M O N A R C H F U N D S
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TREASURY CASH FUND
GOVERNMENT CASH FUND
CASH FUND
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1998
as amended April 3, 1998
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Monarch Funds is a registered, open-end management investment company. This
Statement of Additional Information supplements the Prospectuses (dated January
1, 1998, as amended February 1, 1998) offering shares of each class of Treasury
Cash Fund, Government Cash Fund and Cash Fund, each a portfolio of the Trust,
and should be read only in conjunction with the applicable Prospectus, a copy of
which may be obtained without charge by contacting the Trust at P.O. Box 446,
Portland, Maine 04101.
TABLE OF CONTENTS
PAGE
1. INVESTMENT POLICIES 2
2. INVESTMENT LIMITATIONS 6
3. INVESTMENTS BY FINANCIAL INSTITUTIONS 8
4. PERFORMANCE DATA AND ADVERTISING 9
5. MANAGEMENT 11
6. DETERMINATION OF NET ASSET VALUE 19
7. PORTFOLIO TRANSACTIONS 20
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 21
9. TAXATION 22
10. OTHER INFORMATION 23
11. FINANCIAL STATEMENTS 24
APPENDIX A - DESCRIPTION OF CERTAIN SECURITIES RATINGS 25
APPENDIX B - PERFORMANCE DATA 27
APPENDIX C- MISCELLANEOUS TABLES 29
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DEFINITIONS
As used in this Statement of Additional Information, the following terms shall
have the meanings listed:
"Administrator" means Forum Administrative Services, LLC
"Adviser" means Forum Investment Advisors, LLC.
"Board" means the Board of Trustees of the Trust.
"Core Trust" means Core Trust (Delaware).
"Core Trust Board" means the Board of Trustees of Core Trust.
"FFC" means Forum Financial Corp.
"Forum" means Forum Financial Services, Inc.
"Forum Accounting" means Forum Accounting Services, LLC
"Fund" means each of Treasury Cash Fund, Government Cash Fund and Cash
Fund.
"Fund Business Day" shall have the meaning ascribed thereto in the
Prospectuses of the Funds.
"NRSRO" means a nationally recognized statistical rating organization.
"Portfolio" means each of Treasury Cash Portfolio, Government Cash
Portfolio, Cash Portfolio.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Monarch Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"1940 Act" means the Investment Company Act of 1940, as amended.
1. INVESTMENT POLICIES
Each Fund currently seeks to achieve its investment objective by investing all
of its investable assets in its corresponding Portfolio of Core Trust.
Each Fund has a fundamental investment policy that allows it to invest all of
its investable assets in its corresponding Portfolio. The investment policies of
each Fund and its corresponding Portfolio are substantially identical.
Therefore, although this and the following sections discuss the investment
policies of the Portfolios (and the responsibilities of the Core Trust Board),
it applies equally to the Funds (and the Board). Information with respect to
periods prior to September 1, 1995 (for instance, investment advisory fees
paid), the date the Funds initially invested in the Portfolios, reflects
information with respect to the Funds.
Following is information pertaining to the investment policies of each
Portfolio, which supplements the investment policy information contained in the
Funds' Prospectuses.
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The Portfolios currently are prohibited from purchasing any security issued by
the Federal Home Loan Mortgage Corporation. This does not prohibit the
Portfolios from entering into repurchase agreements collateralized with
securities issued by the Federal Home Loan Mortgage Corporation.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and other NRSROs are private services that provide ratings of the credit
quality of debt obligations. A description of the higher quality ratings
assigned to debt securities by several NRSROs is included in Appendix A to this
SAI. The Portfolios use these ratings in determining whether to purchase, sell
or hold a security. It should be emphasized, however, that ratings are general
and not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. Subsequent
to its purchase by a Portfolio, an issue of securities may cease to be rated or
its rating may be reduced. The Adviser, and in certain cases the Core Trust
Board, will consider such an event in determining whether the Portfolio should
continue to hold the obligation. Credit ratings attempt to evaluate the safety
of principal and interest payments and do not evaluate the risks of fluctuations
in market value. Also, rating agencies may fail to make timely changes in credit
ratings in response to developments and events, so that an issuer's current
financial condition may be better or worse than the rating indicates.
SMALL BUSINESS ADMINISTRATION SECURITIES
Each Portfolio may purchase securities issued by the Small Business
Administration ("SBA"). SBA securities are variable rate securities that carry
the full faith and credit of the United States Government, and generally have an
interest rate that resets monthly or quarterly based on a spread to the Prime
rate. SBA securities generally have maturities at issue of up to 25 years. No
Portfolio may purchase an SBA Security if, immediately after the purchase, (i)
the Portfolio would have more than 15% of its net assets invested in SBA
securities, (ii) the total unamortized premium on SBA Securities with a premium
held by the Portfolio divided by the sum of the par amount of all SBA securities
with a premium held by the portfolio would exceed 0.25% of the Portfolios' net
assets or (iii) the total unamortized discount on SBA Securities with a discount
held by the Portfolio divided by the sum of the par amount of all SBA securities
with a discount held by the portfolio would exceed 0.25% of the Portfolios' net
assets. Premium is the amount above par for which a security is purchased and
discount is the amount below par for which a security is purchased.
MORTGAGE BACKED SECURITIES
The Portfolios may purchase adjustable rate mortgage backed or other asset
backed securities (such as SBA securities) that are U.S. Government Securities
or, in the case of Treasury Cash Portfolio, that are U.S. Treasury Securities.
These securities directly or indirectly represent a participation in, or are
secured by and payable from, adjustable rate mortgage or other loans which may
be secured by real estate or other assets. Unlike traditional debt instruments,
payments on these securities include both interest and a partial payment of
principal. Prepayments of the principal of underlying loans may shorten the
effective maturities of these securities. Some adjustable rate U.S. Government
Securities (or the underlying loans) are subject to caps or floors that limit
the maximum change in interest rate during a specified period or over the life
of the security.
Adjustable rate mortgage backed securities ("MBSs") are securities that have
interest rates that are reset at periodic intervals, usually by reference to
some interest rate index or market interest rate. Government Cash Portfolio and
Cash Portfolio will only invest in adjustable rate MBSs that are U.S. Government
Securities. MBSs represent an interest in a pool of mortgages made by lenders
such as commercial banks, savings associations, mortgage bankers and mortgage
brokers and may be issued by governmental or government-related entities or by
non-governmental entities such as commercial banks, savings associations,
mortgage bankers and other secondary market issuers.
Interests in pools of MBSs differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. In contrast, MBSs
provide periodic payments which consist of interest and, in most cases,
principal. In effect, these payments are a "pass-through" of the periodic
payments and optional prepayments made by the individual borrowers on their
mortgage
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loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments to holders of MBSs are caused by prepayments resulting from
the sale of the underlying property or the refinancing or foreclosure of the
underlying mortgage loans. Such prepayments may significantly shorten the
effective maturities of MBSs, and occur more often during periods of declining
interest rates.
Although the rate adjustment feature of MBSs may act as a buffer to reduce sharp
changes in the value of MBSs, these securities are still subject to changes in
value based on changes in market interest rates or changes in the issuer's
creditworthiness. Because the interest rate is reset only periodically, changes
in the interest rate on MBSs may lag behind changes prevailing market interest
rates. Also, some MBSs (or the underlying mortgages) are subject to caps or
floors that limit the maximum change in interest rate during a specified period
or over the life of the security.
During the periods of declining interest rates, income to the Portfolios derived
from mortgages which are not prepared will decrease as the coupon rate resets
along with the decline in interest rates in contrast to the income on fixed-rate
mortgages, which will remain constant. At times, some of the MBSs in which the
Portfolios will invest will have higher-than-market interest rates, and will
therefore be purchased at a premium above their par value. Unscheduled
prepayments, which are made at par, will cause the Portfolios to suffer a loss
equal to the unamortized premium, if any.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Portfolios' investments may lag behind changes in
market interest rates. This may result in a slightly lower value until the
coupons reset to market rates. Many MBSs in the Portfolios' portfolios will have
"caps" that limit the maximum amount by which the interest rate paid by the
borrower may change at each reset date or over the life of the loan and
fluctuation in interest rates above these levels could cause these securities to
"cap out" and to behave more like fixed-rate debt securities.
The Portfolios may purchase collateralized mortgage obligations ("CMOs"), which
are collateralized by MBSs or by pools of conventional mortgages. (See
"Investment by Shareholders that are Credit Unions - Government Cash Portfolio
and Treasury Cash Portfolio.") CMOs are typically structured with a number of
classes or series that have different maturities and are generally retired in
sequence. Each class of bonds receives periodic interest payments according to
the coupon rate on the bonds. However, all monthly principal payments and any
prepayments from the collateral pool are paid first to the "Class I"
bondholders. The principal payments are such that the Class 1 bonds will be
completely repaid no later than, for example, five years after the offering
date. Thereafter, all payments of principal are allocated to the next most
senior class of bonds until that class of bonds has been fully repaid. Although
full payoff of each class of bonds is contractually required by a certain date,
any or all classes of bonds may be paid off sooner than expected because of an
acceleration in pre-payments of the obligations comprising the collateral pool.
Since the inception of the mortgage-related pass-through security in 1970, the
market for these securities has expanded considerably. The size of the primary
issuance market and active participation in the secondary market by securities
dealers and many types of investors make government and government-related
pass-through pools highly liquid.
Government or private entities may create new types of MBSs in response to
changes in the market or changes in government regulation of such securities. As
new types of these securities are developed and offered to investors, the
Adviser may, consistent with the investment objective and policies of a
Portfolio, consider making investments in such new types of securities.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY SECURITIES
Each Portfolio may purchase securities on an when-issued or delayed delivery
basis. In those cases, the purchase price and the interest rate payable on the
securities are fixed on the transaction date and delivery and payment may take
place a month or more after the date of the transaction. At the time, a
Portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, the Portfolio will record the transaction as a
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purchase and thereafter reflect the value each day of such securities in
determining its net asset value. If a Portfolio chooses to dispose of the right
to acquire a when-issued security prior to its acquisition, it could, as with
the disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. Failure of an issuer to deliver the security may result in
the Portfolio incurring a loss or missing an opportunity to make an alternative
investment. When a Portfolio agrees to purchase a security on a when-issued or
delayed delivery basis, its custodian will maintain in a segregated account
cash, U.S. Government Securities or other liquid securities with a market value
at all times at least equal to the amount of the Portfolio's commitment.
