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WESTCORE TRUST
Statement of Additional Information
for
Westcore MIDCO Growth Fund
Westcore Blue Chip Fund
Westcore Growth and Income Fund
Westcore Small-Cap Opportunity Fund
Westcore Mid-Cap Opportunity Fund
Westcore Small-Cap Growth Fund
Westcore Select Fund
Westcore International Frontier Fund
Westcore International Select Fund
Westcore Micro-Cap Fund
Westcore International Small-Cap Value Fund
Westcore Flexible Income Fund
Westcore Plus Bond Fund
Westcore Colorado Tax-Exempt Fund
October 1, 2000
TABLE OF CONTENTS
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Page
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THE TRUST............................................................... 2
INVESTMENT OBJECTIVES AND POLICIES...................................... 3
NET ASSET VALUE......................................................... 36
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................... 37
DESCRIPTION OF SHARES................................................... 39
ADDITIONAL INFORMATION CONCERNING TAXES................................. 41
MANAGEMENT OF THE FUNDS................................................. 42
CUSTODIAN AND TRANSFER AGENT............................................ 52
EXPENSES................................................................ 52
AUDITORS AND FINANCIAL STATEMENTS....................................... 53
COUNSEL................................................................. 53
CODES OF ETHICS......................................................... 53
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS...................... 53
MISCELLANEOUS........................................................... 60
APPENDIX A.............................................................. A-1
APPENDIX B.............................................................. B-1
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The Westcore Micro-Cap and International Small-Cap Value Funds are not currently
being offered for sale by the Company.
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This Statement of Additional Information is meant to be read in
conjunction with the Funds' Prospectus dated October 1, 2000, as the same is
revised from time to time, and is incorporated by reference in its entirety into
the Prospectus for the particular Fund. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of the Funds
should be made solely based upon the information contained herein. Copies of the
Funds' Prospectus dated October 1, 2000, may be obtained by calling
1-800-392-CORE (2673) or by writing ALPS Mutual Funds Services, Inc. at 370
Seventeenth Street, Suite 3100, Denver, Colorado 80202. The Financial Statements
and Independent Accountants Report thereon in this SAI are incorporated by
reference from the Funds' Annual Report, which may be obtained by writing the
address above or calling the toll-free number above. No other part of the Annual
Report is incorporated herein by reference. Capitalized terms used but not
defined herein have the same meanings as in the Prospectus.
THE TRUST
Westcore Trust (the "Trust") is a Massachusetts business trust which
was organized on December 10, 1985 as an open-end management investment company.
The Trust's predecessor was originally incorporated in Maryland on January 11,
1982. On January 1, 1996, the name of Westcore's "Equity Income Fund" was
changed to "Growth and Income Fund." On October 1, 2000, the names of Westcore's
"Intermediate-Term Bond Fund" and "Long-Term Bond Fund" were changed to "Plus
Bond Fund" and "Flexible Income Fund", respectively. Each name change reflected
a change to the investment objective and changes to investment policies of each
Fund.
The Trust is authorized to issue separate classes of shares
representing interests in separate investment portfolios. This Statement of
Additional Information pertains to the Westcore MIDCO Growth Fund, Westcore Blue
Chip Fund, Westcore Growth and Income Fund, Westcore Small-Cap Opportunity Fund,
Westcore Mid-Cap Opportunity Fund, Westcore Small-Cap Growth Fund, Westcore
Select Fund, Westcore International Frontier Fund, Westcore International Select
Fund, Westcore Micro-Cap Fund, Westcore International Small-Cap Value Fund,
Westcore Flexible Income Fund, Westcore Plus Bond Fund and Westcore Colorado
Tax-Exempt Fund (each, a "Fund" and collectively, the "Funds"). The Westcore
MIDCO Growth Fund, Westcore Blue Chip Fund, Westcore Growth and Income Fund,
Westcore Mid-Cap Opportunity Fund, Westcore Small-Cap Opportunity Fund, Westcore
Small-Cap Growth Fund, Westcore Select Fund, Westcore International Frontier
Fund, Westcore International Select Fund, Westcore Micro-Cap Fund and Westcore
International Small-Cap Value Fund are sometimes referred to as the "Westcore
Equity Funds." The Westcore Flexible Income Fund, Westcore Plus Bond Fund and
Westcore Colorado Tax-Exempt Fund are sometimes referred to as the "Westcore
Bond Funds." For information concerning any investment portfolios offered by the
Trust, contact ALPS Mutual Fund Services, Inc. ("ALPS") at 370 Seventeenth
Street, Suite 3100, Denver, Colorado 80202 or call 1-800-392-CORE (2673).
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INVESTMENT OBJECTIVES AND POLICIES
The Trust is an open-end, management investment company. The Funds
(other than the Westcore Select, International Select, Micro-Cap, International
Small-Cap Value and Colorado Tax-Exempt Funds, which are non-diversified) are
diversified portfolios of the Trust.
The Prospectuses for the Funds describe the Funds' investment
objectives. The following information supplements and should be read in
conjunction with the description of the investment objective and principal
strategies for each Fund in the Prospectuses.
Portfolio Transactions
Denver Investment Advisors LLC ("Denver Investment Advisors" or the
"Adviser") serves as the investment adviser to the Funds pursuant to an
investment advisory agreement (the "Advisory Agreement").
Subject to the general supervision of the Trust's Board of Trustees and
the provisions of the Trust's Advisory Agreement relating to the Funds, Denver
Investment Advisors makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for the Funds.
The annualized portfolio turnover rate for each Fund is calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation
excludes all securities, including options, that have maturities or expiration
dates at the time of acquisition of one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements which
enable the Funds to receive favorable tax treatment. Portfolio turnover will not
be a limiting factor in making portfolio decisions, and each Fund may engage in
short-term trading to achieve its investment objective.
The portfolio turnover rates for the MIDCO Growth Fund, Small-Cap Growth
Fund, Select Fund, Mid-Cap Opportunity Fund and Small-Cap Opportunity Fund for
the fiscal year ended May 31, 2000 are primarily attributable to the timing of
redemptions and the price volatility experienced within many industries over the
past year, especially within the technology industry. It is anticipated that the
Micro-Cap Fund, International Small-Cap Value Fund and International Select Fund
will experience high portfolio turnover rates as these are "non-diversified"
Funds which may require additional portfolio transactions to meet their
investment objectives, especially if the Funds continue to experience
significant price volatility across many industries. It is anticipated that the
Flexible Income Fund and Plus Bond Fund will experience higher than normal
turnover rates during the current fiscal year as the Funds adjust their holdings
to comply with their new investment objectives and policies.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. During the fiscal years
ended May 31, 2000, May 28, 1999 and May 29, 1998, the Funds paid the following
amounts in brokerage commissions:
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Brokerage Commissions Paid
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YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 2000 MAY 28, 1999 MAY 29, 1998
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Westcore MIDCO Growth Fund $ 410,563 $ 944,694 $ 793,591
Westcore Blue Chip Fund 103,078 99,420 74,156
Westcore Growth and Income Fund 17,419 24,139 14,776
Westcore Small-Cap Opportunity Fund 282,241 288,092 113,825
Westcore Mid-Cap Opportunity Fund 8,794 6,468 N/A
Westcore Small-Cap Growth Fund 18,658 N/A N/A
Westcore Select Fund 298,488 N/A N/A
Westcore International Frontier Fund 68,727 N/A N/A
Aggregate Commissions $1,207,968 $1,362,813 $ 996,348
========== ========== ==========
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For the same periods the Westcore Flexible Income Fund, Westcore Plus
Bond Fund and Westcore Colorado Tax-Exempt Fund did not pay any brokerage
commissions. During the fiscal years ended May 31, 2000, May 28, 1999 and May
29, 1998, no brokerage commissions were paid by any Funds to an affiliated
broker of the Trust.
There is generally no stated commission in the case of portfolio
securities traded in the over-the-counter market, but the price includes an
undisclosed commission or mark-up. Securities purchased and sold by the Funds
are generally traded in the over-the-counter market on a net basis (i.e.,
without commission) through dealers, or otherwise involve transactions directly
with the issuer of an instrument. 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, Denver Investment Advisors will
normally deal directly with the dealers who make a market in the securities
involved, except in those circumstances where better prices and execution terms
are available elsewhere or as described below. The cost of securities purchased
from underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interests.
The Advisory Agreement for the Funds provides that the Adviser will
seek to obtain the best overall terms available in executing portfolio
transactions and selecting brokers or dealers. In assessing the best overall
terms available for any transaction, Denver Investment
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Advisors will consider all factors it deems relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
In addition, the Advisory Agreement authorizes Denver Investment Advisors to
cause any of the Funds to pay a broker-dealer that furnishes brokerage and
research services a higher commission than that charged by another broker-dealer
for effecting the same transaction, provided that Denver Investment Advisors
determines in good faith that the commission is reasonable in relation to the
value of the brokerage and research services provided by the broker-dealer,
viewed in terms of that particular transaction or the overall responsibilities
of Denver Investment Advisors to the Fund. Such brokerage and research services
might consist of reports and statistics of specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond and government securities
markets and the economy.
Supplemental research information so received is in addition to, and
not in lieu of, services required to be performed by the Adviser and does not
reduce the advisory fees payable by the Funds. The Trustees will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised by the Adviser. Conversely, a Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
The Funds may from time to time purchase securities issued by the
Trust's regular broker/dealers (as defined in Rule 10b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act")) or their parents. As of May
31, 2000, the Westcore Blue Chip, Westcore Mid-Cap Opportunity Fund, Westcore
Plus Bond and Westcore Flexible Income Funds held securities of the Trust's
regular broker/dealers (or their parents) that derive more than 15% of their
gross revenues from securities-related activities. As of May 31, 2000, the
Westcore Blue Chip Fund's aggregate holdings of securities of J.P. Morgan &
Company Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Company Inc.
were $1,042,875, $818,188 and $670,650, respectively. As of May 31, 2000 the
Westcore Mid-Cap Opportunity Fund's aggregate holdings of securities of Lehman
Brothers Holdings Inc. was $42,453. As of May 31, 2000, the Westcore Plus Bond
Fund's aggregate holdings of securities of Donaldson, Lufkin & Jenrette Inc. and
Bear Stearns Companies Inc. were $458,872 and $437,718, respectively. As or May
31, 2000 the Westcore Flexible Income Fund's aggregate holdings of securities of
Bear Stearns Companies Inc. was $194,541.
Portfolio securities will not be purchased from or sold to (and savings
deposits will not be made in and repurchase and reverse repurchase agreements
will not be entered into with) the Adviser, ALPS or an affiliated person (as the
term is defined in the 1940 Act) acting as principal, except to the extent
permitted by the Securities and Exchange Commission (the "SEC"). However, Denver
Investment Advisors is authorized in allocating purchase and sale orders for
portfolio securities to broker/dealers and other financial institutions
(including institutions that are affiliated with the Adviser or principal
underwriter) to take into account the
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sale of Fund shares if Denver Investment Advisors believes that the quality of
the transaction and the amount of the commission are comparable to those of
other qualified brokerage firms. In addition, the Westcore Colorado Tax-Exempt
Fund will not purchase securities during the existence of any underwriting group
or related selling group of which ALPS, the Adviser, or any affiliated person of
any of them, is a member, except to the extent permitted by the SEC. In certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other investment companies which have similar investment
objectives but are not subject to such limitations.
Investment decisions for each Fund are made independently from those
for the other Funds and investment companies and accounts advised or managed by
the Adviser. Such other investment companies and accounts also may invest in the
same securities as the Funds. When a purchase or sale of the same security is
made at substantially the same time on behalf of a Fund and another investment
company or account, the available securities will be allocated between the Fund
and the other purchaser in a manner which Denver Investment Advisors believes to
be equitable to both. In some instances, this may adversely affect the price
paid or received by a Fund or the size of the position obtained by or disposed
of by the Fund. To the extent permitted by law, Denver Investment Advisors may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
Moody's Investors Service, Inc ("Moody's") and Standard & Poor's Ratings Group
("S&P") Ratings
The ratings of ratings agencies represent their opinions as to the
quality of debt securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and debt securities with the
same maturity, interest rate and rating may have different yields while debt
securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase by a Fund, an issue of debt
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by a Fund. Denver Investment Advisors will consider
such an event in determining whether the Fund involved should continue to hold
the obligation.
The payment of principal and interest on most debt securities purchased
by the Funds will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its debt securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or, in the case of governmental entities,
upon the ability of such entities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment of interest and principal of its
debt securities may be materially adversely affected by litigation or other
conditions.
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Debt Securities
The Westcore Plus Bond Fund and Westcore Flexible Income Fund invest at
least 65% of their respective total assets in a broad range of debt securities
during normal market conditions.
Tax-Exempt Obligations (Westcore Bond Funds)
Tax-Exempt Obligations include "general obligation" securities,
"revenue" securities, private activity bonds and "moral obligation" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power. Revenue securities are payable only from the
revenues derived from a particular facility, the proceeds of a special excise
tax or another specific revenue source such as the user of the facility being
financed. Private activity bonds (e.g., bonds issued by industrial development
authorities) are issued by or on behalf of public authorities to finance various
privately-operated facilities. Such bonds are included within the term
"Tax-Exempt Obligations" only if the interest paid thereon is exempt from
regular federal income tax and, for the Westcore Colorado Tax-Exempt Fund, not
treated as a specific tax preference item under the federal alternative minimum
tax. Private activity bonds are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. The credit quality of such
bonds is usually directly related to the credit standing of the corporate user
of the facility involved. Moral obligation securities are normally issued by
special purpose public authorities. If the issuer is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Certain of the Tax-Exempt Obligations held by the Westcore Colorado
Tax-Exempt Fund may be insured as to the timely payment of principal and
interest. There is no guarantee, however, that the insurer will meet its
obligations in the event of the issuer's default. In addition, such insurance
will not protect against market fluctuations caused by changes in interest rates
and other factors.
Although the Westcore Colorado Tax-Exempt Fund will invest most of its
assets, under normal circumstances, in intermediate-term Tax-Exempt Obligations,
the Fund may also invest 25% or more of its net assets in industrial development
bonds, short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper,
Construction Loan Notes and other forms of short-term tax-exempt loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements or other revenues. To the extent
that the Fund's assets are concentrated in these types of Tax-Exempt Obligations
and the Fund is non-diversified, it will be more susceptible to economic,
political and legal developments than a diversified Fund with similar objectives
whose assets are not so concentrated.
Within the types of Tax-Exempt Obligations described above there are
other categories, including municipal leases, which are often sold in the form
of certificates of participation. These obligations are issued by state and
local governments or authorities to
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finance the acquisition of equipment and facilities. Certain of these
obligations present the risk that a municipality may not appropriate funds for
the lease payments. Moreover, lease obligations may be limited by municipal
charter or other provisions that do not permit acceleration of the lease
obligation upon default. Because certificates of participation are generally
subject to redemption by the issuing municipal entity under specified
circumstances, they are not as liquid or marketable as other types of Tax-Exempt
Obligations and are generally valued at par or less than par in the open market.
There are variations in the quality of Tax-Exempt Obligations both
within a particular classification and between classifications, and the yields
on Tax-Exempt Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
Payment on Tax-Exempt Obligations relating to certain projects may be
secured by mortgages or deeds of trust. In the event of a default, enforcement
of the mortgages or deeds of trust will be subject to statutory enforcement
procedures and limitations.
In the event of a foreclosure, collection of proceeds may be delayed
and may not be sufficient to pay the principal or accrued interest on the
defaulted Tax-Exempt Obligations.
Certain investments of the Funds are subject to the federal alternative
minimum tax. These securities are not considered to be Tax-Exempt Obligations
for purposes of the Fund's policy to invest at least 80% of assets in Tax-Exempt
Obligations.
Stand-By Commitments (Westcore Colorado Tax-Exempt Fund)
The Fund may acquire stand-by commitments with respect to Tax-Exempt
Obligations held in its portfolio. Under a stand-by commitment, a dealer or bank
agrees to purchase from the Fund, at the Fund's option, specified Tax-Exempt
Obligations at a specified price. The amount payable to the Fund upon its
exercise of a stand-by commitment is normally (i) the Fund's acquisition cost of
the Tax-Exempt Obligations (excluding any accrued interest which the Fund paid
on their acquisition), less any amortized market premium plus any amortized
market or original issue discount during the period the Fund owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. Stand-by commitments may be sold,
transferred or assigned by the Fund only with the underlying instrument.
The Fund intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Adviser's opinion, present minimal credit
risks. The Fund's reliance upon the credit of these dealers, banks and
broker-dealers will be secured by the value of the underlying Tax-Exempt
Obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Adviser will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
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The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying Tax-Exempt Obligations, which
would continue to be valued in accordance with the Fund's normal method of
valuation. Stand-by commitments acquired by the Fund would be valued at zero in
determining net asset value.
