Tomorrow Funds
Retirement Trust
A Lifecycle Retirement Program
Prospectus
May 1, 1999
TOMORROW LONG-TERM RETIREMENT FUND
TOMORROW MEDIUM-TERM RETIREMENT FUND
TOMORROW SHORT-TERM RETIREMENT FUND
Adviser Class
And
Institutional Class Shares
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY STATEMENT TO THE CONTRARY IS A CRIME.
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CONTENTS
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Risk/Return Summary ....................................................... 3
Investment Goals, Strategies and Risks ........................... 3
Tomorrow Long-Term Retirement Fund ............................... 7
Tomorrow Medium-Term Retirement Fund ............................. 8
Tomorrow Short-Term Retirement Fund .............................. 9
More About the Funds' Investments and Risks ............................... 11
Management of the Funds ................................................... 13
Eligible Investors ........................................................ 14
Variable Contract Holders ........................................ 14
Qualified Plans .................................................. 14
How to Buy, Exchange and Redeem Shares .................................... 14
How to Buy Shares for Qualified Plans ............................ 15
How to Exchange Shares for Qualified Plans ....................... 18
How to Redeem Shares for Qualified Plans ......................... 20
Share Price ............................................................... 22
Dividends, Distributions and Taxes ........................................ 22
Financial Highlights ...................................................... 23
For More Information ...................................................... 24
ABOUT THE INVESTMENT ADVISER
Weiss, Peck & Greer, L.L.C. serves as the investment adviser to each of the
funds. WPG is headquartered in New York and is a subsidiary of Robeco Groep
N.V., a Dutch public limited liability company founded in 1929. As of the date
of this prospectus, Robeco had approximately $95 billion in assets under
management, including $17 billion managed directly by WPG. WPG, which has over
28 years experience as an investment adviser to institutional and individual
clients, is a member firm of the New York Stock Exchange.
WHO MAY INVEST
Shares of the funds may be purchased only by "qualified" pension or retirement
plans (including trustees of such plans for certain individuals funding their
individual retirement accounts or other qualified plans) and by insurance
company separate accounts to provide investment vehicles for variable annuity
and variable life insurance contracts. See "Eligible Investors" for further
information.
A WORD ABOUT RISK
An investment in the funds is not a bank deposit and is not insured or
guaranteed by the FDIC or any other government agency.
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RISK/RETURN SUMMARY
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INVESTMENT GOALS
The funds seek to provide you, as a holder of a variable contract or a
participant in a qualified retirement plan, with an asset allocation strategy
designed to address your retirement funding needs. There are three Tomorrow
Funds, each of which is targeted for investors of different ages.
Each 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 fund increases.
LONG-TERM FUND seeks to satisfy the retirement goals of investors who are
currently between 23 and 36 years of age and with an average remaining life
expectancy of 49 years or more.
MEDIUM-TERM FUND seeks to satisfy the retirement goals of investors who are
currently between 37 and 51 years of age and with an average remaining life
expectancy in the range 34-48 years.
SHORT-TERM FUND seeks to satisfy the retirement goals of investors who are
currently between 52 and 66 years of age and with an average remaining life
expectancy in the range of 19-33 years.
You are encouraged to select a 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 fund in order to achieve a personalized investment program.
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PRINCIPAL INVESTMENTS
Each fund allocates its assets between equity and fixed-income securities.
Depending upon the funds' strategic asset allocations, each fund's assets
allocated to equity securities may further be divided among large, medium and
small capitalization stocks and foreign securities.
THE PERCENTAGE OF EACH FUND'S ASSETS ALLOCATED TO EQUITY AND FIXED-INCOME
SECURITIES AND TO LARGE, MEDIUM AND SMALL CAPITALIZATION STOCKS AND FOREIGN
SECURITIES DIFFERS. ACCORDINGLY, EACH FUND WILL NOT OWN THE SAME DOLLAR AMOUNT
OF ANY SECURITY. TO THE EXTENT THAT A FUND ALLOCATES ASSETS TO THE DIFFERENT
CATEGORIES OF INVESTMENTS, THE PERCENTAGE THAT A PARTICULAR SECURITY REPRESENTS
WITHIN A CATEGORY WILL REMAIN SUBSTANTIALLY THE SAME.
Each fund adjusts its allocation between equity and fixed-income securities, and
further adjusts its allocation of large, medium and small capitalization stocks
and foreign securities, to reflect a level of risk that the adviser considers
appropriate for investors in that fund's target class, in general, given their
investment time horizon.
EQUITY SECURITIES include common stocks of large, medium and small
capitalization companies and may also include equity securities of foreign
companies.
FIXED-INCOME SECURITIES include bonds, notes, mortgaged-backed and asset-based
securities, convertible securities, preferred stock, municipal securities, and
short- term debt securities. These fixed income securities are denominated in
U.S. dollars and may be issued by U.S. and foreign companies or governmental
entities.
CREDIT QUALITY. Exclusively investment grade. This means that the fixed income
securities are rated in one of the top four long-term rating categories by at
least one major rating agency or are of comparable credit quality.
MATURITY/DURATION. There is no limit on the average dollar-weighted maturity or
duration of a fund's portfolio of fixed income securities. Currently, the
adviser expects that the average duration (which will be substantially the same
for each fund) will be in the intermediate range.
1
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RISK/RETURN SUMMARY (continued)
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HOW THE ADVISER ALLOCATES ASSETS WITHIN THE FUNDS
How the Adviser Allocates Assets Within the Funds As the average age of the
target class of investors in a fund increases over time, the adviser adjusts the
fund's asset mix allocated between equity and fixed-income securities, and
further allocated 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 longer the average life expectancy of the target class of investors in a
fund, the greater the allocation of assets of that fund to securities with
higher growth potential and, correspondingly, more risk, such as small
capitalization stocks.
- -- The shorter the average life expectancy of the target class of investors in a
fund, the greater the emphasis on current income and capital preservation of
assets and, therefore, the greater the allocation of assets of that fund to
fixed-income securities.
Each 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 be expected to look like the
current strategic asset composition of the Medium-Term Fund.
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CURRENT STRATEGIC ASSET ALLOCATION
A fund's strategic asset allocation mix represents the way that the fund's
investments will generally be allocated in the near-term. The adviser reviews
strategic asset allocations at least semiannually and adjusts the asset
allocations, if necessary, at that time. Currently, the adviser anticipates the
strategic asset allocation mix within each fund's portfolio to be approximately
as follows:
[GRAPH OMITTED HERE. THE PIE CHARTS OMITTED SHOW THE FOLLOWING:]
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
Fixed Income 70.0%
Large Capitalization 30.0%
A fund's actual asset allocation will vary from that shown above depending
primarily on the relative performance of the securities in the fund's portfolio
since the last rebalancing of the fund's portfolio and on the adviser's
evaluation of anticipated relative returns and risks among securities in the
near-term future.
2
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RISK/RETURN SUMMARY (continued)
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HOW THE ADVISER SELECTS EQUITY SECURITIES
With respect to the assets of each fund allocated to large, medium and small
capitalization stocks, the adviser uses quantitative methods to seek investment
results that exceed the performance of an appropriate benchmark. The benchmarks
are:
Category Benchmark
- -------- ---------
Large Cap S&P 500 Index
Medium Cap S&P 400 MidCap Index
Small Cap Russell 2000 Index
Using a proprietary multi-factor model for each category, the adviser:
- -- Identifies stocks with rising earnings expectations that the adviser believes
will outperform their peers.
- -- Identifies stocks from among this group that are selling at low relative
prices in light of their earnings expectations.
- -- Assesses the level of risk associated with each stock, and identifies stocks
with the maximum expected return at each acceptable level of risk.
Based on this information, the adviser selects the combination of stocks,
together with their appropriate weightings, that it believes will optimize {the}
each fund's risk/return ratio for each category. The adviser seeks to maintain
the market capitalization, sector allocations and style characteristics of the
funds' assets allocated to a particular category similar to those of its
benchmark.
The funds' portfolios are rebalanced regularly to maintain the optimal
risk/return trade-off. The adviser assesses each stock's changing
characteristics relative to its contribution to portfolio risk for each
category. A stock is sold when it no longer offers an appropriate return-to-risk
tradeoff.
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HOW THE ADVISER SELECTS FOREIGN SECURITIES
The adviser invests a fund's assets allocated to foreign securities in shares of
other mutual funds or closed-end funds. These other funds invest their assets
primarily in equity securities of foreign companies. The adviser selects these
other funds whose portfolios, when aggregated, resemble the composition of the
funds' benchmark for foreign securities, the Morgan Stanley Europe, Australia,
Far East Index (EAFE Index).
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HOW THE ADVISER SELECTS FIXED INCOME SECURITIES
There are three principal factors in the adviser's selection process of fixed
income securities: maturity allocation, sector allocation and individual
security selection.
- -- The adviser studies the relationship between bond yields and maturities under
current market conditions and identifies maturities with high yields relative
to the amount of risk involved.
- -- The adviser uses qualitative and quantitative methods to identify bond
sectors that it believes are undervalued or will outperform other sectors.
Sectors include corporate securities, U.S. Treasury securities, U.S.
government agency securities, and mortgage-backed and asset-backed
securities.
- -- After the funds' maturity and sector allocations are made, the adviser
selects individual bonds within each sector. The adviser performs both
fundamental and quantitative analysis, looking at:
-- Stable or improving issuer credit quality
-- Market inefficiencies that cause individual bonds to have high relative
values
-- Structural features of securities, such as callability, liquidity, and
prepayment characteristics and expectations.
The funds' benchmark for fixed income securities is the Lehman Brothers
Aggregate Index.
3
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RISK/RETURN SUMMARY (continued)
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PRINCIPAL RISKS OF INVESTING IN THE FUNDS
Before investing in a fund, you should consider your personal tolerance for risk
recognizing that each 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 fund and the particular
securities in which each fund invests are determined based upon the average age
of the particular fund's target class of investors. Because the funds are
managed to satisfy retirement goals based upon average life expectancy, the
funds may invest their assets in higher risk/higher return securities than
mutual funds designed for investors based solely on retirement dates.
