As filed with the Securities and Exchange Commission on November 30, 1998
File No. 811-8858
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14
CORE TRUST (DELAWARE)
Two Portland Square
Portland, Maine
207-879-1900
David I. Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
Copies to:
Robert J. Zutz, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., NW 2nd Floor
Washington, D.C. 20036-1800
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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. 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)
Prime Money Market Portfolio, Money Market Portfolio, Positive Return Bond
Portfolio, Stable Income Portfolio, Strategic Value Bond Portfolio, Managed
Fixed Income Portfolio, Index Portfolio, Income Equity Portfolio, Large Company
Growth Portfolio, Disciplined Growth Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Growth Portfolio, Small Company Value
Portfolio, Small Cap Value Portfolio and International Portfolio.
PART B
CORE TRUST (DELAWARE)
Prime Money Market Portfolio, Money Market Portfolio, Positive Return Bond
Portfolio, Stable Income Portfolio, Strategic Value Bond Portfolio, Managed
Fixed Income Portfolio, Index Portfolio, Income Equity Portfolio, Large Company
Growth Portfolio, Disciplined Growth Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Growth Portfolio, Small Company Value
Portfolio, Small Cap Value Portfolio and International Portfolio.
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PART A
CORE TRUST (DELAWARE)
PRIVATE PLACEMENT MEMORANDUM
DECEMBER 1, 1998
This Private Placement Memorandum relates to beneficial interests ("Interests")
in Prime Money Market Portfolio, Money Market Portfolio, Positive Return Bond
Portfolio, Stable Income Portfolio, Managed Fixed Income Portfolio, Strategic
Value Bond Portfolio, Index Portfolio, Income Equity Portfolio, Large Company
Growth Portfolio, Disciplined Growth Portfolio, Small Company Stock Portfolio,
Small Company Growth Portfolio, Small Company Value Portfolio, Small Cap Value
Portfolio, Small Cap Index Portfolio, and International Portfolio (each a
"Portfolio" and collectively the "Portfolios"), diversified portfolios of Core
Trust (Delaware) (the "Trust"), a registered, open-end management investment
company.
Investments in the Portfolios 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 a 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 ("1933 Act").
The Trust has filed with the Securities and Exchange Commission ("SEC") a Part B
to this Private Placement Memorandum (the "Statement of Additional Information"
or "SAI") with respect to the Portfolios dated the same date as this Private
Placement Memorandum and as may be further amended from time to time, which
contains more detailed information about the Trust and the Portfolios and is
incorporated into this Private Placement Memorandum by reference. A prospective
investor may obtain a copy of the SAI without charge by contacting Forum
Financial Services, Inc. ("FFSI"), the Trust's placement agent (the "Placement
Agent") at Two Portland Square, Portland, Maine 04101 or by calling (207)
879-1900.
This Private Placement Memorandum does not constitute an offer to sell, or the
solicitation of an offer to buy, Interests in any Portfolio. An investor may
subscribe for a Interest in a Portfolio by contacting 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.
TABLE OF CONTENTS PAGE
Glossary 2
General Description of Registrant 3
Investment Objectives 3
Investment Policies 4
Additional Investment Policies 15
Risk Consideration 16
Management of the Portfolios 17
Description of Beneficial Interests 21
Information Regarding Net Income and Taxes 23
Purchase of Interests 23
Redemption or Repurchase of Interests 24
Pending Legal Proceedings 24
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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GLOSSARY
This Glossary of frequently used terms will help in understanding the discussion
of the Portfolios' objectives, policies, and risks. Defined terms are
capitalized when used in this Part A.
Term Definition
Board The Board of Trustees of Core Trust
(Delaware).
Duration A measure of a debt security's average
life that reflects the present value of
the security's cash flow. Prices of
securities with longer durations generally
are more volatile.
Fundamental Requiring shareholder approval to change.
Investment Grade Rated at the time of purchase in 1
of the 4 highest long-term or 2 highest
short-term ratings categories by an NRSRO
or unrated and determined by the Adviser
to be of comparable quality.
Market Capitalization The total market value of a company's
outstanding common stock.
Municipal Security A debt security issued by or on behalf
of the states, territories, or
possessions of the United States, the
District of Columbia and
their subdivisions, authorities,
instrumentalities, and corporations, with
interest exempt from federal income tax.
NRSRO A nationally recognized statistical rating
organization, such as S&P, that rates
fixed-income securities and preferred
stock by relative credit risk. NRSROs
also rate money market mutual funds.
Non-Investment Grade Neither rated at the time of purchase
in 1 of the 4 highest long-term
or 2 highest short-term ratings categories
by an NRSRO nor unrated and determined by
the Adviser to be of comparable quality.
Russell 1000(R) Index An index of large- and medium-
capitalization companies.
Russell 2000(R) Index An index of smaller capitalization
companies with a broader base of
companies than the S&P 600 Small Cap
Index.
S&P Standard & Poor's, A Division of The
McGraw Hill Companies.
S&P 500 Index Standard & Poor's 500 Composite Stock
Price Index, an index of large
capitalization companies.
S&P 600 Small Cap Index Standard & Poor's Small Cap 600 Composite
Stock Price Index, an index of small
capitalization companies.
SAI Statement of Additional Information.
SEC The U.S. Securities and Exchange
Commission.
U.S. Government Security A security issued or guaranteed as to
principal and interest by the U.S.
Government, its agencies, or its
instrumentalities.
U.S. Treasury Security A security issued or guaranteed by the
U.S. Treasury.
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GENERAL DESCRIPTION OF REGISTRANT
Core Trust (Delaware) (the "Trust") is an 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. The Trust offers units of Interest without any sales
charge and units may be redeemed without charge.
Beneficial interests in the Trust are divided into 21 separate diversified
series, each having a distinct investment objective and distinct investment
policies. The Portfolios are 16 of those series. The Trust is empowered to
establish, without investor approval, additional series 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 1933 Act. Investments in a 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). This
registration statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" as that term is defined in the 1933 Act.
Norwest Investment Management, Inc. ("Norwest"), a subsidiary of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), serves as the investment adviser of each
Portfolio except International Portfolio, for which Schroder Capital Management
International Inc. ("Schroder"), a wholly owned subsidiary of Schroders
Incorporated (doing business in New York as Schroders Holdings), the wholly
owned subsidiary if Schroders plc, serves as the investment adviser.
Galliard Capital Management, Inc. ("Galliard") is the investment subadviser of
Stable Income Portfolio, Managed Fixed Income Portfolio and Strategic Value Bond
Portfolio. Crestone Capital Management, Inc. ("Crestone") is the investment
subadviser of Small Company Stock Portfolio. Peregrine Capital Management, Inc.
("Peregrine") is the investment subadviser of Positive Return Bond Portfolio,
Large Company Growth Portfolio, Small Company Growth Portfolio and Small Company
Value Portfolio. Smith Asset Management Group, LP ("Smith Group"), an investment
advisory affiliate of Norwest Bank, is the investment subadviser of Disciplined
Growth Portfolio and Small Cap Value Portfolio. Galliard, Crestone and Peregrine
are each investment advisory subsidiaries of Norwest Bank and, together with
Smith Group, are referred to as the "Subadvisers." Norwest, Schroder, Galliard,
Crestone, Peregrine and Smith Group (or Norwest and a Subadviser) are
collectively referred to as the "Advisers" or as applicable, individually, as
the "Adviser."
INVESTMENT OBJECTIVES
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.
PRIME MONEY MARKET PORTFOLIO'S investment objective is to seek to provide high
current income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
MONEY MARKET PORTFOLIO'S investment objective is to seek to provide high current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
POSITIVE RETURN BOND PORTFOLIO'S investment objective is to seek positive total
return each calendar year regardless of the bond market.
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STABLE INCOME PORTFOLIO'S investment objective is to maintain safety of
principal while providing low-volatility total return.
MANAGED FIXED INCOME PORTFOLIO'S investment objective is to seek consistent
fixed income returns by investing primarily in investment grade
intermediate-term obligations.
STRATEGIC VALUE BOND PORTFOLIO'S investment objective is to seek total return by
investing primarily in income producing securities.
INDEX PORTFOLIO'S investment objective is to duplicate the return of the
Standard & Poor's 500 Composite Stock Price Index (the "Index").
INCOME EQUITY PORTFOLIO'S investment objective is to provide long-term capital
appreciation consistent with above-average dividend income.
LARGE COMPANY GROWTH PORTFOLIO'S investment objective is to provide long-term
capital appreciation by investing primarily in large, high-quality domestic
companies that the investment adviser believes have superior growth potential.
DISCIPLINED GROWTH PORTFOLIO'S investment objective is to seek capital
appreciation by investing primarily in common stocks of larger companies.
SMALL COMPANY STOCK PORTFOLIO'S investment objective is long-term capital
appreciation.
SMALL COMPANY GROWTH PORTFOLIO'S investment objective is to provide long-term
capital appreciation by investing in smaller sized domestic companies.
SMALL COMPANY VALUE PORTFOLIO'S investment objective is to seek to provide
long-term capital appreciation.
SMALL CAP VALUE PORTFOLIO'S investment objective is to seek capital appreciation
by investing primarily in common stocks of smaller companies.
SMALL CAP INDEX PORTFOLIO'S investment objective is to replicate the return of
the Standard & Poor's Small Cap 600 Composite Stock Price Index.
INTERNATIONAL PORTFOLIO'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").
INVESTMENT POLICIES
There can be no assurance that any Portfolio will achieve its investment
objective or that Prime Money Market Portfolio ("Prime Portfolio") or Money
Market Portfolio (collectively, the "Money Market Portfolios") will maintain a
stable net asset value. Each Portfolio's (other than the Money Market
Portfolios') net asset value will fluctuate based upon changes in the value of
its portfolio securities. Upon redemption, an investment in a Portfolio may be
worth more or less than its original value. Certain of the Portfolios are
designed for investment of that portion of an investor's funds which can
appropriately bear the special risks associated with certain types of
investments (i.e., investment in small capitalization companies).
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MONEY MARKET PORTFOLIOS
The Money Market Portfolios' investments are made under the requirements of an
SEC rule governing the investments that money market funds may make. Each
Portfolio invests only in high-quality, U.S. dollar-denominated short-term money
market instruments that are determined by the Adviser, under procedures adopted
by the Board, to be eligible for purchase and to present minimal credit risks.
The Portfolios may invest in securities with fixed, variable or floating rates
of interest.
High-quality instruments include those that: (1) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in one of the two highest rating categories by 2 NRSROs or, if only 1 NRSRO has
issued a rating, by that NRSRO; or (2) are otherwise unrated and determined by
the Adviser to be of comparable quality. Each Portfolio invests at least 95% of
its total assets in securities in the highest rating category.
PRIME MONEY MARKET PORTFOLIO AND THE MONEY MARKET PORTFOLIO
The Money Market Portfolios' objective is to provide high current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity.
The Money Market Portfolios generally have the same investment objective and
investment policies. Because Prime Portfolio seeks to maintain a rating within
the 2 highest short-term categories assigned by at least 1 NRSRO, it is more
limited in the type and amount of securities it may purchase.
The Money Market Portfolios invest in a broad spectrum of high-quality money
market instruments of U.S. and foreign issuers, including U.S. Government
Securities, Municipal Securities, and corporate debt securities.
The Money Market Portfolios may invest in obligations of financial institutions.
These include negotiable certificates of deposit, bank notes, 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, U.S. branches and agencies of foreign banks and wholly-owned
banking-related subsidiaries of foreign banks. The Money Market Portfolios limit
their investments in obligations of financial institutions to institutions that
at the time of investment have total assets in excess of $1 billion, or the
equivalent in other currencies.
Each Portfolio normally will invest more than 25% of its total assets in the
obligations of domestic and foreign financial institutions, their holding
companies, and their subsidiaries. Neither Portfolio may invest more than 25% of
its total asset in any other single industry.
The principal risks associated with the Money Market Portfolios are credit risk,
interest rate risk, and foreign investment risk. See "Risk Considerations."
FIXED INCOME PORTFOLIOS
POSITIVE RETURN BOND PORTFOLIO
The Portfolio seeks to produce a positive return each calendar year regardless
of general bond market performance by investing in a portfolio of U.S.
Government Securities and corporate fixed income investments. The Portfolio's
assets are divided into two components, short bonds with maturities (or average
life) of 2 years or less and long bonds with maturities of 25 years or more.
Shifts between short bonds and long bonds are made based on movement in the
prices of bonds rather than on the Adviser's forecast of interest rates. During
periods of falling prices (generally, increasing interest rate environments)
long bonds are sold to protect capital and limit losses. Conversely, when bond
prices rise, long bonds are purchased. The average dollar-weighted maturity of
the Portfolio will vary between 1 and 30 years.
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Under normal circumstances, the Portfolio invests at least 50% of the net assets
in U.S. Government Securities, including U.S. Treasury Securities. The Portfolio
only purchases securities that are rated, at the time of purchase, within 1 of
the 2 highest long-term rating categories assigned by an NRSRO or that are
unrated and determined by the Adviser to be of comparable quality. The Portfolio
may invest up to 25% of its assets in securities rated in the second highest
rating category. The Portfolio does not invest more than 25% of its total assets
in zero-coupon securities, securities with variable or floating rates of
interest, or asset-backed securities.
The principal risk factors associated with the Portfolio are credit risk. market
risk, interest rate risk, prepayment risk, and leverage risk. See "Risk
Considerations."
STABLE INCOME PORTFOLIO
The Portfolio invests primarily in short-term Investment Grade securities. The
Portfolio invests in a diversified portfolio of fixed and variable rate U.S.
dollar-denominated fixed income securities of a broad spectrum of U.S. and
foreign issuers, including U.S. Government Securities and the debt securities of
financial institutions, corporations and others.
The Portfolio normally limits its investments in mortgage-backed securities to
not more than 65% of its total assets, other types of asset-backed securities to
not more than 25% of its total assets, mortgage-backed securities that are not
U.S. Government Securities to not more than 25% of its total assets, and U.S.
Government Securities to not more than 50% of its total assets.
The Portfolio may not invest more than 30% of its total assets in the securities
issued or guaranteed by any single agency or instrumentality of the U.S.
Government, except U.S. Treasury, and may not invest more than 10% of its total
assets in the securities of any other issuer.
The Portfolio only purchases Investment Grade securities. The Portfolio invests
in debt obligations with maturities (or average life in the case of
mortgage-backed and similar securities) ranging from overnight to 12 years and
seeks to maintain an average dollar-weighted portfolio maturity of between 2 and
5 years.
The Portfolio may use options, swap agreements, interest rate caps, floors and
collars, currency forward contracts, and futures contracts to manage risk. The
Portfolio may also use options to enhance return.
The principal risk factors associated with the Portfolio are credit risk,
leverage risk, foreign risk, market risk, interest rate risk, and prepayment
risk. See "Risk Considerations."
MANAGED FIXED INCOME PORTFOLIO
The Portfolio seeks consistent fixed income returns by investing primarily in
Investment Grade intermediate-term securities. The Portfolio invests in a
diversified portfolio of fixed and variable rate U.S. dollar denominated, fixed
income securities of a broad spectrum of U.S. and foreign issuers, including
U.S. Government Securities, and the debt securities of financial institutions,
corporations and others. The Adviser emphasizes the use of intermediate maturity
securities to lessen Duration and employs low risk yield enhancement techniques
to enhance return over a complete economic or interest rate cycle. The Adviser
considers intermediate-term securities to be those with maturities of between 2
and 20 years.
The Portfolio will limit its investment in mortgage-backed securities to not
more than 65% of its total assets and its investment in asset-backed securities
to not more than 25% of its net assets. In addition, the Portfolio may not
invest more than 30% of its total assets in securities issued or guaranteed by
any single agency or instrumentality of the U.S. Government, except the U.S.
Treasury.
The Portfolio only purchases Investment Grade securities. The Portfolio normally
will have an average dollar-weighted portfolio maturity of between 3 and 12
years and a Duration of between 2 and 6 years.
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The Portfolio also may purchase up to 10% of its total assets in securities
issued or guaranteed by foreign governments the Adviser deems stable, or their
subdivisions, agencies, or instrumentalities; loan or security participations;
securities of supranational organizations; and Municipal Securities.
The Portfolio may use options, swap agreements, interest rate caps, floors and
collars, and futures contracts to manage risk. The Portfolio may also use
options to enhance return.
The principal risk factors associated with the Portfolio are credit risk,
leverage risk, foreign risk, market risk, interest rate risk, and prepayment
risk. See "Risk Considerations."
STRATEGIC VALUE BOND PORTFOLIO
The Portfolio invests in a broad range of fixed-income instruments in order to
create a strategically diversified portfolio of fixed-income investments. These
investments include corporate bonds, mortgage- and asset-backed securities, U.S.
Government Securities, preferred stock, convertible bonds and foreign bonds.
The Adviser focuses on relative value as opposed to predicting of the direction
of interest rates. In general, the Portfolio seeks higher current income
instruments, such as corporate bonds and mortgage- and asset backed securities,
in order to enhance returns. The Adviser believes that this exposure enhances
performance in varying economic and interest rate cycles and avoids excessive
risk concentrations. The Adviser's investment process involves rigorous
evaluation of each security, including identifying and valuing cash flows,
embedded options, credit quality, structure, liquidity, marketability, current
versus historical trading relationships, supply and demand for the instrument
and expected returns in varying economic/interest rate environments. The Adviser
uses this process to seek to identify securities which represent the best
relative economic value. The Adviser then evaluates the results of the
investment process against the Portfolio's objective and purchases those
securities that are consistent with the Portfolio's investment objective.
The Portfolio particularly seeks strategic diversification. The Portfolio will
not invest more than 75% of its total assets in corporate bonds; 65% of its
total assets in mortgage-backed securities; 50% of its total assets in
asset-backed securities; or 25% of its total assets in a single industry of the
corporate market. The Portfolio may invest in U.S. Government Securities without
restriction. The Portfolio generally will not invest more than 5% of its total
assets in the corporate bonds of any single issuer.
The Portfolio will invest 65% of its total assets in fixed-income securities
rated, at the time of purchase, within the three highest rating categories by at
least one NRSRO, or which are unrated and determined by the Adviser to be of
comparable quality. The Portfolio may invest up to 20% of its total assets in
Non-Investment Grade securities.
The average maturity of the Portfolio will vary between 5 and 15 years. In the
case of mortgage-backed and similar securities, the Portfolio uses the
security's average life in calculating the Portfolio's average maturity. The
Portfolio's Duration normally will vary between 3 and 8 years.
The Portfolio may use options, swap agreements, interest rate caps, floors and
collars, and futures contracts to manage risk. The Portfolio may also use
options to enhance returns.
The principal risk factors associated with the Portfolio are credit risk, market
risk, interest rate risk, prepayment risk and leverage risk. See "Risk
Considerations."
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EQUITY PORTFOLIOS
INDEX PORTFOLIO
Index Portfolio is designed to replicate the return of the S&P 500 Index with
minimum tracking error and to minimizing transaction costs. Under normal
circumstances, the Portfolio holds stocks representing 100% of the
capitalization-weighted market values of the S&P 500 Index. The Adviser
generally executes portfolio transactions for the Portfolio only to replicate
the composition of the S&P 500 Index, to invest cash received from portfolio
security dividends or investments in the Portfolio, and to raise cash to fund
redemptions. The Portfolio may hold cash or cash equivalents to facilitate
payment of the Portfolio's expenses or redemptions and may invest in index
futures contracts to a limited extent. For these and other reasons, the
Portfolio's performance can be expected to approximate but not equal that of the
S&P 500 Index.
The S&P 500 Index tracks the total return performance of 500 common stocks which
are chosen for inclusion in the S&P 500 Index by S&P on a statistical basis. The
500 securities, most of which trade on the New York Stock Exchange, represent
approximately 70% of the total market value of all U.S. common stocks. Each
stock in the S&P 500 Index is weighted by its market value. Because of the
market-value weighting, the 50 largest companies in the S&P 500 Index currently
account for approximately 47% of its value. The S&P 500 Index emphasizes large
capitalizations and, typically, companies included in the S&P 500 Index are the
largest and most dominant firms in their respective industries.
S&P does not sponsor, sell, promote or endorse, the Portfolio. S&P does not
warrant that the S&P 500 Index is a good investment, is accurate or complete, or
will track general stock market performance.
The principal risk factors associated with the Portfolio are index risk, and
market risk. See "Risk Considerations."
INCOME EQUITY PORTFOLIO
The Portfolio invests primarily in the common stock of large, high-quality
domestic companies that have above-average return potential based on current
market valuations. The Portfolio primarily emphasizes investments in securities
of companies with above-average dividend income. In selecting securities for the
Portfolio, the Adviser uses various valuation measures, including above-average
dividend yields and below industry average price-to-earnings, price-to-book and
price-to-sales ratios. The Adviser considers large companies to be those whose
Market Capitalization is greater than the median of the Russell 1000 Index or
approximately $3.7 billion.
The Portfolio may invest in preferred stock, convertible securities, and
securities of foreign companies. The Portfolio will not normally invest more
than 10% of its total assets in the securities of a single issuer.
The principal risk factors associated with the Portfolio are currency risk,
foreign risk, and market risk. See "Risk Considerations."
LARGE COMPANY GROWTH PORTFOLIO
Large Company Growth Portfolio invests primarily in the common stock of large,
high-quality domestic companies that have superior growth potential. The Adviser
considers large companies to be those companies whose Market Capitalization is
greater than the median of the Russell 1,000 Index or approximately $3.7
billion. In selecting securities for the Portfolio, the Adviser seek issuers
whose stock is attractively valued with fundamental characteristics that are
significantly better than the market average and support internal earnings
growth capability. The Portfolio may invest in the securities of companies whose
growth potential is, in the Advisers' opinion, generally unrecognized or
misperceived by the market.
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The Portfolio may invest up to 20% of its total assets in the securities of
foreign companies and may hedge against currency risk by using foreign currency
forward contracts. The Portfolio may not invest more than 10% of its total
assets in the securities of a single issuer.
The principal risk factors associated with the Portfolio are currency risk,
foreign risk, leverage risk and market risk. See "Risk Considerations."
DISCIPLINED GROWTH PORTFOLIO
The Portfolio seeks capital appreciation by investing in common stocks of larger
companies. The Portfolio seeks higher long-term returns by investing primarily
in the common stock of companies that, in the view of the Adviser, possess above
average potential for growth. The Portfolio invests in companies with average
Market Capitalizations greater than $5 billion.
The Portfolio seeks to identify growth companies that will report a level of
corporate earnings that exceeds the level expected by investors. In seeking
these companies, the investment adviser uses both quantitative and fundamental
analysis. The Adviser may consider, among other factors, changes of earnings
estimates by investment analysts, the recent trend of company earnings reports,
and an analysis of the fundamental business outlook for the company. The Adviser
uses a variety of valuation measures to determine whether the share price
already reflects any positive fundamentals identified by the Adviser. In
addition to approximately equal weighting of portfolio securities, the Adviser
attempts to constrain the variability of the investment returns by employing
risk control screens for price volatility, financial quality and valuation.