Special Considerations Regarding Investments in Colorado
Obligations (Colorado Tax-Exempt Fund)
The concentration of the Colorado Tax-Exempt Fund in securities issued
by governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
The Fund believes the information summarized below describes some of
the more significant developments relating to securities of (i) municipalities
or other political subdivisions or instrumentalities of the State of Colorado
(the "State") which rely, in whole or in part, on ad valorem real property taxes
and other general funds of such municipalities or political subdivisions or (ii)
the State. The sources of such information include the official publications of
the State, as well as other publicly available documents. The Fund has not
independently verified any of the information contained in such official
publications and other publicly available documents, but is not aware of any
facts which would render such information inaccurate.
Economic Factors. Based on data published by the State of Colorado, Office of
State Planning and Budgeting as presented in the Colorado Economic Perspective,
State Revenue and Economic Projections through FY 2004-05, dated June 20, 2000
(the "2000 Economic Report"), nearly 54% of non-agricultural employment in
Colorado in 1999 was concentrated in the retail and wholesale trade and service
sectors, reflecting the importance of tourism to the State's economy and of
Denver as a regional economic and transportation hub. The government and
manufacturing sectors followed as the next largest employment sectors in the
State, representing approximately 15% and 9.5%, respectively, of
non-agricultural employment in the State in 1999. The Office of State Planning
and Budgeting expects similar concentrations for calendar years 2000 and 2001.
According to the 2000 Economic Report, the Colorado unemployment rate
was 2.9% in 1999. Total retail sales increased by 7.7% during calendar year
1999. Colorado continued to surpass the non-agricultural employment growth rate
of the U.S., with a 4.0% rate of growth for Colorado in 1999, as compared with
2.3% for the nation as a whole, but forecasts call for a gradual slowing.
Employment growth is expected to grow 3.6% and then slowly decrease to 3.0% rate
by year 2004.
Personal income rose 7.9% in Colorado during 1999, as compared with an
increase of 5.9% for the nation as a whole.
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Restrictions of Appropriation and Revenues. The State Constitution requires that
expenditures for any fiscal year not exceed revenues for such fiscal year. By
statute, the amount of General Fund revenues available for appropriation is
based upon revenue estimates which, together with other available resources,
must exceed annual appropriations by the amount of the unappropriated reserve
(the "Unappropriated Reserve"). The Unappropriated Reserve requirement for
fiscal years 1991, 1992, and 1993 was set at 3% of total appropriations from the
General Fund. For fiscal years 1994 and thereafter, the Unappropriated Reserve
requirement is 4% of total appropriations from the General Fund. In addition to
the Unappropriated Reserve, a constitutional amendment approved by Colorado
voters in 1992 requires the State and each local government to reserve a certain
percentage of its fiscal year spending (excluding bonded debt service) for
emergency use (the "Emergency Reserve"). The minimum Emergency Reserve was set
at 1% for 1993 and 2% for 1994 and is set at 3% for 1995 and later years. For
fiscal year 1992 and thereafter, General Fund appropriations are also limited by
statute to an amount equal to the cost of performing certain required
reappraisals of taxable property plus an amount equal to the lesser of (i) 5% of
Colorado personal income or (ii) 106% of the total General Fund appropriations
for the previous fiscal year. This restriction does not apply to any General
Fund appropriations which are required as a result of a new federal law, a final
state or federal court order or moneys derived from the increase in the rate or
amount of any tax or fee approved by a majority of the registered electors of
the State voting at any general election. In addition, the statutory limit on
the level of General Fund appropriations may be exceeded for a given fiscal year
upon the declaration of a State fiscal emergency by the State General Assembly.
According to the 2000 Economic Report, the fiscal year 2000 ending
General Fund reserve will be $694.0 million, which is $493.7 million over the
statutory four percent reserve requirement. The 1999 fiscal year ending General
Fund balance was $685.7 million, or $497.6 million over the statutory four
percent reserve requirement. Based on the 2000 Economic Report estimates, the
fiscal year 2001 ending General Fund reserve is forecast to be approximately
$536.8 million, or $324.5 million over the statutory reserve requirement.
On November 3, 1992, voters in Colorado approved a constitutional
amendment (the "TABOR") which, in general, became effective December 31, 1992,
and restricts the ability of the State and local governments to increase
revenues and impose taxes. TABOR applies to the State and all local governments,
including home rule entities ("Districts"). Enterprises, defined as
government-owned businesses authorized to issue revenue bonds and receiving
under 10% of annual revenue in grants from all Colorado state and local
governments combined, are excluded from the provisions of TABOR.
The provisions of TABOR are unclear and have required judicial
interpretation. Among other provisions, TABOR requires voter approval prior to
tax increases, the imposition of a new tax, creation of debt, or mill levy or
valuation for assessment ratio increases or a change of tax policy resulting in
a net revenue gain. TABOR also limits increases in government spending and
property tax revenues to specified percentages. TABOR requires that District
property tax revenues yield no more than the prior year's revenues adjusted for
inflation, voter approved changes and (except with regard to school districts)
local growth in property values
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according to a formula set forth in TABOR. School districts are allowed to
adjust tax levies for changes in student enrollment. Pursuant to TABOR, local
government spending is to be limited by the same formula as the limitation for
property tax revenues. TABOR limits increases in expenditures from the State
General Fund and program revenues (cash funds) to the growth in inflation plus
the percentage change in State population in the prior calendar year. The bases
for initial spending and revenue limits were fiscal year 1992 spending and 1991
property taxes collected in 1992. The bases for spending and revenue limits for
each subsequent fiscal year are the prior fiscal year's spending and property
taxes collected in the prior calendar year. Debt service changes, reductions and
voter-approved revenue changes are excluded from the calculation bases. TABOR
also prohibits new or increased real property transfer taxes, new State real
property taxes and local District income taxes.
Litigation concerning several issues relating to TABOR has been brought
in the Colorado courts. The litigation deals with three principal issues: (i)
whether Districts can increase mill levies to pay debt service on general
obligation bonds without obtaining voter approval; (ii) whether a multi-year
lease-purchase agreement subject to annual appropriation is an obligation which
requires voter approval prior to execution of the agreement; and (iii) what
constitutes an "enterprise" which is excluded from the provisions of TABOR. In
September, 1994, the Colorado Supreme Court held that Districts can increase
mill levies to pay debt service on voter approved general obligation bonds
issued after the effective date of TABOR; in June, 1995 the Colorado Supreme
Court validated mill levy increases to pay general obligation bonds issued prior
to TABOR provided that such bonds or bonds issued to refund such bonds were
voter approved. In late 1994, the Colorado Court of Appeals held that multi-year
lease-purchase agreements subject to annual appropriation do not require voter
approval. The time to file an appeal in that case has expired. Recently the
Colorado Supreme Court ruled that notes to be issued by the State the repayment
of which was subject to legislative appropriation must be approved by the voters
under TABOR. The Court distinguished these notes from lease-purchase agreements.
Finally, in May, 1995, the Colorado Supreme Court ruled that entities with the
power to levy taxes may not themselves be "enterprises" for purposes of TABOR;
however, the Court did not address the issue of how valid enterprises may be
created. Many Colorado local governments interpret this decision to mean that a
government with taxing power cannot be an enterprise but that a business
activity (such as a utility) owned by such a government can be an enterprise.
Additional litigation in the "enterprise" arena may be filed in the future to
clarify these issues. The Colorado Supreme Court also has decided that voters
can authorize a government to keep and spend all revenues received in excess of
the spending limits. Other aspects of the spending limit are being litigated in
district court actions.
According to the 2000 Economic Report, for fiscal year 1999, general
fund revenues (adjusted for cash funds that are exempt from TABOR) were $5,749.6
million and program revenues (cash funds) were $2,176.4 million, for revenues
totaling $7,923.0 million. During year 1997, inflation and population grew at
rates of 3.3% and 2.0%, respectively, for a combined total limit of 5.3%.
Accordingly, under TABOR, State expenditures during the 1999 fiscal year could
not exceed $7,243.4 million and the actual 1999 fiscal year general fund and
program revenues of $7,923.0 million were over the limit. In November 1998,
Colorado voters
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defeated a proposition to permit the State to keep and spend a portion of the
surplus, and the excess of $679.6 million is required to be refunded to Colorado
taxpayers. The estimated limitation for fiscal year 2000 is 4.4% over the
revenue limit for the 2000 fiscal year; accordingly, 2000 fiscal year revenues
cannot exceed an estimated $7,564.5 million. Fiscal year 2001 revenues are
estimated to be $905.5 million over the projected limitation which means that
there will likely be additional refunds unless voters allow some or all of those
revenues to be retained.
Because of the significant anticipated surpluses, many permanent tax
reductions were passed by the General Assembly in 1999 and 2000 and signed into
law by the Governor. In total, taxes were reduced by an estimated $530 million
in fiscal year 2001, the first full year of the majority of the tax cuts. When
combined with temporary tax relief bills, an estimated $900 million will be
returned to Colorado taxpayers in the 2001 and 2002 fiscal years. The largest
tax cut was a reduction in the income and sales tax rates. The income tax rate
is now 4.63%, compared to 5.0% in 1998. Effective January 1, 2001, the sales tax
rate will be lowered to 2.9% from the current 3.0%.
There is also a statutory restriction on the amount of annual increases
in taxes that the various taxing jurisdictions in Colorado can levy without
electoral approval. This restriction does not apply to taxes levied to pay
general obligation debt.
Colorado State Finances. As the State experienced revenue shortfalls in the
mid-1980s, it adopted various measures, including impoundment of funds by the
Governor, reduction of appropriations by the General Assembly, a temporary
increase in the sales tax, deferral of certain tax reductions and inter-fund
borrowings. According to State of Colorado Audited Finance Reports, under
generally accepted accounting principles, the State had unrestricted General
Fund ending balances at June 20 of approximately $408.0 million for fiscal year
1995, $368.5 million for fiscal year 1996, $514.1 million for fiscal year 1997,
and $901.0 million for fiscal year 1998. The ending balances starting with
fiscal year 1997 are required give effect to HB 98-1414, which specifies that
the refunds required by TABOR are to be booked in the year of the refund rather
than in the year incurred.
For fiscal year 1999, the following tax categories generated the
following percentages of the State's $5,794.0 million total revenues (accrual
basis): individual income taxes represented 57.4% of gross fiscal year 1999
receipts; sales, use, and other excise taxes represented 31% of gross fiscal
year 1999 receipts; and corporate income taxes represented 4.8% of gross fiscal
year 1999 receipts. For fiscal year 2000, General Fund revenues of approximately
$6,168.8 million and appropriations of approximately $5,975.4 million are
projected. The percentages of General Fund revenue generated by type of tax for
fiscal year 2000 and 2001 are not expected to be significantly different from
fiscal year 1999 percentages.
Debt. Under its constitution, the State of Colorado is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The State
enters into certain lease transactions that are subject to annual
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renewal at the option of the State. In addition, the State is authorized to
issue short-term revenue anticipation notes. Local government units in the State
are also authorized to incur indebtedness. The major source of financing for
such local government indebtedness is an ad valorem property tax. In addition,
in order to finance public projects, local governments in the State can issue
revenue bonds payable from the revenues of a utility or enterprise or from the
proceeds of an excise tax, or assessment bonds payable from special assessments.
Colorado local governments can also finance public projects through leases which
are subject to annual appropriation at the option of the local government. Local
governments in Colorado also issue tax anticipation notes. TABOR requires prior
voter approval for the creation of any multiple fiscal year debt or other
financial obligation whatsoever, except for refundings at a lower rate or
obligations of an enterprise. At the November 2, 1999 election, Colorado voters
approved the State's issuance of $1,700,000,000 of revenue anticipation
notes, the proceeds of which will be used for highway purposes. To date, the
State has issued $524,360,000 of the notes.
Economic conditions in the State may have continuing effects on other
governmental units within the State (including issuers of the Colorado
obligations in the Fund), which, to varying degrees, have also experienced
reduced revenues as a result of recessionary conditions and other factors.
Pending Constitutional Amendments.
On November 7, 2000, Colorado voters will vote on a number of proposed
amendments to the Colorado Constitution. Two of these amendments, if adopted,
may have a significant effect upon State and local government finance in
Colorado and upon the State's overall economy and are described below. Both of
these amendments are citizens' initiatives that will appear on the ballot as a
result of the petition process.
Both amendments are vague in several respects and will be subject to
administrative, legislative and judicial interpretation. Such interpretations
may ultimately differ from the following descriptions of the amendments'
estimated effect.
Tax Cut Initiative. The first initiative ("Amendment 21") would amend
the constitution by implementing tax cuts for a variety of State and local
government taxes. The following is the text of Amendment 21:
A $25 tax cut, increased $25 yearly (to $50, $75yy), shall lower each
tax in each tax bill for each 2001 and later district: utility customer
and occupation tax and franchise charge; vehicle sales, use, and
ownership tax; yearly income tax; property tax; income and property tax
equal to yearly revenue from sales and use taxes on food and drink
other than tobacco and alcohol; and income tax equal to yearly revenue
from estate taxes. (8)(d) tax cuts and state replacement of local
revenue shall not lower state or local excess revenue, the state may
limit local acts increasing replacement
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costs, joint income tax returns equal two tax bills, and attorney fees
and costs to enforce (8)(d) shall always be paid to successful
plaintiffs only.
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Amendment 21 apparently would cut the following taxes for the State and
each local government which levies such taxes in 2001 (unless otherwise noted):
(a) utility customer tax, occupation tax and franchise charge; (b) vehicle
sales, use and ownership taxes; (c) the State income tax (first affects the 2002
returns); and (d) property tax (first affects the 2002 bills). The tax cut in
the first year will be $25 for each tax in each tax bill. With respect to the
property tax bill, the proponents of Amendment 21 assert that each taxing
district levying a property tax will experience a $25 tax cut in 2002 for each
property tax bill. In addition, to the $25 tax cut for each property tax, the
2002 property tax bill for a government which has a sales tax will be reduced up
to another $25 or such lesser amount equal to the government's sales tax revenue
from food and drink (other than tobacco and alcohol) divided by the number of
property tax bills. The State 2002 income tax liability for each income tax
return will be reduced up to another (a) $25 or such lesser amount equal to the
State's revenue from the estate tax divided by the number of income tax returns
and (b) $25 or such lesser amount equal to the State's sales tax revenue from
food and drink (other than tobacco and alcohol) divided by the number of income
tax returns. Each tax cut increases each successive year by another $25. For
example, each tax cut will be $50 in the second year, $75 in the third year,
etc. There is no end to each tax cut under Amendment 21 so the amount will
continue to grow by $25 each year.
The language of Amendment 21 does not appear to require the State to
replace revenues that local governments will lose as a result of Amendment's 21
tax cuts, although its proponents claim that it does. Accordingly, it should not
be assumed that lost revenue will be replaced from any source. In addition, it
is clear that if the State chooses to replace lost local revenues, such
replacement revenue must come within the State's TABOR spending limit. Any
revenue which may be provided by the State to a local government must also fit
within the local government's TABOR spending limit.
The precise impacts of Amendment 21 on various governments are unknown.
The State has estimated its total revenue loss to be $663.7 million for the
period from January 1, 2001 to June 30, 2003. It is possible that units of
government might attempt to mitigate the impacts of Amendment 21 in the future
by seeking voter approval for one or more tax increases. Amendment 21 authorizes
the State to limit local acts increasing replacement costs. If the State does
enact legislation prohibiting or limiting local tax increases, then the ability
of such governmental units to mitigate the impacts of Amendment 21 will be
adversely affected.
The passage of Amendment 21 could adversely affect the overall
financial health of some governments. If this occurs, it is impossible to
predict what may occur with respect to bond ratings or the market price of
bonds. With respect to annual appropriation leases, the risk of
non-appropriation may increase if governmental revenues decrease as a result of
the passage of Amendment 21.
Growth Limitation Initiative. The second initiative ("Amendment 24")
would impose a wide range of new restrictions upon real estate development in
Colorado. Amendment 24 generally applies to counties with a population over
10,000 (and the municipalities in such counties), and would limit new
development to land in the following three categories: (a) land within
"committed areas," where development has already occurred or is currently being
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processed, (b) land within areas marked on "growth area maps" prepared by each
local government and approved by the local electorate, and (c) land within
specifically excluded areas.
Committed Areas. Growth in committed areas would be allowed to occur
without any voter approval. A "committed area" is defined to be land: (a)
contained within a recorded subdivision where at least 50% of the lots in such
subdivision have had (i) permanent structures built on them, or (ii) central
water and sewer services extended to them; (b) covered by a valid development
application which includes the service of central water and sewer to the land
and which was submitted to the local government by September 13, 2000; or (c)
identified by the local government as an area for development which currently
abuts land described in (a) above. "Valid development application" is defined to
mean an application that substantively meets all of the rules for submission
applicable to a proposal and that has been accepted as timely and complete by
the local government regulating the use of the land.
Growth Area Maps. New growth is designed to be regulated by the
creation of voter-approved growth area maps. The growth area map must include a
map and text describing the area, the general locations of land use and a range
of development densities. Land may be included within a growth area map only if
central water and sewer and roads can be extended to the area within 10 years
following approval of the map. The preparation of growth area maps is the
responsibility of the relevant county or municipality. Once prepared, a growth
area map is not effective, and does not allow development, until it is first
approved by the voters in the county or municipality which proposed the map.
