As filed with the Securities and Exchange Commission on
September 21, 1998
1933 Act Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No. __
/ / Post-Effective Amendment No. __
------------------------------
NORWEST ADVANTAGE FUNDS
(Formerly "Norwest Funds" and
prior thereto "Prime Value Funds, Inc.")
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: 207-879-1900
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office) (Zip Code)
------------------------------
David I. Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
(Name and address of agent for service)
Copies of communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, NW
Washington, DC 20005
and
Marco E. Adelfio, Esq.
Morrison & Foerster LLP 2000
Pennsylvania Avenue, N.W.
Suite 5500
Washington, DC 20006-1888
------------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective
date of this Registration Statement.
The Registrant has registered an indefinite number of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940; accordingly, no fee is payable herewith. A Rule 24f-2 Notice for
Registrant's fiscal year ended May 31, 1998 was filed with the Commission on
August 27, 1998.
It is proposed that this filing will become effective on October 21,
1998 pursuant to Rule 488 under the Securities Act of 1933.
CROSS REFERENCE SHEET
Item of Part A Location in
of Form N-14 Prospectus
- -------------- -----------
1. ........................ Cross Reference Sheet; Front Cover Page.
2. ........................ Back Cover Page.
3. ........................ Fee Table; Summary; Comparison of Investment Objectives, Policies and Risk
Considerations.
4. ........................ Reasons for the Consolidation; Information About the Consolidation; Comparison
of Investment Advisers; Comparison of Service Providers; Advisory,
Distribution an Other Fees; Expense Ratios; Comparison of Purchase and
Redemption Features and Exchange Rights; Comparison of Business Structures.
5. ........................ Comparison of Investment Objectives, Policies and Risk Considerations;
Information About the Funds; Prospectus offering A Shares of Large Company
dated October 1, 1998, as supplemented October 6, 1998.
6. ........................ Comparison of Investment Objectives, Policies and Risk Considerations;
Information About the Funds; Prospectus offering shares of Growth Stock Fund
dated June 30, 1998.
7. ........................ Voting Information.
8. ........................ Inapplicable.
9. ........................ Inapplicable.
Item of Part B Location in Statement
of Form N-14 of Additional Information
- -------------- -------------------------
10. ........................ Cover Page.
11. ........................ Cover Page.
12. ........................ Statement of Additional Information offering A Shares of Large Company dated
October 1, 1998.
13. ........................ Statement of Additional Information offering shares of Growth Stock dated June
30, 1998.
14. ........................ Report of Independent Accountants and financial statements of Large Company
Growth Fund as of May 31, 1998, incorporated by reference to the Annual Report
to Shareholders of Norwest Advantage Funds (the "Trust") as of May 31, 1998
filed on August 7, 1998, accession no. 0001047469-98-029811, File Nos.
33-0645, 811-4881; Report of Independent Accountants and audited financial
statements of Growth Stock Fund as of February 28, 1998, incorporated by
reference to the Annual Report to Shareholders of MasterWorks Funds Inc., as
of February 28, 1998 filed on May 1, 1998, accession no. 0000927016-98-001762,
File Nos. 033-54126, 811-07332; unaudited pro forma combined financial
information as of May 31, 1998.
NORWEST ADVANTAGE FUNDS
Form N-14
Part A
Combined Prospectus/Proxy Statement
- --------------------------------------------------------------------------------
IMPORTANT NOTICE: PLEASE VOTE USING THE
ENCLOSED PROXY BALLOT AS SOON AS POSSIBLE.
FOR YOUR CONVENIENCE, YOU MAY VOTE BY CALLING SHAREHOLDER
COMMUNICATIONS CORP. ("SCC") TOLL-FREE AT [1-800-733-8481 EXT. ___
FROM 6:00 A.M. TO 8:00 P.M. PACIFIC TIME.] YOU MAY
ALSO VOTE BY FAXING THE FRONT AND BACK OF YOUR
PROXY BALLOT TO SCC AT [1-800-733-1885.]
A CONFIRMATION OF YOUR TELEPHONIC OR FACSIMILE
VOTE WILL BE SENT TO YOU.
- --------------------------------------------------------------------------------
MASTERWORKS FUNDS INC.
111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201
OCTOBER __, 1998
Dear Shareholder:
We are pleased to invite you to a Special Meeting of the
Shareholders of the Growth Stock Fund ("Growth Stock") of MasterWorks Funds Inc.
("MasterWorks") to be held on November 24, 1998 at MasterWorks' principal
offices in Little Rock, Arkansas.
SUMMARY OF PROPOSALS
The Special Meeting is being held to consider an Agreement and
Plan of Consolidation (the "Consolidation Plan") and a Plan of Liquidation (the
"Liquidation Plan"). The Consolidation Plan provides for Growth Stock to be
combined into the Large Company Growth Fund ("Large Company"), a series of
Norwest Advantage Funds. Large Company invests in a core portfolio that is
advised by Norwest Investment Management, Inc., and sub-advised by its
affiliate, Peregrine Capital Management, Inc. A Large Company prospectus
accompanies these materials.
If the proposed consolidation is approved and consummated, you will receive
Class A shares of Large Company equal in value to your shares of Growth Stock.
THE SHARES YOU RECEIVE WILL BE FREE OF COMMISSIONS AND SALES LOADS, AND THE
EXCHANGE SHOULD NOT CAUSE YOU TO RECOGNIZE A GAIN OR LOSS FOR FEDERAL INCOME TAX
PURPOSES. For a further discussion of tax matters, please refer to "Information
About the Consolidation - Federal Income Tax Consequences of the Consolidation"
in the Combined Prospectus/Proxy Statement that accompanies this letter. As a
"fall back" to the Consolidation Plan, shareholders also are being asked to
consider the liquidation of Growth
Stock. The liquidation will occur only if the Liquidation Plan is approved and
either the Consolidation Plan is not approved or, for any other reason, the
consolidation does not occur.
REASONS FOR PROPOSALS
Growth Stock is an actively managed fund that invests, through a master
portfolio, primarily in growth-oriented, small- and medium-sized companies.
Wells Fargo Bank, N.A., as investment sub-adviser, individually selects the
Fund's investments and the Fund's portfolio turnover rate is high due to its
active trading strategy. For the most part, MasterWorks' other funds, whose
investments are managed by Barclays Global Fund Advisors, seek to replicate
certain indexes or pursue asset allocation strategies. Accordingly, Growth Stock
does not fit within MasterWorks' core strategy. Because Growth Stock does not
fit within this strategy, and because Growth Stock has experienced relative
underperformance, investor demand for this Fund is not strong. The Board of
Directors of MasterWorks is concerned, therefore, that Growth Stock may not be
viable on a long-term basis.
In light of these concerns, the MasterWorks Board of Directors has approved
the proposals described in these materials. The primary reason for proposing the
consolidation of Growth Stock into Large Company is to offer Growth Stock
investors the opportunity to transfer their investment, on a basis that should
be tax-free, into a fund that has greater prospects for success. Large Company's
Core Portfolio, which is outside the MasterWorks fund complex, has approximately
$1 billion in assets, as compared with less than $200 million in Growth Stock's
Master Portfolio.
Large Company's investment objective and policies are broadly
similar to those of Growth Stock, although Large Company tends to invest in
larger capitalization companies, tends to hold fewer companies in the portfolio
and has had a much lower portfolio turnover rate. MasterWorks' Board of
Directors believes that merging Growth Stock into a fund that has generally
compatible investment objectives and policies, a better historic performance
record and greater prospects for continued growth will provide investors
potential benefits. Large Company was chosen, in part, because of the pending
merger between Wells Fargo & Company, the parent of Growth Stock's investment
sub-adviser, and Norwest Corporation, the parent of Large Company's investment
adviser. Although Large Company's expense ratio is higher than that of Growth
Stock, the Board of Directors believes the Consolidation is in the best
interests of shareholders and is preferable to liquidation of Growth Stock.
Due to the viability concerns described above, the Board of
Directors believes that Growth Stock should be liquidated if the Consolidation
Plan is not approved or is not consummated for any other reason. Therefore,
shareholders of Growth Stock are also being asked to approve the Liquidation
Plan. The Liquidation Plan expressly provides that it will be implemented ONLY
IF THE CONSOLIDATION PLAN IS NOT CONSUMMATED.
THE BOARD OF DIRECTORS OF MASTERWORKS HAS UNANIMOUSLY APPROVED THE CONSOLIDATION
PLAN AND THE LIQUIDATION PLAN AND, IN
ORDER TO ENSURE THAT GROWTH STOCK WILL BE LIQUIDATED IF THE CONSOLIDATION DOES
NOT OCCUR, RECOMMENDS THAT SHAREHOLDERS OF GROWTH STOCK VOTE FOR EACH PLAN.
The formal Notice of Special Meeting is enclosed, together with a
Proxy Ballot. If you will not be attending the Special Meeting, you may vote by
proxy in any one of three ways:
* BY MAIL--Mark, date, sign and return the enclosed Proxy
Ballot in the postage-paid envelope;
* BY PHONE--Call SCC toll-free at [1-800-733-8481 EXT. _____]
from [6:00 A.M. TO 8:00 P.M. (PACIFIC TIME)]; or
* BY FAX--Mark, date, sign and fax both sides of the enclosed
Proxy Ballot to Shareholder Communications Corp. at
[1-800-733-1885].
A confirmation of phone and fax votes will be mailed to you. Every
vote is important to us. If you have any questions, please call MasterWorks at
1-888-204-3956 or Norwest Advantage Funds at 1-800-NUMBER.
Very truly yours,
MasterWorks Funds Inc.
R. Greg Feltus
President
MASTERWORKS FUNDS INC.