ILLIQUID SECURITIES
Each Portfolio may invest up to 10% of its net assets in illiquid securities.
The term "illiquid securities" for this purchase means repurchase agreements not
entitling the holder to payment of principal within seven days and securities
that are illiquid by virtue of legal or contractual restrictions on resale or
the absence of a readily available market.
The Core Trust Board has ultimate responsibility for determining whether
specific securities are liquid or illiquid. The Core Trust Board has delegated
the function of making day-to-day determination of liquidity to the Adviser and,
with respect to certain types of restricted securities which may be deemed to be
illiquid, has adopted guidelines to be followed by the Adviser. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to (1) the frequency of trades and quotations of the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; (4) the nature of the marketplace
trades, including the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer; (5) whether the security is
registered; and (6) if the security is not traded in the United States, whether
it can be freely traded in a liquid foreign securities market. The Adviser
monitors the liquidity of the securities in each Portfolio's portfolio and
reports periodically to the Core Trust Board.
Certificates of deposit and fixed time deposits that carry an early withdrawal
penalty or mature in greater than seven days are treated by the Portfolio as
illiquid securities if there is no readily available market for the instrument.
REPURCHASE AGREEMENTS AND SECURITIES LOANS
In connection with entering into repurchase agreements and securities loans, the
Portfolios require continual maintenance by the Trust's custodian of the market
value of the underlying collateral in amounts equal to, or in excess of, the
repurchase price plus the transaction costs (including loss of interest) that
the Portfolios could expect repurchase obligation, a Portfolio might suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. In the event of a counterparty's bankruptcy, a
Portfolio might be delayed in, or prevented from, selling the collateral for the
Portfolio's benefit. The Adviser monitors the creditworthiness of its repurchase
agreement counterparties and securities borrowers under the Core Trust Board's
general supervision and pursuant to specific Core Trust Board adopted
procedures.
VARIABLE AND FLOATING RATE SECURITIES
The yield of variable and floating rate securities varies in relation to changes
in specific money market rates, such as the Prime rate. A "variable" interest
rate adjusts at predetermined intervals (for example, daily, weekly or monthly),
while a "floating" interest rate adjusts whenever a specified benchmark rate
(such as the bank prime lending rate) changes. These changes are reflected in
adjustments to the yields of the variable and floating rate securities, and
different securities may have different adjustment rates. Accordingly, as
interest rates increase or decrease, the capital appreciation or depreciation
may be less on these obligations than for fixed rates obligations. To the extent
that the Portfolios invest in long-term variable or floating rate securities,
the Adviser believes that the Portfolios may be able to take advantage of the
higher yield that is usually paid on long-term securities.
Cash Portfolio also may purchase variable and floating rate master notes of
corporations, which are unsecured obligations redeemable upon notice that permit
investment of fluctuating amounts at varying rates of interest
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pursuant to direct arrangement with the issuer of the instrument. These
obligations include master demand notes that permit investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangement with the
issuer of the instrument. The issuer of these obligations often has the right,
after a given period, to prepay their outstanding principal amount of the
obligations upon a specified number of days' notice. These obligations generally
are not traded, nor generally is there an established secondary market for these
obligations. To the extent a demand note does not have a seven day or shorter
demand feature and there is no readily available market for the obligation, it
is treated as an illiquid security.
No Portfolio may purchase a variable or floating rate security whose interest
rate is adjusted based on a long-term interest rate or index, on two interest
rates or indexes, on an interest rate or index that materially lags short-term
market rates. All variable and floating rate securities purchased by the
Portfolio have an interest rate that is adjusted based on a single short-term
rate or index, such as the Prime rate.
INVESTMENT COMPANY SECURITIES
In connection with managing their cash positions, the Portfolios may invest in
the securities of other investment companies that are money market funds within
the limits proscribed by the 1940 Act. Under normal circumstances, each
Portfolio invests up to 15% of its assets in money market funds. Each Portfolio
only invests in money market funds when it has excess cash and the Adviser
believes that the investment is in the best interest of the Portfolio. In
addition to a Portfolio's expenses (including the various fees), as a
shareholder in another investment company, a Portfolio bears its pro rata
portion of the other investment company's expenses (including fees). Those
expenses are not part of the portfolio's (or Fund's) expense ratio, but rather
are reflected in the yield of the investment in the money market fund.
ZERO-COUPON SECURITIES
All zero-coupon securities in which the Portfolio invests will have a maturity
of less than 13 months.
2. INVESTMENT LIMITATIONS
The Portfolios have adopted the following fundamental investment limitations
that cannot be changed without the affirmative vote of the lesser of (i) more
than 50% of the outstanding interests of the Portfolio or (ii) 67% of the
interests of the Portfolio present or represented at an interestholders meeting
at which the holders of more than 50% of the outstanding interests of the
Portfolio are present or represented. Each Portfolio may not:
(1) With respect to 75% of its assets, purchase a security other than a
U.S. Government Security if, as a result, more than 5% of the
Portfolio's total assets would be invested in the securities of a
single issuer.
(2) Purchase securities if, immediately after the purchase, more than
25% of the value of the Portfolio's total assets would be invested in
the securities of issuers having their principal business activities in
the same industry; provided, however, that there is no limit on
investments in U.S.
Government Securities.
(3) Underwrite securities of other issuers, except to the extent that
the Portfolio may be considered to be acting as an underwriter in
connection with the disposition of portfolio securities.
(4) Purchase or sell real estate or any interest therein, except that
the Portfolio may invest in debt obligations secured by real estate or
interests therein or issued by companies that invest in real estate or
interests therein.
(5) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and currency-related
contracts will not be deemed to be physical commodities.
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(6) Borrow money, except for temporary or emergency purposes (including
the meeting of redemption requests) and except for entering into
reverse repurchase agreements, provided that borrowings do not exceed
33 1/3% of the value of the Portfolio's total assets.
(7) Issue senior securities except as appropriate to evidence
indebtedness that the Portfolio is permitted to incur, and provided
that the Portfolio may issue shares of additional series or classes
that the Trustees may establish.
(8) Make loans except for loans of portfolio securities, through the
use of repurchase agreements, and through the purchase of debt
securities that are otherwise permitted investments.
(9) With respect to Government Cash Portfolio, purchase or hold any
security that (i) a Federally chartered savings association may not
invest in, sell, redeem, hold or otherwise deal pursuant to law or
regulation, without limit as to percentage of the association's assets
and (ii) pursuant to 12 C.F.R. Section 566.1 would cause shares of the
Portfolio not to be deemed to be short term liquid assets when owned by
Federally chartered savings associations.
The Portfolios have adopted the following nonfundamental investment limitations
that may be changed by the Core Trust Board without shareholder approval. Each
Portfolio may not:
(a) With respect to 100% of its assets, purchase a security other than
a U.S. Government Security if, as a result, more than 5% of the
Portfolio's total assets would be invested in the securities of a
single issuer, unless the investment is permitted by Rule 2a-7 under
the 1940 Act.
(b) Purchase securities for investment while any borrowing equaling 5%
or more of the Portfolio's total assets is outstanding; and if at any
time the Portfolio's borrowings exceed the Portfolio's investment
limitations due to a decline in net assets, such borrowings will be
promptly (within three days) reduced to the extent necessary to comply
with the limitations. Borrowing for purposes other than meeting
redemption requests will not exceed 5% of the value of the Portfolio's
total assets.
(c) Purchase securities that have voting rights, except the Portfolio
may invest in securities of other investment companies to the extent
permitted by the 1940 Act.
(d) Purchase securities on margin, or make short sales of securities,
except for the use of short-term credit necessary for the clearance of
purchases and sales of portfolio securities.
(e) Acquire securities or invest in repurchase agreements with respect
to any securities if, as a result, more than 10% of the Portfolio's 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 illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily
available market.
Except as required by the 1940 Act, if a percentage restriction on investment or
utilization of assets is adhered to at the time an investment is made, a later
change in percentage resulting from a change in the market values of a
Portfolio's assets, the change in status of a security or purchases and
redemptions of shares will not be considered a violation of the limitation. For
purposes of limitation (2): (i) loan participations are considered to be issued
by both the issuing bank and the underlying corporate borrower; (ii) utility
companies are divided according to their services (for example, gas, gas
transmission, electronic and telephone will each be considered a separate
industry); and (iii) financial service companies will be classified according to
the end users of their services, for example, automobile finance, bank finance
and diversified finance will each be considered a separate industry.
Each Fund has adopted the same fundamental and nonfundamental investment
limitations. The Fund's fundamental limitations cannot be changed without the
affirmative vote of the lesser of (i) more than 50% of the outstanding shares of
the Fund or (ii) 67% of the shares of the Fund present or represented at a
shareholders meeting at which
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the holders of more than 50% of the outstanding shares of the Fund are present
or represented. In addition, the Funds have adopted a fundamental policy which
provides that, notwithstanding any other investment policy or restriction
(whether fundamental or not), each Fund may invest all of its assets in the
securities of a single pooled investment fund having substantially the same
investment objectives, policies and restrictions as the Fund or Portfolio, as
applicable.
3. INVESTMENTS BY FINANCIAL INSTITUTIONS
INVESTMENT BY SHAREHOLDERS THAT ARE BANKS - GOVERNMENT CASH PORTFOLIO
Government Cash Portfolio invests only in instruments which, if held directly by
a bank or bank holding company organized under the laws of the United States or
any state thereof, would be assigned to a risk-weight category of no more than
20% under the current risk based capital guidelines adopted by the Federal bank
regulators (the "Guidelines"). In the event that the Guidelines are revised, the
Portfolio's portfolio will be modified accordingly, including by disposing of
portfolio securities or other instruments that no longer qualify under the
Guidelines. In addition, the Portfolio does not intend to hold in its portfolio
any securities or instruments that would be subject to restriction as to amount
held by a National bank under Title 12, Section 24 (Seventh) of the United
States Code. If the Portfolio's portfolio includes any instruments that would be
subject to a restriction as to amount held by a National bank, investment in the
Portfolio may be limited.