Exceptions. Amendment 24 would also allow certain development-related
actions to occur in certain areas which are excepted from the terms of the
amendment, such as (a) the development or subdivision of land consistent with a
valid development application which had been filed as of September 13, 2000; (b)
the creation of lots for family members of farmers and ranchers; (c) the
division of land that is not subject to State subdivision requirements (which
generally allow divisions of land into parcels at least 35 acres in size without
local government approval); (d) certain publicly owned facilities; (e)
non-residential development of less than 10,000 square feet to permit retail or
service use where no other retail or service uses are located within 1 mile; and
(f) commercial or industrial development that provides goods or services to
support nearby agricultural operations where no similar facilities are located
within 1 mile.
If adopted, Amendment 24 could significantly limit economic growth in
Colorado by raising the costs of housing and commercial space. New real estate
development is likely to decrease if Amendment 24 is adopted. The full extent of
the effect of Amendment 24 upon the State's economy, however, cannot be
predicted at this time.
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U.S. Government Obligations (All Westcore Funds)
Each Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Examples of the types of U.S.
Government obligations that may be held by a Fund include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association ("Fannie Mae"), General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation ("Freddie Mac"), Federal Intermediate Credit Banks and Maritime
Administration. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the Government National Mortgage Association,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of Fannie Mae,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Freddie Mac, are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
Money Market Instruments (All Westcore Funds)
Each Fund may invest from time to time in "money market instruments"
such as bank obligations, commercial paper and corporate bonds with remaining
maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits, including instruments issued or
supported by the credit of U.S. or foreign banks. Although the Funds will invest
in obligations of foreign banks or foreign branches of U.S. banks only where the
Adviser deems the instrument to present minimal credit risks, these investments
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. Investments in bank obligations are limited
to the obligations of financial institutions having more than $1 billion in
total assets at the time of purchase. Investments in the obligations of foreign
banks and foreign branches of U.S. banks will not exceed 20% and 25%,
respectively, of each Fund's total assets at the time of purchase.
Commercial paper is a short-term debt obligation with a maturity
ranging from 1 to 270 days issued by banks, corporations and other borrowers.
Investments by a Fund in commercial paper and similar corporate obligations will
consist of issues that are rated within the highest rating category by one or
more Rating Agencies at the time of purchase and unrated paper determined by the
Adviser at the time of purchase to be of comparable quality.
Each Fund may invest in short-term funding agreements. A funding
agreement is a contract between an issuer and a purchaser that obligates the
issuer to pay a guaranteed rate of
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interest on a principal sum deposited by the purchaser. Funding agreements will
also guarantee the return of principal and may guarantee a stream of payments
over time. A funding agreement may have either a fixed rate or variable interest
rate that is based on an index and guaranteed for a set time period. The Funds
intend to invest only in funding agreements which have a put feature which may
be exercised on seven days' notice.
For the Westcore Colorado Tax-Exempt Fund, investments in money market
instruments, together with investments in other instruments (such as U.S.
Government obligations and repurchase agreements) that are subject to federal
income tax, will not exceed 20% of the total assets of the Fund except when made
for temporary defensive purposes. The Westcore Colorado Tax-Exempt Fund may also
hold uninvested cash reserves which do not earn income pending investment or
during temporary defensive periods, such as when, in the opinion of its Adviser,
suitable tax-exempt obligations are unavailable. In such circumstances, there is
no percentage limitation on the amount of assets which may be held uninvested by
the Westcore Colorado Tax-Exempt Fund.
Variable and Floating Rate Instruments (Westcore Bond Funds)
These Funds may purchase variable and floating rate demand instruments,
including variable amount master demand notes, issued by corporations,
industrial development authorities and governmental entities. The Adviser will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such obligations and, if the obligation is subject to a demand
feature, will monitor the issuer's financial ability to meet payment on demand.
Variable and floating rate demand instruments acquired by a Fund may
include participations in Tax-Exempt Obligations purchased from and owned by
financial institutions, primarily banks. Participation interests provide a Fund
with a specified undivided interest (up to 100%) in the underlying obligation
and the right to demand payment of the unpaid principal balance plus accrued
interest on the participation interest from the institution upon a specified
number of days' notice, not to exceed thirty days. Each participation interest
is backed by an irrevocable letter of credit or guarantee of a bank that the
Adviser has determined meets the prescribed quality standards for the Fund. The
bank typically retains fees out of the interest paid on the obligation for
servicing the obligation, providing the letter of credit and issuing the
repurchase commitment.
While there may be no active secondary market with respect to a
particular variable or floating rate instrument purchased by the Funds, the
Funds may, from time to time as specified in the instrument, demand payment in
full of the principal or may resell the instrument to a third party. The absence
of an active secondary market, however, could make it difficult for a Fund to
dispose of an instrument if the issuer defaulted on its payment obligation or
during periods that the Fund is not entitled to exercise its demand rights, and
the Fund could, for these or other reasons, suffer a loss. Variable and floating
rate instruments with no active secondary market will be included in the
calculation of a Fund's illiquid assets. See "Restricted Securities."
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Repurchase Agreements (All Westcore Funds)
In a repurchase agreement, a Fund agrees to purchase portfolio
securities subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price.
A Fund will enter into repurchase agreements only with financial
institutions deemed to be creditworthy by the Adviser. During the term of any
repurchase agreement, the Investment Adviser will monitor the creditworthiness
of the seller and the seller must maintain the value of the securities subject
to the agreement and held by the Fund as collateral at 101% of the repurchase
price.
Although the securities subject to repurchase agreements may bear
maturities exceeding 13 months, each Fund does not presently intend to enter
into repurchase agreements with deemed maturities in excess of seven days after
notice by the Fund. If in the future a Fund were to enter into repurchase
agreements with deemed maturities in excess of seven days, the Fund would do so
only if such investment, together with other illiquid securities, did not exceed
15% of the value of the Fund's net assets.
The repurchase price under repurchase agreements entered into by a Fund
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Funds' custodian or in the Federal
Reserve/Treasury book-entry system.
Reverse Repurchase Agreements (All Westcore Funds)
Each Fund may borrow for temporary purposes by entering into reverse
repurchase agreements. Under these agreements, a Fund sells portfolio securities
to financial institutions and agrees to buy them back later at an agreed upon
time and price.
When a Fund enters into a reverse repurchase agreement, it maintains in
a separate custodial account cash, U.S. Government obligations or other liquid
high-grade debt obligations that have a value at least equal to the repurchase
price.
Reverse repurchase agreements involve the risk of counterparty default
and possible loss of collateral held by the counterparty. In addition, the value
of portfolio securities a Fund sells may decline below the price it must pay
when the transaction closes. Reverse Repurchase Agreements also involve
leveraging. If the securities held by the Funds decline in value while these
transactions are outstanding, the net asset value of the Funds' outstanding
shares will decline in value by proportionately more than the decline in value
of the securities.
As reverse repurchase agreements are deemed to be borrowings by the
SEC, each Fund is required to maintain continuous asset coverage of 300%. Should
the value of a Fund's assets decline below 300% of borrowings, a Fund may be
required to sell portfolio securities within three days to reduce the Fund's
debt and restore 300% asset coverage.
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Lower-Rated Securities (All Westcore Funds other than the Colorado Tax-Exempt
Fund)
Investments in issuers of securities rated below investment grade
(commonly known as "junk bonds") are considered to be more speculative than
securities rated investment grade and higher. Risk of loss upon default by the
borrower is significantly greater because lower-rated securities are generally
unsecured and are often subordinated to other creditors of the issuer, and
because the issuers frequently have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recessions, individual
corporate developments and increasing interest rates, than are investment grade
issuers. As a result, the market price of such securities, and the net asset
value of a Fund's shares, may be particularly volatile. There are particular
risks associated with these securities, including: (a) the relative youth and
growth of the market; (b) their greater sensitivity to interest rate and
economic changes, which could negatively affect their value and the ability of
issuers to make principal and interest payments; (c) the relatively low trading
market liquidity for the securities, which may adversely affect the price at
which they could be sold; (d) a greater risk of default or price changes because
of changes in the issuer's creditworthiness; (e) the adverse impact that
legislation restricting lower-rated securities may have on their market; (f) the
operation of mandatory sinking fund or call/redemption provisions during periods
of declining interest rates whereby the Fund may be required to reinvest
premature redemption proceeds in lower yielding portfolio securities; and (g)
the creditworthiness of issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower-rated bonds generally and adversely affect the
value of outstanding bonds and the ability of issuers to repay principal and
interest. If the issuer of a lower-rated debt obligation held by the Fund
defaulted, the Fund could incur additional expenses to seek recovery.
Consequently, the market price of these securities may be quite volatile and may
result in wider fluctuations in a Fund's net asset value per share.
In certain circumstances it may be difficult to determine a security's
fair value due to a lack of reliable objective information. This may occur where
there is no established secondary market for the security or the security is
thinly traded. As a result, a Fund's valuation of a security and the price it is
actually able to obtain when it sells the security could differ.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may adversely affect the value and liquidity of
lower-rated securities held by the Funds, especially in a thinly-traded market.
Illiquid or restricted securities held by the Funds may involve special
registration responsibilities, liabilities, costs and valuation difficulties.
The ratings of Rating Agencies evaluate the safety of a lower-rated
security's principal and interest payments, but do not address market value
risk. Because the ratings of the Rating Agencies may not always reflect current
conditions and events, the Adviser continuously monitors the issuers of
lower-rated securities held in a Fund's portfolio for their ability to make
required principal and interest payments. If a security undergoes a rating
revision, the Fund involved may continue to hold the security if the Adviser
decides this is appropriate.
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Securities Lending (All Westcore Funds other than the Colorado Tax-Exempt Fund)
Each of these Funds may lend its portfolio securities to institutional
investors as a means of earning additional income. Such loans must be
continuously secured by certain liquid, high-grade collateral equal at all times
to at least the market value of the securities loaned. Securities loans will be
made only to borrowers deemed by the Adviser to present minimal credit risks and
when, in its judgment, the income to be earned from the loan justifies the
possible risks.
When a Fund lends its securities, it continues to receive interest or
dividends on the securities loaned and may simultaneously earn interest on the
collateral received from the borrower or from the investment of cash collateral
in readily marketable, high-quality, short-term obligations. Cash collateral
also may be invested in privately-placed interests in a trust or other entity,
which may be affiliated, which invests solely in the instruments permitted for
investment of cash collateral. Such investments are further described under the
caption "Securities Issued by Other Investment Companies; Other Entities
Investing in Money Market Instruments." Although voting rights, or rights to
consent, attendant to securities on loan pass to the borrower, these loans may
be called at any time and will be called if a material event affecting the
investment were to occur.
Collateral for such securities loans may include cash, securities of
the U.S. Government, its agencies or instrumentalities or an irrevocable letter
of credit issued by a bank which meets the investment standards of a Fund and
whose securities are eligible for purchase under the objectives, policies and
limitations of the Fund.
Restricted Securities (All Westcore Funds)
No Fund will knowingly invest more than 15% of the value of its net
assets in securities that are illiquid. Illiquid securities include repurchase
agreements, securities loans and time deposits that are not terminable within
seven days, certain municipal leases and certain securities that are not
registered under the securities laws. Securities that are not registered under
the Securities Act of 1933, as amended, but that may be purchased by
institutional buyers under Rule 144A are subject to this limitation unless the
Adviser under the supervision of the Board determines that a liquid trading
market exists. However, there can be no assurance that a liquid market will
exist for any security at a particular time.
In addition, the purchase of such securities could have the effect of
increasing the level of illiquidity of the Funds during periods that qualified
institutional buyers become uninterested in purchasing these restricted
securities.
Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act of 1933, as amended, for resales of certain securities to
qualified institutional buyers. The Adviser believes that the market for certain
restricted securities such as institutional commercial paper may expand further
as a result of this regulation and the development of automated systems for the
trading, clearance and
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settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the NASD.
The Adviser monitors the liquidity of restricted securities in each of
the Funds' portfolios under the supervision of the Board of Trustees. In
reaching liquidity decisions, the Investment Adviser will consider such factors
as: (a) the frequency of trades and quotes for the security; (b) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (c) dealer undertakings to make a market in the security;
and (d) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
Rights Offerings and Warrants to Purchase (All Westcore Funds)
These Funds may participate in rights offerings and may purchase
warrants. These instruments are privileges enabling the owners to subscribe to
and purchase a specified number of shares of the issuing corporation at a
specified price during a specified period of time. Subscription rights normally
have a short life span to expiration. The purchase of rights or warrants
involves the risk that the Fund involved could lose the purchase value of a
right or warrant if the right to subscribe to additional shares is not exercised
prior to the expiration of the rights and warrants. Also, the purchase of rights
or warrants involves the risk that the effective price paid for them, when added
to the subscription price of the related security, may exceed the value of the
subscribed security's market price. This could occur when there is no movement
in the level of the underlying security.
Asset-Backed Securities (Westcore Bond Funds, other than the Westcore Colorado
Tax-Exempt Fund)
These Funds may purchase asset-backed securities, which are securities
backed by installment sale contracts, credit card receivables or other assets.
Asset-backed securities are issued by either governmental or non-governmental
entities which represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets, most often a pool of assets
similar to one another. Primarily, these securities do not have the benefit of
the same security interest in the underlying collateral. Payment on asset-backed
securities of private issues is typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guaranty, or
subordination. Assets generating such payments will consist of such instruments
as motor vehicle installment purchase obligations and credit card receivables.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. The Funds may also invest in other
types of asset-backed securities that may be available in the future.
The calculation of the average weighted maturity of asset-backed
securities is based on estimates of average life.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt
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instruments, which are also known as collateralized obligations, and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties. Payments of both interest and principal on the securities are
typically made monthly, thus in effect "passing through" monthly payments made
by the individual borrowers on the assets that underlie the securities, net of
any fees paid to the issuer or guarantor of the securities.
Asset-backed securities are considered an industry for industry
concentration purposes.
In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Mortgage-Related Securities (Westcore Bond Funds, other than the Westcore
Colorado Tax-Exempt Fund)
Mortgage Backed Securities Generally. Mortgage backed securities held
by the Bond Funds represent an ownership interest in a pool of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. The mortgagor's monthly payments to his
lending institution are "passed-through" to an investor such as the Funds. Most
issuers or poolers provide guarantees of payments, regardless of whether or not
the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuers or poolers so that they can meet their obligations under the
policies. Mortgage backed securities issued by private issuers or poolers,
whether or not such securities are subject to guarantees, may entail greater
risk than securities directly or indirectly guaranteed by the U.S. Government.
Interests in pools of mortgage backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
The Funds may purchase mortgage-related securities that are secured by
entities such as Government National Mortgage Association ("GNMA"), Fannie Mae,
Freddie Mac,
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commercial banks, trusts, financial companies, finance subsidiaries of
industrial companies, savings and loan associations, mortgage banks and
investment banks.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities include
GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes") which are
guaranteed as to the timely payment of principal and interest by GNMA and such
guarantee is backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of GNMA
to borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities also include Fannie Mae guaranteed Mortgage
Pass-Through Certificates which are solely the obligations of Fannie Mae, are
not backed by or entitled to the full faith and credit of the United States and
are supported by the right of the issuer to borrow from the Treasury. Fannie Mae
is a government-sponsored organization owned entirely by private stockholders.
Fannie Mae guaranteed Mortgage Pass-Through Certificates are guaranteed as to
timely payment of principal and interest by Fannie Mae. Mortgage-related
securities include Freddie Mac Mortgage Participation Certificates (also known
as "PCs"). Freddie Mac is a corporate instrumentality of the United States,
created pursuant to an Act of Congress, which is owned entirely by Federal Home
Loan Banks. Freddie Mac PCs are not guaranteed and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Mac
PCs entitle the holder to timely payment of interest, which is guaranteed by the
Freddie Mac. Freddie Mac guarantees either ultimate collection or timely payment
of all principal payments on the underlying mortgage loans. When Freddie Mac
does not guarantee timely payment of principal, Freddie Mac may remit the amount
due on account of its guarantee of ultimate payment of principal at any time
after default on an underlying mortgage, but in no event later than one year
after it becomes payable.
Underlying Mortgages. Pools consist of whole mortgage loans or
participations in loans. The majority of these loans are made to purchasers of
one to four family homes. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Bond Funds may
purchase pools of variable rate mortgages ("VRM"), growing equity mortgages
("GEM"), graduated payment mortgages ("GPM") and other types where the principal
and interest payment procedures vary. VRM's are mortgages which reset the
mortgage's interest rate periodically with changes in open market interest
rates. To the extent that a Fund is actually invested in VRM's, its interest
income will vary with changes in the applicable interest rate on pools of VRM's.
GPM and GEM pools maintain constant interest rates, with varying levels of
principal repayment over the life of the mortgage. These different interest and
principal payment procedures should not impact the Funds' net asset value since
the prices at which these securities are valued will reflect the payment
procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
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Each Fund may invest in multiple class pass-through securities,
including CMOs and REMIC Certificates. These multiple class securities may be
issued or guaranteed by U.S. Government agencies or instrumentalities, including
GNMA, Fannie Mae and Freddie Mac, or issued by trusts formed by private
originators of, or investors in, mortgage loans. In general, CMOs and REMICs are
debt obligations of a legal entity that are collateralized by, and multiple
class pass-through securities represent direct ownership interests in, a pool of
residential mortgage loans or mortgage pass-through securities (the "Mortgage
Assets"), the payments on which are used to make payments on the CMOs or
multiple pass-through securities. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests or "residual" interests, which in
general are junior and more volatile than regular interests. The Funds do not
intend to purchase residual interests. Pools created by non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and principal of these
pools is supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance purchased by the issuer. The
insurance and guarantees are issued by governmental entities, private insurers
and the mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.
