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This is filed pursuant to Rule 497(e). File Nos. 33-9645 and
811-4881.
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NORWEST ADVANTAGE FUNDS
Statement of Additional Information
August 15, 1996
Small Cap Opportunities Fund
A Shares
B Shares
I Shares
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Statement of Additional Information
August 15, 1996
This Statement of Additional Information ("SAI") supplements the
Prospectuses offering A Shares, B Shares and I Shares of Small
Cap Opportunities Fund (the "Fund). The Fund is a diversified
series of Norwest Advantage Funds, a registered open-end,
management investment company (the "Trust"). The Fund currently
invests all of its investment assets in the Schroder U.S. Smaller
Companies Portfolio of Schroder Capital Funds (the "Portfolio"),
a registered open-end, management investment company. This SAI
should be read only in conjunction with the Fund's Prospectuses,
copies of which may be obtained without charge.
TABLE OF CONTENTS
Page
1. Norwest Advantage Funds 2
2. Investment Policies 3
3. Investment Restrictions 14
4. Performance Data and Advertising 17
5. Management 22
6. Other Information 38
Appendix A - Description of Securities Ratings A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN
CONJUNCTION WITH THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED
BY AN INVESTOR WITHOUT CHARGE BY CONTACTING THE TRUST'S
DISTRIBUTOR, FORUM FINANCIAL SERVICES, INC., TWO PORTLAND SQUARE,
PORTLAND, MAINE 04101.
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1. NORWEST ADVANTAGE FUNDS
DEFINITIONS
The Trust was originally organized under the name Prime Value
Funds, Inc. as a Maryland corporation on August 29, 1986. On
July 30, 1993, pursuant to a shareholder vote, the Trust was
reorganized as a Delaware business trust. On October 1, 1995,
the Trust's name was changed from "Norwest Funds." As used in
this SAI, the following terms shall have the meanings listed:
"Adviser" shall mean the Fund's investment adviser, Norwest
Investment Management, a part of Norwest. "Advisers" shall mean,
collectively, the Adviser and Schroder.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading
Commission.
"Core Trust" shall mean Schroder Capital Funds, an open-end,
management investment company registered under the 1940 Act.
"Forum" shall mean Forum Financial Services, Inc., the
Trust's administrator and distributor of the Trust's shares.
"FFC" shall mean Forum Financial Corp., the Trust's fund
accountant.
"Fund" shall mean the separate portfolio of the Trust to
which this Statement of Additional Information relates as
identified on the cover page.
"Norwest" shall mean Norwest Bank Minnesota, N.A., a
subsidiary of Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"Portfolio" shall mean Schroder U.S. Smaller Companies
Portfolio, a separate portfolio of Core Trust.
"Schroder" shall mean Schroder Capital Management
International, Inc., the Fund's investment subadviser and the
Portfolio's investment adviser.
"Schroder Advisors" shall mean Schroder Fund Advisors Inc.,
the Portfolio's administrator.
"Stock Index Futures" shall mean futures contracts that
relate to broadly-based stock indices.
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"SEC" shall mean the U.S. Securities and Exchange Commission.
"Transfer Agent" shall mean Norwest acting in its capacity as
transfer and dividend disbursing agent of the Trust.
"Trust" shall mean Norwest Advantage Funds, an open-end
management investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities.
"1940 Act" shall mean the Investment Company Act of 1940, as
amended.
2. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure
in the Prospectus concerning the Fund's investments, investment
techniques and strategies and the risks associated therewith (as
well as those of the Portfolio, which has the same investment
objective and policies). The Fund is designed for the investment
of that portion of an investor's funds which can appropriately
bear the special risks associated with investment in smaller
capitalization companies with the aim of capital appreciation.
The Fund is not intended for investors whose objective is assured
income or preservation of capital. The Fund may make no
investment or employ any investment technique or strategy not
referenced in the Prospectus as relates to the Fund. As the Fund
has the same investment policies as the Portfolio and currently
invests all of its assets in the Portfolio, investment policies
are discussed with respect to the Portfolio only.
U.S. Government Securities
The Portfolio may invest in obligations issued or guaranteed by
the United States government or its agencies or instrumentalities
which have remaining maturities not exceeding one year. Agencies
and instrumentalities which issue or guarantee debt securities
and which have been established or sponsored by the United States
government include the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Home Loan
Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal
National Mortgage Association, the Government National Mortgage
Association and the Student Loan Marketing Association. Except
for obligations issued by the United States Treasury and the
Government National Mortgage Association, none of the obligations
of the other agencies or instrumentalities referred to above are
backed by the full faith and credit of the United States
government.
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Bank Obligations
The Portfolio may invest in obligations of U.S. banks (including
certificates of deposit and bankers' acceptances) having total
assets at the time of purchase in excess of $1 billion. Such
banks must be members of the Federal Deposit Insurance
Corporation.
A certificate of deposit is an interest-bearing negotiable
certificate issued by a bank against funds deposited in the bank.
A bankers' acceptance is a short-term draft drawn on a commercial
bank by a borrower, usually in connection with an international
commercial transaction. Although the borrower is liable for
payment of the draft, the bank unconditionally guarantees to pay
the draft at its face value on the maturity date.
Short-Term Debt Securities
The Portfolio may invest in commercial paper, that is short-term
unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. The commercial
paper purchased by the Portfolio for temporary defensive purposes
consists of direct obligations of domestic issuers which, at the
time of investment, are rated "P-1" by Moody's Investors Service
("Moody's") or "A-1" by Standard & Poor's ("S&P"), or securities
which, if not rated, are issued by companies having an
outstanding debt issue currently rated Aa by Moody's or AAA or AA
by S&P. The rating "P-1" is the highest commercial paper rating
assigned by Moody's and the rating "A-1" is the highest
commercial paper rating assigned by S&P.
Repurchase Agreements
The Portfolio may invest in securities subject to repurchase
agreements with U.S. banks or broker-dealers maturing in seven
days or less. In a typical repurchase agreement the seller of a
security commits itself at the time of the sale to repurchase
that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting
an agreed-upon interest rate effective for the period the buyer
owns the security subject to repurchase. The agreed-upon rate is
unrelated to the interest rate on that security. Schroder will
monitor the value of the underlying security at the time the
transaction is entered into and at all times during the term of
the repurchase agreement to insure that the value of the security
always equals or exceeds the repurchase price. In the event of
default by the seller under the repurchase agreement, the
Portfolio may have difficulties in exercising its rights to the
underlying securities and may incur costs and experience time
delays in connection with the disposition of such securities. To
evaluate potential risks, Schroder reviews the credit-worthiness
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of those banks and dealers with which the Portfolio enters into
repurchase agreements.
Warrants. Warrants are options to purchase equity securities at
specific prices valid for a specific period of time. Their
prices do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the
issuer. The Portfolio may not invest in warrants if as a result
more than 5% of its net assets would be so invested, or if more
than 2% of its net assets would be so invested in warrants that
are not listed on the New York or American Stock Exchanges.
High Yield/Junk Bonds
The Portfolio may invest up to 5% of its assets in bonds rated
below Baa by Moody's or BBB by S&P (commonly known as "high
yield/high risk securities" or "junk bonds"). Securities rated
less than Baa by Moody's or BBB by S&P are classified as non-
investment grade securities and are considered speculative by
those rating agencies. Junk bonds may be issued as a consequence
of corporate restructurings, such as leveraged buyouts, mergers,
acquisitions, debt recapitalizations, or similar events or by
smaller or highly leveraged companies. Although the growth of
the high yield securities market in the 1980's had paralleled a
long economic expansion, recently many issuers have been affected
by adverse economic and market conditions. It should be
recognized that an economic downturn or increase in interest
rates is likely to have a negative effect on (i) the high yield
bond market, (ii) the value of high yield securities and (iii)
the ability of the securities' issuers to service their principal
and interest payment obligations, to meet their projected
business goals or to obtain additional financing. In addition,
the market for high yield securities, which is concentrated in
relatively few market makers, may not be as liquid as the market
for investment grade securities. Under adverse market or
economic conditions, the market for high yield securities could
contract further, independent of any specific adverse changes in
the condition of a particular issuer. As a result, the Portfolio
could find it more difficult to sell these securities or may be
able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating
the Portfolio's net asset value.
In periods of reduced market liquidity, junk bond prices may
become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Under such
conditions, a Portfolio may have to use subjective rather than
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objective criteria to value its junk bond investments accurately
and rely more heavily on the judgment of the Portfolio's
investment adviser.
Prices for junk bonds also may be affected by legislative and
regulatory developments. For example, new federal laws require
the divestiture by federally insured savings and loans
associations of their investments in high yield bonds. Also,
from time to time, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest
payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. These laws could
adversely affect the Portfolio's net asset value and investment
practices, the market for high yield securities, the financial
condition of issuers of these securities and the value of
outstanding high yield securities.
Lower rated or unrated debt obligations also present risks based
on payment expectations. If an issuer calls the obligation for
redemption, the Portfolio may have to replace the security with a
lower yielding security, resulting in a decreased return for
investors. If the Portfolio experiences unexpected net
redemptions, it may be forced to sell its higher rated
securities, resulting in a decline in the overall credit quality
of the Portfolio's portfolio and increasing the exposure of the
Portfolio to the risks of high yield securities.
Illiquid and Restricted Securities
"Illiquid and Restricted Securities" under "Investment Objectives
and Policies - Additional Investment Policies" in the Prospectus
sets forth the circumstances in which the Portfolio may invest in
"restricted securities." In connection with the Portfolio's
original purchase of restricted securities, it may negotiate
rights with the issuer to have such securities registered for
sale at a later time. Further, the expenses of registration of
restricted securities that are illiquid may also be negotiated by
the Portfolio with the issuer at the time such securities are
purchased by the Portfolio. When registration is required,
however, a considerable period may elapse between a decision to
sell the securities and the time the Portfolio would be permitted
to sell such securities. A similar delay might be experienced in
attempting to sell such securities pursuant to an exemption from
registration. Thus, the Portfolio may not be able to obtain as
favorable a price as that prevailing at the time of the decision
to sell.
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Loans of Portfolio Securities
The Portfolio may lend its portfolio securities subject to the
restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the market
value of the loaned securities and must consist of cash, bank
letters of credit, U.S. Government securities, or other cash
equivalents in which the Portfolio is permitted to invest. To be
acceptable as collateral, letters of credit must obligate a bank
to pay amounts demanded by the Portfolio if the demand meets the
terms of the letter. Such terms and the issuing bank must be
satisfactory to the Portfolio. In a portfolio securities lending
transaction, the Portfolio receives from the borrower an amount
equal to the interest paid or the dividends declared on the
loaned securities during the term of the loan as well as the
interest on the collateral securities, less any finders' or
administrative fees the Portfolio pays in arranging the loan.
The Portfolio may share the interest it receives on the
collateral securities with the borrower as long as it realizes at
least a minimum amount of interest required by the lending
guidelines established by the Trust's Board of Trustees. The
Portfolio will not lend its portfolio securities to any officer,
director, employee or affiliate of the Portfolio or Schroder. The
terms of the Portfolio's loans must meet certain tests under the
Internal Revenue Code and permit the Portfolio to reacquire
loaned securities on five business days' notice or in time to
vote on any important matter.