The Guidelines provide that shares of an investment fund are generally assigned
to the risk-weight category applicable to the highest risk-weighted security or
instrument that the fund is permitted to hold. Accordingly, Portfolio shares
should quality for a 20% risk weighting under the Guidelines. The Guidelines
also provide that, in the case of an investment fund whose shares should qualify
for a risk weighting below 100% due to limitations on the assets which it is
permitted to hold, bank examiners may review the treatment of the shares to
ensure that they have been assigned an appropriate risk-weight. In this
connection, the Guidelines provide that, regardless of the composition of an
investment fund's assets, shares of a fund may be assigned to the 100%
risk-weight category if it is determined that the fund engages in activities
that appear to be speculative in nature or has any other characteristics that
are inconsistent with a lower risk weighting. The Adviser has no reason to
believe that such a determination would be made with respect to the Portfolio.
Their are various subjective criteria for making this determination and,
therefore, it is not possible to provide any assurance as to how Portfolio
shares will be evaluated by bank examiners.
Before acquiring Fund shares, prospective investors that are banks or bank
holding companies, particularly those that are organized under the laws of any
country other than the United States or of any state, territory or other
political subdivision of the United States, and prospective investors that are
U.S. branches and agencies of foreign banks or Edge Corporations, should consult
all applicable laws, regulations and policies, as well as appropriate regulatory
bodies, to confirm that an investment in Fund shares is permissible and in
compliance with any applicable investment or other limits.
Fund shares held by National banks are generally required to be revalued
periodically and reported at the lower of cost or market value. Such shares may
also be subject to special regulatory reporting, accounting and tax treatment.
In addition, a bank may be required to obtain specific approval from its board
of directors before acquiring Fund shares, and thereafter may be required to
review its investment in a Fund for the purpose of verifying compliance with
applicable Federal banking laws, regulations and policies.
National banks generally must review their holdings of shares of a Fund at least
quarterly to ensure compliance with established bank policies and legal
requirements. Upon request, the Portfolios will make available to the Funds'
investors information relating to the size and composition of their portfolio
for the purpose of providing Fund shareholders with this information.
INVESTMENT BY SHAREHOLDERS THAT ARE CREDIT UNIONS - GOVERNMENT CASH PORTFOLIO
AND TREASURY CASH PORTFOLIO
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Government Cash Portfolio and Treasury Cash Portfolio limit their investments to
investments that are legally permissible for Federally chartered credit unions
under applicable provisions of the Federal Credit Union Act (including 12 U.S.C.
Section 1757(7), (8) and (15)) and the applicable rules and regulations of the
National Credit Union Administration (including 12 C.F.R. Part 703, Investment
and Deposit Activities), as such statutes and rules and regulations may be
amended. The Portfolios limit their investments to U.S. Government Securities
(including Treasury STRIPS) and repurchase agreements fully collateralized by
U.S. Government Securities. Certain U.S. Government Securities owned by
Government Cash Portfolio may be mortgage or asset backed , but, except to
reduce interest rate risk, no such security will be (i) a stripped mortgage
backed security (SMBS"), (ii) a collateralized mortgaged obligation ("CMO") or
real estate mortgage investment conduit ("REMIC") that meets any of the tests
outlined in 12 C.F.R. Section 703.5(g) or (iii) a residual interest in a CMO or
REMIC. In order to reduce interest rate risk Government Cash Portfolio may
purchase a SMBS, CMO, REMIC or residual interest in a CMO or REMIC but only in
accordance with 12 C.F.R. Section 703.5(i). Government Cash Portfolio has no
current intention to make any such investment. Each Portfolio also may invest in
reverse repurchase agreements in accordance with 12 C.F.R. 703.4(e) to the
extent otherwise permitted hereunder and in the Prospectus.
INVESTMENTS BY SHAREHOLDERS THAT ARE SAVINGS ASSOCIATIONS - GOVERNMENT CASH
PORTFOLIO AND TREASURY CASH PORTFOLIO
Government Cash Portfolio limits its investments to investments that are legally
permissible for Federally chartered savings associations without limit as to
percentage under applicable provisions of the Home Owners' Loan Act (including
12 U.S.C. Section 1464) and the applicable rules and regulations of the Office
of Thrift Supervision, as such statutes and rules and regulations may be
amended. In addition, the Portfolio limits its investments to investments that
are permissible for an open-end investment company to hold and would permit
shares of the investment company to qualify as liquid assets under 12 C.F.R.
Section 566.1(g) and as short-term liquid assets under 12 C.F.R. Section
566.1(h). These policies may be amended only by approval of the Portfolio's and
Fund's shareholders, as applicable.
4. PERFORMANCE DATA AND ADVERTISING
For a listing of certain performance data as of August 31, 1997, see Appendix B.
YIELD INFORMATION
Each Fund may provide current annualized and effective annualized yield
quotations for each class based on its daily distributions. These quotations may
from time to time be used in advertisements, shareholder reports or other
communications to shareholders. All performance information supplied by a Fund
is historical and is not intended to indicate future returns.
In performance advertising, the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC Financial Data, Inc. or CDA/Wiesenberger
or other companies which track the investment performance of investment
companies ("Fund Tracking Companies"). The Funds may also compare any of their
performance information with the performance of recognized stock, bond and other
indexes. The Funds may also refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussion of a Fund and comparative mutual fund
data and ratings reported in independent periodicals, such as newspapers and
financial magazines.
Any current yield quotation of a class of a Fund which is used in such a manner
as to be subject to the provisions of Rule 482(d) under the Securities Act of
1933, as amended, shall consist of an annualized historical yield, carried at
least to the nearest hundredth of one percent, based on a specific
seven-calendar-day period and shall be calculated by dividing the net change
during the seven-day period in the value of an account having a balance of one
share at the beginning of the period by the value of the account at the
beginning of the period, and multiplying the quotient by 365/7. For this
purpose, the net change in account value would reflect the value of additional
shares purchased with distributions declared on the original share and
distributions declared on both the original share and any such
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additional shares, but would not reflect any realized gains or losses from the
sale of securities or any unrealized appreciation or depreciation on portfolio
securities. In addition, any effective annualized yield quotation used by a Fund
shall be calculated by compounding the current yield quotation for such period
by adding 1 to the product, raising the sum to a power equal to 365/7, and
subtracting 1 from the result.
Although published yield information is useful to investors in reviewing a
class' performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the class' 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, Participating Organizations (as that term is used in
the Prospectus) may charge their customers direct fees in connection with an
investment in a Fund, which will have the effect of reducing the class' net
yield to those shareholders. The yields of a class 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 directly
to compare a Fund's yield information to similar information of investment
alternatives which are insured or guaranteed.
Income calculated for the purpose of determining a class' 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 a class may differ from the rate of
distribution the class paid over the same period or the rate of income reported
in the Fund's financial statements.
OTHER PERFORMANCE AND SALES LITERATURE MATTERS
Total returns quoted in sales literature reflect all aspects of a Fund's return,
including the effect of reinvesting capital gain distributions. Average annual
returns generally are calculated by determining the growth or decline in value
of a hypothetical historical investment in a 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. 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 Funds.
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.
OTHER ADVERTISING MATTERS
The Funds may advertise other forms of performance. For example, 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 broken
down into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship of se factors
and their contributions to total return. Any performance information may be
presented numerically or in a table, graph or similar illustration.
10
<PAGE>
A 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 or by maturity, (ii)
descriptions of the portfolio managers of the Funds or the Portfolios and the
portfolio management staff of the Adviser or summaries of the views of the
portfolio managers with respect to the financial markets, (iii) the results of a
hypothetical investment in a Fund over a given number of years, including the
amount that the investment would be at the end of the period, (iv) 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
and (v) the net asset value, net assets or number of shareholders of a Fund as
of one or more dates.
In connection with its advertisements a Fund may provide "shareholders letters"
which serve to provide shareholders or investors an introduction into the
Fund's, the Portfolio's, the Trust's, Core Trust's or any of the Trust's of Core
Trust's service provider's policies or business practices.
5. MANAGEMENT
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and Officers of the Trust and their principal occupation 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.
Rudolph I. Estrada, Trustee (age 50)
President and Chief Executive Officer of Summit Group, a banking and business
consulting company, since 1987. Mr. Estrada was also a Presidential appointee to
the White House Commission on Small Business in 1993. He is also Professor
(Adjunct) of Finance and Management and Director of the Small Business Institute
at California State University; and Director, Pacific Crest Loan & Investment,
Augura, California. His address is 625 Fair Oaks Avenue, Suite 225, South
Pasadena, California 91030.
Maurice J. DeWald, Trustee (age 58)
Chairman and Chief Executive Officer, Verity Financial Group, Inc. (a financial
advisory firm) since May 1991. Mr. DeWald also serves as a director of Tenet
Healthcare Corporation, ARV AssistedLiving, Inc. and Dai-Ichi Kangyo Bank of
California. His address is 19200 Von Karman Avenue, Suite 400, Irvine,
California 92612.
Robert F. Franko, Trustee (age 50)
President of Imperial Financial Group, Inc. since February 1997 and Imperial
Trust Company since February 1995. From February 1995 to April 1997 Mr. Franko
was Executive Vice President and Chief Financial Officer of Imperial Bank and
Imperial Bancorp. and held various positions with other Imperial Bancorp.
subsidiaries. Prior thereto, Mr. Franko served in various capacities with the
Springfield and Morningside Groups, including President and Chief Executive
Officer of Springfield Bank & Trust Limited, Gibraltar and Managing Director of
Springfield Securities Limited. His address is 1840 Century Park East, 10th
Floor, Los Angeles, California 90067.
John Y. Keffer,* Trustee, Chairman and President (age 55)
President, Forum Financial Group, LLC (mutual fund services company holding
company). Mr. Keffer is also a director and/or officer of various registered
investment companies for which the various Forum Financial Group of Companies
provides services. His address is Two Portland Square, Portland, Maine 04101.
Jack J. Singer, Trustee (age 53)
Senior Vice President, Imperial Bank since November 1992, and Senior Vice
President, Imperial Bank since November 1987. His address is 9920 South
LaCienega Boulevard, Inglewood, California 90301.
