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As filed with the Securities and Exchange Commission on February 28, 1996
File No. 811-8858
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3
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CORE TRUST (DELAWARE)
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: 207-879-1900
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David I. Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
(Name and Address of Agent for Service)
Copies to:
R. Darrell Mounts, Esq.
Kirkpatrick & Lockhart
South Lobby- 9th Floor
1800 M Street, N.W.
Washington, D.C. 20036-5891
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EXPLANATORY NOTE
This Registration Statement is being filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. Beneficial interests in
the series of Registrant are not being registered under the Securities Act of
1933, as amended, because such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of that act. Investments in Registrant's series may
only be made by certain institutional investors, whether organized within or
without the United States (excluding individuals, S corporations, partnerships,
and grantor trusts beneficially owned by any individuals, S corporations, or
partnerships). This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any beneficial interests in any
series of Registrant.
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PART A
CORE TRUST (DELAWARE)
TREASURY CASH PORTFOLIO
GOVERNMENT CASH PORTFOLIO
CASH PORTFOLIO
No changes are effected by this Post-Effective Amendment to the disclosure
regarding Treasury Cash Portfolio, Government Cash Portfolio and Cash Portfolio
included in Post-Effective Amendment No. 1 to Registrant's Registration
Statement filed September 1, 1995.
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PART A
CORE TRUST (DELAWARE)
TREASURY PORTFOLIO
No changes are effected by this Post-Effective Amendment to the disclosure
regarding Treasury Portfolio included in Post-Effective Amendment No. 2 to
Registrant's Registration Statement filed February 20, 1996.
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PART B
CORE TRUST (DELAWARE)
TREASURY CASH PORTFOLIO
GOVERNMENT CASH PORTFOLIO
CASH PORTFOLIO
No changes are effected by this Post-Effective Amendment to the disclosure
regarding Treasury Cash Portfolio, Government Cash Portfolio and Cash Portfolio
included in Post-Effective Amendment No. 1 to Registrant's Registration
Statement filed September 1, 1995.
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PART B
CORE TRUST (DELAWARE)
TREASURY PORTFOLIO
No changes are effected by this Post-Effective Amendment to the disclosure
regarding Treasury Portfolio included in Post-Effective Amendment No. 2 to
Registrant's Registration Statement filed February 20, 1996.
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PART A
CORE TRUST (DELAWARE)
SMALL COMPANY PORTFOLIO
INTERNATIONAL PORTFOLIO
INTERNATIONAL PORTFOLIO II
INDEX PORTFOLIO
Part A of this Registration Statement on Form N-1A, as amended through the date
hereof, relating to the Small Company Portfolio, International Portfolio,
International Portfolio II, and Index Portfolio of Core Trust (Delaware),
consists of the following Private Placement Memorandum. Responses to Items 1,
2, 3 and 5A of Form N-1A have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
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PART A
PRIVATE PLACEMENT MEMORANDUM
SMALL COMPANY PORTFOLIO
INTERNATIONAL PORTFOLIO
INTERNATIONAL PORTFOLIO II
INDEX PORTFOLIO
March 1, 1996
This Private Placement Memorandum relates to beneficial interests in the Small
Company Portfolio, International Portfolio, International Portfolio II, and
Index Portfolio (each a "Portfolio" and collectively the "Portfolios") of Core
Trust (Delaware) (the "Trust"), a registered, open-end management investment
company.
Investments in the Portfolio may only be made by certain institutional
investors, whether organized within or outside the United States (excluding
individuals, S corporations, partnerships, and grantor trusts beneficially owned
by any individuals, S corporations, or partnerships). An investor in the
Portfolio must also be an "accredited investor," as that term is defined under
Rule 501(a) of Regulation D under the Securities Act of 1933, as amended.
This Private Placement Memorandum does not constitute an offer to sell, or the
solicitation of an offer to buy, beneficial interests in the Portfolio. An
investor may subscribe for a beneficial interest in the Portfolio by contacting
Forum Financial Services, Inc., the Trust's placement agent (the "Placement
Agent"), at Two Portland Square, Portland, Maine 04101, (207) 879-1900, for a
complete subscription package, including a subscription agreement. The Trust
and the Placement Agent reserve the right to refuse to accept any subscription
for any reason.
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TABLE OF CONTENTS
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Page
General Description of Registrant . . . . . . . . . . .
Management of the Portfolios. . . . . . . . . . . . . .
Capital Stock and Other Securities. . . . . . . . . . .
Purchase of Securities. . . . . . . . . . . . . . . . .
Redemption or Repurchase. . . . . . . . . . . . . . . .
Pending Legal Proceedings . . . . . . . . . . . . . . .
______________________________________________________________________________
THE SECURITIES OF THE TRUST DESCRIBED IN THIS PRIVATE PLACEMENT MEMORANDUM HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER (1) THE TERMS OF THE TRUST INSTRUMENT OF THE
TRUST AND (2) THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
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PART A
PRIVATE PLACEMENT MEMORANDUM
SMALL COMPANY PORTFOLIO
INTERNATIONAL PORTFOLIO
INTERNATIONAL PORTFOLIO II
INDEX PORTFOLIO
March 1, 1996
GENERAL DESCRIPTION OF REGISTRANT (ITEM 4 OF FORM N-1A)
Core Trust (Delaware) (the "Trust") is a no-load, open-end management investment
company which was organized as a business trust under the laws of the State of
Delaware pursuant to a Trust Instrument dated September 1, 1994, as amended and
restated November 1, 1994.
Beneficial interests in the Trust are divided into four separate diversified
subtrusts or "series," each having a distinct investment objective and distinct
investment policies. These series -- International Portfolio, International
Portfolio II, Small Company Portfolio and Index Portfolio (each a Portfolio) --
commenced operations on November 10, 1994. The assets of each Portfolio belong
only to that Portfolio, and the assets belonging to a Portfolio shall be charged
with the liabilities of that Portfolio and all expenses, costs, charges and
reserves attributable to that Portfolio. The Trust is empowered to establish,
without investor approval, additional portfolios which may have different
investment objectives and policies.
Beneficial interests in the Portfolios are offered solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act").
Investments in International Portfolio may only be made by certain institutional
investors, whether organized within or outside the United States (excluding
individuals, S corporations, partnerships, and grantor trusts beneficially owned
by any individuals, S corporations, or partnerships). Investments in
International Portfolio II, Small Company Portfolio and Index Portfolio may only
be made by open-end management investment companies or their separate series for
which Norwest Bank Minnesota, N.A. ("Norwest") (or any person controlled by,
controlling or under common control with Norwest) acts as investment adviser
(collectively, "Norwest Gateways"). This registration statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
Norwest Investment Management ("NIM"), a part of Norwest, serves as the
investment adviser of Small Company Portfolio and Index Portfolio. Schroder
Capital Management International Inc. ("Schroder") serves as the investment
adviser of International Portfolio and International Portfolio II.
INVESTMENT OBJECTIVES
Small Company Portfolio's investment objective is to provide long-term capital
appreciation by investing primarily in small and medium-sized U.S.-based
("domestic companies") companies that are either growing rapidly or completing a
period of significant change.
International Portfolio's and International Portfolio II's investment objective
is to provide long-term capital appreciation by investing directly or indirectly
in high quality companies based outside the United States ("foreign companies").
Index Portfolio's investment objective is to duplicate the return of the
Standard & Poor's 500 Composite Stock Price Index.
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The investment objective of each Portfolio is fundamental and may not be changed
without investor approval. There can be no assurance that any Portfolio will
achieve its investment objective.
INVESTMENT PROGRAMS
To achieve its respective investment objective, each of Small Company Portfolio
and Index Portfolio invests primarily in common stocks and other equity
securities of domestic companies, and each of International Portfolio and
International Portfolio II invests primarily in common stocks and other equity
securities of foreign companies. Under normal circumstances, each Portfolio
will invest at least 65% of its net assets in equity securities. The domestic
securities in which a Portfolio invests are generally listed on a securities
exchange or included in the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market System. In the case of smaller companies,
these securities may be traded in the over-the-counter securities market.
Additional investment techniques, features and restrictions concerning the
Portfolios' investment programs are described in Part B.
SMALL COMPANY PORTFOLIO
Small Company Portfolio invests primarily in the common stock of small and
medium size domestic companies (i.e., those whose market capitalizations are
less than $750 million at the time of the Portfolio's purchase). Companies of
this market capitalization level are well below that of the average company in
the Standard & Poor's 500 Composite Stock Price Index (the "Index"). Market
capitalization refers to the total market value of a company's outstanding
shares of common stock.
Under normal circumstances, the Portfolio will not invest more than 10% of its
total assets in the securities of a single issuer. The Portfolio does not
currently invest in preferred stock or securities convertible into common stock
but reserves the right to do so in the future.
In selecting securities for the Portfolio, NIM uses the Small Company Growth
investment style, Small Company Stock style and the Small Company Value style.
Assets allocated to the Small Company style are invested 1/3 in the Small
Company Growth Fund style, 1/3 in the Small Company Stock style and 1/3 in the
Small Company Value style. Prior to December 11, 1995 the Portfolio did not
allocate any assets to the Small Company Value style. The allocation of 1/3 of
assets invested in the Portfolio to Small Company Value style is expected to be
completed by June 1, 1996. The Portfolio may in the future allocate its assets
to additional investment styles.
In selecting securities in the SMALL COMPANY GROWTH STYLE, NIM seeks to identify
companies that are rapidly growing (usually with relatively short operating
histories) or that are emerging from a period of investor neglect by undergoing
a dramatic change. These changes may involve a sharp increase in earnings, the
hiring of new management or measures taken to close the gap between its share
price and takeover/asset value. NIM may invest up to 10% of assets in foreign
securities and in American Depository Receipts, European Depository Receipts and
other similar securities of foreign issuers. See "Investment Programs -
International Portfolio and International Portfolio II - Foreign Investment
Risks and Considerations." In investing in accordance with this investment
style, the Portfolio may not invest more than 10% of its total assets in the
securities of a single issuer. In addition, in investing in accordance with this
style, the Portfolio does not currently invest in preferred stock and securities
convertible into common stock but reserves the right to do so in the future.
In selecting securities in the SMALL COMPANY STOCK STYLE, NIM seeks securities
with significant price appreciation potential and attempts to identify companies
that show above average growth, as compared to long term overall market growth.
In investing assets allocated to this investment style, NIM may invest in
preferred stock and securities convertible into common stock and may invest up
to 20% of total assets allocated to this style in foreign securities and in
American Depository Receipts, European Depository Receipts and other similar
securities of foreign issuers.
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In selecting securities in the SMALL COMPANY VALUE style, NIM seeks securities
that are conservatively valued in the marketplace relative to their underlying
fundamentals. Value investing provides investors with a less aggressive way to
take advantage of growth opportunities of small companies. In investing in
accordance with this style, NIM will seek to invest in stocks priced low,
relative to the stock of comparable companies, determined by price/earnings
ratios, cash flows or other measures. Value investing therefore may reduce
downside risk while offering potential for capital appreciation as a stock gains
favor among other investors and its stock price rises.
SMALL COMPANY INVESTMENT RISKS AND CONSIDERATIONS. Investments in smaller
companies generally involve greater risks than investments in larger companies
due to the small size of the issuer and the fact that the issuer may have
limited product lines, less access to financial markets and less management
depth. In addition, many of the securities of these firms trade less frequently
and in lower volumes than securities issued by larger firms. The result is that
the short-term volatility of those small company securities is greater than the
price volatility of the securities of larger, more established companies that
are widely held. The securities of small companies may also be more sensitive
to market changes generally than the securities of large companies.
The companies in which the Portfolio invests may be in a relatively early stage
of development or may produce goods and services which have favorable prospects
for growth due to increasing demand or developing markets. Frequently, such
companies have a small management group and single product or product line
expertise. These characteristics may result in an enhanced entrepreneurial
spirit and greater focus which may make such firms successful. NIM believes
that such companies may develop into significant business enterprises and that
an investment in such companies offers a greater opportunity for capital
appreciation than an investment in larger, more established entities. Small
companies frequently retain a large part of their earnings for research,
development and investment in capital assets, however, so that the prospects for
immediate dividend income are limited.
While securities issued by smaller capitalization companies historically have
experienced greater market appreciation than the securities of larger issuers,
there is no assurance that they will continue to do so or that the Portfolio
will be successful in identifying companies whose securities will appreciate.
INTERNATIONAL PORTFOLIO AND INTERNATIONAL PORTFOLIO II
International Portfolio and International Portfolio II are designed for
investors who desire to achieve international diversification of their
investments by participating in foreign securities markets. The Portfolios
should be considered only as a vehicle for international diversification and not
as a complete investment program.
International Portfolio and International Portfolio II will normally each invest
substantially all of its total assets in equity securities of foreign companies.
The Portfolios may also invest in the securities of closed-end investment
companies investing primarily in foreign securities and may invest in debt
obligations of foreign governments or their political subdivisions, agencies or
instrumentalities, of supranational organizations and of foreign corporations.
Investment will be diversified among securities of issuers in foreign countries
including Japan, Germany, the United Kingdom, France, the Netherlands, Hong
Kong, Singapore and Australia. In general, the Portfolios will invest only in
securities of companies and governments in countries that Schroder, in its
judgment, considers both politically and economically stable. The Portfolios
have no limit on the amount of their foreign assets which may be invested in any
one type of foreign instrument or in any foreign country. To the extent a
Portfolio concentrates its assets in a foreign country, the Portfolio will incur
greater risks.
International Portfolio and International Portfolio II may purchase preferred
stock and convertible debt securities, including convertible stock, and may
purchase American Depository Receipts, European Depository Receipts or other
similar securities of foreign issuers. The Portfolios may also enter into
foreign exchange contracts, including forward contracts to purchase or sell
foreign currencies, in anticipation of its currency requirements and to protect
against possible adverse movements in foreign exchange rates. Although such
contracts may reduce the risk of loss to a Portfolio from adverse movements in
currency values, the contracts also limit possible gains from favorable
movements.