Covered Calls and Hedging
As described in the Prospectus, the Portfolio may write covered
calls on up to 100% of its total assets or employ one or more
types of instruments to hedge ("Hedging Instruments"). When
hedging to attempt to protect against declines in the market
value of the Portfolio's securities, to permit the Portfolio to
retain unrealized gains in the value of portfolio securities
which have appreciated, or to facilitate selling securities for
investment reasons, the Portfolio would: (i) sell Stock Index
Futures; (ii) purchase puts on such Futures or securities; or
(iii) write covered calls on securities or on Stock Index
Futures. When hedging to establish a position in the equities
markets as a temporary substitute for purchasing particular
equity securities (which the Portfolio will normally purchase and
then terminate the hedging position), the Portfolio would:
(i) purchase Stock Index Futures, or (ii) purchase calls on such
Futures or on securities. The Portfolio's strategy of hedging
with Stock Index Futures and options on such Futures will be
incidental to the Portfolio's activities in the underlying cash
market.
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Writing Covered Call Options. The Portfolio may write (i.e.,
sell) call options ("calls") if: (i) the calls are listed on a
domestic securities or commodities exchange, and (ii) the calls
are "covered" (i.e., the Portfolio owns the securities subject to
the call or other securities acceptable for applicable escrow
arrangements) while the call is outstanding. A call written on a
Stock Index Future must be covered by deliverable securities or
segregated liquid assets. If a call written by the Portfolio is
exercised, the Portfolio forgoes any profit from any increase in
the market price above the call price of the underlying
investment on which the call was written.
When the Portfolio writes a call on a security, it receives a
premium and agrees to sell the underlying securities to a
purchaser of a corresponding call on the same security during the
call period (usually not more than 9 months) at a fixed exercise
price (which may differ from the market price of the underlying
security), regardless of market price changes during the call
period. The risk of loss will have been retained by the
Portfolio if the price of the underlying security should decline
during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the
Portfolio may be purchase a corresponding call in a "closing
purchase transaction". A profit or loss will be realized,
depending upon whether the net of the amount of option
transaction costs and the premium previously received on the call
written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses
unexercised, because the Portfolio retains the underlying
security and the premium received. Any such profits are
considered short-term capital gains for Federal income tax
purposes, and when distributed by the Portfolio are taxable as
ordinary income. If the Portfolio could not effect a closing
purchase transaction due to the lack of a market, it would have
to hold the callable securities until the call lapsed or was
exercised.
The Portfolio may also write calls on Stock Index Futures without
owning a futures contract or a deliverable bond, provided that at
the time the call is written, the Portfolio covers the call by
segregating in escrow an equivalent dollar amount of liquid
assets. The fund will segregate additional liquid assets if the
value of the escrowed assets drops below 100% of the current
value of the Stock Index Future. In no circumstances would an
exercise notice require the Portfolio to deliver a futures
contract; it would simply put the Portfolio in a short futures
position, which is permitted by the Portfolio's hedging policies.
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Purchasing Calls and Puts. The Portfolio may purchase put
options ("puts") which relate to: (i) securities held by it,
(ii) Stock Index Futures (whether or not it holds such Stock
Index Futures in its portfolio), or (iii) broadly- based stock
indices. The Portfolio may not sell puts other than those it
previously purchased, nor purchase puts on securities it does not
hold. The fund may purchase calls: (a) as to securities,
broadly-based stock indices or Stock Index Futures, or (b) to
effect a "closing purchase transaction" to terminate its
obligation on a call it has previously written. A call or put
may be purchased only if, after such purchase, the value of all
put and call options held by the Portfolio would not exceed 5% of
the Portfolio's total assets.
When the Portfolio purchases a call (other than in a closing
purchase transaction), it pays a premium and, except as to calls
on stock indices, has the right to buy the underlying investment
from a seller of a corresponding call on the same investment
during the call period at a fixed exercise price. The Portfolio
benefits only if the call is sold at a profit or if, during the
call period, the market price of the underlying investment is
above the sum of the call price plus the transaction costs and
the premium paid for the call and the call is exercised. If the
call is not exercised or sold (whether or not at a profit), it
will become worthless at its expiration date and the Portfolio
will lose its premium payments and the right to purchase the
underlying investment. When the Portfolio purchases a call on a
stock index, it pays a premium, but settlement is in cash rather
than by delivery of an underlying investment.
When the Portfolio purchases a put, it pays a premium and, except
as to puts on stock indices, has the right to sell the underlying
investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price.
Buying a put on a security or Stock Index Future the Portfolio
owns enables the Portfolio to attempt to protect itself during
the put period against a decline in the value of the underlying
investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding
put. If the market price of the underlying investment is equal
to or above the exercise price and, as a result, the put is not
exercised or resold, the put will become worthless at its
expiration date and the Portfolio will lose its premium payment
and the right to sell the underlying investment; the put may,
however, be sold prior to expiration (whether or not at a
profit).
Purchasing a put on either a stock index or on a Stock Index
Future not held by the Portfolio permits the Portfolio either to
resell the put or to buy the underlying investment and sell it at
the exercise price. The resale price of the put will vary
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inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise
price and, as a result, the put is not exercised, the put will
become worthless on its expiration date. In the event of a
decline in price of the underlying investment, the Portfolio
could exercise or sell the put at a profit to attempt to offset
some or all of its loss on its portfolio securities. When the
Portfolio purchases a put on a stock index, or on a Stock Index
Future not held by it, the put protects the Portfolio to the
extent that the index moves in a similar pattern to the
securities held. In the case of a put on a stock index or Stock
Index Future, settlement is in cash rather than by the
Portfolio's delivery of the underlying investment.
Stock Index Futures. The Portfolio may buy and sell futures
contracts only if they relate to broadly- based stock indices
("Stock Index Futures"). A stock index is "broadly-based" if it
includes stocks that are not limited to issuers in any particular
industry or group of industries. Stock Index Futures obligate
the seller to deliver (and the purchaser to take) cash to settle
the futures transaction, or to enter into an offsetting contract.
No physical delivery of the underlying stocks in the index is
made.
No price is paid or received upon the purchase or sale of a Stock
Index Future. Upon entering into a futures transaction, the
Portfolio will be required to deposit an initial margin payment
in cash or U.S. Treasury bills with a futures commission merchant
(the "futures broker"). The initial margin will be deposited
with the Portfolio's custodian in an account registered in the
futures broker's name; however the futures broker can gain access
to that account only under specified conditions. As the future
is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be paid
to or by the futures broker on a daily basis. Prior to
expiration of the future, if the Portfolio elects to close out
its position by taking an opposite position, a final
determination of variation margin is made, additional cash is
required to be paid by or released to the Portfolio, and any loss
or gain is realized for tax purposes. Although Stock Index
Futures by their terms call for settlement by the delivery of
cash, in most cases the obligation is fulfilled without such
delivery, by entering into an offsetting transaction. All
futures transactions are effected through a clearinghouse
associated with the exchange on which the contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index
Futures are similar to puts and calls on securities or futures
contracts except that all settlements are in cash and gain or
loss depends on changes in the index in question (and thus on
price movements in the stock market generally) rather than on
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price movements in individual securities or futures contracts.
When the Portfolio buys a call on a stock index or Stock Index
Future, it pays a premium. During the call period, upon exercise
of a call by the Portfolio, a seller of a corresponding call on
the same index will pay the Portfolio an amount of cash to settle
the call if the closing level of the stock index or Stock Index
Future upon which the call is based is greater than the exercise
price of the call; that cash payment is equal to the difference
between the closing price of the index and the exercise price of
the call times a specified multiple (the "multiplier") which
determines the total dollar value for each point of difference.
When the Portfolio buys a put on a stock index or Stock Index
Future, it pays a premium and has the right during the put period
to require a seller of a corresponding put, upon the Portfolio's
exercise of its put, to deliver to the Portfolio an amount of
cash to settle the put if the closing level of the stock index or
Stock Index Future upon which the put is based is less than the
exercise price of the put; that cash payment is determined by the
multiplier, in the same manner as described above as to calls.
Additional Information About Hedging Instruments and their Use.
The Portfolio's custodian, or a securities depository acting for
the custodian, will act as the Portfolio's escrow agent, through
the facilities of the Options Clearing Corporation ("OCC"), as to
the securities on which the Portfolio has written options, or as
to other acceptable escrow securities, so that no margin will be
required for such transactions. OCC will release the securities
on the expiration of the option or upon the Portfolio's entering
into a closing transaction. An option position may be closed out
only on a market which provides secondary trading for options of
the same series, and there is no assurance that a liquid
secondary market will exist for any particular option.
The Portfolio's option activities may affect its portfolio
turnover rate and brokerage commissions. The exercise of calls
written by the Portfolio may cause the Portfolio to sell related
portfolio securities, thus increasing its turnover rate in a
manner beyond the Portfolio's control. The exercise by the
Portfolio of puts on securities or Stock Index Futures may cause
the sale of related investments, also increasing portfolio
turnover. Although such exercise is within the Portfolio's
control, holding a put might cause the Portfolio to sell the
underlying investment for reasons which would not exist in the
absence of the put. The Portfolio will pay a brokerage
commission each time it buys or sells a call, a put or an
underlying investment in connection with the exercise of a put or
call. Such commissions may be higher than those which would
apply to direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market
value of such investments, and, consequently, put and call
options offer large amounts of leverage. The leverage offered by
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trading in options could result in the Portfolio's net asset
value being more sensitive to changes in the value of the
underlying investments.
Regulatory Aspects of Hedging Instruments and Covered Calls. The
Portfolio must operate within certain restrictions as to its long
and short positions in Stock Index Futures and options thereon
under a rule (the "CFTC Rule") adopted by the CFTC under the
Commodity Exchange Act (the "CEA"), which excludes the Portfolio
from registration with the CFTC as a "commodity pool operator"
(as defined in the CEA) if it complies with the CFTC Rule. Under
these restrictions the Portfolio will not, as to any positions,
whether short, long or a combination thereof, enter into Stock
Index Futures and options thereon for which the aggregate initial
margins and premiums exceed 5% of the fair market value of its
total assets, with certain exclusions as defined in the CFTC
Rule. Under the restrictions, the Portfolio also must, as to its
short positions, use Stock Index Futures and options thereon
solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA.
Transactions in options by the Portfolio are subject to
limitations established by each of the exchanges governing the
maximum number of options that may be written or held by a single
investor or group of investors acting in concert, regardless of
whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or
through one or more exchanges or brokers. Thus, the number of
options which the Portfolio may write or hold may be affected by
options written or held by other entities, including other
investment companies having the same or an affiliated investment
adviser. Position limits also apply to Stock Index Futures. An
exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the
Portfolio purchases a Stock Index Future, the Portfolio will
maintain, in a segregated account or accounts with its custodian
bank, cash or readily-marketable, short-term (maturing in one
year or less) debt instruments in an amount equal to the market
value of the securities underlying such Stock Index Future, less
the margin deposit applicable to it.
Limits on Use of Hedging Instruments. The Portfolio intends to
qualify as a "regulated investment company" under the Internal
Revenue Code of 1986 (the "Code"). One of the tests for such
qualification is that less than 30% of its gross income must be
derived from gains realized on the sale of securities held for
less than three months. Due to this limitation, the Portfolio
will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling
investments, including Stock Index Futures, held for less than
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three months, whether or not they were purchased on the exercise
of a call held by the Portfolio; (ii) purchasing calls or puts
which expire in less than three months; (iii) effecting closing
transactions with respect to calls or puts purchased less than
three months previously; (iv) exercising puts held for less than
three months; and (v) writing calls on investments held for less
than three months.