11
<PAGE>
David I. Goldstein, Vice President and Secretary (age 36)
General Counsel, Forum Financial Group, LLC, with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm of
Kirkpatrick & Lockhart LLP. Mr. Goldstein also serves as an officer of various
registered investment companies for which the various Forum Financial Group of
Companies provides services. His address is Two Portland Square, Portland, Maine
04101.
Sara M. Morris, Treasurer (age 35)
Chief Financial Officer, Forum Financial Group, LLC, with which she has been
associated since 1994. Prior thereto, from 1991 to 1994, Ms. Morris 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. Morris is also an officer of various registered investment
companies for which the Forum Financial Group of companies provides services.
Her address is Two Portland Square, Portland, Maine 04101.
Beth P. Hanson, Assistant Secretary (age 31)
Corporate Administrator, Forum Financial Group, LLC, with which she has been
associated since 1995. Prior thereto, Ms. Hanson was an English language
instructor with the Overseas Training Center, Inc. in Osaka, Japan. Her address
is Two Portland Square, Portland, Maine 04101.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core 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 Core Trust is indicated by an asterisk.
Messrs., Keffer and Goldstein, 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.
John Y. Keffer*, Chairman and President
Costas Azariadis, Trustee (age 54)
Professor of Economics, University of California, Los Angeles, since July 1992.
Prior thereto, Dr. Azariadis was Professor of Economics at the University of
Pennsylvania. His address is Department of Economics, University of California,
Los Angeles, 405 Hilgard Avenue, Los Angeles, California 90024.
James C. Cheng, Trustee (age 55)
President of Technology Marketing Associates (a marketing consulting company)
since September 1991. Prior thereto, Mr. Cheng was President and Chief Executive
Officer of Network Dynamics, Incorporated (a software development company). His
address is Two Portland Square, Portland, Maine 04101.
J. Michael Parish, Trustee (age 54)
Partner at the law firm of Reid & Priest. Prior to 1995, Mr. Parish was a
partner at Winthrop Stimson Putnam & Roberts since 1989. His address is 40 West
57th Street, New York, New York 10019.
Sara M. Morris, Vice President and Treasurer (age 34)
Chief Financial Officer, Forum Financial Group, LLC, 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
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<PAGE>
also an officer of various registered investment companies for which the Forum
Financial Group of companies provides services. Her address is Two Portland
Square, Portland, Maine 04101.
David I. Goldstein, Vice President and Secretary
Thomas G. Sheehan, Vice President and Assistant Secretary (age 43)
Director, Relationship Management, Forum Financial Group, LLC, since October,
1993. Prior thereto, Mr. Sheehan was a Special Counsel in the Division of
Investment Management of the U.S. Securities and Exchange Commission in
Washington, D.C. His address is Two Portland Square, Portland, Maine 04101.
Renee Walker, Assistant Secretary (age 27)
Assistant Relationship Manager, Forum Financial Group, LLC, 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. 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.
TRUSTEE AND OFFICER COMPENSATION
Each Trustee of the Trust is paid $2,000 ($1,000 prior to April 1997) for each
Board meeting attended (whether in person or by electronic communication) and is
paid $2,000 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. No officer of the Trust is
compensated by the Trust, but officers are reimbursed for travel and related
expenses incurred in attending meetings of the Board. Since commencement of the
Trust's operations, Messrs. Keffer, Singer and Franko have not accepted any fees
for their services as Trustees.
The following table provides the aggregate compensation paid to each Trustee for
the twelve months ended August 31, 1997. The Trust has not adopted any form of
retirement plan covering Trustees or officers.
<TABLE>
<S> <C> <C> <C> <C>
Accrued Annual
Aggregate Pension Benefits Upon Total
Trustee Compensation Benefits Retirement Compensation
------- ------------ -------- ---------- ------------
Mr. DeWald $7,000 None None $7,000
Mr. Estrada $7,000 None None $7,000
Mr. Franko None None None None
Mr. Keffer None None None None
Mr. Singer None None None None
</TABLE>
Each Trustee of Core Trust is paid $1,000 for each meeting of the Core Trust
Board attended (whether in person or by electronic communication) plus $100 for
each active portfolio of Core Trust and is paid $1000 for each committee meeting
attended on a date when the Core Trust Board meeting is not held. As of August
31, 1997, there were fifteen active portfolios of Core Trust (including the
Portfolios). Trustees are also reimbursed for travel and related expenses
incurred in attending meetings of the Core Trust Board. No officer of Core Trust
is compensated or reimbursed for expenses by Core Trust. Since commencement of
the Trust's operations, Mr. Keffer has not accepted any fees for his services as
Trustee. Core Trust trustee expenses were less than $5,000 for the twelve months
ended August 31, 1997.
The following table provides the aggregate compensation paid to each trustee of
Core Trust for the twelve months ended August 31, 1997. Core Trust has not
adopted any form of retirement plan covering trustees or officers of Core Trust.
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Accrued Annual
Aggregate Pension Benefits Upon Total
Trustee Compensation Benefits Retirement Compensation
------- ------------ -------- ---------- ------------
Mr. Azariadis $7,900 None None $7,900
Mr. Parish $7,900 None None $7,900
Mr. Cheng $7,900 None None $7,900
Mr. Keffer None None None None
</TABLE>
INVESTMENT ADVISER
The Funds do not have an investment adviser. In the event that the Board
determines it is in the best interest of a Fund to withdraw its investment from
its corresponding Portfolio, the Board will determine whether to invest in a
similar portfolio or to directly retain an investment adviser. Shareholder
approval of a new investment advisory agreement between the Trust and the
Adviser would not be necessary, provided that the agreement is substantially
similar to the current Investment Advisory Agreement of Core Trust with respect
to the portfolio in which the Fund invests.
The Adviser furnishes at its own expense all services, facilities and personnel
necessary in connection with managing each Portfolio's investments and effecting
portfolio transactions for each Portfolio. The Investment Advisory Agreement
between Core Trust and the Adviser will continue in effect only if its
continuance is specifically approved at least annually by the Core Trust Board
or by vote of the respective Portfolio's shareholders, and in either case, by a
majority of the Core Trust trustees who are not parties to the Investment
Advisory Agreement or interested persons of any such party at a meeting called
for the purpose of voting on the Investment Advisory Agreement.
The Investment Advisory Agreement is terminable without penalty by Core Trust
with respect to a Portfolio on 60 days' written notice when authorized either by
vote of the Portfolio's interestholders or by a vote of a majority of the Core
Trust Board, or by the Adviser on 60 days' written notice and will automatically
terminate in the event of its assignment. The Investment Advisory Agreement also
provides that, with respect to each Portfolio, the Adviser shall not be liable
for any error of judgment or mistake of law or for any act or omission in the
performance of the Adviser's duties or by reason of reckless disregard of the
Adviser's obligations and duties under the Investment Advisory Agreement.
For the services provided by the Adviser, Core Trust pays the Adviser, with
respect to each Portfolio, a fee based upon the total average daily net assets
of the Portfolios ("Total Portfolio Assets") at an annual rate of 0.06% of the
first $200 million of Total Portfolio Assets, 0.04% of the next $300 million of
Total Portfolio Assets, and 0.03% of the remaining Total Portfolio Assets. These
fees are accrued by Core Trust daily with respect to each Portfolio in the
proportion that Portfolio's average daily net assets bear to Total Portfolio
Assets and are payable monthly in arrears on the first day of each calendar
month for services performed under the agreement during the prior calendar
month. The Adviser is paid a minimum annual fee of $50,000 for its services to
the Trust with respect to the Portfolios.
The Adviser may carry out any of its obligations under the Investment Advisory
Agreement by employing, subject to the supervision of the Core Trust Board, one
or more subadvisers who are registered as investment advisers or who are exempt
from registration. The Investment Advisory Agreement provides that the Adviser
shall not be liable for any act or omission of any subadviser except with
respect to matters as to which the Adviser specifically assumes responsibility
in writing. There are currently no investment subadvisory agreements with
respect to the Portfolios.
The Adviser was established in 1987 and is indirectly wholly-owned and
controlled by John Y. Keffer. In connection with the January 2, 1998 acquisition
of Linden Asset Management, Inc., the former investment adviser of each
Portfolio, the Adviser has entered into a consulting agreement with a new
company solely owned by Anthony R. Fischer, Jr., former owner, president and
sole director of Linden, under which Mr. Fischer continues to provide portfolio
management services to the Portfolios under the supervision of the Adviser. Mr.
Fischer has over 20 years experience in managing pools of assets. He has managed
the Portfolios' (and prior to September 1995, the
14
<PAGE>
Funds') assets since October 1992. Prior thereto, he was as Senior Vice
President and Treasurer of United California Savings Bank, Santa Ana, California
from 1984 to 1989 and, immediately prior thereto, as a Manager for five years at
PaineWebber Jackson & Curtis, New York, New York.
Table 1 in Appendix C shows the dollar amount of investment advisory fees paid
by the Portfolios and the Funds.
MANAGER AND DISTRIBUTOR
MANAGEMENT SERVICES. The Administrator 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 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 an
Administration Agreement with the Trust. The Administration Agreement will
remain in effect for a period of twelve months with respect to a Fund and
thereafter is automatically renewed each year for an additional term of one
year.
The Administration Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' written notice. The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any act or omission in the
administration or management of the Trust, except for willful misfeasance, bad
faith or gross negligence in the performance of the Administrator's duties or by
reason of reckless disregard of its obligations and duties under the
Administration Agreement.
At the request of the Board, the Administrator provides persons satisfactory to
the Board to serve as officers of the Trust. Similarly, at the request of the
Core Trust Board, the Administrator provides persons satisfactory to the Core
Trust Board to serve as officers of Core Trust. Those officers, as well as
certain other employees and Trustees of the Trust and Core Trust, may be
directors, officers or employees of the Administrator, the Adviser, Forum or
their affiliates.
Table 2 in Appendix C shows the dollar amount of administration fees paid by the
Funds. Prior to December 1, 1997, Forum acted as administrator of the Trust
under an agreement substantially identical to the Administration Agreement.
The Administrator provides substantially similar services to each Portfolio
pursuant to an administration agreement with Core Trust. The provisions of that
agreement are substantially similar to those of the Trust's Administration
Agreement.