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FOREIGN INVESTMENT RISKS AND CONSIDERATIONS. All investments, domestic and
foreign, involve certain risks. Investments in the securities of foreign
issuers may involve risks in addition to those normally associated with
investments in the securities of U.S. issuers. All foreign investments are
subject to risks of foreign political and economic instability, adverse
movements in foreign exchange rates, the imposition or tightening of exchange
controls or other limitations on repatriation of foreign capital, and changes in
foreign governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
International Portfolio's and International Portfolio II's investors; commission
rates payable on foreign transactions are generally higher than in the United
States; foreign accounting, auditing and financial reporting standards differ
from those in the United States and, accordingly, less information may be
available about foreign companies than is available about issuers of comparable
securities in the United States; and foreign securities may trade less
frequently and with lower volume and may exhibit greater price volatility than
United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Portfolios. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and each Portfolio is required to compute and distribute its income
in U.S. dollars. Accordingly, a decline in the value of a particular foreign
currency against the U.S. dollar occurring after a Portfolio's income has been
earned and computed in U.S. dollars may require the Portfolio to liquidate
portfolio securities to acquire sufficient U.S. dollars to make a distribution.
Similarly, if the exchange rate declines between the time a Portfolio incurs
expenses in U.S. dollars and the time such expenses are paid, the Portfolio may
be required to liquidate additional foreign securities to purchase the U.S.
dollars required to meet such expenses.
INDEX PORTFOLIO
Index Portfolio is designed to duplicate the return of the Standard & Poor's 500
Composite Stock Price Index with minimum tracking error, while also minimizing
transaction costs. Under normal circumstances, the Portfolio will hold stocks
representing 96% or more of the capitalization-weighted market values of the
Index. Portfolio transactions for the Portfolio generally are executed only to
duplicate the composition of the Index, to invest cash received from portfolio
security dividends or interestholder investments in the Portfolio, and to raise
cash to fund redemptions of beneficial interests. The Portfolio may hold cash
or cash equivalents for the purpose of facilitating payment of the Portfolio's
expenses or redemptions of beneficial interests. For these and other reasons,
the Portfolio's performance can be expected to approximate, but not be equal to,
that of the Index.
In addition, the Portfolio may utilize index futures contracts to a limited
extent. Index futures contracts are bilateral agreements whereby two parties
agree to take or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
As no physical delivery of securities comprising the index is made, a purchaser
of index futures contracts may participate in the performance of the securities
contained in the index without the required capital commitment.
Index futures contracts may be used for several reasons: to simulate full
investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading or to reduce transactions costs. For
a description of futures contracts and their risks see "Appendix A: Investments,
Investment Strategies and Risk Considerations - Futures Contracts and Options."
The Index tracks the total return performance of 500 common stocks which are
chosen for inclusion by Standard & Poor's Corporation ("S&P") on a statistical
basis. The inclusion of a stock in the Index in no way implies that S&P
believes the stock to be an attractive investment. The 500 securities, most of
which trade on the New York Stock
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Exchange, represent approximately 70% of the total market value of all U.S.
common stocks. Each stock in the Index is weighted by its market value.
Because of the market-value weighing, the 50 largest companies in the Index
currently account for approximately 45% of its value. The Index emphasizes
large-capitalizations and, typically, companies included in the Index are the
largest and most dominant firms in their respective industries.
The Portfolio is not sponsored, endorsed, sold or promoted by S&P, nor does S&P
make any representation or warranty, implied or express, to the purchasers of
the Portfolio or any member of the public regarding the advisability of
investing in index funds or the ability of the Index to track general stock
market performance. S&P does not guarantee the accuracy and/or the completeness
of the Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Portfolio, owners of the Portfolio, any person or any entity from the use of
the Index or any data included therein. S&P makes no express or implied
warranties and expressly disclaims all such warranties of merchantability or
fitness for a particular purpose for use with respect to the Index or any data
included therein.
OTHER INVESTMENT POLICIES AND LIMITATIONS
All investment policies and limitations of a Portfolio that are designated as
fundamental, and each Portfolio's investment objective, may not be changed
without approval of the holders of a majority of the outstanding voting
interests (defined in the same manner as the phrase "vote of a majority of the
outstanding voting securities is defined in the Investment Company Act of 1940
("1940 Act")) of the Portfolio. All other investment policies and limitations
of the Portfolios are not fundamental and may be changed by the Trust's Board of
Trustees without investor approval.
NIM anticipates that the annual portfolio turnover rate in the Index Portfolio
will be less than 100% and that the annual portfolio turnover rate in the Small
Company Portfolio will be less than 125%. Schroder anticipates that the annual
portfolio turnover rate in International Portfolio and International Portfolio
II will be less than 100%. An annual portfolio turnover rate of 100% would
occur if all of the securities in a Portfolio were replaced once in a period of
one year. Higher portfolio turnover rates may result in increased brokerage
costs to the Portfolio and a possible increase in short-term capital gains (or
losses).
Additional investment techniques, features and restrictions concerning the
Portfolios' investment programs are described in Part B.
INVESTMENT LIMITATIONS (ALL PORTFOLIOS)
The Portfolios have adopted the investment limitations listed below, each of
which is a nonfundamental policy except as noted. Other investment limitations,
including additional provisions with respect to the limitations listed below,
are described in Part B.
DIVERSIFICATION. Each Portfolio is a "diversified" portfolio as defined in the
1940 Act. As a fundamental policy, with respect to 75% of its assets, each
Portfolio may not purchase a security (other than a U.S. Government Security, as
defined below) if, as a result, (i) more than 5% of the Portfolio's total assets
would be invested in the securities of a single issuer or (ii) the Portfolio
would own more than 10% of the outstanding voting securities of any single
issuer.
CONCENTRATION. Each Portfolio is prohibited from concentrating its assets in
the securities of issuers in any industry. As a fundamental policy, each
Portfolio may not 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 conducting their principal business activities in the same
industry. This limit does not apply to investments in U.S. Government
Securities, repurchase agreements covering U.S. Government Securities or
investment company securities.
BORROWING AND LENDING. As a fundamental policy, each Portfolio may borrow money
from a bank for temporary or emergency purposes, including the meeting of
redemption requests, but not in excess of 33 1/3% of the value of the
Portfolio's total assets as computed immediately after the borrowing. Borrowing
for other than temporary or emergency purposes or meeting redemption requests is
limited to 5% of the value of each Portfolio's total assets. With
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respect to certain transactions, the Portfolio's custodian will maintain in an
account cash, U.S. Government Securities and other liquid high-grade debt
securities. The Portfolios do not treat those transactions as involving
borrowings (although they may have characteristics and risks similar to
borrowings).
As a fundamental policy, no Portfolio may make loans except for loans of
portfolio securities, investments in repurchase agreements, and the purchase of
debt securities that are otherwise permitted investments for the Portfolio.
MARGIN AND SHORT SALES. No Portfolio may purchase securities on margin or make
short sales of securities, except short sales against the box. These
prohibitions do not restrict the Portfolios' ability to use short-term credits
necessary for the clearance of portfolio transactions and to make margin
deposits in connection with permitted transactions in options and futures
contracts.
COMMON STOCK AND PREFERRED STOCK
Each Portfolio may invest in common and preferred stock. Common stockholders
are the owners of the company issuing the stock and, accordingly, vote on
various corporate governance matters such as mergers. They are not creditors of
the company, but rather, upon liquidation of the company, are entitled to their
pro rata share of the company's assets after creditors (including fixed income
security holders) and, if applicable, preferred stockholders are paid.
Preferred stock is a class of stock having a preference over common stock as to
dividends and, in the alternative, as to the recovery of investment. A
preferred stockholder is a shareholder in the company and not a creditor of the
company as is a holder of the company's fixed income securities. Dividends paid
to common and preferred stockholders are distributions of the earnings of the
company and not interest payments, which are expenses of the company. Equity
securities owned by a Portfolio may be traded in the over-the-counter market or
on a regional securities exchange and may not be traded every day or in the
volume typical of securities traded on a national securities exchange. As a
result, disposition by a Portfolio of a portfolio security to meet redemptions
by interestholders or otherwise may require the Portfolio to sell these
securities at a discount from market prices, to sell during periods when
disposition is not desirable, or to make many small sales over a lengthy period
of time. The market value of all securities, including equity securities, is
based upon the market's perception of value and not necessarily the book value
of an issuer or other objective measure of a company's worth.
CONVERTIBLE SECURITIES
Each Portfolio may invest in convertible securities, including convertible debt
and convertible preferred stock, which are fixed income securities which may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. These securities are usually senior to common
stock in a corporation's capital structure but usually are subordinated to
non-convertible debt securities. In general, the value of a convertible
security is the higher of its investment value (its value as a fixed income
security) and its conversion value (the value of the underlying shares of common
stock if the security is converted). As a fixed income security, the value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. The value of a convertible
security is, however, also influenced by the value of the underlying common
stock. The Portfolios may only invest in investment grade convertible debt.
WARRANTS
Each Portfolio may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Unlike
convertible securities and preferred stocks, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations as a result of speculation or other factors and failure of the
price of the underlying security to reach a level at which the warrant can be
prudently exercised (in which case the warrant may expire without being
exercised, resulting in the loss of the Portfolio's entire investment therein).
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AMERICAN DEPOSITORY RECEIPTS; EUROPEAN DEPOSITORY RECEIPTS
International Portfolio, International Portfolio II and Small Company Portfolio
may each invest in sponsored and unsponsored American Depository Receipts
("ADRs"), which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs,
in registered form, are designed for use in U.S. securities markets.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. The Portfolios may also invest in European
Depository Receipts ("EDRs"), receipts issued by a European financial
institution evidencing an arrangement similar to that of ADRs, and in other
similar instruments representing securities of foreign companies. EDRs, in
bearer form, are designed for use in European securities markets.
FOREIGN EXCHANGE CONTRACTS
Changes in foreign currency exchange rates will affect the U.S. dollar values of
securities denominated in currencies other than the U.S. dollar. The rate of
exchange between the U.S. dollar and other currencies fluctuates in response to
forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
When investing in foreign securities a Portfolio usually effects currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign exchange market. A Portfolio incurs foreign exchange expenses in
converting assets from one currency to another.
International Portfolio and International Portfolio II may each enter into
foreign currency forward contracts or currency futures or options contracts for
the purchase or sale of foreign currency to "lock in" the U.S. dollar price of
the securities denominated in a foreign currency or the U.S. dollar value of
interest and dividends to be paid on such securities, or to hedge against the
possibility that the currency of a foreign country in which a Portfolio has
investments may suffer a decline against the U.S. dollar. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. This method of
attempting to hedge the value of a Portfolio's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. Although the strategy of engaging in
foreign currency transactions could reduce the risk of loss due to a decline in
the value of the hedged currency, it could also limit the potential gain from an
increase in the value of the currency. The Portfolios do not intend to maintain
a net exposure to such contracts where the fulfillment of the Portfolios'
obligations under such contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the Portfolios' portfolio
securities or other assets denominated in the currency. A Portfolio will not
enter into these contracts for speculative purposes and will not enter into non-
hedging currency contracts. These contracts involve a risk of loss if Schroder
fails to predict currency values correctly. The Portfolios have no present
intention to enter into currency futures or options contracts but may do so in
the future.
ILLIQUID SECURITIES
Each Portfolio may invest up to 15% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Portfolio has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days and restricted securities other than those the Portfolio's adviser has
determined to be liquid pursuant to guidelines established by the Trust's Board
of Trustees. Limitations on resale may have an adverse effect on the
marketability of portfolio securities, and the Portfolios might also have to
register restricted securities in order to dispose of them, resulting in expense
and delay. A Portfolio might not be able to dispose of restricted or other
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions. There can be no assurance that a liquid
market will exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional
investors
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depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act, the
Portfolio's investment adviser may determine that such securities are not
illiquid securities under guidelines adopted by the Board. These guidelines
take into account trading activity in the securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, a Portfolio's holdings of
that security may be illiquid.
BORROWING AND LEVERAGING
Each Portfolio may borrow money from a bank for temporary or emergency purposes,
including the meeting of redemption requests, in amounts up to 33 1/3% of the
Portfolio's total assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, a Portfolio might
have to sell portfolio securities to meet interest or principal payments at a
time when investment considerations would not favor such sales. No Portfolio
may purchase securities for investment while any borrowing equal to 5% or more
of the Portfolio's total assets is outstanding or borrow for purposes other than
meeting redemptions in an amount exceeding 5% of the value of the Portfolio's
total assets. A Portfolio's use of borrowed proceeds to make investments would
subject the Portfolio to the risks of leveraging.
SECURITIES LENDING
Each Portfolio may from time to time lend securities from its portfolio to
brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of a Portfolio's securities
loaned, including accrued interest. A Portfolio receives interest in respect of
securities loans from the borrower or from investing cash collateral. A
Portfolio may pay fees to arrange the loans. No Portfolio will lend portfolio
securities in excess of 33 1/3% of the value of the Portfolio's total assets.
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in U.S. Government Securities. As used in Part A, the
term U.S Government Securities means obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities. The U.S. Government Securities in which a Portfolio may
invest include U.S. Treasury securities and obligations issued or guaranteed by
U.S. Government agencies and instrumentalities and backed by the full faith and
credit of the U.S. Government, such as those guaranteed by the Small Business
Administration or issued by the Government National Mortgage Association. In
addition, the U.S. Government Securities in which the Portfolios may invest
include securities supported primarily or solely by the creditworthiness of the
issuer, such as securities of the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority.
There is no guarantee that the U.S. Government will support securities not
backed by its full faith and credit. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
REPURCHASE AGREEMENTS
Each Portfolio may from time to time enter into repurchase agreements,
transactions in which the Portfolio purchases a security and simultaneously
commits to resell that security to the seller at an agreed-upon price on an
agreed-upon future date, normally one to seven days later. The resale price of
a repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the purchased security. The Portfolio's
custodian maintains possession of the collateral underlying a repurchase
agreement, which has a market value, determined daily, at least equal to the
repurchase price, and which consists of the types of securities in which a
Portfolio may invest directly. International Portfolio and International
Portfolio II may enter into repurchase agreements with foreign entities.
