basis of appropriateness to fulfill the applicable Fund's
investment objective. Option transactions can be used, among other things, to
increase the return on portfolio positions.
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FUTURES TRANSACTIONS
Each Fund may purchase and sell futures contracts for hedging purposes and
to seek to increase total return. A futures contract is an agreement between two
parties to buy and sell a security for a set price at a future time. Each Fund
may also enter into index-based futures contracts and interest rate futures
contracts. Futures contracts on indices provide for a final cash settlement on
the expiration date based on changes in the relevant index. All futures
contracts are traded on designated "contract markets" licensed and regulated by
the Commodity Futures Trading Commission (the "CFTC") which, through their
clearing corporations, guarantee performance of the contracts.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). If a Fund holds long-term U.S. Government
securities and the Adviser anticipates a rise in long-term interest rates, it
could, in lieu of disposing of its portfolio securities, enter into futures
contracts for the sale of similar long-term securities. If rates increased and
the value of a Fund's portfolio securities declined, the value of that Fund's
futures contract would increase, thereby protecting that Fund by preventing net
asset value from declining as much as it otherwise would have. If the Adviser
expects long-term interest rates to decline, a Fund might enter into futures
contracts for the purchase of long-term securities, so that it could offset
anticipated increases in the cost of such securities it intends to purchase
while continuing to hold higher-yielding short-term securities or waiting for
the long-term market to stabilize. Similar techniques may be used by the Funds
to hedge stock market risk.
Each Fund also may purchase and sell listed put and call options on futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put),
at a specified exercise price at any time during the option period. When an
option on a futures contract is exercised, settlement is effected by the payment
of cash representing the difference between the current market price of the
futures contract and the exercise price of the option. The risk of loss to a
Fund purchasing an option on a futures contract is limited to the premium paid
for the option. A Fund may purchase put options on interest rate futures
contracts in lieu of, and for the same purpose as, its sale of a futures
contract: to seek to hedge a long position in the underlying futures contract.
The purchase of call options on interest rate futures contracts is intended
to serve the same purpose as the actual purchase of the futures contract.
A Fund would write a call option on a futures contract to seek to hedge
against a decline in the prices of the securities underlying the futures
contracts. If the price of the futures contract at expiration is below the
exercise price, the applicable Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the
purchase of the futures
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contract, except that, if market price declines, a Fund would pay more than the
market price for the underlying securities. The net cost to a Fund will be
reduced, however, by the premium received on the sale of the put, less any
transaction costs. See "Dividends, Distributions and Tax Status" below.
Each Fund may engage in "straddle" transactions, which involve the purchase
or sale of combinations of call and put options on the same underlying
securities or futures contracts.
In purchasing and selling futures contracts and related options, each Fund
intends to comply with rules and interpretations of the CFTC and of the SEC.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES.
Each Fund will engage in futures and related options transactions only for
hedging purposes in accordance with CFTC regulations or to seek to increase
total return to the extent permitted by such regulations. The Fund will
determine that the price fluctuations in the futures contracts and options on
futures contracts used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase.
Except as stated below, a Fund's futures transactions will be entered into for
traditional hedging purposes -that is, futures contracts will be sold to protect
against a decline in the price of securities that the Fund owns, or futures
contracts will be purchased to protect the Fund against an increase in the price
of securities it intends to purchase. As evidence of this hedging intent, the
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), a
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities 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. 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 sum of the amounts of initial margin deposits on its
existing futures positions and premiums paid for options on futures entered into
for the purpose of seeking to increase total return (net of the amount the
positions were "in the money" at the time of purchase) would not exceed 5% of
that Fund's net assets, after taking into account unrealized gains and losses on
such positions. A Fund will engage in transactions in futures contracts and
related 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 "Dividends, Distributions, and Tax Status").
A Fund will be required, in connection with transactions in futures
contracts and the writing of options on futures contracts, to make margin
deposits, which will be held by a Fund's custodian for the benefit of the
merchant through whom a Fund engages in such futures and options transactions.
In the case of futures contracts or options thereon requiring the Fund to
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purchase securities, the Fund must segregate cash or liquid securities in an
account maintained by the Custodian to cover such contracts and options. Cash or
liquid securities required to be in a segregated account will be marked to
market daily.
SPECIAL CONSIDERATIONS AND RISKS RELATED TO OPTIONS AND FUTURES TRANSACTIONS
Exchange markets in options on certain securities are a relatively new and
untested concept. It is impossible to predict the amount of trading interest
that may exist in such options, and there can be no assurance that viable
exchange markets will develop or continue.
The exchanges will not continue indefinitely to introduce new expirations
to replace expiring options on particular issues because trading interest in
many issues of longer duration tends to center on the most recently auctioned
issues. The expirations introduced at the commencement of options trading on a
particular issue will be allowed to run out, with the possible addition of a
limited number of new expirations as the original expirations expire. Options
trading on each issue of securities with longer durations will thus be phased
out as new options are listed on more recent issues, and a full range of
expirations will not ordinarily be available for every issue on which options
are traded.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation has the authority to
permit other, generally comparable, securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
markets for underlying securities close before the options markets, significant
price and rate movements can take place in the options markets that cannot be
reflected in the underlying markets. In addition, to the extent that the options
markets close before the markets for the underlying securities, price and rate
movements can take place in the underlying markets that cannot be reflected in
the options markets.
Prior to exercise or expiration, an option position can be terminated only
by entering into a closing purchase or sale transaction. This requires a
secondary market on an exchange for call or put options of the same series.
Similarly, positions in futures may be closed out only on an exchange which
provides a secondary market for such futures. A Fund will enter into an option
or futures position only if there appears to be a liquid secondary market for
such options or futures. However, there can be no assurance that a liquid
secondary market will exist for any particular call or put option or futures
contract at any specific time. Thus, it may not be possible to close an option
or futures position. In the event of adverse price movements, a Fund would
continue to be required to make daily cash payments of maintenance margin for
futures contracts
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or options on futures contracts position written by that Fund. A Fund may have
to sell portfolio securities at a time when it may be disadvantageous to do so
if it had insufficient cash to meet the daily maintenance margin requirements.
In addition, a Fund may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on a Fund's
ability to effectively hedge its portfolios.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security (whether or not
covered) which may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or through
one or more brokers). An exchange may order the liquidation of positions found
to be in violation of applicable trading limits and it may impose other
sanctions or restrictions. The Trust and other clients advised by the Adviser
and its affiliates may be deemed to constitute a group for these purposes. In
light of these limits, the trustees of the Trust (the "Trustees") may determine
at any time to restrict or to terminate the Funds' transactions in options. The
Adviser does not believe that these trading and position limits will have any
adverse impact on the investment techniques for hedging the Trust's portfolios.
Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties ("Counterparties") through
direct agreement with the Counterparty. In contrast to exchange listed options,
which generally have standardized terms and performance mechanics, all the terms
of an OTC option, including such terms as method of settlement, term, exercise
price, premium, guarantees and security, are set by negotiation of the parties.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers," or broker dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard & Poor's Ratings Group
("Standard & Poor's") or Moody's Investor Services, Inc. ("Moody's") or an
equivalent rating from any other nationally recognized statistical rating
organization ("NRSRO") or that issue long-term debt determined to be of
equivalent credit quality by the Adviser. The Trust treats OTC options purchased
by a Fund, and portfolio securities "covering" the amount of a Fund's obligation
pursuant to an OTC option sold by it (the cost of the sell-back plus the
in-the-money amount, if any) as illiquid, and subject to each Fund's limitation
on investing no more than 15% of its net assets in illiquid securities. However,
for
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<PAGE>
options written with "primary dealers" in U.S. Government securities pursuant to
an agreement requiring a closing transaction at a formula price, the amount
which is considered to be illiquid may be calculated by reference to a formula
price.
Utilization of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and movements in the
price of the securities which are the subject of the hedge. If the price of the
futures contract moves more or less than the price of the security, a Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the securities which are the subject of the hedge. There is also a
risk of imperfect correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged.
Transactions in options on futures contracts involve similar risks.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES
Each of the Tomorrow Funds 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
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<PAGE>
pool exceeds 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. See the Funds' Prospectus for a
further description of mortgage-backed securities.
RISKS ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE SECURITIES
Each of the Tomorrow Funds 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.
The principal of and interest on the assets underlying a CMO or REMIC Trust
may be allocated among the several classes of CMOs or REMIC Certificates in
various ways. In certain structures (known as "sequential pay" CMOs or REMIC
Certificates), payments of principal, including any principal prepayments, on
the underlying mortgage assets generally are applied to the classes of CMOs or
REMIC Certificates in the order of their respective final distribution dates.
Thus, no payment of principal will be made on any class of sequential pay CMOs
or REMIC Certificates until all other classes having an earlier final
distribution date have been paid in full. Each Tomorrow Fund will limit its
investments in sequential pay CMOs and REMIC Certificates to 5% of its net
assets. Please see "Mortgage-Backed Securities" in the Tomorrow Funds'
Prospectus.
PARTICIPATION INTERESTS
Each Fund may purchase from banks participation interests in all or part of
specific holdings of 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. 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 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.
SECURITIES OF FOREIGN ISSUERS
To the extent included in the applicable Benchmark, each Fund may invest in
certain types of
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<PAGE>
U.S. dollar-denominated securities of foreign issuers, including American
Depository Receipts ("ADRs"). 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. ADRs are traded on domestic exchanges or in the U.S.
over-the-counter market and, generally, are in registered 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.