Table 2 of Appendix C shows the dollar amount of administration fees paid by the
Portfolios. Prior to June 1, 1997, Forum acted as administrator of Core Trust
under an agreement substantially identical to the administration agreement
between Core Trust and the Administrator.
DISTRIBUTION SERVICES. Forum is the Trust's distributor and acts as the agent of
the Trust in connection with the offering of shares of the Funds (and each class
thereof) pursuant to a Distribution Agreement with the Trust. With respect to
each Fund, the Distribution Agreement will continue in effect for twelve months
and will continue in effect thereafter only if its continuance is specifically
approved at least annually by the Board or by vote of the shareholders entitled
to vote thereon, and in either case, by a majority of the Trustees who (i) are
not parties to the Distribution Agreement, (ii) are not interested persons of
any such party or of thrust and (iii) with respect to any class for which the
Trust has adopted a distribution plan, have no direct or indirect financial
interest in the operation of that distribution plan or in the Distribution
Agreement, at a meeting called for the purpose of voting on the Distribution
Agreement. All subscriptions for shares obtained by Forum are directed to the
Trust for acceptance and are not binding on the Trust until accepted by it.
Forum receives no compensation or reimbursement of expenses for the distribution
services provided pursuant to the Distribution Agreement except as may be paid
with respect to the Investor class pursuant to that class' distribution plan.
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<PAGE>
The Distribution Agreement provides that Forum shall not be liable for any error
of judgment or mistake of law or in any event whatsoever, except for willful
misfeasance, bad faith or gross negligence in the performance of Forum's duties
or by reason of reckless disregard of its obligations and duties under the
Distribution Agreement.
The Distribution Agreement is terminable with respect to a Fund without penalty
by the Trust 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 Forum on 60
days' written notice, and will automatically terminate in the event of its
assignment. With respect to any class that has adopted a distribution plan, the
Distribution Agreement is also terminable upon similar notice by a majority of
the Trustees who (i) are not interested persons of the Trust and (ii) have no
direct or indirect financial interest in the operation of that distribution plan
or in the Distribution Agreement ("Qualified Trustees"). The Distribution
Agreement will automatically terminate in the event of its assignment.
Forum acts as sole placement agent for interests in the Portfolios and receives
no compensation for those services from the Portfolios.
EXPENSES
The Trust pays all of its expenses, including: interest charges, taxes,
brokerage fees and commissions; expenses of issue, repurchase and redemption of
shares; premiums of insurance for the Trust, its Trustees and officers and
fidelity bond premiums; applicable fees, interest charges and expenses of third
parties, including the Trust's manager, investment adviser, investment
subadviser, custodian, transfer agent and fund accountant; fees of pricing,
interest, distribution, credit and other reporting services; costs of membership
in trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and
maintaining its existence; costs of preparing and printing the Trust's
prospectuses, statements of additional information and shareholder reports and
delivering them to existing shareholders; expenses of meetings of shareholders
and proxy solicitations therefore; costs of maintaining books and accounts and
preparing tax returns; costs of reproduction, stationery and supplies; fees and
expenses of the Trust's Trustees; compensation of the Trust's officers and
employees who are not employees of the Adviser, Forum or their respective
affiliates and costs of other personnel (who may be employees of the Adviser,
Forum or their respective affiliates) performing services for the Trust; costs
of Trustee meetings; SEC registration fees and related expenses; and state or
foreign securities laws registration fees and related expenses.
Fund expenses also include the Fund's pro rata portion of expenses of its
corresponding Portfolio.
The estimated total operating expenses for each class of shares of each Fund for
the Trust's current fiscal year are as follows:
<TABLE>
<S> <C> <C> <C>
Treasury Government
Cash Fund Cash Fund Cash Fund
--------- --------- ---------
Universal Shares 0.25% 0.17% 0.23%
Institutional Shares 0.45% 0.57% 0.57%
Investor Shares 0.83% 0.83% 0.83%
</TABLE>
This information for the respective class is provided in the "Prospectus
Summary" section of each prospectus.
INVESTOR CLASS DISTRIBUTION PLAN
In accordance with Rule 12b-1 under the 1940 Act, with respect to the Investor
Class of each Fund, the Trust adopted a distribution plan (the "Investor Class
Plan") which provides for the payment to Forum of a Rule 12b-1 fee at the annual
rate of 0.25% of the average daily net assets of the Investor class of each Fund
as compensation for Forum's services as distributor.
The Investor Class Plan provides that all written agreements relating to that
plan must be approved by the Board, including a majority of the Qualified
Trustees. In addition, the Investor Class Plan (as well as the Distribution
16
<PAGE>
Agreement) requires the Trust and Forum to prepare and submit to the Board, at
least quarterly, and the Board will review, written reports setting forth all
amounts expended under the Investor Class Plan and identifying the activities
for which those expenditures were made.
The Investor Class Plan provides that it will remain in effect for one year from
the date of its adoption and thereafter shall continue in effect provided it is
approved at least annually by the shareholders or by the Board, including a
majority of the Qualified Trustees. The Investor Class 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 Investor Class Plan without
shareholder approval and that other material amendments of the Investor Class
Plan must be approved by the Qualified Trustees. The Investor Class Plan may be
terminated at any time by the Board, by a majority of the Qualified Trustees, or
by a Fund's Investor class shareholders.
Table 3 in Appendix C shows the dollar amount of fees paid under the Investor
Class Plan with respect to each Fund.
For the years ended August 31, 1997, 1996 and 1995, all amounts paid to Forum
under the investor Class Plan were paid out to various financial intermediaries
not affiliated with Forum for their distribution services.
TRANSFER AGENT
Forum Financial Corp. acts as transfer agent, distribution disbursing agent and
fund accountant for the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement is automatically renewed each year for an additional
term of one year.
Among the responsibilities of the FFC as transfer agent for the Trust are, with
respect to shareholders of record: (1 (1) answering customer inquiries regarding
account status and history, the manner in which purchases and redemptions of
shares of the Funds may be effected and certain other matters pertaining to the
Funds; (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, assisting in processing
purchase and redemption transactions and receiving wired funds; (4) transmitting
and receiving funds in connection with customer orders to purchase or redeem
shares; (5) verifying shareholder signatures in connection with changes in the
registration of shareholder accounts; (6) furnishing periodic statements and
confirmations of purchases and redemptions; (7) arranging for the transmission
of proxy statements, annual reports, prospectuses and other communications from
the Trust to its shareholders; (8) arranging for the receipt, tabulation and
transmission to the Trust of proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and (9) providing such other related
services as the Trust or a shareholder may reasonably request.
FFC or any sub-transfer agent or processing agent may also act and receipt
compensation for acting as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Funds. FFC or any sub-transfer agent or other
processing agent may elect to credit against the fees payable to it by its
clients or customers all or a portion of any fee received from the Trust or from
FFC with respect to assets of those customers or clients invested in the Funds.
FFC, Forum or sub-transfer agents or processing agents retained by the FFC may
be Participating Organizations and, in the case of sub-transfer agents or
processing agents, may also be affiliated persons of FFC or Forum.
For its transfer agency services, FFC receives an annual fee from each Fund of
0.05% of each Fund's average daily net assets attributable to Universal Shares
and 0.20% of each Fund's average daily net assets attributable to Institutional
Shares and Investor Shares. Prior to September 1, 1995, the fee was 0.25% with
respect to each class of shares. In addition, FFC receives a fee from each Fund
of $6,000 per year for each class of shares above one for which there are shares
outstanding plus an annual per shareholder account fee of $120 per Universal
Shares shareholder and $24 per Institutional Shares and Investor Shares
shareholder. Prior to September 1, 1995, the shareholder account fee was $18 per
account.
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<PAGE>
Forum Accounting acts as interestholder recordkeeper for each Portfolio. See
"Management -- Fund Accountant" below.
Table 4 in Appendix C shows the dollar amount of fees paid under the Transfer
Agent Agreement with respect to each Fund.
SHAREHOLDER SERVICE AGREEMENTS
The Trust has adopted a shareholder service agreement ("Shareholder Service
Agreement") with respect to the Institutional class and the Investor class of
each Fund which provides that the Administrator may obtain the services of
financial institutions, including Imperial Trust Company (the Trust's
custodian), to act as shareholder servicing agents for their customers invested
in those classes.
In adopting the Shareholder Service Agreement, the Trustees considered among
other things whether (i) the Shareholder Service Agreement is in the best
interests of the applicable classes and their respective shareholders, (ii) the
services to be performed pursuant to the Shareholder Service Agreement are
required for the operation of the applicable classes, (iii) the service
organizations can provide services at least equal, in nature and quality, to
those provided by others, including the Trust, providing similar services, and
(iv) the fees for such services are fair and reasonable in light of the usual
and customary charges made by other entities, especially non-affiliated
entities, for services of the same nature and quality.
The Shareholder Service Agreement provides that all written agreements relating
to that plan must be approved by the Board, including a majority of the
Qualified Trustees. In addition, the Shareholder Service Agreement (as well as
the various shareholder service agreements) requires the Trust and the
Administrator to prepare and submit to the Board, at least quarterly, and the
Board will review written reports setting forth all amounts expended under the
plan and identifying the activities for which those expenditures were made.
The Shareholder Service Agreement provides that it will remain in effect for one
year from the date of its adoption and thereafter shall continue in effect
provided it is approved at least annually by the shareholders or by the Board,
including a majority of the Qualified Trustees. The Shareholder Service
Agreement further provides material amendments of the agreement must be approved
by the Qualified Trustees. The Shareholder Service Agreement may be terminated
at any time by the Board or by a majority of the Qualified Trustees.
The Trust may enter into shareholder servicing agreements with various
Shareholder Servicing Agents pursuant to which those agents, as agent for their
customers, may agree among other things to: (i) answer shareholder inquiries
regarding the manner in which purchases, exchanges and redemptions of shares of
the Trust may be effected and other matters pertaining to the Trust's services;
(ii) provide necessary personnel and facilities to establish and maintain
shareholder accounts and records; (iii) assist shareholders in arranging for
processing purchase, exchange and redemption transactions; (iv) arrange for the
wiring of funds; (v) guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
(vi) integrate periodic statements with other shareholder transactions; and
(vii) provide such other related services as the shareholder may request.