Each fund is managed with the goal of achieving a different risk/return ratio,
with the Long-Term Fund seeking the highest risk/return ratio and the Short-Term
Fund seeking the lowest risk/return ratio among the funds. Each fund will be
managed to achieve an increasingly conservative risk/return ratio as the average
age of the target class of investors in that particular fund increases. The
risks associated with an investment in the funds vary depending on the amount of
a fund's assets allocated between fixed income and equity securities and among
large cap, medium cap and small cap securities and foreign securities.
You could lose money in a fund or a fund's performance could underperform other
possible investments if any of the following occurs:
EQUITY SECURITIES (INCLUDING LARGE, MEDIUM AND SMALL CAP SECURITIES):
-- The U.S. stock market goes down.
-- Stocks of large cap, medium cap or small cap companies temporarily fall
out of favor with investors.
-- Companies in which a fund invests suffer unexpected losses or lower than
expected earnings.
-- The adviser's judgment about the attractiveness, value or potential
appreciation of a particular company's common stock proves to be wrong.
-- The factors considered by the multi-factor model fail to select stocks
with better relative performance than those included in the
benchmarks.
FOREIGN SECURITIES:
-- Foreign stock markets go down, or perform poorly relative to the U.S.
stock market.
-- Foreign stocks temporarily fall out of favor with investors.
-- The judgments about the attractiveness, value or potential appreciation of
a particular foreign company's stock or foreign market prove to be wrong.
FIXED INCOME SECURITIES:
-- Interest rates rise, causing the bonds in a fund's portfolio to drop in
value.
-- The issuer or guarantor of a bond owned by a fund defaults on its payment
obligations, becomes insolvent or has its credit rating downgraded.
--As a result of declining interest rates, the issuer of a bond exercises the
right to prepay principal earlier than scheduled, forcing a fund to
reinvest in lower yielding bonds. This is known as call or prepayment risk.
-- When interest rates are rising, the average life of a bond is generally
extended because of slower than expected princi pal se the bond's duration
and reduce the value of the bond. This is known as extension risk.
-- The adviser's judgments about the attractiveness, relative value or
potential income of particular fixed income sectors or bonds prove
to be wrong.
Asset Allocation:
-- The adviser's judgments about the relative attractiveness or potential
appreciation or yield between fixed income securities and equity securities
or among large cap, medium cap and small cap securities and foreign
securities prove to to be wrong.
4
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RISK/RETURN SUMMARY TOMORROW LONG-TERM RETIREMENT FUND
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THE LONG-TERM FUND'S PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the
Long-Term Fund. Performance calculations in the bar chart and table do not
reflect separate account fees, which would reduce the fund's performance. The
bar chart shows changes in the performance of the fund's Adviser Class shares
from year to year over the life of the fund. Institutional Class shares would
have different performance due to their different expenses.
[GRAPH OMITTED HERE. THE BAR CHART OMITTED HERE SHOWS THE CHANGES IN THE
PERFORMANCE OF THE FUND FROM YEAR TO YEAR.]
LONG-TERM FUND
TOTAL RETURN
CALENDAR YEARS ENDED DECEMBER 31
1997 24.50%
1998 15.58%
The table shows the fund's average annual returns for different calendar periods
and since inception on April 2, 1996, for Institutional Class shares and on
March 7, 1996 for Adviser Class shares compared to those of the fund's
benchmark. The benchmark is a compilation of five broad- based indices, one for
each class of securities in which the fund invests: the S&P 500 Index for large
cap securities; the S&P 400 MidCap Index for medium cap securities; the Russell
2000 Index for small cap securities; the EAFE Index for foreign securities; and
the Lehman Brothers Aggregate Index for fixed income securities. The benchmark
is composed of these indices in the same proportions as the fund's strategic
asset allocation, described on page 3 of this prospectus. The different indices
are unmanaged and are generally considered representative of the classes of
securities in which the fund invests.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
1 YEAR Since INCEPTION
------ ---------------
Adviser Class 15.58% 17.34%
Institutional Class 16.16% 18.14%
Benchmark 17.96% 19.23%
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 15.16% in the 4th quarter of 1998
Worst: -7.39% in the 3rd quarter of 1998
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(paid directly from your investment) None
Annual fund operating expenses
(paid by the fund as a % of net assets) Adviser Institutional
Class Class
Management fees 0.75% 0.75%
12b-1 distribution fees 0.50% None
Other expenses(1) 2.00% 3.34%
----- -----
Total annual operating expenses 3.25% 4.09%
Fee Waiver(2) (1.39%) (2.71%)
----- -----
Net annual operating expenses 1.86% 1.38%
===== =====
(1) Because custodian fees were reduced by credits for cash balances, the fund's
actual expenses for fiscal 1998 were:
Other expenses 1.89% 3.23%
Total annual operating expenses 3.14% 3.98%
Net annual operating expenses 1.75% 1.27%
(2) The adviser has agreed to cap the fund's operating expenses. The adviser may
not discontinue or modify this cap without the approval of the fund's
trustees.
EXAMPLE. This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Adviser Class $178 $551 $949 $2,062
Institutional Class $129 $403 $697 $1,534
The example assumes:
-- You invest $10,000 for the periods shown
-- You redeem at the end of each period
-- You reinvest all distributions and dividends without a sales charge
-- The fund's operating expenses have been capped by the adviser and remain
the same
-- Your investment has a 5% return each year
5
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RISK/RETURN SUMMARY TOMORROW MEDIUM-TERM RETIREMENT FUND
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THE MEDIUM-TERM FUND'S PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the
Medium-Term Fund. Performance calculations in the bar chart and table do not
reflect separate account fees, which would reduce the fund's performance. The
bar chart shows changes in the performance of the fund's Adviser Class shares
from year to year over the life of the fund. Institutional Class shares would
have different performance due to their different expenses.
[GRAPH OMITTED HERE. THE BAR CHART OMITTED HERE SHOWS THE CHANGES IN THE
PERFORMANCE OF THE FUND FROM YEAR TO YEAR.]
MEDIIUM-TERM FUND
TOTAL RETURN
CALENDAR YEARS ENDED DECEMBER 31
1997 18.96%
1998 15.94%
The table shows the fund's average annual returns for different calendar periods
and since inception on April 2, 1996 for Institutional Class shares and on March
7, 1996 for Adviser Class shares compared to those of the fund's benchmark. The
benchmark is a compilation of five broad- based indices, one for each class of
securities in which the fund invests: the S&P 500 Index for large cap
securities; the S&P 400 MidCap Index for medium cap securities; the Russell 2000
Index for small cap securities; the EAFE Index for foreign securities; and the
Lehman Brothers Aggregate Index for fixed income securities. The benchmark is
composed of these indices in the same proportions as the fund's strategic asset
allocation, described on page 3 of this prospectus. The different indices are
unmanaged and are generally considered representative of the classes of
securities in which the fund invests.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
-----------------------------------------
1 YEAR Since INCEPTION
------ ---------------
Adviser Class 15.94% 15.52%
Institutional Class 16.36% 16.15%
Benchmark 17.69% 18.45%
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 11.53% in the 4th quarter of 1998
Worst: -4.66% in the 3rd quarter of 1998
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(paid directly from your investment) None
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of net assets) ADVISER INSTITUTIONAL
CLASS CLASS
Management fees 0.75% 0.75%
12b-1 distribution fees 0.50% None
Other expenses(1) 0.98% 2.04%
----- -----
Total annual operating expenses 2.23% 2.79%
Fee Waiver(2) (0.44%) (1.47%)
------ ------
Net annual operating expenses 1.79% 1.32%
===== =====
(1) Because custodian fees were reduced by credits for cash balances, the fund's
actual expenses for fiscal 1998 were:
Other expenses 0.94% 2.00%
Total annual operating expenses 2.19% 2.75%
Net annual operating expenses 1.75% 1.28%
(2) The adviser has agreed to cap the fund's operating expenses . The adviser
may not discontinue or modify this cap without the approval of the fund's
trustees.
Example. This example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. Your actual costs may
be higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Adviser Class $178 $551 $949 $2,062
Institutional Class $129 $403 $697 $1,534
The example assumes:
- -- You invest $10,000 for the periods shown
- -- You redeem at the end of each period
- -- You reinvest all distributions and dividends without a sales charge
- -- The fund's operating expenses have been capped by the adviser and
remain the same
- -- Your investment has a 5% return each year
-6-
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RISK/RETURN SUMMARY TOMORROW SHORT-TERM RETIREMENT FUND
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THE SHORT-TERM FUND'S PERFORMANCE
The bar chart and table shown below indicate the risks of investing in the
Short-Term Fund. Performance calculations in the bar chart and table do not
reflect separate account fees, which would reduce the fund's performance. The
bar chart shows changes in the performance of the fund's Adviser Class shares
from year to year over the life of the fund. Institutional Class shares would
have different performance due to their different expenses.
[GRAPH OMITTED HERE. THE BAR CHART OMITTED HERE SHOWS THE CHANGES IN THE
PERFORMANCE OF THE FUND FROM YEAR TO YEAR.]
SHORT-TERM FUND
TOTAL RETURN
CALENDAR YEARS ENDED DECEMBER 31
1997 18.46%
1998 12.22%
The table shows the fund's average annual returns for different calendar periods
and since inception on April 2, 1996 for Institutional Class shares and on March
7, 1996 for Adviser Class shares compared to those of the fund's benchmark. The
benchmark is a compilation of two broad- based indices, one for each class of
securities in which the fund invests: the Lehman Brothers Aggregate Index for
fixed income securities; and the S&P 500 Index for large cap securities. The
benchmark is composed of these indices in the same proportions as the fund's
strategic asset allocation, described on page 3 of this prospectus. The
different indices are unmanaged and are generally considered representative of
the classes of securities in which the fund invests.