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COMMERCIAL PAPER
Each Portfolio may invest in commercial paper. Commercial paper (short-term
promissory notes) is issued by companies to finance their or their affiliates'
current obligations.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Portfolio may assume a
temporary defensive position and invest all or any portion of its assets in cash
or in cash equivalents, including (i) short-term U.S. Government Securities,
(ii) prime quality short-term instruments of commercial banks, (iii) prime
quality commercial paper, (iv) repurchase agreements with banks and broker-
dealers covering any of the securities in which the Portfolio may invest
directly and (v) to the extent permitted by the 1940 Act, shares of money market
mutual funds. During periods when and to the extent that a Portfolio has
assumed a temporary defensive position, it may not be pursuing its investment
objective. International Portfolio and International Portfolio II may hold cash
and bank instruments denominated in any major foreign currency.
MANAGEMENT OF THE PORTFOLIOS (ITEM 5 OF FORM N-1A)
TRUSTEES AND OFFICERS
The business of the Trust is managed under the direction of the Board of
Trustees. Forum Financial Services, Inc. ("Forum") provides persons
satisfactory to the Board to serve as officers of the Trust. Part B contains
general background information about each Trustee and officer of the Trust.
INVESTMENT ADVISERS
NIM serves as investment adviser of Small Company Portfolio and Index Portfolio
pursuant to investment advisory agreements between Norwest and the Trust.
Norwest is a subsidiary of Norwest Corporation, a multi-bank holding company
with operations in 15 states and $50.3 billion in total assets incorporated
under the laws of Delaware in 1929. As of December 31, 1995, Norwest Corporation
was the 11th largest bank holding company in the United States in terms of
assets. Norwest became a subsidiary of Norwest Corporation in 1929 and, as of
December 31, 1995, NIM managed or provided investment advice with respect to
assets totaling approximately $22.7 billion.
Schroder acts as investment adviser to the International Portfolio and
International Portfolio II pursuant to advisory agreements with the Trust.
Schroder, whose principal business address is 787 Seventh Avenue, New York, New
York 10019, is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large worldwide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in 18 countries
worldwide. The Schroder Group specializes in providing investment management
services and had assets under management in excess of $75 billion as of October
31, 1995.
NIM and Schroder are required to furnish at their expense all services,
facilities and personnel necessary in connection with managing their respective
Portfolio's investments and effecting portfolio transactions for those
Portfolios. The full advisory staff of each of NIM and Schroder contribute to
the investment advisory services provided to the Portfolios. The following
persons are primarily responsible for the day to day management of the
Portfolios' investment portfolios and have been since inception of the
Portfolios:
SMALL COMPANY PORTFOLIO - Robert B. Mersky, Kirk McCown and Thomas H.
Forester. Mr. McCown is founder, President and a Director of Crestone
Capital Management, Inc., an investment adviser subsidiary of Norwest.
Prior thereto, Mr. McCown was Senior Vice President of Reich & Tang, L.P.
Mr. Forester is an officer of Norwest and Senior Vice President of
Peregrine Capital Management, Inc. Mr. Forester joined Peregrine in 1995.
From 1992 to 1995 he was Vice President of Lord Asset Management, an
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investment adviser. Mr. McCown commenced serving as a portfolio manager of
the Portfolio in June 1995. Mr. Forester commenced serving as a portfolio
manager of the Portfolio in December 1995.
INTERNATIONAL PORTFOLIO AND INTERNATIONAL PORTFOLIO II - Mark J. Smith,
First Vice President and Director of Schroder since April 1993, is
responsible for the day to day management of these Portfolios' investment
portfolio. Mr. Smith has been associated with Schroder or its affiliates
since 1983 in various positions, including portfolio manager of other
mutual funds and pooled investment vehicles that invest in international
securities.
INDEX PORTFOLIO - No single person at NIM acts as portfolio manager of the
Portfolio.
The investment advisory agreement for Small Company Portfolio and Index
Portfolio provides for advisory fees payable to Norwest of 0.90% and 0.15% of
Portfolio's average annual daily net assets.
The investment advisory agreement for International Portfolio and International
Portfolio II provides for an advisory fee payable to Schroder of 0.45% of each
Portfolio's average annual daily net assets.
NIM and Schroder place orders for the purchase and sale of assets they manage
with brokers and dealers selected by and in the discretion of the respective
adviser. NIM and Schroder seek "best execution" for all portfolio transactions,
but a Portfolio may pay higher than the lowest available commission rates when
an adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to
International Portfolio and International Portfolio II than would be the case
for comparable transactions effected on U. S. securities exchanges.
Subject to a Portfolio's policy of obtaining the best price consistent with
quality of execution of transactions, NIM and Schroder, may employ Norwest
Investment Services, Inc., Schroder Securities Limited and other broker-dealer
affiliates of NIM or Schroder (collectively "Affiliated Brokers") to effect
brokerage transactions for the Portfolio. A Portfolio's payment of commissions
to Affiliated Brokers is subject to procedures adopted by the Board to provide
that the commissions will not exceed the usual and customary broker's
commissions charged by unaffiliated brokers. No specific portion of a
Portfolio's brokerage will be directed to Affiliated Brokers, and in no event
will a broker affiliated with an adviser directing the transaction receive
brokerage transactions in recognition of research services provided to the
adviser.
CUSTODIAN
Norwest serves as the custodian for Index Portfolio and Small Company Portfolio
and may appoint certain subcustodians to custody those portfolios' foreign
securities and other assets held in foreign countries. Norwest receives no
compensation for its custodial services. The Chase Manhattan Bank, N.A.
("Chase") serves as the custodian for International Portfolio and International
Portfolio II and employs foreign subcustodians to maintain those Portfolios'
foreign assets outside the United States. For its custodial services, Chase is
compensated at an annual rate of 0.075% of each of International Portfolio's and
International Portfolio II's average daily net assets.
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTANT
Forum supervises the overall management of the Trust, including the Trust's
receipt of services for which the Trust is obligated to pay, and provides the
Trust with general office facilities pursuant to an Administration Agreement
with the Trust. As of October 1, 1995, Forum acted as manager and distributor
of registered investment companies with assets of approximately $11.0 billion.
Forum, whose principal business address is Two Portland Square, Portland, Maine
04101, is a registered broker-dealer and investment adviser and is a member of
the National Association of Securities Dealers, Inc.
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For its administrative services and facilities, Forum receives a fee at an
annual rate of 0.10% of the average daily net assets of each of Small Company
Portfolio, Index Portfolio and International Portfolio II. For International
Portfolio, Forum receives a fee at the annual rate of 0.15% of the Portfolio's
average daily net assets. Forum's fees are accrued daily and paid monthly.
Forum Financial Corp. ("FFC"), Two Portland Square, Portland, Maine 04101, is
the Trust's transfer agent and fund accountant. FFC is an affiliate of Forum.
For its transfer agent services, FFC receives a fee of $12,000 per year for each
Portfolio. For fund accounting services, FFC receives a base fee of $36,000 per
year ($60,000 on the case of International Portfolio and International Portfolio
II) plus additional amounts depending on the assets of the Portfolio, the number
and type of securities held by the Portfolio and the portfolio turnover rate of
the Portfolio.
EXPENSES
Each Portfolio is obligated to pay for all of its expenses. These expenses
include: governmental fees; interest charges; taxes; brokerage fees and
commissions; insurance premiums; investment advisory, custodial, administrative
and transfer agency and fund accounting fees, as described above; compensation
of certain of the Trust's Trustees, costs of membership trade associations; fee
and expenses of independent auditors and legal counsel to the Trust; and
expenses of calculating the net asset value of and the net income of the
Portfolios. Each Portfolio's expenses comprise Trust expenses attributable to
the Portfolio, which are allocated to the Portfolio, and expenses not
attributable to the Portfolio, which are allocated among the Portfolios in
proportion to their average net assets or as otherwise determined by the Board.
The Trust has been granted an exemptive order by the Securities and Exchange
Commission ("Commission") which allows only Norwest Gateways to invest in
International Portfolio II, Small Company Portfolio and Index Portfolio (for
these purposes, the "Norwest Cores"). That exemptive order permits each Norwest
Gateway to invest less than all of its assets, but more than the statutorily
permitted limits, in one or more Norwest Cores subject to certain conditions
contained in the exemptive order. It is anticipated that Diversified Equity
Fund, Growth Equity Fund, Conservative Balanced Fund, Moderate Balanced Fund and
Growth Balanced Fund, each a series of Norwest Advantage Funds, a registered
open-end investment company for which NIM acts as investment adviser and
Schroder acts as investment subadviser, will invest a portion of their assets in
the Norwest Cores.
Norwest is required to waive its investment advisory fee for serving as
investment adviser to Small Company Portfolio and Index Portfolio and will
reimburse International Portfolio II for all investment advisory fees
International Portfolio II pays to Schroder. In addition, Forum is required to
waive the amount of any fee that it would otherwise be entitled to receive from
each Norwest Gateway for that portion of the assets of the Norwest Gateway
invested in a Norwest Core.
These provisions are different than the structure employed by International
Portfolio wherein no registered open-end investment company or separate series
thereof that invests in International Portfolio incurs investment advisory fees
other than that which it incurs indirectly by investing in International
Portfolio.
CAPITAL STOCK AND OTHER SECURITIES (ITEM 6 OF FORM N-1A)
The Trust was organized as a business trust under the laws of the State of
Delaware. Under the Trust Instrument, the Trustees are authorized to issue
beneficial interests in separate subtrusts or "series" of the Trust. The Trust
currently has four series (the Portfolios); the Trust reserves the right to
create and issue additional series.
Each investor in a Portfolio is entitled to participate equally in the
Portfolio's earnings and assets and to a vote in proportion to the amount of its
investment in the Portfolio. Investments in a Portfolio may not be transferred,
but an investor may withdraw all or any portion of its investment at any time at
net asset value ("NAV").
Investments in a Portfolio have no preemptive or conversion rights and are fully
paid and non-assessable, except as set forth below. The Trust is not required
and has no current intention to hold annual meetings of investors, but the Trust
will hold special meetings of investors when in the Trustees' judgment it is
necessary or desirable to submit matters to an investor vote. Generally,
interests will be voted in the aggregate without reference to a particular
Portfolio, except if
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the matter affects only one Portfolio or Portfolio voting is required, in which
case interests will be voted separately by Portfolio. Investors have the right
to remove one or more Trustees without a meeting by a declaration in writing by
a specified number of investors. Upon liquidation of a Portfolio, investors
will be entitled to share pro rata in the Portfolio's net assets available for
distribution to investors.
A Portfolio's net income consists of (1) all dividends, accrued interest
(including earned discount, both original issue and market discount), and other
income, including any net realized gains on the Portfolio's assets, less (2) all
actual and accrued expenses of the Portfolio, amortization of any premium, and
net realized losses on the Portfolio's assets, all as determined in accordance
with generally accepted accounting principles. All of a Portfolio's net income
is allocated pro rata among the investors in the Portfolio. A Portfolio's net
income generally is not distributed to the investors in the Portfolio, except as
determined by the Trustees from time to time, but instead is included in the NAV
of the investors' respective beneficial interests in the Portfolio.
Under the anticipated method of the Portfolios' operations, they will not be
subject to any income tax. However, each investor in a Portfolio will be
taxable on its proportionate share (as determined in accordance with the Trust's
Trust Instrument and the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder) of the Portfolio's ordinary income and
capital gain. It is intended that each Portfolio's assets, income, and
distributions will be managed in such a way that an investor in the Portfolio
will be able to satisfy the requirements of Subchapter M of the Code, assuming
that the investor invested all of its assets in the Portfolio.
Investor inquiries may be directed to Forum Financial Services, Inc.
PURCHASE OF SECURITIES (ITEM 7 OF FORM N-1A)
Beneficial interests in the Portfolios are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. See "General Description of Registrant" above.
All investments in the Portfolios are made without a sales load, at the NAV next
determined after an order is received by the Portfolio.
The NAV of each Portfolio is determined as of 4:00 P.M., Eastern time
("Valuation Time"), on all weekdays, except New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day ("Business
Day").
Each investor in a Portfolio may add to or reduce its investment in the
Portfolio. At the Valuation Time on each Business Day, the value of each
investor's beneficial interest in a Portfolio will be determined by multiplying
the Portfolio's NAV by the percentage, effective for that day, that represents
that investor's share of the aggregate beneficial interests in the Portfolio.
Any additions to or withdrawals of those interests which are to be effected on
that day will then be effected. Each investor's share of the aggregate
beneficial interests in the Portfolio then will be recomputed using the
percentage equal to the fraction (1) the numerator of which is the value of the
investor's investment in the Portfolio as of the Valuation Time on that day plus
or minus, as the case may be, the amount of any additions to or withdrawals from
such investment effected on that day and (2) the denominator of which is the
Portfolio's aggregate NAV as of the Valuation Time on that day plus or minus, as
the case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors. The percentages so
determined then will be applied to determine the value of each investor's
respective interest in the Portfolio as of the Valuation Time on the following
Business Day.
Securities owned by a Portfolio for which market quotations are readily
available are valued at current market value or, in their absence, at fair value
as determined by the Board.
Trading in securities on European, Far Eastern and other international
securities exchanges and over-the-counter markets is normally completed well
before the close of business of each Business Day. In addition, trading in
foreign securities generally or in a particular country or countries may not
take place on all Business Days or may take place on days other than Business
Days. Trading does take place in various foreign markets, however, on days on
which the Portfolio's NAV is not calculated. Calculation of the NAV per
beneficial interest may not occur contemporaneously
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with the determination of the prices of the foreign securities used in the
calculation. Events affecting the values of foreign securities that occur after
the time their prices are determined and before a Portfolio's determination of
NAV will not be reflected in the Portfolio's calculation of NAV unless NIM or
Schroder determines that the particular event would materially affect NAV, in
which case an adjustment would be made.
All assets and liabilities of a Portfolio denominated in foreign currencies are
converted into U.S. dollars at the mean of the bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank prior to the time
of conversion.