As Participating Organizations, some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of the
Trust's Prospectus, in addition to or different from those imposed by the Trust,
such as requiring a minimum initial investment or by charging their customers a
direct fee for their services. Some Shareholder Servicing Agents may also act
and receive compensation for acting as custodian, investment manager, nominee,
agent or fiduciary for its customers or clients who are shareholders of the
Funds with respect to assets invested in the Funds. These Shareholder Servicing
Agents may elect to credit against the fees payable to it by its clients or
customers all or a portion of any fee received from the Trust with respect to
assets of those customers or clients invested in the Funds.
Table 5 in Appendix C shows the dollar amount of fees paid under the Shareholder
Service Agreement with respect to Institutional Shares and Investor Shares of
each Fund. Prior to February 1, 1998, the fee payable under the
18
<PAGE>
Shareholder Service Agreement was 0.15% of the average net assets of each Fund
attributable to Institutional and Investor Shares.
FUND ACCOUNTANT
Forum Accounting provides accounting services for the Funds and interestholder
recordkeeper and accounting services for each Portfolio.
Under its agreement with Core Trust, Forum Accounting prepares and maintains
books and records of each Portfolio on behalf of Core Trust that are required to
be maintained under the 1940 Act, calculates the net asset value per share of
each Portfolio (and each investor therein) and prepares periodic reports to
interestholders of the Portfolios and the SEC. For these services and its
services as interestholder recordkeeper of the Portfolios, wherein it accounts
for the interest of each investor in the Portfolios. Forum Accounting receives
from Core Trust with respect to each Portfolio a fee of the lesser of 0.05% of
the average daily net assets of each Portfolio or $48,000 plus, for each
investor in a Portfolio above one (excluding Forum and its affiliates), $6,000
per year. In addition, Forum Accounting is paid an additional $12,000 per year
with respect to Portfolios with more than 25% of their total assets invested in
asset backed securities, that have more than 100 security positions or that have
a monthly portfolio turnover rate of 10% or greater.
Forum Accounting is required to use its best judgment and efforts in rendering
fund accounting services and is not be liable to Core Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting 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 Core
Trust has agreed to indemnify and hold harmless FFC, its employees, agents,
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 Forum Accounting's actions taken or failures to act with respect to a
Portfolio or based, if applicable, upon information, instructions or requests
with respect to a Portfolio given or made to Forum Accounting by an officer of
the Trust duly authorized. This indemnification does not apply to Forum
Accounting's actions taken or failures to act in cases of Forum Accounting's own
bad faith, willful misconduct or gross negligence.
The Trust has retained Forum Accounting as fund accountant to each Fund under
arrangements and agreements substantially similar to the arrangements and
agreements described above with respect to the Portfolios. No fee is payable for
fund accounting services to the Funds (a fee may be charged, subject to Board
approval). Prior to investing in the Portfolios, each Fund paid fund accounting
fees directly.
Table 6 in Appendix C shows the dollar amount of fees paid under the
Interestholder Recordkeeper and Fund Accounting Agreement with respect to each
Portfolio.
FORUM FINANCIAL GROUP
Each of the Administrator, the Adviser, Forum, FFC and Forum Accounting are
members of the Forum Financial Group of Companies. Each of these companies are
affiliated through the common control by John Y. Keffer.
6. DETERMINATION OF NET ASSET VALUE
The Trust and each Portfolio does not determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
Pursuant to the rules of the SEC, both the Board and the Core Trust Board have
established procedures to stabilize each Fund's and each Portfolio's, as
applicable, net asset value at $1.00 per share. These procedures include a
review of the extent of any deviation of net asset value per share as a result
of fluctuating interest rates, based on available market rates, from each Fund's
and Portfolio's, as applicable, $1.00 amortized cost price per share.
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<PAGE>
Should that deviation exceed 1/2 of 1%, the Board and the Core Trust Board,
respectively, will consider whether any action should be initiated to eliminate
or reduce material dilution or other unfair results to shareholders. Such action
may include redemption of shares in kind, selling portfolio securities prior to
maturity, reducing or withholding distributions and utilizing a net asset value
per share as determined by using available market quotations.
In determining the appropriate market value of portfolio investments, the
Portfolios may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried at their face value.
Each investor in a Portfolio including the Funds, may add to or reduce its
investment in that Portfolio on each Fund Business day. The Portfolios maintain
the same business days as do the Funds. As of the close of regular trading on
any Fund Business Day, the value of a Fund's beneficial interest in a Portfolio
is determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio. Any additions or reductions,
which are to be effected as of the close of the Fund Business Day, are then
effected. The Fund's percentage of the aggregate beneficial interests in the
Portfolio are then recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of the Fund's investment in the Portfolio as of
the close of the Fund Business Day plus or minus, as the case may be, the amount
of net additions to or reductions from the Fund's investment in the Portfolio
effected as of that time, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of the close of the Fund Business Day plus or
minus, as the case may be, the amount of net additions to or reductions from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage determined is then applied to determine the value of the Fund's
interest in the Portfolio as of the close of the next Fund Business Day.
7. PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities for each Portfolio usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
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 asked price.
There usually are no brokerage commissions paid for any purchases. Since each
Fund's inception, no brokerage fees were paid by any Fund (during those periods
of the Funds invested directly in securities). Since each Portfolio's inception,
no brokerage fees were paid by any Portfolio. While Core Trust does not
anticipate that the Portfolios will pay any amounts of commission, in the event
a Portfolio pays brokerage commissions or other transaction-related
compensation, the payments may be made to broker-dealers who pay expenses of the
Portfolio that it would otherwise be obligated to pay itself. Any transaction
for which a Portfolio pays transaction-related compensation will be effected at
the best price and execution available, taking into account the amount of any
payments made on behalf of the Portfolio by the broker-dealer effecting the
transaction.
Allocations of transactions to dealers and the frequency of transactions are
determined for each Portfolio by the Adviser in its best judgment and in a
manner deemed to be in the best interest of shareholders of that 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
Portfolio.
Investment decisions for the Portfolios will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Adviser, Forum Advisors or their respective affiliates. If,
however, a Portfolio and other investment companies or accounts managed by the
Adviser or Forum Advisors are contemporaneously engaged in the purchase or sale
of the same security, the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by a Portfolio or the size of the position obtainable for
the Portfolio. In addition, when purchases or sales of the same security for a
Portfolio and for other investment companies managed by the Adviser or Forum
Advisors
20
<PAGE>
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
For each shareholder of record of the Trust, FFC, as the shareholder's agent,
establishes an open account to which all shares purchased by the shareholder are
credited, together with any distributions that are reinvested in additional
shares.
Shares of each Fund are sold on a continuous basis by the distributor without
any sales charge. Shareholders may effect purchases or redemptions or request
any shareholder privilege in person at the offices of the Transfer Agent, which
are located at Two Portland Square, Portland, Maine 04101.
Investors who are not shareholders of record may nonetheless have the right to
vote shares depending upon their arrangement with the financial institution that
holds their shares.
Certain Participating Organizations (as defined in the Prospectus) may enter
purchase orders with payment to follow.
BANKING LAW INFORMATION
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and permit a bank or bank affiliate to serve as a Participating
Organization or perform sub-transfer agent or similar services for the Trust and
its shareholders. If a bank or bank affiliate were prohibited from performing
all or a part of the foregoing services, its shareholder customers would be
permitted to remain shareholders of the Trust and alternative means for
continuing to serve them would be sought.
REDEMPTION-IN-KIND
Redemptions 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. The Trust has filed an election with the SEC pursuant to which a Fund
will only consider effecting a redemption in portfolio securities if the
particular shareholder is redeeming more than $250,000 or 1% of the Fund's net
asset value, whichever is less, during any 90-day period.
Core Trust has filed a similar election.
PURCHASING SHARES OTHER THAN BY BANK WIRE
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares", the Trust may redeem shares involuntarily to reimburse a
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 shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
For individual and Uniform Gift/Transfer to Minors Act accounts, the check or
money order used to purchase shares of a Fund must be made payable to "Monarch
Funds" or to one or more owners of the account and endorsed to Monarch Funds.
For corporation, partnership, trust, 401(k) plan and other non-individual type
accounts, any check used to purchase shares of a Fund must be made payable to
"Monarch Funds." No other payment by checks will be accepted, All purchases must
be paid in U.S. dollars; checks must be drawn on U.S. depository institutions.
Payment by traveler's checks is prohibited.
Redemption proceeds will not be paid unless any check (including a certified or
cashier's check) used for investment has been cleared by the shareholder's bank,
which may take up to 15 calendar days.
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<PAGE>
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of each class of the Funds to
exchange their shares for shares of the same class of any other Fund of the
Trust or shares of certain other portfolios of investment companies which retain
Forum or its affiliates as investment advisor or distributor and which
participate in the Trust's exchange privilege program ("Participating Fund").
Exchange transactions will be made on the basis of relative net asset value per
share at the time of the exchange transaction. Exchanges are subject to the fees
charged by, and the restrictions listed in the Prospectus for, the Participating
Fund into which a shareholder is exchanging, including minimum investment
requirements. For Federal tax purposes, exchange transactions 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 the transaction.
By the use of the exchange privilege, the shareholder authorizes the Transfer
Agent to act upon the instruction of any person representing himself either to
be, or to have the authority to act on behalf of, the investor and is believed
by the Transfer Agent to be genuine. The records of the Transfer Agent of such
instructions are binding. Proceeds of an exchange transaction may be invested
only in another Participating Fund account for which the share registration is
the same as the account from which the exchange is made.
If a shareholder exchanges into a Participating Fund that imposes a sales
charge, that shareholder is required to pay the difference between the Fund's
sales charge and any sales charge the shareholder has previously paid in
connection with the shares being exchanged.
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without 60
days' notice to shareholders, to the extent required by the applicable
regulation.
CHECK WRITING
Because of the difficulty of determining in advance the exact value of a
shareholder's Fund account, a shareholder may not use a redemption draft
("check") to close a Fund account. There are currently no charges for the check
writing privilege, but a shareholder's Fund account will be charged a fee for
stopping payment of a check upon a Shareholder's request or if a check cannot be
honored because of insufficient funds or other valid reasons. All drafts are
payable through Imperial Bank, an affiliate of the Funds' custodian and the
checkwriting privilege is subject to such rules as Imperial Bank may from to
time adopt.