Although the Funds do not currently invest directly in foreign denominated
securities, the Long-Term Fund and the Medium-Term Fund will each invest in
other investment companies that will invest their assets in securities of
foreign issuers. The Long- Term and Medium-Term Funds may, therefore, be subject
to the risks associated with investing in foreign securities.
Investing in foreign securities may involve advantages and disadvantages
not present in domestic investments. There may be less publicly available
information about securities not registered domestically, or their issuers, than
is available about domestic issuers or their domestically registered securities.
Stock markets outside the U.S. may not be as developed as domestic markets, and
there may also be less government supervision of foreign exchanges and brokers.
Foreign denominated securities may be less liquid or more volatile than U.S.
securities. Trade settlements may be slower and could possibly be subject to
failure. In addition, brokerage commissions and custodial costs with respect to
foreign denominated securities may be higher than those for domestic
investments. Accounting, auditing, financial reporting, and disclosure standards
for foreign issuers may be different than those applicable to domestic issuers.
Foreign denominated securities may be affected favorably or unfavorably by
changes in currency exchange rates and exchange control regulations (including
currency blockage) and a Fund investing in such securities may incur costs in
connection with conversions between various currencies. Foreign securities may
also involve risks due to changes in the political or economic conditions of
such foreign countries, the possibility of expropriation of assets or
nationalization, and possible difficulty in obtaining and enforcing judgments
against foreign entities.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid investments,
which includes securities that are not readily marketable, repurchase agreements
maturing in more than seven
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<PAGE>
days, privately issued stripped mortgage-backed securities and "restricted
securities" (i.e., securities that would be required to be registered prior to
distribution to the public), including restricted securities eligible for resale
to certain institutional investors pursuant to Rule 144A of the Securities Act
of 1933, as amended (the "1933 Act"). The Trustees have adopted guidelines and
delegated to the Adviser the daily function of determining and monitoring the
liquidity of portfolio securities. The Trustees, however, retain sufficient
oversight and are ultimately responsible for the determinations. Please see the
non-fundamental investment restrictions for further limitations regarding the
Funds' investments in restricted and illiquid securities.
Since it is not possible to predict with assurance exactly how the market
for restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor each Fund's 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 the Funds to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. Notwithstanding the foregoing investment restrictions and
as further described below, each Fund may invest all or part of its assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as each Fund.
OTHER INVESTMENT COMPANIES
Each Fund, subject to authorization by the Trustees, may invest all of its
investable assets in the securities of a single open-end investment company (a
"Portfolio"). If authorized by the Trustees, 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 Trustees do not intend to authorize
investing in this manner at this time.
Each Fund may invest up to 10% of its total assets, calculated at the time
of purchase, in the securities of other investment companies (other than those
affiliated with WPG) but may 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 any investment company. Investments in investment companies will
result in duplication of certain expenses, since the Fund will indirectly bear
its proportionate share of any expenses paid by investment companies in which it
invests in addition to the expenses paid by the Fund.
CALCULATION OF THE FUNDS' RETURNS
TOTAL RETURN
The average annual total return with respect to a class of shares of each
Fund is determined
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<PAGE>
for a particular period by calculating the actual dollar amount of the
investment return on a $1,000 investment in that class of shares of the Fund
made at the net asset value of such shares at the beginning of the period, and
then calculating the annual compounded rate of return which would produce that
amount. Total return for a period of one year is equal to the actual return of
the Fund during that period. The following formula describes the calculation:
ERV = P(1+T)n
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return with respect to the particular class of
shares.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the indicated period.
This calculation assumes that (i) all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period and
(ii) all recurring fees are included for applicable periods.
Each Fund may illustrate in advertisements and sales literature the average
annual total return and cumulative total return for several time periods
throughout the Fund's life based on an assumed initial investment of $1,000. Any
such cumulative total return for a Fund will assume the reinvestment of all
income dividends and capital gains distributions in the applicable class of
shares for the indicated periods and will include all recurring fees.
The average annual total return for the shares of each Class of each Fund
offering such shares during the periods indicated was as follows:
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<PAGE>
TOTAL RETURN
<TABLE>
<CAPTION>
FIVE YEARS
(OR COMMENCEMENT
ONE YEAR OF OPERATIONS) TEN YEARS
ENDED ENDED 12/31/97 ENDED 12/31/97
FUND 12/31/97 ANNUALIZED CUMULATIVE ANNUALIZED CUMULATIVE
<S> <C> <C> <C> <C> <C>
Long-Term Retirement Fund*
Institutional Class 24.84% 19.29% 36.11% N/A N/A
Adviser Class 24.50% 18.32% 35.81% N/A N/A
Medium-Term Retirement Fund*
Institutional Class 19.48% 16.03% 29.68% N/A N/A
Adviser Class 18.96% 15.28% 29.53% N/A N/A
Short-Term Retirement Fund*
Institutional Class 18.69% 15.40% 28.45% N/A N/A
Adviser Class 18.46% 14.82% 28.57% N/A N/A
<FN>
- --------------------------
*The Institutional Class and Adviser Class shares of each Fund commenced
operations on April 2, 1996 and March 7, 1996, respectively. None of the
Fund's imposed their entire advisory fee and the Adviser reimbursed
certain operating expenses during various periods since inception of each
Fund. Had the Adviser imposed its entire fee and not limited operating
expenses, the Fund's total returns for the periods indicated would have
been lower.
</FN>
</TABLE>
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<PAGE>
YIELD
The 30 day yield quotation with respect to a class of shares of each of the
Tomorrow Funds is computed by dividing the net investment income for the period
with respect to that class of shares of that Fund by the net asset value per
share of that class 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 = net expenses accrued for the period.
c = the average daily number of shares of the particular class
outstanding during the period that were entitled to
receive dividends.
d = the offering price per share (net asset value per share) of the
particular class on the last day of the period.
YIELD FOR
30-DAY PERIOD
ENDED 12/31/97
1. Long-Term Retirement Fund
Institutional Class 1.73%
Adviser Class 1.24%
2. Medium-Term Retirement Fund
Institutional Class 2.57%
Adviser Class 1.95%
3. Short-Term Retirement Fund
Institutional Class 3.73%
Adviser Class 3.18%
Return for a Fund is not fixed or guaranteed and 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 a Fund's performance does not provide a
basis for determining future performance. Return is
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<PAGE>
a function of portfolio quality, composition, maturity and market conditions as
well as the expenses incurred by each Fund. The return of a Fund may not be
comparable to other investment alternatives because of differences in the
foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate return.
OTHER QUOTATIONS, COMPARISONS, AND GENERAL INFORMATION
From time to time, in advertisements, in sales literature, or in reports to
shareholders, the past performance of a Fund may be illustrated and/or compared
with that of other mutual funds with similar investment objectives, and to stock
or other relevant indices. For example, total return of a Fund's classes may be
compared to averages or rankings prepared by Lipper Analytical Services, Inc., a
widely recognized independent service which monitors mutual fund performance;
the Morgan Stanley Europe, Australia, Far East Index ("EAFE"), an unmanaged
index of international stock markets, the Lehman Government Corporate Index, an
unmanaged market weighted blend of all U.S. Government Securities and all U.S.
Corporate Securities, the S&P 400, an unmanaged index of common stocks; the S&P
500, an unmanaged index of common stocks; the Russell 2000, an unmanaged index
of common stocks; the Russell 3000 Index (the "Russell 3000"), an unmanaged
index of common stocks; or the Dow Jones Industrial Average, an unmanaged index
of common stocks of 30 industrial companies listed on the New York Stock
Exchange.
The S&P 500 is an unmanaged index of 500 common stocks which are traded on
the New York Stock Exchange, American Stock Exchange and the Nasdaq National
Market. The S&P 500 represents approximately 70% of the total domestic U.S.
equity market capitalization. The S&P 400 is an unmanaged index of common stocks
of 400 companies with mid-size market capitalizations - $300 million to $5
billion. The S&P 500 and the S&P 400 are market value-weighted indices (shares
outstanding times stock price) in which each company's influence on the
respective index is directly proportional to its market value. The companies in
the S&P 500 and the S&P 400 are selected from four major industry sectors:
industrials, utilities, financials and transportation. The 500 companies chosen
for the S&P 500 are not the 500 largest companies in terms of market value.
Rather, the companies chosen by S&P for inclusion in the S&P 500 tend to be
leaders in important industries within the U.S. economy. The Russell 2000 is an
unmanaged index of 2000 common stocks of small capitalization companies. The
Russell 2000 is composed of the 2000 smallest companies with respect to
capitalization in the Russell 3000 and represents approximately 7% of the
Russell 3000 total market capitalization. The Russell 3000 is an unmanaged index
of 3000 common stocks of large United States companies with market
capitalizations ranging from approximately $60 million to $80 billion. The
Russell 3000 represents approximately 98% of the United States equity market.
In addition, the performance of the classes of a Fund may be compared to
alternative investment or savings vehicles and/or to indexes or indicators of
economic activity, e.g., inflation or interest rates. Performance rankings and
listings reported in newspapers or national business and financial publications,
such as Barron's, Business Week, Consumer's Digest, Consumer
- 19 -
<PAGE>
Reports, Financial World, Forbes, Fortune, Investors Business Daily, Kiplinger's
Personal Finance Magazine, Money Magazine, the New York Times, Smart Money, USA
Today, U.S. News and World Report, The Wall Street Journal and Worth may also be
cited (if a Fund is listed in any such publication) or used for comparison, as
well as performance listings and rankings from various other sources including
Bloomberg Financial Systems, CDA/Wiesenberger Investment Companies Service,
Donoghue's Mutual Fund Almanac, Investment Company Data, Inc., Johnson's Charts,
Kanon Bloch Carre & Co., Micropal, Inc., Morningstar, Inc., Schabacker
Investment Management and Towers Data Systems.