There is no minimum initial or subsequent investment in a Portfolio. However,
since each Portfolio intends to be as fully invested at all times as is
reasonably practicable in order to enhance the return on its assets, investments
must be made in federal funds (i.e., monies credited to the account of the
Trust's custodian by a Federal Reserve Bank).
The Trust reserves the right to cease accepting investments in a Portfolio at
any time or to reject any investment order.
The exclusive placement agent for the Trust is Forum. The principal business
address of Forum is Two Portland Square, Portland, Maine 04101. Forum receives
no compensation for serving as the exclusive placement agent for the Trust.
REDEMPTION OR REPURCHASE (ITEM 8 OF FORM N-1A)
An investor in a Portfolio may withdraw all or any portion of its investment in
the Portfolio at the NAV next determined after a withdrawal request in proper
form is furnished by the investor to the Trust. The proceeds of a withdrawal
will be paid by the Portfolio in federal funds normally on the business day
after the withdrawal is effected, but in any event within seven days.
Investments in a Portfolio may not be transferred. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days except
when the New York Stock Exchange is closed (or when trading thereon is
restricted) for any reason other than its customary weekend or holiday closings
or under any emergency or other circumstances as determined by the Commission.
Redemptions from a Portfolio 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 Portfolio. The Trust has filed an election with the
Commission pursuant to which each Portfolio will only consider effecting a
redemption in portfolio securities if the particular interestholder is redeeming
more than $250,000 or 1% of the Portfolio's NAV , whichever is less, during any
90-day period.
PENDING LEGAL PROCEEDINGS (ITEM 9 OF FORM N-1A)
Not applicable.
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PART B
CORE TRUST (DELAWARE)
SMALL COMPANY PORTFOLIO
INTERNATIONAL PORTFOLIO
INTERNATIONAL PORTFOLIO II
INDEX PORTFOLIO
Part B of this Registration Statement on Form N-1A, as amended through the date
hereof, relating to the Small Company Portfolio, International Portfolio,
International Portfolio II, and Index Portfolio of Core Trust (Delaware),
consists of the following Statement of Additional Information.
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PART B
STATEMENT OF ADDITIONAL INFORMATION
SMALL COMPANY PORTFOLIO
INTERNATIONAL PORTFOLIO
INTERNATIONAL PORTFOLIO II
INDEX PORTFOLIO
March 1, 1996
This Statement of Additional Information ("SAI") relates to beneficial interests
in the Treasury Portfolio (the "Portfolio") of Core Trust (Delaware) (the
"Trust"), a registered, open-end management investment company, and supplements
the Private Placement Memorandum relating to the Portfolio.
Investments in the Portfolio may only be made by certain institutional
investors, whether organized within or outside the United States (excluding
individuals, S corporations, partnerships, and grantor trusts beneficially owned
by any individuals, S corporations, or partnerships). An investor in the
Portfolio must also be an "accredited investor," as that term is defined under
Rule 501(a) of Regulation D under the Securities Act of 1933, as amended.
This Statement of Additional Information does not constitute an offer to sell,
or the solicitation of an offer to buy, beneficial interests in the Portfolio.
An investor may subscribe for a beneficial interest in the Portfolio by
contacting Forum Financial Services, Inc., the Trust's placement agent (the
"Placement Agent"), at Two Portland Square, Portland, Maine 04101,
(207) 879-1900, for a complete subscription package, including the Memorandum
and a subscription agreement. The Trust and the Placement Agent reserve the
right to refuses to accept any subscription for any reason.
________________________________________________________________________________
TABLE OF CONTENTS
-----------------
Page
General Information and History......................................
Investment Objectives and Policies...................................
Management of the Trust..............................................
Control Persons and Principal Holders of Securities..................
Investment Advisory and Other Services...............................
Brokerage Allocation and Other Practices.............................
Capital Stock and Other Securities...................................
Purchase, Redemption and Pricing of Securities.......................
Tax Status...........................................................
Underwriters.........................................................
Financial Statements.................................................
________________________________________________________________________________
____________
THE SECURITIES OF THE TRUST DESCRIBED IN THIS PRIVATE PLACEMENT MEMORANDUM HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER (1) THE TERMS OF THE TRUST INSTRUMENT OF THE
TRUST AND (2) THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
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GENERAL INFORMATION AND HISTORY (ITEM 12 OF FORM N-1A)
Not applicable.
INVESTMENT OBJECTIVES AND POLICIES (ITEM 13 OF FORM N-1A)
INVESTMENT POLICIES
Part A contains information about the investment objectives, policies and
restrictions of International Portfolio, International Portfolio II, Index
Portfolio and Small Company Portfolio (each a "Portfolio" and collectively the
"Portfolios") of Core Trust (Delaware) (the "Trust"). The following discussion
is intended to supplement the disclosure in Part A concerning the Portfolios'
investments, investment techniques and strategies and the risks associated
therewith. No Portfolio may make any investment or employ any investment
technique or strategy not referenced in Part A as it relates to that Portfolio.
This Part B should be read only in conjunction with Part A.
DEFINITIONS
As used in Part B, the following terms shall have the meanings listed:
"Board" shall mean the Board of Trustees of the Trust.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"U.S. Government Securities" shall mean obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"Commission" shall mean the U.S. Securities and Exchange Commission.
CONVERTIBLE SECURITIES
Each Portfolio may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to non-convertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable non-convertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (l) have higher yields than common stock,
but lower yields than comparable non-convertible securities, (2) are less
subject to fluctuation in value than the underlying stocks since they have fixed
income characteristics and (3) provide the potential for capital appreciation if
the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is
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determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value and generally the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Portfolio is called for redemption, the Portfolio
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock or sell it to a third party.
FOREIGN CURRENCY TRANSACTIONS
Investments by International Portfolio and International Portfolio II in
securities of foreign companies will usually involve the currencies of foreign
countries. In addition, these Portfolios may temporarily hold funds in bank
deposits in foreign currencies pending the completion of certain investment
programs. Accordingly, the value of the assets of a Portfolio, as measured in
U.S. dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, a Portfolio may incur costs in
connection with conversions between various currencies. A Portfolio may conduct
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market or by entering
into foreign currency forward contracts ("forward contracts") to purchase or
sell foreign currencies. A forward contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days (usually less than one year) from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. Forward contracts in
the principal foreign currencies are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers and involve the risk that the other party to the contract may fail to
deliver currency when due, which could result in losses to a Portfolio. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Foreign exchange dealers realize a profit based
on the difference between the price at which they buy and sell various
currencies.
A Portfolio may enter into forward contracts under two circumstances. First,
with respect to specific transactions, when a Portfolio enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Portfolio may be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, a Portfolio may enter into forward contracts in connection with existing
portfolio positions. For example, when the investment adviser of these
Portfolios, Schroder Capital Management International Inc. ("Schroder"),
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, a Portfolio may enter into a
forward contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of the Portfolio's investment
securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward contracts involve the risk of
inaccurate predictions of currency price movements, which may cause a Portfolio
to incur losses on these contracts and transaction costs. Schroder does not
intend to enter into forward contracts on a regular or continuous basis and will
not do so if, as a result, a Portfolio will have more than 25 % of the value of
its total assets committed to such contracts or the contracts would obligate a
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Portfolio to deliver an amount of foreign currency in excess of the value of the
Portfolio's investment securities or other assets denominated in that currency.
At or before the settlement of a forward currency contract, a Portfolio may
either make delivery of the foreign currency or terminate its contractual
obligation to deliver the foreign currency by purchasing an offsetting contract.
If a Portfolio chooses to make delivery of the foreign currency, it may be
required to obtain the currency through the conversion of assets of the
Portfolio into the currency. A Portfolio may close out a forward contract
obligating it to purchase a foreign currency by selling an offsetting contract.
If a Portfolio engages in an offsetting transaction, it will realize a gain or a
loss to the extent that there has been a change in forward contract prices.
Additionally, although forward contracts may tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain which might result should the value of such currency
increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market.
When required by applicable regulatory guidelines, a Portfolio will set aside
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with its custodian in the prescribed amount.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolios may purchase securities on a 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, it will record the transaction as a purchase and thereafter reflect the
value each day of such securities in determining its net asset value.
A Portfolio will make commitments for such when-issued transactions only when it
has the intention of actually acquiring the securities. To facilitate such
acquisitions, a Portfolio will maintain with its custodian a separate account
with portfolio securities in an amount at least equal to such commitments. On
delivery dates for such transactions, the Portfolio will meet its obligations
from maturities, sales of the securities held in the separate account or from
other available sources of cash. 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, realize a gain or loss due to
market fluctuation.
DOMESTIC AND FOREIGN BANK OBLIGATIONS
Each Portfolio may invest in obligations of financial institutions, including
negotiable certificates of deposit, bankers' acceptances and time deposits of
U.S. banks (including savings banks and savings associations), foreign branches
of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S.
branches and agencies of foreign banks (Yankee dollars), and wholly-owned
banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution
that earn a specified interest rate over a given period. Certificates of
deposit and fixed time deposits, which are payable at the stated maturity date
and bear a fixed rate of interest, generally may be withdrawn on demand but may
be subject to early withdrawal penalties which could reduce a Portfolio's yield.
Deposits subject to early withdrawal penalties or that mature in more than seven
days are treated as illiquid securities if there is no readily available market
for the securities. A Portfolio's investments in the obligations of foreign
banks and their branches, agencies or subsidiaries may be obligations of the
parent, of the issuing branch, agency or subsidiary, or both. Investments in
foreign bank obligations are limited to banks and branches located in countries
which a Portfolio's investment adviser believes do not present undue risk.
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Each Portfolio may invest in fixed-time deposits, which are payable at their
stated maturity date and bear a fixed rate of interest, and which generally may
be withdrawn on demand by the Portfolio but may be subject to early withdrawal
penalties which vary depending upon market conditions and the remaining maturity
of the obligation and could reduce the Portfolio's yield. Although fixed-time
deposits do not in all cases have a secondary market, there are no contractual
restrictions on a Portfolio's right to transfer a beneficial interest in the
deposits to third parties.
Investments that a Portfolio may make in securities of foreign branches of
domestic banks and domestic and foreign branches of foreign banks may involve
certain risks, including future political and economic developments, the
possible imposition of foreign withholding taxes on interest income payable on
such securities, the possible seizure or nationalization of foreign deposits,
differences from domestic banks in applicable accounting, auditing and financial
reporting standards, and the possible establishment of exchange controls or
other foreign governmental laws or restrictions applicable to the payment of
certificates of deposit or time deposits which might affect adversely the
payment of principal and interest on such securities held by the Portfolio.
ILLIQUID SECURITIES
Each Portfolio may invest up to 15% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which a Portfolio has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days and restricted securities other than those the Portfolio's investment
adviser has determined to be liquid pursuant to guidelines established by the
Board.
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the investment adviser of each
Portfolio, pursuant to guidelines approved by the Board. The investment adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for 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; and (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. The investment
adviser monitors the liquidity of the securities held by each Portfolio and
reports periodically on such decisions to the Board.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS
Although each Portfolio only invests in investment grade fixed income
securities, including money market instruments, an investment in a Portfolio is
subject to risk even if all fixed income securities in the Portfolio are paid in
full at maturity. All fixed income securities, including U.S. Government
Securities, can change in value when there is a change in interest rates or the
issuer's actual or perceived creditworthiness or ability to meet its
obligations.
The market value of the interest-bearing debt securities held by the Portfolios
will be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an
increase in interest rates produces a decrease in market value. Moreover, the
longer the remaining maturity of a security, the greater will be the effect of
interest rate changes on the market value of that security. Changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. The possibility exists, therefore,
that, the ability of any issuer to pay, when due, the principal of and interest
on its debt securities may become impaired.
RATING MATTERS. A Portfolio may purchase unrated securities if the Portfolio's
investment adviser determines the security to be of comparable quality to a
rated security that the Portfolio may purchase. Unrated securities may not be
as actively traded as rated securities. A Portfolio may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and determined by the Portfolio's investment adviser to be of
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comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the investment adviser determines that retaining
such security is in the best interests of the Portfolio.
To limit credit risks, the Portfolios may only invest in securities that are
investment grade - i.e., rated in the top four long-term investment grades by an
NRSRO or in the top two short-term investment grades by an NRSRO. Accordingly,
the lowest permissible long-term investment grades for corporate bonds,
including convertible bonds, are Baa in the case of Moody's Investors Service,
Inc. ("Moody's") and BBB in the case of Standard & Poor's Ratings Group ("S&P")
and Fitch Investors Service, Inc. ("Fitch"); the lowest permissible long-term
investment grades for preferred stock are baa in the case of Moody's and BBB in
the case of S&P and Fitch; and the lowest permissible short-term investment
grades for short-term debt, including commercial paper, are Prime-2 (P-2) in the
case of Moody's, A-2 in the case of S&P and F-2 in the case of Fitch. All these
ratings are generally considered to be investment grade ratings, although
Moody's indicates that securities with long-term ratings of Baa have speculative
characteristics.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Portfolios
invest may have variable or floating rates of interest and, under certain
limited circumstances, may have varying principal amounts. These securities pay
interest at rates that are adjusted periodically accordingly to a specified
formula, usually with reference to one or more interest rate indices or market
interest rates. Similar to fixed rate debt instruments, variable and floating
rate instruments are subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. There may not be an
active secondary market for any particular floating or variable rate instrument;
this could make it difficult for a Portfolio to dispose of the instrument if the
issuer defaulted on its repayment obligation at a time when the Portfolio was
not entitled to exercise any demand rights it might have. A Portfolio could,
for this or other reasons, suffer a loss with respect to the instrument. Each
Portfolio's investment adviser monitors the liquidity of the Portfolio's
investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Portfolio might be entitled
to less than the initial principal amount of the security upon the security's
maturity. Each Portfolio intends to purchase such securities only when the
Portfolio's investment adviser believes the interest income from the instrument
justifies any principal risks associated with the instrument. A Portfolio's
investment adviser may attempt to limit any potential loss of principal by
purchasing similar instruments that are intended to provide an offsetting
increase in principal. There can be no assurance that the investment adviser
will be able to limit principal fluctuations and, accordingly, a Portfolio may
incur losses on those securities even if held to maturity without issuer
default.