The principal risk factor associated with the Portfolio is market risk. See
"Risk Considerations."
SMALL COMPANY STOCK PORTFOLIO
The Small Company Stock Portfolio invests primarily in the common stock of small
and medium-size domestic companies that have Market Capitalizations well below
that of the average company in the S&P 500 Index The Adviser considers small
companies to be those companies whose Market Capitalizations are less than the
largest stock in the Russell 2000 Index or approximately $1.4 billion. The
Adviser considers medium companies to be those companies whose Market
Capitalizations range from $500 million to $8 billion.
In selecting securities for the Portfolio, the Adviser seek securities with
significant price appreciation potential and attempts to identify companies that
show above-average growth, as compared to long-term overall market growth. The
Portfolio invests in companies that may be in a relatively early stage of
development or may produce goods and services that 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, which, in the view of the Adviser, may result in an enhanced
entrepreneurial spirit and greater focus. The Adviser 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.
The Portfolio may invest up to 20% of its total assets in the securities of
foreign companies. The Portfolio may write covered call options and purchase
call options on equity securities to manage risk or enhance returns.
The principal risk factors associated with the Portfolio are currency risk,
small company risk, foreign risk, and market risk. See "Risk Considerations."
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SMALL COMPANY GROWTH PORTFOLIO
Small Company Growth Portfolio invests primarily in the common stock of small
and medium-sized domestic companies that are either growing rapidly or
completing a period of significant change. Small companies are those companies
whose Market Capitalization is less than the largest stock in the Russell 2,000
Index or approximately $1.4 billion.
In selecting securities for the Portfolio, the Adviser 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 the
company's share price and takeover/asset value.
The Portfolio will invest up to 10% of its total assets in securities of foreign
companies. The Portfolio will not invest more than 10% of its total assets in
the securities of a single issuer.
The principal risk factors associated with the Portfolio are currency risk,
small company risk, foreign risk, and market risk. See "Risk Considerations."
SMALL COMPANY VALUE PORTFOLIO
The Small Company Value Portfolio seeks to provide long-term capitalization by
investing primarily in smaller companies whose Market Capitalization is less
than the largest stock in the Russell 2000 Index or approximately $1.4 billion.
The Adviser focuses on securities that are conservatively valued in the
marketplace relative to the stock of comparable companies, determined by
price/earnings ratios, cash flows, or other measures. Value investing provides
investors with a less aggressive way to take advantage of growth opportunities
of small companies. Value investing may reduce downside risk and offer potential
for capital appreciation as a stock gains favor among other investors and its
stock price rises.
The principal risk factors associated with the Portfolio are leverage risk,
market risk, and small company risk. See "Risk Considerations."
SMALL CAP VALUE PORTFOLIO
Small Cap Value Portfolio seeks capital appreciation by investing in common
stocks of smaller companies. The Portfolio will normally invest substantially
all of its assets in securities of companies with Market Capitalizations of
companies included in the Russell 2000 Index, which range from approximately
$221.9 billion to approximately $1.4 billion. The Portfolio seeks higher growth
rates and greater long-term returns by investing primarily in the common stock
of smaller companies that the Adviser believes to be undervalued and likely to
report a level of corporate earnings exceeding the level expected by investors.
The Adviser values companies based upon both the price-to-earnings ratio of the
company and a comparison of the public market value of the company to a
proprietary model that values the company in the private market. In seeking
companies that will report a level of earnings exceeding that expected by
investors, the Adviser uses both quantitative and fundamental analysis. Among
other factors, the Adviser considers changes of earnings estimates by investment
analysts, the recent trend of company earnings reports, and the fundamental
business outlook for the company.
The principal risk factors associated with the Portfolio are market risk and
small company risk. See "Risk Considerations."
SMALL CAP INDEX PORTFOLIO
Small Cap Index Portfolio seeks to replicate the return of the S&P 600 Small Cap
Index with minimum tracking error and to minimize transaction costs. Under
normal circumstances, the Portfolio will hold stocks representing 100% of the
capitalization-weighted market values of the S&P 600 Small Cap Index. The
<PAGE>
Adviser generally executes portfolio transactions only to replicate the
composition of the S&P 600 Small Cap Index, to invest cash received from
portfolio security dividends or investments in the Portfolio, and to raise cash
to fund redemptions. The Portfolio may hold cash or cash equivalents to
facilitate payment of the Portfolio's expenses or redemptions and may invest in
index futures contracts. For these and other reasons, the Portfolio's
performance can be expected to approximate but not equal that of the S&P 600
Small Cap Index.
The S&P 600 Small Cap Index tracks the total return performance of 600 common
stocks which are chosen for inclusion in the S&P 600 Small Cap Index by S&P on a
statistical basis. The 600 securities, most of which trade on the New York Stock
Exchange, represent 4% of the total market value of all U.S. common stocks. Each
stock in the S&P 600 Small Cap Index is weighted by its market value. The S&P
600 Small Cap Index emphasizes smaller capitalizations and typically, companies
included in the S&P 600 Small Cap Index may not be the largest nor most dominant
firms in their respective industries.
S&P does not sponsor, sell, promote, or endorse the Portfolio. S&P does not
warrant that the S&P 600 Small Cap Index is a good investment, is accurate or
complete, or will track general stock market performance.
The principal investment risks associated with the Portfolio are leverage risk,
market risk, index risk, and small company risk. See "Risk Considerations."
INTERNATIONAL PORTFOLIO
International Portfolio seeks to provide long-term capital appreciation by
investing directly or indirectly in high-quality companies based outside the
United States. The Portfolio selects its investments on the basis of their
potential for capital appreciation without regard to current income. The
Portfolio may also invest in the securities of domestic closed-end investment
companies that invest 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.
The Portfolio's investments are generally diversified among securities of
issuers in foreign countries including, but not limited to Japan, Germany, the
United Kingdom, France, the Netherlands, Hong Kong, Singapore, and Australia. In
general, the Portfolio will invest only in securities of companies and
governments in countries that the Adviser, in its judgment, considers both
politically and economically stable. The Portfolio has no limit on the amount of
its assets that may be invested in any one type of foreign instrument or in any
foreign country; however, to the extent the Portfolio concentrates its assets in
a foreign country, it will incur greater risks.
Under normal circumstances, International Portfolio will invest substantially
all of its assets, but not less than 65% of its net assets, in equity securities
of companies domiciled outside the United States. The Portfolio may purchase
preferred stock and convertible debt securities, including convertible preferred
stock. The Portfolio also may 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 and may purchase American Depository Receipts, European
Depository Receipts or other similar securities of foreign issuers.
The principal risks associated with the Portfolio are credit risk, geographic
concentration risk, market risk, currency risk, interest rate risk, prepayment
risk, foreign risk, and leverage risk. See "Risk Considerations."
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ADDITIONAL INVESTMENT POLICIES
DOWNGRADED SECURITIES
Each Portfolio may retain a security whose rating has been lowered (or a
security of comparable quality to a security whose rating has been lowered)
below a Portfolio's lowest permissible rating category if the Portfolio's
Adviser determines that retaining the security is in the best interests of the
Portfolio. Because a downgrade often results in a reduction in the market price
of the security, sale of a downgraded security may result in a loss.
TEMPORARY DEFENSIVE POSITION
To respond to adverse market, economic, political, or other conditions, each
Portfolio may assume a temporary defensive position and invest without limit in
cash and cash equivalents. When a Portfolio makes temporary defensive
investments, it may not be invested so as to achieve its investment objective.
PORTFOLIO TRANSACTIONS
From time to time, a Portfolio may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. Higher portfolio turnover rates may result in increased brokerage costs
and a possible increase in short-term capital gains or losses.
The frequency of portfolio transactions for each Portfolio is contained in the
annual report for those Portfolios included in the SAI. The portfolio turnover
rate of a Portfolio will vary from year to year depending upon a variety of
factors. 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. No
Portfolio anticipate its turnover rate will exceed 100%.
YEAR 2000 AND EURO
The Portfolios could be adversely affected if the computer systems used by the
Advisers and other service providers (and in particular foreign service
providers) to the Portfolios do not properly process and calculate date-related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments.
Norwest, Schroder and Forum Financial Group are taking steps to address the Year
2000 and Euro issues for their computer systems and to obtain reasonable
assurances that comparable steps are being taken by the Portfolios' other major
service providers. While the Portfolios do not anticipate any adverse effect on
their computer systems from the Year 2000 issue, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Portfolios.
<PAGE>
RISK CONSIDERATIONS
This section describes the principal risks that may apply to the Portfolios.
Each Portfolio's exposure to these risks depends upon its specific investment
profile. See "Investment Objectives" and "Investment Policies."
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. This risk is
greater for Non-Investment Grade securities.
CURRENCY RISK
The risk that fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect a Portfolio's investments.
FOREIGN RISK
The risk that foreign investments may be subject to political and economic
instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, or nationalization, increased
taxation or confiscation of investors' assets. Also, the risk that the price of
a foreign issuer's securities may not reflect the issuer's condition because
there is not sufficient publicly available information about the issues. This
risk may be greater for investments in issuers in emerging or developing
markets.
GEOGRAPHIC CONCENTRATION RISK
The risk that factors adversely affecting a Portfolio's investments in issuers
located in a state, country or region will affect the Portfolio's net asset
value more than would be the case if the Portfolio had made more geographically
diverse investments.
INDEX RISK
The risk that a Portfolio designed to replicate the performance of an index of
securities will replicate the performance of the index during adverse market
conditions because the portfolio manager is not permitted to take a temporary
defensive position or otherwise vary the Portfolio's investments to respond to
the adverse market conditions.
INTEREST RATE RISK
The risk that changes in interest rates may affect the value of your investment.
With fixed-rate securities, including Municipal Securities and U.S. Government
Securities, an increase in interest rates typically causes the value of a
Portfolio's fixed-rate securities to fall, while a decline in interest rates may
produce an increase in the market value of the securities. Because of this risk,
an investment in a Portfolio that invests in fixed-income securities is subject
to risk even if all the fixed-income securities in the Portfolio's portfolio are
paid in full at maturity. Changes in interest rates will affect the value of
longer-term fixed-income securities more than shorter-term securities.
LEVERAGE RISK
The risk that some transactions may multiply smaller market movements into large
changes in a Portfolio's net asset value. This risk may occur when a Portfolio
borrows money or enters into transactions that have a similar economic effect,
such as short sales or forward commitment transactions. This risk also may occur
when a Portfolio makes investments in certain derivative instruments.
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MARKET RISK
The risk that the market value of a Portfolio's investments will fluctuate as
the stock and bond markets fluctuate generally. Market risk may affect a single
issuer, industry or section of the economy or may affect the market as a whole.
PREPAYMENT RISK
The risk that issuers will prepay fixed rate securities when interest rates
fall, forcing the Portfolio to invest in securities with lower interest rates
than the prepaid securities. For a Portfolio investing in mortgage- and other
asset-backed securities, this is also the risk that a decline in interest rates
may result in holders of the assets backing the securities to prepay their
debts, resulting in potential losses in these securities' values and yield.
Alternatively, rising interest rates may reduce the amount of prepayments on the
assets backing these securities, causing the Portfolio's average maturity to
rise and increasing the Portfolio's sensitivity to rising interest rates and
potential for losses in value.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies. Smaller companies may have higher failure rates
than larger companies. A small company's securities may be hard to sell because
the trading volume of the securities of smaller companies is normally lower than
that of larger companies. Short term changes in the demand for the securities of
smaller companies may have a disproportionate effect on their market price,
tending to make prices of these securities fall more in response to selling
pressure.
MANAGEMENT OF THE PORTFOLIOS
TRUSTEES AND OFFICERS
The business of the Trust is managed under the direction of the Board. Forum
Administrative Services, LLC ("FAdS"), the Portfolios' administrator, 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
Norwest serves as investment adviser of each Portfolio except International
Portfolio. In this capacity, Norwest makes investment decisions for and
administers the Portfolios' investment programs. Norwest is located at Norwest
Center, Sixth Street and Marquette, Minneapolis, Minnesota 55479.
Schroder is the investment adviser for International Portfolio. In this
capacity. Schroder makes investment decisions for and administers the
Portfolio's investment programs. Schroder is located at 787 Seventh Avenue, New
York, New York 10019.
<PAGE>
SUBADVISERS
Norwest and certain Portfolios have retained investment subadvisers to make
investment decisions for and administer the investment programs of those
Portfolios. Norwest decides which portion of the assets of a Portfolio the
subadviser should manage and supervises the subadvisers' performance of their
duties. The subadvisers are:
PORTFOLIO SUBADVISER
Positive Return Bond Portfolio Peregrine
Stable Income Portfolio Galliard
Managed Fixed Income Portfolio Galliard
Strategic Value Bond Portfolio Galliard
Large Company Growth Portfolio Peregrine
Disciplined Growth Portfolio Smith Group
Small Company Stock Portfolio Crestone
Small Company Growth Portfolio Peregrine
Small Company Value Portfolio Peregrine
Small Cap Value Portfolio Smith Group
Galliard, Crestone, Peregrine and Smith Group make investment decisions for the
Portfolios to which they act as investment subadviser and continuously review,
supervise and administer those Portfolios' investment programs with respect to
that portion, if any, of the Portfolios assets that Norwest believes should be
managed by the Subadviser. Currently, each Subadviser manages all of the assets
of each Portfolio that they subadvise.
Galliard, which is located at 800 LaSalle Avenue, Suite 2060, Minneapolis,
Minnesota 55479, is an investment advisory subsidiary of Norwest Bank. Galliard
provides investment advisory services to bank and thrift institutions, pension
and profit sharing plans, trusts and charitable organizations and corporate and
other business entities.
Crestone, which is located at 7720 East Belleview Avenue, Suite 220, Englewood
Colorado 80111, is an investment adviser subsidiary of Norwest Bank. Crestone
provides investment advice regarding companies with small Market Capitalization
to various clients, including institutional investors.
Peregrine, which is located at LaSalle Plaza, 800 LaSalle Avenue, Suite 1850,
Minneapolis, Minnesota 55402, is an investment adviser subsidiary of Norwest
Bank. Peregrine provides investment advisory services to corporate and public
pension plans, profit sharing plans, savings-investment plans and 401(k) plans.
Smith Group, which is located at 300 Crescent Court, Suite 750, Dallas, Texas
75201 is an investment advisory affiliate of Norwest Bank. Smith Group provides
investment management services to company retirement plans, foundations,
endowments, trust companies, and high net worth individuals using a disciplined
equity style.
PORTFOLIO MANAGERS
The following persons, are primarily responsible for day-to-day management of
the Portfolios and, unless otherwise noted, have been since the inception of the
Portfolio.
MONEY MARKET PORTFOLIO/PRIME MONEY MARKET PORTFOLIO - David D. Sylvester, Laurie
R. White, Robert G. Leuty (1998). Mr. Sylvester has been associated with Norwest
or its affiliates since 1979 and is currently a Managing Director -- Reserve
Asset Management. Ms. White has been associated with Norwest or its affiliates
since 1991 and is a Director -- Reserve Asset Management. Mr. Leuty has been
associated with Norwest or its affiliates since 1992 and is Senior Portfolio
Manager of Norwest.
<PAGE>
POSITIVE RETURN BOND PORTFOLIO - William D. Giese, CFA and Patricia Burns
(1998). Mr. Giese has been associated with Norwest or its affiliates since 1982.
Mr. Giese is a Senior Vice President of Peregrine, has been a portfolio manager
at Peregrine for more than ten years, and has over 20 years experience in fixed
income securities management. Ms. Burns has been associated with Norwest or its
affiliates since 1983. Ms. Burns is a Senior Vice President of Peregrine and has
been a portfolio manager at Peregrine for more than ten years.
STABLE INCOME PORTFOLIO - Karl P. Tourville. Mr. Tourville has been associated
with Norwest or its affiliates since 1986. Mr. Tourville has been a managing
partner of Galliard since 1995.
STRATEGIC VALUE BOND PORTFOLIO - Richard Merriam, CFA, John Huber (1998), and
David Yim (1998). Mr. Merriam has been associated with Norwest or its affiliates
since 1995. Mr. Merriam has been a managing partner of Galliard since 1995 and
is responsible for investment process and strategy. Mr. Merriam was previously
chief investment officer of Insight Investment Management. John Huber has been
associated with Norwest of its affiliates since 1991. Mr. Huber has been a
portfolio manager and Corporate Trading Specialist at Galliard since 1995 and
has been in investment management since 1991. David Yim has been associated with
Norwest or its affiliates since 1995. Mr. Yim has been a Portfolio Manager and
Credit Research Specialist at Galliard since 1995 and previously worked for
American Express Financial Advisors as a research analyst.
MANAGED FIXED INCOME PORTFOLIO - Richard Merriam, CFA and Ajay Mirza (1998). For
a description of Mr. Merriam, see "Strategic Value Bond Portfolio." Mr. Mirza
has been associated with Norwest or its affiliates since 1995. Mr. Mirza has
been a Portfolio Manager and Mortgage Specialist with Galliard since 1995.
Before joining Galliard, Mr. Mirza was a research analyst at Insight Investment
Management and at Lehman Brothers.
SMALL CAP INDEX PORTFOLIO-- David D. Sylvester and Laurie R. White. For a
description of Mr. Sylvester and Ms. White, see "Money Market Portfolio/Prime
Money Market Portfolio."
INDEX PORTFOLIO - David D. Sylvester (1996) and Laurie R. White (1996). For a
description of Mr. Sylvester and Ms. White, see "Money Market Portfolio/Prime
Money Market Portfolio."
INCOME EQUITY PORTFOLIO - David L. Roberts, CFA and Gary J. Dunn. Mr. Roberts
has been associated with Norwest or its affiliates since 1972. Mr. Roberts is a
Managing Director, Equities of Norwest. Mr. Dunn has been associated with
Norwest or its affiliates since 1979. Mr. Dunn is a Director of Institutional
Investments of Norwest.
LARGE COMPANY GROWTH PORTFOLIO - John S. Dale, CFA and Gary E. Nussbaum (1998).
Mr. Dale has been associated with Norwest or its affiliates since 1968. Mr. Dale
is a Senior Vice President of Peregrine. since 1968. Mr. Nussbaum has been
associated with Norwest since 1990. Mr. Nussbaum is a Senior Vice President of
Peregrine.
DISCIPLINED GROWTH PORTFOLIO/SMALL CAP VALUE PORTFOLIO - Stephen S. Smith, CFA.
Mr. Smith has been associated with Norwest since 1997. Mr. Smith has been a
Chief Investment Officer and principal of Smith Group since 1995. Mr. Smith
previously served as senior portfolio manger with NationsBank and in several
capacities with AIM Management Company's Summit Fund.
SMALL COMPANY STOCK PORTFOLIO - Kirk McCown, CFA. Mr. McCown has been associated
with Norwest or its affiliates since 1993. Mr. McCown is the founder, President
and a Director of Crestone. Mr. McCown has been associated with Norwest or its
affiliates since 1990.
SMALL COMPANY GROWTH PORTFOLIO - Robert B. Mersky, CFA and Paul E. von Kuster,
CFA(1998). Mr. Mersky has been associated with Norwest or its affiliates since
1968. Mr. Mersky is the President of Peregrine. Mr. von Kuster has been
associated with Norwest or its affiliates since 1972. Mr. von Kuster is a Senior
Vice President of Peregrine.
SMALL COMPANY VALUE PORTFOLIO - Tasso H. Coin, Jr. and Douglas G. Pugh. Mr. Coin
has been associated with Norwest or its affiliates since 1995. Mr. Coin has been
a Senior Vice President of Peregrine since 1995. From 1992 to 1995 he was a
research officer at Lord Asset Management. Mr. Pugh has been associated with
Norwest or its affiliates since 1997. Mr. Pugh is a Senior Vice President of
Peregrine. Before joining Peregrine, Mr. Pugh was a senior equity analyst and
portfolio manager for Advantus Capital Management and an analyst with Kemper
Corporation. Mr. Pugh has been associated with Norwest or its affiliates since
1997.
INTERNATIONAL PORTFOLIO - Michael Perelstein (1997). Mr. Perelstein has been
associated with Schroder or its affiliates since 1997. Mr. Perelstein has been a
Senior Vice President of Schroder since January 1997. Previously, Mr. Perelstein
was a Managing Director at MacKay Shields.
ADVISORY FEES
For their services, Norwest and Schroder receive investment advisory fees from
the Portfolios at the following annual rates of the Portfolio's average daily
net assets.
PORTFOLIO INVESTMENT ADVISORY FEE
Prime Money Market Portfolio 0.40% of the first $300 million of assets;
0.36% for next $400 million;
0.32% of remaining assets
Money Market Portfolio 0.20% of the first $300 million of assets;
0.16% for next $400 million;
0.12% of remaining assets
Stable income Portfolio 0.30%
Managed Fixed Income Portfolio 0.35%
Positive Return Bond Portfolio 0.35%
Strategic Value Bond Fund 0.50%
Index Portfolio 0.15%
Income Equity Portfolio 0.50%
Large Company Growth Portfolio 0.65%
Disciplined Growth Portfolio 0.90%
Small Company Stock Portfolio 0.90%
Small Company Growth Portfolio 0.90%
Small Company Value Portfolio 0.90%
Small Cap Value Portfolio 0.95%
Small Cap Index Portfolio 0.25%
International Portfolio 0.45%
Norwest (and not the Portfolios) pays each Subadviser a fee for their investment
subadvisory services. This compensation does not increase the amount paid by the
Portfolios to Norwest for investment advisory services.
Each Adviser places orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
Subject to seeking the most favorable price and execution available, a Portfolio
may conduct brokerage transactions through certain affiliates of its Adviser.
The Trust has adopted policies to ensure that these transactions are reasonable
and fair and that the commission charged is comparable to those charged by
non-affiliated qualified broker-dealers. 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.
<PAGE>
CUSTODIAN
Norwest Bank serves as the custodian for each Portfolio and may appoint
subcustodians to custody foreign securities and other assets held in foreign
countries. For its custodial services, Norwest Bank receives a fee with respect
to each Portfolio (except International Portfolio) at an annual rate of 0.02% of
the first $100 million of the Portfolio's average daily net assets, 0.015% of
the next $100 million of the Portfolio's average daily net assets and 0.01% of
the Portfolio's remaining average daily net assets. With respect to
International Portfolio, Norwest receives a fee at an annual rate of 0.07% of
the Portfolio's average daily net assets. Norwest has appointed Morgan Stanley
Trust Company as the sub-custodian for International Portfolio, which employs
foreign subcustodians to maintain International Portfolio's foreign assets
outside the United States.
ADMINISTRATOR, INTERESTHOLDER RECORDKEEPER AND FUND ACCOUNTANT
FAdS supervises the overall management of the Portfolios, including the
Portfolios' receipt of services for which the Trust is obligated to pay, and
provides the Trust and Portfolios' with general office facilities pursuant to an
Administration Agreement with the Trust. As of June 30, 1998, FAdS and its
affiliates provided management and administrative services to registered
investment companies and collective investment funds with assets of
approximately $38 billion. For its services FAdS receives a fee with respect to
each Portfolio (other than International Portfolio) at an annual rate of 0.05%
of the Portfolio's average daily net assets. With respect to International
Portfolio, FAdS receives a fee at an annual rate of 0.15% of the Portfolio's
average daily net assets.