In addition, from time to time, quotations from articles from financial
publications, such as those listed above, may be used in advertisements, in
sales literature or in reports to shareholders of the Funds.
The Funds may also present, from time to time, historical information
depicting the value of a hypothetical account in one or more classes of a Fund
since the Fund's inception.
In presenting investment results, the Funds may also include references to
certain financial planning concepts, including (a) an investor's need to
evaluate his financial assets and obligations to determine how much to invest;
(b) his need to analyze the objectives of various investments to determine where
and when to invest; and (c) his need to analyze his time frame for future
capital needs to determine how long to invest. The investor controls these three
factors, all of which affect the use of investments in building assets. The
Adviser's agreement to limit each Fund's operating expenses will increase
investment performance.
In advertisements, sales literature or reports to shareholders, the Funds
may include references to asset allocation strategies. According to information
supplied by B.G.B. Brinceson, B.D. Singer and G.L. Beebower, as of May/June
1991, 91% of investment performance is derived from asset allocation, the proper
mix of cash, bonds and stocks. In general, the remaining performance is derived
as follows: stock selection--5%, market timing--2%, and other--2%.
According to Standard & Poor's Ratings Group and Crandell, Pierce &
Company, the best and worst stock market returns (as represented by the Standard
& Poor's Index of 500 Common Stocks) annualized over the time periods from 1950
through June 1995 using monthly observations were as follows:
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<PAGE>
TIME BEST WORST
PERIOD PERFORMANCE PERFORMANCE
- ---------- ----------- -----------
One Year 61.3% -36.9%
Three Years 33.3 -10.6
Five Years 29.6 - 4.2
Seven Years 23.0 - 2.7
Ten Years 19.2 0.5
Fifteen Years 17.2 4.1
Twenty Years 15.1 6.4
Thirty Years 11.2 9.1
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental investment restrictions
which may not be changed without approval of a majority of the applicable Fund's
outstanding voting securities. Under the 1940 Act, and as used in the
Prospectuses and this SAI, a "majority of the outstanding voting securities"
requires the approval of the lesser of (1) the holders of 67% or more of the
shares of a Fund represented at a meeting of the holders if more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (2) the
holders of more than 50% of the outstanding shares of the Fund.
A Fund may not:
1. Issue senior securities, except as permitted by paragraphs 2, 5, and 6
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts, forward commitments and repurchase agreements
entered into in accordance with the Fund's investment policies or within
the meaning of paragraph 5 below, are not deemed to be senior securities.
2. Borrow money, except (i) from banks for temporary or short- term purposes
or for the clearance of transactions in amounts not to exceed 33 1/3% of
the value of the Fund's total assets (including the amount borrowed) taken
at market value, (ii) in connection with the redemption of Fund shares or
to finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets; (iii) in order to fulfill
commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets and (iv) the Fund
may enter into reverse repurchase agreements and forward roll transactions,
but only if after each such borrowing there is asset coverage of at least
300% as defined in the 1940 Act. For purposes of this investment
restriction, investments in short sales, futures contracts, options on
futures contracts, securities or indices and forward commitments shall not
constitute borrowing.
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<PAGE>
3. Act as an underwriter with respect to the securities of other issuers,
except to the extent that in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of the
1933 Act; 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.
4. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities that
are secured by real estate or interests therein, (iv) purchase and sell
mortgage-related securities and (v) hold and sell real estate acquired by
the Fund as a result of the ownership of securities.
5. Invest in commodities, except the Fund may purchase and sell options on
securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such futures,
forward foreign currency exchange contracts, forward commitments,
securities index put or call warrants and repurchase agreements entered
into in accordance with the Fund's investment policies.
6. Make loans, except that the Fund may (1) lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase is
made upon the original issuance of the securities.
7. Purchase the securities of issuers conducting their principal 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 taken at
market value at the time of such investment (except investments in
obligations of the U.S. Government or any of its agencies,
instrumentalities or authorities); 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. For each Fund, with respect to 75% of its total assets, 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
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<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.
For purposes of the above fundamental investment restrictions regarding
senior securities, 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.
The following restrictions are designated as non-fundamental and may be
changed by the Trustees without the approval of shareholders.
A Fund may not:
a. Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings and then only if such pledging, mortgaging or hypothecating
does not exceed 33 1/3% of the Fund's total assets taken at market
value. Collateral arrangements with respect to margin, option and
other risk management and when-issued and forward commitment
transactions are not deemed to be pledges or other encumbrances for
purposes of this restriction.
b. 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.
c. Purchase securities of any other investment company except as
permitted by the 1940 Act.
d. 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.
e. Invest more than 15% of its net assets in securities which are
illiquid.
f. Purchase additional securities if the Fund's borrowings exceed 5% of
its net assets.
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 fundamental
investment objectives, restrictions and policies as the Fund.
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<PAGE>
The Funds do not have any current intention to enter into reverse
repurchase agreements, sell securities short or engage in arbitrage
transactions.
Except with respect to the 300% asset coverage required by fundamental
restriction number 2, if a percentage restriction on investment or utilization
of assets as set forth above is adhered to at the time an investment is made, a
later change in percentage resulting from changes in the values of a Fund's
assets will not be considered a violation of the restriction.
ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISER
As stated in the Prospectus, WPG, One New York Plaza, New York, New York
10004, serves as investment adviser and administrator to each Fund. See
"Management of the Tomorrow Funds -- Investment Adviser", "Management of the
Tomorrow Funds ---Administrator" and "Portfolio Brokerage" in the Prospectus for
a description of the duties of WPG as investment
adviser and administrator to the Funds.
On or about August 9, 1998, Robeco Groep N.V., a Dutch public limited
liability company ("Robeco"), acquired all of the outstanding equity interests
of the Adviser from its prior owners (the "Acquisition"). As a result of the
Acquisition, the Adviser is an indirect, wholly-owned subsidiary of Robeco. The
Acquisition did not result in material changes in the business, corporate
structure or composition of the senior management or personnel of the Adviser,
or in the manner in which the Adviser renders advisory, administrative or
brokerage services to the Funds. The Acquisition did not involve an increase in
the advisory or administrative fees paid by any Fund.
In connection with the Acquisition, the Board of Trustees of the Trust,
including a majority of the Trustees who are not "interested persons" (as such
term is defined in the 1940 Act) of the Trust or the Adviser (the "Independent
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.
- 24 -
<PAGE>
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, 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 Trust's Agreement and Declaration of Trust, By-Laws and its registration
statement under the 1940 Act and under the 1933 Act covering the Trust's shares,
as filed with the SEC, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from time to time in
effect, and subject, further, to such policies and instructions as the Board of
Trustees of the Trust 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 is entitled to receive an annual fee from each Fund, payable monthly,
equal to 0.75% (on an annual basis) of the Fund's average daily net assets,
except for the Post-Retirement Fund, for which the Adviser is entitled to a fee,
payable monthly, equal on an annual basis to 0.65% of such Fund's average daily
net assets. The advisory fees are accrued daily and will be prorated with
respect to any Fund if the Adviser shall not have acted as that Fund's
investment adviser during any entire monthly period.
The Adviser has voluntarily and temporarily agreed to limit each Fund's
operating expenses (excluding Rule 12b-1 fees with respect to the Adviser Class
shares, service fees with respect to the Institutional Class shares, any other
class-specific expenses, litigation, indemnification and other extraordinary
expenses) to 1.25% of its average daily net assets, except for the
Post-Retirement Fund, for which the Adviser has voluntarily and temporarily
agreed to limit operating expenses (with the same exclusions as listed above) to
1.15% of its average daily net assets. The Adviser may discontinue or modify
such limitation in the future at its discretion, although it has no current
intention to do so. Each Fund will reimburse the Adviser for fees foregone or
other expenses paid by the Adviser pursuant to this expense limitation in later
years in which operating expenses for the Fund are less than the expense
limitations set forth above for any such year. No interest, carrying or finance
charge will be paid by a Fund with respect to the amounts representing fees
foregone or other expenses paid. In addition, no Fund will pay any unreimbursed
amounts to the Adviser upon termination of its Advisory Agreement. The advisory
fee rates paid to the Adviser under the prior investment advisory agreements for
the fiscal years ended December 31, 1996 and 1997 are as follows:
- 25-
<PAGE>
Advisory Fees Paid Advisory Fees Paid
Year Ended Year Ended
FUND DECEMBER 31, 19961 DECEMBER 31, 19971
---- ------------------ ------------------
Long-Term Retirement Fund $0 $0
Medium-Term Retirement Fund $0 $ 7,722
Short-Term Retirement Fund $0 $18,093
Post-Retirement Fund (2) N/A N/A
- ---------------
(1) The Adviser voluntarily agreed not to impose all or a portion of its
advisory fee for each Fund during the fiscal years ended December 31, 1996 and
1997. In the absence of this agreement, the Funds would have paid advisory fees
as follows:
Year ended Year ended
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
Long-Term Retirement Fund $2,533 $24,878
Medium-Term Retirement Fund $7,501 $75,259
Short-Term Retirement Fund $7,488 $94,563
- ---------------
(2) The Post-Retirement Fund has not commenced operations.