FOREIGN AND MUNICIPAL GOVERNMENT DEBT SECURITIES. The fixed income securities
in which International Portfolio and International Portfolio II may invest
include those issued by the governments of foreign countries or by those
countries' political subdivisions, agencies or instrumentalities, as well as by
supranational organizations such as the International Bank for Reconstruction
and Development. To the extent otherwise permitted, a Portfolio may invest in
these securities if Schroder believes that the securities do not present undue
risk.
INVESTMENT LIMITATIONS
Except as required by the 1940 Act, if any 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 or purchases and redemptions of interests will not be
considered a violation of the limitation.
FUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations which are
fundamental policies of the Portfolio and cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding interests
of the Portfolio or (b) 67% or more of the interests present at an
interestholders' meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
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(1) DIVERSIFICATION: With respect to 75% of its assets, the Portfolio may not
purchase a security other than a U.S. Government Security if, as a result,
more than 5% of the Portfolio's total assets would be invested in the
securities of a single issuer or the Portfolio would own more than 10% of
the outstanding voting securities of any single issuer.
(2) CONCENTRATION: The Portfolio may not 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 conducting their
principal business activities in the same industry; provided, however that
there is no limit on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, and issuers domiciled in a
single country; that financial service companies are classified according
to the end users of their services (for example, automobile finance, bank
finance and diversified finance); and that utility companies are classified
according to their services (for example, gas, gas transmission, electric
and gas, electric and telephone).
(3) BORROWING: The Portfolio may borrow money from a bank for temporary or
emergency purposes, including the meeting of redemption requests, but not
in excess of 33 1/3% of the value of the Portfolio's total assets (as
computed immediately after the borrowing).
(4) ISSUANCE OF SENIOR SECURITIES: The Portfolio may not issue senior
securities except to the extent permitted by the 1940 Act.
(5) UNDERWRITING ACTIVITIES: The Portfolio may not 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.
(6) MAKING LOANS: The Portfolio may not make loans, except the Portfolio may
enter into repurchase agreements, purchase debt securities that are
otherwise permitted investments and lend portfolio securities.
(7) PURCHASES AND SALES OF REAL ESTATE: The Portfolio may not purchase or sell
real estate, any interest therein or real estate limited partnership
interests, except that the Portfolio may invest in debt obligations secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein.
(8) PURCHASES AND SALES OF COMMODITIES: The Portfolio may not purchase or sell
physical commodities or contracts, options or options on contracts to
purchase or sell physical commodities, provided that currencies and
currency-related contracts and contracts on indices are not deemed to be
physical commodities.
NONFUNDAMENTAL LIMITATIONS
Each Portfolio has adopted the following investment limitations which are not
fundamental policies of the Portfolio and may be changed by the Board.
(1) BORROWING: Borrowing for other than temporary or emergency purposes or
meeting redemption requests is limited to 5% of the value of the
Portfolio's total assets. Where the Portfolio establishes a segregated
account to limit the amount of leveraging of the Portfolio with respect to
certain investment techniques, the Portfolio does not treat those
techniques as involving borrowings for purposes of this limitation.
(2) ILLIQUID SECURITIES: The Portfolio may not invest more than (i) 15% of its
net assets in illiquid securities, a term that means securities that cannot
be disposed of within seven days in the ordinary course of business and
includes, among other things, repurchase agreements maturing in more than
seven days, or (ii) 10% of its total assets in securities subject to
contractual restrictions on resale.
(3) OTHER INVESTMENT COMPANIES: The Portfolio may not invest in securities of
another investment company, except to the extent permitted by the 1940 Act.
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(4) MARGIN AND SHORT SALES: The Portfolio may not purchase securities on
margin or make short sales of securities (except short sales against the
box) except for the use of short-term credit necessary for the clearance of
purchases and sales of portfolio securities. The Portfolio may make margin
deposits in connection with permitted transactions in options and futures
contracts.
(5) UNSEASONED ISSUERS: The Portfolio may not invest in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including the
operations of predecessors, unless guaranteed as to principal and interest
by an issuer in whose securities the Portfolio could invest, if, as a
result, more than 5% of the value of the Portfolio's total assets would be
so invested.
(6) PLEDGING: The Portfolio may not pledge, mortgage, hypothecate or encumber
any of its assets except to secure permitted borrowings.
(7) INVESTMENTS BY OFFICERS AND TRUSTEES: The Portfolio may not invest in or
hold securities of any issuer if, to the Trust's knowledge, officers and
trustees of the Trust or an investment adviser to the Portfolio,
individually owning beneficially more than one-half of one percent of the
securities of the issuer, in the aggregate own more than 5% of the issuer's
securities.
(8) OIL, GAS AND MINERAL INVESTMENTS: The Portfolio may not invest in interests
in oil and gas or interests in other mineral exploration or development
programs, including oil, gas and other mineral leases and the Portfolio may
not invest in real estate limited partnerships.
RATINGS
Moody's, S&P, Fitch and other NRSROs are private services that provide ratings
of the credit quality of debt obligations, including convertible securities. A
description of certain ratings assigned to various types of bonds and other
securities by those NRSROs is set forth below. The Portfolios may use these
ratings to determine whether to purchase, sell or hold a security. However,
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. If an issue of securities ceases to be rated or if its rating is
reduced after it is purchased by a Portfolio, the investment adviser of the
Portfolio will determine 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. An
issuer's current financial condition may be better or worse than a rating
indicates.
CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"). Moody's rates corporate bond
issues, including convertible debt issues, as follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
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Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Baa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
STANDARD AND POOR'S RATINGS GROUP ("S&P"). S&P rates corporate bond issues,
including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Note: The ratings may be modified by the addition of a plus (+) or minus (-)
sign to show the relative standing within the major categories.
FITCH INVESTORS SERVICE, INC. ("FITCH"). Fitch rates corporate bond issues,
including convertible debt issues, as follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category.
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PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC. Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
within the universe of preferred stocks.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will retain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade preferred stock, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S RATINGS GROUP. S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a strong capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock
obligation in this category than for issues in the A category.
To provide more detailed indications of preferred stock quality, the ratings
from AA to BBB may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, 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 rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
Leading market positions in well-established industries, high rates of return on
funds employed, conservative capitalization structures with moderate reliance on
debt and ample asset protection, broad margins in earning 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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Issuers rated Prime-2 (or related supporting institutions) by Moody's have a
strong capacity for repayment of short-term promissory 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, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP. S&P's two highest commercial paper ratings
are A and B. Issues assigned an A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety. An A-l 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 adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Issues rated B are regarded as having only 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 rating.
F-3. Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
HEDGING AND OPTION INCOME STRATEGIES
Although the Portfolios have no current intention of doing so, each Portfolio
may engage in certain options and futures strategies to attempt to hedge the
Portfolio's investments. The instruments in which the Portfolios may invest
include (i) options on foreign currencies, (ii) index and foreign currency
futures contracts ("futures contracts"), and (iii) options on futures contracts.
Use of these instruments is subject to regulation by the Commission, the several
options and futures exchanges upon which options and futures are traded, and the
Commodities Futures Trading Commission.
The various strategies referred to herein and in Part A are intended to
illustrate the type of strategies that are available to, and may be used by, an
investment adviser in managing a Portfolio's investments. No assurance can be
given, however, that any strategies will succeed.
The Portfolios will not use leverage in their hedging strategies. In the case of
transactions entered into as a hedge, a Portfolio will hold securities,
currencies or other options or futures positions whose values are expected to
offset ("cover") its obligations thereunder. A Portfolio will not enter into a
hedging strategy that exposes the Portfolio to an obligation to another party
unless it owns either (1) an offsetting ("covered") position or (2) cash, U.S.
Government Securities or other liquid, high-grade debt securities with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, a Portfolio will set aside cash, U.S.
Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount. Any assets used
for cover or held in a segregated account cannot be sold or closed out while the
hedging strategy is outstanding, unless they are replaced with similar assets.
As a result, there is a possibility that the use of cover or segregation
involving a
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large percentage of a Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
OPTIONS STRATEGIES
A Portfolio may purchase put and call options written by others and write (sell)
put and call options covering currencies. A put option (sometimes called a
"standby commitment") gives the buyer of the option, upon payment of a premium,
the right to deliver a specified amount of currency to the writer of the option
on or before a fixed date at a predetermined price. A call option (sometimes
called a "reverse standby commitment") gives the purchaser of the option, upon
payment of a premium, the right to call upon the writer to deliver a specified
amount of currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency. A Portfolio may buy or sell both exchange-traded and over-
the-counter ("OTC") options. A Portfolio will purchase or write an option only
if that option is traded on a recognized U.S. options exchange or if its
investment adviser believes that a liquid secondary market for the option
exists. When a Portfolio purchases an OTC option, it relies on the dealer from
which it has purchased the OTC option to make or take delivery of the currency
underlying the option. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as the loss of the expected benefit
of the transaction.
Upon selling an option, a Portfolio receives a premium from the purchaser of the
option. Upon purchasing an option the Portfolio pays a premium to the seller of
the option. The amount of premium received or paid by the Portfolio is based
upon certain factors, including the relationship of the exercise price to the
market price, the option period, and supply and demand.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Portfolio may take positions in options on foreign currencies in order to
hedge against the risk of foreign exchange fluctuation on foreign securities the
Portfolio holds in its portfolio or which it intends to purchase. Options on
foreign currencies are affected by the factors discussed in "Options Strategies"
and "Foreign Currency Forward Transactions" above which influence foreign
exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Portfolio may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Portfolio may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Portfolio
wished to terminate its potential obligation to sell currencies under a call
option it had written, a call option of the same type would be purchased by the
Portfolio. Closing transactions essentially permit the Portfolio to realize
profits or limit losses on its options positions prior to the exercise or
expiration of the option. In addition:
(1) The successful use of options depends upon the investment adviser's ability
to forecast the direction of price fluctuations in the currency markets.
(2) Options normally have expiration dates of up to nine months. Options that
expire unexercised have no value. Unless an option purchased by a Portfolio is
exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.
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(3) A position in an exchange-listed option may be closed out only on an
exchange which provides a market for identical options. Exchange markets for
options on foreign currencies are relatively new, and the ability to establish
and close out positions on the exchanges is subject to the maintenance of a
liquid secondary market. Closing transactions may be effected with respect to
options traded in the OTC markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Portfolio would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by a Portfolio may result in material losses to
the Portfolio.
(4) A Portfolio's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Portfolio may purchase index futures contracts for several reasons: to
simulate full investment in the underlying index while retaining a cash balance
for fund management purposes, to facilitate trading, to reduce transactions
costs, or to seek higher investment returns when a futures contract is priced
more attractively than securities in the index.
A Portfolio may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, a Portfolio may sell foreign currency futures
contracts when its investment adviser anticipates a general weakening of foreign
currency exchange rates that could adversely affect the market values of the
Portfolio's foreign securities holdings. A Portfolio may purchase a foreign
currency futures contract to hedge against an anticipated foreign exchange rate
increase pending completion of anticipated transactions. Such a purchase would
serve as a temporary measure to protect the Portfolio against such increase. A
Portfolio may also purchase call or put options on foreign currency futures
contracts to obtain a fixed foreign exchange rate at limited risk. A Portfolio
may write call options on foreign currency futures contracts as a partial hedge
against the effects of declining foreign exchange rates on the value of foreign
securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Portfolio is
required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash or U.S. Government Securities generally
equal to 5% or less of the contract value. This amount is known as initial
margin. Subsequent payments, called variation margin, to and from the broker,
would be made on a daily basis as the value of the futures position varies. When
writing a call on a futures contract, variation margin must be deposited in
accordance with applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Portfolio upon termination of the contract,
assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has
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been reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In such event, it may not be possible for a Portfolio to close a
position, and in the event of adverse price movements, the Portfolio would have
to make daily cash payments of variation margin. In addition:
(1) Successful use by a Portfolio of futures contracts and related options will
depend upon its investment adviser's ability to predict movements in the
direction of the overall currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
currency but to the anticipated levels at some point in the future.
(2) The price of futures contracts may not correlate perfectly with movement in
the price of the hedged currencies due to price distortions in the futures
market or otherwise. There may be several reasons unrelated to the value of the
underlying currencies which causes this situation to occur. As a result, a
correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for any
particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, a
Portfolio would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited life. A
Portfolio will not trade options on futures contracts on any exchange or board
of trade unless and until, in its investment adviser's opinion, the market for
such options has developed sufficiently that the risks in connection with
options on futures transactions are not greater than the risks in connection
with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs is all that is at risk.
Sellers of options on futures contracts, however, must post an initial margin
and are subject to additional margin calls which could be substantial in the
event of adverse price movements.
(6) A Portfolio's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. In addition, settlement of foreign currency
futures contracts must occur within the country issuing that currency. Thus, a
Portfolio must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Portfolio
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
MANAGEMENT OF THE TRUST (ITEM 14 OF FORM N-1A)
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer and David R. Keffer are brothers.
John Y. Keffer*, Chairman and President.
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent) and
Forum Advisors, Inc. (a registered investment adviser). Mr. Keffer is a
Trustee/Director and/or officer of various registered investment companies
for which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is Two Portland Square, Portland, Maine
04101.
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Costas Azariadis, Trustee.
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.
Founder and President, Technology Marketing Associates (a marketing company
for small and medium size businesses in New England) since 1991. During
November 1991 to September 1994, Mr. Cheng provided marketing and sales
support to Forum. Mr. Cheng was President of Network Dynamics, Inc. (a
software development company). Prior thereto His address is 27 Temple
Street, Belmont, MA 02718.
J. Michael Parish, Trustee.
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.
Michael D. Martins, Treasurer
Fund Accounting Manager, Forum Financial Corp., with which he has been
associated since 1995. Prior thereto, Mr. Martins was at the audit firm of
Deloitte & Touche LLP. Mr. Martins is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
Vice President and Treasurer, Forum Financial Services, Inc. with which he
has been associated since August 1986. Mr. Keffer is also an officer of
various registered investment companies for which Forum Financial Services,
Inc. serves as manager, administrator and/or distributor. His address is
Two Portland Square, Portland, Maine 04101.