Average Annual Total Returns
(for the periods ended December 31, 1998)
Since
1 Year Inception
Adviser Class 15.94% 15.52%
Institutional Class 16.36% 16.15%
Benchmark 17.69% 18.45%
FUND'S BEST AND WORST QUARTERLY TOTAL RETURNS
Best: 11.53% in the 4th quarter of 1998
Worst: -4.66% in the 3rd quarter of 1998
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(paid directly from your investment) None
ANNUAL FUND OPERATING EXPENSES
(paid by the fund as a % of net assets) ADVISER INSTITUTIONAL
CLASS CLASS
Management fees 0.75% 0.75%
12b-1 distribution fees 0.50% None
Other expenses(1) 0.71% 0.89%
----- -----
Total annual operating expenses 1.96% 1.64%
Fee waiver(2) (0.19%) (0.17%)
----- -----
Net annual operating expenses 1.77% 1.47%
===== ======
(1) Because custodian fees were reduced by credits for cash balances, the fund's
actual expenses for fiscal 1998 were:
Other expenses 0.69% 0.87%
Total annual operating expenses 1.94% 1.62%
Net annual operating expenses 1.75% 1.45%
(2) The adviser has agreed to cap the fund's operating expenses. The adviser may
not discontinue or modify this cap without the approval of the fund's
trustees.
Example. This example is intended to help you compare the
cost of investing in the fund with the cost of investing in other
mutual funds. Your actual costs may be higher or lower.
NUMBER OF YEARS YOU
OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Adviser Class $178 $551 $949 $2,062
Institutional Class $148 $459 $792 $1,735
The example assumes:
- -- You invest $10,000 for the periods shown
- -- You redeem at the end of each period
- -- You reinvest all distributions and dividends without a sales charge
- -- The fund's operating expenses have been capped by the adviser and remain the
same
- -- Your investment has a 5% return each year
-7-
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MORE ABOUT THE FUNDS' INVESTMENTS AND RISKS
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The Risk/Return Summary describes each fund's investment objective and its
principal investment strategies and risks. This section provides some additional
information about the funds' investments and certain portfolio management
techniques that the funds may use. More information about the funds' investments
and portfolio management techniques, some of which entail risks, is included in
the Statement of Additional Information (SAI).
EQUITY INVESTMENTS
The funds may invest in all types of equity securities. Equity securities
include exchange-traded and over-the-counter common and preferred stocks,
warrants, rights, convertible securities, depositary receipts and shares, trust
certificates, limited partnership interests, shares of other investment
companies and REITs, and equity participations.
FIXED INCOME INVESTMENT The funds may invest in all types of fixed income
securities. Fixed income investments include bonds, notes (including structured
notes), mortgage-backed securities, asset-backed securities, convertible
securities, Eurodollar and Yankee dollar instruments, preferred stocks and money
market instruments. Fixed income securities may be issued by corporate and
governmental issuers and may have all types of interest rate payment and reset
terms, including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment-in-kind and auction rate features.
The credit quality of securities held in a fund's portfolio is determined at the
time of investment. If a security is rated differently by multiple ratings
organizations, a fund treats the security as being rated in the higher rating
category. A fund may choose not to sell securities that are downgraded below
investment grade after their purchase.
Mortgage-backed securities may be issued by private companies or by agencies of
the U.S. government. Mortgage-backed securities represent direct or indirect
participation in, or are collateralized by and payable from, mortgage loans
secured by real property. Certain debt instruments may only pay principal at
maturity or may only represent the right to receive payments of principal or
payments of interest on underlying pools of mortgage or government securities,
but not both. The value of these types of instruments may change more
drastically than debt securities that pay both principal and interest during
periods of changing interest rates. Principal only mortgage-backed securities
are particularly subject to prepayment risk. A fund may obtain a below market
yield or incur a loss on such instruments during periods of declining interest
rates. Interest only instruments are particularly subject to extension risk. For
mortgage derivatives and structured securities that have imbedded leverage
features, small changes in interest or prepayment rates may cause large and
sudden price movements. Mortgage derivatives can also become illiquid and hard
to value in declining markets. The funds also may use mortgage dollar rolls to
finance the purchase of additional investments. Dollar rolls expose a fund to
the risk that it will lose money if the additional investments do not produce
enough income to cover the fund's dollar roll obligations. In addition, if the
adviser's prepayment assumptions are incorrect, a fund may have performed better
had the fund not entered into the mortgage dollar roll.
FOREIGN SECURITIES The Long-Term Fund's and the Medium-Term Fund's fund's assets
allocated to foreign securities are invested in shares of other mutual funds or
closed-end funds. These other funds invest their assets primarily in equity
securities of foreign companies. Accordingly, a fund's assets invested in shares
of these other funds are subject to the risks associated with a direct
investment in foreign securities. Investments in securities of foreign entities
and securities denominated in foreign currencies involve special risks. These
include possible political and economic instability and the possible imposition
of exchange controls or other restrictions on investments. Changes in foreign
currency rates relative to the U.S. dollar will affect the U.S. dollar value of
a fund's assets indirectly denominated or quoted in currencies other than the
U.S. dollar. Emerging market investments offer the potential for significant
gains but also involve greater risks than investing in more developed countries.
Political or economic instability, lack of market liquidity and government
actions such as currency controls or seizure of private business or property may
be more likely in emerging markets. In Europe, Economic and Monetary Union (EMU)
and the introduction of a single currency began on January 1, 1999. There are
significant political and economic risks associated with EMU, which may increase
the volatility of a fund's indirect European securities and present valuation
problems.
-8-
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MORE ABOUT THE FUNDS' INVESTMENTS AND RISKS (continued)
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SECURITIES LENDING
Each fund may seek to increase its income by lending portfolio securities to
institutions, such as certain broker-dealers. Portfolio securities loans are
secured continuously by collateral maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The value of the
securities loaned by a fund will not exceed 33 1/3% of the value of the fund's
total assets. A fund may experience a loss or delay in the recovery of its
securities if the borrowing institution breaches its agreement with the fund.
DERIVATIVE CONTRACTS
Each fund may, but need not, use derivative contracts for any of the following
purposes:
- -- To hedge against adverse changes caused by changes in stock market
prices, currency exchange rates or interest rates in the market value of its
securities or securities to be bought
- -- As a substitute for buying or selling currencies or securities
- -- To enhance the fund's return in non-hedging situations
Examples of derivative contracts include: futures and options on securities or
securities indices; options on these futures; and interest rate swaps. A
derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities or indices. Even a small investment in derivative contracts can have
a big impact on a fund's stock market and interest rate exposure. Therefore,
using derivatives can disproportionately increase losses and reduce
opportunities for gains when stock prices or interest rates are changing. A fund
may not fully benefit from or may lose money on derivatives if changes in their
value do not correspond accurately to changes in the value of the fund's
holdings. The other parties to certain derivative contracts present the same
types of default risk as issuers of fixed income securities. Derivatives can
also make the fund less liquid and harder to value, especially in declining
markets.
TEMPORARY INVESTMENTS
Each fund may depart from its principal investment strategies in response to
adverse market, economic or political conditions by taking temporary defensive
positions in all types of money market and short-term debt securities. If a fund
were to take a temporary defensive position, it may be unable for a time to
achieve its investment goal.
INVESTMENT GOALS
Each fund's investment goal is not fundamental and may be changed without
shareholder approval by the fund's board of trustees. If there is a change in
your fund's investment goal, you should consider whether the fund remains an
appropriate investment.
OTHER CHANGES
From time to time, it will be necessary to change the name of each fund to
reflect the decreasing time period to retirement of the fund's intended class of
investors. As the average age of the intended investors in a fund approaches
retirement age, it is also anticipated that each fund's assets may begin to
decrease as a result of investor withdrawals. At that time, the fund will
consider what action would be appropriate.
YEAR 2000 CHALLENGE
Many computer software systems in use today cannot properly process date-related
information after December 31, 1999. This failure, commonly referred to as the
"Year 2000 Issue," could adversely affect the handling of securities trades,
pricing and account servicing for the funds. In addition, the cost of addressing
Year 2000 compliance may adversely affect the issuers of individual securities
held by the funds. The adviser has made Year 2000 compliance a high priority and
is taking steps that it believes are reasonably designed to address the Year
2000 Issue for its computer systems. The adviser has also been informed that
comparable steps are being taken by the funds' other major service providers.
The adviser does not currently anticipate that the Year 2000 Issue will have a
material impact on its ability to continue to fulfill its duties as investment
adviser. However, non-compliant computer systems in general could have a
material adverse effect on a fund's business, operations or financial condition.
Additionally, a fund's performance could be hurt if a computer system failure at
a company or governmental unit affects the prices of portfolio securities.
-9-
<PAGE>
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
THE ADVISER
Weiss, Peck & Greer, L.L.C. serves as the investment adviser to each of the
funds. WPG is headquartered at One New York Plaza, New York, New York 10004, and
is a subsidiary of Robeco, a Dutch public limited liability company. Founded in
1929, Robeco is one of the world's oldest asset management organizations.
Subject to the general supervision of the funds' boards of trustees, WPG manages
the funds' portfolios and is responsible for the selection and management of all
portfolio investments of each fund in accordance with each fund's investment
objective and policies.
PORTFOLIO MANAGERS
The adviser supervises the portfolio management of the 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. Each portfolio manager is primarily responsible for the
day-to-day management of the percentage of each funds' portfolio allocated to
his investment category.
MANAGER RESPONSIBLE FOR
DANIEL J. CARDELL Large, medium and
Mr. Cardell has been a managing small capitalization
director of WPG since May 1996. stocks
Prior to joining the adviser,
Mr. Cardell was senior vice president
and director of equities for the Bank of America.
DANIEL S. VANDIVORT
Mr. Vandivort has been a managing director of WPG Fixed-income
since November, 1994. Prior thereto, Mr. Vandivort securities
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.