Possible Risk Factors in Hedging. In addition to the risks
discussed above, there is a risk in using short hedging by
selling Stock Index Futures or purchasing puts on stock indices
that the prices of the applicable index (thus the prices of the
Hedging Instruments) will correlate imperfectly with the behavior
of the cash (i.e., market value) prices of the Portfolio's equity
securities. The ordinary spreads between prices in the cash and
futures markets are subject to distortions due to differences in
the natures of those markets. First, all participants in the
futures markets are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures markets depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures markets are
less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
The risk of imperfect correlation increases as the composition of
the Portfolio's portfolio diverges from the securities included
in the applicable index. To compensate for the imperfect
correlation of movements in the price of the equity securities
being hedged and movements in the price of the Hedging
Instruments, the Portfolio may use Hedging Instruments in a
greater dollar amount than the dollar amount of equity securities
being hedged if the historical volatility of the prices of such
equity securities being hedged is more than the historical
volatility of the applicable index. It is also possible that
where the Portfolio has used Hedging Instruments in a short
hedge, the market may advance and the value of equity securities
held in the Portfolio's portfolio may decline. If this occurred,
the Portfolio would lose money on the Hedging Instruments and
also experience a decline in value in its equity securities.
However, while this could occur for a very brief period or to a
very small degree, the value of a diversified portfolio of equity
securities will tend to move over time in the same direction as
the indices upon which the Hedging Instruments are based.
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<PAGE>
If the Portfolio uses Hedging Instruments to establish a position
in the equities markets as a temporary substitute for the
purchase of individual equity securities (long hedging) by buying
Stock Index Futures and/or calls on such Futures, on securities
or on stock indices, it is possible that the market may decline;
if the Portfolio then concludes not to invest in equity
securities at that time because of concerns as to possible
further market decline or for other reasons, the Portfolio will
realize a loss on the Hedging Instruments that is not offset by a
reduction in the price of the equity securities purchased.
Short Sales Against-the-Box
After the Portfolio makes a short sale against-the-box, while the
short position is open, the Portfolio must own an equal amount of
the securities sold short, or by virtue of ownership of
securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold
short. Short sales against-the-box may be made to defer, for
Federal income tax purposes, recognition of gain or loss on the
sale of securities "in the box" until the short position is
closed out.
3. INVESTMENT RESTRICTIONS
The Portfolio's significant investment restrictions are described
in the Prospectus. The following investment restrictions, except
where stated to be fundamental policies, are non-fundamental
policies of the Portfolio. The policies defined as fundamental,
together with the fundamental policies and investment objective
described in the Prospectus, cannot be changed without the vote
of a "majority" of the Portfolio's outstanding shares. Under the
Investment Company Act of 1940 (the "1940 Act"), a "majority"
vote is defined as the vote of the holders of the lesser of : (i)
67% of more of the shares present or represented by proxy at a
meeting of shareholders, if the holders of more than 50% of the
outstanding shares are present, or (ii) more than 50% of the
outstanding shares.
The following investment restrictions of the Portfolio are
fundamental policies:
(a) With respect to 75% of its assets, the Portfolio may not
purchase a security other than a U.S. government
security if, as a result, more than 5% of its total
assets would be invested in the securities of a single
issuer or it would own more than 10% of the outstanding
voting securities of any single issuer.
(b) The Portfolio may not purchase securities if,
immediately after the purchase, 25% or more of the value
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<PAGE>
of its total assets would be invested in the securities
of issuers conducting their principal business
activities in the same industry; provided, however, that
there is no limit on investments in U.S. government
securities.
(c) The Portfolio may borrow money from banks or by entering
into reverse repurchase agreements, provided that such
borrowings do not exceed 33 1/3% of the value of the
Portfolio's total assets (computed immediately after the
borrowing).
(d) The Portfolio may not issue senior securities except to
the extent permitted by the 1940 Act.
(e) The Portfolio may not underwrite securities of other
issuers, except to the extent that it may be considered
to be acting as an underwriter in connection with the
disposition of portfolio securities.
(f) The Portfolio may not make loans, except it may enter
into repurchase agreements, purchase debt securities
that are otherwise permitted investments and lend
portfolio securities.
(g) The Portfolio may not purchase or sell real estate or
any interest therein, except that it may invest in debt
obligations secured by real estate or interests therein
or securities issued by companies that invest in real
estate or interests therein.
(h) The Portfolio may not purchase or sell physical
commodities unless acquired as a result of owning
securities or other instruments, but it may purchase,
sell or enter into financial options and futures and
forward currency contracts and other financial contracts
or derivative instruments.
Notwithstanding any other investment policy or restriction, the
Fund may seek to achieve its investment objective by holding, as
its only investment securities, the securities of another
investment company having substantially the same investment
objective and policies as the Fund.
The following investment restrictions of the Portfolio are
non-fundamental policies:
(a) The Portfolio's borrowings for other than temporary or
emergency purposes or meeting redemption requests may
not exceed an amount equal to 5% of the value its net
assets.
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<PAGE>
(b) The Portfolio may not acquire securities or invest in
repurchase agreements with respect to any securities if,
as result, more than 15% of its net assets (taken at
current value) would be invested in repurchase
agreements not entitling the holder to payment of
principal within seven days and in securities that are
not readily marketable by virtue of restrictions on the
sale of such securities to the public without
registration under the Securities Act of 1933, as
amended ("Restricted Securities").
(c) The Portfolio may not invest in securities of another
investment company, except to the extent permitted by
the 1940 Act.
(d) The Portfolio may not purchase securities on margin, or
make short sales of securities (except short sales
against-the-box), except for the use of short-term
credit necessary for the clearance of purchases and
sales of portfolio securities. The Portfolio may make
margin deposits in connection with permitted
transactions in options, futures contracts and options
on futures contracts.
(e) The Portfolio may not invest in securities (other than
fully collateralized debt obligations) issued by
companies that have conducted continuous operations for
less than three years, including the operations of
predecessors, unless guaranteed as to principal and
interest by an issuer in whose securities the Portfolio
could invest, if, as a result, more than 5% of the value
of the Portfolio's total assets would be so invested.
(f) The Portfolio may not pledge, mortgage, hypothecate or
encumber any of its assets except to secure permitted
borrowings.
(g) The Portfolio may not invest in or hold securities of
any issuer if, to the Portfolio's knowledge, officers
and employees of the Portfolio or officers and directors
of Schroder, individually owning beneficially more than
1/2 of 1% of the securities of the issuer, in the
aggregate own more than 5% of the issuer's securities.
(h) The Portfolio may not invest in interests in oil and gas
or interests in other mineral exploration or development
programs.
(i) The Portfolio may not lend portfolio securities if the
total value of all loaned securities would exceed 25% of
its total assets.
16
<PAGE>
(j) The Portfolio may not purchase real estate limited
partnership interests.
(k) The Portfolio may not invest in warrants if, as a
result, more than 5% of its net assets would be so
invested, or if more than 2% of its net assets would be
invested in warrants that are not listed on the New York
or American Stock Exchange.
4. PERFORMANCE DATA AND ADVERTISING
For purposes of advertising performance, and in accordance with
Securities and Exchange Commission interpretations, the Fund has
adopted the performance of the Portfolio. The Portfolio in turn
has adopted the performance of Schroder U.S. Smaller Companies
Fund, a series of Schroder Capital Funds, which has an identical
investment objective to the Fund and the Portfolio. Like the
Fund, the Schroder U.S. Smaller Companies Fund also invests all
of its investable assets in the Portfolio. Quotations of
performance may from time to time be used in advertisements,
sales literature, shareholder reports or other communications to
shareholders or prospective investors. All performance
information supplied by the Fund is historical and is not
intended to indicate future returns. The Fund's yield and total
return fluctuate in response to market conditions and other
factors. The value of the Fund's shares when redeemed may be
more or less than their original cost.
In performance advertising the Fund may compare any of its
performance information with data published by independent
evaluators such as Morningstar, Inc., Lipper Analytical Services,
Inc., or other companies which track the investment performance
of investment companies ("Fund Tracking Companies"). The Fund
may also compare any of its performance information with the
performance of recognized stock, bond and other indices,
including but not limited to Standard & Poor's 500 Composite
Stock Index, Russell 2000 Index, Morgan Stanley - Europe,
Australian and Far East Index, Lehman Brothers Intermediate
Government Index, Lehman Brothers Intermediate
Government/Corporate Index, Salomon Brothers Bond Index, Shearson
Lehman Bond Index, the Dow Jones Industrial Average, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price
Index as published by the U.S. Department of Commerce. The Fund
may refer to general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its
"Stocks, Bonds, Bills and Inflation Yearbook"). In addition, the
Fund may refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies.
Performance advertising may also refer to discussions of the Fund
and comparative mutual fund data and ratings reported in
17
<PAGE>
independent periodicals, such as newspapers and financial
magazines.
SEC Yield Calculations
Although published yield information is useful to investors in
reviewing the Fund's performance, investors should be aware that
the Fund's yield fluctuates from day to day and that the Fund's
yield for any given period is not an indication or representation
by the Fund of future yields or rates of return on the Fund's
shares. Also, Norwest and others may charge the various
retirement plans or other shareholders that invest in the Fund
fees in connection with an investment in the Fund, which will
have the effect of reducing the Fund's net yield to those
shareholders. The yields of the Fund are not fixed or
guaranteed, and an investment in the Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily
be used to compare shares of the Fund with investment
alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. Also, it may not
be appropriate to compare the Fund's yield information directly
to similar information regarding investment alternatives which
are insured or guaranteed.
Standardized yields for the Fund used in advertising are computed
by dividing the Fund's interest income (in accordance with
specific standardized rules) for a given 30 days or one month
period, net of expenses, by the average number of shares entitled
to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period
and annualizing the result (assuming compounding of income in
accordance with specific standardized rules) in order to arrive
at an annual percentage rate. In general, interest income is
reduced with respect to municipal securities purchased at a
premium over their par value by subtracting a portion of the
premium from income on a daily basis. In general, interest
income is increased with respect to municipal securities
purchased at original issue at a discount by adding a portion of
the discount to daily income. Capital gains and losses generally
are excluded from these calculations.
Income calculated for the purpose of determining the Fund's
standardized yield differs from income as determined for other
accounting purposes. Because of the different accounting methods
used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the
rate of distribution the Fund paid over the same period or the
rate of income reported in the Fund's financial statements.
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<PAGE>
Total Return Calculations
Standardized total returns quoted in advertising and sales
literature reflect all aspects of the Fund's return, including
the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical
historical investment in the Fund over a stated period, and then
calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in
value had been constant over the period. For example, a
cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate that
would equal 100% growth on a compounded basis in ten years.
While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the
performance is not constant over time but changes from year to
year, and that average annual returns represent averaged figures
as opposed to the actual year-to-year performance of the Fund.
Average annual total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment,
over such periods according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
Based on this formula, annualized total returns for the Fund were
as follows for the periods shown below:
For the period from
For the one-year period the commencement of
ended operations through
June 30, 1996(1) June 30, 1996(1)
46.59% 29.42%
(1) I Shares is the initial class of the Fund. The total
return for the Fund for the periods ended June 30, 1996, reflects
the returns from the commencement of operations of Schroder U.S.
Smaller Companies Fund - Investor Shares. Total returns shown
for the Schroder U.S. Smaller Companies Fund - Investor Shares
are lower than they would have been for the I Shares, if the Fund
19
<PAGE>
had been in operation for the entire period, due to the lower
expense structure of the I Shares.
(2) The Investor Shares class of Schroder U.S. Smaller
Companies Fund commenced operations on August 6, 1993. The I
Shares class of the Fund commenced operations on August 15, 1996.
In addition to average annual returns, the Fund may quote
unaveraged or cumulative total returns reflecting the simple
change in value of an investment over a stated period. Total
returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other
performance information may be quoted numerically or in a table,
graph, or similar illustration. Period total return is
calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average annual
total return above.