9. TAXATION
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, does not, of course, involve governmental supervision of
management or investment practices or policies. The information set forth in the
Prospectus and the following discussion relate solely to Federal income taxes on
distributions and other distributions by the Funds and assumes that each Fund
qualifies for treatment as a regulated investment company. Investors should
consult their own counsel for further details and for the application of
Federal, state and local tax laws to the investor's particular situation.
In order to continue to qualify for treatment as a regulated investment company
under the Internal Revenue Code, each Fund must distribute to its shareholders
for each taxable year at least 90% of its net investment income and must meet
several additional requirements. Among these requirements are the following: (1)
each Fund must derive at least 90% of its gross income each taxable year from
distributions, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities and certain other income; (2)
subject to certain exceptions, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government Securities and other securities, with
these other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets, and (3) subject to
certain exceptions, at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government Securities) of any one issuer.
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<PAGE>
Each Fund expects to derive substantially all of its gross income (exclusive of
capital gains) from sources other than dividends. Accordingly, it is expected
that none of the Funds' distributions will qualify for the dividends-received
deduction for corporations.
Distributions declared by a Fund in October, November, or December of any year
and payable to shareholders of record on a date in such a month will be deemed
to have been paid by the Fund and received by the shareholders on December 31 of
the year declared if paid by the Fund during the following January.
10. OTHER INFORMATION
CUSTODIAN
Pursuant to a Custodian Contract with Core Trust, Imperial Trust Company, 201
North Figueroa Street, Suite 610, Los Angeles, California 90012, a subsidiary of
Imperial Bank, acts as the custodian of each Portfolio's assets. The custodian's
responsibilities include safeguarding and controlling the Portfolios cash and
securities and determining income payable on and collecting interest on
Portfolio investments. Core Trust pays the custodian a fee at an annual rate of
0.025% of each Portfolio's average daily net assets.
AUDITORS
KPMG Peat Marwick LLP, independent auditors, acts as auditors for the Trust and
as auditors for the Portfolios.
THE TRUST AND ITS SHAREHOLDERS
The Trust is a business trust organized under Delaware law. Delaware law
provides that shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. The
securities regulators of some states, however, have indicated that they and the
courts in their state may decline to apply Delaware law on this point.
The Trust Instrument contains an express disclaimer of shareholder liability for
the debts, liabilities, obligations, and expenses of the Trust and requires that
a disclaimer be given in each contract entered into or executed by the Trust or
the Trustees. The Trust Instrument provides for indemnification out of each
series' property of any shareholder or former shareholder held personally liable
for the obligations of the series. The Trust Instrument also provides that each
series shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which Delaware law does not
apply, no contractual limitation of liability was in effect and the portfolio is
unable to meet its obligations. Forum believes that, in view of the above, there
is no risk of personal liability to shareholders.
The Trust Instrument further provides that the Trustees shall not be liable to
any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise by subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
The Board is required to call a meeting of shareholders for the purpose of
voting upon the removal of any trustee when so requested in writing by the
shareholders of record holding at least 10% of the Trust's outstanding shares.
Each series capital consists of shares of beneficial interest. Shares are fully
paid and nonassessable, except as set forth above with respect to Trustee and
shareholder liability. Shareholders representing 10% or more of the Trust or a
series may, as set forth in the Trust Instrument, call meetings of the Trust or
series for any purpose related to the Trust or series, as the case may be,
including, in the case of a meeting of the entire Trust, the purpose of voting
on removal of one or more Trustees.
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<PAGE>
Generally such terminations must be approved by the vote of the holders of a
majority of the outstanding shares of the Trust or the series; however, the
Trustees may, without prior shareholder approval, change the form of
organization of the Trust by merger, consolidation or incorporation. If not so
terminated or reorganized, the Trust and its series will continue indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote, cause
the Trust to merge or consolidate into one or more trusts, partnerships or
corporations or cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end management
investment company that will succeed to or assume the Trust's registration
statement.
SHAREHOLDINGS
As of December 5, 1996, the officers and trustees of the Trust as a group owned
less than 1% of the outstanding shares of each Fund.
Table 7 to Appendix C lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund.
MASTER FEEDER ARRANGEMENT
The Board may withdraw a Fund's assets from a Portfolio if it determines that to
be in the best interests of the Fund. The inability of a Fund that withdrew its
assets from its corresponding Portfolio to find a suitable investment adviser,
in the event the Board decided not to permit the Adviser to manage the Fund's
assets could have a significant impact on shareholders of the Fund. Each
investor in a Portfolio, including the Funds, may be deemed to be liable for all
obligations of the Portfolio, but not any other portfolio of Core Trust. The
risk to an investor in the Portfolio of incurring financial loss on account of
such liability, however, would be limited to circumstances in which the
Portfolio was unable to meet its obligations.
11. FINANCIAL STATEMENTS
The Statements of Assets and Liabilities, Statements of Operations, Statements
of Changes in Net Assets, notes thereto and Financial Highlights of the Funds
for the fiscal year ended August 31, 1997 and the Independent Auditors' Report
thereon (included in the Annual Report to Shareholders), which are delivered
along with this SAI, are incorporated herein by reference. Also incorporated by
reference into this SAI are the Schedules of Investments, Statements of Assets
and Liabilities, Statements of Operations, Statements of Changes in Net Assets,
and notes thereto, of the Portfolios for the fiscal year ended August 31, 1997
and the Independent Auditors' Report thereon (included in the Annual Report to
Shareholders).
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<PAGE>
APPENDIX A - DESCRIPTION OF CERTAIN SECURITIES RATINGS
1. CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
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 edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
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.
STANDARD & POOR'S CORPORATION ("S&P")
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.
FITCH INVESTORS SERVICE, INC. ("FITCH")
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.
A Bonds are considered to be investment grade 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.
Plus and minus signs are used with a rating symbol to indicate the relative
level of credit quality within the rating category. Plus and minus signs,
however, are not used in the AAA category.
2. COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
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 (or supporting institutions) 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.
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<PAGE>
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 & POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. 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 strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation. The capacity for
timely payment on issues with an A-2 designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1. A-3
issues have an adequate capacity for timely payment. They are, however, somewhat
more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. Issues rated B are regarded as
having only a speculative capacity for timely payment.
FITCH INVESTORS SERVICE, INC.
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+. Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good Credit Quality. 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 ratings.
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<PAGE>
APPENDIX B - PERFORMANCE DATA
For the seven day period ended August 31, 1997, the annualized yields of each of
the classes of the Funds that were then operating were as follows:
<TABLE>
<S> <C> <C> <C> <C>
7 Day 30 Day
7 Day Yield Effective Yield 30 Day Yield Effective Yield
----------- --------------- ------------ ---------------
Treasury Cash Fund
Institutional Shares 4.90% 5.02% 4.99% 5.10%
Investor Shares 4.52% 4.63% 4.61% 4.71%
Government Cash Fund
Universal Shares 5.49% 5.64% 5.47% 5.61%
Institutional Shares 5.10% 5.23% 5.08% 5.20%
Cash Fund
Universal Shares 5.51% 5.56% 5.51% 5.65%
Institutional Shares 5.12% 5.25% 5.12% 5.24%
Investor Shares 4.86% 4.98% 4.86% 4.97%
</TABLE>
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<PAGE>
For the periods ended August 31, 1997, the total return of each of the classes
of the Funds were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Month Three Months Calendar Year to Date One Year Three Years
--------- ------------ --------------------- -------- -----------
Cumulative Annualized Cumulative Annualized Cumulative Annualized Cumulative Annualized
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Treasury
Cash Fund
0.42 5.12 1.25 5.06 3.31 5.01 4.98 16.23 5.14
Institutional
Shares
0.39 4.73 1.16 4.67 3.04 4.60 4.58 -- --
Investor
Shares
Government
Cash Fund
0.46 5.60 1.38 5.59 3.64 5.52 5.49 17.82 5.62
Universal
Shares
0.43 5.20 1.28 5.19 3.37 5.10 5.06 16.54 5.23
Institutional
Shares
Cash Fund
0.46 5.65 1.39 5.65 3.63 5.50 5.43 17.66 5.57
Universal
Shares
0.43 5.24 1.28 5.20 3.37 5.10 5.07 16.60 5.25
Institutional
Shares
0.41 4.98 1.22 4.94 3.20 4.84 4.81 -- --
Investor
Shares
</TABLE>
<TABLE>
<S><C> <C> <C>
Five Years Since Inception
---------- ---------------
Cumulative Annualized
---------- ----------
n/a 20.29 4.56
n/a 8.77 4.64
n/a 25.42 4.79
n/a 23.68 4.48
n/a 25.07 4.82
n/a 23.56 4.55
n/a 11.24 4.93
</TABLE>
Inception dates are listed in the Funds' annual report.
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<PAGE>
APPENDIX C- MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
Prior to January 1, 1998, the Portfolios paid advisory fees to Linden Asset
Management, Inc., the Portfolios' investment adviser. Prior to September 1,
1995, the Funds paid advisory fees directly to Linden Asset Management, Inc.