MANAGEMENT FEES
In return for services provided to each fund in its capacity as investment
adviser, WPG receives a management fee from each fund. Last year, the funds'
paid management fees to WPG as follows:
MANAGEMENT FEES PAID DURING THE FISCAL YEAR ENDED DECEMBER 31, 1998
(AS % OF AVERAGE DAILY NET ASSETS)
Long-Term Fund 0.00% Medium-Term Fund 0.40% Short-Term Fund 0.66%
EXPENSE CAP
The adviser has agreed to cap the operating expenses (excluding class-specific
expenses and extraordinary expenses) of the funds to 1.25% of their respective
average daily net assets. The adviser may not discontinue or modify such caps
without the approval of a fund's trustees.
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 that fund are less than the expense limitations for any
such year.
DISTRIBUTION PLANS
ADVISER CLASS
SHARES ONLY
The funds have adopted Rule 12b-1 plans for their Adviser Class shares. Under
the plans, the funds pay distribution and service fees for the sale of these
shares and for administrative and shareholder services in an aggregate amount of
up to 0.50% of their average daily net assets attributable to Adviser Class
shares. These fees are an ongoing expense and over time will increase the cost
of your investment and may cost you more than other types of sales charges.
SERVICE PLANS
INSTITUTIONAL CLASS
SHARES ONLY
The funds have also adopted service plans for their Institutional Class shares.
Under the plans, which were not adopted under Rule 12b-1, the funds pay fees for
certain administrative and shareholder services in an aggregate amount of up to
0.25% of their average daily net assets attributable to Institutional Class
shares. Like Rule 12b-1 fees, these fees are an ongoing expense and over time
will increase the cost of your investment.
-10-
<PAGE>
ELIGIBLE INVESTORS
- --------------------------------------------------------------------------------
VARIABLE CONTRACT
HOLDERS
Institutional Class shares of the 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.
QUALIFIED
PLANS
Adviser Class shares and Institutional Class shares of the 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, 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 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 funds, please call WPG at 1-800-223-3332.
HOW TO BUY, EXCHANGE AND REDEEM SHARES
- --------------------------------------------------------------------------------
VARIABLE
CONTRACT
HOLDERS
Insurance Company Separate Accounts may only invest in Institutional Class
shares of the funds. Because holders of Variable Contracts may not purchase,
exchange or redeem Institutional Class shares of the 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 funds described in this prospectus.
Separate Accounts purchase and redeem Institutional Class shares of the 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 funds as investment vehicles
for their Separate Accounts should contact WPG at 1-800-223-3332.
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 funds for the account of their Qualified Plans.
If the trustee, custodian, plan administrator or other fiduciary (a "Plan
Fiduciary") responsible for making investments on behalf of a Qualified Plan
does not specify in the instructions to the funds which class of shares to
purchase, the 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 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 fund's average daily net assets attributable
to Institutional Class Shares. See "Distribution Plans" and "Service Plans"
above in this prospectus.
-11-
<PAGE>
HOW TO BUY SHARES FOR QUALIFIED PLANS
- --------------------------------------------------------------------------------
THROUGH WHOM MAY SHARES OF
THE THE FUNDS BE PURCHASED FOR
QUALIFIED PLANS?
Because you may not purchase shares of the 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 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 funds. If the monies you wish to invest in
the 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 funds.
You may establish an IRA with the funds' custodian, through which you may invest
in the funds. Additionally, you may invest in the funds by "rolling over" an
existing IRA into an IRA maintained by the funds' custodian. Please call WPG at
1-800-223-3332 for information regarding how to establish an IRA with the funds'
custodian.
WHAT IS THE MINIMUM
INVESTMENT?
Plan Fiduciaries may invest in the 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 FUNDS OFFERED?
Shares of each class of the funds are sold at the net asset value (NAV) of such
class of shares next determined after the funds or their agents receive and
accept a purchase order. Purchase orders received and accepted by the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on any day on which the Exchange is open for business (a "Business Day") will be
effected as of the close of regular trading on the Exchange on that day.
Otherwise, orders will be effected at the NAV determined on the next Business
Day. The Exchange is generally open Monday through Friday except for most
national holidays.
HOW MAY PLAN FIDUCIARIES
INVEST IN THE
FUNDS FOR THE
ACCOUNT OF THEIR
QUALIFIED PLANS?
In order to make an initial investment in a fund for a Qualified Plan, Plan
Fiduciaries must open an account with the 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 funds may be purchased by
Plan Fiduciaries for the account of Qualified Plans on any Business Day.
-12-
<PAGE>
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 (ACH).
2. Once this service has been selected, Plan Fiduciaries may
purchase additional shares for the account of their Qualified
Plans by calling the funds, toll-free at 1-800-223-3332.
3. Give the funds' agent the name(s) in which the account is
registered, the Tomorrow Fund name, Class of shares, the account
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.
-13-
<PAGE>
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 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 fund 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 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, shares in your account are required to be redeemed), you will
be responsible for any loss incurred by the 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 funds are priced at the net asset value computed after the
funds receive notification of the dollar equivalent from the 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. Eastern time. Your bank may
charge a fee to wire funds. Telephone transactions are recorded to verify
information.
ACQUIRING SHARES IN
EXCHANGE FOR SECURITIES
Shares of the funds may be purchased in whole or in part by delivering to the
funds' custodian securities determined by the adviser to be suitable for that
fund's portfolio.
-14-
<PAGE>
HOW TO EXCHANGE SHARES FOR QUALIFIED PLANS
- --------------------------------------------------------------------------------
MAY SHARES BE EXCHANGED
FOR SHARES OF OTHER
MUTUAL FUNDS?
Subject to the terms of your Qualified Plan, shares of a fund may be exchanged
for shares of the same class of any other 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 funds, exchanges of
shares are made the imposition of a sales charge.
HOW MAY I MAKE AN
EXCHANGE FOR MY
QUALIFIED PLAN?
Because shares of the 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 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 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 fund
toll free at 1-800-223-3332 between 9:00 a.m. and 4:00 p.m.
Eastern time on any Business Day.
3. Give the following information to the fund 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 fund at the address listed on the
back cover of this prospectus specifying:
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
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.
- --------------------------------------------------------------------------------
-15-
<PAGE>
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 funds or their agents.
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 funds employ
reasonable procedures, such as providing written confirmation of telephone
exchange transactions and tape recording of telephone exchange requests. If the
funds do not employ such reasonable procedures, they may be liable for any loss
incurred by a shareholder due to a fraudulent or unauthorized telephone exchange
request. Otherwise, neither the funds nor their 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 funds
may 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.
-16-
<PAGE>
HOW TO REDEEM SHARES FOR QUALIFIED PLANS
- --------------------------------------------------------------------------------
HOW MAY SHARES
OF THE 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 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
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 funds.
AT WHAT PRICE ARE
SHARES OF THE FUNDS
REDEEMED?
Shares of each class of the 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 funds or their agents. 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
has been received by the 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 PHONE: 1. Use the telephone/fax redemption privilege. This 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. Give the following information:
Name of current Tomorrow Fund
Class of shares
Name of the fund into which the current Tomorrow Fund shares will
be redeemed
Account Number
Name(s) in which your account is registered
The dollar amount or the number of shares to be redeemed
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 fund at the address indicated
on the back cover of this prospectus.
GENERAL REDEMPTION
INFORMATION
Redemption requests must be received by the funds or their agents 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.
-17-
<PAGE>
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 fund to dispose of its portfolio securities or to
fairly determine its net asset value; or the SEC, by order, so permits. Although
the 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 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). You can obtain a signature guarantee from most banks, dealers,
brokers, credit unions and federal savings and loans, but not from a notary
public.
SMALL ACCOUNTS
In order to reduce the expense of maintaining numerous small accounts, the funds
may 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 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 fund if the
tax status of their Separate Account or Qualified Plan is revoked or challenged
by the Internal Revenue Service. The funds may 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
Regulationss.1.817-5 is revoked or challenged. The funds 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
funds or the adviser for losses incurred by the funds or the adviser as a result
of such action.
-18-
<PAGE>
SHARE PRICE
- --------------------------------------------------------------------------------
HOW SHARES ARE VALUED
The net asset value per share of a class of a 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.
Eastern time) on each Business Day. Adviser Class shares and Institutional Class
shares of the 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 fund may use pricing services to value fixed-income investments.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND
DISTRIBUTIONS
The funds normally pay dividends and distribute capital gains, if any, as
follows:
INCOME DIVIDEND CAPITAL GAIN DISTRIBUTIONS ARE
FUND DISTRIBUTIONS DISTRIBUTIONS PRIMARILY FROM
---- ------------- ------------- --------------
Long-Term Fund Annually Annually Capital gain
Medium-Term Fund Annually Annually Both
Short-Term Fund Annually Annually Both
The funds may pay additional distributions and dividends at other times if
necessary for a fund to avoid federal tax. Unless you instruct otherwise,
capital gain distributions and dividends are reinvested in additional fund
shares of the same class that you hold. The funds' distributions and dividends,
whether received in cash or reinvested in additional fund shares, are subject to
federal income tax for any investor who does not qualify for tax exemption or
deferral. You do not pay a sales charge on reinvested distributions or
dividends.
TAXES
Participants in Qualified Plans may be eligible for tax deferral or exemption on
distributions a Qualified Plan receives from a 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.
-19-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE
PERFORMANCE OF THE FUNDS SINCE THEIR INCEPTION. CERTAIN INFORMATION REFLECTS
FINANCIAL RESULTS FOR A SINGLE SHARE FOR THE FUND'S FISCAL YEARS ENDED DECEMBER
31. TOTAL RETURNS REPRESENT THE RATE THAT A SHAREHOLDER WOULD HAVE EARNED (OR
LOST) ON A FUND SHARE ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS.
THE INFORMATION IN THE FOLLOWING TABLES WAS AUDITED BY KPMG LLP, INDEPENDENT
AUDITORS, WHOSE REPORT, ALONG WITH THE FUNDS' FINANCIAL STATEMENTS, ARE INCLUDED
IN THE ANNUAL REPORT (AVAILABLE UPON REQUEST).