David I. Goldstein, Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
Max Berueffy, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since May 1994. For seven years prior to that, Mr. Berueffy held various
positions on the staff of the U.S. Securities and Exchange Commission. His
last position was Senior Special Counsel in the Division of Investment
Management. Mr. Berueffy is also an officer of various registered
investment companies for which Forum Financial Services, Inc. serves as
manager, administrator and/or distributor. His address is Two Portland
Square, Portland, Maine 04101.
Thomas G. Sheehan, Vice President and Assistant Secretary.
Counsel, Forum Financial Services, Inc. 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.
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Each Trustee of the Trust (other than persons who are interested persons of the
Trust) is paid $1,000 for each Board meeting attended (whether in person or by
electronic communication) plus $100 per active portfolio of the Trust and is
paid $1,000 for each Committee meeting attended on a date when a Board meeting
is not held. To the extent a meeting relates to only certain portfolios of the
Trust, Trustees are paid the $100 fee only with respect to those portfolios.
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.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust. Information is presented for the year ended October 31,
1995, the Portfolios' fiscal year end.
Total Compensation
from the Trust
Costas Azariadis $5,200
James C. Cheng $5,200
J. Michael Parish $5,200
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES (ITEM 15 OF FORM N-1A)
With respect to International Portfolio, International Fund, a series of Norwest
Advantage Funds, a Delaware business trust registered with the SEC as an open-
end management investment company, has invested all of its investable assets in
the Portfolio. As of February 1, 1996, International Fund the Portfolio's only
interestholder and thus controls the Portfolio. With respect to International
Portfolio II, Index Portfolio and Small Company Portfolio, series of Norwest
Advantage Funds have invested a portion of their investable assets in the
Portfolios pursuant to the terms of an exemptive order granted the Trust by the
Commission. As of February 1, 1996, these series control International
Portfolio II, Index Portfolio and Small Company Portfolio. See Part A and
"Purchase, Redemption and Pricing of Securities" below for a description of the
exemptive order.
Norwest Advantage Funds has informed the Trust that whenever International Fund
is requested to vote on matters pertaining to International Portfolio,
International Fund will hold a meeting of its shareholders and will cast its
vote as instructed by its shareholders. This only applies to matters for which
International Fund would be required to have a shareholder meeting if it
directly held investment securities rather than invested in International
Portfolio. It is anticipated that any other registered investment company (or
series thereof) that may in the future invest in International Portfolio will
follow the same or a similar practice.
INVESTMENT ADVISORY AND OTHER SERVICES (ITEM 16 OF FORM N-1A)
INVESTMENT ADVISORY SERVICES
Norwest Investment Management, a part of Norwest Bank Minnesota, N.A.
("Norwest"), acts as investment adviser to Small Company Portfolio and Index
Portfolio and is required to furnish at its expense all services, facilities and
personnel necessary in connection with managing the investments of, and
effecting portfolio transactions for, those Portfolios.
Schroder acts as investment adviser to International Portfolio and International
Portfolio II and is required to furnish at its expense all services, facilities
and personnel necessary in connection with managing the investments of, and
effecting portfolio transactions for, those Portfolios.
The investment advisory agreement for each Portfolio will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by vote of the interestholders of the Portfolio, and, in either case, by a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Advisory Agreement.
The Advisory Agreement with respect to a Portfolio is terminable without the
payment of penalty, (i) by the Board or by a vote of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act) on 60
days' written
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notice to Norwest or Schroder, as applicable, or (ii) by Norwest or Schroder on
60 days' written notice to the Trust. Each Advisory Agreement terminates
automatically upon its assignment.
The advisory fees, as described in Part A, are accrued daily and paid monthly.
Either adviser in its sole discretion, may waive all or any portion of its
advisory fee with respect to each Portfolio. As described in Part A, Norwest is
obligated to reimburse all investment advisory fees of International Portfolio
II, Small Company Portfolio and Index Portfolio. Each Advisory Agreement
provides that the adviser may render service to others.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between Norwest and the Trust with respect to each Portfolio,
the amount of fee that was waived by Norwest, if any, and the actual fee
received by Norwest. The data is for the past fiscal year.
Fee Fee Fee
Payable Waived Retained
Small Company Portfolio 2,260,342 2,260,342 0
International Portfolio 368,007 0 368,007
International Portfolio II 1,231,535 0 1,231,535
Index Portfolio 359,914 359,914 0
ADMINISTRATIVE SERVICES
Pursuant to an administration agreement with the Trust, Forum supervises the
overall administration of the Trust which includes, among other
responsibilities, overseeing the performance of administrative and professional
services rendered to the Trust by others, including its custodian, transfer
agent and fund accountant as well as legal and auditing services; preparing and
printing the periodic updating of the Trust's registration statement, tax
returns, and reports to interestholders and the SEC; preparing, filing and
maintaining the Trust's governing documents; preparing and disseminating
materials for meetings of the Board; and providing the Trust with general office
facilities.
The Administration Agreement between Forum and the Trust will continue in effect
with respect to a Portfolio only if such continuance is specifically approved at
least annually by the Board or by the interestholders of that portfolio and, in
either case, by a majority of the Trustees who are not parties to the Management
Agreement or interested persons of any such party.
The administration agreement with respect to each Portfolio may be terminated
without the payment of any penalty, (i) by the Board or by vote of a majority of
the Portfolio's outstanding voting securities (as defined in the 1940) Act on 60
days' written notice to Forum or (ii) by Forum on 60 days' written notice to the
Trust.
The following table shows the dollar amount of fees payable under the
Administration Agreement between Forum and the Trust with respect to each
Portfolio, the amount of fee that was waived by Forum, if any, and the actual
fee received by Forum. The data is for the past fiscal year.
Fee Fee Fee
Payable Waived Retained
Small Company Portfolio 251,149 0 251,149
International Portfolio 122,669 70,043 52,626
International Portfolio II 273,675 0 273,675
Index Portfolio 239,943 0 239,943
CUSTODIAN
Norwest, 733 Marquette Avenue, Minneapolis, Minnesota 55479-0040, is the
custodian of Small Company Portfolio's and Index Portfolio's assets. The Chase
Manhattan Bank, N.A., through its Global Custody Division located in London,
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England, acts as custodian of International Portfolio's and International
Portfolio II's assets, but plays no role in making decisions as to the purchase
or sale of portfolio securities for the Portfolios. Pursuant to rules adopted
under the 1940 Act, each Portfolio may maintain its foreign securities and cash
in the custody of certain eligible foreign banks and securities depositories.
Selection of these foreign custodial institutions is made by the Board following
a consideration of a number of factors, including the reliability and financial
stability of the institution, the ability of the institution to perform capably
custodial services for the Portfolio, the reputation of the institution in its
national market, the political and economic stability of the country in which
the institution is located, and further risks of potential nationalization or
expropriation of Portfolio assets. The custodian employs qualified foreign
subcustodians to provide custody of the Portfolios' foreign assets in accordance
with applicable regulations.
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109,
serves as independent auditors for the Trust.
BROKERAGE ALLOCATION AND OTHER PRACTICES (ITEM 17 OF FORM N-1A)
Investment decisions for the Portfolios will be made independently from those
for any other client account or investment company that is or may in the future
become managed by either Norwest or Schroder, as applicable, or its affiliates.
Investment decisions are the product of many factors including basic suitability
for the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as is possible, averaged as to price and allocated between such clients
in a manner which, in Norwest's or Schroder's, as applicable, opinion, is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients. In
addition, when purchases or sales of the same security for the Portfolio and
other client accounts managed by Norwest or Schroder occur contemporaneously,
the purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
There usually are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and ask prices In the case of
securities traded in the foreign and domestic over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed
commission or markup In underwritten offerings, the price includes a disclosed
fixed commission or discount.
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions except in the over-the-counter markets.
Allocations of transactions to brokers and dealers and the frequency of
transactions are determined by Norwest or Schroder, as applicable, in its best
judgment and in a manner deemed to be in the best interest of holders of
beneficial interests of the Portfolios 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. In transactions on stock
exchanges in the United States, these commissions are negotiated, whereas on
foreign stock exchanges these commissions are generally fixed. Where
transactions are executed in the over-the-counter market, the Portfolio will
seek to deal with the primary market makers; but where necessary in order to
obtain best execution, it will utilize the services of others. In all cases the
Portfolio will attempt to negotiate best execution.
A Portfolio may not always pay the lowest commission or spread available.
Rather, in determining the amount of commission, including certain dealer
spreads, paid in connection with securities transactions, Norwest and Schroder
take into account such factors as size of the order, difficulty of execution,
efficiency of the executing broker's facilities
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(including the services described below) and any risk assumed by the executing
broker. Norwest and Schroder may also take into account payments made by brokers
effecting transactions for a Portfolio (i) to the Portfolio or (ii) to other
persons on behalf of the Portfolio for services provided to it for which it
would be obligated to pay.
In addition, Norwest and Schroder may give consideration to research services
furnished by brokers for their use and may cause the Portfolio to pay these
brokers a higher amount of commission than may be charged by other brokers. Such
research and analysis may be used by Norwest and Schroder in connection with
services to clients other than the Portfolios, and advisory fees are not reduced
by reason of their receipt of the research services.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized Norwest and Schroder to employ their
respective affiliates to effect securities transactions of the Portfolios,
provided certain other conditions are satisfied. Payment of brokerage
commissions to an affiliate of Norwest or Schroder, as applicable, for effecting
such transactions is subject to Section 17(e) of the 1940 Act, which requires,
among other things, that commissions for transactions on securities exchanges
paid by a registered investment company to a broker which is an affiliated
person of such investment company, or an affiliated person of another person so
affiliated, not exceed the usual and customary brokers' commissions for such
transactions. It is the Portfolios' policy that commissions paid to Schroder
Securities Limited ("Schroder Limited"), Norwest Investment Services, Inc.
("Norwest Services") and other affiliates of either Norwest or Schroder will, in
the judgment of the adviser responsible for making portfolio decisions and
selecting brokers, be (i) at least as favorable as commissions contemporaneously
charged by the affiliate on comparable transactions for its most favored
unaffiliated customers and (ii) at least as favorable as those which would be
charged on comparable transactions by other qualified brokers having comparable
execution capability. The Board, including a majority of the non-interested
Trustees, has adopted procedures to ensure that commissions paid to affiliates
of Norwest or Schroder by the Portfolios satisfy the foregoing standards.
The Trust has no understanding or arrangement to direct any specific portion of
its brokerage to Schroder Securities or Norwest Services, and will not direct
brokerage to Schroder Securities or Norwest Services in recognition of research
services.
Transactions in futures contracts are executed through futures commission
merchants ("FCMs"), who receive brokerage commissions for their services. The
Trust's procedures in selecting FCMs to execute the Trust's transactions in
futures contracts, including procedures permitting the use of affiliates of
Norwest or Schroder, are similar to those in effect with respect to brokerage
transactions in securities.
The Trust will not purchase securities that are offered in underwritings in
which any affiliate of Norwest or Schroder is a member of the underwriting or
selling group, except pursuant to procedures adopted by the Board pursuant to
Rule 10f-3 under the 1940 Act. Among other things, these procedures require
that the spread or commission paid in connection with such a purchase be
reasonable and fair, the purchase be at not more than the public offering price
prior to the end of the first business day after the date of the public offering
and that Norwest, Schroder or any affiliates thereof not participate in or
benefit from the sale to the Trust.
CAPITAL STOCK AND OTHER SECURITIES (ITEM 18 OF FORM N-1A)
Under the Trust Instrument, the Trustees are authorized to issue beneficial
interest in one or more separate and distinct series. Investments in each
Portfolio have no preference, preemptive, conversion or similar rights and are
fully paid and nonassessable, except as set forth below. Each investor in a
Portfolio is entitled to a vote in proportion to the amount of its investment
therein. Investors in the Portfolios will all vote together in certain
circumstances (e.g., election of the Trustees and ratification of auditors, as
required by the 1940 Act and the rules thereunder). One or more Portfolios
could control the outcome of these votes. Investors do not have cumulative
voting rights, and investors holding more than 50% of the aggregate interests in
the Trust or in a Portfolio, as the case may be, may control the outcome of
votes. The Trust is not required and has no current intention to hold annual
meetings of investors, but the Trust will hold special meetings of investors
when (1) a majority of the Trustees determines to do so or (2) investors holding
at least 10% of the interests in the Trust (or a Portfolio) request in writing
a meeting of investors in the Trust (or Portfolio). Except for certain matters
specifically described in the Trust Instrument, the Trustees may amend the
Trust's Trust Instrument without the vote of investors.
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<PAGE>
The Trust, with respect to a Portfolio, may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved by
the Trust's Board. A Portfolio may be terminated (1) upon liquidation and
distribution of its assets, if approved by the vote of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act) or (2) by
the Trustees on written notice to the Portfolio's investors. Upon liquidation
or dissolution of any Portfolio, the investors therein would be entitled to
share pro rate in its net assets available for distribution to investors.
The Trust is organized as a business trust under the laws of the State of
Delaware. The Trust's interestholders are not personally liable for the
obligations of the Trust under Delaware law. The Delaware Business Trust Act
provides that an interestholder of a Delaware business trust shall be entitled
to the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust interestholder liability exists in many other states,
including Texas. As a result, to the extent that the Trust or an interestholder
is subject to the jurisdiction of courts in those states, the courts may not
apply Delaware law, and may thereby subject the Trust to liability. To guard
against this risk, the Trust Instrument of the Trust disclaims liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
interestholder held personally liable for the obligations of the Trust. Thus,
the risk of an interestholder incurring financial loss beyond his investment
because of shareholder liability is limited to circumstances in which (1) a
court refuses to apply Delaware law, (2) no contractual limitation of liability
is in effect, and (3) the Trust itself is unable to meet its obligations. In
light of Delaware law, the nature of the Trust's business, and the nature of its
assets, the Board believes that the risk of personal liability to a Trust
interestholder is extremely remote.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES (ITEM 19 OF FORM N-1A)
Interests in the Portfolios are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of section 4(2) of
the 1933 Act. See "General Description of Registrant," "Purchase of
Securities," and "Redemption or Repurchase" in Part A.