For the fiscal year ended August 31, 1997, the fees paid under the Investment
Advisory Agreement with respect to each Portfolio were:
Treasury Cash Portfolio $19,083
Government Cash Portfolio $196,857
Cash Portfolio $72,872
For the fiscal year ended August 31, 1996, the fees paid under the Investment
Advisory Agreement with respect to each Portfolio were:
Treasury Cash Portfolio $12,930
Government Cash Portfolio $156,552
Cash Portfolio $38,083
For the fiscal year ended August 31, 1995, the fees paid under the Investment
Advisory Agreement with respect to each Fund were:
Treasury Cash Fund $9,149
Government Cash Fund $91,590
Cash Fund $37, 794
TABLE 2 - ADMINISTRATION FEES
For the fiscal year ended August 31, 1997, the fees payable by the Funds under
the Administration Agreement were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $24,300 $24,300 $0
Government Cash Fund $252,810 $123,045 $129,765
Cash Fund $89,942 $2,893 $87,049
</TABLE>
For the fiscal year ended August 31, 1996, the fees payable by the Funds under
the Administration Agreement were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $19,198 $9,307 $9,891
Government Cash Fund $230,547 $104,558 $125,989
Cash Fund $56,125 $3,719 $52,406
</TABLE>
For the fiscal year ended August 31, 1995, the fees payable by the Funds under
the Administration Agreement were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $21,691 $10,845 $10,846
Government Cash Fund $189,955 $81,307 $108,648
Cash Fund $89,392 $44,661 $44,731
</TABLE>
For the fiscal year ended August 31, 1997, the fees payable by the Portfolios
for administrative services were:
29
<PAGE>
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Portfolio $24,287 $14,346 $9,941
Government Cash Portfolio $252,821 $0 $252,821
Cash Portfolio $92,652 $7,621 $85,031
</TABLE>
For the fiscal year ended August 31, 1996, the fees payable by the Portfolios
for administrative services were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Portfolio $19,902 $17,696 $1,506
Government Cash Portfolio $230,634 $0 $230,634
Cash Portfolio $56,113 $12,698 $43,415
</TABLE>
TABLE 3 - INVESTOR CLASS DISTRIBUTION FEES
For the fiscal year ended August 31, 1997, no Investor Shares of Government Cash
Fund were outstanding and, accordingly, no fees were payable under the Investor
Class Plan with respect to Investor Shares of that Fund. For the fiscal year
ended August 31, 1997, the fees payable under the Investor Class Plan with
respect to the other Funds were as follows.
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $28,718 $0 28,718
Government Cash Fund n/a n/a n/a
Cash Fund $142,750 $0 $142,750
</TABLE>
For the fiscal year ended August 31, 1996, the fees payable under the Investor
Class Plan were as follows.
<TABLE>
<S> <C> <C> <C>
ACCRUED FEE FEE WAIVED FEE PAID
----------- ---------- --------
Treasury Cash Fund $5,089 $0 $5,089
Government Cash Fund $340 $8 $332
Cash Fund $37,340 $36 $37,304
</TABLE>
For the fiscal year ended August 31, 1995, no Investor Shares of Treasury Cash
Fund or Government Cash Fund were outstanding and, accordingly, no fees were
payable under the Investor Class Plan with respect to Investor Shares of those
Funds. For the fiscal year ended August 31, 1995, the fees payable under the
Investor Class Plan with respect to Cash Fund were as follows.
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund n/a n/a n/a
Government Cash Fund n/a n/a n/a
Cash Fund $684 $0 $684
</TABLE>
30
<PAGE>
TABLE 4 - TRANSFER AGENT FEES
For the fiscal year ended August 31, 1997, the fees payable by the Funds under
the Transfer Agency Agreement were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund
Institutional Shares $32,593 $22,400 $10,193
Investor Shares $84,369 $2 $84,367
Government Cash Fund
Universal Shares $145,679 $89,267 $56,412
Institutional Shares $536,252 $0 $536,252
Cash Fund
Universal Shares $11,015 $7,247 $3,768
Institutional Shares $123,240 $7 $123,233
Investor Shares $244,861 $0 $244,861
</TABLE>
TABLE 5 - SHAREHOLDER SERVICE FEES
INSTITUTIONAL SHARES
For the fiscal year ended August 31, 1997, the fees paid to the Administrator
under the Shareholder Service Agreement with respect to Institutional Shares
were as follows.
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $17,231 $22,277 $5,046
Government Cash Fund $389,295 $0 $389,295
Cash Fund $85,650 $29,315 $56,335
</TABLE>
For the fiscal year ended August 31, 1996, the fees paid to the Administrator
under the Shareholder Service Agreement with respect to Institutional Shares
were as follows.
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $54,540 $24,768 $29,772
Government Cash Fund $378,006 $0 $378,006
Cash Fund $136,336 $14,708 $121,628
</TABLE>
For the fiscal year ended August 31, 1995, the fees paid to the Administrator
under the Shareholder Service Agreement with respect to Institutional Shares
were as follows.
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $32,537 $18,345 $14,192
Government Cash Fund $240,423 $33,785 $206,638
Cash Fund $99,091 $15,852 $83,239
</TABLE>
INVESTOR SHARES
For the fiscal year ended August 31, 1997, no Investor Shares of Government Cash
Fund were outstanding and, accordingly, no fees were payable under the
Shareholder Service Agreement with respect to Investor Shares of that Fund. For
the fiscal year ended August 31, 1997, the fees paid to the Administrator under
the Shareholder Service Agreement with respect to Investor Shares were as
follows.
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $55,668 $2,875 $52,793
Cash Fund $175,845 $10,704 $165,141
</TABLE>
For the fiscal year ended August 31, 1996, the fees paid to the Administrator
under the Shareholder Service Agreement with respect to Investor Shares were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $3,053 $510 $2,543
Government Cash Fund $204 $5 $199
Cash Fund $22,404 $3,752 $18,652
</TABLE>
For the fiscal year ended August 31, 1995, no Investor Shares of Treasury Cash
Fund or Government Cash Fund were outstanding and, accordingly, no fees were
payable under the Shareholder Service Agreement with respect to Investor Shares
of those Funds. Fees paid to the Administrator under the Shareholder Service
Agreement with respect to Investor Shares of Cash Fund were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund n/a n/a n/a
Government Cash Fund n/a n/a n/a
Cash Fund $342 $0 $342
</TABLE>
TABLE 6 - FUND ACCOUNTING FEES
Prior to September 1, 1995, each Fund paid accounting fees directly. Since that
date, the Funds have incurred no fund accounting fees.
For the fiscal year ended August 31, 1997, the fees payable by the Portfolios
under the Fund Accounting and Interestholder Recordkeeping Agreement were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Portfolio $24,279 $0 $24,279
Government Cash Portfolio $48,000 $0 $48,000
Cash Portfolio $48,000 $0 $48,000
</TABLE>
For the fiscal year ended August 31, 1996, the fees payable by the Portfolios
under the Fund Accounting and Interestholder Recordkeeping Agreement were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Portfolio $28,518 $2,259 $26,259
Government Cash Portfolio $42,000 $0 $42,000
Cash Portfolio $42,000 $2,259 $39,741
</TABLE>
For the fiscal year ended August 31, 1995, the fees payable by the Funds under
the Transfer Agency and Fund Accounting Agreement for fund accounting services
were:
<TABLE>
<S> <C> <C> <C>
Accrued Fee Fee Waived Fee Paid
----------- ---------- --------
Treasury Cash Fund $36,000 $0 $36,000
Government Cash Fund $43,000 $0 $43,000
Cash Fund $43,250 $0 $43,250
</TABLE>
32
<PAGE>
TABLE 7 - 5% SHAREHOLDERS
As of January 9, 1998, the shareholders listed below owned of record 5% or more
of the outstanding shares of each class of shares of the Trust. Shareholders
beneficially owning 25% or more of the shares of a class, of a Fund or of the
Trust as a whole may be deemed to be controlling persons. By reason of their
substantial holdings of shares, these persons may be able to require the Trust
to hold a shareholder meeting to vote on certain issues and may be able to
determine the outcome of any shareholder vote. As noted, certain of these
shareholders are known to the Trust to hold their shares of record only and have
no beneficial interest, including the right to vote, in the shares.
As a percentage of all shares of the Trust outstanding, Imperial Bancorp and its
affiliates held 5.34% of the shares.
Holders of record only are noted as such.
<TABLE>
<S> <C> <C>
Percentage
TREASURY CASH FUND Percentage of of Fund
Institutional Shares Shareholders Shares Owned Shares Owned
--------------------------------- ------------ ------------
Imperial Trust Company (recordholder), Los Angeles, CA 44.29% 25.89%
Imperial Bank, Inglewood, CA 19.75% 11.54%
Vertical Networks, Inc., Sunnyvale, CA 6.42% ---
Sullivan Kelly & Associates, Inc., Pasadena, CA 5.60% ---
Percentage
TREASURY CASH FUND Percentage of of Fund
Investor Shares Shareholders Shares Owned Shares Owned
---------------------------- ------------ ------------
Imperial Bank (recordholder), Inglewood, CA 95.16% 39.53%
Percentage
GOVERNMENT CASH FUND Percentage of of Fund
Universal Shares Shareholders Shares Owned Shares Owned
----------------------------- ------------ ------------
Kitsap Federal Credit Union, Bremerton, WA 13.49% ---
Allied Grape Growers, Fresno, CA 11.26% ---
Imperial Bancorp, Inglewood, CA 10.54% ---
Visions Federal Credit Union, Endicott, NY 6.91% ---
First Fidelity Thrift & Loan, Irvine, CA 6.38% ---
IMH Commercial Holdings, Inc., Santa Ana Heights, CA 6.02% ---
Monterey Bay Bank, Watsonville, CA 5.17% ---
Highland Federal Bank, Burbank, CA 5.13% ---
Percentage
GOVERNMENT CASH FUND Percentage of of Fund
Institutional Shares Shareholders Shares Owned Shares Owned
--------------------------------- ------------ ------------
Imperial Trust Company (recordholder), Los Angeles, CA 17.70% 11.63%
North American Asset Development Corp.,
Walnut Creek, CA 8.91% 5.85%
RPM Investments, Los Angeles, CA 5.34% ---
33
<PAGE>
Percentage
CASH FUND Percentage of of Fund
Universal Shares Shareholders Shares Owned Shares Owned
----------------------------- ------------ ------------
Imperial Bank, Inglewood, CA 64.12% ---
Imperial Securities Corp., Inglewood, CA 35.88% ---
Percentage
CASH FUND Percentage of of Fund
Institutional Shares Shareholders Shares Owned Shares Owned
Imperial Trust Company (recordholder), Los Angeles, CA 56.23% 27.45%
Tegal Corporation, Petaluma, CA 13.26% 6.47%
David Duc, Los Gatos, CA 5.10% ---
Percentage
CASH FUND Percentage of of Fund
Investor Shares Shareholders Shares Owned Shares Owned
---------------------------- ------------- ------------
Imperial Bank (recordholder), Inglewood, CA 91.62% 43.71%
Imperial Bank Arizona, Phoenix, AZ 5.44% ---
</TABLE>
34