<TABLE>
<CAPTION>
$ per share
- ---------------------------------------------------------------------------------------------------------------------------
NET
NET REALIZED
ASSET AND TOTAL DIVIDENDS DISTRI- NET NET
VALUE AT NET UNREAL- INCOME FROM BUTIONS ASSET ASSETS
BEGINNING INVEST- IZED FROM NET FROM NET TOTAL VALUE AT END OF
OF PERIOD MENT GAINS ON INVEST- INVEST- REALIZED DISTRI- END OF TOTAL PERIOD
INCOME SECURITIES MENT MENT GAINS BUTIONS PERIOD RETURN PERIOD
OPERA- INCOME (000'S)
TIONS
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
through December 31, 1996 $ 6.50$ 0.04 $0.55 $0.59 ($0.06) 9.08% ($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
For the year ended
December 31, 1998 ....... 7.98 0.10 1.14 1.24 (0.07) (0.05) (0.12) 9.10 15.58 7,150
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
For the year ended
December 31, 1998 ....... 8.07 0.13 1.17 1.30 (0.09) (0.05) (0.14) 9.23 16.16 1,687
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 18.961 1,987
For the year ended
December 31, 1998 ....... 8.85 0.18 1.22 1.40 (0.15) (0.42) (0.57) 9.68 15.941 4,617
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 1,165
For the year ended
December 31, 1998 ....... 8.63 0.22 1.18 1.40 (0.18) (0.42) (0.60) 9.43 16.36 2,276
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
For the year ended
December 31, 1998 ....... 9.78 0.30 0.89 1.19 (0.26) (0.22) (0.48) 10.49 12.22 17,157
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
For the year ended
December 31, 1998 ....... 9.82 0.34 0.90 1.24 (0.30) (0.22) (0.52) 10.54 12.68 16,108
RATIOS
- -------------------------------------------------------------------------------------------
RATIO INFORMATION
ASSUMING NO FEE WAIVERS,
REIMBURSEMENTS OR
RATIO OF CUSTODY FEE
NET EARNINGS CREDIT RECEIVED
RATIO OF INVESTMENT RATIO OF
EXPENSES INCOME TO RATIO OF NET INVEST-
TO AVERAGE AVERAGE PORTFOLIO EXPENSES MENT INCOME
NET NET TURNOVER TO AVERAGE TO AVERAGE
ASSETS ASSETS RATE NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------
LONG-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 $ 1.75%^ 1.63%^ 25.09% 45.36%^ -41.98%^
For the year ended
December 31, 1997 ....... 1.75 1.30 66.64 5.61 -2.56
For the year ended
December 31, 1998 ....... 1.75 1.17 60.96 3.25 -0.33
Institutional Shares
For the period April 2, 1996*
through December 31, 1996 1.50^ 1.97^ 25.09 40.49^ -37.02^
For the year ended
December 31, 1997 ....... 1.45 1.67 66.64 7.52 -4.40
For the year ended
December 31, 1998 ....... 1.27 1.64 60.96 4.09 -1.18
MEDIUM-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 1.75^ 1.73^ 22.56 15.88^ -12.40^
For the year ended 1.75 1.80 90.67 2.92 0.63
For the year ended
December 31, 1998 ....... 1.75 1.89 155.74 2.23 1.41
Institutional Shares
For the period April 2, 1996*
through December 31, 1996 1.50 1.96^ 22.56 20.86^ -17.40^
For the year ended
December 31, 1997 ....... 1.39 2.33 90.67 4.41 -0.69
For the year ended
December 31, 1998 ....... 1.28 2.38 155.74 2.79 0.87
SHORT-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 1.75 2.08^ 14.16 15.68^ -11.85^
For the year ended
December 31, 1997 ....... 1.75 2.41 145.44 2.65 1.51
For the year ended
December 31, 1998 ....... 1.75 3.00 263.77 1.96 2.79
Institutional Shares
For the period March 7, 1996*
through December 31, 1996 1.50 2.31^ 14.16 19.10^ -15.29^
For the year ended
December 31, 1997 ....... 1.44 2.87 145.44 4.01 0.30
For the year ended
December 31, 1998 ....... 1.45 3.31 263.77 1.64 3.12
<FN>
^ Annualized
* Commencement of operations.
</FN>
</TABLE>
-20-
<PAGE>
- --------------------------------------------------------------------------------
TOMORROW FUNDS
RETIREMENT TRUST
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
If you want more information about the Tomorrow Funds, the following documents
are available upon request:
SHAREHOLDER REPORTS
Annual and semiannual reports to shareholders provide additional information
about the funds' investments. These reports discuss the market conditions and
investment strategies that significantly affected each fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information (SAI) provides more detailed information
about each fund. It is incorporated into this prospectus by reference.
Investment Company Act file number 811-07315
- ------------------------------------------ -----------
IF SOMEONE MAKES A STATEMENT THAT IS NOT IN THIS PROSPECTUS ABOUT ANY OF THE
FUNDS, YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE FUNDS NOR THEIR
DISTRIBUTOR IS OFFERING TO SELL SHARES OF THE FUNDS TO ANY PERSON TO WHOM THE
FUNDS MAY NOT LAWFULLY SELL THEIR SHARES.
HOW TO OBTAIN THIS INFORMATION
You may get free copies of the funds' shareholder reports and the SAI by
contacting the funds at:
Address:
Tomorrow Funds Retirement Trust
c/o First Data Investor Services Group, Inc.
P.O. Box 60448
King of Prussia, PA 19406-0448
Telephone: 1-800-223-3332
You can review the funds' shareholder reports, prospectus and SAI at the Public
Reference Room of the Securities and Exchange Commission. You can get text-only
copies of these documents for free from the SEC's website at HTTP://WWW.SEC.GOV,
or for a fee by writing to or calling:
Address: Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009
Telephone: 1-800-733-0330
<PAGE>
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, 1999
-----------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of the Funds, dated May 1, 1999, 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.
Additional information about each fund's investments is available in the funds'
annual and semi-annual reports to shareholders. Investors can obtain free copies
of reports and prospectuses by contacting the funds at the phone number above.
Each fund's financial statements, which are included in the 1998 annual reports
to shareholders, are incorporated by reference into this SAI.
THE STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
PAGE
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES ............................. 1
INVESTMENT TECHNIQUES ..................................................... 2
CALCULATION OF THE FUNDS' RETURNS ......................................... 22
INVESTMENT RESTRICTIONS .................................................. 28
ADVISORY AND ADMINISTRATIVE SERVICES 31
Investment Adviser ................................................... 31
Administrator ........................................................ 35
Principal Underwriter ................................................ 37
DISTRIBUTION PLANS ........................................................ 38
TRUSTEES AND OFFICERS ..................................................... 41
HOW TO PURCHASE SHARES .................................................... 48
REDEMPTION AND EXCHANGE OF SHARES ......................................... 49
NET ASSET VALUE ........................................................... 50
INVESTOR SERVICES ......................................................... 52
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS ................................... 58
PORTFOLIO BROKERAGE ....................................................... 63
BROKERAGE COMMISSIONS ..................................................... 68
PORTFOLIO TURNOVER ........................................................ 68
ORGANIZATION .............................................................. 69
CUSTODIAN ................................................................. 72
TRANSFER AGENT ............................................................ 72
LEGAL COUNSEL ............................................................. 72
ii
<PAGE>
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS ............................. 73
APPENDIX .................................................................. 74
GLOSSARY .................................................................. 76
iii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES
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 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, Weiss, Peck & Greer, L.L.C. (the
"Adviser" or "WPG") 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.
Each Fund invests the amount of its assets allocated to Large-Cap,
Medium-Cap and Small- Cap Subcategories 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,
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 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.
-1-
<PAGE>
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.
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.
REPURCHASE AGREEMENTS AND REVERSE 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
-2-
<PAGE>
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 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, 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.
Each fund may enter into reverse repurchase agreements with domestic banks
or broker-dealers, subject to its policies and restrictions. Under a reverse
repurchase agreement, a fund sells a security held by it and agrees to
repurchase the instrument on a specified date at a specified price, which
includes interest. The fund will use the proceeds of a reverse repurchase
agreement to purchase other securities which either mature at a date
simultaneous with or prior to the expiration of the reverse repurchase agreement
or which are held under an agreement to resell maturing as of that time. The
funds will enter into reverse repurchase agreements only when the Adviser
believes the interest income and fees to be earned from the investment of the
proceeds of the transaction will be greater than the interest expense of the
transaction.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
reverse repurchase agreements may be considered borrowings by the seller. No
fund may enter into a reverse repurchase agreement if as a result its current
obligations under such agreements would exceed one-third of the current market
value of its total assets (less its liabilities other than under reverse
repurchase agreements).
-3-
<PAGE>
In connection with entering into reverse repurchase agreements, the fund
will segregate U.S. Government securities, cash or cash equivalents with an
aggregate current value sufficient to repurchase the securities or equal to the
proceeds received upon the sale, plus accrued interest.
EURODOLLAR AND YANKEE DOLLAR INVESTMENTS
The Funds may invest in obligations of foreign branches of U.S. banks
(Eurodollars) and U.S. branches of foreign banks (Yankee dollars) as well as
foreign branches of foreign banks. These investments involve risks that are
different from investments in securities of U.S. banks, including potential
unfavorable political and economic developments, different tax provisions,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions which might affect payment of principal or interest.
RISK CONSIDERATIONS OF MEDIUM GRADE SECURITIES
Obligations in the lowest investment grade (I.E., BBB or Baa), referred to
as "medium grade" obligations, have speculative characteristics, and changes in
economic conditions and other factors are more likely to lead to weakened
capacity to make interest payments and repay principal on these obligations than
is the case for higher rated securities. In the event that a security purchased
by a Fund is subsequently downgraded below investment grade, the Adviser will
consider such event in its determination of whether the fund should continue to
hold the security.
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 a when-issued or
forward commitment basis are also known 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.
-4-
<PAGE>
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, 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.
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. The rules of the New York Stock Exchange
-5-
<PAGE>
("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 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
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").
-6-
<PAGE>
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 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,
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<PAGE>
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 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.
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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.
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 contracts 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.