Forum Accounting Services, LLC ("FAcS") is the Trust's interestholder
recordkeeper and fund accountant. FAcS is an affiliate of FAdS. For its
services, FAcS receives a base fee of $48,000 per year for each Portfolio plus
additional amounts depending on the assets of the Portfolio, the number of
interestholders of the Portfolio, the number and type of securities held by the
Portfolio and the portfolio turnover rate of the Portfolio.
FAdS and FAcS are located at Two Portland Square, Portland, Maine 04101.
EXPENSES
Each Portfolio is obligated to pay for all of its expenses. 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. 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; fees 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.
DESCRIPTION OF BENEFICIAL INTERESTS
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
Interests in separate series of the Trust. The Trust currently has 21 series;
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"). In determining the outcome of interestholder votes, the
<PAGE>
Trust normally counts votes on an Interest by Interest basis. This means that
interestholders of Portfolios with comparatively high net assets values will
have a comparatively smaller impact on the outcome of votes by all of the
Portfolios than do shareholders of Portfolios with comparatively low net asset
values.
As of November 1, 1998, the following investors (each of which is a series of
Norwest Advantage Funds, an open-end management company) owned 25% or more of a
Portfolios interests. From time to time, these and other investors may own a
large percentage of Interests of a Portfolio and accordingly, may be able to
greatly affect (if not determine) the outcome of an Interestholder vote. Norwest
is the investment adviser to each series of Norwest Advantage Funds and is
located at Norwest Center, Sixth Street and Marquette, Minneapolis, Minnesota
55479.
<TABLE>
<S> <C> <C>
PORTFOLIO CONTROL PERSON PERCENTAGE OF
PORTFOLIOS INTEREST
Prime Market Portfolio Cash Investment Fund 77.19%
Money Market Portfolio Cash Investment Fund 99.17%
Positive Return Bond Portfolio Growth Balanced Fund 31.20%
Moderate Balanced Fund 28.64%
Stable Income Portfolio Stable Income Fund 61.75%
Moderate Balanced Fund 25.21%
Managed Fixed Income Portfolio Growth Balanced Fund 31.23%
Moderate Balanced Fund 28.82%
Strategic Value Bond Portfolio Total Return Bond Fund 45.74%
Index Portfolio Index Fund 59.33%
Diversified Equity Fund 27.26%
Income Equity Portfolio Income Equity Fund 71.24%
Large Company Growth Portfolio Large Company Growth Fund 29.50%
Growth Equity Fund 28.80%
Diversified Equity Fund 28.22%
Disciplined Growth Portfolio Diversified Equity Fund 47.09%
Performa Disciplined Growth Fund 30.38%
Small Company Value Portfolio Growth Equity Fund 54.38%
Diversified Equity Fund 26.75%
Small Cap Value Portfolio Growth Equity Fund 50.29%
Diversified Equity Fund 23.57%
Small Cap Index Portfolio Growth Equity Fund 54.98%
Diversified Equity Fund 26.49%
International Portfolio Growth Equity Fund 30.82%
International Fund 29.60%
Diversified Equity Fund 26.34%
</TABLE>
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 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.
<PAGE>
INFORMATION REGARDING NET INCOME AND TAXES
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 Interests in the Portfolio.
The Portfolios are operated so that they are 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 (the "Code"), and the regulations promulgated
thereunder) of the Portfolio's ordinary income and capital gain. It is intended
that each Portfolio's assets and income 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 ("FFSI").
PURCHASE OF INTERESTS
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. 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 non-money market 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 and Christmas
("Business Day"). A Money Market Portfolio determines its net asset value as of
3:00P.M., Eastern Time, on a Portfolio Business Day. Net asset value per
Interest is calculated by dividing the aggregate value of the Portfolio's assets
less all liabilities by the number of Interests outstanding. All Portfolios,
except the Money Market Portfolios, value portfolio securities at current market
value of market quotations are readily available. If market quotations are not
readily available, the Portfolios value those securities at fair value as
determined by or pursuant to procedures adopted by the Board.
In order to maintain net asset value per share at $1.00, the Money Market
Portfolios value their portfolio securities at amortized cost. Amortized cost
valuation involves valuing an instruments at its cost and then assuming a
constant amortization to maturity of any discount or premium. If the market
value of a Money Market Portfolio deviates more than 1/2 of 1% from the value
determined on the basis of amortized cost, the Board will consider whether to
take any action to prevent any material affect on Interest holders.
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 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 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 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
<PAGE>
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.
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. Trading in foreign
securities, however, may not take place on all Business Days or may take place
on days other than Business Days. The determination of the prices of foreign
securities may be based on the latest market quotations for the securities
markets. If events occur that affect the securities' value after the close of
the markets on which they trade, the Portfolios may make adjustments to the
value of the securities for purposes of determining net asset value.
For purposes of determining NAV, the Portfolios convert all assets and
liabilities denominated in foreign currencies 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 amount 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 exclusive placement agent for the Trust is FFSI. Please contact FFSI at Two
Portland Square, Portland, Maine 04101, (207) 879-1900, for a complete
subscription package. The Trust reserves the right to refuse any subscription
for any reason. Forum receives no compensation for serving as the exclusive
placement agent for the Trust.
REDEMPTION OR REPURCHASE OF INTERESTS
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 SEC.
Redemptions from a Portfolio may be made wholly or partially in portfolio
securities. The Trust has filed an election with the SEC 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
None.
<PAGE>
PART B
CORE TRUST (DELAWARE)
PRIVATE PLACEMENT MEMORANDUM
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1998
This Part B to the Private Placement Memorandum (the "Statement of Additional
Information" or "SAI") relates to beneficial interests in the PRIME MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO, POSITIVE RETURN BOND PORTFOLIO, STABLE INCOME
PORTFOLIO, MANAGED FIXED INCOME PORTFOLIO, INDEX PORTFOLIO, INCOME EQUITY
PORTFOLIO, LARGE COMPANY GROWTH PORTFOLIO, SMALL COMPANY STOCK PORTFOLIO, SMALL
COMPANY GROWTH PORTFOLIO, SMALL COMPANY VALUE PORTFOLIO, INTERNATIONAL
PORTFOLIO, STRATEGIC VALUE BOND PORTFOLIO, DISCIPLINED GROWTH PORTFOLIO, SMALL
CAP VALUE PORTFOLIO and SMALL CAP INDEX PORTFOLIO (each a "Portfolio" and
collectively, the "Portfolios") of Core Trust (Delaware) (the "Trust"), a
registered, open-end management investment company. This SAI a supplements Part
A of the Private Placement Memorandum ("Part A") dated October 1, 1998, relating
to the Portfolios.
This SAI does not constitute an offer to sell, or the solicitation of an offer
to buy, beneficial interests in the Portfolios. An investor may subscribe for a
beneficial interest in a Portfolio by contacting Forum Financial Services, Inc.
("Forum"), the Trust's Placement Agent (the "Placement Agent"), at Two Portland
Square, Portland, Maine 04101, (207) 879-1900, for a complete subscription
package, including Part A 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
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Page
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Introduction....................................................2
Additional Information Regarding Investments and Strategies.....4
Risk Considerations........................................... 18
Investment Limitations.........................................23
Management of the Trust....................................... 27
Control Persons and Principal Holders of Securities........... 29
Investment Advisory and Other Services........................ 30
Brokerage Allocation and Other Practices...................... 33
Shares of Beneficial Interest and Other Securities............ 35
Purchase, Redemption and Pricing of Securities................ 35
Tax Status.................................................... 36
Underwriters...................................................37
Calculation of Performance Data ...............................37
Financial Statements...........................................37
Appendix A: Descriptions of Securities Ratings...............A-1
Appendix B: Miscellaneous Tables.............................B-1
________________________________________________________________________________
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.
<PAGE>
INTRODUCTION
THE PORTFOLIOS
Index Portfolio and International Portfolio commenced operations on November 10,
1994. Positive Return Bond Portfolio, Stable Income Portfolio, Managed Fixed
Income Portfolio, Income Equity Portfolio, Large Company Growth Portfolio, Small
Company Stock Portfolio, Small Company Growth Portfolio and Small Company Value
Portfolio commenced operations on June 1, 1997. Prime Money Market Portfolio and
Money Market Portfolio commenced operations on August 22, 1997. Strategic Value
Bond Portfolio, Disciplined Growth Portfolio, and Small Cap Value Portfolio
commenced operations on October 1, 1997 while Small Cap Index Portfolio
commenced operations on April 9, 1998. The assets of each Portfolio belong only
to that Portfolio, and the assets belonging to a Portfolio are charged with the
liabilities of that Portfolio and all expenses, costs, charges and reserves
attributable to that Portfolio.
Effective June 1, 1997 Small Company Portfolio, a former series of the Trust,
divided to form three of the Portfolios -- Small Company Stock Portfolio, Small
Company Growth Portfolio and Small Company Value Portfolio. Small Company
Portfolio was managed by three portfolio managers, each of whom now serves as
the portfolio manager for one of the three new Portfolios. The division was
accomplished by Small Company Portfolio transferring the assets managed by each
portfolio manager to the corresponding new Portfolio. Also effective June 1,
1997, International Portfolio II changed its name to International Portfolio and
acquired the assets of a former series of the Trust which itself was named
International Portfolio.
DEFINITIONS
"Advisers" or "Investment Advisers" shall mean, collectively, Norwest, Schroder
and Subadvisers.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Crestone" shall mean Crestone Capital Management, Inc.
"Custodian" shall mean Norwest acting in its capacity as custodian of a
Portfolio.
"Equity Portfolios" shall mean Disciplined Growth Portfolio, Income Equity
Portfolio, Index Portfolio, Large Company Growth Portfolio, SmallCap Value
Portfolio, Small Company Stock Portfolio, Small Company Growth Portfolio and
International Portfolio.
"FAdS" shall mean Forum Administrative Services, Limited Liability Company, the
Trust's administrator.
"Fitch" shall mean Fitch IBCA, Inc.
"Fixed Income Portfolios" shall mean Managed Fixed Income Portfolio, Positive
Return Bond Portfolio, Stable Income Portfolio, Strategic Value Bond Portfolio
and Total Return Bond Portfolio.
"FFSI" shall mean Forum Financial Services, LLC, a registered broker-dealer and
placement agent of the Trust.
"Forum Accounting" shall mean Forum Accounting Services, Limited Liability
Company, the Trust's fund accountant.
<PAGE>
"Galliard" shall mean Galliard Capital Management, Inc.
"Index" shall mean the Standard & Poor's 500 Composite Stock Index.(R)
"Index Futures" shall mean futures contracts that relate to broadly-based stock
indices.
"Money Market Portfolios" shall mean Prime Money Market Portfolio and Money
Market Portfolio.
"Moody's" shall mean Moody's Investors Service, Inc.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary of
Norwest Bank.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary of Norwest
Corporation.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Peregrine" shall mean Peregrine Capital Management, Inc.
"Portfolio" shall mean each of the following sixteen separate portfolios of the
Trust to which this Private Placement Memorandum relates: Prime Money Market
Portfolio, Money Market Portfolio, Positive Return Bond Portfolio, Stable Income
Portfolio, Managed Fixed Income Portfolio, Strategic Value Bond Portfolio, Total
Return Bond Portfolio, Disciplined Growth Portfolio, Index Portfolio, Income
Equity Portfolio, Large Company Growth Portfolio, SmallCap Value Portfolio,
Small Company Growth Portfolio, Small Company Stock Portfolio, Small Company
Value Portfolio and International Portfolio.
"Schroder' shall mean Schroder Capital Management, Inc.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's , A Division of The McGraw Hill Companies.
"Smith" shall mean Smith Asset Management Group, L.P.
"Subadvisers" or "Investment Subadvisers" shall mean, collectively, Crestone,
Galliard, Peregrine, and Smith.
"Trust" shall mean Core Trust (Delaware), an open-end, management investment
company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
<PAGE>
ADDITIONAL INFORMATION REGARDING INVESTMENTS AND STRATEGIES
GENERAL INFORMATION
This section discusses in greater detail than the Part A certain of the
investments the Portfolios may make. A Portfolio will make only those
investments described below that are in accordance with its investment
objectives and policies.
Each Portfolio's investment objective and all investment policies of the
Portfolio that are designated as fundamental may not be changed without approval
by the lesser of: (i) more than 50% of the outstanding interests of the
Portfolio, or (ii) 67% or more of the interests present or represented at an
investors' meeting, if more than 50% of the outstanding interests of the
Portfolio are present or represented at the meeting in person or by proxy. All
other investment policies of the Portfolios may be changed by the Trust's Board
of Trustees (the "Board" or the "Trustees") upon appropriate notice to
investors.
EQUITY SECURITIES
Equity securities include common stock, preferred stock, convertible securities,
warrants, depository receipts, shares of closed-end investment companies and
equity-related securities. The market value of all securities, particularly
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. Overall economic and market conditions also impact an equity
security's price. The market value of an equity security also may fluctuate
based on changes in a company's financial condition. It is possible that a
Portfolio may experience a substantial or complete loss on an individual equity
investment.
Equity securities owned by a Portfolio may be traded on a securities exchange or
in the over-the-counter market and may not be traded every day or in the volume
typical of securities traded on a major national securities exchange. As a
result, disposition by a Portfolio of equity securities to meet redemptions by
investors 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 an extended period of time.
COMMON STOCK. Common stock represents an equity (ownership) interest in a
company, and usually possesses voting rights and earns dividends. Common
stockholders 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 and, if applicable, preferred stockholders are paid. Dividends on
common stock are not fixed but are declared at the discretion of the issuer.
Common stock generally represents the riskiest investment in a company. In
addition, common stock generally has the greatest appreciation and depreciation
potential because increases and decreases in earnings are usually reflected in a
company's stock price.
PREFERRED STOCK. Preferred stock is a class of stock having a preference over
common stock as to the payment of dividends and the recovery of investment
should a company be liquidated. Preferred stock, however, is usually junior to
the debt securities of the issuer. Preferred stock typically does not possess
voting rights and its market value may change based on changes in interest
rates.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities,
preferred stock or other securities that may be converted into or exchanged for
a given amount of common stock of the same or a different issuer during a
specified period of time at a specified price or formula. A convertible security
entitles the holder to receive interest on debt or the dividend on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stock of the same or
similar issuers, but lower than the yield of nonconvertible debt. Convertible
securities rank senior to common stock in a company's capital structure but are
<PAGE>
usually subordinated to comparable nonconvertible securities. By investing in
convertible securities, a Portfolio obtains the right to benefit from the
capital appreciation potential in the underlying common stock upon the exercise
of the conversion right, while earning higher current income than could be
available if the stock was purchased directly.
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 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 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. Generally, a convertible security's 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.
Because convertible securities are typically issued by smaller capitalized
companies whose stock price may be volatile, the price of a convertible security
may reflect variations in the price of the underlying common stock in a way that
nonconvertible debt does not. Also, while convertible securities generally have
higher yields than common stock, they have lower yields than comparable
nonconvertible securities and are subject to less fluctuations in value than
underlying stock since they have fixed income characteristics. 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 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.
WARRANTS. Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to purchase a given number of shares of
common stock at a specified price, usually during a specified period of time.
The price usually represents a premium over the applicable market value of the
common stock at the time of the warrant's issuance. Warrants have no voting
rights with respect to the common stock, receive no dividends and have no rights
with respect to the assets of the issuer. 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 common
stock to rise. A warrant becomes worthless if it is not exercised within the
specified time period.
EQUITY-RELATED SECURITIES. Equity-related securities are securities whose
interest and/or principal payment obligations are linked to a specified index of
equity securities, or determined pursuant to specific formulas. A Portfolio may
invest in these instruments when the securities provide a higher amount of
dividend income than is available from a company's common stock. The amount
received by an investor at maturity of these securities is not fixed but is
based on the price of the underlying common stock, which may rise or fall.
Adverse changes in the securities markets may reduce interest payments made
under, and/or the principal of, equity-linked securities held by a Portfolio. In
addition, it is not possible to predict how equity-related securities will trade
in the secondary market or whether the market for the securities will be liquid.
DEPOSITORY RECEIPTS. A depository receipt is a receipt for shares of a
foreign-based company that entitles the holder to distributions on the
underlying security. Depository receipts include sponsored and unsponsored
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and
other similar global instruments. ADRs typically are issued by a U.S. bank or
trust company, evidence ownership of underlying securities issued by a foreign
company, and are designed for use in U.S. securities markets. EDRs (sometimes
<PAGE>
called Continental Depository Receipts) are receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, and are
designed for use in European securities markets. The Portfolios invest in
depository receipts in order to obtain exposure to foreign securities markets.
Unsponsored depository receipts may be created without the participation of the
foreign issuer. Holders of these receipts generally bear all the costs of the
depository receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depository receipt. The bank or trust company depository of
an unsponsored depository receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depository receipts may be more
volatile than the prices of sponsored depository receipts.
CLOSED-END INVESTMENT COMPANIES. International Portfolio may invest in the
securities of closed-end investment companies that invest primarily in foreign
securities. Because of restrictions on direct investment by U.S. entities in
certain countries, other investment companies may provide the most practical or
only way for the Portfolio to invest in certain markets. The Portfolio will
invest in such companies when, in the Adviser's judgment, the potential benefits
of the investment justify the payment of any applicable premium or sales charge.
Other investment companies incur their own fees and expenses.
FIXED INCOME SECURITIES
Fixed income securities include corporate debt obligations, U.S. Government
Securities, municipal securities, mortgage-related securities, asset-backed
securities, guaranteed investment contracts, zero coupon securities, variable
and floating rate securities, financial institution obligations, commercial
paper, and participation interests.
CORPORATE DEBT OBLIGATIONS. The corporate debt obligations include corporate
bonds, debentures, notes, commercial paper and other similar corporate debt
instruments. Companies use these instruments to borrow money from investors. The
issuer pays the investor a fixed or variable rate of interest and must repay the
amount borrowed at maturity. Companies issue commercial paper (short-term
unsecured promissory notes) to finance their current obligations.
Commercial paper normally has a maturity of less than 9 months.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include securities issued
by the U.S. Treasury and by U.S. Government agencies and instrumentalities. U.S.
Government Securities may be supported by the full faith and credit of the
United States (e.g., mortgage-related securities and certificates of the
Government National Mortgage Association and securities of the Small Business
Administration); by the right of the issuer to borrow from the U.S. Treasury
(e.g., Federal Home Loan Bank securities); by the discretionary authority of the
U.S. Treasury to lend to the issuer (e.g., Fannie Mae (formerly the Federal
National Mortgage Association) securities); or solely by the creditworthiness of
the issuer (e.g., Federal Home Loan Mortgage Corporation securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. There is no assurance that the U.S. Government will support
securities not backed by its full faith and credit. Neither the U.S. Government
nor any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MUNICIPAL SECURITIES. The states, territories and possessions of the United
States, their political subdivisions (such as cities, counties and towns) and
various authorities (such as public housing or redevelopment authorities),
instrumentalities, public corporations and special districts (such as water,
sewer or sanitation districts) issue municipal securities. In addition,
<PAGE>
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds, that are backed only by the assets and revenues of the
non-governmental user (such as hospitals and airports).
Municipal securities are issued to obtain funds for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities are
generally classified as bonds, notes, and leases. Municipal securities may be
zero-coupon securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are payable from revenue derived from
a particular facility, class of facilities or the proceeds of a special excise
tax or other specific revenue source but not from the issuer's general taxing
power. Many of these bonds are additionally secured by a debt service reserve
fund which can be used to make a limited number of principal and interest
payments should the pledged revenues be insufficient. Various forms of credit
enhancement, such as a bank letter of credit or municipal bond insurance, may
also be employed in revenue bond issues. Private activity bonds and industrial
revenue bonds do not carry the pledge of the credit of the issuing municipality,
but generally are guaranteed by the corporate entity on whose behalf they are
issued. Municipal bonds may also be moral obligation bonds, which are normally
issued by special purpose public authorities. If the issuer is unable to meet
its obligations under the bonds from current revenues, it may draw on a reserve
fund that is backed by the moral commitment (but not the legal obligation) of
the state or municipality that created the issuer.
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. Municipal notes are
intended to fulfill the short-term capital needs of the issuer and generally
have maturities not exceeding one year. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper. Municipal notes also include longer term issues
that are remarketed to investors periodically, usually at one year intervals or
less. Municipal leases generally take the form of a lease or an installment
purchase or conditional sale contract. Municipal leases are entered into by
state and local governments and authorities to acquire equipment and facilities
such as fire and sanitation vehicles, telecommunications equipment and other
capital assets. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Generally, the
Funds will invest in municipal lease obligations through certificates of
participation.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent interests in
a pool of mortgage loans originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-related securities may
be issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by commercial lenders.
Pools of mortgages consist of whole mortgage loans or participations in mortgage
loans. The majority of these loans are made to purchasers of 1-4 family homes.
The terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, the Portfolios may purchase pools of adjustable-rate
mortgages, growing equity mortgages, graduated payment mortgages and other
types. Mortgage poolers apply qualification standards to lending institutions
which originate mortgages for the pools as well as credit standards and
underwriting criteria for individual mortgages included in the pools. In
addition, many mortgages included in pools are insured through private mortgage
insurance companies.
Mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. Most mortgage-related
<PAGE>
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments to holders of these securities are caused by prepayments resulting
from the sale or foreclosure of the underlying property or refinancing of the
underlying loans. As prepayment rates of individual pools of mortgage loans vary
widely, it is not possible to predict accurately the average life of a
particular mortgage-related security. Although mortgage-related securities are
issued with stated maturities of up to forty years, unscheduled or early
payments of principal and interest on the mortgages may shorten considerably the
securities' effective maturities. See "Risk Considerations."
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The principal and interest on GNMA
pass-through securities are backed by the full faith and credit of the U.S.
Government.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Mortgage-related
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
interest and principal on the securities. The market for privately-issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers.
STRIPPED MORTGAGE-RELATED SECURITIES. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets. The market values of these
securities are extremely sensitive to prepayment rates.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. A Portfolio could suffer
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some principal loss if the Portfolio sold the securities before the interest
rates on the underlying mortgages were adjusted to reflect current market rates.
Some adjustable rate securities (or the underlying mortgages) are subject to
caps or floors, that limit the maximum change in interest rates during a
specified period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs as they are received, although certain
classes (often referred to as "tranches") of CMOs have priority over other
classes with respect to the receipt of mortgage prepayments.
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and that have multiple classes similar to those of CMOs.
Payments of principal of and interest on the underlying Mortgage Assets (and in
the case of CMOs, any reinvestment income thereon) provide funds to pay debt
service on the CMOs or to make scheduled distributions on the multi-class
mortgage pass-through securities. Parallel pay CMOs are structured to provide
payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. Planned amortization class mortgage-related
securities ("PAC Bonds") are a form of parallel pay CMO. PAC Bonds are designed
to provide relatively predictable payments of principal provided that, among
other things, the actual prepayment experience on the underlying mortgage loans
falls within a contemplated range. CMOs may have complicated structures and
generally involve more risks than simpler forms of mortgage-related securities.