The Trust has been granted an exemptive order by the Commission which allows
only open-end management investment companies or their separate series for which
Norwest (or any person controlled by, controlling or under common control with
Norwest) acts as investment adviser (collectively, "Norwest Gateways") to invest
in International Portfolio II, Small Company Portfolio and Index Portfolio (for
these purposes, the "Norwest Cores"). The exemptive order imposes several
substantive conditions, including the following: (1) interests of the Norwest
Cores will not be subject to a sales load or redemption fee, and the Norwest
Cores will not assess any distribution fee adopted in accordance with Rule 12b-1
under the 1940 Act; (2) investment in interests of the Norwest Cores must in be
accordance with each Norwest Gateway's respective investment restrictions and be
consistent with its policies as recited in each Norwest Gateway's registration
statement; (3) the board of trustees/directors with respect to each Norwest
Gateway will review reports at least annually identifying all instances in which
to the extent a Norwest Gateway is invested in two or more Norwest Cores, a
Norwest Core enters a buy order at the same time another Norwest Core enters a
sell order for the same security; (4) the Conservative Balanced Fund, Moderate
Balanced Fund, and Growth Balanced Fund (and any other Norwest Gateway that
allocates its assets between fixed income and equity investments) will limit any
redemptions resulting from a reallocation in its equity and fixed income
positions to no more than 1% of a Norwest Core's portfolio during any period of
less than thirty days; (5) each Norwest Gateway will continue to invest in
Norwest Cores only if its board of trustees/directors determines, at least
annually, that investment in each Norwest Core is in the best interests of
shareholders of the Norwest Gateway; and (6) each Norwest Gateway, as part of
its annual report to shareholders, must list the securities held by the Norwest
Cores in which it invests and the amount and value of such Norwest Gateway's pro
rata interest in such securities to the same extent as if such securities or
interests therein were held directly by such Norwest Gateway.
TAX STATUS (ITEM 20 OF FORM N-1A)
Each Portfolio will be classified for federal income tax purposes as a separate
partnership that will not be a "publicly traded partnership." As a result, no
Portfolio will be subject to federal income tax; instead, each investor in a
Portfolio will be required to take into account in determining its federal
income tax liability its share of the Portfolio's income,
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gains, losses, deductions, and credits, without regard to whether it has
received any cash distributions from the Portfolio. Each Portfolio also will
not be subject to Delaware income or franchise tax.
Each investor in a Portfolio will be deemed to own a proportionate share of the
Portfolio's assets, and to earn a proportionate share of the Portfolio's income,
for, among other things, purposes of determining whether the investor satisfies
the requirements to qualify as a regulated investment company ("RIC").
Accordingly, each Portfolio intends to conduct its operations so that its
investors that intend to qualify as RICs ("RIC investors") will be able to
satisfy all those requirements.
Distributions to an investor from a Portfolio (whether pursuant to a partial or
complete withdrawal or otherwise) will not result in the investor's recognition
of any gain or loss for federal income tax purposes, except that (1) gain will
be recognized to the extent any cash that is distributed exceeds the investor's
basis for its interest in the Portfolio before the distribution, (2) income or
gain will be recognized if the distribution is in liquidation of the investor's
entire interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio, (3) loss will be recognized if a
liquidation distribution consists solely of cash and/or unrealized receivables,
and (4) gain or loss may be recognized on a distribution to an investor that
contributed property to the Portfolio. An investor's basis for its interest in
a Portfolio generally will equal the amount of cash and the basis of any
property it invests in the Portfolio, increased by the investor's share of the
Portfolio's net income and gains and decreased by (a) the amount of cash and the
basis of any property the Portfolio distributes to the investor and (b) the
investor's share of the Portfolio's losses.
Dividends and interest received by a Portfolio may be subject to income,
withholding, or other taxes imposed by foreign countries and; U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Each Portfolio (except Index Portfolio) may invest in the stock of "passive
foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that,
in general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, a
RIC that holds stock of a PFIC (including a RIC investor's indirect holding
thereof through its interest in a Portfolio) will be subject to federal income
tax on a portion of any "excess distribution" received on the stock or of any
gain on disposition of the stock (collectively "PFIC income"), plus interest
thereon, even if the RIC distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the RIC's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
If a Portfolio invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund," then in lieu of the foregoing tax and interest obligation, the
Portfolio would be required to include in income each year its pro rata share of
the qualified electing fund's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- which
most likely would have to be distributed by the Portfolio's RIC investors to
satisfy the distribution requirements applicable to them -- even if those
earnings and gain were not received by it. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
Proposed regulations have been published pursuant to which certain RICs would be
entitled to elect to "mark to market" their stock in certain PFICs. "Marking to
market," in this context, means recognizing as gain for each taxable year the
excess, as of the end of that year, of the fair market value of each such PFIC's
stock over the adjusted basis in that stock (including mark-to-market gain for
each prior year for which an election was in effect).
The Portfolio's use of hedging strategies, such as writing (selling) and
purchasing options and futures and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the gains and losses the Portfolios realize in
connection therewith. For each Portfolio, income from foreign currencies
(except certain gains therefrom that may be excluded by future regulations), and
income from transactions in hedging instruments derived by it with respect to
its business of investing in securities or foreign currencies, will qualify as
permissible income for its RIC investors under the requirement that at least 90%
of a RIC's gross income each taxable year consist of specified types of income.
However, income from the disposition by a
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Portfolio of hedging instruments (other than those on foreign currencies) held
for less than three months will be subject to the requirement applicable to its
RIC investors that less than 30% of a RIC's gross income each taxable year
consist of certain short-term gains ("Short-Short Limitation"). Income from the
disposition of foreign currencies, and hedging instruments on foreign
currencies, that are not directly related to a Portfolio's principal business of
investing in securities (or options and futures with respect thereto) also will
be subject to the Short-Short Limitation for its RIC investors if they are held
for less than three months.
If a Portfolio satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether its RIC investors
satisfy the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Portfolio will consider whether it should seek to qualify for
this treatment for its hedging transactions. To the extent a Portfolio does not
so qualify, it may be forced to defer the closing out of certain hedging
instruments beyond the time when it otherwise would be advantageous to do so, in
order for its RIC investors to qualify or continue to qualify as RICs.
UNDERWRITERS (ITEM 21 OF FORM N-1A)
Forum Financial Services, Inc., Two Portland Square, Portland, Maine 04101, the
Portfolios' administrator, will serve as the Trust's placement agent. Forum
will receive no compensation for such placement agent services.
CALCULATION OF PERFORMANCE DATA (ITEM 22 OF FORM N-1A)
Not applicable.
FINANCIAL STATEMENTS (ITEM 23 OF FORM N-1A)
The statement of assets and liabilities for each Portfolio and the notes thereto
at October 31, 1995, and the report of Coopers & Lybrand L.L.P., independent
accountants, are included herein, given on the authority of such firm as experts
in auditing and accounting.
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
----------------------------------
(a) FINANCIAL STATEMENTS.
(1) INCLUDED IN PART A
Not Applicable
(2) INCLUDED IN PART B
For Small Company Portfolio, International Portfolio, International
Portfolio II, and Index Portfolio:
Audited financial statements for the fiscal period ended October 31, 1995
including: statements of assets and liabilities, statements of operations,
statements of changes in net assets, notes to financial statements,
schedules of investments and independent auditor's report thereon (for each
Portfolio, part of that Portfolio's Annual Report filed with the Securities
and Exchange Commission on January 31, 1996 as part of the Annual Report
of certain series of Norwest Advantage Funds that invest in the Portfolios
pursuant to Rule 30b2-1 under the Investment Company Act of 1940, as
amended) and incorporated herein by reference).
(b) EXHIBITS:
(1) Copy of Trust Instrument (See Note A).
(2) Not Applicable.
(3) Not Applicable.
(4) Not Applicable.
(5) (a) Form of Investment Advisory Agreement to be between Registrant
and Norwest Bank Minnesota, N.A ("Norwest") (See Note A).
(b) Form of Investment Advisory Agreement to be between Registrant
and Schroder Capital Management International Inc. (See Note A).
(c) Form of Investment Advisory Agreement to be between Registrant
and Linden Asset Management, Inc. (See Note B).
<PAGE>
(d) Form of Investment Advisory Agreement to be among Registrant,
Linden Asset Management, Inc. and Forum Advisors, Inc. (See Note
B).
(e) Form of Investment Advisory Agreement to be between Registrant
and Forum Advisors, Inc. (See Note C).
(d) Form of Investment Advisory Agreement to be among Registrant,
Forum Advisors, Inc., and Linden Asset Management, Inc. relating
to the Treasury Portfolio of Registrant (See Note C).
(6) Not required.
(7) Not Applicable.
(8) (a) Form of Custodian Agreement to be between Registrant and Norwest
(See Note A).
(b) Form of Custodian Agreement to be between Registrant and The
Chase Manhattan Bank, N.A. ("Chase") (See Note A)
(c) Form of Foreign Subcustody Agreement to be between Chase and
various foreign subcustodians (See Note A).
(d) Form of Custodian Agreement to be between Registrant and Imperial
Trust Company (See Note B)
(e) Form of Custodian Agreement to be between Registrant and First
National Bank of Boston, N.A.(See Note C)
(9) (a) Form of Administration Agreement to be between Registrant and
Forum Financial Services, Inc. ("Forum") (See Note A).
(b) Form of Fund Accounting Agreement to be between Registrant and
Forum Financial Corp. (See Note A).
(c) Form of Placement Agent Agreement to be between Registrant and
Forum (See Note A).
(d) Form of Administration Agreement to be between Registrant and
Forum with respect to Treasury Cash Portfolio, Government Cash
Portfolio, Cash Portfolio and Treasury Portfolio. (See Note B).
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(e) Form of Fund Accounting Agreement to be between Registrant and
Forum Financial Corp. with respect to Treasury Cash Portfolio,
Government Cash Portfolio, Cash Portfolio and Treasury Portfolio.
(See Note B).
(f) Form of Placement Agent Agreement to be between Registrant and
Forum with respect to Treasury Cash Portfolio, Government Cash
Portfolio, Cash Portfolio and Treasury Portfolio. (See Note B).
(10) Not required.
(11) Not required.
(12) Not required.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
Note A: Filed in Registrant's Registration Statement on November 10, 1994.
Note B: Filed in Amendment No. 1 to Registrant's Registration Statement on
September 1, 1995
Note C: Filed in Amendment No. 2 to Registrant's Registration Statement on
February 20, 1996
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
--------------------------------------------------------------
As of January 19, 1996 substantially all of Registrant's securities were owned
by various series of Norwest Advantage Funds, a registered open-end management
investment company.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF FEBRUARY 19, 1996
-------------------------------------------------------
Title of Class of Shares
of Beneficial Interest Number of Holders
------------------------- -----------------
International Portfolio 2
International Portfolio II 6
Small Company Portfolio 6
Index Portfolio 5
Treasury Cash Portfolio 2
Government Cash Portfolio 2
Cash Portfolio 2
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ITEM 27. INDEMNIFICATION.
The Trust does not currently hold any directors' and officers' or errors
and omissions insurance policies. The Trust's trustees and officers are insured
under the Trust's fidelity bond purchased pursuant to Rule 17j-1 under the
Investment Company Act of 1940, as amended (the "Act").
The general effect of Article 5 of Registrant's Trust Instrument is to
indemnify existing or former trustees and officers of the Trust to the fullest
extent permitted by law against liability and expenses. There is no
indemnification if, among other things, any such person is adjudicated liable to
the Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. This description is modified in its entirety by the provisions of
Article 5 of Registrant's Trust Instrument contained in this Registration
Statement as Exhibit 1 and incorporated herein by reference.
Provisions of each of Registrant's investment advisory agreements provide
that the respective investment adviser shall not be liable for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing shall be deemed to protect, or purport to protect, the investment
adviser against any liability to Registrant or to Registrant's interestholders
to which the investment adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the investment
adviser's duties, or by reason of the investment adviser's reckless disregard of
its obligations and duties hereunder. This description is modified in its
entirety by the provisions of Registrant's Investment Advisory Agreements
contained in this Registration Statement as Exhibit 5 and incorporated herein by
reference.
As custodian to certain portfolios of the Trust, under Section 18 of its
custodian agreement Norwest is not liable for any action taken in good faith
reliance upon the advice or statements of certain experts. Under that
agreement, the Trust has agreed to indemnify and hold Norwest harmless for any
loss, claim, damage or expense arising out of the custodian relationship;
provided such loss, claim, damage or expense is not the direct result of the
Custodian's negligence or willful misconduct. This description is modified in
its entirety by the provisions of Registrant's Custodian Agreement contained in
this Registration Statement as Exhibit 8(a) and incorporated herein by
reference.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
NORWEST BANK MINNESOTA, N.A.
The description of Norwest Bank Minnesota, N.A. in Parts A and B of this
Registration Statement are incorporated by reference herein.
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<PAGE>
The following are the directors and principal executive officers of Norwest Bank
Minnesota, N.A., including their business connections which are of a substantial
nature. The address of Norwest Corporation, the parent of Norwest Bank
Minnesota, N.A., is Norwest Center, Sixth Street and Marquette Avenue,
Minneapolis, MN 55479. Unless otherwise indicated below, the principal business
address of any company with which the directors and principal executive officers
are connected is also Sixth Street and Marquette Avenue, Minneapolis, MN 55479.
James R. Campbell, Director, President and Chief Executive Officer, has
held this position for the last two years. Mr. Campbell is also Executive
Vice President of Norwest Corporation, Director and Chairman of Norwest
Investment Advisors, Inc., and a Director of Flore Properties, Inc.,
Centennial Investment Corporation and Peregrine Capital Management, Inc.,
which is located at LaSalle Plaza, 800 LaSalle Avenue, Suite 1850,
Minneapolis, Minnesota 55402-2056. Mr. Campbell is also a Director of a
number of non-profit organizations located in Minneapolis, Minnesota.