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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 contract, except that, if the 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").
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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
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.
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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 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
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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 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.
MORTGAGE-BACKED SECURITIES
The Funds may invest in mortgage pass-through certificates and
multiple-class pass-through securities, such as real estate mortgage investment
conduits ("REMIC") pass-through certificates and collateralized mortgage
obligations ("CMOs").
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the Ginnie Mae, Fannie Mae and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the U.S. Government for timely payment of principal and
interest on the certificates. Fannie Mae certificates are guaranteed by Fannie
Mae, a federally chartered and privately owned corporation, for full and timely
payment of principal and interest on the certificates. Freddie Mac certificates
are guaranteed by Freddie Mac, a corporate instrumentality of the U.S.
Government, for timely payment of interest and the ultimate collection of all
principal of the related mortgage loans.
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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.
A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages primarily secured by interests in real property
and other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the funds do not
intend to invest in residual interests.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The 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.
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Examples of credit enhancement arising out of the structure of the
transaction include "senior- subordinated securities" (multiple class securities
with one or more classes entitled to receive payment before other classes, with
the result that defaults on the underlying mortgages are borne first by the
holders of the subordinated class), creation of "spread accounts" or "reserve
funds" (where cash or investments are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on the underlying
mortgages in a pool exceed the amount required to be paid on the mortgage-backed
securities). The degree of credit enhancement for a particular issue of
mortgage-backed securities is based on the level of credit risk associated with
the particular mortgages in the related pool. Losses on a pool in excess of
anticipated levels could nevertheless result in losses to security holders since
credit enhancement rarely covers every dollar owed on a pool.
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in
Mortgage-Backed Securities (such as those described above) involves certain
risks, including the failure of a counter-party to meet its commitments, adverse
interest rate changes and the effects of prepayments on mortgage cash flows.
Further, the yield characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major differences typically
include more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental or agency guarantee. When a Fund reinvests amounts representing
payments and unscheduled prepayments of principal, it may receive a rate of
interest that is lower than the rate on existing adjustable rate mortgage
pass-through securities. Thus, Mortgage-Backed Securities, and adjustable rate
mortgage pass-through securities in particular, may be less effective than other
types of U.S. Government securities as a means of "locking in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment
rate will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates. The market for certain types of
Mortgage-Backed Securities (I.E., certain CMOs) may not be liquid under all
interest rate scenarios, which may prevent a fund from selling such securities
held in its portfolio at times or prices that it desires.
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RISKS ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
Planned amortization class ("PAC") and target amortization class ("TAC")
CMO bonds involve less exposure to prepayment, extension and interest rate risk
than other Mortgage- Backed Securities, provided that prepayment rates remain
within expected prepayment ranges or "collars." To the extent that prepayment
rates remain within these prepayment ranges, the residual or support tranches of
PAC and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
The 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.
MORTGAGE DOLLAR ROLL TRANSACTIONS
The Funds may enter into mortgage dollar roll transactions in which the
fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity), but not identical securities on a specified future date. During
the roll period, the fund will not receive principal and interest paid on the
securities sold. However, the fund would benefit to the extent of any difference
between the price received for the securities sold and the lower forward price
for the future purchase (often referred to as the "drop") or fee income plus the
interest on the cash proceeds of the securities sold until the settlement date
of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of the fund compared
with what such performance would have been without the use of mortgage dollar
rolls. The funds will hold and maintain in a segregated account until the
settlement date cash or liquid, high grade debt securities in an amount equal to
the forward purchase price. Any benefits derived from the use of mortgage dollar
rolls may depend upon mortgage prepayment assumptions, which will be affected by
changes in interest rates. There is no assurance that mortgage dollar rolls can
be successfully employed.
ASSET-BACKED SECURITIES
The Funds may invest in asset-backed securities, which represent
participations in, or are secured by and payable from, pools of assets such as
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motor vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Asset- backed
securities may also be collateralized by a portfolio of U.S. Government
securities, but are not direct obligations of the U.S. Government, its agencies
or instrumentalities. Such asset pools are securitized through the use of
privately-formed trusts or special purpose corporations. Payments or
distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present;
however privately issued obligations collateralized by a portfolio of privately
issued asset-backed securities do not involve any government-related guarantee
or insurance. In addition to risks similar to those associated with
Mortgage-Backed Securities, asset-backed securities present further risks that
are not presented by Mortgage-Backed Securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. See "Risk Factors Associated with Mortgage-Backed
Securities."
CONVERTIBLE SECURITIES AND PREFERRED STOCKS
The Funds may invest in debt securities or preferred stocks that are
convertible into or exchangeable for common stock. Preferred stocks are
securities that represent an ownership interest in a company and provide their
owner with claims on the company's earnings and assets prior to the claims of
owners of common stock but after those of bond owners. Preferred stocks in which
the Funds may invest include sinking fund, convertible, perpetual fixed and
adjustable rate (including auction rate) preferred stocks. There is no minimum
credit rating applicable to a Fund's investment in preferred stocks and
securities convertible into or exchangeable for common stocks.
SMALL CAPITALIZATION STOCKS
Each Fund may invest in varying amounts in smaller, lesser known companies
which the Adviser believes offer a greater growth potential than larger, more
mature better known companies. There is a higher risk that a fund will lose
money because it invests in small capitalization stocks. Smaller companies may
have limited product lines, markets and financial resources. The prices of small
capitalization stocks tend to be more volatile than those of other stocks. Small
capitalization stocks are not priced as efficiently as stocks of larger
companies. In addition, it may be harder to sell these stocks, especially during
a down market or upon the occurrence of adverse company-specific events, which
can reduce their selling prices.
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STRUCTURED OR HYBRID NOTES
The Funds may invest in "structured" or "hybrid" notes. The distinguishing
feature of a structured or hybrid note is that the amount of interest and/or
principal payable on the note is based on the performance of a benchmark asset
or market other than fixed-income securities or interest rates. Examples of
these benchmarks include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows the fund to gain
exposure to the benchmark market while fixing the maximum loss that the fund may
experience in the event that market does not perform as expected. Depending on
the terms of the note, the Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; the fund's
loss cannot exceed this foregone interest and/or principal.
In addition to the risks associated with a direct investment in the
benchmark asset, investments in structured and hybrid notes involve the risk
that the issuer or counterparty to the obligation will fail to perform its
contractual obligations. Certain structured or hybrid notes may also be
leveraged to the extent that the magnitude of any change in the interest rate or
principal payable on the benchmark asset is a multiple of the change in the
reference price. Leverage enhances the price volatility of the security and,
therefore, the volatility of the fund's net asset value. Further, certain
structured or hybrid notes may be illiquid for purposes of the Funds' limitation
on investments in illiquid securities.
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 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
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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.
ZERO COUPON AND CAPITAL APPRECIATION BONDS
The 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.
-19-
<PAGE>
REAL ESTATE INVESTMENT TRUSTS
Each Fund may invest in shares of real estate investment trusts ("REITs").
REITs are pooled investment vehicles which invest primarily in income producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Like
investment companies such as the Funds, REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Code. Funds that invest in REITs will indirectly bear their proportionate
share of any expenses paid by such REITs in addition to the expenses paid by the
Funds.
Investing in REITs involves certain risks: equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, are not diversified, and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, and the possibilities of failing to
qualify for the exemption from tax for distributed income under the Code and
failing to maintain their exemptions from the 1940 Act. REITs whose underlying
assets include long-term health care properties, such as nursing, retirement and
assisted living homes, may be impacted by federal regulations concerning the
health care industry.
Investing in REITs may involve risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the S&P 500.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are either (i) backed by the full faith and
credit of the U.S. Government (E.G., U.S. Treasury bills), (ii) guaranteed by
the U.S. Treasury (E.G., Ginnie Mae mortgage-backed securities), (iii) supported
by the issuing agency's or instrumentality's right to borrow from the U.S.
Treasury (E.G., Fannie Mae discount notes) or (iv) supported only by the issuing
agency's or instrumentality's own credit (E.G. securities of each of the Federal
Home Loan Banks). Such guarantees of U.S. Government securities held by a fund
do not, however, guarantee the market value of the shares of the fund. There is
no guarantee that the U.S. Government will continue to provide support to its
agencies or instrumentalities in the future.
-20-
<PAGE>
MARKET CHANGES
The market value of the Funds' investments, and thus the Funds' net asset
values, will change in response to market conditions affecting the value of
their portfolio securities. When interest rates decline, the value of fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of fixed rate obligations can be expected to decline. In contrast, as
interest rates on adjustable rate loans are reset periodically, yields on
investments in such loans will gradually align themselves to reflect changes in
market interest rates, causing the value of such investments to fluctuate less
dramatically in response to interest rate fluctuations than would investments in
fixed rate obligations.
PORTFOLIO TURNOVER
Although no Fund purchases securities with a view to rapid turnover,
there are no limitations on the length of time that securities must be held by
any Fund and a Fund's annual portfolio turnover rate may vary significantly from
year to year. A high rate of portfolio turnover (100% or more) involves
correspondingly greater transaction costs which must be borne by the applicable
Fund and its shareholders. The actual portfolio turnover rates for each Fund are
noted in the prospectus.
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 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.
-21-
<PAGE>
The purchase price and subsequent valuation of restricted securities
normally reflect a discount from the price at which such securities trade when
they are not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market price is expected to vary
depending upon the type of security, the character of the issuer, the party who
will bear the expenses of registering the restricted securities and prevailing
supply and demand conditions.
OTHER INVESTMENT COMPANIES
Each Fund, subject to authorization by 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 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:
22
<PAGE>
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:
23
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN
FIVE YEARS
(OR COMMENCEMENT TEN YEARS
OF OPERATIONS) ENDED 12/31/98
ONE YEAR ENDED ENDED 12/31/98
FUND 12/31/98 ANNUALIZED CUMULATIVE ANNUALIZED CUMULATIVE
---- -------- ---------- ---------- ---------- ----------
Long-Term Retirement Fund*
<S> <C> <C> <C>
Institutional Class 16.16% 18.14% 58.10% N/A N/A
Adviser Class 15.58% 17.34% 56.97% N/A N/A
Medium-Term Retirement Fund*
Institutional Class 16.36% 16.15% 50.89% N/A N/A
Adviser Class 15.94% 15.52% 50.18% N/A N/A
Short-Term Retirement Fund*
Institutional Class 12.68% 14.40% 44.74% N/A N/A
Adviser Class 12.22% 13.89% 44.28% 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
Funds' total returns for the periods indicated would have been lower.