Delinquency or loss in excess of that covered by credit enhancement protection
could adversely affect the return on an investment in such a security.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a "Z-tranche"). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
CREDIT ENHANCEMENTS. To lessen the effect of the failures by obligors on
Mortgage Assets to make payments, CMOs and other mortgage-related securities may
contain elements of credit enhancement, consisting of either (1) liquidity
protection or (2) protection against losses resulting after default by an
obligor on the underlying assets and allocation of all amounts recoverable
directly from the obligor and through liquidation of the collateral. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of these methods.
The Funds will not pay any additional fees for credit enhancements for
mortgage-related securities, although the credit enhancement may increase the
costs of the mortgage-related securities. Delinquency or loss in excess of that
covered by credit enhancement protection could adversely affect the return on an
investment in such a security.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-related securities but have underlying assets that are not
mortgage loans or interests in mortgage loans. Asset-backed securities represent
fractional interests in, or are secured by and payable from, pools of assets
such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property and receivables from
revolving credit (e.g., credit card) agreements. Assets are securitized through
the use of trusts and special purpose corporations that issue securities that
are often backed by a pool of assets representing the obligations of a number of
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different parties. Asset-backed securities have structures and characteristics
similar to those of mortgage-related securities and, accordingly, are subject to
many of the same risks, although often, to a greater extent. See "Risk
Considerations." No Portfolio may invest more than 10% of its net assets in
asset-backed securities that are backed by a particular type of credit, (e.g.,
credit card receivables).
FOREIGN GOVERNMENT AND SUPRANATIONAL ORGANIZATIONS DEBT SECURITIES. A Fund may
invest in fixed income securities 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 and the Inter-American Development Bank if the
Adviser believes that the securities do not present risks inconsistent with the
Fund's investment objective.
GUARANTEED INVESTMENT CONTRACTS. Guaranteed investment contracts ("GICs") are
issued by insurance companies. In purchasing a GIC, a Portfolio contributes cash
to the insurance company's general account and the insurance company then
credits to the Portfolio's deposit fund on a monthly basis guaranteed interest
at a specified rate. The GIC provides that this guaranteed interest will not be
less than a certain minimum rate. The insurance company may assess periodic
charges against a GIC for expense and service costs allocable to it. There is no
secondary market for GICs and, accordingly, GICs are generally treated as
illiquid investments. GICs are typically unrated.
ZERO-COUPON SECURITIES. Zero-coupon securities are debt obligations that are
issued or sold at a significant discount from their face value and do not pay
current interest to holders prior to maturity, a specified redemption date or
cash payment date. The discount approximates the total interest the securities
will accrue and compound over the period to maturity or the first interest
payment date at a rate of interest reflecting the market rate of interest at the
time of issuance. The original issue discount on the zero-coupon securities must
be included ratably in the income of a Portfolio (and thus an investor's) as the
income accrues, even though payment has not been received. The Funds distribute
all of their net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a time when an Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss. Because interest on zero-coupon securities is not paid on a current basis
but is in effect compounded, the value of these securities is subject to greater
fluctuations in response to changing interest rates, and may involve greater
credit risks, than the value of debt obligations which distribute income
regularly.
Zero-coupon securities may be securities that have been stripped of their
unmatured interest stream. Zero-coupon securities may be custodial receipts or
certificates, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government securities. The underwriters of these certificates or receipts
generally purchase a U.S. Government security and deposit the security in an
irrevocable trust or custodial account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the purchased unmatured
coupon payments and the final principal payment of the U.S. Government Security.
These certificates or receipts have the same general attributes as zero-coupon
stripped U.S. Treasury securities but are not supported by the issuer of the
U.S. Government Security. The risks associated with stripped securities are
similar to those of other zero-coupon securities, although stripped securities
may be more volatile, and the value of certain types of stripped securities may
move in the same direction as interest rates.
VARIABLE AND FLOATING RATE SECURITIES. Certain debt securities 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 according to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. These
adjustments minimize changes in the market value of the obligation. 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. The rate of interest on securities purchased by a
Portfolio may be tied to U.S. Government Securities or indices on those
<PAGE>
securities as well as any other rate of interest or index. Certain variable rate
securities pay interest at a rate that varies inversely to prevailing short-term
interest rates (sometimes referred to as "inverse floaters"). Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This mechanism may increase the volatility
of the security's market value while increasing the security's yield. The Money
Market Portfolios may not invest in inverse floaters.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity.
Variable and floating rate demand notes of corporations include master demand
notes that permit investment of fluctuating amounts at varying interest rates
under direct arrangements with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
Because master demand notes are direct lending arrangements between a Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, the Fund may demand payment of principal and accrued interest at
any time upon a specified period of notice.
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. A Portfolio will purchase these securities only when its Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Advisers 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 Advisers
will be able to limit the effects of principal fluctuations and, accordingly, a
Portfolio may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Portfolio to
dispose of the instrument during periods that the Portfolio is not entitled to
exercise any demand rights it may have. A Portfolio could, for this or other
reasons, suffer a loss with respect to those instruments. The Advisers monitor
the liquidity of each Portfolio's investment in variable and floating rate
instruments, but there can be no guarantee that an active secondary market will
exist.
FINANCIAL INSTITUTION OBLIGATIONS. Obligations of financial institutions include
certificates of deposit, bankers' acceptances, time deposits and other
short-term debt obligations. 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 by a Portfolio but may be subject to early withdrawal penalties which
could reduce a Portfolio's performance. 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.
Portfolios that invest in foreign securities may invest in Eurodollar
certificates of deposit, which are issued by offices of foreign and domestic
banks located outside the United States; Yankee certificates of deposit, which
are issued by a U.S. branch of a foreign bank and held in the United States;
Eurodollar time deposits, which are deposits in a foreign branch of a U.S. bank
or a foreign bank; and Canadian time deposits, which are issued by Canadian
offices of major Canadian banks. Each of these instruments is U.S. dollar
denominated.
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PARTICIPATION INTERESTS. A participation interest gives a Portfolio an undivided
proportionate interest in a loan or security owned by banks or other
institutions. Participation interests may carry a demand feature permitting the
holder to tender the interests back to the bank or other institution.
Participation interests, however, do not provide the Portfolio with any right to
enforce compliance by the borrower, nor any rights of set-off against the
borrower and the Portfolio may not directly benefit from any collateral
supporting the loan in which it purchased a participation interest. As a result,
the Portfolio will assume the credit risk of both the borrower and the lender
that is selling the participation interest. A Portfolio will not invest more
than 10% of its total assets in participation interests in which the Portfolio
does not have demand rights.
GENERAL MONEY MARKET PORTFOLIO GUIDELINES
Each Money Market Portfolio will invest only in high-quality, U.S.
dollar-denominated instruments. As used herein, high-quality instruments include
those that (1) are rated (or, if unrated, are issued by an issuer with
comparable outstanding short-term debt that is rated) in one of the two highest
rating categories by two NRSROs or, if only one NRSRO has issued a rating, by
that NRSRO; or (2) are otherwise unrated and determined by the Adviser, pursuant
to procedures adopted by the Board, to be of comparable quality. A Money Market
Portfolio will not invest in a security that has received, or is deemed
comparable in quality to a security that has received, the second highest rating
by an NRSRO (a "second tier security") if, immediately after the acquisition,
the Portfolio would have invested more than (1) the greater of 1% of its total
assets in any single second tier security; or (2) 5% of its total assets in
second tier securities. A description of the rating categories of Standard &
Poor's, Moody's and certain other NRSROs is contained in Appendix A to this Part
B.
In addition, each Money Market Portfolio (1) will invest only in instruments
that have a remaining maturity of 397 days or less (as calculated in accordance
with Rule 2a-7 under the 1940 Act); (2) will maintain a dollar-weighted average
maturity of 90 days or less; (3) will not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. Government Securities
and to the extent permitted by Rule 2a-7); and (4) will not purchase a security
if the value of all securities held by the Portfolio and issued or guaranteed by
the same issuer (including letters of credit in support of a security) would
exceed 10% of the Portfolio's total assets.
BORROWING
Each Portfolio may borrow money in accordance with its investment poicies set
forth under "Investment Limitations." Interest costs on borrowings may 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. A Portfolio's use of borrowed proceeds to make investments
would subject the Portfolio to the risks of leveraging. Reverse repurchase
agreements, dollar roll transactions and other similar investments that involve
a form of leverage have characteristics similar to borrowings but are not
considered borrowings if the Portfolio maintains a segregated account.
DOLLAR ROLL TRANSACTIONS
Dollar roll transactions are transactions in which a Portfolio sells securities
to a bank or securities dealer, and makes a commitment to purchase similar, but
not identical, securities at a later date from the same party. During the period
between the commitment and settlement, no payment is made for the securities
purchased and no interest or principal payments on the securities accrue to the
purchaser, but the Portfolio assumes the risk of ownership. A Portfolio is
compensated for entering into dollar roll transactions by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. The
Portfolios will engage in dollar roll transactions for the purpose of acquiring
securities for their investment portfolios. Each Portfolio will limit its
obligations on dollar roll transactions to 35% of the Portfolio's net assets.
<PAGE>
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Portfolio purchases securities
from a bank or securities dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed-upon date and at a price
reflecting a market rate of interest unrelated to the purchased security. During
the term of a repurchase agreement, each Portfolio's custodian maintains
possession of the purchased securities and any underlying collateral, which is
maintained at not less than 100% of the repurchase price. Repurchase agreements
allow a Portfolio to earn income on its uninvested cash for periods as short as
overnight, while retaining the flexibility to pursue longer-term investments. A
Money Market Portfolio will only enter into a repurchase agreement with a
primary dealer that reports to the Federal Reserve Bank of New York ("primary
dealers") or one of the largest 100 commercial banks in the United States.
International Portfolio may enter into repurchase agreements with foreign
entities.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Portfolio sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
LENDING PORTFOLIO SECURITIES
Each Portfolio may lend portfolio securities in an amount up to 33-1/3% of its
total assets to brokers, dealers and other financial institutions. Securities
loans must be continuously collateralized and the collateral must have market
value at least equal to value of the Portfolio's loaned securities, plus accrued
interest. In a portfolio securities lending transaction, the Portfolio receives
from the borrower an amount equal to the interest paid or the dividends declared
on the loaned securities during the term of the loan as well as the interest on
the collateral securities, less any fees (such as finders or administrative
fees) the Portfolio pays in arranging the loan. The Portfolio may share the
interest it receives on the collateral securities with the borrower. The terms
of a Portfolio's loans permit the Portfolio to reacquire loaned securities on
five business days' notice or in time to vote on any important matter. Loans are
subject to termination at the option of a Portfolio or the borrower at any time,
and the borrowed securities must be returned when the loan is terminated.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
Each Portfolio may purchase or sell portfolio securities on a "when-issued,"
"delayed delivery" or "Forward commitment" basis. When-issued securities may be
purchased on a "when, as and if issued" basis under which the issuance of the
securities depends upon the occurrence of a subsequent event. When these
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Portfolios enter into these transactions only with the
intention of actually receiving securities or delivering them, as appropriate.
The Portfolios may dispose of the right to acquire these securities before the
settlement date if deemed advisable. During the period between the time of
commitment and settlement, no payment is made for the securities purchased and
no interest or dividends on the securities accrue to the purchaser. At the time
a Portfolio makes a commitment to purchase securities in this manner, the
Portfolio immediately assumes the risk of ownership, including price
fluctuation. The use of when-issued transactions and forward commitments enables
a Portfolio to protect against anticipated changes in interest rates and prices,
but also tends to increase the volatility of the Portfolio's asset value per
unit. Except for dollar-roll transactions, a Portfolio will not purchase
<PAGE>
securities on a when-issued, delayed delivery or forward commitment basis if, as
a result, more than 15% of the value of the Portfolio's total assets would be
committed to such transactions.
The use of when-issued transactions and forward commitments enables a Portfolio
to hedge against anticipated changes in interest rates and prices. If an Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Portfolio might be required to complete when-issued or forward transactions at
prices inferior to the current market values.
At the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Portfolio will record the transaction
as a purchase and thereafter reflect the value each day of such securities in
determining its net asset value.
ILLIQUID INVESTMENTS
No Portfolio may knowingly invest more than 15% (10% in the case of the Money
Market Portfolios) of the Portfolio's net assets in illiquid investments.
Illiquid investments are investments 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 investment and include, among other instruments,
repurchase agreements not entitling the Portfolio to payment of principal within
seven days.
An institutional market has developed for certain securities that are not
registered under the 1933 Act. Institutional investors usually will not seek to
sell these instruments to the general public, but instead will often depend on
either an efficient institutional market in which the unregistered security can
be readily resold or on an 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 therefore may not be
determinative of the liquidity of such investments.
If unregistered securities are eligible for purchase by institutional buyers in
accordance with applicable exemptions under guidelines adopted by the Board, an
Adviser may determine that the securities are liquid. Under these guidelines,
the Advisers are required to take into account: (1) the frequency of trades and
quotations for the investment; (2) the number of dealers willing to purchase or
sell the investment; (3) the number of dealers that have undertaken to make a
market in the investment; (4) the number other potential purchasers; and (5) the
nature of the marketplace trades, including the time needed to dispose of the
investment, the method of soliciting offers and the mechanics of the transfer.
Illiquid investments may be more difficult to value than liquid investments and
the sale of illiquid investments generally may require more time and result in
higher selling expenses than the sale of liquid investments. 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. Restrictions on resale may have an adverse effect on the
marketability of illiquid investments and a Portfolio might also have to
register certain investments in order to dispose of them, resulting in expense
and delay.
SHORT SALES "AGAINST THE BOX"
Each Portfolio may engage in short sales "against the box." A short sale is
"against the box" to the extent that while the short position is open, the
Portfolio must own an equal amount of the securities sold short, or by virtue of
ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may in certain cases be made to defer, for Federal income
tax purposes, recognition of gain or loss on the sale of securities "in the box"
until the short position is closed out. If a Portfolio has unrealized gain with
respect to a long position and enters into a short sale against-the-box, the
Portfolio generally will be deemed to have sold the long position for tax
purposes and thus will recognize gain. Prohibitions on entering short sales
other than against the box does not restrict a Portfolio's 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
<PAGE>
futures contracts. No Portfolio may make short sales if, as a result, more than
25% of the Portfolio's total assets would be so invested or such a position
would represent more than 2% of the outstanding voting securities of any single
issuer or class of an issuer.
OPTIONS AND FUTURES CONTRACTS
A Portfolio may (1) purchase or sell (write) put and call options on securities
to enhance the Portfolio's performance and (2) seek to hedge against a decline
in the value of securities owned by the Portfolio or an increase in the price of
securities that the Portfolio plans to purchase through the writing and purchase
of exchange-traded and over-the-counter options on individual securities or
securities or financial indices and through the purchase and sale of
interest-rate futures contracts and options on those futures contracts. A
Portfolio may only write options that are covered. To the extent a Portfolio
invests in foreign securities, it may in the future invest in options on foreign
currencies, foreign currency futures contracts and options on those futures
contracts. These instruments are considered to be derivatives. Use of these
instruments is subject to regulation by the SEC, the several options and futures
exchanges on which futures and options are traded or the CFTC. No assurance can
be given that any hedging or option income strategy will achieve its intended
result. A Portfolio may enter into futures contracts only if the aggregate of
initial margin deposits for open futures contract positions does not exceed 5%
of the Portfolio's total assets.
COVER FOR OPTIONS AND FUTURES CONTRACTS. When engaging in hedging transactions,
a Portfolio will hold securities, currencies, or other options or futures
positions whose values are expected to offset ("cover") its obligations under
the transactions. A Portfolio will enter into a hedging strategy that exposes it
to an obligation to another party only if the Portfolio owns either (1) an
offsetting ("covered") position in the underlying security, currency or options
or futures contract, or (2) cash, receivables and liquid debt securities with a
value sufficient at all times to cover its potential obligations. Each Portfolio
will comply with SEC guidelines with respect to coverage of these strategies
and, if the guidelines require, will set aside cash, liquid debt securities and
other permissible assets ("Segregated Assets") in a segregated account with the
Custodian in the prescribed amount. Segregated Assets cannot be sold or closed
out while the hedging or option income strategy is outstanding, unless the
Segregated Assets are replaced with similar assets. As a result, there is a
possibility that the use of cover or segregation involving a large percentage of
a Portfolio's assets could impede portfolio management or a Portfolio's ability
to meet redemption requests or other current obligations.
The Portfolios have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Portfolio may purchase any
call or put option on a futures contract if the premiums associated with all
such options held by the Portfolio would exceed 5% of the Portfolio's total
assets as of the date the option is purchased. No Portfolio may sell a put
option if the exercise value of all put options written by the Portfolio would
exceed 50% of the Portfolio's total assets or sell a call option if the exercise
value of all call options written by the Portfolio would exceed the value of the
Portfolio's assets. In addition, the current market value of all open futures
positions held by a Portfolio will not exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying security
upon exercise at the exercise price during the option period. The amount of
premium received or paid is based upon certain factors, including the market
price of the underlying assets, the relationship of the exercise price to the
market price, the historical price volatility of the underlying assets, the
option period, supply and demand and interest rates.
<PAGE>
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional options on securities except that exercises of
stock index options are effected with cash payments and do not involve delivery
of securities (i.e., stock index options are settled exclusively in cash). Thus,
upon exercise of stock index options, the purchaser will realize and the writer
will pay an amount based on the differences between the exercise price and the
closing price of the stock index.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract rather than to purchase or sell stock, at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by transfer to the holder of an accumulated balance representing the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
the contract, at a specified date and at an agreed-upon price. A bond or stock
index futures contract involves the delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the securities comprising
the index is made. Generally, these futures contracts are closed out prior to
the expiration date of the contracts.
FOREIGN CURRENCY TRANSACTIONS
Portfolios that make foreign investments may conduct foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign exchange market or by entering into a forward foreign currency
contract. A forward foreign currency contract ("forward contract") involves an
obligation to purchase or sell a specific amount of 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 are considered to be "derivatives" --
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities). The Portfolio enters into forward contracts in order to "lock in"
the exchange rate between the currency it will deliver and the currency it will
receive for the duration of the contract. In addition, the Portfolio may enter
into forward contracts to hedge against risks arising from securities the
Portfolio owns or anticipates purchasing, or the U.S. dollar value of interest
and dividends paid on those securities. The Portfolio will not enter into
forward contracts for speculative purposes. The Portfolio will not have more
than 25% of its total assets committed to forward contracts, or maintain a net
exposure to forward contracts that would obligate the 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.
If the Portfolio makes delivery of the foreign currency at or before the
settlement of a forward contract, it may be required to obtain the currency
through the conversion of assets of the Portfolio into the currency. The
Portfolio may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract, in which case it will realize a gain
or a loss.
Foreign currency transactions involve certain costs and risks. The Portfolio
incurs foreign exchange expenses in converting assets from one currency to
another. Forward contracts involve a risk of loss if the Adviser is inaccurate
in its prediction of currency movements. The projection of short-term currency
market movements is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. The precise matching of forward
contract amounts and the value of the securities involved is generally not
possible. Accordingly, it may be necessary for the Portfolio to purchase
<PAGE>
additional foreign currency if the market value of the security is less than the
amount of the foreign currency the Portfolio is obligated to deliver under the
forward contract and the decision is made to sell the security and make delivery
of the foreign currency. The use of forward contracts as a hedging technique
does not eliminate fluctuations in the prices of the underlying securities the
Portfolio owns or intends to acquire, but it does fix a rate of exchange in
advance. Although forward contracts can reduce the risk of loss due to a decline
in the value of the hedged currencies, they also limit any potential gain that
might result from an increase in the value of the currencies.
In addition, 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. 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.
The Portfolios have no present intention to enter into currency futures or
options contracts, but may do so in the future. A Portfolio might 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.
SWAPS, CAPS, FLOORS AND COLLARS
A Portfolio may enter into interest rate, currency and mortgage (or other asset)
swaps, and may purchase and sell interest rate "caps," "floors" and "collars."
Interest rate swaps involve the exchange by a Portfolio and a counterparty of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Mortgage swaps are similar to
interest rate swap agreements, except that the contractually-based principal
amount (the "notional principal amount") is tied to a reference pool of
mortgages. Currency swaps' notional principal amount is tied to one or more
currencies, and the exchange commitments can involve payments in the same or
different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on the notional principal amount from the
party selling the cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
value, to receive payments on a notional principal amount from the party selling
such floor. A collar entitles the purchaser to receive payments to the extent a
specified interest rate falls outside an agreed range.
A Portfolio will enter into these transactions primarily to preserve a return or
a spread on a particular investment or portion of its portfolio or to protect
against any interest rate fluctuations or increase in the price of securities it
anticipates purchasing at a later date. The Portfolios intend to use these
transactions as a hedge and not as a speculative investment, and will enter into
the transactions in order to shift a Portfolio's investment exposure from one
type of investment to another.
A Portfolio may enter into interest rate protection transactions on an
asset-based basis, depending on whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund receiving or paying,
as the case may be, only the net amount of the two payments.
The use of interest rate protection transactions is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If an Adviser
incorrectly forecasts market values, interest rates and other applicable
factors, there may be considerable impact on a Portfolio's performance. Even if
the Advisers are correct in their forecasts, there is a risk that the
transaction may correlate imperfectly with the price of the asset or liability
being hedged.
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TEMPORARY DEFENSIVE POSITION
When, in the judgment of an Adviser, market or economic conditions warrant, each
Portfolio, other than a Money Market Portfolio, may assume a defensive position
and temporarily hold cash or invest without limit in cash equivalents to retain
flexibility in meeting redemptions, paying expenses and timing of new
investments. These investments will be rated in one of the two highest
short-term rating categories by an NRSRO or, if not rated, determined by the
Adviser to be of comparable quality, including: (1) short-term U.S. Government
Securities; (2) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States that have, at the time of investment, except in the case of
International Portfolio, total assets in excess of one billion dollars and that
are insured by the Federal Deposit Insurance Corporation; (3) commercial paper;
(4) repurchase agreements covering any of the securities in which the Portfolio
may invest directly; and (5) shares of money market funds registered under the
1940 Act within the limits specified therein. To the extent that a Portfolio
assumes a temporary defensive position, it may not be invested to pursue its
investment objective. International Portfolio may hold cash and invest in bank
instruments denominated in any major foreign currency.
Apart from temporary defensive purposes, a Portfolio may at any time invest a
portion of its assets in cash and cash equivalents as described above.