111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201
TELEPHONE: [1-800-222-8222]
-----------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
GROWTH STOCK FUND
TO BE HELD ON NOVEMBER 24, 1998
-----------------------------------------------------
To the Shareholders of the Growth Stock Fund ("Growth Stock") of MasterWorks
Funds Inc. ("MasterWorks"):
PLEASE TAKE NOTE that a SPECIAL MEETING OF SHAREHOLDERS (the "Special
Meeting") of Growth Stock will be held on Tuesday, November 24, 1998, at 11:00
a.m. (Central time) at the principal office of MasterWorks, 111 Center Street,
Little Rock, Arkansas 72201. The Special Meeting is being called for the
following purposes:
(1) To consider and vote upon an Agreement and Plan of Consolidation
(the "Consolidation Plan") for Growth Stock and the transactions
contemplated therein, which include (a) the transfer of all of
the assets of Growth Stock to Large Company Growth Fund ("Large
Company"), a series of Norwest Advantage Funds, and the
assumption by Large Company of all of the liabilities of Growth
Stock, in exchange for Class A Shares of Large Company; and (b)
the distribution to shareholders of Growth Stock of the Class A
shares of Large Company;
(2) To consider and vote upon the Plan of Liquidation (the
"Liquidation Plan") of Growth Stock, which will be implemented
only if the Consolidation Plan does not occur; and
(3) To transact such other business as may properly come before the
meeting, or any adjournment(s) thereof, including any
adjournment(s) necessary to obtain requisite quorums and/or
approvals.
The Board of Directors of MasterWorks has fixed the close of business
on October 9, 1998, as the record date (the "Record Date") for the determination
of Fund shareholders entitled to receive notice of and to vote at the Special
Meeting or any adjournment(s) thereof. The enclosed proxy is being solicited on
behalf of the Board. The Combined Prospectus/Proxy Statement contains additional
information regarding the Special Meeting and the proposals. Even if you do not
attend the Special Meeting in person, you may vote in any one of three ways:
1. Mark, sign, date and return the enclosed Proxy Ballot in the
enclosed postage-paid envelope;
2. Vote by telephone by calling Shareholder Communication Corp. ("SCC")
toll-free at [1-800-733-8481 Ext. ___ from 6:00 a.m. to 8:00 p.m. (Pacific
time). SCC will send to you a confirmation of your telephonic vote]; or
3. Mark, sign, date and fax the enclosed Proxy Ballot (both front and
back) to SCC at [1-800-733-1885. SCC will send to you a confirmation of your
facsimile vote].
IN ORDER FOR EACH OF THE CONSOLIDATION PLAN AND LIQUIDATION PLAN TO BE
APPROVED, THE HOLDERS OF A MAJORITY OF GROWTH STOCK'S SHARES OUTSTANDING ON THE
RECORD DATE MUST BE PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY
IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY BALLOT TODAY, EITHER IN THE
ENCLOSED POSTAGE-PAID ENVELOPE OR BY TELEFACSIMILE (FRONT AND BACK) AT
[1-800-733-1885, OR BY CALLING TOLL-FREE AT 1-800-733-8481 EXT. ____]. SIGNED
BUT UNMARKED PROXY BALLOTS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS
PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSAL.
THE BOARD OF DIRECTORS OF MASTERWORKS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF BOTH PROPOSALS.
By Order of the Board of Directors
Richard H. Blank, Jr.
Secretary
October __, 1998
- --------------------------------------------------------------------------------
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE VOTE BY MAIL, FACSIMILE OR
OR TELEPHONE IMMEDIATELY.
- --------------------------------------------------------------------------------
COMBINED PROSPECTUS/PROXY STATEMENT
GROWTH STOCK FUND
OF MASTERWORKS FUNDS INC.
111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201
LARGE COMPANY GROWTH FUND
OF NORWEST ADVANTAGE FUNDS
TWO PORTLAND SQUARE
PORTLAND, MAINE 04101
OCTOBER [__,] 1998
INTRODUCTION
This Combined Prospectus/Proxy Statement (the "Statement") relates to
the solicitation of shareholder approval for the proposed transfer of all the
assets of Growth Stock Fund ("Growth Stock"), a diversified series of
MasterWorks Funds Inc. ("MasterWorks") to Large Company Growth Fund ("Large
Company"), a diversified series of Norwest Advantage Funds ( "Norwest Trust") in
exchange for Class A shares ("A Shares") of Large Company and the assumption by
Large Company of all the liabilities of Growth Stock. Both MasterWorks and
Norwest Trust are registered with the Securities and Exchange Commission (the
"SEC") as open-end, management investment companies.
This Statement sometimes refers to Growth Stock or Large Company as a "Fund."
As part of the consolidation, MasterWorks would distribute the A Shares
of Large Company to shareholders of Growth Stock and would terminate Growth
Stock as a series of MasterWorks. MasterWorks and Norwest Trust would effect the
consolidation at net asset value without the imposition of any sales charges or
other fees.
This Statement also solicits shareholder approval for the proposed
liquidation of Growth Stock (the "Liquidation"). THE LIQUIDATION WILL OCCUR ONLY
IF THE CONSOLIDATION IS NOT APPROVED OR DOES NOT OCCUR. IF SHAREHOLDERS APPROVE
BOTH THE CONSOLIDATION AND THE LIQUIDATION, MASTERWORKS AND NORWEST TRUST WILL
PROCEED WITH THE CONSOLIDATION.
A copy of the Agreement and Plan of Consolidation (the "Consolidation
Plan") is included as Exhibit A to this Statement. Exhibit B includes a
discussion of the factors that materially affected the performance of Large
Company during its most recently completed fiscal year and a graph illustrating
the Fund's performance. Exhibit C includes a copy of the Plan of Liquidation
(the "Liquidation Plan").
THE BOARD OF DIRECTORS OF MASTERWORKS RECOMMENDS
APPROVAL OF THE CONSOLIDATION PLAN
AND, IN ORDER TO ENSURE THAT GROWTH STOCK WILL BE
LIQUIDATED IF THE CONSOLIDATION DOES NOT OCCUR,
APPROVAL OF THE LIQUIDATION PLAN
This Statement sets forth the information you should know about Large
Company and the proposals before you sign and return the enclosed proxy ballot.
Please retain this Statement for future reference. A Prospectus offering A
Shares of Large Company dated October 1, 1998, as supplemented October 6, 1998
(the "Large Company Prospectus") accompanies this Statement. "Information About
the Funds" below provides information about the Prospectus offering shares of
Growth Stock.
Norwest Trust has filed a Statement of Additional Information dated
October __, 1998 (the "SAI") with the SEC. The SAI provides more information
about the matters discussed in this Statement and about the Funds. Norwest Trust
filed the Statement of Additional Information offering shares of Large Company
(the "Large Company SAI") dated October 1, 1998 with the SEC as part of the SAI.
You may obtain a copy of the SAI without charge by writing to [the distributor
of Norwest Trust, Forum Financial Services, Inc. ("Forum") at Two Portland
Square, Portland, Maine, 04101, or by calling 1-800-[___________]].
This Statement incorporates by reference the SAI and the information in
the Large Company Prospectus and Large Company SAI that pertains to Large
Company.
TABLE OF CONTENTS
-----------------
PAGE
----
Introduction
Proposal One: Approval of an Agreement
and Plan of Consolidation
Summary
Expense Information
Reasons for the Consolidation
Comparison of Investment Objectives, Policies
and Risk Considerations
Information about the Consolidation
Comparison of Investment Advisers
Comparison of Service Providers
Advisory, Distribution and Other Fees;
Expense Ratios
Comparison of Purchase and Redemption
Procedures and Exchange Rights
Comparison of Business Structures
Information about the Funds
Proposal Two: Approval of a Plan of Liquidation
Voting Information
Exhibit A: Agreement and Plan of Consolidation
Exhibit B: Performance Information
Exhibit C: Plan of Liquidation
AN INVESTMENT IN LARGE COMPANY IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A.
OR ANY OTHER BANK AND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK. IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN LARGE COMPANY.
NO GOVERNMENTAL AGENCY, INCLUDING THE U.S. SECURITIES AND EXCHANGE COMMISSION,
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER OR NOT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROPOSAL ONE: APPROVAL OF AN AGREEMENT AND PLAN OF CONSOLIDATION
SUMMARY
The following is a summary of information about the consolidation.
Before signing and returning the enclosed proxy ballot, you should read this
Statement, including the Consolidation Plan attached as Exhibit A and the
performance information about Large Company attached as Exhibit B, and the Large
Company Prospectus.
FUND STRUCTURES. As opposed to investing directly in portfolio
securities, each Fund invests in a series of another investment company that
does not offer shares to the general public. Large Company invests in Large
Company Growth Portfolio ("Large Company Portfolio"), a series of Core Trust
(Delaware) ("Core Trust"). Growth Stock invests in Growth Stock Master Portfolio
("Growth Stock Portfolio"), a series of Managed Series Investment Trust
("MSIT"). Both Core Trust and MSIT are open-end management investment companies
that are organized as Delaware business trusts. This Statement sometimes refers
to Growth Stock Portfolio or Large Company Portfolio as a "Portfolio."
PROPOSED CONSOLIDATION. At meetings held on September 16, 1998 and
September __, 1998, the Board of Directors of MasterWorks and the Board of
Trustees of Norwest Trust (each, a "Board"), respectively, including the
Directors and Trustees who are not "interested persons" of Norwest Trust or
MasterWorks (the "Independent Trustees") within the meaning of the Investment
Company Act of 1940 (the "1940 Act"), approved the Consolidation Plan. The
Consolidation Plan provides for the (i) in-kind redemption by Growth Stock of
its interest in Growth Stock Portfolio; (ii) transfer of all the assets of
Growth Stock to Large Company in exchange for A Shares of Large Company; (iii)
assumption by Large Company of all the liabilities of Growth Stock; and (iv)
distribution of the A Shares of Large Company to shareholders of Growth Stock
(the "Consolidation"). The aggregate net asset value of the A Shares of Large
Company issued in the Consolidation will be equal to the net value of the assets
and liabilities transferred by Growth Stock.