Although certain mortgage-related securities are guaranteed by a third
party or are otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If a Fund purchases a mortgage-related
security at a premium, that amount may be lost if there is a decline in the
market value of the security whether resulting from increases in interest rates
or prepayment of the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true because mortgages underlying securities are prone to
prepayment in periods of declining interest rates. For this and other reasons, a
mortgage-related security's maturity may be shortened by unscheduled prepayments
on underlying mortgages and, therefore, it is not possible to accurately predict
the security's return to a Fund. Mortgage-related securities provide regular
payments consisting of interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested. The
compounding effect from reinvestment of monthly payments received by the Funds
will increase their respective yields to shareholders, compared to bonds that
pay interest semi-annually.
CMOs may involve additional risks other than those found in other types
of mortgage-related obligations. During periods of rising interest rates, CMOs
may lose their liquidity as CMO market makers may choose not to repurchase, or
may offer prices, based on current market conditions, which are unacceptable to
the Fund based on the Fund's analysis of the market value of the security.
As new types of mortgage-backed securities are developed and offered in
the market, the Trust may consider making investments in such new types of
securities.
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Options (All Westcore Funds, other than the Westcore Colorado Tax-Exempt Fund)
Each Fund, other than the Westcore Colorado Tax-Exempt Fund, may
purchase put and call options and may write covered call and secured put options
issued by the Options Clearing Corporation which are traded over-the-counter or
are listed on a national securities exchange. Such options may relate to
particular securities or to various stock or bond indexes, except that a Fund
may not write covered call options on an index.
A put option gives the buyer the right to sell, and the writer the
obligation to buy, the underlying security at the stated exercise price at any
time prior to the expiration date of the option. Writing a secured put option
means that a Fund maintains in a segregated account with its custodian cash or
U.S. Government securities in an amount not less than the exercise price of the
option at all times during the option period. A call option gives the buyer the
right to buy the underlying security at the stated exercise price at any time
prior to the expiration of the option. Writing a covered call option means that
a Fund owns or has the right to acquire the underlying security, subject to call
at the stated exercise price at all times during the option period. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
index. Options purchased by a Fund will not exceed 5% of its net assets and
options written by a Fund will not exceed 25% of its net assets. All options
will be listed on a national securities' exchange and issued by the Options
Clearing Corporation.
A Fund may also invest in index futures contracts and options on index
futures contracts for hedging purposes. A Fund may not purchase options or
purchase or sell futures contracts or options on futures contracts unless
immediately after any such transaction the aggregate amount of premiums paid for
put options and the amount of margin deposits on its existing futures positions
do not exceed 5% of its total assets. Purchasing options is a specialized
investment technique that may entail the risk of a complete loss of the amounts
paid as premiums to the writer of the option.
In order to close out call or put option positions, the Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a
call or put option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that it
previously wrote. When a portfolio security subject to a call option is sold, a
Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or a Fund delivers the underlying security upon exercise.
By writing a covered call option, a Fund forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price except insofar as the premium represents a profit. In addition, a
Fund is not able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing purchase transaction by purchasing an
option of the same series. If a Fund writes a secured put option, it assumes the
risk of loss should the market value of the underlying security decline below
the exercise price of the option. The use of covered call and secured put
options will not be a primary investment technique of a Fund. If the Adviser is
incorrect in its forecast for the underlying security or other
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factors when writing options, a Fund would be in a worse position than it would
have been had the options not been written.
In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. When a Fund writes an option, an amount equal
to the net premium (the premium less the commission) received by the Fund is
included in the liability section of the Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by a Fund expires unexercised, the Fund realizes
a loss equal to the premium paid. If a Fund enters into a closing sale
transaction on an option purchased by it, the Fund will realize a gain if the
premium received by the Fund on the closing transaction is more than the premium
paid to purchase the option, or a loss if it is less. If an option written by a
Fund expires on the stipulated expiration date or if a Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be eliminated. If an
option written by a Fund is exercised, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange ("National Securities
Exchange") may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
a National Securities Exchange on opening transactions, closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
unusual or unforeseen circumstances may interrupt normal operations on a
National Securities Exchange; the facilities of a National Securities Exchange
or the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or one or more National Securities Exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that National Securities Exchange (or in
that class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result of
trades on that National Securities Exchange would continue to be exercisable in
accordance with their terms. A Fund will likely be unable to control losses by
closing its position where a liquid secondary market does not exist. Moreover,
regardless of how much the market price of the underlying security increases or
decreases, the option buyer's risk is limited to
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the amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying securities, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
Futures and Related Options (All Westcore Funds, other than the Westcore
Colorado Tax-Exempt Fund)
These Funds may invest to limited extent in futures contracts and
options on futures contracts in order to reduce their exposure to movements of
security prices pending investment, for hedging purposes or to maintain
liquidity. Futures contracts obligate a Fund, at maturity, to take or make
delivery of certain securities or the cash value of a contract or securities
index. Each Fund may also purchase and sell call and put options on futures
contracts traded on an exchange or board of trade.
In accordance with regulations of the Commodity Futures Trading
Commission, a Fund's commodities transactions must constitute bona fide hedging
or other permissible transactions. In addition, a Fund may not engage in
commodities transactions if the sum of the amount of initial margin deposits and
premiums paid for related options, other than for bona fide hedging
transactions, would exceed 5% of its assets (after certain adjustments). In
connection with a position in a futures contract or related option, a Fund will
create a segregated account of liquid high-grade assets or will otherwise cover
its position in accordance with SEC requirements.
Options trading and futures transactions are highly specialized
activities and carry greater than ordinary investment risks. The primary risks
associated with the use of futures contracts are: (1) options and futures may
fail as hedging techniques when the price movements of the securities underlying
them do not follow the price movements of the portfolio securities subject to
the hedge; (2) a Fund will likely be unable to control losses by closing its
position in these investments where a liquid secondary market does not exist;
(3) losses from investing in futures transactions because of unanticipated
market movements are potentially unlimited; and (4) gains and losses on
investments in options and futures depend on the Adviser's ability to correctly
predict the direction of securities prices, interest rates and other economic
factors.
For a detailed description of futures contracts and related options,
see Appendix B to this Statement of Additional Information.
Foreign Securities (All Westcore Funds, other than the Westcore Colorado
Tax-Exempt Fund)
Each Fund may invest in foreign securities. There are risks and costs
involved in investing in securities of foreign issuers (including foreign
governments), which are in addition to the usual risks inherent in U.S.
investments. Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the
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imposition of additional taxes by foreign governments. Foreign investments may
involve further risks associated with the level of currency exchange rates, less
complete financial information about the issuer, less market liquidity and
political instability. Future political and economic developments, the possible
imposition of withholding taxes on interest income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls or the adoption of other governmental restrictions might adversely
affect the payment of principal and interest on foreign obligations. Moreover,
foreign banks and foreign branches of domestic banks may be subject to less
stringent reserve requirements and to different accounting, auditing and
recordkeeping requirements.
Investments in foreign securities may be in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and similar
securities. These securities may not be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a United States
bank or trust company, and EDRs are receipts issued by a European financial
institution evidencing ownership of the underlying foreign securities. Up to 25%
of the MIDCO Growth, Growth and Income, Blue Chip, Mid-Cap Opportunity,
Small-Cap Growth, Select, Small-Cap Opportunity and Micro-Cap Funds' assets may
be invested in securities issued by foreign companies, either directly (if the
company is listed on a U.S. exchange) or indirectly through ADRs.
Developing countries may impose restrictions on a Fund's ability to
repatriate investment income or capital. Even if there is no outright
restriction on repatriation of investment income or capital, the mechanics of
repatriation may affect certain aspects of the operations of the Fund.
Some of the currencies in emerging markets have experienced
devaluations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain developing countries face
serious exchange constraints.
Lastly, governments of some developing countries exercise substantial
influence over many aspects of the private sector. In some countries, the
government owns or controls many companies, including the largest in the
country. As such, government actions in the future could have a significant
impact on economic conditions in developing countries in these regions, which
could affect private sector companies, a Fund and the value of its securities.
Furthermore, certain developing countries are among the largest debtors to
commercial banks and foreign governments. Trading in debt obligations issued or
guaranteed by such governments or their agencies and instrumentalities involves
a high degree of risk.
Foreign Currency Exchange Transactions (All Westcore Funds, other than the
Westcore Colorado Tax-Exempt Fund)
These Funds may buy and sell securities and receive amounts denominated
in currencies other than the U.S. dollar, and may enter into currency exchange
transactions from time to time. A Fund will purchase foreign currencies on a
"spot" or cash basis at the prevailing rate in the foreign currency exchange
market or enter into forward foreign currency exchange contracts. Under a
forward currency exchange contract, the Fund would agree with a financial
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institution to purchase or sell a stated amount of a foreign currency at a
specified price, with delivery to take place at a specified date in the future.
Forward currency exchange contracts establish an exchange rate at a future date
and are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. These contracts
generally have no deposit requirement and are traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio securities
or in foreign exchange rates or prevent loss if the prices of these securities
should decline. In addition, because there is a risk of loss to a Fund if the
other party does not complete the transaction, these contracts will be entered
into only with parties approved by the Fund's Board of Trustees.
Forward foreign currency exchange contracts allow a Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. It is thereby possible to focus on the
opportunities presented by the security apart from the currency risk. Although
these contracts are of short duration, generally between one and twelve months,
they frequently are rolled over in a manner consistent with a more long-term
currency decision. Although foreign currency hedging transactions tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of these securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
A Fund may maintain "short" positions in forward foreign currency
exchange transactions whereby the Fund would agree to exchange currency that it
currently did not own for another currency at a future date and at a specified
price. This would be done in anticipation of a decline in the value of the
currency sold short relative to the other currency and not for speculative
purposes. In order to ensure that the short position is not used to achieve
leverage with respect to a Fund's investments, the Fund would establish with its
custodian a segregated account consisting of cash or certain liquid high-grade
debt securities equal in value to the market value of the currency involved.
When-Issued Purchases and Forward Commitments (All Westcore Funds)
Each Fund may purchase or sell securities on a "when-issued" or
"forward commitment" basis which involves a commitment by the Fund to purchase
or sell particular securities with payment and delivery taking place at a future
date. These transactions permit a Fund to lock in a price or yield on a security
it owns or intends to purchase, regardless of future changes in interest rates.
The Fund would bear the risk, however, that the price or yield obtained in a
transaction may be less favorable than the price or yield available in the
market when the delivery occurs. Because a Fund is required to hold and maintain
in a segregated account until the settlement date cash, U.S. Government
securities or liquid assets, in an amount sufficient to meet the purchase price,
the Fund's liquidity and ability to manage its portfolio might be affected
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during periods in which its commitments exceed 25% of the value of its assets.
The Funds do not intend to engage in when-issued purchases and forward
commitments for speculative purposes.
When a Fund agrees to purchase securities on a when-issued basis or
enters into a forward commitment to purchase securities, its custodian will set
aside cash or certain liquid high-grade debt obligations equal to the amount of
the purchase or the commitment in a separate account. Normally, the custodian
will set aside portfolio securities to meet this requirement. The market value
of the separate account will be monitored and in the event of a decline, the
Fund will be required to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitments. In the case of a forward commitment to sell portfolio
securities, the Fund's custodian will hold the portfolio securities themselves
in a segregated account while the commitment is outstanding.
The Funds will enter into these transactions only with the intention of
completing them and actually purchasing or selling the securities involved.
However, if deemed advisable as a matter of investment strategy, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a capital
gain or loss.
When a Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of the other party
to do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The value of the securities underlying a when-issued or forward
commitment transaction, and any subsequent fluctuations in their value, are
taken into account when determining a Fund's net asset value starting on the day
the Fund agrees to purchase the securities. The Fund does not earn interest on
the securities until they are paid for and delivered on the settlement date.
When a Fund makes a forward commitment to sell securities it owns, the proceeds
to be received upon settlement are included in the Fund's assets, and
fluctuations in the value of the underlying securities are not reflected in the
Fund's net asset value as long as the commitment remains in effect.
Securities Issued by Other Investment Companies; Other Entities Investing in
Money Market Instruments (All Westcore Funds)
Securities issued by other investment companies may be acquired by the
Funds within the limits prescribed by the 1940 Act. The Funds also may invest in
privately-placed interests in a trust or other entity, which may be affiliated,
which invests solely in high quality, short-term, U.S. dollar denominated money
market instruments of U.S. and foreign issuers. The Westcore Colorado Tax-Exempt
Fund may only invest in investment companies which invest in high-quality,
short-term taxable instruments or tax-exempt instruments and which determine
their net asset value per share on the amortized cost or penny-rounding method.
When a Fund invests in another investment company or in another type of entity
as described above, it pays its
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pro rata portion of the advisory and other expenses of that company as a
shareholder of that company. These expenses would be in addition to the Fund's
own expenses.
Derivative Instruments (All Westcore Funds)
Each Fund may purchase certain "derivative" instruments. Derivative
instruments are instruments that derive value from the performance of underlying
assets, interest or currency exchange rates, or indices, and include, but are
not limited to, futures contracts, options, forward currency contracts and
structured debt obligations (including collateralized mortgage obligations and
other types of asset-backed securities and various floating rate instruments,
including inverse floaters).
Derivative instruments present, to varying degrees, market risk that
the performance of the underlying assets, exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
instrument will decline more rapidly than the assets, rates or indices on which
it is based; liquidity risk that a Fund will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument (such as an option) will
not correlate exactly to the value of the underlying assets, rates or indices on
which it is based or may be difficult to determine because of a lack of reliable
objective information and an established secondary market; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Many of these instruments are proprietary products that have been
recently developed by investment banking firms, and it is uncertain how they
will perform under different economic and interest rate scenarios.
Temporary Defensive Position
The Westcore Equity and Bond Funds may, from time to time, take
temporary defensive positions that are inconsistent with their principal
investment strategies in attempting to respond to adverse market, economic,
political, or other conditions as follows:
The Westcore Equity Funds may invest in short-term instruments such as
U.S. government obligations, money market instruments, repurchase agreements and
securities issued by other investment companies (within the limits prescribed by
the 1940 Act) and dollar denominated debt obligations of foreign issuers
including foreign corporations and governments and Tax-Exempt Obligations. In
addition, each Fund may borrow money from banks and may enter into reverse
repurchase agreements for temporary purposes on a limited basis. Each Fund may
hold uninvested cash reserves (which would not earn income) pending investment,
to meet anticipated redemption requests or during temporary defensive periods.
The Westcore Bond Funds may invest without limitation in various
short-term investments. The Funds also may borrow money from banks and may enter
into reverse repurchase agreements for temporary purposes on a limited basis.
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The Westcore Colorado Tax-Exempt Fund may invest in short-term taxable
money market instruments, securities issued by other investment companies that
invest in taxable or tax-exempt money market instruments and U.S. government
obligations.
Equity and Equity-Related Securities in Plus Bond and Flexible Income Funds
The Westcore Flexible Income and Plus Bond Funds may invest in
obligations convertible into common stock and may acquire common stocks,
warrants or other rights to buy shares.
Real Estate Investment Trusts (REITs) (All Westcore Funds other than Westcore
Colorado Tax-Exempt Fund
The Funds other than the Westcore Colorado Tax-Exempt Fund may invest
in REITs directly and/or in debt securities issued by REITs, as further
described in the Prospectuses.
Median Capitalizations (Small-Cap Opportunity Fund, Small-Cap Growth Fund,
Mid-Cap Opportunity Fund and MIDCO Growth Fund)
As of June 30, 2000, the median capitalization of the companies in
which the Small-Cap Opportunity Fund was invested was approximately $965 million
and the median capitalization of the companies in which the Small-Cap Growth
Fund was invested was approximately $992 million. As of June 30, 2000, the
median capitalization of the companies in which the Westcore Mid-Cap Opportunity
Fund was invested was approximately $4 billion and the median capitalization of
the companies in which the Westcore MIDCO Growth Fund was invested was
approximately $8 billion.
Investment Limitations
A Fund may not change the following investment limitations without the
approval of a majority of the holders of the Fund's outstanding shares (as
defined under "Miscellaneous" below).
No Fund may:
1. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Purchase securities of companies for the purpose of exercising
control.
3. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
4. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Fund might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitations may be deemed to be
underwriting.
5. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities, futures
contracts and options on futures contracts. (This exception does not apply to
the Westcore Colorado Tax-Exempt Fund.)
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6. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of a Fund's total assets at the
time of such borrowing. No Fund will purchase securities while its borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding. Securities held in escrow or separate accounts in connection
with a Fund's investment practices described in this Statement of Additional
Information or the Prospectus are not deemed to be pledged for purposes of this
limitation.