Each Advisory Agreement provides that the Adviser will not be liable for
any loss sustained by the Trust or any 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
Independent Trustees of the Trust. Each Advisory Agreement's continuance after
its initial two-year term must be approved annually by a vote of the majority of
the Trustees or by a vote of the holders of a "majority of the outstanding
voting securities" 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.
- 26 -
<PAGE>
As of June 1, 1998, WPG had capital of approximately $72 million. WPG
consists of 35 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 June 1, 1998, WPG and its affiliates had assets
under management of approximately $16 billion, primarily for institutions and
high net worth individuals.
Robeco is a Dutch corporation that was formed to be 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.
The Robeco Group, through its subsidiaries, has approximately 1,250
employees worldwide. Of the approximately $59.4 billion in assets under
management at December 31, 1997, approximately $810 million was managed in the
U.S.
Roger J. Weiss is a Senior Managing Director of WPG and Chairman of the
Board, President and Trustee of the Trust. Stephen H. Weiss, brother of Roger J.
Weiss, is also a Senior Managing Director of WPG. Francis H. Powers is a
Managing Director of WPG, and Executive Vice President and Treasurer of the
Trust. Jay C. Nadel is a Managing Director of WPG and an Executive Vice
President and Secretary of the Trust. The Managing Directors of WPG who serve on
WPG's executive committee are Stephen H. Weiss (Chairman), Roger J. Weiss,
Phillip Greer, Ronald M. Hoffner, Wesley W. Lang, Jr., Mitchell E. Cantor and
Gil Cogan.
In addition to the members of the Adviser's Asset Allocation Committee and
Messrs. Cardell and Vandivort, Messrs. Stephen H. Weiss and Roger J. Weiss may
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.
- 27 -
<PAGE>
In the management of the Trust and their other accounts, WPG and its
subsidiaries 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
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 Trustees that
the desirability of continuing the Trust's advisory arrangements with the
Adviser outweighs any disadvantages that may result from contemporaneous
transactions. See "Portfolio Brokerage."
In an attempt to avoid any potential conflict with portfolio transactions
for the Funds, the Adviser and the Trust, on behalf of each Fund, 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 directors and employees.
In the event that neither the Adviser nor any of its affiliates acts as
investment adviser to the Trust, the name of the Trust will be changed to one
that does not contain the name "Weiss, Peck & Greer" or the initials "WPG" or
otherwise suggest an affiliation with the Adviser or contain the name "Tomorrow"
or any connotation or derivative of such name.
ADMINISTRATOR
WPG, in its capacity as Administrator of each Fund, performs
administrative, certain 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 Trustees of the Trust, (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 its 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).
- 28 -
<PAGE>
For its services under the Administration Agreements, the Administrator is
entitled to receive a fee, computed daily and payable monthly at an annual rate
equal to 0.09% of each Fund's average daily net assets. 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.
Administration Fees Paid Administration Fees Paid
Year ended Year ended
FUND DECEMBER 31, 1996(1) DECEMBER 31, 1997(1)
---- ----------------- ------------------
Long-Term Retirement Fund $0 $0
Medium-Term Retirement Fund $0 $0
Short-Term Retirement Fund $0 $0
Post-Retirement Fund2 N/A N/A
- -----------------
(1)The Adviser voluntarily agreed not to impose any of its administration
fee for each Fund during the fiscal years ended December 31, 1996 and 1997. In
the absence of this agreement, the Funds would have paid administration fees as
follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
Long-Term Retirement Fund $304 $2,989
Medium-Term Retirement Fund $900 $9,031
Short-Term Retirement Fund $899 $11,348
- -----------------
(2)The Post-Retirement Fund has not commenced operations.
- 29 -
<PAGE>
Each Fund bears all expenses of its own operation (subject to the expense
limitations described above), which expenses include: (i) fees and expenses of
any investment adviser or administrator of the Fund; (ii) organization expenses
of the Trust; (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
its employees rendering legal services to the Funds); (vii) interest, insurance
premiums, taxes or governmental fees; (viii) the fees and expenses of the
transfer agent of the Funds; (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 Funds; (x) the expenses of and fees
for registering or qualifying shares of the Funds for sale and of maintaining
the registration of the Funds; (xi) the fees and expenses of Trustees of the
Trust who are not affiliated with the Adviser; (xii) the cost of preparing and
distributing reports and notices to existing shareholders, the SEC and other
regulatory authorities; (xiii) the fees or disbursements of custodians of the
Funds' assets, including expenses incurred in the performance of any obligations
enumerated by the Declaration of Trust or By-Laws of the Trust insofar as they
govern agreements with any such custodian; (xiv) costs in connection with annual
or special meetings of shareholders, including proxy material preparation,
printing and mailing; (xv) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Funds'
business; and (xvi) distribution fees and service fees applicable to Adviser
Class shares and service fees applicable to Institutional Class shares.
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.
PRINCIPAL UNDERWRITER
First Data Distributors, Inc. (the "Underwriter") serves as the principal
underwriter in connection with the continuous offering of the shares of the
Trust pursuant to an Underwriting Agreement, dated as of August 1998. The
continuance of the Underwriting Agreement after its initial two-year term must
be approved annually by the Trustees, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval. The Underwriting Agreement was initially approved on July 22, 1998.
See "Distribution Plans" below. The Underwriting Agreement provides that the
Underwriter will bear certain distribution expenses not borne by the Funds.
The Underwriter bears all expenses it incurs in providing services under
the Underwriting Agreement. The Underwriter also pays certain expenses in
connection with the distribution of the Funds' shares, including the cost of
preparing, printing and distributing advertising or promotional materials, and
the cost of printing and distributing prospectuses and supplements to
prospective shareholders. Each Fund bears the cost of registering its shares
under federal, state and foreign securities law.
- 30 -
<PAGE>
DISTRIBUTION PLANS
Each Fund, with respect to its Adviser class shares, has adopted a plan of
distribution pursuant to Rule 12b-1 promulgated by the Commission under the 1940
Act (the "Plans"). In connection with the Acquisition, the Trustees, including a
majority of the Independent 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 Adviser Class shares 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' plans of distribution
applicable to Adviser Class shares in effect prior to the consummation of the
Acquisition.
Each Plan provides that a Fund shall pay WPG, for its distributions
services with respect to the Funds' Adviser class shares, a distribution fee
equal on an annual basis to 0.25% of the Fund's average daily net assets
attributable to Adviser Class shares and will pay WPG a service fee equal on an
annual basis to 0.25% of the Fund's average daily net assets attributable to
Adviser Class shares (which WPG will in turn pay to Authorized Firms which enter
into a sales or services agreement with WPG at a rate of up to 0.25% of the
Fund's average daily net assets attributable to Adviser Class shares owned by
investors for whom that Authorized Firm is the holder or dealer of record). This
service fee is intended to be consideration for personal services and/or account
maintenance services rendered by the Authorized Firm with respect to Adviser
Class shares. Personal and account maintenance services for which WPG or any of
its affiliates, banks or dealers may be compensated pursuant to the Plans
include, without limitation: payments made to or on account of WPG or any of its
affiliates, banks, other brokers and dealers who are members of the NASD, or
their officers, sales representatives and employees, who respond to inquiries
of, and furnish assistance to, shareholders regarding their ownership of Adviser
Class shares or their accounts or who provide similar services not otherwise
provided by or on behalf of the Funds. Authorized Firms may from time to time be
required to meet certain other criteria in order to receive service fees. WPG or
its affiliates are entitled to retain all service fees payable under the Plans
for which there is no Authorized Firm of record or for which qualification
standards have not been met as partial consideration for personal services
and/or account maintenance services performed by WPG or its affiliates for
shareholder accounts.
- 31 -
<PAGE>
The purpose of distribution payments to WPG under the Plans is to
compensate WPG for its distribution services related to the Adviser Class shares
of the Funds. (See "Distribution Plans" in the Prospectus.)
In accordance with the terms of the Plans, WPG provides to the Trust for
review by the Trustees a quarterly written report of the amounts expended under
the Plans and the purpose for which such expenditures were made. In the
Trustees' quarterly review of the Plans, they will consider the continued
appropriateness and the level of compensation that the Plans provide.
No interested person of the Trust, nor any Trustee of the Trust who is an
Independent Trustee, has any direct or indirect financial interest in the
operation of the Plans except to the extent that WPG may be deemed to have such
an interest as a result of receiving a portion of the amounts expended under the
Plans by the Funds and except to the extent WPG may be deemed to receive a
benefit under the Advisory and Administration Agreements .
In approving the Plans, the Trustees identified and considered a number of
potential benefits which the Plans may provide. The Trustees believe that there
is a reasonable likelihood that the Plans will benefit the Funds and their
respective Adviser Class shareholders. Under their terms, the Plans remain in
effect from year to year provided such continuance is approved annually by vote
of the Trustees in the manner described above. The Plans may not be amended to
increase materially the annual percentage limitation of average net assets which
may be spent for the services described therein without approval of the
shareholders of the Adviser Class shares, and material amendments of the Plans
must also be approved by the Trustees in the manner described above. Each Plan
will remain in effect from year to year provided that the continuance of the
Plan is approved annual by a majority vote of the Trustees, including a majority
of the Independent Trustees who have no direct or indirect financial interest in
the Plans. A Plan may be terminated at any time, without payment of any penalty,
by vote of the majority of the Independent Trustees or by a vote of a majority
of the outstanding voting securities of the Adviser Class of the applicable
Fund. A Plan will automatically terminate in the event of its assignment (as
defined in the 1940 Act).