As a result of the Consolidation, each holder of Growth Stock shares
will receive that number of full and fractional A Shares of Large Company equal
in net asset value at the close of business on the date of the exchange to the
net asset value of the holder's shares of Growth Stock. The Consolidation will
be effected at net asset value without the imposition of any sales charges or
other fees. Immediately after the Consolidation, Large Company will transfer
in-kind the assets transferred by Growth Stock to Large Company Portfolio in
exchange for shares of beneficial interest of Large Company Portfolio.
The Board of each Fund has determined that (i) the interests of
existing shareholders of the Fund would not be diluted as a result of the
Consolidation and (ii) the Consolidation would be in the best interests of the
Fund and the shareholders of the Fund. The MasterWorks Board recommends approval
of the Consolidation. Approval of the Consolidation Plan and the
Consolidation by Growth Stock will require the affirmative vote of the holders
of a majority of the outstanding shares of Growth Stock. [The Funds will bear
the expenses incurred in connection with the Consolidation, but because certain
of the Funds' service providers reimburse for or assume certain expenses of the
Funds, the costs of the Consolidation will not cause an increase in the Funds'
expense ratios.]
The Consolidation is expected to occur shortly after its approval by
shareholders of Growth Stock. Either Board, however, may terminate the
Consolidation Plan in its entirety at any time prior to the closing of the
Consolidation.
TAX CONSEQUENCES OF THE CONSOLIDATION. In the opinion of Seward & Kissel,
the Consolidation should be treated as a reorganization within the meaning of
section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
"Code"). Under this treatment, Large Company, Growth Stock and the shareholders
of Growth Stock would not recognize gain or loss as a result of the
Consolidation. Due to the absence of any authority involving facts substantially
identical to the Consolidation, however, the tax effects of the Consolidation
are not entirely clear. For a further discussion of tax matters, see
"Information About the Consolidation - Federal Income Tax Consequences of the
Consolidation" below.
MANAGEMENT OF THE FUNDS. The investment adviser to Large Company Portfolio
is Norwest Investment Management, Inc. ("Norwest"). Norwest and Core Trust have
retained Peregrine Capital Management, Inc. ("Peregrine") to act as investment
sub-adviser to the Large Company Portfolio.
Barclays Global Fund Advisors ("BGFA") serves as investment adviser to
Growth Stock Portfolio. BGFA and MSIT have retained Wells Fargo Bank, N.A.
("Wells Fargo Bank") to serve as investment sub-adviser to Growth Stock
Portfolio.
ADVISORY, DISTRIBUTION AND OTHER FEES; EXPENSE RATIOS. Large Company
has higher investment advisory fees and a higher expense ratio than Growth
Stock. In addition, Large Company, unlike Growth Stock, has distribution or Rule
12b-1 fees.
DIVIDENDS AND DISTRIBUTIONS. Large Company declares and pays dividends
of net investment income annually and distributes net capital gain at least
annually. Growth Stock pays quarterly dividends consisting of substantially all
of its net investment income and annual distributions consisting of
substantially all of its net realized capital gains. There is no sales or other
charge for either Fund in connection with the reinvestment of dividends or
distributions.
PURCHASE PROCEDURES, EXCHANGE PRIVILEGES AND REDEMPTION PROCEDURES.
Each Fund offers its shares on business days at their net asset value next
determined after receipt of a purchase order in proper form. However, A Shares
of Large Company, unlike shares of Growth Stock, have an initial sales charge.
There are several methods of lowering the initial sales charge on A Shares of
Large Company. In some cases, the sales charge may be waived entirely, such as
for purchases of A Shares by any bank, trust company or other institution acting
on behalf of its fiduciary customer accounts or any other account maintained by
its trust department (including a
pension, profit sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Code).
Both Funds redeem shares on business days at net asset value
next-determined after receipt of a redemption request in proper form. In most
cases, if you redeem A Shares of Large Company purchased at a reduced sales
charge within two years of the purchase, you will pay a charge for the early
redemption.
Large Company will not assess any sales [or redemption] charges on the
A Shares issued pursuant to the Consolidation.
The shares of both Funds have exchange privileges. The exchange
privileges differ in that shareholders of Large Company may exchange their
shares for shares of other series of Norwest Trust, whereas shareholders of
Growth Stock may exchange their shares for shares of other series of
MasterWorks.
INVESTMENT OBJECTIVES AND POLICIES AND RISK FACTORS. The investment
objectives and policies of the Funds are broadly similar. The Funds' investment
objectives are listed below.
FUND INVESTMENT OBJECTIVE
- ---- --------------------
Large Company to provide long-term capital
appreciation by investing primarily
in large, high-quality domestic
companies that the investment
adviser believes have superior
growth potential.
Growth Stock to provide above-average,
long-term total return, with a
primary focus on capital
appreciation. Current income is a
secondary consideration.
All of the Funds' investments have risk. The risks of investing in Growth Stock
are generally similar to those of investing in Large Company. There are certain
differences in the risks of the Funds' investments and, in general, Growth Stock
is a riskier investment than Large Company. In particular, Growth Stock, unlike
Large Company, invests a substantial portion of its portfolio in the securities
of smaller companies. Smaller companies tend to be more volatile than
investments in 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. Also, unlike Large Company, Growth Stock may invest in the
securities of issuers located or doing business in emerging markets. Investments
in issuers located or doing business in emerging markets are riskier than other
foreign investments.
In deciding whether to approve the Consolidation, you should consider
the differences between the investment objectives and policies of the Funds as
discussed under "Comparison of Investment Objectives and Policies" below and in
the prospectuses offering shares of the Funds.
EXPENSE INFORMATION
The tables below set forth information with respect to A Shares of
Large Company, shares of Growth Fund as well as pro forma information for the A
Shares of Large Company after giving effect to the Consolidation. The tables
were prepared based on the net asset, fee and expense levels of Growth Stock as
of February 28, 1998. The expense levels of Large Company are the estimated
expenses for the Fund's current fiscal year.
Pro Forma
Combined Fund
Large Growth (i.e., Large Company
Company Stock Following Consolidation)
------- ----- ------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price)(a) 5.50% 0% 5.50%
Maximum deferred sales charge (as a percentage of
the lesser of original purchase price or
redemption proceeds)(a) Zero Zero Zero
Exchange Fee Zero Zero Zero
Annual operating expenses (as a percentage of average daily net assets after
applicable fee waivers and expense reimbursements)(b)(c)
Investment Advisory Fees [0.65%] 0.58% [0.65%]
Rule 12b-1 Fees [0.10%] Zero [0.10%]
Other Expenses(d) [0.45%] 0.18% [0.45%]
Total Operating Expenses [1.20%] 0.76% [1.20%]
======= =====
- ------------------------
(a) Large Company will not assess any sales [or redemption] charge on the
A Shares issued pursuant to the Consolidation. The sales charge on
Large Company's A Shares will be waived entirely for purchases of A
Shares by any bank, trust company or other institution acting on
behalf of its fiduciary customer accounts or any other account
maintained by its trust department (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Code).
If A Shares of Large Company purchased without an initial sales
charge (purchases of $1,000,000 or more) are redeemed within two
years after purchase, a contingent deferred sales charge of up to
1.00% will be applied to the redemption.
(b) Absent expense reimbursements and fee waivers, the expenses of the
shares of Growth Stock would have been: Investment Advisory Fees,
0.60%; and Total Operating Expenses, 0.78%.
The amount of expenses for Large Company and the pro forma combined
fund are estimated. Absent estimated expense reimbursements and fee
waivers, the estimated expenses of the A Shares of Large Company and
the pro forma combined fund would be: Other Expenses, [0.51%, 0.51%],
respectively; and Total Operating Expenses, [1.41%, 1.41%],
respectively. Reimbursements and waivers may be reduced or eliminated
at any time.
(c) Each of the Fund's expenses include a pro-rata share of the expenses
of the Portfolio in which it invests.
(d) Other Expenses for Growth Stock is a co-administrators' fee of 0.18%.
The co-administrators have agreed to absorb all ordinary operating
expenses other than investment advisory fees, portfolio transaction
expenses and administrative fees.
EXAMPLE
The Example below indicates the dollar amount of expenses that an
investor would pay assuming a $1,000 investment in a Fund's shares, a 5% annual
return and reinvestment of all dividends and distributions.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Large Company(A Shares) [$67] [$91] [$117] [$192]
Growth Stock [$8] [$24] [$42] [$94]
Pro Forma Combined Fund (i.e., [$67] [$91] [$117] [$192]
A Shares of Large Company
Following the Consolidation)
The Examples are based on the expenses listed in the "Annual Operating
Expenses" tables above. The Examples assume deduction of the maximum initial
sales charges for A Shares of Large Company. The Examples do not represent past
or future expenses or return and actual expenses or return may be greater or
less than indicated.
REASONS FOR THE CONSOLIDATION
Growth Stock is an actively managed fund that invests, through a master
portfolio, primarily in growth-oriented, small- and medium-sized companies.
Wells Fargo Bank, as investment sub-adviser, individually selects the Fund's
investments and the Fund's portfolio turnover rate is high due to its active
trading strategy. For the most part, MasterWorks' other
funds, which are managed by BGFA, seek to replicate certain indexes or pursue
asset allocation strategies. Accordingly, Growth Stock does not fit within
MasterWorks' core strategy. Because Growth Stock does not fit within this
strategy, and because Growth Stock has experienced relative underperformance,
investor demand for this Fund is not strong. The MasterWorks Board is concerned,
therefore, that Growth Stock may not be viable on a long-term basis.