Other Advertisement Matters
The Fund may advertise other forms of performance. For example,
the Fund may quote unaveraged or cumulative total returns
reflecting the change in the value of an investment over a stated
period. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments,
and/or a series of redemptions over any time period. Total
returns may be quoted with or without taking into consideration
the Fund's front-end sales charge or contingent deferred sales
charge; excluding sales charges from a total return calculation
produces a higher return figure.
The Fund may also include various information in their
advertisements. Information included in the Fund's
advertisements may include, but is not limited to (i) portfolio
holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by
location of issuer or by maturity, (ii) statements or
illustrations relating to the appropriateness of types of
securities and/or mutual funds that may be employed by an
investor to meet specific financial goals, such as funding
retirement, paying for children's education and financially
supporting aging parents, (iv) information (including charts and
illustrations) showing the effects of compounding interest
20
<PAGE>
(compounding is the process of earning interest on principal plus
interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quartile or daily), (v)
information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000
would shrink to $16,621, $14,968, $13,465 and $12,100,
respectively, if the annual rates of inflation were 4%, 5%, 6%
and 7%, respectively, (vi) information regarding the effects of
automatic investment and systematic withdrawal plans, including
the principle of dollar cost averaging, (vii) descriptions of the
portfolio managers of the Fund and Portfolio and portfolio
management staff of the Advisers or summaries of the views of the
portfolio managers with respect to the financial markets, (viii)
the results of a hypothetical investment in the Fund over a given
number of years, including the amount that the investment would
be at the end of the period, (ix) the effects of earning
Federally and, if applicable, state tax-exempt income from the
Fund or investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan and
(x) the net asset value, net assets or number of shareholders of
the Fund as of one or more dates.
As an example of compounding, $1,000 compounded annually at 9.00%
will grow to $1,090 at the end of the first year (an increase in
$90) and $1,118 at the end of the second year (an increase in
$98). The extra $8 that was earned on the $90 interest from the
first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of
ten years and $5,604 at the end of 20 years. Other examples of
compounding are as follows: at 7% and 12% annually, $1,000 will
grow to $1,967 and $3,106, respectively, at the end of ten years
and $3,870 and $9,646, respectively, at the end of twenty years.
These examples are for illustrative purposes only and are not
indicative of the Fund's performance.
The Fund may advertise information regarding the effects of
automatic investment and systematic withdrawal plans, including
the principle of dollar cost averaging. In a dollar cost
averaging program, an investor invests a fixed dollar amount in
the Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While
such a strategy does not ensure a profit or guard against a loss
in a declining market, the investor's average cost per share can
be lower than if fixed numbers of shares had been purchased at
those intervals. In evaluating such a plan, investors should
consider their ability to continue purchasing shares through
periods of low price levels. For example, if an investor invests
$100 a month for a period of six months in the Fund the following
will be the relationship between average cost per share ($14.35
in the example given) and average price per share:
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<PAGE>
Systematic Share Shares
Period Investment Price Purchased
_____ __________ _____ _________
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
____ ___ ____
Total Invested $600 Average Price $15.17 Total Shares 41.81
In connection with its advertisements the Fund may provide
"shareholders letters" which serve to provide shareholders or
investors an introduction into the Fund's, the Trust's or any of
the Trust's service provider's policies or business practices.
For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has more than 60
years been committed to quality products and outstanding service
in order to assist its customers in meeting their financial goals
and the reasons Norwest believes that it has been successful as a
national financial service firm.
5. MANAGEMENT
TRUSTEES AND OFFICERS
Trustees and Officers of the Trust
The Trustees and officers of the Trust and their principal
occupations during the past five years are set forth below. Each
Trustee who is an "interested person" (as defined by the 1940
Act) of the Trust is indicated by an asterisk.
John Y. Keffer, Chairman and President.*
President and Director, Forum Financial Services, Inc. (a
registered broker-dealer), Forum Financial Corp. (a registered
transfer agent), Forum Advisors, Inc. (a registered investment
adviser). Mr. Keffer is a Director, Trustee and officer of
various registered investment companies for which Forum Financial
Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
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<PAGE>
Robert C. Brown, Trustee.*
Director, Federal Farm Credit Banks Funding Corporation and
Farm Credit System Financial Assistance Corp. Prior thereto, he
was Manager of the Capital Markets Group, Norwest Corporation (a
multi-bank holding company and parent of Norwest) until 1991.
His address is 1431 Landings Place, Sarasota, Florida 34231.
Donald H. Burkhardt, Trustee.
Principal, The Burkhardt Law Firm. His address is 777 South
Steele Street, Denver, Colorado 80209.
James C. Harris, Trustee.
President and sole Director of James C. Harris & Co., Inc. (a
financial consulting firm). Mr. Harris is also a liquidating
Trustee and former Director of First Midwest Corporation, a small
business investment company. His address is 6950 France Avenue
South, Minneapolis, Minnesota 55435.
Richard M. Leach, Trustee.
Chief Executive Officer, Tee Box Company (a golf equipment
manufacturer), since January 1994 and President of Richard M.
Leach Associates (a financial consulting firm) since 1992. Prior
thereto, Mr. Leach was Senior Adviser of Taylor Investments (a
registered investment adviser), a Director of Mountainview
Broadcasting (a radio station) and Managing Director, Digital
Techniques, Inc. (an interactive video design and manufacturing
company). His address is P.O. Box 1888, New London, New
Hampshire 03257.
Timothy J. Penny, Trustee.
Senior Counselor to the public relations firm Himle-Horner
since 1994. Prior thereto Mr. Penny was the Representative to
the United States Congress from Minnesota's First Congressional
District. His address is 500 North State Street, Waseca,
Minnesota 56095.
Donald C. Willeke, Trustee.
Principal of the law firm of Willeke & Daniels. His address
is 201 Ridgewood Avenue, Minneapolis, Minnesota 55403.
Michael D. Martins, Vice President and Treasurer.
Fund Accounting Manager, Forum Financial Corp., with which he
has been associated since 1995. Prior thereto, Mr. Martins was at
the audit firm of Deloitte & Touche LLP. Mr. Martins is also an
23
<PAGE>
officer of various registered investment companies for which
Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is Two Portland Square,
Portland, Maine 04101.
David I. Goldstein, Vice President and Secretary.
Counsel, Forum Financial Services, Inc., with which he has
been associated since 1991. Prior thereto, Mr. Goldstein was
associated with the law firm of Kirkpatrick & Lockhart. Mr.
Goldstein is also an officer of various registered investment
companies for which Forum Financial Services, Inc. serves as
manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
Richard C. Butt, Vice President, Assistant Secretary and
Assistant Treasurer.
Managing Director, Forum Financial Services, Inc., with which
he has been associated since May 1996. Prior thereto, from
December 1994 - April 1996, Mr. Butt was a Director of the
Financial Services Consulting Practice, KPMG Peat Marwick LLP.
Prior thereto, from November 1993 - August 1994, Mr. Butt was
President, 440 Financial Distributors, Inc., and prior thereto
was Senior Vice President, 440 Financial Group, Inc. His address
is Two Portland Square, Portland, Maine 04101.
Sara M. Clark, Vice President and Assistant Treasurer.
Managing Director, Forum Financial Services, Inc., with which
she has been associated since 1994. Prior thereto, from 1991 to
1994 Ms. Clark was Controller of Wright Express Corporation (a
national credit card company) and for six years prior thereto was
employed at Deloitte & Touche LLP as an accountant. Ms. Clark is
also an officer of various registered investment companies for
which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland
Square, Portland, Maine 04101.
Thomas G. Sheehan, Vice President and Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has
been associated since 1993. Prior thereto, Mr. Sheehan was
Special Counsel to the Division of Investment Management of the
SEC. Mr. Sheehan is also an officer of various registered
investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address
is Two Portland Square, Portland, Maine 04101.
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<PAGE>
Renee A. Walker, Assistant Secretary.
Fund Administrator, Forum Financial Services, Inc., with
which she has been associated since 1994. Prior thereto,
Ms. Walker was an administrator at Longwood Partners (the manager
of a hedge fund partnership) for a year. After graduating for
college, from 1991 to 1993 Ms. Walker was a sales representative
assistant at PaineWebber Incorporated (a broker-dealer). Her
address is Two Portland Square, Portland, Maine 04101.
Compensation of Trustees and Officers
Effective June 1, 1995, each Trustee of the Trust is paid a
quarterly retained fee for the Trustee's service to the Trust and
to Norwest Select Funds, a separate registered open-end
management investment company for which each Trustee serves as
trustee. of $4,000. In addition, each Trustee is paid $3,000 for
each Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting
attended on a date when a Board meeting is not held. Trustees
are also reimbursed for travel and related expenses incurred in
attending meetings of the Board. Mr. Keffer received no
compensation for his services as Trustee for the past year and no
officer of the Trust is compensated by the Trust. In addition,
Mr. Keffer currently is not compensated or reimbursed for his
expenses in serving as Trustee. Prior to June 1, 1995, each
Trustee of the Trust was paid $1,000 for each Board meeting
attended (whether in person or by electronic communication) plus
$100 per active portfolio of the Trust and was paid $1,000 for
each Committee meeting attended on a date when a Board meeting is
not held.
Mr. Burkhart, Chairman of the Trust's and Norwest Select Funds'
audit committees, receives additional compensation of $5,000 from
the Trust and $1,000 from Norwest Select Funds for his services
as Chairman. Mr. Penny was appointed a Trustee in January 1996
and, accordingly, was not paid any compensation during the
Trust's last fiscal year.
As of October 1, 1995, the Trustees and officers of the Trust in
the aggregate owned less than 1% of the outstanding shares of the
Fund.
The following table provides the aggregate compensation paid to
the Trustees of the Trust by the Trust and Norwest Select Funds,
combined. Information is presented for the year ended October
31, 1995, the Funds' fiscal year end. Other funds of the Trust
have a May 31 fiscal year end.
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<PAGE>
Total Compensation From
Total Compensation the Trust and Norwest
from the Trust Select Funds
__________________ ________________________
Mr. Brown $23,565 $26,177
Mr. Burkhart $29,909 $33,023
Mr. Harris $22,567 $25,177
Mr. Leach $22,566 $25,177
Mr. Willeke $14,000 $14,000
Neither the Trust nor Norwest Select Funds has adopted any from
of retirement plan covering Trustees or officers.
Trustees and Officers of Core Trust
The following information relates to the principal occupations of
each Trustee and executive officer of the Trust during the past
five years and shows the nature of any affiliation with Schroder.
Messrs. Keffer, Goldstein and Sheehan, officers of Core Trust,
all currently serve as officers of the Trust. Accordingly, for
background information pertaining to these officers, see
"Trustees and Officers of the Trust" above.
Peter E. Guernsey, Trustee.
Insurance Consultant since August 1986; prior thereto Senior
Vice President, Marsh & McLennan, Inc., insurance brokers. His
address is Oyster Bay, New York.
Ralph E. Hansmann, Trustee.
Private investor; Director, First Eagle Fund of America,
Inc.; Director, Verde Exploration, Ltd.; Trustee Emeritus,
Institute for Advanced Study; Trustee and Treasurer, New York
Public Library; Life Trustee, Hamilton College. His address is
40 Wall Street, New York, New York.
John I. Howell, Trustee.
Private Consultant since February 1987; Director, American
International Group, Inc.; Director, American International Life
Assurance Company of New York. His address is 7 Riverside Road,
Greenwich, Connecticut.
Laura E. Luckyn-Malone(a) (b) (c), President and Trustee.