None of the Westcore Equity or Westcore Bond Funds (other than the
Colorado Tax Exempt Fund, Select Fund, International Select Fund, International
Small-Cap Value Fund and Micro-Cap Fund) may:
1. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund or the
Trust, except that up to 25% of the value of the Fund's total assets may be
invested without regard to these limitations.
The Colorado Tax Exempt Fund may not:
1. Purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, except that (a) up to 50% of the value of the
Fund's total assets may be invested without regard to this 5% limitation
provided that no more than 25% of the value of the Fund's total assets are
invested in the securities of any one issuer and (b) this 5% limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies,
authorities, instrumentalities or political subdivisions. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's total assets.
34
<PAGE> 35
None of the Westcore Equity or Westcore Bond Funds may:
1. Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding 30% of its total assets.
2. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to each Fund's transactions in futures contracts and related options, and
(b) each Fund may obtain short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
3. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that each Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities, and may
enter into futures contracts and related options.
4. Purchase any securities that would cause 25% or more of the Fund's
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
(b) wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
For purposes of limitation No. 1 above, "total assets"
includes the value of the collateral for the securities loans. For the purposes
of limitation No. 4 above as it relates to fixed income securities, the Trust
currently intends to use the Bloomberg Industry Subgroups classification titles,
and for the purposes of such limitation as it relates to equity securities, the
Trust currently intends to use the classification titles contained within the
Directory of Companies Required to File Annual Reports with the Securities and
Exchange Commission, published by the SEC.
The Westcore Colorado Tax-Exempt Fund may not:
1. Invest less than 80% of its net assets in securities the interest on
which is exempt from federal income tax, except during periods of unusual market
conditions. For purposes of this investment limitation, securities the interest
on which is treated as a specific tax preference item under the federal
alternative minimum tax are considered taxable.
2. Make loans, except that the Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies.
3. Purchase any securities, except securities issued (as defined in the
preceding investment limitation) or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political sub-divisions, which
would cause 25% or more of the value of the Fund's total assets at the time of
purchase to be invested in the securities of issuers conducting their principal
business activities in the same industry.
35
<PAGE> 36
4. Purchase securities on margin, make short sales of securities or
maintain a short position, except that the Fund may obtain short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities.
5. Purchase or sell commodity contracts (including futures contracts)
or invest in oil, gas or mineral exploration or development programs, except
that the Fund may, to the extent appropriate to its investment objective,
purchase publicly traded securities of companies engaging in whole or in part in
such activities.
If a percentage limitation or other statistical requirement is met at
the time a Fund makes an investment, a later change in the percentage because of
a change in the value of the Fund's portfolio securities generally will not
constitute a violation.
NET ASSET VALUE
The net asset value per share of each Fund is calculated as set forth
in the Prospectuses and is calculated separately from the net asset value of the
other Funds. For purposes of such calculation, "assets belonging to" a Fund
consist of the consideration received upon the issuance of shares of the
particular Fund together with all income, earnings, profits and proceeds derived
from the investment thereof, including any proceeds from the sale, exchange, or
liquidation of such investments, any funds or payments derived from any
reinvestment of such proceeds, and a portion of any general assets of the Trust
not belonging to a particular investment portfolio that are allocated to that
Fund by the Trust's Board of Trustees. The Board of Trustees may allocate such
general assets in any manner it deems fair and equitable. Each Fund is charged
with the direct liabilities and expenses of that Fund and with a share of the
general liabilities and expenses of the Trust. Allocations of general assets and
general liabilities and expenses of the Trust to a particular Fund will be made
in accordance with generally accepted accounting principles. Subject to the
provisions of the Declaration of Trust, determinations by the Board of Trustees
as to the direct and allocable liabilities, and the allocable portion of any
general assets, with respect to a particular Fund are conclusive.
Securities that are traded on a recognized stock exchange are valued at
the last sale price occurring prior to the close of regular trading on the New
York Stock Exchange (currently 4:00 Eastern Time). Securities for which there
were no transactions are valued at the mean of the bid and asked prices.
Securities that are traded on the NASDAQ National Market and the
over-the-counter market, where last sales prices are available are valued at the
last sales price. If no last sale price is available, then the securities are
valued at the mean of the bid and asked prices.
Foreign securities that are traded on a foreign stock exchange are
valued at the official closing price on the principal exchange. Instances where
the official closing price is not available, the foreign securities are valued
at the last sale price occurring prior to the valuation time determined by a
portfolio pricing service approved by the Board of Trustees to value such types
of securities.
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<PAGE> 37
London closing quotes for exchange rates are used to convert foreign
security values into U.S. dollars. Forward foreign currency exchange contracts
are valued based on the closing prices of the foreign currency contract rates in
the London foreign exchange markets on a daily basis as provided by a reliable
pricing vendor.
Long-term instruments, including corporate, government and
mortgage-backed securities, having a remaining maturity of greater than 60 days
are valued at the evaluated mean between the bid and ask prices as determined on
the valuation date by a portfolio pricing service approved by the Board of
Trustees to value such types of securities.
Municipal securities are valued at the evaluated bid price as
determined on the valuation date by a portfolio pricing service approved by the
Board of Trustees to value such types of securities.
Restricted securities, securities for which market quotations are not
readily available from the portfolio pricing service, and other assets are
valued at fair value by the Co-Administrators under the supervision of the Board
of Trustees. In computing net asset value, the Co-Administrators will "mark to
market" the current value of a Fund's open futures contracts and options.
Securities which have a remaining maturity of 60 days or less are valued at
amortized cost which approximates market value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in the Funds are sold on a continuous basis by ALPS.
Shares of all Westcore Funds may be exchanged for shares of all other
Westcore Funds.
The Westcore Micro-Cap and International Small-Cap Value Funds are not
currently being offered for sale by the Company.
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
Each Fund may redeem shares involuntarily if it appears appropriate to
do so in light of its responsibilities under the 1940 Act or to reimburse the
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Fund's Prospectus from time to
time.
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<PAGE> 38
The Trust has filed an election pursuant to Rule 18f-1 under the 1940
Act which provides that each portfolio of the Trust is obligated to redeem
shares solely in cash up to $250,000 or 1% of such portfolio's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount may be made in proceeds other than cash.
A Fund may make payment for redemption in securities or other property
if it appears appropriate to do so in light of the Fund's responsibilities under
the 1940 Act. Shareholders who receive a redemption in kind may incur additional
costs when they convert the securities or property received to cash and may
receive less than the redemption value of their shares, particularly where the
securities are sold prior to maturity.
Retirement Plans - All Westcore Funds
Individual Retirement Accounts. The Trust has available a plan (the
"Traditional IRA") for use by individuals with compensation for services
rendered (including earned income from self-employment) who wish to use shares
of the Funds as a funding medium for individual retirement saving. However,
except for rollover contributions, an individual who has attained, or will
attain, age 70 1/2 before the end of the taxable year may only contribute to a
Traditional IRA for his or her nonworking spouse under age 70 1/2. Distribution
of an individual's Traditional IRA assets (and earnings thereon) before the
individual attains age 59 1/2 will (with certain exceptions) result in an
additional 10% tax on the amount included in the individual's gross income.
Earnings on amounts contributed to the Traditional IRA are not subject to
federal income tax until distributed.
The Trust also has available a Roth Individual Retirement Account (the
"Roth IRA") for retirement saving for use by individuals with compensation for
services rendered. A single individual with adjusted gross income of up to
$110,000 may contribute to a Roth IRA (for married couples filing jointly, the
adjusted gross income limit is $160,000), and contributions may be made even
after the Roth IRA owner has attained age 70 1/2, as long as the account owner
has earned income. Contributions to a Roth IRA are not deductible. Earnings on
amounts contributed to a Roth IRA, however, are not subject to federal income
tax when distributed if the distribution is a "qualified distribution" (i.e.,
the Roth IRA has been held for at least five years beginning with the first tax
year for which a contribution was made to any Roth IRA of the account owner and
the distribution is due to the account owner's attainment of age 59 1/2,
disability or death, or for qualified first-time homebuyer expenses). A
non-qualified distribution of an individual's Roth IRA assets (and the earnings
thereon) will subject the earnings to federal income tax and will (with certain
exceptions) result in an additional 10% tax on the amount included in the
individual's gross income.
The Trust permits certain employers (including self-employed
individuals) to make contributions to employees' Traditional IRAs if the
employer establishes a Simplified Employee Pension ("SEP") plan and/or a Salary
Reduction SEP ("SARSEP"). Although SARSEPs may not be established after 1996,
employers may continue to make contributions to SARSEPs established before
January 1, 1997, under the pre-1997 federal tax law. A SEP permits an employer
to make discretionary contributions to all of its employees' Traditional
38
<PAGE> 39
IRAs (employees who have not met certain eligibility criteria may be excluded)
equal to a uniform percentage of each employees' compensation (subject to
certain limits). If an employer (including a self-employed individual)
established a SARSEP before January 1, 1997, employees may defer a percentage of
their compensation -- pre-tax -- to Traditional IRAs (subject to certain
limits). The Code provides certain tax benefits for contributions by an
employer, pursuant to a SEP and/or SARSEP, to an employee's Traditional IRA. For
example, contributions to an employee's Traditional IRA pursuant to a SEP and/or
SARSEP are deductible (subject to certain limits) and the contributions and
earnings thereon are not taxed until distributed.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust. Under the Trust's
Declaration of Trust, the beneficial interest in the Trust may be divided into
an unlimited number of full and fractional transferable shares. The Amended and
Restated Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares of the Trust into one or more additional classes
by setting or changing in any one or more respects, their respective
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized the
issuance of twenty-four classes of shares, each class representing interests in
a separate investment portfolio. The Trustees may similarly classify or
reclassify any particular class of shares into one or more series. Currently,
there are fourteen classes of shares authorized.
Each share of the Trust has no par value, represents an equal
proportionate interest in a Fund, and is entitled to such dividends and
distributions of the income earned on the Fund's assets as are declared at the
discretion of the Trustees. Shares of the Funds have no preemptive rights and
only such conversion or exchange rights as the Board of Trustees may grant in
its discretion. When issued for payment as described in the Prospectus of a
particular Fund, a Fund's shares will be fully paid and nonassessable by the
Trust. In the event of a liquidation or dissolution of the Trust or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative net asset values of the Trust's respective
investment portfolios, of any general assets not belonging to any particular
portfolio which are available for distribution. Shareholders of a Fund are
entitled to participate in the net distributable assets of the Fund on
liquidation, based on the number of shares of the Fund they hold.
Shareholders of the Funds will vote together in the aggregate and not
separately on a Fund-by-Fund basis, except as otherwise required by law or when
the Board of Trustees determines that the matter to be voted upon affects only
the interests of the shareholders of a particular Fund. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as the Trust shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each Fund affected by the matter. A
Fund is affected by a matter unless it is clear that the interests of each Fund
in the matter are substantially identical or that the matter does not affect any
interest of the Fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be
39
<PAGE> 40
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts and the election of trustees may be
effectively acted upon by shareholders of the Trust voting without regard to
particular Funds.
There will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as less than a majority of the
trustees holding office have been elected by shareholders, at which time the
trustees then in office will call a shareholders meeting for the election of
trustees. Shares of the Trust have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Trust's outstanding shares (irrespective of
class) may elect all of the trustees. The Amended and Restated Declaration of
Trust provides that meetings of the shareholders of the Trust shall be called by
the Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote. Furthermore, under the 1940 Act, the Board
of Trustees is required to call a meeting of shareholders for the purpose of
voting upon the removal of any trustee or trustees when requested in writing to
do so by the record holders of at least 10% of the outstanding shares. If a
shareholders meeting is held, you will be entitled to one vote for each full
share you hold and proportionate fractional votes for fractional shares you
hold. Except as set forth above, the Trustees shall continue to hold office and
may appoint successor trustees.
The Amended and Restated Declaration of Trust authorizes the Board of
Trustees, without shareholder approval (unless otherwise required by applicable
law), to: (a) sell and convey the assets belonging to a class of shares to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of such class to be redeemed at a price which is equal to
their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the assets belonging to a class of shares into money and, in
connection therewith, to cause all outstanding shares of such class to be
redeemed at their net asset value; or (c) combine the assets belonging to a
class of shares with the assets belonging to one or more other classes of shares
if the Board of Trustees reasonably determines that such combination will not
have a material adverse effect on the shareholders of any class participating in
such combination and, in connection therewith, to cause all outstanding shares
of any such class to be redeemed or converted into shares of another class of
shares at their net asset value. However, the exercise of such authority may be
subject to certain restrictions under the 1940 Act. The Board of Trustees may
authorize the termination of any class of shares after the assets belonging to
such class have been distributed to its shareholders.
The trustees' decision to liquidate a portfolio may result from various
factors which lead the trustees to believe that such action would be advisable.
For example, there may be poor market conditions, the Fund may be unable to
attract or retain sufficient investments or unforeseen expenses may hinder the
Fund's ability to provide competitive returns. Liquidation of a portfolio could
have negative tax consequences for a shareholder.
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<PAGE> 41
ADDITIONAL INFORMATION CONCERNING TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out all, or
substantially all, of its income to shareholders each year, so that the Fund
itself generally will be relieved of federal income and excise taxes. If a Fund
were to fail to so qualify: (1) the Fund would be taxed at regular corporate
rates without any deduction for distributions to shareholders; and (2)
shareholders would be taxed as if they received ordinary dividends, although
corporate shareholders could be eligible for the dividends received deduction.
Moreover, if a Fund were to fail to make sufficient distributions in a year, the
Fund would be subject to corporate income taxes and/or excise taxes in respect
of the shortfall or, if the shortfall is large enough, the Fund could be
disqualified as a regulated investment company.
A 4% nondeductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income for the calendar year and capital gain net income
(excess of capital gains over capital losses) for the one year period ending
October 31 of such calendar year and 100% of any such amounts that were not
distributed in the prior year. Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
For the Colorado Tax-Exempt Fund to pay tax-exempt dividends for any
taxable year, at least 50% of the aggregate value of the Fund's assets at the
close of each quarter of the Fund's taxable year must consist of exempt-interest
obligations.
An investment in the Colorado Tax-Exempt Fund is not intended to
constitute a balanced investment program. Shares of the Colorado Tax-Exempt Fund
would not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts because such plans and accounts are generally
tax-exempt and, therefore, not only would the shareholder not gain any benefit
from the Fund's dividends being tax-exempt, but such dividends would be
ultimately taxable to the beneficiaries when distributed. In addition, the
Colorado Tax-Exempt Fund may not be an appropriate investment for entities which
are "substantial users" of facilities financed by "private activity bonds" or
"related persons" thereof. "Substantial use" is defined under U.S. Treasury
Regulations to include a non-exempt person who (i) regularly uses a part of such
facilities in his or her trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, (ii) occupies more
than 5% of the usable area of such facilities or (iii) are persons for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
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<PAGE> 42
The tax principles applicable to transactions in financial instruments
and futures contacts and options that may be engaged in by a Fund, and
investments in passive foreign investment companies ("PFICs"), are complex and,
in some cases, uncertain. Such transactions and investments may cause a Fund to
recognize taxable income prior to the receipt of cash, thereby requiring the
Fund to liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income. In addition, in the case of any shares of a PFIC in which a
Fund invests, the Fund may be liable for corporate-level tax on any ultimate
gain or distributions on the shares if the Fund fails to make an election to
recognize income annually during the period of its ownership of the shares.
The Funds will be required in certain cases to withhold and remit to the
United States treasury 31% of the taxable dividends or gross sale proceeds paid
to any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to back-up withholding by the Internal Revenue Service
for failure to properly include on his or her return payments of taxable
interest or dividends, or (iii) has failed to certify to the Funds that he or
she is not subject to back-up withholding when required to do so or that he or
she is an "exempt recipient."
MANAGEMENT OF THE FUNDS
Trustees and Officers
The names of the trustees and officers of the Trust, their ages, addresses,
principal occupations during the past five years and other affiliations are set
forth below:
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years and
Name, Age and Address the Trust Other Affiliations
--------------------- ------------- -----------------------
<S> <C> <C>
JACK D. HENDERSON, 73(1) Chairman, Trustee Attorney, Jack D. Henderson, Self-Employed
1600 Broadway Attorney-at-Law since 1995; prior thereto partner of
Suite 1410 the law firm of Clanahan, Tanner, Downing & Knowlton,
Denver, Colorado 80202 P.C., Denver, Colorado from April 1989 through
October 1995; Trustee of Pacifica Funds Trust through
August 1996; prior thereto self-employed Pacific
America Fund attorney since 1952.
McNEIL S. FISKE, 67 Trustee Chairman of the Board, MacCourt Products (plastics
P.O. Box 6154 manufacturer); Director, Scientific Software
Littleton, Colorado 80121 Corporation through December 31, 1994.
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years and
Name, Age and Address the Trust Other Affiliations
--------------------- ------------- -----------------------
<S> <C> <C>
JAMES B. O'BOYLE, 72 Trustee Business Consultant.