The primary reason for proposing the consolidation of Growth Stock into
Large Company is to offer Growth Stock investors the opportunity to transfer
their investment, on a basis that should be tax-free, into a fund that has
greater prospects for success. Large Company's Portfolio, which is outside the
MasterWorks fund complex, has approximately $1 billion in assets, as compared
with less than $200 million in Growth Stock's Portfolio. Large Company's
investment objective and policies are broadly similar to those of Growth Stock,
although Large Company Portfolio tends to invest in larger capitalization
companies, tends to hold fewer companies in its portfolio and has had a much
lower portfolio turnover rate. The MasterWorks Board believes that consolidating
Growth Stock into a fund that has generally compatible investment objectives and
policies, a better historical performance record and greater prospects for
continued growth will provide investors potential benefits. Large Company was
chosen, in part, because of the pending merger between Wells Fargo & Company and
Norwest Corporation. Before approving the Consolidation Plan, the MasterWorks
Board examined all factors that it considered relevant, including the investment
strategy and historic performance of Large Company, and the identity,
experiences and resources of Norwest and Peregrine.
Currently, the fees and expenses of Large Company are higher, on both a
before-waiver and after-waiver basis than those of Growth Stock. The fees and
expenses of Growth Stock, however, have been [well below average] for a fund
investing in a growth equity style. While higher than those of Growth Stock, the
fees and expenses of Large Company are [average] for a fund investing in a
growth equity style.
The historic performance of Large Company is better than the historic
performance of Growth Stock. Although historic performance does not necessarily
predict future returns, the Masterworks Board believes that the Consolidation
should provide Growth Stock shareholders with an investment vehicle that has
compatible investment objectives and policies and greater prospects for
long-term investment returns and continued growth.
Due to the concerns about Growth Stock's performance and prospects
described above, the MasterWorks Board believes that Growth Stock should be
liquidated if shareholders do not approve the Consolidation Plan or, for any
other reason, the Consolidation does not occur. Therefore, shareholders of
Growth Stock also are being asked to approve the Liquidation Plan. The
Liquidation Plan expressly provides that it will be implemented only if the
Consolidation does not occur. The MasterWorks Board believes that the
Consolidation is preferable to the Liquidation.
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND RISK CONSIDERATIONS
The investment objective of Large Company is to provide long-term capital
appreciation by investing primarily in large, high-quality domestic companies
that Peregrine believes have superior growth potential. The investment objective
of Growth Stock is to seek above-average, long-term total return, with a primary
focus on capital appreciation. Current income is a secondary consideration. The
investment objective of each Fund is "fundamental" and may not be changed
without the approval of the Fund's shareholders. As discussed above, each Fund
invests its assets in a Portfolio. This section, therefore, compares and
contrasts the investment policies of the Portfolios.
The value of each Fund's shares will fluctuate with the value of the
underlying securities held by the Portfolio in which the Fund invests. There can
be no assurance that either Fund will achieve its investment objective.
The investment strategies of Large Company Portfolio and Growth Stock
Portfolio differ in some respects. Large Company Portfolio invests primarily in
the common stock of large, high-quality domestic companies that have superior
growth potential. Peregrine considers large companies to be those whose market
capitalization is greater than the median of the Russell l000 Index, or
approximately $3.7 billion. In selecting securities for the Portfolio, Peregrine
seeks issuers whose stock is attractively valued with fundamental
characteristics that are significantly better than the market average and
support internal earnings growth capability. Large Company Portfolio may invest
in securities of companies whose growth potential is, in Peregrine's opinion,
generally unrecognized or misperceived by the market. By investing in common
stocks, the Portfolio is subject to "market risk," which is the general risk
that the value of the Portfolio's investments may decline if the stock markets
perform poorly.
Growth Stock Portfolio invests primarily in common stocks that Wells
Fargo Bank believes have better-than-average prospects for appreciation. The
Portfolio seeks to provide investors with a rate of return that, over a three-
to five-year time horizon, exceeds that of the S&P 500 Index (before fees and
expenses) over comparable periods by investing in a diversified portfolio
consisting primarily of growth-oriented common stocks. Growth Stock Portfolio
holds at least 20 common stock issues spread across multiple industry groups,
with the majority of these holdings consisting of established growth companies,
turnaround or acquisition candidates, or attractive larger capitalization
companies. Though Growth Stock Portfolio holds a number of large capitalization
stocks, under normal market conditions more than 50% of Growth Stock Portfolio's
total assets are invested in companies whose market capitalizations at the time
of acquisition are within the capitalization range of companies listed on the
S&P Small Cap 600 Index. As of May l998, the capitalization range for the S&P
Small Cap 600 was from $40 million to $3.7 billion.
Growth Stock Portfolio from time to time acquires securities through
initial public offerings and may acquire and hold common stocks of smaller and
newer issuers. The Portfolio does not invest more than 40% of its assets in
these highly aggressive issues at any one time. Like Large Company Portfolio,
Growth Stock Portfolio is subject to the risk that the market value of the
Portfolio's investments may decline if the stock markets perform poorly. In
addition, however, securities of small and new companies generally trade less
frequently or in limited volume, or only in the over-the-counter market or on a
regional securities exchange. As a result, the prices of such securities tend to
be more volatile than those of larger, more established companies and, as a
group, these securities may suffer more severe price declines during periods of
generally declining equity prices. Accordingly, to the extent that Growth Stock
Portfolio invests in smaller and newer companies, an investment in Growth Stock
may be subject to greater risks than an investment in Large Company.
In addition, Growth Stock Portfolio invests in companies that may have
some of the following characteristics: low or no dividends; less market
liquidity; relatively short operating histories; aggressive capitalization
structures (including high debt levels); and involvement in rapidly
growing/changing industries and/or new technologies. To the extent that Growth
Stock Portfolio invests in securities with these characteristics, an investment
in Growth Stock may be subject to greater risks than an investment in Large
Company.
Both Portfolios may invest in foreign securities. Large Company
Portfolio may invest up to 20% of its total assets in the securities of foreign
companies. Growth Stock Portfolio may invest up to l5% of its assets in equity
securities of companies in emerging or less developed markets and up to 25% of
its assets in American Depositary Receipts and similar investments. Growth Stock
Portfolio considers countries with emerging markets to include the following:
(i) countries with an emerging stock market as defined by the International
Finance Corporation; (ii) countries with low- to middle-income economies
according to the International Bank for Reconstruction and Development (more
commonly referred to as the World Bank); and (iii) countries listed in World
Bank publications as developing. Growth Stock Portfolio may invest in those
emerging markets that have a relatively low gross national product per capita
compared to the world's major economies, and which exhibit potential for rapid
economic growth.
Large Company Portfolio and Growth Stock Portfolio are subject to
foreign risk, which includes the risk of 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. The Portfolios are also subject to currency
risk, which is the risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect a Portfolio's investments.
The risks of investing in foreign securities may be greater for investments in
issuers in emerging or developing markets. To the extent that Growth Stock
Portfolio invests a larger proportion of its assets in securities of foreign
issuers or invests in issuers in emerging or developing markets, an investment
in Growth Stock may be subject to greater risks than an investment in Large
Company.
Both Portfolios may invest in convertible securities. Convertible
securities, which include convertible debt, convertible preferred stock and
other securities exchangeable under certain circumstances for shares of common
stock, are fixed income securities or preferred stock which generally may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. Large Company Portfolio may only invest in
convertible securities that are investment grade. Growth Stock Portfolio may
invest up to 5% of its net assets in non-investment grade convertible debt
securities. Growth Stock Portfolio may invest in convertible securities that
provide current income and are issued by companies with the characteristics
described above for the Portfolio and that have a strong earnings and credit
record. The Portfolios are subject to the risk that changes in interest rates
may affect the value of fixed-income securities held by the Portfolios.
Generally, an increase in interest rates 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. The Portfolios are also subject
to the risk that the issuer of a fixed income security will default or otherwise
be unable to honor its financial obligations. This risk is greater for
non-investment grade securities. To the extent that Growth Stock Portfolio
invests in convertible securities that are non-investment grade, an investment
in Growth Stock may be subject to greater risks than an investment in Large
Company.
The Portfolios' concentration policies also differ. Large Company
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. Growth Stock Portfolio
may not invest 25% or more of its total assets in any particular industry,
except that Growth Stock Portfolio will concentrate its assets in any one
industry for the same period as does the S&P 500 Index. To the extent that
Growth Stock Portfolio concentrates its investments in any one industry, the
Portfolio is subject to the risk that factors adversely affecting that industry
will affect the Portfolio's net asset value more than if the Portfolio had
diversified its investments among more industries. Accordingly, to the extent
that Growth Stock Portfolio concentrates its investments in any particular
industry, an investment in Growth Stock may be subject to greater risks that an
investment in Large Company.
Exhibit B to this Statement includes a discussion of the factors that
materially affected the performance of Large Company during its most recently
completed fiscal year and a graph illustrating the Fund's performance.
INFORMATION ABOUT THE CONSOLIDATION
AGREEMENT AND PLAN OF CONSOLIDATION. The Consolidation Plan provides
that Growth Stock Portfolio will liquidate Growth Stock's interest in Growth
Stock Portfolio through an in-kind redemption prior to the Consolidation. At the
effective time of the Consolidation, Large Company will acquire all of the
assets of Growth Stock in exchange for A Shares of Large Company. Large Company
also will assume all the liabilities of Growth Stock. Large Company will issue
the number of full and fractional A Shares determined by dividing the net value
of all the assets of Growth Stock by the net asset value of one Large Company A
Share. The
Consolidation Plan provides the times for and methods of determining the net
value of Growth Stock's assets and the net asset value of an A Share of Large
Company.