Managing Director of Schroder since October 1995; Director of
SWIS since July 1995; prior thereto, Director and Senior Vice
President of Schroder since February 1990; Director and
26
<PAGE>
President, Schroder Advisors. Her address is 787 Seventh Avenue,
New York, New York.
Clarence F. Michalis, Trustee.
Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation (charitable foundation). His address is 44 East 64th
Street, New York, New York.
Hermann C. Schwab, Chairman (Honorary) and Trustee.
Retired since March, 1988; prior thereto, consultant to
Schroder since February 1, 1984. His address is 787 Seventh
Avenue, New York, New York.
Mark J. Smith(a) (b), Vice President and Trustee.
First Vice President of Schroder since April 1990; Director
and Vice President, Schroder Advisors. His address is 33 Gutter
Lane, London, England.
Robert G. Davy, Vice President.
Director of Schroder and Schroder Capital Management
International Ltd. since 1994; First Vice President of Schroder
since July, 1992; prior thereto, employed by various affiliates
of Schroders plc in various positions in the investment research
and portfolio management areas since 1986. His address is 787
Seventh Avenue, New York, New York.
Richard R. Foulkes, Vice President.
Deputy Chairman of Schroder since October 1995; Director of
Schroder since 1979, Director of Schroder Capital Management
International Ltd. since 1989, and Executive Vice President of
both of these entities. His address is 787 Seventh Avenue, New
York, New York.
John Y. Keffer, Vice President.
Jane P. Lucas(c), Vice President.
Director and Senior Vice President Schroder; Director of SWIS
since September 1995; Assistant Director Schroder Investment
Management Ltd. since June 1991. His address is 787 Seventh
Avenue, New York, New York.
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<PAGE>
Catherine A. Mazza(b), Vice President.
Senior Vice President Schroder Advisors since December 1995;
Vice President of Schroder since October 1994; prior thereto,
held various marketing positions at Alliance Capital, an
investment adviser, since July 1985. Her address is 787 Seventh
Avenue, New York, New York.
Fariba Talebi, Vice President.
First Vice President of Schroder since April 1993, employed
in various positions in the investment research and portfolio
management areas since 1987. Her address is 787 Seventh Avenue,
New York, New York.
John A. Troiano(b), Vice President.
Managing Director of Schroder since October 1995; Director of
Schroder Advisors since October 1992, Director and Senior Vice
President of Schroder since 1991; prior thereto, employed by
various affiliates of Schroder in various positions in the
investment research and portfolio management areas since 1981.
His address is 787 Seventh Avenue, New York, New York.
Ira L. Unschuld, Vice President.
Vice President of Schroder since April, 1993 and an Associate
from July, 1990 to April, 1993; prior to July, 1990, employed by
various financial institutions as a securities or financial
analyst. His address is 787 Seventh Avenue, New York, New York.
Robert Jackowitz(b) (c), Treasurer.
Vice President of SWIS since September 1995; Treasurer of
SWIS and Schroder Advisers since July 1995; Vice President of
Schroder since June 1995; and Assistant Treasurer of Schroders
Incorporated since January 1993. His address is 787 Seventh
Avenue, New York, New York.
Margaret H. Douglas-Hamilton(b) (c), Secretary.
Secretary of SWIS since July 1995; Secretary of Schroder
Advisers since April 1990; First Vice President and General
Counsel of Schroders Incorporated since May 1987; prior thereto,
partner of Sullivan & Worcester, a law firm. Her address is 787
Seventh Avenue, New York, New York.
David I. Goldstein, Assistant Treasurer and Assistant Secretary.
Thomas G. Sheehan, Assistant Treasurer and Assistant Secretary.
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Barbara Gottlieb(c), Assistant Secretary.
Assistant Vice President of SWIS since July 1995 prior
thereto held various positions with SWIS affiliates. Her address
is 787 Seventh Avenue, New York, New York.
Gerardo Machado, Assistant Secretary.
Associate, Schroder. His address is 787 Seventh Avenue, New
York, New York.
(a) Interested Trustee of Core Trust as defined by the 1940
Act.
(b) Schroder Advisors is a wholly-owned subsidiary of
Schroder, which is a wholly-owned subsidiary of Schroders
Incorporated, which in turn is an indirect, wholly-owned U.S.
subsidiary of Schroders plc.
(c) Schroder Wertheim Investment Services, Inc. ("SWIS") is
a wholly-owned subsidiary of Schroder Wertheim Holdings
Incorporated which is a wholly-owned subsidiary of Schroders,
Incorporated, which in turn is an indirect wholly-owned U.S.
subsidiary of Schroders plc.
INVESTMENT ADVISORY SERVICES
Adviser of the Fund
Norwest Investment Management, a part of Norwest Bank Minnesota,
N.A., is required to furnish at its expense all services,
facilities and personnel necessary in connection with managing
the Fund's investments and effecting portfolio transactions for
the Fund. Under its advisory agreements, Norwest may delegate
its responsibilities to any investment subadviser approved by the
Board with respect to all or a portion of the assets of the Fund.
The Advisory Agreement between the Fund and Norwest will continue
in effect only if such continuance is specifically approved at
least annually by the Board or by vote of the shareholders of the
Fund, and in either case by a majority of the Trustees who are
not parties to the Advisory Agreement or interested persons of
any such party, at a meeting called for the purpose of voting on
the Advisory Agreement.
The Advisory Agreement is terminable without penalty by the Fund
on 60 days' written notice when authorized either by vote of the
Fund's shareholders or by a vote of a majority of the Board, or
by the Adviser on not more than 60 days nor less than 30 days
written notice, and will automatically terminate in the event of
its assignment. The Advisory Agreement also provides that, with
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respect to the Fund, neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the
Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's or their duties or
by reason of reckless disregard of its or their obligations and
duties under the Advisory Agreement. The Advisory Agreements
provide that the Adviser may render service to others.
In addition to receiving its advisory fee from the Fund, Norwest
may also act and be compensated as investment manager for its
clients with respect to assets which are invested in the Fund.
In some instances Norwest may elect to credit against any
investment management, custodial or other fee received from, or
rebate to, a client who is also a shareholder in the Fund an
amount equal to all or a portion of the fees received by Norwest
or any affiliate of Norwest from the Fund with respect to the
client's assets invested in the Fund.
The advisory fees are accrued daily and paid monthly. Norwest,
in its sole discretion, may waive all or any portion of its
advisory fee with respect to the Fund. Norwest has agreed to
reimburse the Trust for certain of the Fund's operating expenses
(exclusive of interest, taxes and brokerage fees, organization
expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) which in
any year exceed the limits prescribed by any state in which the
Fund's shares are qualified for sale. The Trust may elect not to
qualify its shares for sale in every state. For the purpose of
this obligation to reimburse expenses, the Fund's annual expenses
are estimated and accrued daily, and any appropriate estimated
payments will be made by Norwest monthly. Subject to these
obligations, the Trust pays for all of its expenses.
No payments will be made under the Fund's Advisory Agreement so
long as all of the Fund's investments consist solely of the
Portfolio or any other registered investment company or series
thereof.
Subject to the obligations of Norwest to reimburse the Trust for
its excess expenses as described above, the Trust has, under the
Investment Advisory Agreements, confirmed its obligation to pay
all its other expenses, including: (i) interest charges, taxes,
brokerage fees and commissions; (ii) certain insurance premiums;
(iii) fees, interest charges and expenses of the Trust's
subcustodian, transfer agent and dividend disbursing agent; (iv)
fees of pricing, interest, dividend, credit and other reporting
services; (v) costs of membership in trade associations; (vi)
telecommunications expenses; (vii) auditing, legal and compliance
expenses; (viii) costs of the Trust's formation and maintaining
its existence; (ix) costs of preparing and printing the Trust's
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prospectuses, statements of additional information, account
application forms and shareholder reports and delivering them to
existing and prospective shareholders; (x) costs of maintaining
books of original entry for portfolio and fund accounting and
other required books and accounts and of calculating the net
asset value of shares of the Trust; (xi) costs of reproduction,
stationery and supplies; (xii) compensation of the Trust's
trustees, officers and employees who are not employees of the
Adviser, Forum Financial Services, Inc. or affiliated persons of
the Adviser or Forum Financial Services, Inc. and costs of other
personnel performing services for the Trust; (xiii) costs of
corporate meetings; (xiv) registration fees and related expenses
for registration with the SEC and the securities regulatory
authorities of other countries in which the Trust's shares are
sold; (xv) state securities law registration fees and related
expenses; (xvi) fees and out-of-pocket expenses payable to Forum
Financial Services, Inc. under any distribution, management or
similar agreement; (xvii) and all other fees and expenses paid by
the Trust pursuant to any distribution or shareholder service
plan adopted pursuant to Rule 12b-1 under the Act.
Subadvisory Arrangements
Norwest and the Trust have entered into a Subadvisory Agreement
with Schroder with respect to the Fund. Schroder makes investment
decisions for the Fund and continuously reviews, supervises and
administers the Fund's investment program. Schroder is required
to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of the Fund's
investments and effecting portfolio transactions for the Fund (to
the extent of Norwest's delegation).
The Subadvisory Agreement among the Fund, Norwest and Schroder
will continue in effect only if such continuance is specifically
approved at least annually by the Board or by vote of the
shareholders of the Fund, and in either case by a majority of the
Trustees who are not parties to the Subadvisory Agreement or
interested persons of any such party, at a meeting called for the
purpose of voting on the Subadvisory Agreement.
The Subadvisory Agreement with respect to the Fund is terminable
without penalty by the Fund on 60 days' written notice when
authorized either by vote of the Fund's shareholders or by a vote
of a majority of the Board, or by Schroder on not more than 60
days' nor less than 30 days' written notice, and will
automatically terminate in the event of its assignment. The
Subadvisory Agreement also provides that, with respect to the
Fund, neither Schroder nor its personnel shall be liable for any
error of judgment or mistake of law or for any act or omission in
the performance of its or their duties to the Fund, except for
willful misfeasance, bad faith or gross negligence in the
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performance of Schroder's or their duties or by reason of
reckless disregard of its or their obligations and duties under
the Subadvisory Agreement. The Subadvisory Agreements provide
that Schroder may render services to others.
No payments will be made under the Fund's Subadvisory Agreement
so long as all of the Fund's investments consist solely of the
Portfolio or any other registered investment company or series
thereof.
Adviser of the Portfolio
Schroder acts as investment adviser to the Portfolio and is
required to furnish at its expense all services, facilities and
personnel necessary in connection with managing the Portfolio's
investments and effecting portfolio transactions for the
Portfolio. The Advisory Agreement between the Portfolio and
Schroder will continue in effect only if such continuance is
specifically approved at least annually by the Board of Trustees
of Core Trust or by vote of the holders of beneficial interest of
the Portfolio, and in either case by a majority of the Trustees
of Core Trust who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the
purpose of voting on the Advisory Agreement.
Pursuant to the Advisory Agreement, Schroder is responsible for
managing the investment and reinvestment of the assets included
in the Fund's portfolio and continuously reviews, supervises and
administers the Fund's investments. In this regard, it is the
responsibility of Schroder to make decisions relating to the
Fund's investments and to place purchase and sale orders
regarding such investments with brokers or dealers selected by it
in its discretion. Schroder also furnishes to the Board of
Trustees of Core Trust periodic reports on the investment
performance of the Fund. Under the terms of the Advisory
Agreement, Schroder is required to manage the Portfolio's
investment portfolio in accordance with applicable laws and
regulations. In making its investment decisions, Schroder does
not use material inside information that may be in its possession
or in the possession of its affiliates.