During the fiscal year ended December 31, 1997, the Funds paid to WPG the
following amounts under the prior plans (all of such amounts were spent as
compensation to dealers):
- 32 -
<PAGE>
DISTRIBUTION FEES PAID
FUND DECEMBER 31, 1997
---- -----------------
Long-Term Retirement Fund $ 13,451
Medium-Term Retirement Fund $ 45,818
Short-Term Retirement Fund $ 59,671
Post-Retirement Fund1 N/A
- ---------------
(1)The Post-Retirement Fund has not commenced operations.
SERVICE PLANS
Each Fund, with respect to its Institutional Class shares, adopted a
service plan (collectively, the "Service Plans").
Each Service Plan provides that a Fund shall compensate plan fiduciaries or
other service providers to Qualified Plans for the benefit of the Qualified
Plans (for purposes of this section, collectively, "Plan Fiduciaries") for
providing certain personal, account administration and/or shareholder liaison
services to plan participants who are beneficial owners of Institutional Class
shares. Pursuant to the Service Plans, the Funds may enter into agreements with
Plan Fiduciaries which purchase Institutional Class shares of the Fund ("Service
Agreements"). Under such Service Agreements or otherwise, the Plan Fiduciaries
may perform some or all of the following services: (a) act as the sole
shareholder of record and nominee for all plan participants, (b) maintain
account records for each plan participant who beneficially owns Institutional
Class shares of the Funds, (c) answer questions and handle correspondence from
plan participants regarding their accounts, (d) process plan participants'
orders to purchase, redeem and exchange Institutional Class shares of the Funds,
and handle the transmission of funds representing the participants' purchase
price or redemption proceeds, (e) issue confirmations for transactions in shares
by participants, (f) provide facilities to answer questions from participants
and existing investors about Institutional Class shares of the Funds, (g)
receive and answer shareholder correspondence, including requests for
prospectuses and statements of additional information, (h) assist participants
in selecting dividend and other account options and opening custody accounts
with the Plan Fiduciaries and (i) act as liaison between participants and the
Funds, including obtaining information from the Funds, working with the Funds to
correct errors and resolve problems and providing statistical and other
information to the Funds. As compensation for such services, the Funds may pay
each Plan Fiduciary a service fee in an amount up to 0.25% (on an annualized
basis) of the Fund's average daily net assets attributable to Institutional
Class shares of the Funds that are attributable to or held in the name of such
Plan Fiduciary. Plan Fiduciaries may from time to time be required to meet
certain other criteria in order to receive service fees.
- 33 -
<PAGE>
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Plan Fiduciary's receipt of compensation
paid by the Funds in connection with the investment of fiduciary assets in
Institutional Class shares of the Funds. Plan Fiduciaries and investment
advisers and other money mangers subject to the jurisdiction of the SEC, the
Department of Labor or state securities commissions, are urged to consult legal
advisers before investing fiduciary assets in Institutional Class shares of the
Funds.
In accordance with the terms of the Service Plans, WPG provides to the
Trust for review by the Trustees a quarterly written report of the amounts
expended under the Service Plans and the purpose for which such expenditures
were made. In the Trustees' quarterly review of the Service Plans, they will
consider the continued appropriateness and the level of compensation that the
Service Plans provide.
During the fiscal year ended December 31, 1997, the Funds paid to Plan
Fiduciaries the following amounts under the Service Plans:
SERVICE FEES PAID
FUND DECEMBER 31, 1997
---- -----------------
Long-Term Retirement Fund $ 9
Medium-Term Retirement Fund $ 34
Short-Term Retirement Fund $ 132
Post-Retirement Fund(1) N/A
- -------------
(1) The Post-Retirement Fund has not commenced operations.
Each Service Plan will remain in effect from year to year provided that the
continuance of the Service Plan is approved annually by a majority vote of the
Trustees, including a majority of the Independent Trustees who have no direct or
indirect financial interest in the Service Plans. All material amendments of the
Service Plans must also be approved by the Trustees in the manner described
above. The Service Plans may be terminated at any time as to any Fund without
payment of any penalty by a vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities of the affected Fund.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Service Plans will benefit the Funds and the Institutional
Class shareholders.
- 34 -
<PAGE>
TRUSTEES AND OFFICERS
The Trustees have responsibility for management of the business of the
Trust. The executive officers of the Trust are responsible for its day to day
operations. Set forth below is certain information concerning the Trustees and
officers.
NAME, ADDRESS, PRINCIPAL OCCUPATIONS
DATE OF BIRTH AND TITLE DURING PAST FIVE YEARS
- ----------------------- ----------------------
Roger J. Weiss* Senior Managing Director, Weiss,
One New York Plaza Peck & Greer, L.L.C.
New York, NY 10004 Chairman of the Board of all WPG Funds
4/29/39 President, Weiss, Peck & Greer
International Fund
Chairman of the Board, Executive Vice President and Director,
President and Trustee WPG Advisers, Inc.
Former Executive Vice President and Director,
Tudor Management Company
Raymond R. Herrmann, Jr.** Chairman of the Board, Sunbelt Beverage
654 Madison Avenue Corporation (distributor of wines and
Suite 1400 liquors)
New York, NY 10017 Former Vice Chairman and Director, McKesson
9/11/20 Corporation (U.S. distributor of
drugs and health care products, wine and
Trustee 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, all WPG Funds and RWB/
WPG U.S. Large Stock Fund
- 35 -
<PAGE>
NAME, ADDRESS, PRINCIPAL OCCUPATIONS
DATE OF BIRTH AND TITLE DURING PAST FIVE YEARS
- ----------------------- ----------------------
Lawrence J. Israel** Private Investor
200 Broadway Director and Trustee of the Touro Infirmary
Suite 249 Member of the Intercollegiate Athletics
New Orleans, LA 70118 Committee of the Administrators of the
12/13/34 Tulane Educational Fund
Trustee, all WPG Funds and RWB/WPG
U.S. Large Stock Fund
Trustee
Graham E. Jones Financial Manager, Practice Management
330 Garfield Street Systems (Medical Services Company)
Suite 200 Trustee, all WPG Funds and RWB/WPG U.S.
Santa Fe, NM 87501 Large Stock Fund
1/31/33 Director, The Malaysia Fund
Director, The Thai Fund
Trustee Director, The Turkish Investment Fund
Trustee, various investment companies
managed by Morgan Grenfell Capital
Management, Inc. and Morgan Grenfell
Investment Services, Ltd
Francis H. Powers* Managing Director, Weiss, Peck & Greer, L.L.C.
One New York Plaza Vice President and Secretary, Weiss, Peck &
New York, NY 10004 Greer Advisers, Inc.
7/6/40 Executive Vice President and Treasurer of all
WPG Funds
Executive Former Vice President and Secretary,
Vice President Tudor Management Company
and Treasurer
Jay C. Nadel* Managing Director, Weiss, Peck & Greer, L.L.C.
One New York Plaza Director of Operating Departments
New York, NY 10004 Executive Vice President and Secretary of all
7/21/58 WPG Funds
Executive
Vice President
and Secretary
- 36 -
<PAGE>
NAME, ADDRESS, PRINCIPAL OCCUPATIONS
DATE OF BIRTH AND TITLE DURING PAST FIVE YEARS
- ----------------------- ----------------------
Daniel Cardell* Managing Director, Weiss, Peck & Greer, L.L.C.
One New York Plaza since May 1996
New York, NY 10004 Former Senior Vice President and Director
7/31/57 of Equities, Bank of America
Vice President
Daniel S. Vandivort* Managing Director, Weiss, Peck & Greer,
One New York Plaza L.L.C. since 1994
30th Floor Previously Managing Director and
New York, NY 10004 Head of U.S. Fixed Income,
7/4/54 Senior Portfolio Manager and
Director, Global Product
Vice President Development and Marketing with
CS First Boston Investment
Management, 1989-1994
Joseph J. Reardon* Senior Vice President, Mutual Fund
One New York Plaza Operations, Weiss, Peck & Greer, L.L.C.
New York, NY 10004 since December, 1993
4/4/60 Assistant Manager, Mutual Fund
Operations, Weiss, Peck & Greer, L.L.C.
Vice President from February, 1990 to December, 1993
Assistant Vice President of all
WPG Funds since April, 1991
Therese Hogan Manager, State Regulation,
First Data Investor First Data Investor
Services Group Services Group, Inc.
53 State Street Since June, 1994
Boston, MA 02109 Senior Legal Assistant,
2/27/62 Palmer & Dodge
from 1992-1994
Assistant Secretary
- 37 -
<PAGE>
- ----------------
* "Interested Person" within the meaning of the 1940 Act.
** Each of the non-interested Trustees is a trustee of each of the other WPG
Funds and a Member of the Trust's Audit Committee and Special Nominating
Committee.
COMPENSATION OF TRUSTEES AND OFFICERS
The Funds pay no compensation to the Trust's Trustees affiliated with the
Adviser or its officers. None of the Trust's Trustees or officers have engaged
in any financial transactions with any Fund or the Adviser, except that certain
Trustees and officers who are managing directors of the Adviser may, from time
to time, purchase and sell ownership interests in the Adviser.
The following table sets forth the amount of compensation paid to the
Trust's Trustees for the fiscal year ended December, 31, 1997. In addition, each
Trustee is reimbursed for out-of-pocket expenses associated with attending
Trustee meetings.