RISK CONSIDERATIONS
COUNTERPARTY RISK
The Portfolios may be exposed to the risks of financial failure or insolvency of
another party. To help reduce those risks, the Advisers, subject to the Board's
supervision, monitor and evaluate the creditworthiness of counterparties to the
Portfolios' transactions and intend to enter into a transaction only when they
believe that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
The use of repurchase agreements, securities lending, reverse repurchase
agreements, interest rate protection transactions (such as caps, collars and
floors), forward commitments (including dollar roll transactions) and forward
contracts involving currencies present particular counterparty risk. In the
event that bankruptcy, insolvency or similar proceedings were commenced against
a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, a Portfolio may have difficulties in exercising
its rights to the underlying securities or currencies, as applicable, it may
incur costs and expensive time delays in disposing of the underlying securities
and it may suffer a loss. Failure by the other party to deliver a security or
currency purchased by a Portfolio may result in a missed opportunity to make an
alternative investment. Counterparty insolvency risk with respect to repurchase
agreements is reduced by favorable insolvency laws that allow a Portfolio, among
other things, to liquidate the collateral held in the event of the bankruptcy of
the counterparty. Those laws do not apply to securities lending, reverse
repurchase agreements and dollar roll transactions, and therefore, those
transactions involve more risk than repurchase agreements. For example, in the
event the purchaser of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, a Portfolio's use of the proceeds of the
transaction may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to repurchase
the securities. As a result of entering into forward commitments and reverse
repurchase agreements, as well as lending its securities, a Portfolio may be
exposed to greater potential fluctuations in the value of its assets and net
asset value per unit.
FIXED INCOME SECURITIES
GENERAL. The market value of the interest-bearing fixed income 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
<PAGE>
sensitive to prevailing interest rates and actual changes in interest rates. The
longer the remaining maturity (and duration) of a security, the more sensitive
the security is to changes in interest rates. All fixed income securities,
including U.S. Government Securities, can change in value when there is a change
in interest rates. Changes in the ability of an issuer to make payments of
interest and principal and in the markets' perception of an issuer's
creditworthiness will also affect the market value of that issuer's debt
securities. As a result, an investment in a Portfolio is subject to risk even if
all fixed income securities in the Portfolio's investment portfolio are paid in
full at maturity. In addition, certain fixed income securities may be subject to
extension risk, which refers to the change in total return on a security
resulting from an extension or abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. A portion of the
municipal securities held by the Portfolios may be supported by credit and
liquidity enhancements, such as letters of credit (which are not covered by
federal deposit insurance) or puts or demand features of third party financial
institutions, generally domestic and foreign banks.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK. The Portfolios' investments in fixed income securities are subject
to credit risk relating to the financial condition of the issuers of the
securities that each Portfolio holds. To limit credit risk, each Portfolio will
generally buy debt securities that are rated in the top four long-term rating
categories by an NRSRO or in the top two short-term rating categories by an
NRSRO (although certain Portfolios have greater restrictions). Moody's, Standard
& Poor's and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of securities by
several NRSROs is included in Appendix A. The Advisers may use these ratings to
determine whether to purchase, sell or hold a security. Ratings are not,
however, absolute standards of quality. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Consequently, similar securities with the same
rating may have different market prices. In addition, rating agencies may fail
to make timely changes in credit ratings and the issuer's current financial
condition may be better or worse than a rating indicates.
Each Portfolio may retain a security that ceases to be rated or whose rating has
been lowered below the Portfolio's lowest permissible rating category (except in
certain cases with respect to the Money Market Portfolios) if the Adviser
determines that retaining the security is in the best interests of the
Portfolio. Because a downgrade often results in a reduction in the market price
of the security, sale of a downgraded security may result in a loss.
Each Portfolio may purchase unrated securities if the Adviser determines that
the security is of comparable quality to a rated security that the Portfolio may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of the Portfolios to successfully utilize mortgage-related
securities depends in part upon the ability of the Advisers to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
<PAGE>
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting the Portfolio's yield. Because prepayments
of principal generally occur when interest rates are declining, it is likely
that the Portfolios, to the extent they retain the same percentage of debt
securities, may have to reinvest the proceeds of prepayments at lower interest
rates then those of their previous investments. If this occurs, a Portfolio's
yield will correspondingly decline. Thus, mortgage-related securities may have
less potential for capital appreciation in periods of falling interest rates
(when prepayment of principal is more likely) than other fixed income securities
of comparable duration, although they may have a comparable risk of decline in
market value in periods of rising interest rates. A decrease in the rate of
prepayments may extend the effective maturities of mortgage-related securities,
increasing their sensitivity to changes in market interest rates. To the extent
that the Portfolios purchase mortgage-related securities at a premium,
unscheduled prepayments, which are made at par, result in a loss equal to any
unamortized premium.
ASSET-BACKED SECURITIES. Like mortgages underlying mortgage-related securities,
the collateral underlying assets are subject to prepayment, which may reduce the
overall return to holders of asset-backed securities. Asset-backed securities
present certain additional and unique risks. Primarily, these securities do not
always have the benefit of a security interest in collateral comparable to the
security interests associated with mortgage-related securities. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set-off certain amounts owed on the credit cards,
thereby reducing the balance due. Automobile receivables generally are secured
by automobiles. Most issuers of automobile receivables permit the loan servicers
to retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and the technical requirements under state laws, the trustee
for the holders of the automobile receivables may not have a proper security
interest in the underlying automobiles. As a result, the risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments on
asset-backed securities is greater for asset-backed securities than for
mortgage-related securities. In addition, because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of an interest rate or
economic cycle has not been tested.
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are securities
rated the fourth highest rating category by an NRSRO or which are unrated and
judged by the Adviser to be of comparable quality. Such high risk securities
(commonly referred to as "junk bonds") are not considered to be investment grade
and have speculative or predominantly speculative characteristics.
Non-investment grade, high risk securities provide poor protection for payment
of principal and interest but may have greater potential for capital
appreciation than do higher quality securities. These lower rated securities
involve greater risk of default or price changes due to changes in the issuers'
creditworthiness than do higher quality securities. The market for these
securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. In addition, the market prices of lower rated securities may fluctuate
more than the market prices of higher quality securities and may decline
significantly in periods of general economic difficulty or rising interest
rates. Under such conditions, a Portfolio may have to use subjective rather than
objective criteria to value its high yield/high risk securities investments
accurately and rely more heavily on the judgment of its Adviser.
<PAGE>
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Portfolio's
Adviser may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Portfolio experiences
unexpected net redemptions, the Portfolio's Adviser may be forced to sell the
Portfolio's higher rated securities, resulting in a decline in the overall
credit quality of the Portfolio's portfolio and increasing the exposure of the
Portfolio to the risks of high yield/high risk securities.
FOREIGN SECURITIES
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 a
Portfolio's shareholders; 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 a Portfolio. 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 a Portfolio is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after the 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.
The Portfolios may purchase foreign bank obligations. In addition to the risks
described above that are generally applicable to foreign investments, the
investments that the Portfolios make in obligations of foreign banks, branches
or subsidiaries may involve further risks, including differences between foreign
banks and U.S. banks in applicable accounting, auditing and financial reporting
standards, and the possible establishment of exchange controls or other foreign
government laws or restrictions applicable to the payment of certificates of
deposit or time deposits that may affect adversely the payment of principal and
interest on the securities held by the Portfolios.
LEVERAGE
The Portfolios may use leverage in an effort to increase their returns. Leverage
involves special risks and may involve speculative investment techniques.
Leverage exists when cash made available to a Portfolio through an investment
technique is used to make additional Portfolio investments. Borrowing for other
than temporary or emergency purposes, lending portfolio securities, entering
into reverse repurchase agreements, purchasing securities on a when-issued,
delayed delivery or forward commitment basis (including dollar roll
<PAGE>
transactions) and the use of swaps and related agreements are transactions that
result in leverage. The Portfolios use these investment techniques only when the
Advisers believe that the leveraging and the returns available to the Portfolios
from investing the cash will provide investors a potentially higher return.
Leverage creates the risk of magnified capital losses which occur when losses
affect an asset base, enlarged by borrowings or the creation of liabilities,
that exceeds the equity base of the Portfolio. Leverage may involve the creation
of a liability that requires a Portfolio to pay interest (for instance, reverse
repurchase agreements) or the creation of a liability that does not entail any
interest costs (for instance, forward commitment costs). The risks of leverage
include a higher volatility of the net asset value of the Portfolio's interests
and the relatively greater effect on the net asset value of the interests caused
by favorable or adverse market movements or changes in the cost of cash obtained
by leveraging and the yield from invested cash. So long as a Portfolio is able
to realize a net return on its investment portfolio that is higher than interest
expense incurred, if any, leverage will result in higher current net investment
income for the Portfolio than if a Portfolio were not leveraged. Changes in
interest rates and related economic factors could cause the relationship between
the cost of leveraging and the yield to change so that rates involved in the
leveraging arrangement may substantially increase relative to the yield on the
obligations in which the proceeds of the leveraging have been invested. To the
extent that the interest expense involved in leveraging approaches the net
return on the Portfolio's investment portfolio, the benefit of leveraging will
be reduced, and, if the interest expense on borrowings were to exceed the net
return to investors, the Portfolio's use of leverage would result in a lower
rate of return than if the Portfolio were not leveraged. In an extreme case, if
the Portfolio's current investment income were not sufficient to meet the
interest expense of leveraging, it could be necessary for the Portfolio to
liquidate certain of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Portfolio's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the
Portfolio's commitments under these transactions. The use of a segregated
account in connection with leveraged transactions may result in a Portfolio's
investment portfolio being 100% leveraged.
OPTIONS AND FUTURES CONTRACTS
A Portfolio's use of options and futures contracts subjects the Portfolio to
certain unique investment risks. These risks include: (1) dependence on an
Adviser's ability to correctly predict movements in the prices of individual
securities and fluctuations in interest rates, the general securities markets
and other economic factors; (2) imperfect correlations between movements in the
prices of options or futures contracts and movements in the price of the
securities hedged or used for cover which may cause a given hedge not to achieve
its objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the other securities in
which a Portfolio invests; (4) lack of assurance that a liquid secondary market
will exist for any particular instrument at any particular time, which, among
other things, may hinder a Portfolio's ability to limit exposures by closing its
positions; (5) the possible need to defer closing out certain options, futures
contracts and related options to avoid adverse tax consequences; and (6) the
potential for unlimited losses when investing in futures contracts or writing
options for which an offsetting position is not held.
Other risks include the inability of a Portfolio, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Portfolio. In addition, the futures exchanges may limit the
amount of fluctuation permitted in certain futures contract prices on related
options during a single trading day. A Portfolio may be forced, therefore, to
liquidate or close out a futures contract position at a disadvantageous price.
There is no assurance that a counterparty in an over-the-counter option
transaction will be able to perform its obligations. There are a limited number
of options on interest rate futures contracts and exchange-traded options
contracts on fixed income securities. The Portfolios may use various futures
<PAGE>
contracts that are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
in those contracts will develop or continue to exist. A Portfolio's activities
in the futures and options markets may result in higher portfolio turnover rates
and additional brokerage costs, which could reduce a Portfolio's yield.
SMALL CAPITALIZATION STOCKS
Investments in smaller capitalization companies carry greater risk than
investments in larger capitalization companies. Smaller capitalization companies
generally experience higher growth rates and higher failure rates than do larger
capitalization companies; and the trading volume of smaller capitalization
companies' securities is normally lower than that of larger capitalization
companies and, consequently, generally has a disproportionate effect on market
price (tending to make prices rises more in response to buying demand and fall
more in response to selling pressure).
Securities owned by a Portfolio that are traded in the over-the-counter market
or on a regional securities exchange may not be traded every day or in the
volume typical of securities trading on a national securities exchange. As a
result, disposition by a Portfolio of a portfolio security, to meet redemption
requests by investors 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.
Investments in small, unseasoned issuers generally carry greater risk than is
customarily associated with larger, more seasoned companies. Such issuers often
have products and management personnel that have not been tested by time or the
marketplace and their financial resources may not be as substantial as those of
more established companies. Their securities (which a Portfolio may purchase
when they are offered to the public for the first time) may have a limited
trading market which can adversely affect their sale by the Portfolio and can
result in such securities being priced lower than otherwise might be the case.
If other institutional investors engage in trading this type of security, a
Portfolio may be forced to dispose of its holdings at prices lower than might
otherwise be obtained.
INVESTMENT LIMITATIONS
For purposes of all fundamental and non-fundamental investment policies of the
Portfolio: (1) the term 1940 Act includes the rules thereunder, SEC
interpretations and any exemptive order upon which the Portfolio may rely and
(2) the term Code includes the rules thereunder, IRS interpretations and any
private letter ruling or similar authority upon which the Portfolio may rely.
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 interests of the
Portfolio are represented at the meeting in person or by proxy.
(1) DIVERSIFICATION
EACH PORTFOLIO, may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of an
investment company) if, as a result (i) more than 5% of the Portfolio's
<PAGE>
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.
(2) CONCENTRATION
PRIME MONEY MARKET PORTFOLIO and MONEY MARKET PORTFOLIO may not
purchase a security if, as a result, more than 25% of the Portfolio's
total assets would be invested in securities of issuers conducting
their principal business activities in the same industry; provided, (1)
there is no limit on investments in U.S. Government Securities, in
repurchase agreements covering U.S. Government Securities or in foreign
government securities, (2) municipal securities are not treated as
involving a single industry, (3) there is no limit on investment in
issuers domiciled in a single country, (4) financial service companies
are classified according to the end users of their services (for
example, automobile finance, bank finance and diversified finance) and
(5) utility companies are classified according to their services (for
example, gas, gas transmission, electric and gas, electric and
telephone); and provided the Portfolio will invest more than 25% of the
value of the Portfolio's total assets in obligations of domestic and
foreign financial institutions and their holding companies.
Notwithstanding anything to the contrary, to the extent permitted by
the 1940 Act, the Portfolio may invest in one or more investment
companies; provided that, except to the extent the Portfolio invests in
other investment companies pursuant to Section 12(d)(1)(A) of the 1940
Act, the Portfolio treats the assets of the investment companies in
which it invests as its own for purposes of this policy.
Each of INDEX PORTFOLIO, SMALL COMPANY STOCK PORTFOLIO, SMALL COMPANY
GROWTH PORTFOLIO, SMALL COMPANY VALUE PORTFOLIO, and INTERNATIONAL
PORTFOLIO may not, 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).
POSITIVE RETURN PORTFOLIO, STABLE INCOME PORTFOLIO, MANAGED FIXED
INCOME PORTFOLIO, INCOME EQUITY PORTFOLIO, DISCIPLINED GROWTH
PORTFOLIO, and LARGE COMPANY GROWTH PORTFOLIO may not purchase a
security if, as a result, more than 25% of the Portfolio's total assets
would be invested in 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, foreign government
securities, mortgage-related or housing-related securities, municipal
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); that utility companies are classified according to their
services (for example, gas, gas transmission, electric and gas,
electric and telephone. Notwithstanding anything to the contrary, to
the extent permitted by the 1940 Act, the Portfolio may invest in one
or more investment companies; provided that, except to the extent the
Portfolio invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Portfolio treats the assets of the
investment companies in which it invests as its own for purposes of
this policy.
Each of STRATEGIC VALUE BOND PORTFOLIO, DISCIPLINED GROWTH PORTFOLIO,
SMALL CAP VALUE PORTFOLIO and SMALL CAP INDEX PORTFOLIO may not
purchase securities if, as a result, 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
<PAGE>
is no limit on investments in U.S. Government Securities or repurchase
agreements covering U.S. Government Securities. Notwithstanding
anything to the contrary, to the extent permitted by the 1940 Act, the
Portfolio may invest in one or more investment companies; provided
that, except to the extent the Portfolio invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the
Portfolio treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(3) BORROWING
Each of INDEX PORTFOLIO, SMALL COMPANY STOCK PORTFOLIO, SMALL COMPANY
GROWTH PORTFOLIO, SMALL COMPANY VALUE PORTFOLIO, INTERNATIONAL
PORTFOLIO, STRATEGIC VALUE BOND PORTFOLIO, DISCIPLINED GROWTH
PORTFOLIO, SMALL CAP VALUE PORTFOLIO and SMALL CAP INDEX 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).
EACH OTHER PORTFOLIO may not borrow money, if, as a result,
outstanding borrowings would exceed an amount equal to 33 1/3% of the
Portfolio's total assets.
(4) ISSUANCE OF SENIOR SECURITIES
EACH PORTFOLIO may not issue senior securities except to the extent
permitted by the 1940 Act.
(5) UNDERWRITING ACTIVITIES
EACH 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
EACH 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
EACH 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
EACH 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 without interestholder
action.
<PAGE>
(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
PRIME MONEY MARKET PORTFOLIO and MONEY MARKET PORTFOLIO may not acquire
securities or invest in repurchase agreements with respect to any
securities if, as a result, more than 10% of the Portfolio's net assets
(taken at current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days and in
securities which are not readily marketable, including securities that
are not readily marketable by virtue of restrictions on the sale of
such securities to the public without registration under the 1933 Act
("Restricted Securities").
EACH OTHER PORTFOLIO may not acquire securities or invest in repurchase
agreements with respect to any securities if, as result, more than 15%
of the Portfolio's net assets (taken at current value) would be
invested in repurchase agreements not entitling the holder to payment
of principal within seven days and in securities which are not readily
marketable, including securities that are not readily marketable by
virtue of restrictions on the sale of such securities to the public
without registration under the 1933 Act ("Restricted Securities").
(3) OTHER INVESTMENT COMPANIES
EACH PORTFOLIO may not invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
(4) MARGIN AND SHORT SALES
EACH 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. Each Portfolio may make margin deposits
in connection with permitted transactions in options and futures
contracts.
EACH PORTFOLIO may not enter short sales if, as a result, more that 25%
of the value of the Portfolio's total assets would be so invested, or
such a position would represent more than 2% of the outstanding voting
securities of any single issuer or class of an issuer.
(5) UNSEASONED ISSUERS
EACH 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
EACH PORTFOLIO may not pledge, mortgage, hypothecate or encumber any
of its assets except to secure permitted borrowings.
<PAGE>
(7) SECURITIES WITH VOTING RIGHTS
MONEY MARKET PORTFOLIO, PRIME MONEY MARKET PORTFOLIO POSITIVE RETURN
PORTFOLIO, STABLE INCOME PORTFOLIO, , AND MANAGED FIXED INCOME
PORTFOLIO may not purchase securities having voting rights except
securities of other investment companies; provided that the Portfolios
may hold securities with voting rights obtained through a conversion or
other corporate transaction of the issuer of the securities, whether or
not the Portfolio was permitted to exercise any rights with respect to
the conversion or other transaction.
(8) LENDING OF PORTFOLIO SECURITIES
EACH PORTFOLIO may not lend portfolio securities if the total value of
all loaned securities would exceed 33 1/3% of the Portfolio's total
assets.
(9) OPTIONS AND FUTURES CONTRACTS
MONEY MARKET PORTFOLIO and PRIME MONEY MARKET PORTFOLIO may not invest
in options, futures contracts or options on futures contracts.
NO OTHER PORTFOLIO may purchase an option if, as a result, more that
5% of the value of the Portfolio's total assets would be so invested.
(10) WARRANTS
EACH PORTFOLIO may not invest in warrants if (i) more than 5% of the
value of the Portfolio's net assets would will be invested in warrants
(valued at the lower of cost or market) or (ii) more than 2% of the
value of the Portfolio's net assets would be invested in warrants which
are not listed on the New York Stock Exchange or the American Stock
Exchange; provided, that warrants acquired by a Portfolio attached to
securities are deemed to have no value.
(11) PURCHASES AND SALES OF COMMODITIES
MONEY MARKET PORTFOLIO and PRIME MONEY MARKET 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 be deemed to be physical commodities.
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer*, Chairman and President (age 54).
President , Forum Financial Group, LLC (mutual fund services company
holding company). 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.
<PAGE>
Costas Azariadis, Trustee (age 55).
Professor of Economics, University of California, Los Angeles, since
July 1992. Prior thereto, Dr. Azariadis was Professor of Economics at
the University of Pennsylvania. His address is Department of
Economics, University of California, Los Angeles, 405 Hilgard Avenue,
Los Angeles, California 90024.
James C. Cheng, Trustee (age 56).
President, Technology Marketing Associates (a marketing company for
small and medium size businesses in New England) since 1991. Prior
thereto, Mr. Cheng Mr. Cheng was President of Network Dynamics, Inc.
(a software development company). His address is 27 Temple Street,
Belmont, MA 02718.
J. Michael Parish, Trustee (age 54).
Partner at the law firm of Reid & Priest L.L.P. since 1995. From 1989
to 1995, he was a partner at Winthrop, Stimson, Putnam & Roberts. His
address is 40 West 57th Street, New York, New York 10019.
Thomas G. Sheehan, Vice President (age 43).
Managing Director, Forum Financial Group, LLC, with which he has been
associated since October 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr.
Sheehan also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. Her address is Two Portland Square, Portland, Maine
04101.
Stacey Hong, Treasurer (age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hong was a
Senior Accountant at Ernst & Young, LLP. His address is Two Portland
Square, Portland, Maine 04101.
David I. Goldstein, Secretary (age 37).
General Counsel, Forum Financial Group , LLC, with which he has been
associated since 1991. Prior thereto, Mr. Goldstein was associated
with the law firm of Kirkpatrick & Lockhart, LLP. Mr. Goldstein 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.
<PAGE>
Leslie K. Klenk, Assistant Secretary (age 34)
Assistant Counsel, Forum Financial Group, LLC with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
Pamela Stutch, Assistant Secretary (age 31)
Fund Administrator, Forum Financial Group, LLC with which she has been
associated since May 1998. Prior thereto, Ms. Stutch attended Temple
University School of Law and graduated in 1997. Ms. Stutch was also a
legal intern for the Maine Department of the Attorney General. Ms.
Stutch also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. Her address is Two Portland Square, Portland, Maine
04101.
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 May 31,
1998, the Portfolios' fiscal year end.
TOTAL COMPENSATION
FROM THE TRUST
--------------
John Keffer $0
Costas Azariadis $9,357.48
James C. Cheng $9,357.48
J. Michael Parish $9,357.58
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
From time to time, certain interestholders may own a large percentage of the
shares of a Portfolio. Accordingly, those interestholders may be able to greatly
affect (if not determine) the outcome of a imterestholder vote. Table 1 in
Appendix B all interestholders who owned of record 5% or more of the outstanding
shares of any of Portfolio as of August 28, 1998.
Norwest Advantage Funds have informed the Trust that whenever a series of
Norwest Advantage Funds that invests all of its investable assets in a Portfolio
is requested to vote on matters pertaining to a Portfolio, that series will hold
a meeting of its shareholders and will cast its vote as instructed by its
shareholders. In addition, Norwest Advantage Funds has informed the Trust that
it will similarly hold a meeting of its shareholders whenever it is requested to
vote on matters pertaining to a Portfolio if required by law to do so. It is
anticipated that any other registered investment company (or series thereof)
that may in the future invest in a Portfolio will follow the same or a similar
practice.
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES
Norwest Investment Management, Inc., a subsidiary of Norwest Bank Minnesota,
N.A., acts as investment adviser to the Portfolios (except International
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 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.
Crestone Capital Management, Inc. ("Crestone"), an investment advisory
subsidiary of Norwest Bank, is the investment subadviser of Small Company Stock
Portfolio.. Crestone provides investment advice regarding companies with small
capitalization to various clients, including institutional investors."