Growth Stock will distribute the Large Company shares to its
shareholders in liquidation of the Fund. Specifically, shareholders of record of
Growth Stock will be credited with A Shares of Large Company corresponding to
the Growth Stock shares that the shareholders hold of record at the effective
time of the Consolidation. At that time, MasterWorks also will redeem and cancel
the outstanding Growth Stock shares and will wind up the affairs of Growth Stock
and terminate the Fund as soon as is reasonably possible after the
Consolidation.
Completion of the Consolidation is subject to certain conditions set
forth in the Consolidation Plan. The Consolidation Plan provides the parties the
ability to terminate the Consolidation Plan by mutual consent and each party the
right to terminate the Consolidation Plan if the conditions to that party's
obligations under the Consolidation Plan are not satisfied. Either MasterWorks
and Norwest Trust also may at any time terminate the Consolidation Plan
unilaterally upon a determination by the Fund's Board that proceeding with the
Consolidation Plan is not in the best interest of the Fund's shareholders.
This Statement includes a copy of the Consolidation Plan attached as
Exhibit A.
DESCRIPTION OF SHARES OF LARGE COMPANY. Norwest Trust will issue full
and fractional A Shares of Large Company without the imposition of a sales load
or other fee to the shareholders of Growth Stock in accordance with the
procedures described above. The A Shares of Large Company issued in the
Consolidation will be fully paid and nonassessable when issued and will have no
preemptive or conversion rights.
Each share of each series of Norwest Trust and each class of shares has
equal dividend, distribution, liquidation and voting rights, and fractional
shares have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
for the class and other matters for which separate class voting is appropriate
under applicable law. Generally, shares will be voted in the aggregate without
reference to a particular series or class, except if the matter affects only one
series or class or voting by series or class is required by law, in which case
the shares will be voted separately by series or class, as appropriate. Delaware
law does not require Norwest Trust to hold annual meetings of shareholders.
Shareholder meetings normally will be held only when specifically required by
federal or state law. A shareholder in Large Company is entitled to the
shareholder's pro rata share of all dividends and distributions arising from
Large Company's assets and, upon redeeming shares, will receive the portion of
Large Company's net assets represented by the redeemed shares.
FEDERAL INCOME TAX CONSEQUENCES OF THE CONSOLIDATION. Due to the absence of
any authority involving facts substantially identical to the Consolidation,
Seward & Kissel, counsel to Norwest Trust, believes that the federal income tax
consequences of the Consolidation to Large Company,
Growth Stock and shareholders of Growth Stock are not entirely clear. In the
opinion of Seward & Kissel, the Consolidation should be treated as a
reorganization within the meaning of section 368(a)(1)(C) of the Code . Under
this treatment, Large Company, Growth Stock and the shareholders of Growth Stock
would not recognize gain or loss as a result of the Consolidation.
The aggregate tax basis of the shares of Large Company you receive as a
result of the Consolidation would be the same as the aggregate tax basis of your
shares of Growth Stock. The holding period of the shares of Large Company you
receive would include the holding period of your shares of Growth Stock,
provided that you held those shares as capital assets at the time of the
Consolidation. The holding period and tax basis of each asset of Growth Stock
acquired by Large Company as a result of the Consolidation would be the same as
the holding period and tax basis of each the asset in the hands of Growth Stock
prior to the Consolidation.
If the Consolidation does not qualify as a reorganization within the
meaning of section 368(a)(1)(C) of the Code, the Consolidation would be treated
as a taxable exchange by Growth Stock of all of its assets in consideration for
the Large Company shares and the assumption by Large Company of all of Growth
Stock's liabilities. Under this treatment, Growth Stock would recognize gain (or
loss) to the extent that the sum of the value of the Large Company shares it
receives and the amount of the liabilities assumed by Large Company is greater
than (or less than) Growth Stock's basis in the assets transferred to Large
Company. Large Company would not recognize gain or loss as a result of the
Consolidation.
Growth Stock shareholders who hold their shares in a taxable account
would recognize gain or loss in an amount equal to the difference between (i)
the fair market value of the shares of Large Company they receive pursuant to
the Consolidation, and (ii) their tax basis in their shares of Growth Stock.
Under this treatment, all Growth Stock shareholders would have a tax basis in
their shares of Large Company equal to their fair market value at the time of
the Consolidation, and their holding period in the shares of Large Company would
commence on the day after the effective date of the Consolidation. The tax basis
of each asset of Growth Stock acquired by Large Company as a result of the
Consolidation would be the fair market value of each such asset at the time of
the Consolidation, and Large Company's holding period in such assets would
commence on the day after the effective date of the Consolidation.
Under either tax treatment, shareholders of Large Company will not
recognize gain or loss as a result of the Consolidation.
Large Company and Growth Stock have not sought a tax ruling from
the Internal Revenue Service ("IRS"). The opinion of counsel described above is
not binding on the IRS.
CAPITALIZATION. The following table shows the capitalization of Growth
Stock and Large Company and the net asset value per share and total number of
outstanding shares of Growth Stock and A Shares of Large Company as of
[__________] and on a pro forma basis as of that date after giving effect to the
Consolidation.
Pro Forma
Growth Stock Large Company Combined Fund
------------ ------------- --------------
Net assets
Net asset value per share
Shares outstanding
Shares authorized
COMPARISON OF INVESTMENT ADVISERS
LARGE COMPANY. Norwest serves as investment adviser for Large Company
Portfolio. In this capacity, Norwest makes investment decisions for and
administers the Portfolio's investment programs. Norwest is located at Norwest
Center, Sixth Street and Marquette, Minneapolis, Minnesota 55479. Norwest, a
subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank"), provides investment
advice to institutions, pension plans and other accounts and currently manages
more than $ __ billion in assets. For its services, Norwest is entitled to
receive a fee at the annual rate of 0.65% of the average daily net assets of the
Portfolio.
Peregrine, an investment advisory subsidiary of Norwest Bank, serves as
the Portfolio's sub-adviser. Peregrine provides investment advisory services to
corporate and public pension plans, profit sharing plans, savings-investment
plans and 401(k) plans. Peregrine is located at LaSalle Plaza, 800 LaSalle
Avenue, Suite 1850, Minneapolis, Minnesota, 55479. Norwest (and not Large
Company Portfolio) pays Peregrine's investment subadvisory fees. The investment
subadvisory fees do not increase the amount of investment advisory fees paid to
Norwest by Large Company Portfolio.
Messrs. John S. Dale and Gary E. Nussbaum are the portfolio managers of
Large Company Portfolio. Mr. Dale is a Senior Vice President of Peregrine. Mr.
Dale has held investment management positions with Norwest, Peregrine and their
affiliates since 1968. Mr. Nussbaum, a Senior Vice President of Peregrine, has
been associated with Peregrine in investment management positions since 1990.
Norwest Trust has retained Norwest to serve as a "dormant" investment
adviser and Peregrine to serve as a dormant sub-adviser to Large Company in the
event that assets are redeemed from Large Company Portfolio and invested
directly by the Fund. Norwest and Peregrine do not receive an investment
advisory fee from Large Company as long as the Fund's assets are invested in one
or more master portfolios.
GROWTH STOCK. Growth Stock has not retained the services of an
investment adviser because the Fund's assets are invested in Growth Stock
Portfolio. MasterWorks has retained BGFA to serve as investment adviser to
Growth Stock Portfolio. BGFA provides investment
guidance and policy direction in connection with the management of the
Portfolio. BGFA is an indirect subsidiary of Barclays Bank PLC ("Barclays") and
is located at 45 Fremont Street, San Francisco, California 94105. As of April
30, 1998, BGFA and its affiliates provided investment advisory services for
approximately $575 billion of assets. For its services to the Portfolio, BGFA is
contractually entitled to receive from the Portfolio monthly fees at an annual
rate of 0.60% of the Portfolio's average daily net assets.
Wells Fargo Bank currently serves as sub-adviser to Growth Stock
Portfolio. Wells Fargo Bank, subject to the supervision and approval of BGFA,
provides investment advisory assistance and the day-to-day management of the
Portfolio's assets. For providing sub-advisory services to the Portfolio, Wells
Fargo Bank is entitled to receive from BGFA (and not Growth Stock Portfolio)
monthly fees at the annual rate of 0.15% of the Portfolio's average daily net
assets.
Mr. Jon Hickman assumed primary responsibility as lead manager of Growth
Stock Portfolio in February 1998. Mr. Hickman has over sixteen years' experience
in the investment management field. He joined Wells Fargo Bank in 1986 managing
equity and balanced portfolios for individuals and employee benefit plans. He is
a senior member of Wells Fargo Bank's Equity Strategy Committee. Mr. Hickman has
a B.A. and an M.B.A. in finance from Brigham Young University. Mr. Thomas
Zeifang also has been responsible for the day-to-day management of Growth Stock
Portfolio since June 1997. Mr. Zeifang joined Wells Fargo Bank in the summer of
1995 and is primarily responsible for providing fundamental equity analysis. Mr.
Zeifang was an analyst at Fleet Investment Advisors from 1992 to 1995 and prior
to 1992 worked for three years as an assistant portfolio manager at Marine
Midland Bank. Mr. Zeifang holds a B.B.A. in finance from Saint Bonaventure
University, an M.B.A. in finance and business policy from the William E. Simon
School of Business Administration, and is a Chartered Financial Analyst.
COMPARISON OF SERVICE PROVIDERS
The Funds have different service providers. Upon completion of the
Consolidation, Large Company will continue to engage its existing service
providers, although some service provider changes may occur as a result of the
merger of Wells Fargo & Company and Norwest Corporation described below.