The Advisory Agreement will continue in effect provided such
continuance is approved annually (i) by the holders of a majority
of the outstanding voting securities of the Portfolio or by the
Board of Trustees of Core Trust and (ii) by a majority of the
Trustees who are not parties to such Contract or "interested
persons" (as defined in the 1940 Act) of any such party. The
Advisory Agreement may be terminated without penalty by vote of
the Trustees or the shareholders of the Portfolio on 60 days'
written notice to the Adviser, or by the Adviser on 60 days'
written notice to the Trust and it will terminate automatically
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if assigned. The Advisory Agreement also provides that, with
respect to the Portfolio, neither Schroder nor its personnel
shall be liable for any error of judgment or mistake of law or
for any act or omission in the performance of its or their duties
to the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of Schroder's or their duties
or by reason of reckless disregard of its or their obligations
and duties under the Advisory Agreement.
The advisory fees are accrued daily and paid monthly. Schroder,
in its sole discretion, may waive all or any portion of its
advisory fee with respect to the Portfolio.
ADMINISTRATION AND DISTRIBUTION
The Trust
Forum supervises the overall management of the Trust (which
includes, among other responsibilities, negotiation of contracts
and fees with, and monitoring of performance and billing of, the
Trust's transfer agent and custodian and arranging for
maintenance of books and records of the Trust) and provides the
Trust with general office facilities pursuant to a Management
Agreement.
The Management Agreement will continue in effect only if such
continuance is specifically approved at least annually by the
Board or by the shareholders and, in either case, by a majority
of the Trustees who are not parties to the Management Agreement
or interested persons of any such party.
The Management Agreement terminates automatically if it is
assigned and may be terminated without penalty by vote of the
Fund's shareholders or by either party on not more than 60 days'
nor less than 30 days' written notice. The Management Agreement
also provides that, with respect to the Fund, neither Forum nor
its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the performance of
its or their duties to the Fund, except for willful misfeasance,
bad faith or gross negligence in the performance of Forum's or
their duties or by reason of reckless disregard of its or their
obligations and duties under the Management Agreement.
Forum is also the Trust's Distributor and acts as the agent of
the Trust in connection with the offering of shares of the Fund
on a "best efforts" basis pursuant to a Distribution Agreement.
Under a servicing agreement between the Trust and Norwest with
respect to the Fund, Norwest performs ministerial, administrative
and oversight functions for the Fund and undertakes to reimburse
certain excess expenses of the Fund. Among other things, Norwest
gathers performance and other data from the adviser of the
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Portfolio and from other sources, formats the data and prepares
reports to the Fund's shareholders and the Trustees. Norwest
also ensures that the adviser to the Portfolio is aware of
pending net purchases or redemptions of Fund shares and other
matters that may affect the adviser's performance of its duties.
Lastly, Norwest has agreed to reimburse the Fund for any amounts
by which its operating expenses (exclusive of interest, taxes and
brokerage fees, organization expenses and, if applicable,
distribution expenses, all to the extent permitted by applicable
state law or regulation) exceed the limits prescribed by any
state in which the Fund's shares are qualified for sale. No fees
will be paid to Norwest under the Servicing Agreement unless the
Fund's assets are invested solely in the International Portfolio
or in a portfolio of another registered investment company. This
agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by the
shareholders and, in either case, by a majority of the Trustees
who are not parties to the Management Agreement or interested
persons of any such party.
The agreement provides that neither Norwest nor its personnel
shall be liable for any error of judgment or mistake of law or
for any act or omission in the performance of its or their duties
to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's or their duties or by
reason of reckless disregard of its or their obligations and
duties under the agreement.
Core Trust
Core Trust has entered into an Administrative Services Agreement
with Schroder Advisors, 787 Seventh Avenue, New York, New York
10019, pursuant to which Schroder Advisors provides management
and administrative services necessary for the operation of the
Portfolio, including coordination of the services performed by
the Portfolio's investment adviser, transfer agent, custodian,
independent accountants, legal counsel and others. Schroder
Advisors is a wholly-owned subsidiary of Schroder, and is a
registered broker-dealer organized to act as administrator and
distributor of mutual funds. Effective July 5, 1995, Schroder
Advisors changed its name from Schroder Capital Distributors Inc.
For these services, Schroder Advisors will receive a fee from
Core Trust at the annual rate of 0.10% of the average daily net
assets of the Portfolio. The Administrative Services Agreement
is terminable with respect to the Portfolio without penalty, at
any time, by vote of a majority of the trustees of Core Trust who
are not "interested persons" of Core Trust and who have no direct
or indirect financial interest in the operation of the
Administrative Services Agreement, upon not more than 60 days'
written notice to Schroder Advisors or by vote of the holders of
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a majority of the shares of the Portfolio, or, upon 60 days'
notice, by Schroder Advisors. The Administrative Services
Agreement will terminate automatically in the event of its
assignment.
On behalf of the Portfolio, Core Trust has entered into a Sub-
Administration Agreement with Forum. Pursuant to the Sub-
Administration Agreement, Forum assists Schroder Advisors with
certain of its responsibilities under the Administrative Services
Agreement, including shareholder reporting and regulatory
compliance.
The Sub-Administration Agreement is terminable with respect to
the Portfolio without penalty, at any time, by the board of
trustees of Core Trust upon 60 days' written notice to Forum or
by Forum upon 60 days' written notice to the Portfolio.
A Shares and B Shares
Under the Distribution Services Agreement related to the Fund,
Forum receives, and may reallow to certain financial
institutions, the initial sales charges assessed on purchases of
A Shares of the Fund. With respect to B Shares of the Fund, the
Fund has adopted a distribution plan pursuant to Rule 12b-1 under
the 1940 Act (the "Plan") which authorizes the payment to Forum
under the Distribution Services Agreement of a distribution
services fee, which may not exceed an annual rate of 0.75%, and a
maintenance fee in an amount equal to 0.25%, of the average daily
net assets of the Fund attributable to the B Shares.
The Plan provides that all written agreements relating to the
Plan must be in a form satisfactory to the Board. In addition,
the Plan requires the Trust and Forum to prepare, at least
quarterly, written reports setting forth all amounts expended for
distribution purposes by the Fund and Forum pursuant to the Plan
and identifying the distribution activities for which those
expenditures were made.
The Plan provides that, with respect to each class of the Fund to
which it applies, it will remain in effect for one year from the
date of its adoption and thereafter may continue in effect for
successive annual periods provided it is approved by the
shareholders of the respective class or by the Board, including a
majority of trustees who are not interested persons of the Trust
and who have no direct or indirect interest in the operation of
the Plan, the Distribution Services Agreement or any agreement
related to the Plan. The Plan further provides that it may not
be amended to increase materially the costs which may be borne by
the Trust for distribution pursuant to the Plan without
shareholder approval and that other material amendments to the
Plan must be approved by the trustees in the manner described in
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the preceding sentence. The Plan may be terminated at any time
by a vote of the Board or by the shareholders of the respective
classes.
In the event that (i) the Plan is not terminated but Forum (or
any subsequent distributor) is replaced or terminated as
distributor of a Fund's B Shares, (ii) the Plan is terminated and
a Fund adopts a distribution plan relating to a class of shares
of the Fund that has a sales load structure substantially similar
(as defined in the Plan) to that of the B Shares or (iii) the
Plan is terminated and the Trust alters the terms of the
contingent deferred sales charges applicable to B Shares of a
Fund outstanding at the time of such termination, the Fund will
continue to pay distribution services fees to Forum (or any
subsequent distributor of the Fund's B Shares) but only with
respect to sales that occured prior to any replacement or
termination. Except as described above, in the event that the
Plan is terminated with respect to a Fund, the Fund will cease
paying any distribution services fees.
TRANSFER AGENT
Norwest acts as Transfer Agent of the Trust pursuant to a
Transfer Agency Agreement. The Transfer Agency Agreement will
continue in effect only if such continuance is specifically
approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Transfer Agency Agreement or
interested persons of any such party, at a meeting called for the
purpose of voting on the Transfer Agency Agreement.
Among the responsibilities of the Transfer Agent as agent for the
Trust are: (1) answering customer inquiries regarding account
status and history, the manner in which purchases and redemptions
of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain
shareholder accounts and records, (4) assisting in processing
purchase and redemption transactions and receiving wired funds;
(5) transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; (6) verifying shareholder
signatures in connection with changes in the registration of
shareholder accounts; (7) furnishing periodic statements and
confirmations of purchases and redemptions; (8) transmitting
proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (9) receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and (10) providing such other related services as the
Trust or a shareholder may request.
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For its services, the Transfer Agent receives from the Trust,
with respect to the Fund a fee computed and paid monthly at the
annual rate of 0.25% of the Fund's average daily net assets
attributable to each class).
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest acts as the custodian
of the Trust's assets. The custodian's responsibilities include
safeguarding and controlling the Trust's cash and securities,
determining income and collecting interest on Fund investments.
For these services, the custodian receives no fee. The custodian
receives a separate fee for performing certain functions in
connection with loans of portfolio securities.
The Chase Manhattan Bank, N.A. serves as custodian to the
Portfolio and is compensated by Core Trust with respect to the
Portfolio.
PORTFOLIO ACCOUNTING
Forum Financial Corp., an affiliate of Forum, performs portfolio
accounting services for the Fund pursuant to a Fund Accounting
Agreement with the Trust. The Fund Accounting Agreement will
continue in effect only if such continuance is specifically
approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Fund Accounting Agreement or
interested persons of any such party, at a meeting called for the
purpose of voting on the Fund Accounting Agreement.
Under its agreement, FFC prepares maintains books and records of
the Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per
share of the Fund (and class thereof) and dividends and capital
gain distributions and prepares periodic reports to shareholders
and the SEC. For its services, FFC receives from the Trust with
respect to the Fund a fee of $36,000 per year plus, for each
class of the Fund above one, $6,000 per year. In addition, FFC
is paid an additional $12,000 per year with respect to the Fund
if it has more than 100 security positions or a monthly portfolio
turnover rate of 10% or greater.
FFC is required to use its best judgment and efforts in rendering
fund accounting services and is not be liable to the Trust for
any action or inaction in the absence of bad faith, willful
misconduct or gross negligence. FFC is not responsible or liable
for any failure or delay in performance of its fund accounting
obligations arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control and the Trust has
agreed to indemnify and hold harmless FFC, its employees, agents,
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officers and directors against and from any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages,
costs, charges, counsel fees and other expenses of every nature
and character arising out of or in any way related to FFC's
actions taken or failures to act with respect to the Fund or
based, if applicable, upon information, instructions or requests
with respect to the Fund given or made to FFC by an officer of
the Trust duly authorized. This indemnification does not apply
to FFC's actions taken or failures to act in cases of FFC's own
bad faith, willful misconduct or gross negligence.
FFC performs similar services for the Portfolio and, in addition,
acts as the Portfolio's transfer agent.
6. OTHER INFORMATION
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases
Shares of the Fund are sold on a continuous basis.
Fund shares are normally issued for cash only. In the Adviser's
discretion, however, the Fund may accept portfolio securities
that meet the investment objective and policies of the Fund as
payment for Fund shares. The Fund will only accept securities
that (i) are not restricted as to transfer either by law or
liquidity of market and (ii) have a value which is readily
ascertainable (and not established only by valuation procedures).
Set forth below is an example of the method of computing the
offering price of the Fund's A Shares. All other shares of the
Trust are offered at their next determined net asset value. The
example assumes a purchase of A Shares of a hypothetical fund
("Fund Q") in an amount such that the purchase would be subject
to the fund's maximum sales charge (in this case, 4.5%) at a
price based on a hypothetical net asset value per share of A
Shares of the fund. Offering price is determined as follows: Net
asset value per share times the sum of one (1) plus the sales
charge expressed as a percentage (for example 4.5% would equal
0.045).