- 38 -
<PAGE>
AGGREGATE COMPENSATION PAID TO TRUSTEES FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
ACCRUED AS FROM THE
LONG-TERM MEDIUM-TERM SHORT-TERM PART OF FUNDS AND
RETIREMENT RETIREMENT RETIREMENT FUNDS' OTHER FUNDS
NAME OF TRUSTEE FUND FUND FUND EXPENSES IN COMPLEX*
<S> <C> <C> <C> <C> <C>
Roger J. Weiss $0 $0 $0 $0 $0
Raymond R. Herrmann, Jr. 2,000 2,000 2,000 0 34,125
Lawrence J. Israel 2,000 2,000 2,000 0 34,125
Harvey E. Sampson** 2,000 2,000 2,000 0 29,625
Graham E. Jones*** N/A N/A N/A N/A 24,125
<FN>
- -----------------
* As of December 31, 1997, there were 13 mutual funds in the Weiss, Peck & Greer
group of funds (including the Funds) that publicly offer their shares. **
Effective April 23, 1998, Mr. Sampson is no longer a Trustee of the Trust.
*** Mr. Jones was elected as a Trustee of the Trust in May, 1998.
</FN>
</TABLE>
CERTAIN SHAREHOLDERS
As of May 31, 1998, the Trustees and officers of the Trust as a group
beneficially owned (i.e., had voting or investing power) less than 1% of the
outstanding shares of each Fund.
As of May 31, 1998, no person within the knowledge of the management of the
Trust owned of record or beneficially 5% or more of the outstanding voting
securities (i.e., shares) of any Fund, except as set forth below:
- 39 -
<PAGE>
PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
---------------- ------------------
TOMORROW LONG-TERM RETIREMENT FUND
First Union National Bank NC 64.79%
Funds Group
Attn: Kay Lavender
1525 W T Harris Boulevard
NC-1076
Charlotte, NC 28288-1076
{* 1 moved from here; text not shown}
{* 2 moved from here; text not shown}
{* 3 moved from here; text not shown}
{* 4 moved from here; text not shown}
{* 5 moved from here; text not shown}
{* 6 moved from here; text not shown}
{* 7 moved from here; text not shown}
{* 8 moved from here; text not shown}
{* 9 moved from here; text not shown}
AIG Life Insurance Co 7.75%
Separate Account I
c/o Variable Accounting
P.O. Box 667
Wilmington, DE 19899-0667
** 1 Heat and Frost Insulators Local 17 7.13%
** 2 401 (K)
** 3 3850 S Racine
** 4 Chicago, IL 60609
** 5 Pebsco Cass 6.60%
- 40 -
<PAGE>
PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
---------------- ------------------
** 6 FBO City of Chicago
** 7 c/o IPO Portfolio Accounting
** 8 PO Box 182029
** 9 Columbus, OH 43218-2029
Great Western Life & Annuity 5.00%
FBO Chicago Transit Authority
8515 B Orchard Road, Attn 2T2
Englewood, CO 80111
TOMORROW MEDIUM-TERM RETIREMENT FUND
First Union National Bank NC 74.48%
Funds Group
Attn: Kay Lavender
1525 W T Harris Boulevard
NC-1076
Charlotte, NC 28288-1076
Heat and Frost Insulators Local 17 6.28%
401 (K)
3850 S Racine
Chicago, IL 60609
TOMORROW SHORT-TERM RETIREMENT FUND
First Union National Bank NC 46.73%
Funds Group
Attn: Kay Lavender
1525 W T Harris Boulevard
NC-1076
Charlotte, NC 28288-1076
Sheet Metal Workers Local #73 39.70%
c/o CIGNA
Attn: Trading Unit
280 Trumbull St. H06A
Hartford, CT 06103
- 41 -
<PAGE>
HOW TO PURCHASE SHARES
(See "How to Buy Shares" in the Prospectus.)
The Trust continuously offers shares of each Fund. The Trust may terminate
the continuous offering of its shares with respect to any Fund at any time at
the discretion of the Trustees.
In the case of telephone subscriptions, if full payment for telephone
subscriptions is not received by the Trust within the customary time period for
settlement then in effect after the acceptance of the order by the Trust, 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.
If a subscription or redemption of Fund shares is arranged and settlement
made through a member of the NASD, then that member may, in its discretion,
charge a fee for this service.
ACQUIRING SHARES OF THE FUNDS IN EXCHANGE FOR SECURITIES
Shares of the Funds may be purchased in whole or in part by delivering to
the Funds' Custodian securities acceptable to WPG. If the securities are not
suitable for a Fund's portfolio, the securities will be sold by the Custodian as
agent for the account of their owner on the day of their receipt by the
Custodian or as soon thereafter as possible. The number of shares of a class of
a Fund to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities, divided by the net asset value per share of
the applicable class of the applicable Fund on the day such proceeds are
received. WPG will use reasonable efforts to obtain the current market price for
such securities but does not guarantee the best available price. WPG will absorb
any transaction costs, such as commissions, on the sale of securities.
- 42 -
<PAGE>
Securities determined by WPG to be acceptable should be transferred by book
entry or physically delivered, in proper form for transfer. Please contact WPG
for transfer instructions.
Investors who are contemplating an exchange of securities for shares of a
Fund must contact WPG to determine whether the securities are acceptable before
forwarding such securities to the Custodian. WPG reserves the right to reject
any securities. Exchanging securities for shares of the Funds may create a
taxable gain or loss. Please consult your tax adviser with respect to the
particular Federal, state and local tax consequences of exchanging securities
for Fund shares.
REDEMPTION OF SHARES
(See "How to Sell Shares" and "How to Exchange Shares" in the Prospectus.)
SYSTEMATIC WITHDRAWAL PLAN
A Systematic Withdrawal Plan is available only for the Post-Retirement
Fund, without expense to any shareholder with a minimum investment of $10,000 in
value in such Fund's shares (at the then current offering price). The Transfer
Agent may be directed, as agent of the purchaser, to redeem without a redemption
charge shares of such Funds held in his account as may be required so that the
shareholder or any person designated by him will receive a monthly or quarterly
check in a stated amount not to be less than $100 although such amount is not
necessarily a recommended amount. Dividends and capital gains distributions will
be reinvested in additional shares of the same class of such Fund at net asset
value as of the reinvestment date.
Redemption of shares of the Post-Retirement Fund under the Systematic
Withdrawal Plan may reduce or even liquidate the account, particularly in a
declining market. Such payments paid
- 43 -
<PAGE>
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 the liquidation of Fund
shares pursuant to this Plan is a sale which may have tax consequences for any
shareholder that is subject to tax.
Withdrawals at the same time as regular purchases of shares of either class
of the Post-Retirement Fund ordinarily will not be permitted since purchases are
intended to accumulate capital and the Systematic Withdrawal Plan is designed
for the regular withdrawal of monies, 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 Trust may
terminate the Plan at will. There are no contractual rights on the part of
either party with respect to the Plan.
IN-KIND REDEMPTIONS
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.
NET ASSET VALUE
(See "How Each Tomorrow Fund's Share Price is Determined" in the Prospectus.)
Under the 1940 Act, the Trustees are responsible for determining in good
faith the fair value of securities of the Funds. The net asset value per share
of each class of each Fund is determined once daily, Monday through Friday as of
the close of regular trading on the NYSE (normally 4:00 P.M. New York City time)
on each Business Day (as defined in the Prospectus) 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. A
Fund may not determine its net asset value on any day during which its shares
were not tendered for redemption and the Trust did not receive any order to
purchase or sell shares of that Fund. In accordance with procedures approved by
the Trustees, the net asset value per share of each class of each Fund is
calculated by determining the value of the net assets attributable to each class
of that Fund and dividing by the number of outstanding shares of that class. 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),
- 44 -
<PAGE>
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 per share of a class of a Fund is the net asset
value per share of that class of that Fund next determined after receipt of an
order. Orders for shares which have been received by the Trust or the Transfer
Agent or other authorized representative 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.
Bonds and other fixed-income securities (other than short-term obligations
but including listed issues) in a Fund's portfolio are valued 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.
In determining the net asset value, unlisted securities for which market
quotations are available are valued at the mean between the most recent bid and
asked prices. 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. 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 Valuation Committee as authorized by the Trustees.
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.
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
- 45 -
<PAGE>
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.
INVESTOR SERVICES
(See "How to Buy Shares," "How to Sell Shares" and "How to Exchange Shares" in
the Prospectus.)
The Trust offers a variety of services, described in the sections that
follow, designed to meet the needs of its shareholders. The costs of providing
such services are borne by the Funds.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan enables shareholders to make regular (monthly
or quarterly) investments in shares of any of the Funds through an automatic
withdrawal from a 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, the shareholder authorizes the
Trust's Custodian to periodically draw money from a designated bank or federal
credit union account, and to invest such amounts in account(s) of the Fund(s)
specified. The transaction will be automatically processed to the mutual fund
account on or about the first business day of the month or quarter designated.
Please be aware that: (1) the Automatic Investment Plan privilege may be
revoked without prior notice if any check is not paid upon presentation; (2) the
Custodian is under no obligation to notify the shareholder as to the non-payment
of any check, and (3) this service may be modified or discontinued by the
Custodian upon thirty (30) days' written notice prior to any payment date, or
may be discontinued by you by written notice to the Transfer Agent, at least ten
(10) days before the next payment date.