Galliard Capital Management, Inc. ("Galliard"), an investment advisory
subsidiary of Norwest Bank, is the investment subadviser of Stable Income
Portfolio, Managed Fixed Income Portfolio and Strategic Value Bond Portfolio.
Galliard provides investment advice regarding advisory services to bank and
thrift institutions, pension and profit sharing plans, trusts and charitable
organizations and corporate and other business entities.
Peregrine Capital Management, Inc. ("Peregrine"), an investment advisory
subsidiary of Norwest, is the investment subadviser of Positive Return Bond
Portfolio, Small Company Stock Portfolio, Small Company Growth Portfolio, Large
Company Growth Portfolio and Small Company Value Portfolio. Peregrine provides
investment advisory services to corporate and public pension plans, profit
sharing plans, savings-investment plans and 401(k) plans.
Smith Asset Management Group, L.P. ("Smith"), a registered investment adviser,
is the investment subadviser of Disciplined Growth Portfolio and Small Cap Value
Portfolio. Smith group provides investment management services to company
retirement plans, foundations, endowments, trust companies, and high net worth
individuals.
The investment advisory agreement for each Portfolio ("Advisory Agreement") will
remain in effect for a period of two years from the date of its effectiveness
and thereafter shall continue for successive one-year periods provided 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 (other than as trustees of the Trust).
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 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 Agreement with
respect to each Portfolio also provides that, with respect to the Portfolio, the
Adviser shall not be liable for any mistake of judgment or in any event
whatsoever except for willful misfeasance, reckless disregard. bad faith or
gross negligence in the performance of its duties under the Investment Advisory
Agreement.
An Investment Subadvisory Agreement (the "Subadvisory Agreement") for a
Portfolio will remain in effect for a period of two years from the date of its
effectiveness and thereafter shall continue for successive one-year periods
<PAGE>
provided 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 (other than as trustees of the Trust). A
Portfolio's Subadvisory Agreement is terminable without penalty by the Board or
a majority of the outstanding voting securities of the Portfolio on 60 days'
written notice to the Subadviser or by the Subadviser on 60 days' written notice
to the Trust when authorized either by vote of a Portfolio's shareholders or by
a vote of a majority of the Board, or by the Subadvisor on not more than 60
days' nor less than 30 days' written notice, and will automatically terminate in
the event of its assignment. The Subadvisory Agreement for a Portfolio also
provides that neither the Subadvisor will not be liable l for any mistake of
judgment or in any event except for willful misfeasance, reckless disregard, bad
faith or gross negligence in the performance of its or their obligations and
duties under the Subadvisory Advisory Agreement. A Portfolio's Subadvisory
Advisory Agreement provides that the Subadviser may render services to others.
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. Each Advisory Agreement provides
that the Advisers may render service to others.
Table 2 in Appendix B shows the dollar amount of advisory fees payable as a
percentage of daily net assets by each Portfolio to the Norwest or Schroder.
Specifically, the table details the dollar amount of fees that would have been
payable had certain waivers not been in place, together with the dollar amount
of fees waived and the dollar amount of net fees paid. The advisory fee rates
are set forth in Part A. This information is provided for the past three years
or such shorter terms as a Portfolio has been operational.
ADMINISTRATIVE SERVICES
Pursuant to an Administration Agreement with the Trust, FAdS supervises the
overall administration of the Portfolios 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 Portfolio 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 FAdS 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 a majority of the outstanding voting
securities of the Portfolio the interestholders of that Portfolio and, in either
case, by a majority of the Trustees who are not parties to the Administration
Agreement or interested persons of any such party (other than as Trustees of the
Trust).
The administration agreement may be terminated with respect to each Portfolio
without penalty by the Board on 60 days' written notice to FAdS by FAdS on 60
days' written notice to the Trust. The Administration Agreement also provides
that FAdS shall not be liable for any action or inaction except for bad faith,
willful misfeasance, gross negligence or reckless disregard in the performance
of its duties and obligations under the Administration Agreement.
Table 3 in Appendix B shows the dollar amount of administrative fees payable as
a percentage of daily net assets by each Portfolio to FAdS. Specifically, the
table details the dollar amount of fees that would have been payable had certain
waivers not been in place, together with the dollar amount of fees waived and
the dollar amount of net fees paid. The advisory fee rates are set forth in Part
A. This information is provided for the past three years or such shorter terms
as a Portfolio has been operational.
<PAGE>
PORTFOLIO ACCOUNTING
Pursuant to a Portfolio and Unitholder Accounting Agreement (the "Accounting
Agreement") with the Trust FAcS, an affiliate of FAdS, performs portfolio
accounting services for each Portfolio. Under the Accounting Agreement, FAcS
prepares and maintains books and records of each Portfolio on behalf of the
Trust that are required to be maintained under the 1940 Act, calculates the net
asset value per share of each Portfolio (and class thereof) and dividends and
capital gain distributions and prepares periodic reports to shareholders and the
SEC.
The Accounting Agreement will continue in effect with respect to a Portfolio
only if such continuance is specifically approved at least annually by the
Board. The Accounting Agreement may be terminated with respect to a Portfolio at
any time. without penalty, by the Board on 60 days' written notice to FAcS or by
FAcS on 60 days' written notice to the Board. The Accounting Agreement provides
that FAcS shall not be liable for any action or inaction except for bad faith,
willful misfeasance, gross negligence or reckless disregard in the performance
of its duties and obligations under the Accounting Agreement.
For its accounting services, FAcS receives from the Trust with respect to each
Portfolio a fee of $48,000 per year plus certain amounts based upon the number
of interestholders, the type of Portfolio, and number and types of portfolio
transactions within each Portfolio.
Table 4 in Appendix B shows the dollar amount of accounting fees payable as a
percentage of daily net assets by each Portfolio to FAcS. Specifically, the
table details the dollar amount of fees that would have been payable had certain
waivers not been in place, together with the dollar amount of fees waived and
the dollar amount of net fees paid. The advisory fee rates are set forth in Part
A. This information is provided for the past three years or such shorter terms
as a Portfolio has been operational.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110 is the independent
auditor for the Portfolios. PricewaterhouseCooper LLP served as the independent
auditor of Index Portfolio, Small Company Stock Portfolio, Small Company Value
Portfolio, Small Company Growth Portfolio and International Portfolio since
their inception through the year ended May 31, 1998. Portfolio.
CUSTODIAN
Norwest Bank, 733 Marquette Avenue, Minneapolis, Minnesota 55479-0040, is the
custodian of the Portfolio's assets. Morgan Stanley acts as sub-custodian of
International Portfolio'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. Morgan
Stanley employs qualified foreign subcustodians to provide custody of
International Portfolio's assets in accordance with applicable regulations.
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
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 an Adviser or their 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 an
Adviser's opinion, is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients. In addition, when purchases or sales of the same security for the
Portfolio and other client accounts managed by an Adviser 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 (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, an Adviser 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 the Advisers to employ their
respective affiliates to effect securities transactions of the Portfolios,
<PAGE>
provided certain other conditions are satisfied. Payment of brokerage
commissions to an affiliate of an Adviser, 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
Muenchmeyer ("Muenchmeyer"), 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 the 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 Muenchmeyer or Norwest Services, and will not direct brokerage
to Muenchmeyer or Norwest Services in recognition of research services.
Table 5 in Appendix B shows the dollar amount of brokerage commissions paid by
each Portfolio for the past three years or such shorter terms as a Portfolio has
been operational. In addition, the table also indicates the dollar amount of
brokerage commissions, percentage of brokerage commissions and percentage of
commission transactions executed through broker/dealer affiliates of Norwest or
Schroder. As of May 31, 1998, several Portfolios maintained equity investments
in brokers/dealers (or their parent companies) used to regularly affect
portfolio transactions. Table 6 of Appendix B provides details of these
investments.
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.
SHARES OF BENEFICIAL INTEREST AND OTHER SECURITIES
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.
<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.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
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 annual report for the Portfolios
which is included along with this Part B provides the net asset values for each
Portfolio as of May 31, 1998.
The Trust was 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 Index Portfolio, Small Company Portfolio and International Portfolio II. The
original exemptive order, which imposed several substantive conditions upon the
Trust and Norwest Advantage Funds, was amended effective August 6, 1996, to
permit any Norwest Advantage Fund to invest all or a portion of its assets in a
Core Trust portfolio, irrespective of investment style, and which removed
certain restrictions imposed on the Trust thereby permitting the Trust to accept
investments from persons other than Norwest Advantage Funds.
TAX STATUS
Each Portfolio is classified for federal income tax purposes as a separate
partnership that is not a "publicly traded partnership." As a result, no
Portfolio is subject to federal income tax; instead, each investor in a
Portfolio is required to take into account in determining its federal income tax
liability its share of the Portfolio's income, gains, losses, deductions, and
credits, without regard to whether it has received any cash distributions from
the Portfolio. Each Portfolio also is not subject to Delaware income or
franchise tax.
Each investor in a Portfolio is deemed to own a proportionate share of the
Portfolio's assets, and to earn a proportionate share of the Portfolio's income,
for purposes of determining whether the investor satisfies the requirements to
qualify as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended. 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.
<PAGE>
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 indirectly through its interest in a Portfolio
will be subject to federal income tax on its proportionate share of a portion of
any "excess distribution" received by the Portfolio 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, each
RIC investor in the Portfolio would be required to include in income each year
its proportionate share of the Portfolio's 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 RIC investor to satisfy the distribution
requirements applicable to it -- 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 Portfolios' 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, gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from 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 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
<PAGE>
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
FFSI, Two Portland Square, Portland, Maine 04101, the Portfolios' serves as the
Trust's placement agent. FFSI receives no compensation for such placement agent
services.
FINANCIAL STATEMENTS
The annual report for the Portfolios for the year ended May 31, 1998, including
the independent auditors' reports thereon, are included along with this Part B.
CALCULATION OF PERFORMANCE DATA
Not Applicable.
<PAGE>
PART B
CORE TRUST (DELAWARE)
PRIVATE PLACEMENT MEMORANDUM
STATEMENT OF ADDITIONAL INFORMATION
APPENDIX A
DESCRIPTIONS OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates municipal and corporate bond issues, including convertible 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 risk appear somewhat larger than in AAA securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest 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.
Bonds which are rated BA are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated CAA are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated CA represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
<PAGE>
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the AA, A, BAA, BA or B groups which Moody's ranks in the
higher end of its generic rating category are designated by the symbols AA1, A1,
BAA1, BA1 and B1.
STANDARD & POOR'S, A DIVISION OF THE MCGRAW HILL COMPANIES ("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. The capacity to meet
the financial commitment on the obligation is extremely strong.
Bonds rated AA have a very strong capacity to meet the financial commitment on
the obligation and differ from the highest-rated issues only in small degree.
Bonds rated A have a strong capacity to meet the financial commitment on the
obligation, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations rated in
higher-rated categories.
Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet the financial commitment on the obligation than in
higher-rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions. Bonds rated BB have less vulnerability to
nonpayment than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet the financial commitment on the
obligation.
Bonds rated B are more vulnerable to nonpayment then bonds rated BB, but
currently have the capacity to meet the financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to meet the financial commitment on the obligation.
Bonds rated CCC are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions to meet the financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to meet the
financial commitment on the obligation.
Bonds rated CC are currently highly vulnerable to nonpayment.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action taken, but payments are being continued.
Bonds are rated D when the issue is in payment default. The D rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will made during such grace period. The D rating will also be used upon the
filing of the bankruptcy petition or the taking of a similar action if payments
on the obligation are jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the major rating
categories.
<PAGE>
FITCH IOCA, 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/or
dividends 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/or dividends 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, short-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/or dividends 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 or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest or
dividends and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements or paying dividends, the probability
of continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics that if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD or D categories.
<PAGE>
PREFERRED STOCK
MOODY'S
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 stock.
An issue rated AA is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance the earnings and asset protection
will remain relatively well-maintained in the foreseeable future.
An issue rated A is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the AAA and AA
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated BAA is considered to be a medium-grade 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.
An issue rated BA is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated B generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated CAA is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated CA is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated C can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issuer ranks in the lower end of its
generic rating category.
S&P
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality, fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
<PAGE>
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
FITCH
Fitch utilizes the same ratings criteria in rating preferred stock as it does in
rating corporate bond issues, as described earlier in this Appendix.
SHORT TERM MUNICIPAL LOANS
MOODY'S. Moody's highest rating for short-term municipal loans is MIG 1/VMIG 1.
A rating of MIG 1/VMIG 1 denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing. Loans bearing the MIG 2/VMIG 2
designation are of high quality. Margins of protection are ample although not so
large as in the MIG 1/VMIG 1 group. A rating of MIG 3/VMIG 3 denotes favorable
quality. All security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established. A rating of MIG 4/VMIG 4 denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
S&P. S&P's highest rating for short-term municipal loans is SP-1. S&P states
that short-term municipal securities bearing the SP-1 designation have very
strong or strong capacity to pay principal and interest. Those issues rated SP-1
which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation. Issues rated SP-2 have satisfactory capacity to
pay principal and interest. Issues rated SP-3 have speculative capacity to pay
principal and interest.
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.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
<PAGE>
Issues assigned a rating of F-2 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.
SHORT TERM DEBT (INCLUDING COMMERCIAL PAPER)
MOODY'S
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 capacity of rated issuers.
Issuers rated PRIME-1 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 earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 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.
S&P
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. An A-1
designation indicates the highest category and 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. Issues carrying an A-3 designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH
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.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
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.
<PAGE>
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.
F-5. Weak credit quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D. Default. Issues assigned this rating are in actual or imminent payment
default.
LOC. The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
<PAGE>
PART B
CORE TRUST (DELAWARE)
PRIVATE PLACEMENT MEMORANDUM
STATEMENT OF ADDITIONAL INFORMATION
APPENDIX B
MISCELLANEOUS TABLES
TABLE 1: CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
All entities referenced in the Table are series of Norwest Advantage Funds, an
open-end management company, except Monarch Cash Fund, Monarch Crown Money Fund,
Monarch Treasury Cash Fund, Forum Daily Assets Cash Fund, Forum Assets Treasury
Obligations Fund, Forum Daily Assets Government Obligations Fund, Forum Daily
Assets Government Fund, and Forum Daily Assets Municipal Fund. Norwest is the
Adviser for the Norwest Advantage Funds and is located at Norwest Center, Sixth
Street and Marquette, Minneapolis, Minnesota 55479. The Monarch Cash Fund,
Monarch Crown Money Fund, and the Monarch Treasury Fund are series of Monarch
Funds, an open-end, management company (the "Monarch Funds"). Forum Daily Assets
Cash Fund, Forum Daily Assets Treasury Obligations Fund, Forum Daily Assets
Government Fund, and Forum Daily Assets Municipal Fund are separate series of
Forum Funds, an open-end management company (the "Forum Funds"). Forum
Investment Advisors, LLC is the adviser to both the Monarch and Forum Funds and
is located at Two Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
PORTFOLIO CONTROL PERSON PERCENTAGE OF
PORTFOLIOS INTEREST
Prime Market Portfolio Cash Investment Fund 77.19%
Ready Cash Fund 22.81%
Money Market Portfolio Cash Investment Fund 99.17%
Positive Return Bond Portfolio Growth Balanced Fund 31.20%
Moderate Balanced Fund 28.64%
Diversified Bond Fund 21.17%
Strategic Income Fund 18.45%
Stable Income Portfolio Stable Income Fund 61.75%
Moderate Balanced Fund 25.21%
Strategic Income Portfolio 13.04%
Managed Fixed Income Portfolio Growth Balanced Fund 31.23%
Moderate Balanced Fund 28.82%
Diversified Bond Fund 21.15%
Strategic Income Fund 18.46%
Strategic Value Bond Portfolio Total Return Bond Fund 45.74%
Growth Balanced Fund 15.72%
Moderate Balanced Fund 14.49%
Diversified Bond Fund 10.64%
Strategic Income Fund 09.28%
Index Portfolio Index Fund 59.33%
Diversified Equity Fund 27.26%
Growth Balanced Fund 08.28%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
PORTFOLIO CONTROL PERSON PERCENTAGE OF
PORTFOLIOS INTEREST
Small Company Stock Portfolio Small Company Stock Fund 43.00%
Growth Equity Fund 31.63%
Diversified Equity FUnd 14.72%
Small Company Growth Portfolio Small Company Growth Fund 79.93%
Growth Equity Fund 11.11%
Diversified Equity Fund 5.28%
Income Equity Portfolio Income Equity Fund 71.24%
Diversified Equity Fund 19.33%
Growth Balanced 05.92%
Large Company Growth Portfolio Large Company Growth Fund 29.50%
Growth Equity Fund 28.80%
Diversified Equity Fund 28.22%
Growth Balanced Fund 08.53%
Disciplined Growth Portfolio Diversified Equity Fund 47.09%
Performa Disciplined Growth Fund 30.38%
Growth Balanced Fund 14.51%
Moderate Balanced Fund 06.02%
Small Company Value Portfolio Growth Equity Fund 54.38%
Diversified Equity Fund 26.75%
Growth Balanced Fund 08.46%
Diversified Small Cap Fund 05.74%
Small Cap Value Portfolio Growth Equity Fund 50.29%
Diversified Equity Fund 23.57%
Performa Small Cap Value Fund 09.21%
Growth Balanced Fund 07.60%
Diversified Small Cap Fund 05.14%
Small Cap Index Portfolio Growth Equity Fund 54.98%
Diversified Equity Fund 26.49%
Growth Balanced Fund 08.32%
Diversified Small Cap Fund 05.63%
International Portfolio Growth Equity Fund 30.82%
International Fund 29.60%
Diversified Equity Fund 26.34%
Growth Balanced Fund 08.34%
</TABLE>
<PAGE>
TABLE 2: ADVISORY FEES
<TABLE>
<S> <C> <C> <C>
FEE WAIVED OR FEE
FEE REIMBURSED RETAINED BY
PAYABLE BY NORWEST ADVISER
------- ---------- -------
Index Portfolio
Year ended May 31, 1998 1,709,358 0 1,709,358
Year ended May 31, 1997 592,067 592,067 0
Year ended May 31, 1996 281,183 281,183 0
Small Company Growth Portfolio
Year ended May 31, 1998 7,752,366 0 7,752,366
Small Company Stock Portfolio
Year ended May 31, 1998 3,024,869 0 3,024,869
Small Company Value Portfolio
Year ended May 31, 1998 1,558,410 0 1,558,410
Large Company Growth
Year ended May 31, 1998 6,448,644 0 6,448,644
Income Equity Portfolio
Year ended May 31, 1998 7,756,155 0 7,756,155
Small Cap Index Portfolio
Year ended May 31, 1998 45,748 0 45,748
Managed Fixed Income Portfolio
Year ended May 31, 1998 975,529 0 975,529
Positive Return Bond Fund
Year ended May 31, 1998 727,322 0 727,322
Stable Income Portfolio
Year ended May 31, 1998 682,043 0 682,043
Money Market Portfolio
Year ended May 31, 1998 2,332,191 646,233 1,685,958
Prime Money Market Portfolio
Year ended May 31, 1998 7,337,295 0 7,337,295
Disciplined Growth Portfolio
Year ended May 31, 1998 679,865 0 679,865
Small Cap Value Portfolio
Year ended May 31, 1998 580,454 0 580,454
Strategic Value Bond Portfolio
Year ended May 31, 1998 601,240 0 601,240
</TABLE>
<TABLE>
<S> <C> <C> <C>
FEE WAIVED OR FEE
FEE REIMBURSED RETAINED BY
PAYABLE BY SCHRODER SCHRODER
International Portfolio
Year ended May 31, 1998 3,832,528 117,141 3,715,387
Year ended May 31, 1997 812,485 N/A 812,485
Year ended May 31, 1996 1,005,925 1,005,925 1,005,925
</TABLE>
<PAGE>
TABLE 3: ADMINISTRATIVE FEES
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ ---------
Index Portfolio
Year ended May 31, 1998 $652,010 $648,264 $3,746
Year ended May 31, 1997 $394,711 $163,837 $230,874
Year ended May 31, 1996 $187,455 $7,045 $180,410
Small Company Growth Portfolio
Year ended May 31, 1998 $486,767 $479,752 $7,015
Small Company Stock Portfolio
Year ended May 31, 1998 $197,916 $193,557 $4,359
Small Company Value Portfolio
Year ended May 31, 1998 $101,259 $96,092 $5,167
Large Company Growth Portfolio
Year ended May 31, 1998 $576,912 $572,067 $4,845
Income Equity Portfolio
Year ended May 31, 1998 $860,981 $856,592 $4,389
Small Cap Index Portfolio
Year ended May 31, 1998 $9,150 $3,594 $5,556
Managed Fixed Income Portfolio
Year ended May 31, 1998 $155,633 $153,576 $2,057
Positive Return Portfolio
Year ended May 31, 1998 $120,200 $117,575 $2,625
Stable Income Portfolio
Year ended May 31, 1998 $131,001 $127,246 $3,755
International Portfolio
Year ended May 31, 1998 $1,209,182 $0 $1,209,182
Year ended May 31, 1997 270,828 141,294 129,534
Year ended May 31, 1996 223,539 0 223,539
Money Market Portfolio
Year ended May 31, 1998 $842,979 838,386 4,593
Prime Money Market Portfolio
Year ended May 31,1998 $1,098,165 0 $1,098,165
Strategic Value Bond Portfolio
Year ended May 31,1998 $60,124 $56,068 $4,056
Disciplined Growth Portfolio
Year ended May 31, 1998 $37,770 $34,231 $3,539
Small Cap Value Portfolio
Year ended May 31, 1998 $30,550 $27,553 $2,997
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
TABLE 4: ACCOUNTING FEES
FEE FEE FEE
PAYABLE WAIVED RETAINED
Index Portfolio
Year ended May 31, 1998 $142,000 $0 $142,000
Year ended May 31, 1997 $106,000 $42,000 $64,000
Year ended May 31, 1996 $58,000 $7045 $51,955
Small Company Growth Portfolio
Year ended May 31, 1998 $78,000 $0 $78,000
Small Company Stock Portfolio
Year ended May 31, 1998 $75,000 $0 $75,000
Small Company Value Portfolio
Year ended May 31, 1998 $74,000 $0 $74,000
Large Company Growth Portfolio
Year ended May 31, 1998 $79,500 $0 $79,500
Income Equity Portfolio
Year ended May 31, 1998 $77,500 $0 $77,500
Small Cap Index Portfolio
Year ended May 31, 1998 $24,067 $0 $24,067
Managed Fixed Income Portfolio
Year ended May 31, 1998 $88,000 $0 $88,000
Positive Return Portfolio
Year ended May 31, 1998 $60,500 $0 $60,500
Stable Income Portfolio
Year ended May 31, 1998 $94,000 $0 $94,000
International Portfolio
Year ended May 31, 1998 $121,500 $0 $121,500
Year ended May 31, 1997 $85,000 $13,000 $47,000
Year ended May 31, 1996 $47,000 $0 $47,000
Money Market Portfolio
Year ended May 31, 1998 $70,387 $0 $70,387
Prime Money Market Portfolio
Year ended May 31, 1998 $71,887 $0 $71,887
Strategic Value Bond Portfolio
Year ended May 31, 1998 $49,500 $0 $49,500
Disciplined Growth Portfolio
Year ended May 31, 1998 $49,500 $0 $49,500
Small Cap Value Portfolio
Year ended May 31, 1998 $47,000 $0 $47,000
</TABLE>
<PAGE>
<TABLE>
TABLE 5: BROKERAGE COMMISSIONS Broker/Dealer Affiliates of Schroder
-----------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL BROKERAGE TOTAL BROKERAGE PERCENTAGE OF PERCENTAGE OF
COMMISSIONS ($) COMMISSIONS ($) COMMISSIONS TRANSACTIONS
--------------- --------------- ----------- -------------
INTERNATIONAL PORTFOLIO
Year ended May 31, 1998 1,178,924 $0.00 0.00% 0.00%
Year ended May 31, 1997 $1,644,601 $12,744 0.77% 0.54%
Year ended May 31, 1996 434,450 $0.00 0.00% 0.00%
Broker/Dealer Affiliates of Norwest
-----------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL BROKERAGE TOTAL BROKERAGE PERCENTAGE OF PERCENTAGE OF
COMMISSIONS ($) COMMISSIONS ($) COMMISSIONS TRANSACTIONS
--------------- --------------- ----------- -------------
INDEX PORTFOLIO
Year ended May 31, 1998 123,226 0 0.00% 0.00%
Year Ended May 31, 1997 149,636 0 0.00% 0.00%
Year Ended May 31, 1996 74,898 0 0.00% 0.00%
MANAGED FIXED INCOME PORTFOLIO
Year ended May 31, 1998 0.00 0 0.00% 0.00%
STABLE INCOME BOND PORTFOLIO
Year ended May 31, 1998 0.00 0 0.00% 0.00%
POSITIVE RETURN BOND PORTFOLIO
Year ended May 31, 1998 0.00 0 0.00% 0.00%
SMALL CAP INDEX PORTFOLIO
Year ended May 31, 1998 84,525.00 0 0.00% 0.00%
SMALL COMPANY VALUE PORTFOLIO
Year ended May 31, 1998 584,876 0 0.00% 0.00%
SMALL COMPANY GROWTH PORTFOLIO
Year ended May 31, 1998 2,078,600 0 0.00% 0.00%
SMALL COMPANY STOCK PORTFOLIO
Year ended May 31, 1998 946,641 0 0.00% 0.00%
DISCIPLINED GROWTH PORTFOLIO
Year ended May 31, 1998 341,932 0 0.00% 0.00%
SMALL CAP VALUE PORTFOLIO
Year ended May 31, 1998 528,243 0 0.00% 0.00%
STRATEGIC VALUE BOND PORTFOLIO
Year ended May 31, 1998 0.00 0 0.00% 0.00%
PRIME MONEY MARKET PORTFOLIO
Year ended May 31, 1998 0.00 0 0.00% 0.00%
MONEY MARKET PORTFOLIO
Year ended May 31, 1998 0.00 0 0.00% 0.00%
INCOME EQUITY PORTFOLIO
Year ended May 31, 1998 $410,108 0 0.00% 0.00%
LARGE COMPANY GROWTH PORTFOLIO
Year ended May 31, 1998 $275,542 0 0.00$ 0.00%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TABLE 6: SECURITIES OF REGULAR BROKER/DEALERS
International Portfolio Daiwa Securities ($2,563,000)
HSBC Holdings PLC ($4,222,000)
Index Portfolio Charles Schwab Corp. ($1,417,000)
Merrill Lynch & Co., Inc. ($3,257,000)
Morgan Stanley, Dean Witter, Discover & Co. ($4,627,000)
Stable Income Portfolio Lehman Brothers Holdings, Inc. ($2,066,000)
Bear Stearns & Co., Inc. ($61,000)
Managed Fixed Income Portfolio Charles Schwab Corp. ($4,782,000)
Lehman Brothers Holdings, Inc. ($2,731,000)
PaineWebber Group, Inc. ($4,935,000)
Large Company Growth Portfolio Charles Schwab Corp. ($53,970,000)
Donaldson, Lufkin & Jenrette, Inc. ($17,211,000)
Small Company Stock Portfolio Friedman, Billings, Ramsey Group, Inc. ($2,562,000)
Small Company Growth Portfolio Amresco, Inc. ($10,307,000)
Strategic Value Portfolio Charles Schwab Corp. ($3,084,000)
Bear Stearns & Co., Inc. ($3,507,000)
Discipline Growth Portfolio Bear Stearns & Co., Inc. ($3,035,000)
Small Cap Index Portfolio Amresco, Inc. ($422,000)
Dain Rauscher Corp. ($216,000)
Eaton Vance Corp. ($252,000)
Legg Mason, Inc. ($501,000)
Pioneer Group, Inc. ($216,000)
Raymond James Financial, Inc. ($442,000)
SEI Investments Co. ($367,000)
Money Market Portfolio Bear Stearns & Co., Inc. ($20,000,000)
Morgan Stanley Group, Inc. ($50,000,000)
BT Securities Corp. ($2,501,000)
CS First Boston, Inc. ($10,000,000)
Prime Money Market Portfolio Bear Stearns Cos., Inc. ($30,000,000)
Morgan Stanley Group Inc. ($70.000,000)
CS First Boston, Inc. ($15,000,000)
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Part A: None
Part B: Audited Financial Statements for the fiscal year ended May
31, 1998 including Report of Independent Auditors,
Statements of Assets and Liabilities, Statements of
Operations, Statement of Changes in Net Assets, Financial
Highlights, Notes to Financial Statements, and Schedules of
Investments for Prime Money Market Portfolio, Money Market
Portfolio, Positive Return Bond Portfolio, Stable Income
Portfolio, Strategic Value Bond Portfolio, Managed Fixed
Income Portfolio, Index Portfolio, Income Equity Portfolio,
Large Company Growth Portfolio, Disciplined Growth
Portfolio, Small Cap Index Portfolio, Small Company Stock
Portfolio, Small Company Growth Portfolio, Small Company
Value Portfolio, Small Cap Value Portfolio and International
Portfolio filed via EDGAR as Exhibit (12) under Item 24(b)
to Amendment No. 13 on September 28, 1998, accession number
0001004402-98-000524.