Large Company Service Providers:
- -------------------------------
Investment Adviser to Norwest Investment Management, Inc.
Large Company Portfolio
Subadviser to Peregrine Capital Management, Inc.
Large Company Portfolio
Distributor Forum Financial Services, Inc.
Administrator Forum Administrative Services, LLC
Custodian Norwest Bank Minnesota, N.A.
Fund Accountant Forum Accounting Services, LLC
Transfer Agent Norwest Bank Minnesota, N.A.
Independent Auditors KPMG Peat Marwick LLP
Growth Stock Service Providers:
- -------------------------------
Investment Adviser to
Growth Stock Portfolio Barclays Global Fund Advisors
Subadviser to
Growth Stock Portfolio Wells Fargo Bank, N.A..
Distributor Stephens Inc.
Co-Administrators Stephens Inc. and Barclays Global
Investors, N.A.
Sub-Administrator Investors Bank & Trust Company
Custodian Investors Bank & Trust Company
Transfer Agent Investors Bank & Trust Company
Independent Auditors KPMG Peat Marwick LLP
WELLS FARGO & COMPANY/NORWEST CORPORATION MERGER. Wells Fargo &
Company, the parent company of Wells Fargo Bank, has signed a definitive
agreement to merge with Norwest Corporation. The proposed merger is subject to
certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the fourth quarter of
1998. The combined company will be called Wells Fargo & Company. Norwest and
Peregrine have advised representatives of both Boards that the merger will not
reduce the level or quality of advisory or other services they provide to Large
Company Portfolio.
ADVISORY, DISTRIBUTION AND OTHER FEES; EXPENSE RATIOS
Large Company has higher investment advisory fees and a higher expense
ratio than Growth Stock. In addition, A Shares of Large Company, unlike shares
of Growth Stock, pay distribution fees. Each Fund indirectly bears a pro rata
portion of the investment advisory fees paid by the Portfolio in which it
invests.
The annual investment advisory fee payable by Large Company Portfolio
is 0.05% higher than that payable by Growth Stock Portfolio. Large Company
Portfolio pays Norwest an investment advisory fee at an annual rate of 0.65% of
average daily net assets, whereas Growth Stock Portfolio pays BGFA an investment
advisory fee at an annual rate of up to 0.60% of average daily net assets.
A Shares of Large Company have distribution fees of 0.10% of the
average daily net assets of the class under a Rule 12b-1 distribution plan.
These fees are paid out of the Fund's assets on an on-going basis. Shares of
Growth Stock do not have distribution fees.
In addition, A Shares of Large Company are expected to have total
operating expenses that, net of fee waivers and expense reimbursements, are
approximately 0.44% higher than those of Growth Stock annually. Absent expense
reimbursements and fee waivers, Large Company is expected to have total
operating expenses that would be approximately 0.63% higher than those
of Growth Stock annually. As discussed above, Large Company's expected total
operating expense ratio, although higher than that of Growth Stock, is [average]
for funds investing in a growth equity style.
If shareholders approve the Consolidation, the A Shares of Large
Company are expected to operate during the fiscal year ended May 31, 1999 at a
total operating expense ratio of 1.20%. Absent expense reimbursements and fee
waivers, the Fund would be expected to operate at a total operating expense
ratio of 1.41%.
During the fiscal year ended February 28, 1998, Growth Stock had a
total operating expense ratio of 0.76%. Absent fee waivers, the total operating
expense ratio of Growth Stock would have been 0.78%.
COMPARISON OF PURCHASE AND REDEMPTION PROCEDURES
AND EXCHANGE RIGHTS
Each Fund offers its shares on business days at their net asset value
next determined after receipt of a purchase order in proper form. However, A
Shares of Large Company, unlike shares of Growth Stock, have an initial sales
charge. Large Company offers A Shares at their next-determined net asset value
plus an initial sales charge of up to 5.50%. No sales charge applies to
reinvestments of dividends or distributions of either Fund.
There are several methods of lowering the initial sales charge on A
Shares of Large Company. In some cases, the sales charge may be waived entirely.
For example, Large Company does not have sales charges on purchases of A Shares
by any bank, trust company or other institution acting on behalf of its
fiduciary customer accounts or any other account maintained by its trust
department (including a pension, profit sharing or other employee benefit trust
created pursuant to a plan qualified under Section 401 of the Code).
Both Funds redeem shares on business days at net asset value
next-determined after receipt of a redemption request in proper form. If you
redeem A Shares of Large Company purchased at a reduced sales charge within two
years of the purchase, you may pay a charge of up to 1.00% on the redemption.
Large Company will not assess any sales [or redemption] charges on the
A Shares issued pursuant to the Consolidation.
The shares of both Funds have exchange privileges. The exchange
privileges differ in that shareholders of Large Company may exchange their
shares for shares of other series of Norwest Trust, whereas shareholders of
Growth Stock may exchange their shares for shares of other series of
MasterWorks.
COMPARISON OF BUSINESS STRUCTURES
The following information provides only a summary of the major
differences between the organizational structure and governing documents of the
Funds. Growth Stock is a series of MasterWorks, which is organized as a Maryland
corporation. Large Company is a series of Norwest Trust, which is organized as a
Delaware business trust. Accordingly, this information provides a summary of the
major differences between MasterWorks, its Charter and By-Laws and Maryland law
and Norwest Trust, its Trust Instrument and By-Laws and Delaware law. Copies of
the Charter and By-Laws of MasterWorks and copies of the Trust Instrument and
By-Laws of Norwest Trust are a part of each Fund's respective Registration
Statement filed with the SEC.
GENERAL. MasterWorks is organized as a Maryland corporation and is
governed by its Charter, By-Laws and Maryland law. Norwest Trust is organized as
a Delaware business trust and is governed by its Trust Instrument, By-Laws and
Delaware law. The responsibilities, powers and fiduciary duties of the Directors
of MasterWorks are substantially similar as those of the Trustees of Norwest
Trust, and vice versa. Each Fund has procedures available to its respective
shareholders for calling shareholders' meetings for the removal of Directors or
Trustees.
Pursuant to Maryland Law, any Director of MasterWorks may be removed,
either with or without cause, at any meeting of shareholders duly called and at
which a quorum is present by the affirmative vote of a majority of the votes
entitled to be cast for the election of Directors. Pursuant to the Trust
Instrument of Norwest Trust, Trustees may be removed from office at any meeting
of the shareholders by a vote of shareholders owning at least two-thirds of the
outstanding shares.
The Directors of MasterWorks and the Trustees of Norwest Trust, as
applicable, are required to promptly call a special meeting of shareholders when
requested to do so in writing by shareholders owning at least one-tenth of the
outstanding shares entitled to vote. Additionally, MasterWorks' special meetings
can be called by the Chairman of the Board and certain officers and Norwest
Trust's special meetings can be called by the Chairman of the Board or by any
two other Trustees.
Pursuant to the By-Laws of MasterWorks, a majority of the votes cast at
a meeting of shareholders, duly called and at which a quorum is present, shall
be sufficient to take or authorize action upon any matter which may properly
come before the meeting, unless more than a majority of votes cast is required
by statue or by the [Charter]. Similarly, except when a larger vote is required
by law or by any provision of the Trust Instrument or By-Laws, Norwest Trust
requires a majority of the shares voted in person at a meeting or by proxy to
decide any question at a shareholder's meeting.
The Charter of MasterWorks provides that, notwithstanding any provision of
law requiring the authorization of any action by a greater proportion than a
majority of the total number of shares of any series of capital stock, or by the
total number of such shares, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a majority of the total
number of shares outstanding and entitled to vote theron.
Except as otherwise required by law, both MasterWorks and Norwest Trust
require one-third of the shares entitled to vote on a matter to constitute a
quorum for the transaction of
business at a meeting of the shareholders of a Fund. Both Funds can adjourn
meetings by the majority vote of any lesser number than that sufficient for a
quorum.
SHARES. With respect to Growth Stock, MasterWorks has authorized
capital stock of 100,000,000 shares of common stock, each having a par value of
$.001 per share. With respect to Large Company, Norwest Trust has designated an
unlimited number of shares of beneficial interest, each having no par value.
LIABILITY OF DIRECTORS, TRUSTEES AND OFFICERS. Both MasterWorks and Norwest
Trust indemnify its officers and Directors or Trustees, as applicable, to the
full extent permitted by law. This indemnification does not protect any such
person against any liability to a Fund or any shareholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
satisfaction of such person's office.
LIABILITY OF SHAREHOLDERS. Under Delaware law, shareholders of Norwest
Trust would not be personally liable for the obligations of Norwest Trust and
are entitled to the same limitation from personal liability extended to
stockholders of private for-profit corporations. Under Maryland law,
shareholders of Growth Stock have no personal liability for acts or obligations
of MasterWorks or the Fund.
INFORMATION ABOUT THE FUNDS
The Large Company Prospectus accompanying this Statement includes
information about Large Company. The Large Company SAI is a part of the SAI.
This Statement incorporates by reference the information about Large Company in
the Large Company Prospectus and the SAI. You may obtain a copy of the SAI
without charge by writing to Forum at Two Portland Square, Portland, Maine 04101
or by calling 1-800-[___-____].
Information about Growth Stock is included in the Prospectus offering
shares of Growth Stock dated June 30, 1998 (the "Growth Stock Prospectus"), and
the Annual Report to Shareholders of Growth Stock for the fiscal year ended
February 28, 1998, which are available upon request without charge from
[Stephens] by writing to [Stephens] at 111 Center Street, Little Rock, Arkansas
72201] or by calling [1-800-_______]. There is also a Statement of Additional
Information dated June 30, l998 offering shares of Growth Stock that is part of
the SAI. This Statement incorporates by reference the information about Growth
Stock in the Growth Stock Prospectus and the SAI.