6115 West Mansfield
Avenue, #239
Denver, Colorado 80235
ROBERT L. STAMP, 68 Trustee Prior to April 1995, Vice President of Finance,
6855 So. Depew Street Treasurer and Assistant Secretary, The Gates
Littleton, Colorado 80123 Corporation (rubber company); Vice President, The
Gates Rubber Company; Trustee of Pacific American
Fund through September 1994.
LYMAN E. SEELY, 82 Trustee Director of OECO since May 1983; Director of McCall
14795 Northeast Oil and Chemical Co. since 1983; Director of Great
Lawnview Circle Western Chemical Co. since 1983.
Aurora, Oregon 97002
KENNETH V. PENLAND, 58 President Chairman and Chief Executive Officer, Denver
Denver Investment Investment Advisors LLC (and its predecessor) since
Advisors LLC March 1983; Chairman, Blue Chip Value Fund.
1225 17th Street-26th Fl.
Denver, Colorado 80202
JASPER R. FRONTZ, 31 Treasurer Treasurer, Blue Chip Value Fund, Inc. since November
Denver Investment 1997; Director of Mutual Fund Administration, Denver
Advisors LLC Investment Advisors LLC since June 1997; Fund
1225 17th Street-26th Fl. Controller, ALPS Mutual Funds Services, Inc. from
Denver, Colorado 80202 September 1995 through June 1997; Senior Accountant,
Deloitte & Touche LLP from September 1991 through
August 1995.
LISA A. BRUCKERT, 27 Assistant Fund Controller, ALPS Mutual Fund Services, Inc.
ALPS Mutual Funds Treasurer since December 1998; Secretary, Stonebridge Funds
Services, Inc. Trust, since February, 1999; Senior Associate,
370 17th Street PricewaterhouseCoopers LLP from October 1994 to
Suite 3100 November 1998.
Denver, Colorado 80202
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years and
Name, Age and Address the Trust Other Affiliations
--------------------- ------------- -----------------------
<S> <C> <C>
W. BRUCE McCONNEL, III, 57 Secretary Partner of the law firm of Drinker Biddle & Reath
Drinker Biddle & Reath LLP LLP, Philadelphia, Pennsylvania.
One Logan Square
18th & Cherry Streets
Philadelphia, Pennsylvania
19103-6996
</TABLE>
--------------
(1) Mr. Henderson is considered to be an "interested person" of the Trust as
defined in the 1940 Act.
--------------
The trustees are responsible for major decisions relating to each
Fund's objective, policies and techniques. The trustees also supervise the
operation of the Funds by their officers and review the investment decisions of
the officers although they do not actively participate on a regular basis in
making such decisions.
Each trustee receives an annual fee of $12,000 plus $500 for each Board
and Board Committee meeting attended and reimbursement of expenses incurred in
attending meetings. The Chairman of the Board is entitled to receive an
additional $4,000 per annum for services in such capacity. The following chart
provides certain information about the trustee fees paid by the Trust for the
fiscal year ended May 31, 2000:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS AGGREGATE
COMPENSATION ACCRUED AS COMPENSATION
NAME OF PERSON/ FROM THE PART OF FUND FROM THE FUND
POSITION TRUST EXPENSES COMPLEX*
--------------- ------------ ------------ -------------
<S> <C> <C> <C>
JACK D. HENDERSON, Chairman $ 18,500 $ 0 $ 18,500
McNEIL S. FISKE, Trustee $ 14,500** $ 0 $ 14,500
JAMES B. O'BOYLE, Trustee $ 14,500 $ 0 $ 14,500
ROBERT L. STAMP, Trustee $ 14,500** $ 0 $ 14,500
LYMAN E. SEELY, Trustee $ 13,500 $ 0 $ 13,500
</TABLE>
* Fund Complex includes funds with a common investment adviser or an adviser
which is an affiliated person. There are currently fourteen Westcore Funds
in the Fund Complex.
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<PAGE> 45
** All of this amount has been deferred at the election of Messrs. Fiske and
Stamp. The total amount of deferred compensation (including interest)
accrued for Mr. Fiske and Mr. Stamp during the fiscal year ended May 31,
2000 is $45,784 and $20,523, respectively.
Each trustee is entitled to participate in the Trust's Deferred
Compensation Plan (the "Plan"). Under the Plan, a trustee may elect to have his
deferred fees treated as if they had been invested by the Trust at a money
market fund rate of return or at a rate based on the performance of Trust shares
and the amount paid to the trustees under the Plan will be determined based upon
the performance of such investments. Deferral of trustees' fees will not
obligate the Trust to retain the services of any trustee or obligate a portfolio
to any level of compensation to the trustee. The Trust may invest in underlying
securities without shareholder approval.
Denver Investment Advisors, of which Mr. Penland, President of the
Trust, is a member, and Mr. Frontz, Treasurer of the Trust, is Director of
Mutual Fund Administration, receives compensation as Adviser and
co-administrator. ALPS Mutual Funds Services, Inc., of which Ms. Bruckert is an
employee, receives compensation as co-administrator, bookkeeping and pricing
agent, and shareholder telephone servicing agent to the Trust and serves as
distributor to the Trust.
Drinker Biddle & Reath LLP, of which Mr. McConnel, Secretary of the
Trust, is a partner, receives legal fees as counsel to the Trust. The trustees
and officers of the Trust, as a group, owned 2.26% of the outstanding shares of
the Westcore MIDCO Growth Fund, 3.23% of the outstanding shares of the Westcore
Growth and Income Fund, 19.81% of the outstanding shares of the Westcore Mid-Cap
Opportunity Fund, 1.95% of the outstanding shares of the Westcore Small-Cap
Opportunity Fund, 1.34% of the outstanding shares of the Westcore Small-Cap
Growth Fund and 6.27% of the outstanding shares of the Westcore Colorado
Tax-Exempt Fund as of August 31, 2000. The trustees and officers of the Trust,
as a group, owned less than 1% of the outstanding shares of the Westcore Blue
Chip Fund, Westcore International Frontier Fund, Westcore Select Fund, Westcore
Flexible Income Fund and Westcore Plus Bond Fund as of August 31, 2000.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, the Amended and Restated Declaration of Trust provides
that shareholders shall not be subject to any personal liability in connection
with the assets of the Trust for the acts or obligations of the Trust, and that
every note, bond, contract, order or other undertaking made by the Trust shall
contain a provision to the effect that the shareholders are not personally
liable thereunder. The Amended and Restated Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions or some other reason. The Amended and
Restated Declaration of Trust also provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the
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<PAGE> 46
Trust, and shall satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Amended and Restated Declaration of Trust further provides that all
persons having any claim against the trustees or the Trust shall look solely to
the Trust property for payment; that no trustee, officer or agent of the Trust
shall be personally liable for or on account of any contract, debt, tort, claim,
damage, judgment or decree arising out of or connected with the administration
or preservation of the Trust property or the conduct of any business of the
Trust; and that no trustee shall be personally liable to any person for any
action or failure to act except by reason of his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties as
trustee. With the exception stated, the Amended and Restated Declaration of
Trust provides that a trustee is entitled to be indemnified against all
liabilities and expense reasonably incurred by him in connection with the
defense or disposition of any proceeding in which he may be involved or with
which he may be threatened by reason of his being or having been trustee, and
that the trustees will indemnify representatives and employees of the Trust to
the same extent that trustees are entitled to indemnification.
Investment Adviser
Denver Investment Advisors serves as investment adviser to the Funds
pursuant to an Advisory Agreement. In the Advisory Agreement, the Adviser has
agreed to provide a continuous investment program for each Fund and to pay all
expenses incurred by it in connection with its advisory activities, other than
the cost of securities and other investments, including brokerage commissions
and other transaction charges, if any, purchased or sold for the Funds.
As indicated in the Prospectuses, Denver Investment Advisors permits
investment and other personnel to purchase and sell securities for their own
accounts, including securities that may be held by the Funds, in accordance with
Denver Investment Advisors' policy regarding personal investing by principals,
officers and employees of Denver Investment Advisors. The Denver Investment
Advisors' policy requires all principals, officers and employees to pre-clear
all transactions in securities not otherwise exempt under the policy. In
addition to pre-clearance, the policy subjects principals, officers and
employees of Denver Investment Advisors to various trading restrictions and
reporting obligations. All reportable transactions are reviewed for compliance
with Denver Investment Advisors' policy. The provisions of the policy are
administered by and subject to exceptions authorized by Denver Investment
Advisors.
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<PAGE> 47
The following table summarizes the advisory fees paid by the Funds and
any advisory fee waivers for the last three fiscal years of each Fund:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
May 31, 2000 May 28, 1999 May 29, 1998
------------------------- ------------------------- -------------------------
Advisory Waiver of Advisory Waiver of Advisory Waiver of
Fund Name Fees Fees Fees Fees Fees Fees
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Westcore MIDCO
Growth Fund $1,598,612 $ 160,709 $2,591,504 $ 196,466 $4,107,999 $ 0
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Blue
Chip Fund 322,479 72,951 383,666 63,138 378,391 48,681
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Growth
and Income Fund 16,963 77,365 12,126 74,637 21,739 87,613
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Small-Cap
Opportunity Fund 455,537 250,104 585,241 269,418 311,243 162,526
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore
Mid-Cap
Opportunity Fund 0 19,720 0 12,726 N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Small-
Cap Growth Fund 114,221 76,234 N/A N/A N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Select Fund 79,842 42,655 N/A N/A N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore International
Frontier Fund 71,432 61,705 N/A N/A N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Flexible
Income Fund 37,326 63,559 44,194 50,699 33,851 45,959
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Plus
Bond Fund 81,131 88,407 140,793 63,751 178,738 60,690
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Colorado
Tax-Exempt Fund 12,459 190,479 0 194,101 0 129,855
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
For the fiscal year ended May 31, 2000, the Investment Adviser
reimbursed additional expenses for the Westcore Mid-Cap Opportunity Fund in the
amount of $31,871.
Denver Investment Advisors also performs investment advisory services
for the Blue Chip Value Fund, Inc., a closed-end investment company portfolio.
Investment decisions for each account managed by Denver Investment Advisors,
including the Funds, are made
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<PAGE> 48
independently from those for any other account that is or may in the future
become managed by Denver Investment Advisors or its affiliates. If, however, a
number of accounts managed by Denver Investment Advisors are contemporaneously
engaged in the purchase or sale of the same security, the available securities
or investments may be allocated in a manner believed by Denver Investment
Advisors to be equitable to each account. In some cases, this procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtainable for or disposed of by a Fund.
Each account managed by Denver Investment Advisors has its own
investment objective and policies and is managed accordingly by a particular
portfolio manager or team of portfolio managers. As a result, from time to time
two or more different managed accounts may pursue divergent investment
strategies with respect to investments or categories of investments.
The current Advisory Agreement for the Westcore MIDCO Growth Fund,
Westcore Growth and Income Fund, Westcore Blue Chip Fund, Westcore Small-Cap
Opportunity Fund, Westcore Flexible Income Fund, Westcore Plus Bond Fund and
Westcore Colorado Tax-Exempt Fund became effective on October 1, 1995, and the
current Advisory Agreement for the Westcore Mid-Cap Opportunity Fund became
effective on October 1, 1998. The current Advisory Agreements for the Small-Cap
Growth and Select Funds became effective on October 1, 1999. The current
Advisory Agreement for the International Frontier Fund became effective on
December 15, 1999. The current Advisory Agreement for the International Select
Fund became effective on October 1, 2000. The Advisory Agreement for the
Micro-Cap and International Small-Cap Value Funds will become effective upon
commencement of the Funds' operations. Each Advisory Agreement is effective for
its first two years and thereafter will continue in effect from year to year so
long as such continuance is approved annually by a majority of the Funds'
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party, and by either a majority of the outstanding voting shares or the
trustees of the Funds. The Advisory Agreement i) may be terminated without the
payment of any penalty by the Fund or Denver Investment Advisors on 60 days'
written notice; ii) terminates automatically in the event of its assignment; and
iii) generally, may not be amended without the approval by vote of a majority of
the outstanding voting securities of such Fund.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with its performance of services pursuant to the Advisory Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from its reckless disregard of its duties and
obligations under the Advisory Agreement.
Denver Investment Advisors, as co-administrator, also provides
administrative services to the Funds pursuant to an Administration Agreement and
has agreed to pay all expenses incurred by it in connection with its
administrative activities.
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<PAGE> 49
Distributor
ALPS (the "Distributor"), with principal offices at 370 Seventeenth
Street, Suite 3100, Denver, Colorado 80202, acts as the distributor of the
Funds' shares pursuant to a Distribution Agreement with the Trust. Shares are
sold on a continuous basis by ALPS as agent of the Funds, and ALPS has agreed to
use its best efforts to solicit orders for the sale of Fund shares, although it
is not obliged to sell any particular amount of shares. As Distributor, ALPS
pays the cost of printing and distributing prospectuses to persons who are not
shareholders of the Funds (excluding preparation and printing expenses necessary
for the continued registration of the Funds' shares) and of printing and
distributing all sales literature. ALPS is not entitled to any compensation for
its services as Distributor. For the fiscal years ended May 31, 2000, May 28,
1999 and May 29, 1998, ALPS received $0, $0, and $0, respectively, in
underwriting commissions with respect to all the investment portfolios offered
by the Trust.
Administrators, Bookkeeping and Pricing Agent
Pursuant to an Administrative Agreement, ALPS and Denver Investment
Advisors serve as co-administrators to the Funds (the "Administrators"), and
have agreed to pay all expenses they incur in connection with their
administrative activities. As Administrators, they have agreed to: assist in
maintaining the Funds' office; furnish the Funds with clerical and certain other
services required by them; compile data for and prepare notices and semi-annual
reports to the SEC; prepare filings with state securities commissions;
coordinate federal and state tax returns; monitor each Fund's expense accruals;
monitor compliance with each Fund's investment policies and limitations; and
generally assist in each Fund's operations. Under the Administrative Agreement,
the Administrators are not liable for any error of judgment or mistake of law or
for any loss suffered by the Funds, in connection with the performance of the
agreement, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Administrators in the performance of their
duties and obligations under the agreement. The Administrators are entitled to
receive a fee from each Fund for administrative services, computed daily and
payable monthly, at the aggregate annual rate of .30% of each Fund's average
daily net assets with respect to the Westcore MIDCO Growth Fund, Westcore Growth
and Income Fund, Westcore Blue Chip Fund, Westcore Mid-Cap Opportunity Fund,
Westcore Small-Cap Opportunity Fund, Westcore International Frontier Fund,
Westcore Small-Cap Growth Fund, Westcore Select Fund, Westcore International
Select Fund, Westcore Micro-Cap Fund, Westcore International Small-Cap Value
Fund, Westcore Flexible Income Fund, Westcore Plus Bond Fund and Westcore
Colorado Tax-Exempt Fund. The Administrators have contractually agreed to waive
fees as set forth in the prospectus and may voluntarily waive all or any portion
of their administration fees from time to time. Prior to the current
Administration Agreement, which became effective on October 1, 1995, ALPS served
as sole Administrator to the Funds.
In addition to the services it provides as co-administrator, ALPS has
agreed, pursuant to a separate Bookkeeping and Pricing Agreement, to maintain
the financial accounts and records of the Funds and to compute the net asset
value and certain other financial information of the Funds. Under the
Bookkeeping and Pricing Agreement, ALPS is not liable for any error of judgment
or mistake of law or for any loss suffered by the Funds, except for a
49
<PAGE> 50
loss resulting from willful misfeasance, bad faith or negligence on the part of
ALPS in the performance of its duties under the Agreement.
The Trust has agreed to reimburse Denver Investment Advisors for costs
incurred by Denver Investment Advisors for providing recordkeeping and
sub-accounting services to persons who beneficially own shares of a Fund through
omnibus accounts ("Beneficial Shares"). The amount reimbursed with respect to a
Fund will not exceed the lesser of the costs actually borne by Denver Investment
Advisors or the effective rate for transfer agency services borne by a Fund
without taking into account such Beneficial Shares and applying such rate to
such Beneficial Shares. The Administrators are also authorized to make payments
from their administrative fees or other sources to persons for providing
services to a Fund or its shareholders.
The following table summarizes the administration fees paid by the
Funds and any administration fee waivers for the last three fiscal years:
50
<PAGE> 51
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
May 31, 2000 May 28, 1999 May 29, 1998
-------------------------- -------------------------- ---------------------------
Administration Waiver of Administration Waiver of Administration Waiver of
Fund Name Fees Fees Fees Fees Fees Fees
--------- -------------- ---------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Westcore MIDCO
Growth Fund $ 799,865 $ 12,129 $1,271,967 $ 14,788 $1,896,000 $ 0
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Blue
Chip Fund 177,019 5,487 201,532 4,685 193,253 3,857
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Growth
and Income Fund 37,718 5,818 34,523 5,522 43,501 6,969
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Small-Cap
Opportunity Fund 198,236 13,456 242,098 14,300 132,961 9,175
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Mid-Cap
Opportunity Fund 0 7,888 0 5,089 N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Small-Cap
Growth Fund 53,029 4,107 N/A N/A N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Select Fund 53,376 3,161 N/A N/A N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore International
Frontier Fund 30,262 3,022 N/A N/A N/A N/A
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Flexible Income 61,083 6,174 58,403 4,859 48,481 4,725
Fund
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Plus Bond Fund 104,409 8,616 130,268 6,095 153,392 6,227
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Westcore Colorado
Tax-Exempt Fund 104,520 17,243 92,805 23,655 33,180 44,733
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
In addition to the services it provides as distributor,
co-administrator and bookkeeping and pricing agent, ALPS has agreed, pursuant to
a separate Telephone and Service Agreement for each of the Funds to receive and
accept orders for the purchase, redemption and transfer of shares and deliver
the appropriate documentation thereof to the transfer agent. Under
51
<PAGE> 52
the Telephone and Service Agreement, ALPS is not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds except for a
loss resulting from misfeasance, bad faith or negligence on the part of ALPS in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. The Trust will pay ALPS a monthly
fee at the annual rate of $15,000 per year during the term of the agreement. In
addition, the Trust will pay ALPS a monthly fee at the annual rate of $2.00 for
each shareholder account that is open during the immediately preceding month.