Within the last two years Mr. Campbell was a Director of Norwest Insurance,
Inc. and Norwest Equipment Finance, Inc.
Michael A. Graf, Controller and Cashier, also serves as Senior Vice
President and Controller of Norwest Corporation.
P. Jay Kiedrowski, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates since August 1987. Mr. Kiedrowski is also a Director and
Chairman of the Board of Norwest Investment Management, Inc. and President
of Norwest Investment Management, a part of Norwest.
Scott A. Kisting, Director and Executive Vice President, is also a Director
of Norwest Insurance, Inc., IntraWest Insurance Company and Fidelity
National Life Insurance Company.
Edgar M. Morsman, Jr., Executive Vice President and Chief Lending Officer,
has served in various capacities as an employee of Norwest Bank Minnesota,
N.A. and/or its affiliates during the last two years. Mr. Morsman is also
a Director of Centennial Investment Corporation, First Interstate Equipment
Finance, Inc., Flore Properties, Inc., Norwest Credit, Inc., Norwest
Business Credit, Inc., R.D. Leasing, Inc. and Norwest Equipment Finance,
Inc., which is located at 733 Marquette Avenue, Suite 300, Minneapolis, MN
55479-2048.
Dharani P. Narayana, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr. Narayana is also a Director and
Chairman of Norwest Bank International, Director and Secretary of Norwest
Investments Limited, a Director of Norwest Bank International, Colorado, a
Director and Vice President of Norwest Bank International, Iowa, and a
Director of Norwest Bank International, Wisconsin. Mr. Narayana is also a
Director and Secretary of Minnetonka Overseas Investments Limited, and a
Director of Minnetonka
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<PAGE>
Representaocoes Commerciais Ltda. and Nortico Investments Ltd. all of which
are located at Grand Cayman, Cayman Islands, British West Indies.
William H. Queenan, Director, is also Executive Vice President of Norwest
Corporation.
John T. Thornton, Director, is also Executive Vice President and Chief
Financial Officer of Norwest Corporation. Mr. Thornton is also a Director
of Northern Prairie Indemnity, Limited, Grand Cayman, Cayman Islands,
British West Indies, a Director of Norwest Capital Markets, Inc. Mr.
Thornton is also a Director of Norwest Growth Fund, Inc., Norwest Venture
Capital Management, Inc. and Norwest Equity Capital, Inc., and Director,
President and Treasurer of Norwest Investors, Inc., and Director, President
and CEO of Norwest Limited, Inc., all located at 2800 Piper Jaffray Tower,
222 South Ninth Street, Minneapolis, MN 54402. Mr. Thornton is also
Director and President of Superior Guaranty Insurance Company and Norwest
Holding Company, and a Director of Bettendorf Asset Management, Inc. Mr.
Thornton is also a Director of Eau Claire Asset Management, Inc., Green Bay
Asset Management, Inc., Iowa Asset Management, Inc., LaCrosse Asset
Management, Inc., South Bend Asset Management, Inc., South Dakota Asset
Management, Inc., Waupun Asset Management, Inc., all located at 100 West
Commons Blvd., Suite 303, New Castle, DE 19720.
Richard C. Westergaard, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr.Westergaard is also a Director of
Norwest Business Credit, Inc., Norwest Credit, Inc., First Interstate
Equipment Finance, Inc. and R.D. Leasing, Inc. and a Director of Norwest
Equipment Finance, Inc. and Commonwealth Leasing Corporation, located at
Investors Building, 733 Marquette, Suite 300, Minneapolis, MN 55479-2048.
Charles D. White, Senior Vice President, has served in various capacities
as an employee of Norwest Bank Minnesota, N.A. and/or its affiliates during
the last two years. Mr. White is also Treasurer and Chief Financial
Officer of Norwest Limited, Inc. Mr. White is also a Director of
Bettendorf Asset Management, Inc., Eau Claire Asset Management, Inc., Green
Bay Asset Management, Inc., IntraWest Asset Management, Inc., Iowa Asset
Management, Inc., LaCrosse Asset Management, Inc., South Bend Asset
Management, Inc., South Dakota Asset Management, Inc., and Waupun Asset
Management, Inc., located at 100 West Commons Boulevard, Suite 303, New
Castle, DE 19720.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL, INC.
The description of Schroder Capital Management International, Inc. ("Schroder")
in Parts A and B of the Registration Statement are incorporated by reference
herein.
The following are the directors and principal officers of Schroder, including
their business connections which are of a substantial nature. The address of
each company listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS,
United Kingdom. Schroder Capital Mangement International Limited ("Schroder
Ltd.") is a United Kingdom affiliate of Schroder
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<PAGE>
which provides investment management services international clients located
principally in the United States.
I. Peter Sedgwick, Chairman. Mr. Sedgwick is also Group Managing Director
- Investment Management of Schroders PLC, 120 Cheapside, London EC2V 6DS,
United Kingdom, the holding company of the various Schroder companies,
Chairman and Director of Schroder Ltd., Director and Chief Executive
Officer of Schroder Investment Management Limited, an investment management
company, Director of Schroder Investment Management (UK) Limited, Schroder
Personal Financial Management Limited, Schroder Investment Management
(Europe) Limited, Schroder Investment Trust Management Limited and Church,
Charity & Local Authorities Fund Managers Limited, 2 Fore Street, London
EC2Y 5AQ, United Kingdom, each an investment management company, and
Director, The Equitable Life Assurance Company, Walton Street, Aylesbury,
Bucks, United Kingdom, a life assurance company. Mr. Sedgwick is also a
director of various nominee companies and of various unit trust companies,
investment trusts and closed end investment companies for which Schroder
and/or its affiliates provide investment services.
David M. Salisbury, Chief Executive Officer. Mr. Salisbury is also the
Chief Executive Officer of Schroder Ltd. and Director of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, California, an investment
advisory company and DFA Securities Inc., a broker dealer subsidiary of
Dimensional Fund Advisors Inc. located at the same address. Until October
1992 Mr. Salisbury was Chairman of Schroder Capital Distributors Inc.
("Schroder Distributors"), 787 Seventh Avenue, New York, New York, a broker
dealer. Mr. Salisbury is a director or former director of various
investment trust companies and closed end investment companies for which
Schroder and/or its affiliates provide investment services.
John S. Ager, Director. Mr. Ager is also a Director of Schroder Ltd.
Richard R. Foulkes, Deputy Chairman and Director. Mr. Foulkes is also a
Director of Schroder Ltd. and Schroder Distributors.
Laura E. Luckyn-Malone, Managing Director. Ms. Luckyn-Malone is also a
Director of Schroder Wertheim Investment Services, Inc. and Schroder Ltd.
and President and Director of a closed-end investment company for which
Schroder and/or its affiliates provide investment services. Director and
President of Schroder Advisors.
David J. Mumford, Director. Mr. Mumford is also a Director of Schroder
Ltd. and Schroder Investment Management Limited and is Chairman of
Schroders Guernsey Limited, St. Julian's Avenue, St. Peter Port, Guernsey
C.J., a Guernsey based bank, and Director of J. Henry Schroder Wagg &
Company Limited, 120 Cheapside London EC2V 6DS, United Kingdom, a United
Kingdom based bank.
Gavin D.L. Ralston, Director. Mr. Ralston is also a Director of Schroder
Ltd.
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Mark J. Smith, Director. Mr. Smith is also Director, Schroder Ltd. and
Schroder Investment Management (Guernsey) Limited, an investment management
company, and Director and Vice President of Schroder Distributors and
Director and Vice President of Schroder Advisors. Mr. Smith is also a
director of various investment trusts and open end investment companies for
which Schroder and/or its affiliates provide investment services.
Ton F. Tija, Director. Mr. Tija is also a Director of Schroder Ltd.
John A. Trioano, Managing Director. Mr. Trioano is also a Director of
Schroder Ltd. and Schroder Advisors, Chairman of Schroder Distributors and
President and Director open end investment companies for which Schroder
and/or its affiliates provide investment services.
Jane P. Lucas, Director. Ms. Lucas is also a Director of Schroder Wertheim
Investment Services, Inc. and Assistant Director of Schroder Investment
Management, Ltd.
Kathleen Adams, Vice President. Ms. Adams is also Vice President of
Schroder Distributors.
Mark J. Astley, Vice President.
Andrew R. Barker, First Vice President. Mr. Barker is also First Vice
President of Schroder Ltd.
David A.W. Butler, First Vice President. Mr. Butler is also First Vice
President and Treasurer of Schroder Ltd. and an officer of open end
investment companies for which Schroder and/or its affiliates provide
investment services.
Richard J. Conyers, Vice President. Mr. Conyers is also Vice President of
Schroder Ltd. and Manger of Schroder Investment Management Limited.
Heather F. Crighton, Fund Manger. Ms. Crighton is also Fund Manager of
Schroder Ltd.
Louise Crouset, First Vice President. Mr. Crouset is also First Vice
President of Schroder Ltd. and, until October 1993, was Vice President of
Wellington Management, an investment adviser.
Robert C. Davy, Director. Mr. Davy is also a Director of Schroder Ltd. and
an officer of open end investment companies for which Schroder and/or its
affiliates provide investment services.
Margaret H. Douglas-Hamilton, Secretary. Ms. Douglas-Hamilton is also
First Vice President and General Counsel of Schroders Incorporated
("Schroders Inc."), 787
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Seventh Avenue, New York, New York, the holding company for various United
States based Schroder affiliates. Ms. Douglas-Hamilton is also Secretary
to various Schroder affiliates, including Schroder Distributors.
Lyn M. Fox, Vice President.
Stephen M. Futrell, Comptroller. Mr. Futrell is Treasurer of Schroders
Inc., President, Treasurer and Director of Schroder Distributors and an
officer of various open end investment companies for which Schroder and/or
its affiliates provide investment services.
David Gibson, First Vice President. Mr. Gibson is also First Vice
President of Schroder Ltd. and Assistant Director of Schroder Investment
Management Limited.
Simon C. Hallett, Fund Manager. Mr. Hallett is also Fund Manager of
Schroder Ltd.
Nicholas J. A. Melhuish, Fund Manager. Mr. Melhuish is also Fund Manager of
Schroder Ltd.
Laurette J. Oat, First Vice President. Within the last two years, Ms. Oat
was a Senior Vice President of NatWest Investment Bank, 65 East 55th
Street, New York, New York 10002.
John Stainsby, First Vice President. Mr. Stainsby is also First Vice
President of Schroder Ltd.
Fariba Talebi, First Vice President. Mr. Talebi is also an officer of
various open end investment companies for which Schroder and/or its
affiliates provide investment services.
Jan Kees van Heusde, First Vice President. Mr. van Heusde is also First
Vice President of Schroder Ltd.
Patrick Vermeulen, Vice First President. Mr. Vermeulen is also Vice First
President of Schroder Ltd.
Susan M. Belson, Vice President.
Alan Gilston, Vice President.
Abdallah Nauphal, First Vice President.
Ellen B. Sullivan, First Vice President.
Ira L. Unschuld, Vice President.
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Catherine A. Mazza, Vice President. Ms. Mazza is also Senior Vice President
of Schroder Advisors.
Robert Jackowitz, Vice President. Mr. Jackowitz is also Vice President and
Treasurer of Schroder Wertheim Investment Services, Inc., Treasurer of
Schroder Advisors and Assistant Treasurer of Schroders Incorporated.
FORUM ADVISORS, INC.
The description of Forum Advisors, Inc. ("Forum Advisors") in Parts A and B of
the Registration Statement are incorporated by reference herein.
The following are the directors and principal officers of Forum Advisors, Two
Portland Square, Portland, Maine 04101, including their business connections
which are of a substantial nature.
John Y. Keffer, Director, President and Secretary.
Chairman and President of the Registrant; President and Secretary of
Forum Financial Services, Inc. and of Forum Financial Corp. Mr.
Keffer is a director and/or officer of various registered investment
companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor.
David R. Keffer, Vice President and Treasurer.
Vice President, Assistant Secretary and Assistant Treasurer of the
Registrant; Vice President and Treasurer of Forum Financial Services,
Inc. and of Forum Financial Corp. Mr. Keffer is an officer of various
registered investment companies for which Forum Financial Services,
Inc. serves as manager, administrator and/or distributor.
LINDEN ASSET MANAGEMENT, INC.
The description of Linden Asset Management, Inc. ("Linden") in Parts A and B of
the Registration Statement are incorporated by reference herein.
The following are the directors and principal officers of Linden, 812 N. Linden
Street, Beverly Hills, California 90212, including their business connections
which are of a substantial nature..
Anthony R. Fischer, Jr., Director, President and Secretary.
President and Secretary of Linden Asset Management, Inc. since its
incorporation. Since September 1989 Mr. Fischer has managed his own
personal investments and performed independent research. Prior
thereto, he was Senior Vice President and Treasurer of United
California Savings Bank, Santa Ana, California.
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ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Not applicable.
(b) Not applicable.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Act and the Rules thereunder are maintained
at the offices of Forum Financial Services, Inc. and Forum Financial Corp., Two
Portland Square, Portland, Maine 04104. The records required to be maintained
under Rule 31a-1(b)(1) with respect to journals of receipts and deliveries of
securities and receipts and disbursements of cash are maintained at the offices
of the Registrant's custodians, as listed under "Custodian" in Part B to this
Registration Statement. The records required to be maintained under Rule 31a-
1(b)(5), (6) and (9) are maintained at the offices of Registrant's investment
advisers, as listed in Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to contain in its Trust Instrument provisions for
assisting shareholder communications and for the removal of trustees
substantially similar to those provided for in Section 16(c) of the Act, except
to the extent such provisions are mandatory or prohibited under applicable
Delaware law.
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SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940,
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Portland and
State of Maine on the 26th day of February, 1996.
CORE TRUST (DELAWARE)
By: /s/ Thomas G. Sheehan
------------------------
Thomas G. Sheehan
Vice President