Net Asset Offering
Value Per Share Price
_______________ ________
Fund Q 11.48 12.00
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Statement of Intention
As more fully described in the Prospectus, investors may obtain
reduced sales charges with respect to the purchase of A Shares of
the Fund by means of a written Statement of Intention, which
expresses the investor's intention to invest not less than
$100,000 within a period of 13 months in A Shares of the Fund.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. A Shares
purchased with the first 5% of such amount will be held subject
to a registered pledge (while remaining registered in the name of
the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such pledged shares will be
involuntarily redeemed to pay the additional sales charge, if
necessary. When the full amount indicated has been purchased,
the shares will be released from pledge.
Exchanges and Telephone Transactions
By making an exchange, the investor authorizes the Trust's
transfer agent to act on telephonic instructions from any person
representing himself or herself to be the investor and believed
by the Trust's transfer agent to be genuine. The records of the
Trust's transfer agent of such instructions are binding. The
exchange procedures may be modified or terminated at any time
upon appropriate notice to shareholders. For Federal income tax
purposes, exchanges are treated as sales on which a purchaser
will realize a capital gain or loss depending on whether the
value of the shares redeemed is more or less than his basis in
such shares at the time of such transaction.
The exchange privilege permits I Share shareholders to exchange
their shares for I Shares of any other Fund. For Federal income
tax purposes, an exchange transaction is treated as a sale and
subsequent purchase on which a purchaser may realize a capital
gain or loss depending on whether the value of the shares
redeemed is more or less than his basis in such shares at the
time of the transaction.
Shareholders of A Shares may purchase, with the proceeds from a
redemption of all or part of their shares, A Shares of the other
funds of the Trust that offer A Shares or Investor class shares
("Investor Shares") of Ready Cash Investment Fund or Municipal
Money Market Fund, two money market portfolios of the Trust.
Shareholders of B Shares may purchase, with the proceeds from a
redemption of all or part of their shares, B Shares of the other
funds of the Trust that offer B Shares or Exchange class shares
("Exchange Shares") of Ready Cash Investment Fund.
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Shareholders of Investor Shares of Ready Cash Investment Fund and
Municipal Money Market Fund may purchase, with the proceeds from
a redemption of all or part of their shares, Investor Shares of
the other Fund or A Shares of the funds of the Trust that offer A
Shares. Shareholders of Exchange Shares of Ready Cash Investment
Fund may purchase, with the proceeds from a redemption of all or
part of their shares, B Shares of the funds of the Trust that
offer B Shares.
Shareholders of A Shares making an exchange will be subject to
the applicable sales charge of any A Shares acquired in the
exchange; provided, that the sales charge charged with respect to
the acquired shares will be assessed at a rate that is equal to
the excess (if any) of the rate of the sales charge that would be
applicable to the acquired shares in the absence of an exchange
over the rate of the sales charge previously paid on the
exchanged shares. For purposes of the preceding sentence, A
Shares acquired through the reinvestment of dividends or
distributions are deemed to have been acquired with a sales
charge rate equal to that paid on the shares on which the
dividend or distribution was paid.
In addition, A Shares acquired by a previous exchange transaction
involving shares on which a sales charge has directly or
indirectly been paid (e.g., shares purchased with a sales charge
or issued in connection with an exchange transaction involving
shares that had been purchased with a sales charge), as well as
additional shares acquired through reinvestment of dividends or
distributions on such shares will be treated as if they had been
acquired subject to that sales charge.
B Shares may be exchanged without the payment of any contingent
deferred sales charge; however, B Shares or Exchange Shares
acquired as a result of such exchange and subsequently redeemed
will nonetheless be subject to the contingent deferred sales
charge applicable to the original B Shares as if those shares
were being redeemed at that time. Exchange Shares may be
exchanged without the payment of any contingent deferred sales
charge; however, B Shares acquired as a result of such exchange
and subsequently redeemed will nonetheless be subject to the
contingent deferred sales charge applicable to the Exchange
Shares as if those shares were being redeemed at that time.
Redemptions
In addition to the situations described in the Prospectus with
respect to the redemptions of shares, the Trust may redeem shares
involuntarily 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 transactions effected for the benefit of a
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shareholder which is applicable to the Fund's shares as provided
in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However,
payments may be made wholly or partially in portfolio securities
if the Board determines that payment in cash would be detrimental
to the best interests of the Fund. If payment for shares
redeemed is made wholly or partially in portfolio securities,
brokerage costs may be incurred by the shareholder in converting
securities to cash. The Trust and Core Trust have each filed a
formal election with the SEC pursuant to which the Fund and the
Portfolio will only effect a redemption in portfolio securities
if the particular shareholder is redeeming more than $250,000 or
one percent of the Fund's or the Portfolio's total net assets,
whichever is less, during any 90-day period.
Contingent Deferred Sales Charge (A Shares)
Certain A Shares of the Fund on which no initial sales charge was
assessed, that are redeemed within specified periods after the
purchase date will be subject to a contingent deferred sales
charge upon redemption.
Right of Accumulation. Contingent deferred sales charges may be
charged on redemptions of A Shares purchased pursuant to the
Cumulative Quantity Discount (Right of Accumulation). The
contingent deferred sales charge will apply to A Shares purchased
if the value of those shares on the date of purchase plus the net
asset value (as of the close of business on the previous Fund
Business Day) of all A Shares held by the shareholder exceed
$1,000,000. For example, if a shareholder has made prior
purchases of A Shares which now have a value of $900,000, the
purchase of $150,000 of A Shares will not be subject to an
initial sales charge but will be subject to the contingent
deferred sales charge. The $900,000 of A Shares is not subject
to the contingent deferred sales charge.
Statement of Intention. Contingent deferred sales charges may be
charged on redemptions of A Shares purchased pursuant to a
Statement of Intention ("SOI"). The contingent deferred sales
charge will not apply to SOIs of under $1,000,000 and will not be
applied to SOIs for a greater amount if the shareholder never
purchases $1,000,000 or more of A Shares under the SOI. If a
shareholder purchases $1,000,000 or more under an SOI, the
contingent deferred sales charge will apply with respect to the
entire amount purchased. The holding period for each A Share,
however, shall be determined from the date the share was
purchased. If the shareholder redeems A Shares during the period
that the SOI is in effect, a contingent deferred sales charge
will be charged at the time the shareholder has purchased
$1,000,000 or more worth of A Shares pursuant to the SOI and will
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be assessedat the rate applicable in the case of a single
purchase of the minimum amount specified in the SOI. If the
shareholder purchases less than the amount specified under the
SOI, an additional contingent deferred sales charge may be
assessed in respect of A Shares previously redeemed based on the
amount actually purchased pursuant to the SOI.
A Shares purchased by a shareholder within 60 days following the
redemption by the shareholder of A Shares in the same Fund with a
value at least equal to the A Shares being purchased will not be
subject to a contingent deferred sales charge; provided, however,
that this exemption is not applicable to more than two purchases
within a 12-month period.
Contingent Deferred Sales Charge (A Shares and B Shares)
With respect to A Shares and B Shares of the Fund, certain
redemptions are not subject to any contingent deferred sales
charge. No contingent deferred sales charge is imposed on (i)
redemptions of shares acquired through the reinvestment of
dividends and distributions, (ii) involuntary redemptions by the
Fund of shareholder accounts with low account balances, (iii)
redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the
shareholder's death or disability, (iv) redemptions to effect a
distribution (other than a lump sum distribution) from an IRA,
Keogh plan or Section 403(b) custodial account or from a
qualified retirement plan. For these purposes, the term
disability shall have the meaning ascribed thereto in Section
72(m)(7) of the Code. Under that provision, a person is
considered disabled if the person is unable to engage in any
substantial activity by reason of any medically determinable
physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration.
Appropriate documentation satisfactory to the Fund is required to
substantiate any shareholder death or disability.
Conversion of B Shares
The conversion of Exchange Shares to Investor Shares is subject
to the continuing availability of an opinion of counsel to the
effect that (i) the assessment of the distribution services fee
with respect to the Exchange Shares does not result in the Fund's
dividends or distributions constituting "preferential dividends"
under the Code, and (ii) the conversion of Exchange Shares to
Investor Shares does not constitute a taxable event under Federal
income tax law. The conversion of Exchange Shares to Investor
Shares may be suspended if such an opinion is no longer available
at the time the conversion is to occur. In that event, no
further conversions of Exchange Shares would occur, and shares
might continue to be subject to a distribution services fee for
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an indefinite period, which may extend beyond the specified
number of years for conversion of the original B Shares.
DETERMINATION OF NET ASSET VALUE
Securities owned by the Fund for which market quotations are
readily available are valued at current market value. The Fund
values its securities as follows. A security listed or traded on
an exchange is valued at its last sale price (prior to the time
as of which assets are valued) on the exchange where it is
principally traded. Lacking any such sales on the day of
valuation, the security is valued at the mean of the last bid and
asked prices. All other securities for which over-the-counter
market quotations are readily available generally are valued at
the mean of the current bid and asked prices. When market
quotations are not readily available, securities are valued at
fair value as determined in good faith by the Board. Debt
securities may be valued on the basis of valuations furnished by
pricing services which utilize electronic data processing
techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid
prices, when such valuations are believed to more accurately
reflect the fair market value of such securities. All assets and
liabilities of the Fund denominated in foreign currencies are
converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar
last quoted by a major bank.
Under procedures adopted by the Board, a net asset value for the
Fund later determined to have been inaccurate for any reason will
be recalculated. Purchases and redemptions made at a net asset
value determined to have been inaccurate will be adjusted,
although in certain circumstances, such as where the difference
between theoriginal net asset value and the recalculated net
asset value divided by the recalculated net asset value is 0.005
(1/2 of 1%) or less or shareholder transactions are otherwise
insubstantially affected, further action is not required.
PORTFOLIO TRANSACTIONS
The following discussion concerning portfolio transactions
relates to the Fund and the Portfolio.
Investment decisions for the Fund will be made independently from
those for any other client account or investment company that is
or may in the future become managed by the Adviser or its
affiliates. Investment decisions are the product of many factors
including basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be
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bought for one or more clients when one or more clients are
selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens
that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security
are, insofar as is possible, averaged as to price and allocated
between such clients in a manner which, in the respective
Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be
circumstances when purchases or sales of portfolio securities for
one or more clients will have an adverse effect on other clients.
In addition, when purchases or sales of the same security for the
Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated
in order to obtain any price advantages available to large
denomination purchases or sales.
Purchases and sales of fixed income portfolio securities are
generally effected as principal transactions. These securities
are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually
are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or
concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between
the bid and ask prices. In the case of securities traded in the
foreign and domestic over-the-counter markets, there is generally
no stated commission, but the price usually includes an
undisclosed commission or markup. In underwritten offerings, the
price includes a disclosed fixed commission or discount.
Purchases and sales of equity securities on exchanges are
generally effected through brokers who charge commissions.
Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Advisers in their
best judgment and in a manner deemed to be in the best interest
of shareholders of the Fund (holders of beneficial interest in
the case of the Portfolio) rather than by any formula. The
primary consideration is prompt execution of orders in an
effective manner and at the most favorable price available to the
Fund. In transactions on stock exchanges in the United States,
these commissions are negotiated, whereas on foreign stock
exchanges these commissions are generally fixed. Where
transactions are executed in the over-the- counter market, the
Fund will seek to deal with the primary market makers; but when
necessary in order to obtain best execution, it will utilize the
services of others. In all cases the Fund will attempt to
negotiate best execution.