The Trust will also pay ALPS a fee of $2.50 for each telephone call received by
ALPS from a shareholder or prospective shareholder in connection with services
rendered by ALPS pursuant to the agreement. Finally, the Trust will reimburse
ALPS for out of pocket expenses, including but not limited to postage, forms,
telephone, microfilm and microfiche.
ALPS was paid $15,000 in fees under the Telephone and Service Agreement
for the fiscal year ended May 29, 1998, $82,674 for the fiscal year ended May
28, 1999 and $78,774 for the fiscal year ended May 31, 2000.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York (the "Custodian"), with principal offices at One
Wall Street, New York, New York 10286, serves as custodian of the assets of each
of the Funds pursuant to a custody agreement (the "Custody Agreement"). Under
the Custody Agreement, the Custodian has agreed to hold the Funds' assets in
safekeeping and collect and remit the income thereon, subject to the
instructions of each Fund. The Custodian may, at its own expense, open and
maintain a custody account or accounts on behalf of any Fund with other banks or
trust companies, provided that the Custodian shall remain liable for the
performance of all of its duties under the Custody Agreement notwithstanding any
delegation. BNY Western Trust Company served as custodian to the Trust from
December 1, 1997 until September 30, 1999. Prior to December 1, 1997, Wells
Fargo Bank, N.A. served as custodian to the Trust.
State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts, serves as Transfer Agent for each of the funds. As
Transfer Agent, State Street has, among other things, agreed to: (a) issue and
redeem shares of the Funds; (b) make dividend and other distributions to
shareholders of the Funds; (c) effect transfers of shares; (d) mail
communications to shareholders of the Funds, including account statements,
confirmations, and dividend and distribution notices; and (e) maintain
shareholder accounts. Under the Transfer Agency Agreement, State Street receives
from the Trust a fee based upon each shareholder account and is reimbursed for
out-of-pocket expenses.
EXPENSES
Operating expenses borne by the Funds include taxes, interest, fees and
expenses of its trustees and officers, SEC fees, state securities qualification
fees, advisory fees, administrative fees, charges of the Funds' custodian,
shareholder services agent and accounting services agent, certain insurance
premiums, outside auditing and legal expenses, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
52
<PAGE> 53
shareholders, costs of shareholder reports and meetings and any extraordinary
expenses. The Funds also pay for brokerage fees, commissions and other
transaction charges (if any) in connection with the purchase and sale of
portfolio securities.
AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP, with principal offices at 555 Seventeenth
Street, Suite 3600, Denver, CO 80202-3942, serves as independent auditors for
the Funds. The Fund's Annual Report to Shareholders for the fiscal year ended
May 31, 2000 has been filed with the SEC. The financial statements and notes
thereto in such Annual Report (the "Financial Statements") are incorporated by
reference into this Statement of Additional Information. The Financial
Statements and Independent Accountants Report thereon, in such Annual Reports
have been incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Trust, is a partner), One Logan Square, 18th and Cherry Streets, Philadelphia,
Pennsylvania 19103-6996, serves as counsel to the Trust and will pass upon
certain legal matters relating to the Funds.
CODES OF ETHICS
Westcore and Denver Investment Advisors have adopted codes of ethics
pursuant to Rule 17j-1 under the 1940 Act that permit investment personnel
subject to their particular codes of ethics to invest in securities, including
securities that may be purchased or held by the Funds, for their own accounts.
The codes of ethics are on public file with, and available from, the Securities
and Exchange Commission's Public Reference Room in Washington, D.C.
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS
From time to time, the yields, tax-equivalent yields, effective yields
and the total return of a Fund may be quoted in newsletters, advertisements and
other publications which may include comparisons of a Fund's performance with
the performance of various indices and investments for which reliable
performance data are available and to averages, performance rankings or other
information compiled by recognized mutual fund statistical services. Performance
information is generally available by calling ALPS at 1-800-392-CORE (2673).
Any fees charged by your Service Organization directly to your account
in connection with an investment in a Fund will not be included in the Fund's
calculations of yield and/or total return.
Performance quotations of a Fund represent its past performance, and
you should not consider them representative of future results. The investment
return and principal value of an investment in a Fund will fluctuate so that
your shares, when redeemed, may be worth more or less than their original cost.
Because performance will fluctuate, you cannot necessarily
53
<PAGE> 54
compare an investment in Fund shares with bank deposits, savings accounts and
similar investment alternatives that often provide an agreed or guaranteed fixed
yield for a stated period of time.
Yield Calculations - Westcore Bond Funds
The funds yield shows the rate of income a Fund earns on its
investments as a percentage of its share price. It represents the amount you
would earn if you remained invested in a Fund for a year and the Fund continued
to have the same yield for the year. Yield does not include changes in NAV. Each
yield is calculated by dividing the net investment income per share (as
described below) earned by a Fund during a 30-day (or one month) period by the
net asset value per share on the last day of the period and annualizing the
result on a semi-annual basis by adding one to the quotient, raising the sum to
the power of six, subtracting one from the result and then doubling the
difference. A Fund's net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
a-b (6)
Yield = 2 [(----- + 1) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = net asset value per share on the last day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Interest earned on any debt
obligations held by a Fund is calculated by computing the yield to maturity of
each obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest), and dividing the
result by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium.
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<PAGE> 55
The amortization schedule will be adjusted monthly to reflect changes in the
market values of such debt obligations.
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Fund may elect either (i) to amortize the discount and premium or the remaining
security, based on the cost of the security, to the weighted average maturity
date, if such information is available, or to the remaining term of the
security, if any, if the weighted average date is not available, or (ii) not to
amortize discount or premium on the remaining security.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
Based on the foregoing calculations, the yields of the Funds for the
30-day period ended May 31, 2000 were as follows:
<TABLE>
<CAPTION>
30-Day Yield 30-Day Yield
Fund (before fee waivers) (after fee waivers)
---- -------------------- -------------------
<S> <C> <C>
Westcore Flexible Income Fund 6.86% 6.58%
Westcore Plus Bond Fund 7.33% 7.07%
Westcore Colorado Tax-Exempt Fund 4.82% 4.25%
</TABLE>
"Tax-Equivalent" Yield Calculations - Westcore Colorado Tax-Exempt Fund
The Fund's "tax-equivalent" yield shows the level of the taxable yield
needed to produce an after-tax yield equivalent to the Fund's tax-free yield.
The Fund's tax-equivalent
55
<PAGE> 56
yield will always be higher than its yield. It is calculated by: (a) dividing
the portion of the Fund's yield that is exempt from both federal and Colorado
state income taxes by one minus a stated combined federal and state income tax
rate; (b) dividing the portion of the Fund's yield that is exempt from federal
income tax only by one minus a stated federal income tax rate, and (c) adding
the figures resulting from (a) and (b) above to that portion, if any, of the
Fund's yield that is not exempt from federal income tax.
Based on the foregoing calculations, the yield and tax-equivalent yield
of the Fund for the 30-day period ended May 31, 2000 (after fee waivers) were
4.82% and 7.32%, respectively, and before fee waivers were 4.25% and 6.46%,
respectively.
Tax-Equivalent Yield is based upon the effective combined state and
federal tax rate assumptions of 34.19% (assuming a 31% federal tax rate and a
4.63% Colorado tax rate) for the Westcore Colorado Tax-Exempt Fund.
Total Return Calculations
The average annual total return represents the average annual
percentage change in the value of an investment in a Fund over a specified
measuring period. Average annual returns for more than one year tend to smooth
out variations in a Fund's return and are not the same as actual annual results.
Each Fund computes its average annual total returns by determining the average
annual compounded rates of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment. This
is done by dividing the ending redeemable value of a hypothetical $1,000 initial
payment by $1,000 and raising the quotient to a power equal to one divided by
the number of years (or fractional portion thereof) covered by the computation
and subtracting one from the result. This calculation can be expressed as
follows:
(1/n)
ERV
T = [(--------) -1]
P
Where: ERV = ending redeemable value at the end of the period covered by
computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of
years.
The aggregate total return reflects income and capital
appreciation/depreciation and establishes a total percentage change in the value
of an investment in a Fund over a specified measuring period. It is computed by
determining the aggregate rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
ERV
T = [(---------- 1)]
P
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<PAGE> 57
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period and includes all recurring fees
charged by the Trust to all shareholder accounts. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
Based on the foregoing calculations, the average annual total return
(after fee waivers) for the year ended May 31, 2000, for the five year period
ended May 31, 2000 and for the periods since commencement of the Funds'
respective operations were as follows:
<TABLE>
<CAPTION>
Year Five Ten Years Since Inception
Ended Years Ended Ended to
May 31, May 31, May 31, May 31,
Fund 2000 2000 2000 2000
---- ------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
Westcore MIDCO Growth
Fund(1) 35.63% 20.56% 18.22% 16.62%
-------------------------- ------ ------ ------ ------
Westcore Blue Chip Fund(2) 1.01% 17.89% 15.71% 14.28%
-------------------------- ------ ------ ------ ------
Westcore Growth and Income
Fund(2)(6) 44.88% 23.11% 15.05% 15.09%
-------------------------- ------ ------ ------ ------
Westcore Small-Cap
Opportunity Fund(3) 0.20% 10.88% -- 9.70%
-------------------------- ------ ------ ------ ------
Westcore Mid-Cap
Opportunity Fund(5) 31.08% -- -- 26.88%
-------------------------- ------ ------ ------ ------
Westcore Small-Cap
Growth Fund (9) -- -- -- 134.33%
-------------------------- ------ ------ ------ ------
Westcore Select Fund (9) -- -- -- 70.11%
-------------------------- ------ ------ ------ ------
Westcore International
Frontier Fund (10) -- -- -- 16.12%
-------------------------- ------ ------ ------ ------
Westcore Flexible
Income Fund(2)(7) 0.11% 5.97% 8.60% 8.84%
-------------------------- ------ ------ ------ ------
Westcore Plus Bond
Fund (2)(8) 1.67% 5.12% 6.69% 6.94%
-------------------------- ------ ------ ------ ------
Westcore Colorado
Tax-Exempt Fund(4) (1.36)% 3.99% -- 5.41%
-------------------------- ------ ------ ------ ------
</TABLE>
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<PAGE> 58
----------
(1) Commenced Operations on August 1, 1986.
(2) Commenced Operations on June 1, 1988.
(3) Commenced Operations on December 28, 1993.
(4) Commenced Operations on June 1, 1991.
(5) Commenced Operations on October 1, 1998.
(6) The Westcore Growth and Income Fund was formerly known as the Equity Income
Fund. The Fund's name was changed on January 1, 1996 to reflect a different
objective and policies. Prior to January 1, 1996, the Fund's objective was
to seek reasonable income through investments in income-producing
securities. On January 1, 1996, the Fund's objective was revised to seek
long-term total return through capital appreciation and current income
through investments in equity securities. A new portfolio manager has
managed the Fund since October 1995. Past performance is not intended to be
indicative or representative of future performance.
(7) The Westcore Flexible Income Fund was formerly known as the Long-Term Bond
Fund. The Fund's name was changed on October 1, 2000 to reflect a different
objective and policies. Prior to October 1, 2000, the Fund's objective was
to seek long-term total rate of return by investing primarily in investment
grade bonds. On October, 1, 2000, the Fund's objective was revised to seek
long-term total rate of return, consistent with preservation of capital.
Past performance is not intended to be indicative or representative of
future performance.
(8) The Westcore Plus Bond Fund was formerly known as the Intermediate-Term
Bond Fund. The Fund's name was changed on October, 1, 2000 to reflect a
different objective and policies. Prior to October 1, 2000, the Fund's
objective was to seek current income with less volatility of principal than
funds with longer maturities by investing primarily in investment grade
bonds. On October 1, 2000, the Fund's objective was revised to seek
long-term total rate of return consistent with preservation of capital, by
investing primarily in investment grade bonds of varying maturities.
(9) Commenced Operations on October 1, 1999
(10) Commenced Operations on December 15, 1999
The Funds may also from time to time include in advertisements, sales
literature, communications to shareholders and other materials (collectively,
"Materials") a total return figure that more accurately compares a Fund's
performance with other measures of investment return. For example, in comparing
a Fund's total return with data published by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc. or Weisenberger Investment Company Service, or
with the performance of an index, a Fund may calculate its aggregate total
return for the period of time specified in the Materials by assuming the
investment of $10,000 in shares of
58
<PAGE> 59
a Fund and assuming the reinvestment of all dividends and distributions.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on an investment in a Fund
are paid in the form of additional shares of the Fund, any future income or
capital appreciation of the Fund would increase the value, not only of the
original investment, but also of the additional shares received through
reinvestment. As a result, the value of the investment in the Fund would
increase more quickly than if dividends or other distributions had been paid in
cash.
In addition, the Funds may also include in Materials discussions and/or
illustrations of the potential investment goals of a prospective investor,
investment management strategies, techniques, policies or investment suitability
of a Fund (such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic conditions, the relationship between sectors of the
economy and the economy as a whole, various securities markets, the effects of
inflation and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury securities. From time to time, Materials
may summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views of the
Adviser as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The materials may also
refer to or describe the types of clients the Adviser advises, and describe the
Adviser's method of operation, internal work environment, procedure and
philosophy. The Funds may also include in Materials charts, graphs or drawings
which compare the investment objective, return potential, relative stability
and/or growth possibilities of the Funds and/or other mutual funds, or
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, stocks, bonds, Treasury securities and
shares of a Fund and/or other mutual funds. Materials may include a discussion
of certain attributes or benefits to be derived by an investment in a Fund
and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and investment alternatives to certificates of deposit and other
financial instruments. Such Materials may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. From time to time, the materials may include contests or promotions
which may include the award of Fund shares as prizes, and a waiver of certain
minimum amount requirements to open an account.
59
<PAGE> 60
MISCELLANEOUS
As used in this Statement of Additional Information, a
"majority of the outstanding shares" of a Fund or a class of shares means, with
respect to the approval of an investment advisory agreement, a distribution plan
or as a change in a fundamental investment policy, the lesser of (1) 67% of the
shares of the particular Fund or class represented at a meeting at which the
holders of more than 50% of the outstanding shares of such Fund or class are
present in person or by proxy, or (2) more than 50% of the outstanding shares of
such Fund or class.