- 46 -
<PAGE>
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 of a 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 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 of the same class 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 of the applicable class
(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 (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
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.
- 47 -
<PAGE>
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.
Employers who contemplate adoption of the Retirement Plan should consult an
attorney or financial adviser regarding all aspects of the Retirement 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 contribution to an IRA 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 and must commence no
later than the required beginning date (see discussion of "Prototype Retirement
Plans" above). Withdrawals before age 59 may involve the
- 48 -
<PAGE>
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 of a Fund held in IRA accounts are reinvested in full and fractional
shares of the same class of the same Fund 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 Trust has arranged for Boston Safe Deposit and Trust Company to furnish
the required custodial services for IRAs using any of the 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 Plan's
Custodian upon 30 days' prior notice.
To establish an IRA for investment in a Fund, 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 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 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,
- 49 -
<PAGE>
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.
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 PLANS
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 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
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<PAGE>
("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 shares of the Funds (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 of the same class of the same Fund.
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 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 Fund has arranged for Boston Safe Deposit and Trust Company to furnish
the required custodial services for SEP-IRAs using the Funds 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.
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<PAGE>
To establish a SEP-IRA, an employer and employee should complete the WPG
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 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.
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.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Each Fund within the Trust 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, if any, 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 a 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 distributes for its taxable year
(in accordance with the Code's timing and other requirements) to its
shareholders as dividends at least 90% 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 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%
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<PAGE>
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.
It is expected that separate accounts of insurance companies will be
purchasing Institutional Class shares of the Funds. As such, each Fund must, and
intends to, comply with the diversification requirements imposed by Section
817(h) of the Code and the regulations thereunder. These requirements, which are
in addition to the diversification requirements imposed on a Fund by the 1940
Act and Subchapter M of the Code, place certain limitations on the assets of
each separate account and, because Section 817(h) and those regulations treat
the assets of the Fund as assets of the related separate account, the assets of
a Fund, that may be invested in securities of a single issuer or a small number
of issuers or interests in the same commodity. Specifically, the regulations
provide that, except as permitted by the "safe harbor" described below, as of
the end of each calendar quarter or within 30 days thereafter no more than 55%
of the total assets of a Fund may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments and
no more than 90% by any four investments. For this purpose, (1) a single
"investment" includes all securities of the same issuer, cash items, certain
partnership interests, and all interests in the same commodity, and (2) each
U.S. Government agency and instrumentality is considered a separate issuer.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M of the Code are satisfied and no more than 55% of the value
of the account's total assets are cash and cash items (including receivables),
U.S. Government securities and securities of other regulated investment
companies. Failure by a Fund to both qualify as a regulated investment company
and satisfy the Section 817(h) requirements would generally result in treatment
of the variable contract holders other than as described in the Funds'
Prospectus, including inclusion in ordinary income of income accrued under the
contracts for the current and all prior taxable years. Any such failure may also
result in adverse tax consequences for the insurance company issuing the
contracts.
Unless its only shareholders are life insurance company segregated asset
accounts held in connection with variable contracts, trusts that are described
in section 401(a) of the Code and exempt from tax under section 501(a) of the
Code, and investors of "seed money" not in excess of $250,000, 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 the 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
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<PAGE>
the prior calendar year that was not distributed for such year and on which the
Fund paid no federal income tax. Each Fund expects generally to avoid liability
for this tax.
Net investment income for each Fund is the Fund's investment income less
its expenses. Dividends from net investment income and the excess, if any, of
net short-term capital gain over net long-term capital loss of a Fund will be
treated under the Code as ordinary income, and dividends from net long-term
capital gain in excess of net short-term capital loss ("capital gain dividends")
will be treated under the Code as long-term capital gain, for federal income tax
purposes. Each Fund's dividends are paid after taking into account, and reducing
the distribution to the extent of, any available capital loss carryforwards.
Distributions from a Fund's current or accumulated earnings and profits, as
computed for Federal income tax purposes, will be treated as described above
whether taken in shares or in cash. Certain distributions received in January
may be treated as if paid by a Fund and received by a shareholder on December 31
of the prior year.
Dividends, including capital gain dividends, paid by a 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 may be characterized as ordinary income
or capital gain as described above.
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
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.
All futures contracts entered into by a Fund and all listed nonequity
options written or purchased by a Fund (including options on debt securities,
options on futures contracts, options on securities indices and options on
broad-based stock indices) 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 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
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<PAGE>
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 if an option, futures 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.
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 nonequity
option governed by Section 1256 which substantially diminishes the 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
and futures and may make certain tax elections in order to mitigate the
operation of these rules and prevent disqualification of the Fund as a regulated
investment company for federal income tax purposes.
These special tax rules applicable to options and futures transactions and
constructive sales could affect the amount, timing and character of a Fund's
income or loss and hence of its distributions to shareholders by causing holding
period adjustments, converting short-term capital losses into long-term capital
losses, and accelerating a Fund's income or gains or deferring its losses.
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 such case, a Fund will not be able to purchase additional income
producing
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<PAGE>
securities with the cash generated by the sale of such securities but will be
required to use such cash to make such required distributions, and its current
portfolio income may ultimately be reduced accordingly. 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.
The Funds may be subject to foreign withholding or other foreign taxes with
respect to income (possibly 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
will not be eligible to pass through to shareholders these taxes and any
associated foreign tax credits or deductions for foreign taxes paid by the Funds
that are not thus reduced or eliminated. Certain foreign exchange gains and
losses realized by the Funds with respect to such securities or related currency
transactions will generally be treated as ordinary income and losses. Certain
uses of foreign currency and investments by the Funds in certain "passive
foreign investment companies" may be limited in order to avoid adverse tax
consequences for the Funds (or an election, if available, may be made with
respect to such investments).
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 advisers for
more information. See "Prototype Retirement Plan For Employers and Self-Employed
Individuals," "Simplified Employee Pension Plans (SEP-IRA)," and "Individual
Retirement Accounts."
Redemptions, including exchanges, of shares may give rise to realized gains
or losses, recognizable for tax purposes except for investors subject to tax
provisions that do not require them to recognize such gains or losses. 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 treated as a long-term capital loss to the
extent of any distribution of long-term capital gains with respect to such
shares. Exchanges and withdrawals under the Systematic Withdrawal Plan are
treated as redemptions for federal income tax purposes.
The Funds may be required to pay state taxes in states that have
jurisdiction to tax them, except to the extend 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 does not address
the special tax rules applicable to certain classes of investors, such as
insurance companies and qualified retirement plans or accounts. Each shareholder
who is not a U.S. person should consider the U.S.
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<PAGE>
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.
This discussion of the federal income tax treatment of the Funds and their
distributions is based on the federal income tax law in effect as of the date of
this Statement of Additional Information. Shareholders should consult their tax
advisers about the application of the provisions of tax law described in this
statement of additional information and about the possible application of state,
local and foreign taxes in light of their particular tax situations.
PORTFOLIO BROKERAGE
(See "Portfolio Brokerage" in the Prospectus.)
It is the general policy of the Trust not to employ any broker-dealer in
the purchase or sale of securities for a Fund's portfolio unless the Trust
believes that the broker-dealer will obtain the best results for the Fund under
the circumstances, taking into consideration such relevant factors as price, the
ability of the broker-dealer to effect the transaction and the broker-dealer's
facilities, reliability and financial responsibility. Commission rates, being a
component of price, are considered together with such factors. Subject to the
foregoing, where transactions are effected on securities exchanges, the Trust
intends to employ primarily WPG as its broker. The Trust is not obligated to
deal with any broker-dealer or group of broker-dealers in the execution of
transactions in portfolio securities.
WPG acts as broker for the Funds on exchange transactions, subject,
however, to the general policy of the Trust set forth above and the procedures
adopted by the Trustees. Commissions paid to WPG must be at least as favorable
as those believed to be contemporaneously charged by other broker-dealers 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 Independent 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 Independent Trustees, exceptions may be made. Since WPG
has, as investment adviser to the Funds, the obligation 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.
The commission rate on all 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
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by the Trust to an affiliated person, such as WPG, acting as broker in
connection with transactions effected on a securities exchange. The Trustees,
including a majority of the Independent Trustees, have adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 thereunder to ensure a broker's commission that 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 Trustees, including a majority of the
Independent 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 Trustees of the Trust, including a
majority of the Independent Trustees, have adopted procedures designed to comply
with the requirements of Rule 17e-1.
In selecting broker-dealers other than WPG to effect transactions on
securities exchanges, the Trust considers the factors set forth in the first
paragraph under this heading and any investment products or services provided by
such broker-dealers, subject to the criteria of Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). 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 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 WPG determines in good faith that
the amount of commissions charged by a broker-dealer is reasonable in relation
to the value of the brokerage and research products and services provided by
such broker-dealer, the Trust may pay commissions to such broker-dealer 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 purchases 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 (and
its affiliates) in carrying out their decision-making responsibilities and (iii)
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement).
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<PAGE>
Each year, WPG considers the amount and nature of the research products and
services provided by other broker-dealers 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 their clients, such as the Trust, on the basis of that
consideration. In addition, broker-dealers 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-dealers 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. In no instance is a broker-dealers 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 broker-dealers
may be used by WPG (and its affiliates) in servicing all its accounts and not
all such information may be used by WPG, in its capacity as the Adviser, in
connection with the Trust. Nonetheless, the Trust believes that such investment
information provides the Trust with benefits by supplementing the research
otherwise available to WPG.