(b) Exhibits:
(1) Trust Instrument of Registrant dated November 1, 1994 as
amended April 4, 1995 and August 30, 1995 (see Note 1).
(2) Not Applicable.
(3) Not Applicable.
(4) Not Applicable.
(5)(a) Investment Advisory Agreement between Registrant and Norwest
Investment Management, Inc. relating to Money Market
Portfolio, Prime Money Market Portfolio, Index Portfolio,
Small Company Stock Portfolio, Small Company Growth
Portfolio, Small Company Value Portfolio, Large Company
Growth Portfolio, Income Equity Portfolio, Managed Fixed
Income Portfolio, Positive Return Bond Portfolio, Stable
Income Portfolio, Disciplined Growth Portfolio, Small Cap
Value Portfolio, Strategic Value Bond Portfolio and Small
Cap Index Portfolio dated October 1, 1997 (see Note 1).
(b) Investment Advisory Agreement between Registrant and
Schroder Capital Management International Inc. relating to
International Portfolio dated November 9, 1994 (see Note 2).
(c) Investment Advisory Agreement between Registrant and Forum
Investment Advisors, LLC relating to Treasury Cash
Portfolio, Government Portfolio, Government Cash Portfolio,
Cash Portfolio and Municipal Cash Portfolio dated December
30, 1997 (see Note 3).
(d) Investment Subadvisory Agreement between Norwest Investment
Management, Inc. and Crestone Capital Management, Inc.
relating to Small Company Stock Portfolio dated June 1, 1997
(see Note 3).
<PAGE>
(e) Investment Subadvisory Agreement between Norwest Investment
Management, Inc. and Peregrine Capital Management, Inc.
relating to Small Company Growth Portfolio, Large Company
Growth Portfolio, Small Company Value Portfolio and Positive
Return Portfolio dated June 1, 1997 (see Note 3).
(f) Investment Subadvisory Agreement between Norwest Investment
Management, Inc. and Galliard Capital Management, Inc.
relating to Strategic Value Bond Portfolio dated October 1,
1997 (see Note 3).
(g) Investment Subadvisory Agreement between Norwest Investment
Management, Inc. and Smith Asset Management Group relating to
Disciplined Growth Portfolio and Small Cap Value Portfolio
dated October 1, 1997 (see Note 3).
(6) Not required.
(7) Not Applicable.
(8) (a) Custodian Agreement between Registrant and Norwest Bank
Minnesota, N.A. dated as of November 9, 1994, as amended
June 1, 1997 (see Note 1).
(b) Custodian Agreement between Registrant and Imperial Trust
Company dated September 1, 1995, as amended August 31, 1998
(filed herewith).
(c) Custody Agreement between Morgan Stanley Trust Company and
Norwest Bank Minnesota, N.A. dated June 18, 1998, as amended
April 1, 1996 (see Note 1).
(9)(a) Administration Agreement between Registrant and Forum
Administrative Services, LLC relating to Prime Money Market
Portfolio, Money Market Portfolio, Positive Return Bond
Portfolio, Stable Income Portfolio, Strategic Value Bond
Portfolio, Managed Fixed Income Portfolio, Index Portfolio,
Income Equity Portfolio, Large Company Growth Portfolio,
Disciplined Growth Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Growth Portfolio, Small
Company Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Cash Portfolio, Government Cash
Portfolio, Treasury Cash Portfolio, Government Portfolio and
Municipal Cash Portfolio dated December 1, 1997 (see Note 3).
(b) Fund Portfolio and Unitholder Accounting Agreement between
Registrant and Forum Accounting Services, LLC relating to
Prime Money Market Portfolio, Money Market Portfolio, Positive
Return Bond Portfolio, Stable Income Portfolio, Strategic
Value Bond Portfolio, Managed Fixed Income Portfolio, Index
Portfolio, Income Equity Portfolio, Large Company Growth
Portfolio, Disciplined Growth Portfolio, Small Cap Index
Portfolio, Small Company Stock Portfolio, Small Company Growth
Portfolio, Small Company Value Portfolio, Small Cap Value
Portfolio, International Portfolio, Cash Portfolio, Government
Cash Portfolio, Treasury Cash Portfolio, Government Portfolio
and Municipal Cash Portfolio dated as of June 1, 1997 and
amended December 5, 1997 (see Note 3).
(c) Placement Agent Agreement between Registrant and Forum
Financial Services, Inc. relating to Prime Money Market
Portfolio, Money Market Portfolio, Positive Return Bond
Portfolio, Stable Income Portfolio, Strategic Value Bond
Portfolio, Managed Fixed Income Portfolio, Index Portfolio,
Income Equity Portfolio, Large Company Growth Portfolio,
Disciplined Growth Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Growth Portfolio, Small
Company Value Portfolio, Small Cap Value Portfolio, and
International Portfolio dated November 9, 1994 (Note 2).
<PAGE>
(d) Placement Agent Agreement between Registrant and Forum
relating to Treasury Cash Portfolio, Government Cash
Portfolio, Cash Portfolio, Government Portfolio, and Municipal
Cash Portfolio dated September 1, 1995 (see Note 1).
(10) Not required.
(11) Not required.
(12)(a) Independent Auditors' Report of KPMG Peat Marwick LLP, Report
of Independent Accountants of PricewaterhouseCoopers LLP,
Statements of Assets and Liabilities, Statements of
Operations, Statements of Changes in Net Assets, Financial
Highlights, Notes to Financial Statements, Schedules of
Investments and Notes to Schedules of Investments for Stable
Income Portfolio, Managed Fixed Income Portfolio, Positive
Return Bond Portfolio, Strategic Value Bond Portfolio, Index
Portfolio, Income Equity Portfolio, Disciplined Growth
Portfolio, Large Company Growth Portfolio, Small Cap Index
Portfolio, Small Company Stock Portfolio, Small Cap Value
Portfolio, Small Company Value Portfolio, Small Company Growth
Portfolio and International Portfolio dated May 31, 1998 (see
Note 1).
(b) Independent Auditors' Report of KPMG Peat Marwick LLP,
Statements of Assets and Liabilities, Statements of
Operations, Statements of Changes in Net Assets, Financial
Highlights, Notes to Financial Statements and Schedules of
Investments for Prime Money Market Portfolio and Money Market
Portfolio dated May 31, 1998 (see Note 1).
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
(17) Financial Data Schedules (see Note 1).
(18) Not Applicable.
- -----------
Note 1 Exhibit incorporated by reference as filed in Amendment No. 13 via
EDGAR on September 28, 1998, accession number 0001004402-98-000524.
Note 2 Exhibit incorporated by reference as filed in Amendment No. 5 via
EDGAR on September 30, 1996, accession number 000912057-96-021568.
Note 3 Exhibit incorporated by reference as filed in Amendment No. 12 via
EDGAR on January 2, 1998, accession number 0001004402-98-000003.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF NOVEMBER 19, 1998.
Title of Class of Shares
of Beneficial Interest Number of Holders
------------------------ -------------------
Treasury Cash Portfolio 2
Government Cash Portfolio 2
Cash Portfolio 2
Government Portfolio 1
Municipal Cash Portfolio 1
Prime Money Market Portfolio 2
Money Market Portfolio 2
Positive Return Bond Portfolio 5
Stable Income Portfolio 3
Strategic Value Bond Portfolio 7
Managed Fixed Income Portfolio 5
Index Portfolio 7
Income Equity Portfolio 9
Large Company Growth Portfolio 8
Disciplined Growth Portfolio 6
Small Cap Index Portfolio 2
Small Company Stock Portfolio 8
Small Company Growth Portfolio 8
Small Company Value Portfolio 7
Small Cap Value Portfolio 9
International Portfolio 10
ITEM 27. INDEMNIFICATION.
The Trust currently holds a directors' and officers' errors and
omissions insurance policy jointly with Forum Funds, the terms of which are
consistent with industry standards. The policy provides generally for the
indemnification against loss by the insured in connection with a judgment of
liability in certain litigation arising from the insured's wrongful act or an
error, act or omission by a person for whom the insured becomes legally
responsible. The policy provides coverage in the amount of $6,000,000. The
policy premiums are allocated between the Trust and Forum Funds based upon the
pro rata share of assets of each insured. The Trust's trustees and officers also
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.
<PAGE>
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.
The indemnification provisions set forth under Section 1 paragraphs (f)
and (g) of the Placement Agent Agreement between FFSI (defined as "Forum" under
the agreement) and the Trust, specifically provide as follows:
(f) The Trust agrees to indemnify, defend and hold Forum, its several
officers and directors, and any person who controls Forum within the
meaning of Section 15 of the Securities Act of 1933 ("1933 Act") or
Section 20 of the Securities Exchange Act of 1934 (the "1934 Act") (for
purposes of this Section 1(f), collectively, "Covered Persons") free
and harmless from and against any and all claims, demands, liabilities
and any counsel fees incurred in connection therewith) which any
Covered Person may incur under the 1933 Act, the 1934 Act, common law
or otherwise, arising out of or based on any untrue statement of a
material fact contained in any registration statement, private
placement memorandum or other offering material ("Offering Material")
or arising out of or based on any omission to state a material fact
required to be stated in any Offering Material or necessary to make the
statements in any Offering Material not misleading, provided, however,
that the Trust's agreement to indemnify Covered Persons shall not be
deemed to cover any claims, demands, liabilities or expenses arising
out of any financial and other statements as are furnished in writing
to the Trust by Forum in its capacity as Placement Agent for use in the
answers to any items of any registration statement or in any statements
made in any Offering Material, or arising out of or based on any
omission or alleged omission to state a material fact in connection
with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further
provided that the Trust's agreement to Section 1(e) shall not be deemed
to cover any liability to the Trust or its investors to which a Covered
Person would otherwise be subject by reason or willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by
reason of a Covered Person's reckless disregard of its obligations and
duties under this Agreement. The Trust shall be notified of any action
brought against a Covered Person, such notification to be given by
letter or by telegram addressed to the Secretary of the Trust, promptly
after the summons or other first legal process shall have been duly and
completely served upon such Covered Person. The failure to notify the
Trust of any such action shall not relieve the Trust from any liability
except to the extent that the Trust shall have been prejudiced by such
failure, or from any liability that the Trust may have to the Covered
Person against whom such action is brought by reason of any such untrue
statement or omission, otherwise than on account of the Trust's
indemnity agreement contained in this Section 1(f). The Trust will be
entitled to assume the defense of any suit brought to enforce any such
claim, demand or liability, but in such case such defense shall be
conducted by counsel chosen by the Trust and approved by Forum, the
defendant or defendants in such suit shall bear the fees and expenses
of any additional counsel retained by any of them; but in case the
Trust does not elect to assume the defense of any such suit, or in case
Forum reasonably does not approve of counsel chosen by the Trust, the
Trust will reimburse the Covered Person named as defendant in such
suit, for the fees and expenses of any counsel retained by Forum or
such Covered Person. The Trust's indemnification agreement contained in
this Section (f) and the Trust's representations and warranties in this
Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Covered
Persons, and shall survive the delivery of any Interests. This
agreement of indemnity will inure exclusively to Covered Persons and
their successors. The Trust agrees to notify Forum promptly of the
commencement of any litigation or proceedings against the Trust or any
of its officers or Trustees in connection with the issue and sale of
any Interests.
(g) Forum agrees to indemnify, defend and hold the Trust, its several
officers and trustees, and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
(for purposes of this Section 1(g) collectively, "Covered Persons")
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands, liabilities and any counsel fees
incurred in connection therewith) that Covered Persons may incur under
<PAGE>
the 1933 Act, the 1934 Act, or common law or otherwise, but only to the
extent that such liability or expense incurred by a Covered Person
resulting from such claims or demands shall arise out of or be based on
any untrue statement of a material fact contained in information
furnished in writing by Forum in its capacity as Placement Agent to the
Trust for use in the answers to any of the items of any registration
statement or in any statements in any Offering Material or shall arise
out of or be based on any omission to state a material fact in
connection with such information furnished in writing by Forum to the
Trust required to be stated in such answers or necessary to make such
information not misleading. Forum shall be notified of any action
brought against a Covered Person, such notification to be given by
letter or telegram addressed to Forum, Attention: Legal Department,
promptly after the summons or other first legal process shall have been
duly and completely served upon such Covered Person. Forum shall have
the right of first control of the defense of the action with counsel of
its own choosing satisfactory to the Trust if such action is based
solely on such alleged misstatement or omission on Forum's part, and in
any other event each Covered Person shall have the right to participate
in the defense or preparation of the defense of any such action. The
failure to so notify Forum of any such action shall not relieve Forum
from any liability except to the extent that Forum shall have been
prejudiced by such failure, or from any liability that Forum may have
to Covered Persons by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account
of Forum's indemnity agreement contained in this Section 1(g).
Insofar as indemnification for liability arising under the 1933 Act may
be permitted to trustees, officers and controlling persons of the Trust pursuant
to the foregoing provisions, or otherwise, the Trust has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Trust of expenses incurred or paid by a trustee, officer
or controlling person of the Trust in the successful defense of any action, suit
or proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
(a) Norwest Investment Management, Inc.
The description of Norwest Investment Management, Inc. ("NIM") in Parts
A and B of the Registration Statement is incorporated by reference
herein.
The following are the directors and principal executive officers of
NIM, including their business connections, which are of a substantial
nature. The address of Norwest Corporation, the parent of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), which is the parent of NIM, 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.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman, Chief Executive Officer, Norwest Investment Management,
President Inc.
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
James W. Paulsen Senior Vice President, Chief Norwest Investment Management,
Investment Officer Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Stephen P. Gianoli Senior Vice President, Chief Norwest Investment Management,
Executive Officer Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David S. Lunt Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard C. Villars Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Lee K. Chase Senior Vice President Norwest Investment Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Andrew Owen Vice President Norwest Investment Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
(b) Schroder Capital Management International Inc.
The description of Schroder Capital Management International Inc.
("SCMI") in Parts A and B of the Registration Statement is
incorporated by reference herein.
The following are the directors and principal officers of SCMI,
including their business connections of a substantial nature. The
address of each company listed, unless otherwise noted, is 787 Seventh
Avenue, 34th Floor, New York, NY 10019. Schroder Capital Management
International Limited ("Schroder Ltd.") is a United Kingdom affiliate
of Schroder, which provides investment management services to
international clients, located principally in the United States.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David M. Salisbury Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
Director Schroders plc.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SCMI
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SCMI
----------------------------------
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SCMI
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc..
----------------------------------
------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael M. Perelstein Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Managing Director MacKay Shields Financial
Corporation
resigned 11/96
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Louise Croset First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SCMI
------------------------------------ ----------------------------------
President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer
Certain open-end
management investment
companies for
which SCMI
and/or its
affiliates provide
investment services.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Heather F. Crighton First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President SCMI
------------------------------------ ----------------------------------
Officer
Certain
open-end
management
investment
companies
for
which
SCMI
and/or
its
affiliates
provide
investment
services.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Principal, Senior Portfolio Manager Weiss, Peck & Greer LLC
resigned 12/96
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
*Schroder Ltd and Schroders plc. are located at 31 Gresham St., London EC2V 7QA,
United Kingdom.
<PAGE>
(c) Crestone Capital Management, Inc.
The description of Crestone Capital Management, Inc. ("Crestone") in
Parts A and B of the Registration Statement is incorporated by
reference herein.
The following are the directors and principal executive officers of
Crestone, including their business connections, which are of a
substantial nature. The address of Crestone is 7720 East Belleview
Avenue, Suite 220, Englewood Colorado 80111-2614 and, unless otherwise
indicated below, that address is the principal business address of any
company with which the directors and principal executive officers are
connected.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Kirk McCown President, Director Crestone Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
P. Jay Kiedrowski Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Chairman, Chief Executive Officer, Norwest Investment Management,
Minneapolis, MN 55479 President Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Stephen P. Gianoli Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Senior Vice President, Chief Norwest Investment Management,
Minneapolis, MN 55479 Executive Officer Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Susan Koonsman Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
1740 Broadway President Norwest Investments & Trust
Denver, CO 80274
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
(d) Peregrine Capital Management, Inc.
The description of Peregrine Capital Management, Inc. ("Peregrine") in
Parts A and B of the Registration Statement is incorporated by
reference herein.
The following are the directors and principal executive officers of
Peregrine, including their business connections, which are of a
substantial nature. The address of Peregrine is LaSalle Plaza, 800
LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55402 and, unless
otherwise indicated below, that address is the principal business
address of any company with which the directors and principal executive
officers are connected.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
James R. Campbell Director Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Sixth and Marquette Ave., President, Chief Executive Norwest Bank
Minneapolis, MN 55479-0116 Officer, Director
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Patricia D. Burns Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Tasso H. Coin Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John S. Dale Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Julie M. Gerend Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
William D. Giese Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Daniel J. Hagen Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ronald G. Hoffman Senior Vice President, Secretary Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Frank T. Matthews Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jeannine McCormick Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Barbara K. McFadden Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert B. Mersky Chairman, President, Chief Peregrine Capital Management,
Executive Officer Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Gary E. Nussbaum Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
James P. Ross Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President Norwest Bank (prior to November,
1996)
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jonathan L. Scharlau Assistant Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Jay H. Strohmaier Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul E. von Kuster Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Janelle M. Walter Assistant Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul R. Wurm Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
J. Daniel Vendermark Vice President Peregrine Capital Management,
Sixth and Marquette Avenue Inc.