The Fund may not always pay the lowest commission or spread
available. Rather, in determining the amount of commission,
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including certain dealer spreads, paid in connection with
securities transactions, the Advisers take into account such
factors as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the services
described below) and any risk assumed by the executing broker.
The Advisers may also take into account payments made by brokers
effecting transactions for the Fund (i) to the Fund or (ii) to
other persons on behalf of the Fund for services provided to it
for which it would be obligated to pay.
In addition, the Advisers may give consideration to research
services furnished by brokers to the Advisers for their use and
may cause the Fund to pay these brokers a higher amount of
commission than may be charged by other brokers. Such research
and analysis may be used by the Advisers in connection with
services to clients other than the Fund, and the Advisers' fees
are not reduced by reason of the Advisers' receipt of the
research services.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to the
obligation to seek the most favorable price and execution
available and such other policies as the Board may determine, an
Adviser may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute portfolio transactions
for the Fund.
Subject to the general policies regarding allocation of portfolio
brokerage as set forth above, the Board has authorized the
Advisers to employ their respective affiliates to effect
securities transactions of the Fund, provided certain other
conditions are satisfied. Payment of brokerage commissions to an
affiliate of an Adviser for effecting such transactions is
subject to Section 17(e) of the 1940 Act, which requires, among
other things, that commissions for transactions on securities
exchanges paid by a registered investment company to a broker
which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the
usual and customary brokers' commissions for such transactions.
It is the Fund's policy that commissions paid to Schroder
Securities Limited ("Schroder Securities"), Norwest Investment
Management, Inc. and other affiliates of an Adviser will, in the
judgment of the Adviser responsible for making portfolio
decisions and selecting brokers, be (i) at least as favorable as
commissions contemporaneously charged by the affiliate on
comparable transactions for its most favored unaffiliated
customers and (ii) at least as favorable as those which would be
charged on comparable transactions by other qualified brokers
having comparable execution capability. The Board, including a
majority of the non-interested Trustees, has adopted procedures
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to ensure that commissions paid to affiliates of an Adviser by
the Fund satisfy the foregoing standards.
The Fund has no understanding or arrangement to direct any
specific portion of its brokerage to Schroder Securities or its
affiliates, and will not direct brokerage to Schroder Securities
or its affiliates in recognition of research services.
From time to time, the Fund may purchase securities of a broker
or dealer through which its regularly engages in securities
transactions.
TAXATION
The Fund intends for each taxable year to qualify for tax
treatment as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended. Such qualification does not,
of course, involve governmental supervision of management or
investment practices or policies. Investors should consult their
own counsel for a complete understanding of the requirements the
Fund must meet to qualify for such treatment, and of the
application of state and local tax laws to his or her particular
situation.
Certain listed options and regulated futures contracts are
considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by the Fund at the end of
each taxable year will be "marked to market" and treated for
Federal income tax purposes as though sold for fair market value
on the last business day of such taxable year. Gain or loss
realized by the Fund on section 1256 contracts generally will be
considered a 60 percent long-term and 40 percent short-term
capital gain or loss. The Fund can elect to exempt its section
1256 contracts which are part of a "mixed straddle" (as described
below) from the application of section 1256.
With respect to over-the-counter put and call options, gain or
loss realized by the Fund upon the lapse or sale of such options
held by such Fund will be either long-term or short-term capital
gain or loss depending upon the Fund's holding period with
respect to such option. However, gain or loss realized upon the
lapse or closing out of such options that are written by the Fund
will be treated as short-term capital gain or loss. In general,
if the Fund exercises an option, or an option that the Fund has
written is exercised, gain or loss on the option will not be
separately recognized but the premium received or paid will be
included in the calculation of gain or loss upon disposition of
the property underlying the option.
Any option, futures contract, or other position entered into or
held by the Fund in conjunction with any other position held by
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the Fund may constitute a "straddle" for Federal income tax
purposes. A straddle of which at least one, but not all, the
positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules
that may affect the character and timing of the Fund's gains and
losses with respect to straddle positions by requiring, among
other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in any gain being treated as short-term capital gain
rather than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non- section 1256 positions be treated as
60 percent long-term and 40 percent short-term capital loss; (iv)
losses recognized with respect to certain straddle positions
which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of
interest and carrying charges attributable to certain straddle
positions may be deferred. Various elections are available to
the Fund which may mitigate the effects of the straddle rules,
particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held
by the Fund if all of the offsetting positions consist of section
1256 contracts.
Each Fund shareholder should include in the shareholder's report
of gross income in his Federal income tax return cash dividends
received by the shareholder from the Fund.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of
beneficial interest of the Trust are passed upon by the law firm
of Seward & Kissel, One Battery Park Plaza, New York, New York
10004.
KPMG Peat Marwick LLP, independent auditors, acts as auditors for
the Trust.
OWNERSHIP OF FUND SHARES
Prior to the public issuance of shares of the Fund, due to its
initial investment, Forum owned all outstanding shares of the
Fund and, accordingly, may be deemed to be a controlling person
of the Fund. Upon the investment in the Fund by public
shareholders, Forum ceased to be a controlling person of the
Fund. As of July 31, 1996, the Trustees and officers of the
Trust in the aggregate owned less than one percent of the
outstanding shares of the Fund.
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ADDITIONAL INFORMATION ABOUT THE TRUST
Currently, the Trust is divided into twenty-nine separate series
representing shares of the Fund and shares of Cash Investment
Fund, Ready Cash Investment Fund, U.S. Government Fund, Treasury
Fund, Municipal Money Market Fund, Income Fund, Total Return Bond
Fund, Tax-Free Income Fund, Arizona Tax-Free Fund, Colorado Tax-
Free Fund, Minnesota Tax-Free Fund, ValuGrowth Stock Fund, Small
Company Stock Fund, Contrarian Stock Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Small
Company Growth Fund, International Fund, Income Equity Fund,
Index Fund, Conservative Balanced Fund, Moderate Balanced Fund,
Growth Balanced Fund, Intermediate U.S. Government Fund,
Diversified Bond Fund, Stable Income Fund and Short Maturity
Investment Fund. The Trust has received an order from the SEC
permitting the issuance and sale of separate classes of shares
representing interests in each of the Trust's portfolios. It is
anticipated, however, that the Trust will operate the classes of
each Fund in accordance with rules of the SEC adopted after the
Trust obtained its exemptive order.
The Board determined that currently no conflict of interest
exists between or among each Fund's I Shares and its other
classes, if any. On an ongoing basis, the Board, pursuant to its
fiduciary duties under the 1940 Act and state law, will seek to
ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the
obligations of the Trust under Delaware law. The Delaware
Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of
liability extended to shareholders of private corporations for
profit. However, no similar statutory or other authority limiting
business trust shareholder liability exists in many other states,
including Texas. As a result, to the extent that the Trust or a
shareholder is subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law, and may thereby
subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims
shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each
agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust
property of any shareholder held personally liable for the
obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which (1) a
court refuses to apply Delaware law, (2) no contractual
limitation of liability is in effect, and (3) the Trust itself is
unable to meet its obligations. In light of Delaware law, the
nature of the Trust's business, and the nature of its assets, the
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Board believes that the risk of personal liability to a Trust
shareholder is extremely remote.
FINANCIAL STATEMENTS
The fiscal year end of the Fund is May 31. Financial statements
for the Fund's semi-annual period and fiscal year will be
distributed to shareholders of record. The Board in the future
may change the fiscal year end of the Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information
included in the Fund's registration statement filed with the SEC
under the Securities Act of 1933 with respect to the securities
offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the SEC. The
registration statement, including the exhibits filed therewith,
may be examined at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the
contents of any contract of other documents referred to are not
necessarily complete, and, in each instance, reference is made to
the copy of such contract or other documents filed as an exhibit
to the registration statement, each such statement being
qualified in all respects by such reference.
49
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
Moody's Investors Service ("Moody's")
Moody's rates corporate bond issues, including convertible debt
issues, as follows:
Bonds which are rated Aaa are judged by Moody's to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in Aaa
securities.
Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payment 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.
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
A-1
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payments or of maintenance of other terms of the contract over
any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Bonds which are rated C 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.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which
Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1, and B1.
Standard and Poor's ("S&P")
S&P rates corporate bond issues, including convertible debt
issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in
small degree.
Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt rated in higher rated categories.
Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms
of the obligation. BB indicates the lowest degree of speculation
and C the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions. Bonds rated BB have less near-term
A-2
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vulnerability to default than other speculative issues. However,
they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and
principal payments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to
default, and are dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as
assigned an actual or implied CCC debt rating. This rating may
also be used to indicate imminent default.
The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
The rating Cl is reserved for income bonds on which no interest
is being paid.
Bonds are rated D when the issue is in payment default, or the
obligor has filed for bankruptcy. Bonds rated D are in payment
default or the obligor has filed for bankruptcy. The D rating
category is used when interest payments or principal payments are
not made on the date due, even if the applicable grace period has
not expired, unless S&P believes that such payments will made
during such grace period.
Note: The ratings from AA to CCC may be modified by the addition
of a plus (+) or minus (-) sign to show the relative standing
within the rating category.
Fitch Investors Service, L.P. ("Fitch")
Fitch rates corporate bond issues, including convertible debt
issues, as follows:
AAA Bonds are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to
be affected by reasonably foreseeable events.
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AA Bonds are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA. Because bonds rated in the AAA and AA categories are
not significantly vulnerable to foreseeable future developments,
shorter- term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB Bonds are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD, DD, and D Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the
highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
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Plus (+) and minus (-) signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
AAA, DDD, DD, or D categories.
PREFERRED STOCK
Moody's Investors Service
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least
risk of dividend impairment among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well
maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater
than in the aaa and aa classification, earnings and asset
protection are, nevertheless, expected to be maintained at
adequate levels.
An issue rated baa is considered to be a medium-grade, neither
highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable
over any great length of time.
An issue rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred
stocks in this class.
An issue which is rated b generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to
indicate the future status of payments.
An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payment.
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An issue which is rated c can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
This is the lowest rated class of preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each
rating classification from aa through b in its preferred stock
rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issuer ranks in the lower end of its generic rating category.
Standard & Poor's
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for
issues rated AAA.
An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation.
While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently
paying.
A preferred stock rated C is a non-paying issue.
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A preferred stock rated D is a non-paying issue with the issuer
in default on debt instruments.
To provide more detailed indications of preferred stock quality,
the ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories.
COMMERCIAL PAPER
Moody's Investors Service
Moody's two highest ratings for short-term debt, including
commercial paper, are Prime-1 and Prime-2. Both are judged
investment grade, to indicate the relative repayment ability of
rated issuers.
Issuers rated Prime-1 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; well-established
access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for
repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics of issuers
rated Prime-1 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.
Standard and Poor's
S&P's two highest commercial paper ratings are A-1 and A-2.
Issues assigned an A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative
degree of safety. An A-1 designation indicates that the degree
of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
The capacity for timely payment on issues with an A-2 designation
is strong. However, the relative degree of safety is not as high
as for issues designated A-1. A-3issues have a satisfactory
capacity for timely payment. They are, however, somewhat more
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vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations. Issues rated
A-2 are regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
Fitch Investors Service
Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to
three years, including commercial paper, certificates of deposit,
medium-term notes, and municipal and investment notes.
F-1+. Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as
great as for issues assigned F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities
to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting
a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
D. Issues assigned this rating are in actual or imminent
payment default.
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