</FN>
</TABLE>
24
<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 12/31/98
--------------
1. Long-Term Retirement Fund
Institutional Class 0.95%
Adviser Class 0.53%
2. Medium-Term Retirement Fund
Institutional Class 2.77%
Adviser Class 2.50%
3. Short-Term Retirement Fund
Institutional Class 1.70%
Adviser Class 1.16%
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.
25
<PAGE>
Return is 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. 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,
26
<PAGE>
such as Barron's, Business Week, Consumer's Digest, Consumer 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:
27
<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
28
<PAGE>
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.
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:
29
<PAGE>
(a) such purchase would cause more than 5% of the Fund's total assets taken
at market value to be invested in the securities of such issuer; or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund;
provided, however, that the Fund may invest all or part of its
investable assets in an open-end investment company with substantially
the same investment objective, policies and restrictions as the Fund.
For 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.
30
<PAGE>
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.
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.
On or about September 9, 1998, Robeco Groep N.V., a Dutch public limited
liability company ("Robeco"), acquired all of the outstanding equity interests
of the Adviser from its prior owners (the "Acquisition"). As a result of the
Acquisition, the Adviser is an indirect, wholly-owned subsidiary of Robeco.
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 Netherland 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 2,500
employees worldwide. Of the approximately $95 billion in assets under management
as of the date of this SAI, approximately $19 billion is managed in the U.S.
31
<PAGE>
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.
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 which has not commenced operations. 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
32
<PAGE>
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, 1997 and 1998
are as follows:
<TABLE>
<CAPTION>
ADVISORY FEES PAID ADVISORY FEES PAID ADVISORY FEES PAID
YEAR ENDED YEAR ENDED YEAR ENDED
FUND DECEMBER 31, 1996(1) DECEMBER 31, 19971 DECEMBER 31, 19981
---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Long-Term Retirement Fund $0 $0 $364
Medium-Term Retirement Fund $0 $ 7,722 $61,287
Short-Term Retirement Fund $0 $18,093 $186,335
Post-Retirement Fund(2) N/A N/A
<FN>
- --------------------
(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, 1997
and 1998. In the absence of this agreement, the Funds would have paid advisory
fees as follows:
</FN>
YEAR ENDED YEAR ENDED YEAR ENDED
FUND DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
---- ---------------- ---------------- ----------------
Long-Term Retirement Fund $2,533 $24,878 $56,079
Medium-Term Retirement Fund $7,501 $75,259 $116,439
Short-Term Retirement Fund $7,488 $94,563 $210,990
<FN>
- ---------------
(2) The Post-Retirement Fund has not commenced operations.
</FN>
</TABLE>
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
33
<PAGE>
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.
As of December 31, 1998, WPG had capital of approximately $[72] million.
WPG consists of 33 Managing Directors, one of whom is a member of the NYSE and
certain principals. WPG has approximately 250 full-time employees in addition to
its Managing Directors. As of December 31, 1998, WPG and its affiliates had
assets under management of approximately $17 billion, primarily for institutions
and high net worth individuals.
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. Ronald M. Hoffner is a
Managing Director of WPG, and Executive Vice President and Treasurer of the
Trust. Joseph J. Reardon is a Senior Vice President of WPG and 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,
Constant Korthout 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.
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.
34
<PAGE>
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).
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.
35
<PAGE>
<TABLE>
<CAPTION>
ADMINISTRATION FEES ADMINISTRATION FEES ADMINISTRATION FEES
PAID PAID PAID
YEAR ENDED YEAR ENDED YEAR ENDED
FUND DECEMBER 31, 1996(1) DECEMBER 31, 1997(1) DECEMBER 31, 1998(1)
---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Long-Term Retirement Fund $0 $0 $0
Medium-Term Retirement Fund $0 $0 $0
Short-Term Retirement Fund $0 $0 $0
Post-Retirement Fund(2) N/A N/A N/A
<FN>
- --------------------
(1) The Adviser voluntarily agreed not to impose all or a portion of its
administration fee for each Fund during the fiscal years ended December 31,
1996, 1997 and 1998. In the absence of this agreement, the Funds would have paid
administration fees as follows:
</FN>
YEAR ENDED YEAR ENDED YEAR ENDED
FUND DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
---- ---------------- ---------------- ----------------
Long-Term Retirement Fund $2,533 $2,985 $6,729
Medium-Term Retirement Fund $7,501 $9,031 $13,973
Short-Term Retirement Fund $7,488 $11,348 $25,319
<FN>
- ---------------
(2) The Post-Retirement Fund has not commenced operations.
</FN>
</TABLE>
Each Fund may also enter into arrangements with third parties that provide
omnibus accounting and transfer agency-related services (including recordkeeping
and nondistribution- related shareholder servicing) for the benefit of Fund
shareholders who are the beneficial owners of Fund shares held in nominee form
with the third parties. A Fund may compensate such third parties for the
provision of subaccounting and transfer agency-related services based on a
percentage of the Fund's assets for which such entities perform such services.
To the extent that a Fund compensates a third party for the provision of these
services, it will not incur duplicative fees with its transfer agent.
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
36
<PAGE>
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.
WPG has voluntarily and temporarily agreed to cap 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 Funds to
1.25% of their respective average daily net assets. WPG may discontinue or
modify such caps 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 that fund are less than the expense
limitations 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 WPG
upon termination of its investment advisory agreement.
From time to time, WPG may compensate insurance companies and other
entities or their affiliates who hold shares of the Funds for the account of
their customers for providing a variety of record-keeping, administrative,
marketing and/or shareholder support services. This compensation will be paid
from WPG's own resources and not from the assets of any Fund.
The Funds' Advisory and Administration Agreements each provide that WPG, in
its capacities as investment adviser and administrator, may render similar
services to others so long as the services provided thereunder are not impaired
thereby.
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
37
<PAGE>
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.
DISTRIBUTION PLANS
Each Fund, with respect to its Adviser class shares, has adopted a plan of
distribution pursuant to Rule 12b-1 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.
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.
38
<PAGE>
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.
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 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 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, 1998, the Funds paid to WPG the
following amounts under the prior plans (all of such amounts were spent as
compensation to dealers):
DISTRIBUTION FEES PAID
FUND DECEMBER 31, 1998
---- -----------------
Long-Term Retirement Fund $15,155
Medium-Term Retirement Fund $33,869
Short-Term Retirement Fund $39,606
Post-Retirement Fund(1) N/A
- ---------------
(1)The Post-Retirement Fund has not commenced operations.
39
<PAGE>
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.
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 managers 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.
40
<PAGE>
During the fiscal year ended December 31, 1998, the Funds paid to Plan
Fiduciaries the following amounts under the Service Plans:
SERVICE FEES PAID
FUND DECEMBER 31, 1998
---- -----------------
Long-Term Retirement Fund $298
Medium-Term Retirement Fund $514
Short-Term Retirement Fund $24,882
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.
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.
41
<PAGE>
NAME, ADDRESS, PRINCIPAL OCCUPATIONS
DATE OF BIRTH AND TITLE DURING PAST FIVE YEARS
- ----------------------- ----------------------
Roger J. Weiss* Senior Managing Director, Weiss, Peck & Greer,
One New York Plaza 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, WPG
President and Trustee 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 liquors)
Suite 1400 Former Vice Chairman and Director, McKesson
New York, NY 10017 Corporation (U.S. distributor of drugs and health
9/11/20 care products, wine and spirits)
Life Member, Board of Overseers of Cornell
Trustee 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
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 Tulane
12/13/14 Educational Fund
Trustee, all WPG Funds and
Trustee RWB/WPG U.S. Large Stock Fund
Graham E. Jones Financial Manager, Practice Management Systems
330 Garfield Street (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
42
<PAGE>
NAME, ADDRESS, PRINCIPAL OCCUPATIONS
DATE OF BIRTH AND TITLE DURING PAST FIVE YEARS
- ----------------------- ----------------------
Ronald M. Hoffner* Managing Director, Weiss, Peck & Greer, L.L.C.
One New York Plaza Executive Vice President of all WPG Funds
New York, NY 10004
10/6/50
Executive Vice President and
Treasurer
Joseph J. Reardon* Senior Vice President, Mutual Fund Operations,
One New York Plaza Weiss, Peck & Greer, L.L.C. since December,
New York, NY 10004 1993
4/4/60 Assistant Manager, Mutual Fund Operations,
Weiss, Peck & Greer, L.L.C. from February, 1990
Vice President to December, 1993
and Secretary Assistant Vice President of all WPG Funds since
April, 1991
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 of
7/31/57 Equities, Bank of America
Vice President
Daniel S. Vandivort* Managing Director, Weiss, Peck & Greer, L.L.C.
One New York Plaza since 1994
30th Floor Previously Managing Director and Head of U.S.
New York, NY 10004 Fixed Income, Senior Portfolio Manager and
7/4/54 Director, Global Product Development and
Marketing with CS First Boston Investment
Vice President Management, 1989-1994
Steven M. Pires Assistant Manager, Mutual Fund Operations Weiss,
One New York Plaza Peck & Greer L.L.C. since February 1999.
New York, NY 10004 Assistant Vice President Smith Barney Asset
9/12/56 Management, 1996-1999
Senior Accountant, United Continental Corp.
Assistant Vice President 1992-1996
Therese Hogan Manager, State Regulation, First Data Investor
First Data Investor Services Group, Inc. since June, 1994
Services Group Senior Legal Assistant, Palmer & Dodge from
53 State Street 1992-1994
Boston, MA 02109
2/27/62
Assistant Secretary
- ----------------
* "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.