As set forth above, the Trust 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 the Trust) of which the member firm or its affiliate
(such as the Adviser) 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.
WPG furnishes to the Trust at least quarterly a statement setting forth the
total amount of all compensation retained by WPG or any associated person of WPG
in connection with effecting transactions for the account of the Trust, and the
Trustees of the Trust review and approve all the Trust's portfolio transactions
and the compensation received by WPG in connection therewith.
WPG does not knowingly participate in commissions paid by the Trust 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 WPG at
any time learns that it has knowingly received reciprocal business, it will so
inform the Trustees.
To the extent that WPG receives brokerage commissions on Trust portfolio
transactions, officers and Trustees of the Trust who are also directors of WPG
may receive indirect compensation from the Trust through their participation in
such brokerage commissions.
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 WPG. Investment decisions for
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a Fund and for WPG'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 Trust believes that over time its
ability to participate in volume transactions will produce better executions for
the Funds. When appropriate, orders for the account of the Funds are combined
with orders for other investment companies or other clients advised by WPG in
order to obtain a more favorable commission rate. When the same security is
purchased for a Fund and one or more other funds or other clients on the same
day, each party pays the average price and commissions paid are allocated in
direct proportion to the number of shares purchased.
The U.S. Government and debt securities in which the Funds invest 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 Trust, where
possible, deals 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 the Trust are
prohibited from dealing with the Trust 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 Trust, including WPG, may not serve as the Trust's dealer in
connection with such transactions. However, affiliated persons of the Trust may
serve as its broker in transactions conducted on an exchange or over-the-counter
transactions conducted on an agency basis. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Subject to the supervision of the Trustees, all investment decisions of the
Trust are executed through WPG's trading department.
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<PAGE>
BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AMOUNT OF
TRANSACTIONS
INVOLVING THE
PERCENTAGE OF PAYMENT OF
AGGREGATE COMMISSIONS
AGGREGATE BROKERAGE COMMISSIONS EFFECTED
COMMISSIONS PAID TO WPG THROUGH WPG
FUND 1995 1996 1997 DURING 1997 DURING 1997
- ---- ---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C>
Long-Term Retirement Fund N/A $ 846 $ 4,750 98% 98%
Medium-Term Retirement Fund N/A 2,094 10,483 97% 97%
Short-Term Retirement Fund N/A 2,056 12,134 99% 99%
</TABLE>
AGGREGATE BROKERAGE COMMISSIONS PAID TO WPG
<TABLE>
<CAPTION>
FUND 1995 1996 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Long-Term Retirement Fund N/A $ 821 $ 4,655
Medium-Term Retirement Fund N/A $2,070 $10,176
Short-Term Retirement Fund N/A $2,004 $11,952
</TABLE>
The foregoing amounts do not include any profits or 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).
PORTFOLIO TURNOVER
(See "Financial Highlights" and "Risk Considerations and Other Investment
Practices and Policies -- Portfolio Turnover" in the Prospectus.)
The annual portfolio turnover rate of a Fund is calculated by dividing the
lesser of the purchase or sales of a Fund's portfolio securities for the year by
the monthly average of the value of the portfolio securities owned by that 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.
In determining portfolio turnover, securities (including options) which have
maturities at the time of acquisition of one year or less ("short-term
securities"), are excluded. 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 the Trust must pay.
To the extent that their portfolios are traded for short-term market
considerations and the turnover rate exceeds 100%, the annual portfolio turnover
rate of the Funds could be higher than most mutual funds.
ORGANIZATION
(See "Management of the Tomorrow Funds" and "The Trust" in the Prospectus.)
As a Delaware business trust, the Trust's operations are governed by its
Agreement and Declaration of Trust dated June 21, 1995 (the "Declaration of
Trust"). A copy of the Trust's Certificate of Trust, also dated June 21, 1995,
is on file with the Office of the Secretary of State
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<PAGE>
of the State of Delaware. Upon the initial purchase of shares, the shareholder
agrees to be bound by the Trust's Declaration of Trust, as amended from time to
time. Generally, Delaware business trust shareholders are not personally liable
for obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act (the "Delaware Act") provides that a shareholder of a
Delaware business trust shall be entitled to the same limitation of liability
extended to shareholders of private for-profit corporations. The Trust's
Declaration of Trust expressly provides that the Trust has been organized under
the Delaware Act and that the Declaration of Trust is to be governed by Delaware
law. It is nevertheless possible that a Delaware business trust, such as the
Trust, might become a party to an action in another state whose courts refused
to apply Delaware law, in which case the Trust's shareholders could be subject
to personal liability.
To guard against this risk, the Declaration of Trust (i) contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides that notice of such disclaimer may be given in each agreement,
obligation and instrument entered into or executed by the Trust or its Trustees,
(ii) provides for the indemnification out of Trust property of any shareholders
held personally liable for any obligations of the Trust or any series of the
Trust and (iii) provides that the Trust shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligation of the Trust
and satisfy any judgment thereon. Thus, the risk of a Trust shareholder
incurring financial loss beyond his or her investment because of shareholder
liability is limited to circumstances in which all of the following factors are
present: (1) a court refused to apply Delaware law; (2) the liability arose
under tort law or, if not, no contractual limitation of liability was in effect;
and (3) the Trust itself would be unable to meet its obligations. In the light
of Delaware law, the nature of the Trust's business and the nature of its
assets, the risk of personal liability to a Fund shareholder is remote.
The Declaration of Trust further provides that the Trust shall indemnify
each of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or officer,
directly or indirectly, by reason of being or having been a Trustee or officer
of the Trust. The Declaration of Trust does not authorize the Trust to indemnify
any Trustee or officer against any liability to which he or she would otherwise
be subject by reason of or for willful misfeasance, bad faith, gross negligence
or reckless disregard of such person's duties.
Under the Declaration of Trust, the Trust is not required to hold annual
meetings to elect Trustees or for other purposes. It is not anticipated that the
Trust will hold shareholders' meetings unless required by law or the Declaration
of Trust. The Trust will be required to hold a meeting to elect Trustees to fill
any existing vacancies on the Board if, at any time, fewer than a majority of
the Trustees have been elected by the shareholders of the Trust. The Board is
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% of the outstanding shares of the Trust.
Shares of the Trust do not entitle their holders to cumulative voting
rights, so that the holders
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of more than 50% of the outstanding shares of the Trust may elect all of the
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees. As determined by the Trustees, shareholders are entitled to
one vote for each full share held and fractional votes for fractional shares
held or one vote for each dollar of net asset value (number of shares held times
the net asset value of the applicable class of the applicable Fund).
As it is expected that separate accounts of insurance companies will be
purchasing Institutional Class shares of each of the Funds, it should be noted
that the rights, if any, of variable contract holders to vote the shares of a
Fund are governed by the relevant variable contract.
Pursuant to the Declaration of Trust, the Trustees may create additional
funds by establishing additional series of shares in the Trust. The
establishment of additional series would not affect the interests of current
shareholders in the existing four Funds. As of the date of this Statement of
Additional Information, the Board does not have any plan to establish another
series of shares in the Trust.
Pursuant to the Declaration of Trust, the Board may establish and issue
multiple classes of shares for each Fund. As of the date of this Statement of
Additional Information, the Trustees have authorized the issuance of two classes
of shares for each series, designated Adviser Class and Institutional Class. See
"The Trust" in the Prospectus for a detailed description of the respective
rights of the two classes of shares. The Trustees do not have any plan to
establish additional classes of shares for any Fund.
Each share of each class of a Fund is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund
which are attributable to such class as are declared in the discretion of the
Board. In the event of the liquidation or dissolution of the Trust, shares of
each class of each Fund are entitled to receive their proportionate share of the
assets which are attributable to such class of such Fund and which are available
for distribution as the Trustees in their sole discretion may determine.
Shareholders are not entitled to any preemptive, conversion or subscription
rights. All shares, when issued, will be fully paid and non-assessable by the
Trust.
Pursuant to the Declaration of Trust and subject to shareholder approval
(if then required), the Trustees may authorize each 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. As of the date of this Statement of Additional Information, the Board does
not have any plan to authorize any Fund to so invest its assets.
"Tomorrow Funds Retirement Trust" is the designation of the Trust for the
time being under the Declaration of Trust, and 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 a
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Fund or the Trust. No Fund is liable for the obligations of any other Fund.
Since the Funds use a combined prospectus, however, it is possible that one Fund
might become liable for a misstatement or omission in its prospectus regarding
the other Fund with which its disclosure is combined. The Trustees have
considered this factor in approving the use of the combined prospectus.
CUSTODIAN
The Custodian for the Trust 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 all accounting services, holds
the assets of the Trust and is responsible for calculating the net asset value
per share.
TRANSFER AGENT
First Data Investor Services Group, Inc. acts as transfer agent for the
Trust and, in such capacity, processes purchases, transfers and redemptions of
shares, acts as dividend disbursing agent, and maintains 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 the Trust.
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("KPMG"), 345 Park Avenue, New York, New York 10154,
are the independent auditors for the Trust. Professional services performed by
KPMG include audits of the financial statements of the Trust, consultation on
financial, accounting and reporting matters, review and consultation regarding
various filings with the SEC and attendance at the meetings of the Audit
Committee and Board of Trustees. KPMG also performs other professional services
for the Trust including preparation of income tax returns of the Funds. 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, 1997, is attached hereto and hereby incorporated by
reference into this Statement of Additional Information.
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APPENDIX
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.
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.
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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.
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.
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
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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.
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 needs.
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