The Funds file reports, proxy statements and other information with the
SEC. You may inspect and copy these documents and other information at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of these materials from the
Public Reference Branch, Office of Filings and Information Services, Securities
and Exchange Commission, Washington, D.C. 20549 at prescribed rates or through
the SEC's Website at www.sec.gov.
PROPOSAL TWO: APPROVAL OF A PLAN OF LIQUIDATION
OVERVIEW. On September 16, 1998, the Board determined that, if the
Consolidation is not approved by the shareholders of Growth Stock or is not
consummated for any other reason, then an orderly liquidation of Growth Stock's
assets would be in the best interests of Growth Stock and its shareholders.
Accordingly, the MasterWorks Board approved the Liquidation Plan, which provides
for the complete liquidation of Growth Stock. If only the Liquidation Plan is
approved by the requisite shareholder vote, or if both Plans are approved but
the Consolidation Plan cannot be consummated for any reason, MasterWorks will
liquidate Growth Stock's assets at market prices and on such terms and
conditions as MasterWorks shall determine to be reasonable and in the best
interests of Growth Stock and its shareholders.
REASONS FOR THE LIQUIDATION. Growth Stock is an actively managed fund that
invests, through a Master Portfolio, primarily in growth-oriented, small- and
medium-sized companies. Wells Fargo Bank, as investment sub-adviser,
individually selects the Fund's investments and the Fund's portfolio turnover
rate is high due to its active trading strategy. For the most part, MasterWorks'
other funds, whose investments are managed by BGFA, seek to replicate certain
indexes or pursue asset allocation strategies. Accordingly, Growth Stock does
not fit within MasterWorks' core strategy. Because Growth Stock does not fit
within this strategy, and because Growth Stock has experienced relative
underperformance, investor demand for this Fund is not strong. The MasterWorks
Board is concerned, therefore, that Growth Stock may not be viable on a
long-term basis.
At a MasterWorks Board meeting held on September 16, 1998, before
approving the Liquidation Plan, the MasterWorks Board examined all factors that
it considered relevant, including that Growth Stock's total return for the
twelve months ended August 31, 1998, was -22.24%. The MasterWorks Board
recognized that these returns, and the fact that Growth Stock does not fit
within MasterWorks' core strategy, make Growth Stock unattractive to new
investors. The Board, including all of the Directors who are not "interested
persons" of Growth Stock (as that term is defined in the 1940 Act), concluded
that a liquidation of Growth Stock was in the best interests of the Fund and its
shareholders if the Consolidation with Large Company is not approved. The
MasterWorks Board then unanimously adopted resolutions approving the Liquidation
Plan and the implementation thereof, if the Consolidation is not approved by
shareholders of Growth Stock or is not consummated for any other reason,
declaring the proposed liquidation and dissolution advisable and directing that
it be submitted to shareholders for consideration. Growth Stock will bear the
costs associated with the Liquidation, but because of the co-administrator's
assumption of all ordinary expenses of Growth Stock, the costs of the
Liquidation will not cause an increase in Growth Stock's expense ratio.
The MasterWorks Board determined that the Consolidation is preferable
to the Liquidation but that the Liquidation is preferable to the continued
operation of Growth Stock. Accordingly, if both the Consolidation and the
Liquidation are approved by shareholders
(assuming all closing conditions are satisfied), the Consolidation will be
consummated. The Board is recommending approval of the Liquidation Plan as a
"fall-back" in case the Consolidation is not approved or is not consummated for
any other reason.
The liquidation of the assets and termination of Growth Stock will have
the effect of permitting Growth Stock's shareholders to invest the distributions
to be received by them upon Growth Stock's liquidation in investments of their
choice.
In the event that the shareholders do not approve the Consolidation or
the Liquidation Plan, the Board will analyze other alternatives for Growth
Stock.
PLAN OF LIQUIDATION OF GROWTH STOCK. The Liquidation Plan provides for
the complete liquidation of all of the assets of Growth Stock. If the
Consolidation is not approved or is not consummated for any other reason, and
the Liquidation Plan is approved, BGFA and Wells Fargo will liquidate Growth
Stock's assets on such terms and conditions as BGFA and Wells Fargo determine to
be reasonable and in the best interests of Growth Stock and its shareholders.
LIQUIDATION VALUE. If the Liquidation Plan is implemented, as soon as
practicable after the consummation of the sale of all of Growth Stock's
portfolio securities and the payment of all of Growth Stock's known liabilities
and obligations, each Growth Stock shareholder will receive a distribution in an
amount equal to the Growth Stock's remaining assets, plus previously declared
and unpaid dividends and distributions (the "Liquidation Distribution").
FEDERAL INCOME TAX CONSEQUENCES. The following summary provides general
information concerning the federal income tax consequences to Growth Stock of
the liquidation and dissolution pursuant to the provisions of the Liquidation
Plan. This summary also discusses the federal income tax consequences to the
shareholders of the receipt of The Liquidation Distribution pursuant to the
Liquidation Plan. This discussion, however, addresses only some federal tax
considerations. Each investor is urged to consult his or her tax advisor
regarding specific questions as to federal, state, local, or foreign taxes.
As discussed above, Growth Stock invests all of its assets into a
corresponding Master Portfolio of MSIT and, pursuant to the Liquidation Plan,
will liquidate its assets by selling its investments. Growth Stock, which
qualifies as a "regulated investment company" under the Code , has been, and
expects to continue to be, relieved of federal income tax liability during the
liquidation period. Accordingly, Growth Stock expects that it will not be taxed
on any of its net income [GAIN] from the liquidation of its assets.
The receipt by shareholders of the Liquidation Distribution pursuant to the
Plan will, however, be treated as a sale of Growth Stock shares and, for
shareholders who hold their shares in a taxable account, will result in a
taxable capital gain or loss, depending on the amount of the Liquidation
Distribution received for the shares and the cost of the shares.
A shareholder may be subject to a 31% withholding tax ("backup
withholding") on the proceeds received pursuant to the Liquidation Plan if the
shareholder has failed to certify that the Taxpayer Identification Number
("TIN") provided by the shareholder is correct and that he or she is not subject
to backup withholding, or if the IRS notifies MasterWorks that the shareholder's
TIN is incorrect or that the shareholder is subject to backup withholding. Such
tax withheld does not constitute any additional tax imposed on the shareholder,
and may be claimed as a tax payment on the shareholder's federal income tax
return.
LIQUIDATION DISTRIBUTION. At present, the date on which Growth Stock
will be liquidated and on which Growth Stock will pay Liquidation Distributions
to its shareholders is uncertain, but it is anticipated that if the Liquidation
Plan is implemented, such liquidation would occur on or about December 11, 1998
(the "Liquidation Date"). Shareholders holding Growth Stock shares as of the
close of business on the Liquidation Date will receive their Liquidation
Distribution on or soon after the Liquidation Date without any further action on
their part.
All shareholders will continue to have the right to redeem their shares
of Growth Stock at any time prior to the Consolidation or the Liquidation.
Therefore, a shareholder may redeem shares in accordance with redemption
procedures set forth in Growth Stock's current Prospectuses and Statement of
Additional Information without waiting for Growth Stock to take any action.
Growth Stock does not impose any redemption charges.
THE MASTERWORKS BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSED LIQUIDATION OF ASSETS AND DISSOLUTION OF THE FUND PURSUANT TO THE
PROVISIONS OF THE LIQUIDATION PLAN.
VOTING INFORMATION
The Board of Directors of Growth Stock is soliciting your proxy for the
Special Meeting of Shareholders to be held on November 24, 1998 (the "Meeting"),
at the principal office of MasterWorks at 111 Center Street, Little Rock,
Arkansas, 72201, at 11:00 a.m., Central time, and at all adjournments thereof.
You may revoke a proxy at any time at or before the Meeting by giving notice to
the Secretary of MasterWorks, at 111 Center Street, Little Rock, Arkansas,
72201, by signing another proxy of a later date or by personally voting at the
Meeting. Unless revoked, all valid proxies will be voted in accordance with the
specification thereon. In the absence of a specification, valid proxies will be
voted for approval of the Consolidation Plan and the Liquidation Plan. If Growth
Stock's shareholders approve the Consolidation Plan, Norwest Trust and
MasterWorks will deem that approval to constitute approval by Growth Stock's
shareholders of a temporary amendment to any investment objective, policy or
restriction that would otherwise be inconsistent with or violated upon Growth
Stock holding shares of Large Company prior to distributing the shares to the
shareholders of Growth Stock in accordance with the Consolidation Plan.
Approval of the Consolidation Plan requires the affirmative vote of the
holders of a majority of the outstanding shares of Growth Stock. Approval of the
Liquidation Plan also requires the affirmative vote of the holders of a majority
of the outstanding shares of Growth Stock. If Growth Stock shareholders approve
both the Consolidation Plan and the Liquidation Plan, MasterWorks and Norwest
Trust will proceed with the Consolidation, even if a larger proportion of
shareholders approve the Liquidation Plan than approve the Consolidation Plan.
You may vote at the Meeting or any adjournments thereof if you held
shares of record of Growth Stock at the close of business on October 9, 1998
(the "Record Date"). The holders of one-third of the shares outstanding of
Growth Stock at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for purposes of voting on the
proposals at the Meeting.
The election inspectors will count your vote at the Meeting if cast by
proxy or in person. The election inspectors will count:
* votes cast "for" approval of a proposal to determine whether
sufficient affirmative votes have been cast;
* shares represented by proxies that reflect abstentions as shares that
are present and entitled to vote for purposes of determining the
presence of a quorum at the Meeting;
* an abstention on a proposal as a vote against the proposal; and
* a broker non-vote as a share present for purposes of determining
whether a quorum is present but not as a vote for or against any
adjournment or as a vote cast for purposes of determining whether
sufficient votes have been received to approve a proposal.