43
<PAGE>
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, 1998. In addition, each
Trustee is reimbursed for out-of-pocket expenses associated with attending
Trustee meetings.
44
<PAGE>
AGGREGATE COMPENSATION PAID TO TRUSTEES FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
ACCRUED AS FROM THE FUNDS
LONG-TERM MEDIUM-TERM SHORT-TERM PART OF AND OTHER
RETIREMENT RETIREMENT RETIREMENT FUNDS' 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. 2,500 2,500 2,500 0 29,000
Lawrence J. Israel 2,500 2,500 2,500 0 29,000
Harvey E. Sampson** 1,875 1,875 1,875 0 19,125
Graham E. Jones*** 625 625 625 0 23,375
<FN>
- -----------------
*As of December 31, 1998, there were 12 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 February 28,1999, 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 February 28, 1999, 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:
PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
- ---------------- ------------------
TOMORROW LONG-TERM RETIREMENT FUND
First Union National Bank NC 61.1%
Funds Group
Attn: Kay Lavender
1525 W T Harris Boulevard
NC-1076
Charlotte, NC 28288-1076
45
<PAGE>
PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
- ---------------- ------------------
Pebsco Cass 10.9%
FBO City of Chicago
c/o IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218-2029
Heat and Frost Insulators Local 17 8.8%
401 (K)
3850 S Racine
Chicago, IL 60609
AIG Life Insurance Co 5.9%
Separate Account I
c/o Variable Accounting
P.O. Box 667
Wilmington, DE 19899-0667
Great Western Life & Annuity 5.8%
FBO Chicago Transit Authority
8515 B Orchard Road, Attn 2T2
Englewood, CO 80111
TOMORROW MEDIUM-TERM RETIREMENT FUND
First Union National Bank NC 72.0%
Funds Group
Attn: Kay Lavender
1525 W T Harris Boulevard
NC-1076
Charlotte, NC 28288-1076
Heat and Frost Insulators Local 17 5.3%
401 (K)
3850 S Racine
Chicago, IL 60609
Pebsco Cass 5.3%
FBO City of Chicago
c/o IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218-2029
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PERCENTAGE OF
NAME AND ADDRESS OUTSTANDING SHARES
- ---------------- ------------------
Great Western Life & Annuity 5.3%
FBO Chicago Transit Authority
8515 B Orchard Road, Attn 2T2
Englewood, CO 80111
TOMORROW SHORT-TERM RETIREMENT FUND
First Union National Bank NC 45.7%
Funds Group
Attn: Kay Lavender
1525 W T Harris Boulevard
NC-1076
Charlotte, NC 28288-1076
Sheet Metal Workers Local #73 41.1%
c/o CIGNA
Attn: Trading Unit
280 Trumbull St. H06A
Hartford, CT 06103
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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.
Signature guarantees, when required, must be obtained from any one of the
following institutions, provided that such institution meets credit standards
established by the Funds' Transfer Agent: (i) a bank; (ii) a securities broker
or dealer, including a government or municipal securities broker or dealer, that
is a member of a clearing corporation or has net capital of at least $100,000;
(iii) a credit union having authority to issue signature guarantees; (iv) a
savings and loan association, a building and loan association, a cooperative
bank, or a federal savings bank or association; or (v) a national securities
exchange, a registered securities exchange or a clearing agency.
In addition to the Transfer Agent, each Fund has authorized one or more
brokers, dealers and other entities to accept on its behalf orders for the
purchase and redemption of Fund shares. Under certain conditions, such
authorized entities may designate other intermediaries to accept orders for the
purchase and redemption of Fund shares. In accordance with a position taken by
the staff of the SEC, such purchase and redemption orders are considered to have
been received by a Fund when accepted by the authorized entity or, if
applicable, the authorized entity's designee. Also in accordance with the
position taken by the staff of the SEC, such purchase and redemption orders will
receive the appropriate Fund's net asset value per share next computed after the
purchase or redemption order is accepted by the authorized entity or, if
applicable, the authorized entity's designee.
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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.
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 AND EXCHANGE 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 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.
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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.
EXCHANGES
To prevent abuse of the exchange privilege to the detriment of other
shareholders, the Trust may limit 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.
NET ASSET VALUE
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
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<PAGE>
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), 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.
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<PAGE>
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 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.
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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.
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.
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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.
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
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<PAGE>
participant, subject to a phase-out range of $150,000 to $160,000 of modified
AGI if filing jointly. An individual who is not permitted to make a deductible
contribution to an IRA for a taxable year may nonetheless make annual
nondeductible contributions to an IRA up to the lesser of 100% of the
individual's earned income or $2,000 to an IRA (up to $4,000 to IRAs for an
individual and his or her spouse) for that year. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Also, annual
contributions may be made to a spousal IRA even if the spouse has no earnings in
a given year.
Withdrawals from the IRA (other than the portion treated as a return of
nondeductible contributions) are taxed as ordinary income when received, may be
made without penalty after the participant reaches age 59 1/2 and must commence
no later than the required beginning date (see discussion of "Prototype
Retirement Plans" above). Withdrawals before age 59 1/2 may involve the payment
of a 10% nondeductible penalty on the taxable portion of the amount withdrawn.
The time and rate of withdrawal must conform with Code requirements in order to
avoid adverse tax consequences. All dividends and distributions on shares 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.
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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, 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.
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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 ("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.
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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.
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.
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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 the sum of its taxable and tax-exempt
net investment income, the excess of net short-term capital gain over net
long-term capital loss earned in such year and any other net income (except for
the excess, if any, of net long-term capital gain over net short-term capital
loss, which need not be distributed in order for the Fund to qualify as a
regulated investment company but is taxed to the Fund if it is not distributed);
and (c) the Fund diversify its assets so that, at the close of each quarter of
its taxable year, (i) at least 50% of the fair market value of its total (gross)
assets is comprised of cash, cash items, U.S. Government securities, securities
of other regulated investment companies and other securities, with such other
securities limited in respect of any one issuer to no more than 5% of the fair
market value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer and (ii) no more than 25% of the fair market value of
its total assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or of two or more issuers controlled by the Fund and engaged in the
same, similar, or related trades or businesses.
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.
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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 prospectus for
such contracts, 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 its capital losses realized during the one-year period ending October 31
during such year, as well as any income or gain (as so computed) from the prior
calendar year that was not distributed for such year and on which the Fund paid
no federal income tax. Each Fund 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. Dividends, including capital gain dividends,
declared in October, November or December as of a record date in such a month
and paid in the following January are treated under the Code as if they were
received on December 31 of the year in which they are declared.
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.
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Equity options (including options on stock and options on narrow-based
stock indices) and over-the-counter options on debt securities written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (I.E., long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option, and
in the case of an exercise of the option, on the Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, possibly requiring the recognition of gain in
an appreciated, substantially identical portfolio stock or security or causing
an adjustment in the holding period of such a stock or security in the Fund's
portfolio. If a Fund writes a put or call option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
generally treated as a short-term capital gain or loss. If a call option is
exercised, whether the gain or loss is long-term or short-term depends on the
holding period of the underlying stock or security. The exercise of a put option
written by a Fund is not a taxable transaction for the Fund.
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 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
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<PAGE>
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 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).
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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 capital gain dividend paid with respect to such shares. Exchanges
and withdrawals under the Systematic Withdrawal Plan are treated as redemptions
for federal income tax purposes.
The Funds may be required to pay state taxes in states that have
jurisdiction to tax them, except to the extent an exemption may be available,
but the Funds do not anticipate that their state tax liabilities will be
substantial.
The foregoing discussion of U.S. federal income tax law 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. 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
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.
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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 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
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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).
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-dealer 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
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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 WPG. Investment decisions for 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.
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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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BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
AMOUNT OF
TRANSACTIONS
INVOLVING THE
PERCENTAGE OF PAYMENT OF
AGGREGATE COMMISSIONS
COMMISSIONS EFFECTED
AGGREGATE BROKERAGE PAID TO WPG THROUGH WPG
COMMISSIONS DURING 1998 DURING 1998
----------- -----------
FUND 1996 1997 1998
- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long-Term Retirement Fund $ 846 $ 4,750 $5,305 96% 96%
Medium-Term Retirement Fund 2,094 10,488 7,031 99% 99%
Short-Term Retirement Fund 2,056 12,134 13,180 99% 99%
AGGREGATE BROKERAGE COMMISSIONS PAID TO WPG
FUND 1996 1997 1998
- ---- ---- ---- ----
Long-Term Retirement Fund $ 821 $ 4,655 $ 5,099
Medium-Term Retirement Fund $2,070 $10,176 $ 6,944
Short-Term Retirement Fund $2,004 $11,952 $13,065
</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" 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
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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
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 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.
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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 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 SAI, 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. 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 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. The
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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 exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted by holders of Adviser Class shares of that Tomorrow
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.
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.
In addition to the requirements under Delaware law, the Declaration of
Trust 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 determines 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,
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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 a combined
Prospectus, it is possible that one Tomorrow Fund might become liable for a
misstatement or omission in the Prospectus regarding another Tomorrow Fund. The
Trustees have considered this factor in approving the use of a combined
Prospectus.
"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 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.
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FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS
KPMG 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, 1998, 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.
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a: An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over
any great length of time.
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.
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S&P's top ratings for municipal notes issued after July 29, 1984 are SP-1
and SP-2. The designation SP-1 indicates a very strong capacity to pay principal
and interest. A "+" is added for those issues determined to possess overwhelming
safety characteristics. An "SP-2" designation indicates a satisfactory capacity
to pay principal and interest.
Commercial paper rated A-2 or better by S&P is described as having a very
strong degree of safety regarding timeliness and capacity to repay.
Additionally, as a precondition for receiving an S&P commercial paper rating, a
bank credit line and/or liquid assets must be present to cover the amount of
commercial paper outstanding at all times.
The Moody's Prime-2 rating and above indicates a strong capacity for
repayment of short-term promissory obligations.
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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