Minneapolis, MN 55479-1013
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Albert J. Edwards Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President/Marketing U.S. Trust Company of California
(prior to June 9, 1997)
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
(e) Galliard Capital Management, Inc.
The description of Galliard Capital Management, Inc. ("Galliard") of
Parts A and B of the Registration Statement is incorporated by
reference herein.
The following are the directors and principal executive officers of
Galliard, including their business connections, which are of a
substantial nature. The address of Galliard is LaSalle Plaza, Suite
2060, 800 LaSalle Avenue, Minneapolis, Minnesota 55479 and, unless
otherwise indicated below, that address is the principal business
address of any company with which the directors and principal executive
officers are connected.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name (Address if Different) Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman Galliard Capital Management, Inc.
------------------------------------ ----------------------------------
Sixth and Marquette Ave., Chairman, Chief Executive Officer, Norwest Investment Management,
Minneapolis, MN 55479 President Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard Merriam Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John Caswell Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Karl Tourville Principal, Senior Portfolio Manager Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Laura Gideon Senior Vice President of Marketing Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Leela Scattum Vice President of Operations Galliard Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
(f) Forum Investment Advisors, LLC
The description of Forum Investment Advisors, LLC of Parts A and B of
this Registration Statement are incorporated by reference herein.
The following are the members of Forum Investment Advisors, LLC, Two
Portland Square, Portland, Maine 04101, including their business
connections, which are of a substantial nature.
Forum Holdings Corp. I., Member.
Forum Trust, LLC., Member.
Both Forum Holdings Corp. I. and Forum Trust are controlled indirectly
by John Y. Keffer, Chairman and President of the Registrant. Mr.
Keffer is President of Forum Trust and Forum Financial Group, LLC. Mr.
Keffer is also a director and/or officer of various registered
investment companies for which the various Forum Financial Group's
operating subsidiaries provide services.
The following are the officers of Forum Investment Advisors, LLC,
including their business connections that are of a substantial nature.
Each officer may serve as an officer of various registered investment
companies for which the Forum Financial Group provides services.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Sara M. Morris Treasurer Forum Investment Advisors, LLC.
------------------------------------ ----------------------------------
Chief Financial Officer Forum Financial Group, LLC.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Other Forum affiliated companies
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
David I. Goldstein Secretary Forum Investment Advisors, LLC.
------------------------------------- ----------------------------------
General Counsel Forum Financial Group, LLC.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Officer Other Forum affiliated companies
----------------------------------- ------------------------------------- ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Mark D. Kaplin Director Forum Investment Advisors, LLC.
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Forum Financial Services, Inc. is the Registrant's placement
agent. Registrant has no underwriters.
(b) Not Applicable.
(c) Not Applicable.
<PAGE>
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., Forum Financial Corp. and
Forum Accounting Services, LLC, Two Portland Square, Portland, Maine 04101. 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as amended,
the Registrant has duly caused this amendment to its registration statement to
be signed on its behalf by the undersigned, duly authorized, in the City of
Portland and the State of Maine on the 30th day of November, 1998.
CORE TRUST (DELAWARE)
By: /s/ John Y. Keffer
------------------------------
John Y. Keffer
President
<PAGE>
Index to Exhibits
-----------------
(8)(b) Custodian Agreement between Registrant and Imperial Trust Company
dated Semptember 1, 1995, as amended August 31, 1998.
<PAGE>
Exhibit (8)(b)
CORE TRUST (DELAWARE)
CUSTODIAN CONTRACT
Contract made this 1st day of September, 1995, as amended August 31,
1998, between Core Trust (Delaware) (the "Trust"), a business trust organized
under the laws of the State of Delaware, having its principal place of business
at Two Portland Square, Portland, Maine 04101, and Imperial Trust Company (the
"Custodian"), a California trust company, having its principal place of business
at 201 N. Figueroa Street, Suite 610, Los Angeles, California 90012.
WHEREAS, the Trust is authorized to issue interests in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Trust offers interests in various series as listed in
Appendix A hereto (each a "Portfolio," and collectively the "Portfolios"), (such
series together with all other series established by the Trust and made subject
to this Contract in accordance with Section 12);
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Trust hereby employs the Custodian as the custodian of the assets
of the Portfolios pursuant to the provisions of the Trust Instrument. The Trust
on behalf of the Portfolios agrees to deliver to the Custodian all securities
and cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolios from time to time, and the cash consideration received by it for such
shares of beneficial interest of the Trust representing interests in the
Portfolios ("Interests") as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Portfolio and not delivered to the Custodian.
The Trust hereby authorizes the Custodian to use Imperial Bank and The
Bank of New York as subcustodians, the use of Imperial Bank being limited to
custodianship of cash. In addition, the Custodian may, at any time and from time
to time, appoint any other bank as defined in Section 2(a)(5) of the Investment
Company Act of 1940 ("1940 Act") meeting the requirements of a custodian under
Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act
on behalf of one or more Portfolios as a subcustodian for the purposes of
holding cash, securities and other assets of the Portfolios and performing other
functions of the Custodian; provided that the Custodian sends written
notification to the Trust on or before the day upon which such other
subcustodian is first employed. The Custodian shall be liable for the actions or
omissions of any subcustodian to the same extent as if such action or omission
were performed by the Custodian itself.
<PAGE>
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF
THE TRUST HELD BY TO CUSTODIAN
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, including all
securities owned by such Portfolio, other than securities which are
maintained pursuant to Section 2.12 in a clearing agency which acts as
a securities depository or in a book-entry system authorized by the
U.S. Department of the Treasury, collectively referred to herein as
"Securities Systems."
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian only upon receipt of Proper
Instructions from the Trust on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.11 or into the name
or nominee name of any subcustodian appointed pursuant to
Section l; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such day
upon which such other subcustodian is first employed. The
Custodian shall be liable for the actions or omissions of any
subcustodian to the same extent as if such action or omission
were performed by the Custodian itself.
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom;
<PAGE>
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Trust on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
Government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Trust on behalf of the Portfolio requiring a pledge of
assets by the Trust on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Trust, for delivery to such
Transfer Agent or to the holders of interests in connection
with distributions in kind, as may be described from time to
time in the currently effective Part A and Part B of the
registration statement of the Trust related to the Portfolios
("Prospectus"), in satisfaction of requests by holders of
Interests for repurchase or redemption; and
13) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Trust on
behalf of the applicable Portfolio, a writing signed by an
officer of the Trust and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Trust on behalf of the
Portfolio or of any nominee of the Custodian, or in the name or nominee
name of any agent appointed pursuant to Section 2.11 or in the name or
nominee name of any subcustodian appointed pursuant to Section 1,
unless specifically directed by Proper Instructions to hold such
<PAGE>
registered securities in so-called street name; provided that, in any
event, all such securities and other assets shall be held in an account
of the Custodian containing only assets of a Portfolio, or only assets
held by a Custodian as a fiduciary or custodian for customers, and
provided further, that the records of the Custodian shall indicate at
all times the Portfolio or other customer for which such securities and
other assets are held in such account and their respective interests
therein.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or other accounts in the name of Custodian, as custodian of
each Portfolio, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the 1940 Act. Cash held hereunder shall be deemed to
be a special deposit. Funds held by the Custodian for a Portfolio may
be deposited by it to its credit as Custodian in the Banking Department
of the Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be appointed in accordance with
and subject to the terms of Section 1 hereof.
2.5 PAYMENTS FOR INTERESTS. The Custodian shall receive from the placement
agent for the Interests or from the Transfer Agent of the Trust and
deposit into the account of the appropriate Portfolio such payments as
are received for Interests of that Portfolio issued or sold form time
to time by the Trust. The Custodian will provide timely notification to
the Trust on behalf of each such Portfolio and the Transfer Agent of
any receipt by it of payments for Interests of such Portfolio.
2.6 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Trust
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Trust on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Trust and the
Custodian in the amount of checks received in payment for Interests of
such Portfolio which are deposited into the Portfolio's account.
2.7 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all
income and other payments with respect to registered securities held
hereunder to which each Portfolio shall be entitled either by law or
pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2 10) shall
be the responsibility of the Trust. The Custodian will have no duty or
<PAGE>
responsibility in connection therewith, other than to provide the Trust
with such information or data as may be necessary to assist the Trust
in arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.8 PAYMENT OF MONIES. Upon receipt of Proper Instructions from the Trust
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of securities, for the account of the
Portfolio but only (a) against the delivery of such securities
to the Custodian (or any bank, banking firm or trust company
doing business in the United States which is qualified under
the 1940 Act to act as a custodian and has been designed by
the Custodian as its agent for this purpose) registered in the
name of the Portfolio or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in proper form
for transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.12 hereof; (c) in the case of repurchase
agreements entered into between the Trust on behalf of the
Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of the NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (d) for transfer to a time
deposit account of the Trust in any domestic bank; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Trust as defined in Section 2.17;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Interests issued by the
Portfolio as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Trust whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) For the payment of any distributions on Interests of the
Portfolio declared pursuant to the governing documents of the
Trust;
6) For payment of the amount of dividends received in respect
of securities sold short;
<PAGE>
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Trust on behalf of
the Portfolio, a writing signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions
from the Trust on behalf of such Portfolio to so pay in advance, the
Custodian shall be absolutely liable to the Trust for such securities
to the same extent as if the securities had been received by the
Custodian.
2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF INTERESTS OF THE TRUST. From
such funds as may be available for the purpose but subject to the
limitations of the Trust Instrument and any applicable votes of the
Board of Trustees of the Trust (the "Board") pursuant thereto, the
Custodian shall, upon receipt of instructions from the Transfer Agent,
make funds available for payment to holders of Interests who have
delivered to the Transfer Agent a request for redemption or repurchase
of their Interests. In connection with the redemption or repurchase of
Interests of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection
with the redemption or repurchase of Interests of the Trust, the
Custodian shall honor checks drawn on the Custodian by a holder of
Interests, which checks have been furnished by the Trust to the holder
of Interests, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time
between the Trust and the Custodian.
2.11 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act to act as a
custodian, as its agent to carry out such of the provisions of this
Section 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.12 DEPOSIT OF TRUST ASSETS IN SECURITIES SYSTEMS. Upon receipt of Proper
Instructions, the Custodian may deposit and/or maintain securities
owned by a Portfolio in a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities Systems" in accordance with applicable Federal Reserve
<PAGE>
Board and Securities and Exchange Commission rules and regulations, if
any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Trust at its request. Upon
request, the Custodian shall furnish the Trust on behalf of
the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Trust on behalf of the
Portfolio copies of daily transaction sheets reflecting each
days transactions in the Securities System for the account of
the Portfolio.
4) The Custodian shall provide the Trust for the Portfolio with
any report obtained by the Custodian on the Securities Systems
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System;
5) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Trust, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or damage
if and to the extent that the Portfolio has not been made
whole for any such loss or damage.
<PAGE>
2.13 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Trust on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for an on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.12 hereof, (i) for
the purposes of compliance by the Portfolio with the procedures
required by Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating
to the maintenance of segregated accounts by registered investment
companies and (ii) for other proper corporate purposes, but only, in
the case of clause (ii), upon receipt of, in addition to Proper
Instructions from the Trust on behalf of the applicable Portfolio, a
writing signed by an officer of the Trust and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to securities of each Portfolio held by it and in
connection with transfers of securities.
2.15 PROXIES. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all proxies are to
be voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such securities.
2.16 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. The Custodian shall
transmit promptly to the Trust for each Portfolio all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer.
2.17 PROPER INSTRUCTIONS. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more person or
persons as the Board shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been
given by a person authorized to give such instructions with respect to
the transaction involved. The Trust shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the
Board, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the
<PAGE>
Board and the Custodian are satisfied that such procedures afford
adequate safeguards for the Portfolios' assets. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.13.
Notwithstanding anything to the contrary contained in the Contract, no
person authorized by the Board as described in the preceding paragraph,
Trustee, officer, employee or agent of the Trust shall have physical
access to the assets of any Portfolio held by the Custodian nor shall
the Custodian deliver any assets of a Portfolio for delivery to an
account of such person; provided, however, that nothing in this Section
2.17 shall prohibit the Trust's independent certified public
accountants from examining or reviewing the assets of the Portfolio's
held by the Custodian.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its
discretion, without express authority from the Trust on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Trust on behalf of the
Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board.
2.19 EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to have
been properly executed by or on behalf of the Trust. The Custodian may
receive and accept a certified copy of a vote of the Board as
conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action
by the Board pursuant to the Trust Instrument as described in such
vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
SECTION 3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF
ACCOUNT
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board who keep the books of account of
each Portfolio.
<PAGE>
SECTION 4. RECORDS
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Trust under the 1940 Act with
particular attention to Section 31 thereof and Rules 3la-1 and 3la-2 thereunder.
All such records shall be the property of the Trust and shall at all times
during the regular business hours of the Custodian be open for inspection by
duly authorized officers, employees and agents of the Trust and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Trust's request, supply the Trust with a tabulation of securities owned by each
Portfolio and held by the Custodian and shall, when requested to do so by the
Trust and for such compensation as shall be agreed upon between the Trust and
the Custodian, include certificate numbers in such tabulations.
SECTION 5. OPINION OF TRUST'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Trust on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Trust's independent accountants with respect
to its activities hereunder in connection with the preparation of the Trust's
Form N-lA, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
SECTION 6. REPORTS TO TRUST BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Trust, on behalf of each of the
Portfolios at such times as the Trust may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, including securities
deposited and/or maintained in a Securities System, relating to the services
provided by the Custodian under this Contract; such reports, shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Trust to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
SECTION 7. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Trust on behalf of each applicable Portfolio and the Custodian.
SECTION 8. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
<PAGE>
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Trust for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Trust) on all matters, and shall
be without liability for any action reasonably taken or omitted pursuant to such
advice.
If the Trust on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Trust or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Trust on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Trust requires the Custodian to advance cash or securities for
any purpose for the benefit of a Portfolio or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominees own negligent
action, negligent failure to act or willful misconduct, the Custodian promptly
shall notify the Trust of the existence of any such advances, their amount and
the Portfolio to which the advance applies. Such advances shall be payable on
demand, on the first business day following the Trust's receipt of notice of
such demand.
SECTION 9. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided, that
the Trust on behalf of one or more of the Portfolios may at time by action of
its Board (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) terminate this
Contract immediately or at such later time as the Trust may designate in the
event the Trust determines that there is a reasonable basis to conclude that the
Custodian is insolvent or that the financial condition of the Custodian is
deteriorating in any material respect.
Upon termination of the Contract, the Trust on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
SECTION 10. SUCCESSOR CUSTODIAN
If a successor custodian for the Trust or of one or more of the
Portfolios shall be appointed by the Board, the Custodian shall, upon
termination, deliver to such successor custodian at the office of the Custodian
all property of the Trust then held by it hereunder and, in the case of
securities, duly endorsed and in the form for transfer, all securities of each
<PAGE>
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System. The Custodian shall take all reasonable steps to assist in
the transfer of the assets of the applicable Portfolios to the successor
custodian.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board, deliver
at the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote. In the event that no written order
designating a successor custodian or certified copy of a vote of the Board shall
have been delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in New York City, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report, of not
less than $25,000,000, all securities, funds and other properties held by the
Custodian on behalf of each applicable Portfolio and all instruments held by the
Custodian relative thereto and all other property held by it under this Contract
on behalf of each applicable Portfolio and to transfer to an account of such
successor custodian all the securities of each such Portfolio held in any
Securities System. Thereafter, such bank or trust company shall be the successor
of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
SECTION 11. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and
the Trust on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Trust Instrument of the
Trust. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
SECTION 12. ADDITIONAL PORTFOLIOS
In the event that the Trust establishes one or more series of Interests
in addition to the Portfolios with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Interests shall become a Portfolio
hereunder.
<PAGE>
SECTION 13. CALIFORNIA LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of State of California.
SECTION 14. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Trust on behalf of each of the Portfolios and the
Custodian relating to the custody of the Trust's assets.
SECTION 15. MISCELLANEOUS
15.1 The Custodian agrees to treat all records and other information
relative to the Trust and its prior, present or potential Shareholders
confidentially and the Custodian on behalf of itself and its employees
agrees to keep confidential all such information, except after prior
notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld. The preceding notwithstanding, in
the event legal process is served upon the Custodian requiring certain
disclosure, the Custodian may divulge such information. In such event,
the Custodian shall, if legally permissible, advise the Trust of its
receipt of such legal process.
15.2 Notwithstanding any other provision of this Contract, the parties agree
that the assets and liabilities of each Portfolio of the Trust are
separate and distinct from the assets and liabilities of each other
Portfolio and that no Portfolio shall be liable or shall be charged for
any debt, obligation or liability or any other Portfolio, whether
arising under the Contract or otherwise.
15.3 The provisions of this Section 15, Sections 7, 8, 13 and 16, and
Section 2.19, and any other rights or obligations incurred or accrued
by any party hereto prior to termination of this Contract shall survive
any termination of this Contract.
SECTION 16. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND
SHAREHOLDERS OFFICERS, EMPLOYEES AND AGENT
A copy of the Trust Instrument of the Trust is on file with the
Secretary of the Trust. The parties agree that neither the Shareholders,
Trustees, officers, employees nor any agent of the Trust shall be liable
hereunder and that the parties to this Contract other than the Trust shall look
solely to the Trust property for the performance of this Contract or payment of
any claim under this Contract.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
duly executed all as of the day and year first above written.
ATTEST CORE TRUST (DELAWARE)
By:________________________ By:______________________
David I. Goldstein John Y. Keffer
Secretary President
ATTEST IMPERIAL TRUST COMPANY
By:________________________ By:_______________________
Title:_____________________ Title:______________________
<PAGE>
CUSTODIAN CONTRACT
CORE TRUST
APPENDIX A
PORTFOLIOS OF THE TRUST
AUGUST 31, 1998
Government Portolfio
Treasury Cash Portolfio
Cash Portfolio
Government Cash Portfolio
Municipal Cash Portfolio
<PAGE>
CORE TRUST (DELAWARE)
CUSTODIAN CONTRACT FEE ARRANGEMENT
September 1, 1995
WHEREAS, Core Trust (Delaware), a business trust organized under the
laws of the State of Delaware, having its principal place of business at 61
Broadway, New York, N.Y. 10006 (the "Trust") and Imperial Trust Company, a
California trust company, having its principal place of business at 201 N.
Figueroa Street, Suite 610, Los Angeles, California 90012 (the "Custodian") have
entered into a Custodian Contract on the 1st day of September, 1995 (the
"Contract"); and
WHEREAS, Section 7 of the Contract provides that the Custodian shall be
entitled to reasonable compensation for its services and expenses as Custodian,
as agreed upon from time to time between the Trust on behalf of each portfolio
of the Trust and the Custodian;
NOW THEREFORE, in consideration of the services to be provided by the
Custodian under the Contract, the Trust and the Custodian agree that the Trust
shall pay the Custodian, with respect to Treasury Cash Portfolio, Government
Cash Portfolio, and Cash Portfolio, (each a "Portfolio"), a fee of 0.025% of the
average annual daily net assets of each Portfolio. Such fees shall be accrued by
the Trust daily and payable monthly in arrears on the first day of the next
month.
ATTEST CORE TRUST (DELAWARE)
____________________ By__________________
David I. Goldstein John Y. Keffer
Secretary President
ATTEST IMPERIAL TRUST COMPANY
____________________ By__________________
Jai Sondhi Michael Vaughan
Senior Vice President President
<PAGE>
CORE TRUST (DELAWARE)
CUSTODIAN CONTRACT FEE ARRANGEMENT
as of June 16, 1998
WHEREAS, Core Trust (Delaware), a business trust organized under the
laws of the State of Delaware, having its principal place of business at Two
Portland Square, Portland, Maine 04101 (the "Trust") and Imperial Trust Company,
a California trust company, having its principal place of business at 201 N.
Figueroa Street, Suite 610, Los Angeles, California 90012 (the "Custodian") have
entered into a Custodian Contract on the 1st day of September, 1995 (the
"Contract"); and
WHEREAS, Section 7 of the Contract provides that the Custodian shall be
entitled to reasonable compensation for its services and expenses as Custodian,
as agreed upon from time to time between the Trust on behalf of each portfolio
of the Trust and the Custodian;
NOW THEREFORE, in consideration of the services to be provided by the
Custodian under the Contract, the Trust and the Custodian agree that the Trust
shall pay the Custodian, with respect to Treasury Cash Portfolio, Government
Cash Portfolio, Cash Portfolio and Municipal Cash Portfolio (each a
"Portfolio"), a fee of 0.025% of the average annual daily net assets of each
Portfolio. Such fees shall be accrued by the Trust daily and payable monthly in
arrears on the first day of the next month.
ATTEST CORE TRUST (DELAWARE)
\s\ By:\s\
_______________________ _________________________
David I. Goldstein John Y. Keffer
Secretary President
ATTEST IMPERIAL TRUST COMPANY
\s\ By:\s\
_______________________ __________________
Title: Title:
<PAGE>
CORE TRUST (DELAWARE)
CUSTODIAN CONTRACT FEE ARRANGEMENT
as of August 31, 1998
WHEREAS, Core Trust (Delaware), a business trust organized under the
laws of the State of Delaware, having its principal place of business at Two
Portland Square, Portland, Maine 04101 (the "Trust") and Imperial Trust Company,
a California trust company, having its principal place of business at 201 N.
Figueroa Street, Suite 610, Los Angeles, California 90012 (the "Custodian") have
entered into a Custodian Contract on the 1st day of September, 1995, as amended
August 31, 1998, (the "Contract"); and
WHEREAS, Section 7 of the Contract provides that the Custodian shall be
entitled to reasonable compensation for its services and expenses as Custodian,
as agreed upon from time to time between the Trust on behalf of each portfolio
of the Trust and the Custodian;
NOW THEREFORE, in consideration of the services to be provided by the
Custodian under the Contract, the Trust and the Custodian agree that the Trust
shall pay the Custodian, with respect to Government Portfolio, Treasury Cash
Portfolio, Government Cash Portfolio, Cash Portfolio and Municipal Cash
Portfolio (each a "Portfolio"), the following fees:
Fee as a % of
Portfolio Annual Average Daily Net Assets
- --------- -------------------------------
Municipal Cash Portfolio 0.025%
Total of All Other Portfolios 0.025% of the first $1.5 billion, 0.020% of
the next $1.0 billion and 0.015% of the
balance
Such fees shall be accrued by the Trust daily and payable monthly in arrears on
the first day of the next month.
<PAGE>
ATTEST CORE TRUST (DELAWARE)
By: By:
___________________________ ________________________
David I. Goldstein John Y. Keffer
Secretary President
ATTEST IMPERIAL TRUST COMPANY
By: ______________________ By: _____________________
Title:_______________________ Title:_____________________