As of August 31, 2000, the following shareholders owned more
than 5% or more of the outstanding shares of the Funds. In addition, any
shareholder listed below owning more than 25% of the outstanding shares of a
Fund may, for certain purposes, be deemed to control that Fund and be able to
affect the outcome of certain matters presented for a vote of shareholders:
<TABLE>
<CAPTION>
WESTCORE MIDCO GROWTH FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
SEI Trust Company 7.79% 939,841.7080 $20,075,018.88 Record
C/O Colorado Business Bank Only
ATTN: Mutual Fund Administrator
One Freedom Valley
Oaks PA 19456
Wells Fargo Bank MN NA FBO 7.47% 900,759.4650 $19,240,222.17 Record
Westcore MIDCO Growth Only
ATTN: Mutual Fund OPS
P.O. Box 1533
Minneapolis MN 55480-1533
US Bank National Association Cust; 7.41% 893,605.5960 $19,087,415.53 Record &
Arapahoe County-Denver Invest Beneficial
Equity DTD 4/01/9
Trust Mutual Funds #90792802
P.O. Box 64010
St. Paul MN 55164-0010
Wendel & Co. A/C #808820 7.32% 882,744.2020 $18,855,416.15 Record
C/O The Bank of New York Only
P.O. Box 1066 Wall Street Station
New York NY 10268-1066
Rocky Mountain News Guild 7.32% 882,744.2020 $18,855,416.15 Beneficial
10620 East Bethany Drive Only
Building #7
Aurora CO 80014-2602
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
WESTCORE GROWTH AND INCOME FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Christian Labor Assoc. PEN FD 16.81% 213,035.2150 $3,598,164.78 Record &
TR DTD 9/23/67 Beneficial
412 Lakeland Dr. NE
P.O. Box 738
Willmar MN 56201-0738
Wells Fargo Bank MN NA FBO 8.63% 109,342.4590 $1,846,794.13 Record
Westcore Growth and Income Fund Only
ATTN: Mutual Fund OPS
P.O. Box 1533
Minneapolis MN 55480-1533
Wells Fargo Bank MN NA FBO 7.51% 95,214.2320 $1,608,168.38 Record &
ICA 401K Savings Plan Beneficial
ATTN: Mutual Fund OPS
P.O. Box 1533
Minneapolis MN 55480-1533
Cherry Trust & Co. 6.85% 86,823.4580 $1,466,448.21 Record
3033 E. 1st Ave. Only
Denver Co. 80206-5617
Charles Schwab & Co. Inc. 6.37% 80,715.0820 $1,363,277.73 Record
Special Account For The Exclusive Only
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver Co. 80222
Comprecare Foundation 6.28% 79,598.00 $1,344,411.81 Beneficial
333 W. Hampden Ave. Ste. 802 Only
Englewood, Co. 80110
</TABLE>
<TABLE>
<CAPTION>
WESTCORE BLUE CHIP FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
SEI Trust Company 25.75% 940,628.1940 $14,278,735.98 Record Only
C/O Colorado Business Bank
ATTN: Mutual Fund Administrator
One Freedom Valley
Oaks PA 19456
Wendel & Co. A/C #808820 15.18% 554,657.3990 $8,419,699.32 Record Only
C/O The Bank of New York
P.O. Box 1066 Wall Street Station
New York NY 10268-1066
</TABLE>
-2-
<PAGE> 62
<TABLE>
<CAPTION>
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Rocky Mountain News Guild 15.18% 554,657.3990 $8,419,699.32 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
Denver Typo Union 11.76% 429,432.000 $6,518,780.48 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
Denver Mailers Union 7.58% 276,805 $4,201,900.10 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
Christian Labor Assoc. PEN FD 6.41% 234,161.0260 $3,554,564.37 Record &
TR DTD 9/23/67 Beneficial
412 Lakeland Dr. NE
P.O. Box 738
Willmar MN 56201-0738
Wells Fargo Bank MN NA FBO 6.33% 231,201.9500 $3,509.645.60 Record &
Lakewood Police- Beneficial
Westcore Blue Chip
ATTN: Mutual Fund OPS
P.O. Box 1533
Minneapolis MN 55480-1533
Charles Schwab & Co. Inc. 5.77% 210,630.6090 $3,197,373.64 Record Only
Special Account for the Exclusive
Benefit of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
Denver News Press 5.23% 190,985 $2,899,160.94 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
</TABLE>
<TABLE>
<CAPTION>
WESTCORE SMALL-CAP OPPORTUNITY FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Charles Schwab & Co. Inc. 27.18% 439,155.2490 $10,249,883.51 Record Only
Special Account For The Exclusive
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
</TABLE>
-3-
<PAGE> 63
<TABLE>
<CAPTION>
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Fidelity Investments Institutional 12.60% 203,649.8550 $4,753,187.62 Record Only
Operations Co. Inc. (FIIOC) As Agency
For Certain Employee Benefit Plans
100 Magellan Way KWIC
Covington KY 41015-1999
Wachovia Bank NA Trustee For UCB Inc. 8.93% 144,231.3300 $3,366,359.24 Record &
Defined Benefit Pension Plan Under Beneficial
Agreement DTD 5/21/96
301 N. Main Street
P.O. Box 3073
Winston Salem NC 27150-0001
Colorado State Bank Trust Dept. 5.78% 93,440.6300 $2,180,904.30 Record Only
1600 Broadway
Denver CO 80202-4927
</TABLE>
<TABLE>
<CAPTION>
WESTCORE LONG TERM BOND FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
SEI Trust Company 41.93% 1,060.751.1900 $10,204,426.45 Record Only
C/O Colorado Business Bank
ATTN: Mutual Fund Administrator
One Freedom Valley
Oaks PA 19456
Rocky Mountain News Guild 25.43% 643,412.7410 $6,189,630.57 Beneficial
10620 East Bethany Drive Only
Building #7
Aurora CO 80014-2602
Wendel & Co. A/C #808820 25.43% 643,412.7410 $6,189,630.57 Record Only
C/O The Bank Of New York
P.O. Box 1066 Wall Street Station
New York NY 10268-1066
Denver Typo Union 19.23% 486,592 $4,681,017.02 Beneficial
10620 East Bethany Drive Only
Building #7
Aurora CO 80014-2602
Denver Mailers Union 12.11% 306,443 $2,947,987.92 Beneficial
10620 East Bethany Drive Only
Building #7
Aurora CO 80014-2602
Denver News Press 8.57% 216,797 $2,085,596.27 Beneficial
10620 East Bethany Drive Only
Building #7
Aurora CO 80014-2602
</TABLE>
-4-
<PAGE> 64
<TABLE>
<CAPTION>
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Christian Labor Assoc. PEN FD TR DTD 7.96% 201,254.8460 $1,936,071.62 Record &
9/23/67 Beneficial
412 Lakeland Dr. NE
P.O. Box 738
Willmar MN 56201-0738
Charles Schwab & Co. Inc. 5.66% 143,093.7770 $1,376,562.13 Record Only
Special Account for the Exclusive
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
</TABLE>
<TABLE>
<CAPTION>
WESTCORE INTERMEDIATE TERM BOND FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
SEI Trust Company 29.24% 974,041.7740 $9,769,638.99 Record Only
C/O Colorado Business Bank
ATTN: Mutual Fund Administrator
One Freedom Valley
Oaks PA 19456
Wendel & Co. A/C #808820 18.65% 621,411.5350 $6,232,757.70 Record Only
C/O The Bank Of New York
P.O. Box 1066 Wall Street Station
New York NY 10268-1066
Rocky Mountain News Guild 18.65% 621,411.5350 $6,232,757.70 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
Christian Labor Assoc. PEN FD 14.26% 475,045.9550 $4,764,710.93 Record &
TR DTD 9/23/67 Beneficial
412 Lakeland Dr. NE
P.O. Box 738
Willmar MN 56201-0738
Denver Typo Union 13.70% 456,380 $4,577,493.74 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
Denver Mailers Union 8.47% 282,071 $2,829,172.99 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
</TABLE>
-5-
<PAGE> 65
<TABLE>
<CAPTION>
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Charles Schwab & Co. Inc. 6.73% 224,355.8130 $2,250,288.80 Record Only
Special Account For The Exclusive
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
Denver News Press 5.76% 191,882 $1,924,582.68 Beneficial Only
10620 East Bethany Drive
Building #7
Aurora CO 80014-2602
</TABLE>
<TABLE>
<CAPTION>
WESTCORE COLORADO TAX EXEMPT FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Charles Schwab & Co. Inc. 39.08% 1,415,991.9060 $15,278,522.67 Record Only
Special Account For The Exclusive
Benefits Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
Janet E. Penland 5.85% 211,924.3020 $2,286,663.22 Record &
1510 E. 10th Ave. PH Beneficial
Denver, CO 80218-3139
</TABLE>
<TABLE>
<CAPTION>
WESTCORE MID-CAP OPPORTUNITY FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Denver Investment Advisors LLC 42.35% 91,414.8500 $1,426,071.66 Record &
C/O Lou Kahanek Beneficial
1225 17th St. FL 26
Denver CO 80202-5534
Kenneth V. Penland 17.45% 37,660.5440 $587,504.49 Record &
1510 E. 10th Ave PH Beneficial
Denver CO 80218-3139
Charles Schwab & Co. Inc. 10.19% 21,992.9160 $343,089.49 Record
Special Account For The Exclusive Only
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
</TABLE>
-6-
<PAGE> 66
<TABLE>
<CAPTION>
WESTCORE INTERNATIONAL FRONTIER FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Charles Schwab & Co. Inc. 30.33% 789,815.6120 $10,149,130.61 Record Only
Special Account For The Exclusive
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
Colorado State Bank & Trust 17.30% 450,598.4160 $5,790,189.65 Record Only
1600 Broadway
Denver CO 80202-4927
Michael W. Gerding 7.69% 200,203.0280 $2,572,608.91 Record &
2201 S. Monroe St. Beneficial
Denver CO 80210-4936
National Financial Services Corp 5.57% 145,026.2130 $1,863,586.84 Record Only
For Exclusive Benefit Of Our Customers
One World Financial Center
200 Liberty Street
New York NY 10281-1003
Cherry Trust & Co. 5.37% 139,778.9370 $1,796,159.34 Record Only
3033 E. 1st Ave.
Denver CO 80206-5617
</TABLE>
<TABLE>
<CAPTION>
WESTCORE SMALL-CAP GROWTH FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
National Investor Services Corp. 26.56% 463,000.8030 $12,649,181.94 Record Only
For Exclusive Benefit Of Customers
55 Water Street
32nd Floor
New York NY 10041-3299
Charles Schwab & Co. Inc. 17.96% 313,011.6900 $8,551,479.37 Record Only
Special Account For The Exclusive
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
Colorado State Bank Trust Dept. 9.70% 169,035.4570 $4,618,048.69 Record Only
1600 Broadway
Denver CO 80202-4927
</TABLE>
-7-
<PAGE> 67
<TABLE>
<CAPTION>
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
National Financial Services Corp. For 8.16% 142,196.1100 $3,884,797.73 Record Only
Exclusive Benefit Of Our Customers
One World Financial Center
200 Liberty Street
New York NY 10281-1003
Norwest Bank MN NA FBO 6.44% 112,242.9960 $3,066,478.65 Record Only
Westcore Small Cap Growth
ATTN: Mutual Funds
P.O. Box 1533
Minneapolis MN 55480-1533
Denver Investment Advisors LLC 6.44% 112,242.9960 $3,066,478.65 Beneficial Only
Retirement Plans
1225 17th Street, 26th Floor
Denver, CO 80202
</TABLE>
<TABLE>
<CAPTION>
WESTCORE SELECT FUND
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Charles Schwab & Co. Inc. 31.59% 632,765.1700 $16,432,911.46 Record Only
Special Account For The Exclusive
Benefit Of Customers
ATTN: Mutual Funds
4500 Cherry Creek Dr. S.
Denver CO 80222
FTC & Co. 11.12% 222,779.6040 $5,785,586.32 Record Only
ATTN: Datalynx House Acct.
P.O. Box 173736
Denver CO 80217-3736
Cherry Trust & Co. 8.56% 171,427.2540 $4,451,965.79 Record Only
3033 E 1st Ave.
Denver CO 80206-5617
Norwest Bank MN NA FBO 7.95% 159,297.0490 $4,136,944.36 Record Only
Westcore Select Fund
ATTN: Mutual Funds
P.O. Box 1533
Minneapolis MN 55480-1533
State Street Bank & Trust Co CUST FBO 7.87% 157,567.9750 $4,092,040.31 Record &
Jerry W. Peterson IRA Beneficial
3 Lynn Road
Cherry HL VLG CO 80110-4901
</TABLE>
-8-
<PAGE> 68
<TABLE>
<CAPTION>
Name and Address of Shareholder % of Fund Held Share Balance Asset Balance Type of Ownership
------------------------------- -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Denver Investment Advisors LLC 7.95% 159,297.0490 $4,136,944.36 Beneficial
Retirement Plans Only
1225 17th Street, 26th Floor
Denver, CO 80202
</TABLE>
---------
* All above-listed shares of the Westcore MIDCO Growth Fund, Westcore Growth and
Income Fund, Westcore Blue Chip Fund, Westcore Small-Cap Opportunity Fund,
Westcore Long-Term Bond Fund, Westcore Intermediate-Term Bond Fund, Westcore
Colorado Tax-Exempt Bond Fund, Westcore International Frontier Fund, Westcore
Small Cap Growth Fund and Westcore Select Fund were owned of record by the
owners named above, and to the Trust's knowledge were also owned beneficially as
indicated above.
-9-
<PAGE> 69
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of the
creditworthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
LOCAL CURRENCY AND FOREIGN CURRENCY RISKS
Country risk considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key factor
in this analysis. An obligor's capacity to repay foreign obligations may be
lower than its capacity to repay obligations in its local currency due to the
sovereign government's own relatively lower capacity to repay external versus
domestic debt. These sovereign risk considerations are incorporated in the debt
ratings assigned to specific issues. Foreign currency issuer ratings are also
distinguished from local
A-1
<PAGE> 70
currency issuer ratings to identify those instances where sovereign risks make
them different for the same issuer.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
Fitch short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the best capacity for timely payment of financial commitments and may
have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
A-2
<PAGE> 71
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
a capacity for meeting financial commitments which is highly uncertain and
solely reliant upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
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"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
- PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
- "r" - The 'r' highlights obligations that Standard & Poor's believes
have significant noncredit risks. Examples of such obligations are securities
with principal or interest return indexed to equities, commodities, or
currencies; certain swaps and options; and interest-only and
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principal-only mortgage securities. The absence of an 'r' symbol should not be
taken as an indication that an obligation will exhibit no volatility or
variability in total return.
- N.R. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." 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 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 fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds 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 are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba" - Bonds are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
"B" - Bonds are generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
"Caa" - Bonds are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
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"Ca" - Bonds represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
"C" - Bonds are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Con. (...) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the ratings used by Fitch for corporate and municipal
bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade category.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic change over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
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"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
- To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
- 'NR' indicates the Fitch does not rate the issuer or issue in
question.
- 'Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
- RatingAlert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
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"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," - A rating of BB suggests that the likelihood of default is
considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
"B" - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
"CC" - This rating is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity factors and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity
to pay principal and interest. Those issues determined to possess a very strong
capacity to pay debt service are given a plus (+) designation.
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"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
Fitch uses the short-term ratings described under Commercial Paper
Ratings for municipal notes.
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APPENDIX B
As stated in the Prospectuses, all Westcore Funds, other than the
Westcore Colorado Tax-Exempt Fund may enter into futures contracts and options
for hedging purposes. Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, a Fund is immediately paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, a Fund pays the difference and
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realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, a Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, a Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade and
the Chicago Mercantile Exchange and the New York Futures Exchange. The Fund
would deal only in standardized contract's on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage-backed
securities; three-month Treasury Bills; and ninety-day commercial paper. A Fund
may trade in any futures contract for which there exists a public market,
including, without limitation, the foregoing instruments.
II. Stock Index Futures Contracts.
General. A stock index assigns relative values to the stocks included
in the index and the index fluctuates with changes in the market values of the
stocks included. Some stock index futures contracts are based on broad market
indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its securities that might otherwise result from a market
decline. A Fund may do so either to hedge the value of its portfolio as a whole,
or to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, a Fund will purchase index
futures contracts in anticipation of purchases of securities. In a substantial
majority of these transactions, a Fund will purchase such securities upon
termination of the long futures position, but a long futures position may be
terminated without a corresponding purchase of securities.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
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III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by a Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
IV. Margin Payments.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially, a
Fund will be required to deposit with the broker or in a segregated account with
a Fund's custodian an amount of cash or cash equivalents, the value of which may
vary but is generally equal to 10% or less of the value of the contract. This
amount is known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to a
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker, will be made on a daily basis as the price of the
underlying instrument fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as "marking-to-market."
For example, when a Fund has purchased a futures contract and the price of the
contract has risen in response to a rise in the underlying instruments, that
position will have increased in value and a Fund will be entitled to receive
from the broker a variation margin payment equal to that increase in value.
Conversely, where a Fund has purchased a futures contract and the price of the
futures contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable and a Fund would be required to
make a variation margin payment to the broker. At any time prior to expiration
of the futures contract, Denver Investment Advisors may elect to close the
position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate a Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to a Fund, and a Fund
realizes a loss or gain.
V. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures by a Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, a Fund would be
in a better position than if it had not hedged
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at all. If the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on the future. If
the price of the future moves more than the price of the hedged securities, a
Fund involved will experience either a loss or gain on the future which will not
be completely offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, a Fund may buy or sell futures contracts in a greater dollar amount
than the dollar amount of securities being hedged if the volatility over a
particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to be
appropriate by Denver Investment Advisors. Conversely, a Fund may buy or sell
fewer futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by Denver Investment Advisors. It is also possible that, where a
Fund has sold futures to hedge its portfolio against a decline in the market,
the market may advance and the value of securities held by a Fund may decline.
If this occurred, a Fund would lose money on the future and also experience a
decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities or a currency before a Fund is able to invest its cash (or
cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if a Fund then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, a Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by Denver Investment Advisors
may still not result in a successful hedging transaction over a short time
frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close
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a futures investment position, and in the event of adverse price movements, the
Funds would continue to be required to make daily cash payments of variation
margin. However, in the event futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by the Funds is also subject to Denver
Investment Advisor's ability to predict correctly movements in the direction of
the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, a Fund will lose part or all of the benefit
to the increased value of its securities which it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
VI. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may
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or may not be less risky than ownership of the futures contract or such
securities. In general, the market prices of options can be expected to be more
volatile than the market prices on the underlying futures contract. Compared to
the purchase or sale of futures contracts, however, the purchase of call or put
options on futures contracts may frequently involve less potential risk to the
Funds because the maximum amount at risk is the premium paid for the options
(plus transaction costs). The writing of an option on a futures contract
involves risks similar to those risks relating to the sale of futures contracts.
Although permitted by their fundamental investment policies, the Funds do not
currently intend to write futures options during the current fiscal year, and
will not do so in the future absent any necessary regulatory approvals.
VII. Accounting Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
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