Broker non-votes are shares held in street name for which the broker indicates
that instructions have not been received from the beneficial owners or other
persons entitled to vote and for which the broker lacks discretionary voting
authority. Dissenting shareholders do not have any appraisal rights in
connection with the Consolidation.
Each share held entitles you to one vote. A fractional share entitles
you to a proportionate fractional vote. As of the Record Date, Growth Stock had
[_________] shares outstanding.
In the event that MasterWorks does not receive sufficient votes in
favor of either of the proposals set forth in the Notice of Special Meeting by
the time scheduled for the Meeting, the persons named as proxies may authorize
one or more adjournments of the Meeting with respect to that proposal to permit
further solicitation of proxies with respect to that proposal. Any adjournment
will require the affirmative vote of a majority of the votes cast on the
question in person or by proxy at the session of the Meeting to be adjourned.
The persons named as proxies will vote in favor of the
adjournment those proxies which they are entitled to vote in favor of the
proposal. They will vote against any such adjournment those proxies required to
be voted against the proposal.
Norwest Trust is not soliciting votes of Large Company's shareholders
in connection with the Consolidation, since their approval or consent is not
necessary for the consummation of the Consolidation.
In addition to the solicitation of proxies by mail or expedited
delivery service, the Board of Directors of MasterWorks and employees and agents
of [________] may solicit proxies in person or by telephone. [________] will
reimburse upon request persons holding shares as nominees for their reasonable
expenses in sending soliciting material to their principals. MasterWorks has
engaged the proxy solicitation firm of Shareholder Communication Corp. which,
for its solicitation services, will receive a fee from [_________] estimated at
$_____, and reimbursement of out of pocket expenses estimated at $_____.
SHARE OWNERSHIP. As of September 1,1998, the officers and Trustees of
Norwest Trust as a group beneficially owned less than one percent of each class
of Large Company's outstanding shares. To the knowledge of Norwest Trust, [no
person owned of record or beneficially five percent or more of the outstanding
shares of the Large Company]. To the knowledge of MasterWorks, the following
persons owned of record or beneficially, five percent or more of the outstanding
shares of Growth Stock:
NAME AND ADDRESS PERCENTAGE NATURE OF
NAME OF FUND OF SHAREHOLDER OF FUND OWNERSHIP
------------ -------------- ------- ---------
Growth Stock Fund Fidelity Investments Institutional Operations 10.33% Record
Co. As Agent for Employee Benefit Plans
100 Magellan Way
Covington, KY 41015
Wells Fargo Bank 80.50% Record
401(K) MasterWorks Omnibus Account
420 Montgomery Street
San Francisco, CA 94104
THE BOARD OF DIRECTORS OF MASTERWORKS UNANIMOUSLY
RECOMMENDS APPROVAL OF EACH PROPOSAL.
EXHIBIT A - AGREEMENT AND PLAN OF CONSOLIDATION
AGREEMENT AND
PLAN OF
CONSOLIDATION
FOR THE
GROWTH STOCK FUND
OF MASTERWORKS FUNDS INC.
AND THE
LARGE COMPANY GROWTH FUND
OF NORWEST ADVANTAGE FUNDS
OCTOBER __, 1998
This AGREEMENT AND PLAN OF CONSOLIDATION (the "PLAN") is made as of
this [_____] day of October, 1998, by and among MasterWorks Funds Inc.
("MASTERWORKS"), a Maryland corporation, for itself and on behalf of the Growth
Stock Fund (the "GS FUND"), Managed Series Investment Trust ("MSIT"), a Delaware
business trust, for itself and on behalf of the Growth Stock Master Portfolio
(the "GS MASTER PORTFOLIO") in which the GS Fund invests and Norwest Advantage
Funds ("NORWEST TRUST"), a Delaware business trust, for itself and on behalf of
the Large Company Growth Fund (the "LCG FUND").
WHEREAS, each of MasterWorks, MSIT and Norwest Trust is an open-end
management investment company registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended (the
"1940 ACT"); and
WHEREAS, the GS Fund pursues its investment objective by
investing substantially all of its assets in the GS Master Portfolio and the LCG
Fund pursues its investment objective by investing substantially all of its
assets in the Large Company Growth Portfolio, a series of Core Trust (Delaware),
a Delaware business trust; and
WHEREAS, the parties desire that the assets and liabilities of the GS
Fund be conveyed to, and be acquired and assumed by, the LCG Fund, in exchange
for shares of equal value of the LCG Fund which shall thereafter promptly be
distributed to the shareholders of the GS Fund in connection with its
liquidation as described in this Plan (the "CONSOLIDATION");
NOW, THEREFORE, in accordance with the mutual promises described
herein, the parties agree as follows:
1. CONVEYANCE OF ASSETS OF GS FUND.
(a) MasterWorks agrees to endeavor to pay or make reasonable
provision to pay all of the liabilities, expenses, costs and charges of the GS
Fund that are known to MasterWorks and that are due and payable as of the
Closing Date (as defined in Section 9) on or prior to such date.
(b) At the Effective Time of the Consolidation (as defined in
Section 9), all assets of every kind, and all interests, rights, privileges and
powers of the GS Fund, whether or not determinable at the Effective Time of the
Consolidation and wherever located, subject to all the liabilities of the GS
Fund as of the Effective Time of the Consolidation (the "FUND ASSETS"), shall be
assigned, transferred, delivered and conveyed by the GS Fund to the LCG Fund and
shall be accepted and assumed by the LCG Fund, as more particularly set forth in
this Plan, such that at and after the Effective Time of the Consolidation (i)
all assets of the GS Fund at or after the Effective Time of the Consolidation
shall become and be the assets of the LCG Fund and (ii) all
liabilities of the GS Fund shall attach to the LCG Fund, enforceable against the
LCG Fund to the same extent as if initially incurred by it.
(c) It is understood and agreed that the Fund Assets shall
include all property and assets of any nature whatsoever, including, without
limitation, all cash, cash equivalents, securities, claims (whether absolute or
contingent, known or unknown, accrued or unaccrued), contract rights and
receivables (including dividend and interest receivables) owned by the GS Fund,
and any deferred or prepaid expenses shown as an asset on the GS Fund's books,
and that the liabilities of the GS Fund shall include all liabilities, whether
known or unknown, accrued or unaccrued, absolute or contingent, in all cases,
existing at the Effective Time of the Consolidation.
(d) The GS Master Portfolio will liquidate the GS Fund's
interest in the GS Master Portfolio through an in-kind redemption, effective at
or before the Effective Time of the Consolidation, so that the Fund Assets will
consist primarily of the portfolio securities held by the GS Master Portfolio
immediately before the Effective Time of the Consolidation.
(e) At least fifteen (15) business days prior to the Closing
Date, the GS Master Portfolio will provide to the LCG Fund a list of the GS
Master Portfolio's securities and other assets and known liabilities (the
"ASSETS LIST"). It is understood and agreed that the GS Master Portfolio may
sell any of the securities or other assets shown on the Assets List prior to the
Effective Time of the Consolidation but, from and after the date the Assets List
is provided, will not, without the prior approval of the LCG Fund, acquire any
additional securities other than securities which Norwest Trust has determined
to be consistent with the investment objective, policies and restrictions of the
LCG Fund or permit to exist any encumbrances, rights, restrictions or claims not
reflected on the Assets List. At least ten (10) business days prior to the
Closing Date, the LCG Fund will advise the GS Master Portfolio of any
investments of the GS Master Portfolio shown on the Assets List that Norwest
Trust has determined are not consistent with the investment objective, policies
and restrictions of the LCG Fund. If requested by Norwest Trust, the GS Master
Portfolio will dispose of any such securities prior to the Closing Date to the
extent practicable and consistent with applicable legal requirements, including
the GS Master Portfolio's own investment objectives, policies and restrictions.
In addition, if Norwest Trust determines that the portfolios of the GS Master
Portfolio and the LCG Fund, when aggregated, would contain investments exceeding
certain percentage limitations applicable to the LCG Fund, the GS Master
Portfolio, if requested by Norwest Trust, will dispose of a sufficient amount of
such investments as may be necessary to avoid violating such limitations as of
the Effective Time of the Consolidation, to the extent practicable and
consistent with applicable legal requirements, including the GS Master
Portfolio's own investment objectives, policies and restrictions.
(f) MasterWorks shall assign, transfer, deliver, and convey the
Fund Assets to the LCG Fund on the following basis:
(1) In exchange for the transfer of the Fund Assets, the
LCG Fund shall simultaneously issue to the GS Fund at the Effective
Time of the Consolidation full and fractional Class A Shares of
beneficial interest in the LCG Fund having an aggregate net asset value
equal to the net value of the Fund Assets so conveyed, all determined
as provided in this Plan. In this regard, the number of full and
fractional shares of the LCG Fund delivered to the GS Fund shall be
determined by dividing the net value of the Fund Assets, computed in
the manner and as of the time and date set forth in this Plan, by the
net asset value of one LCG Fund Class A Share, computed in the manner
and as of the time and date set forth in this Plan.
(2) The net asset value of shares to be delivered by the
LCG Fund, and the net value of the Fund Assets to be conveyed by the GS
Fund, shall, in each case, be determined as of the Valuation Time (as
defined in Section 3). Each party shall make all computations to the
____ decimal place. Norwest Trust shall compute the net asset value of
Class A Shares of the LCG Fund and the net value of the Fund Assets in
accordance with its then current valuation procedures.
(3) MasterWorks shall transfer the Fund Assets to the LCG
Fund's custodian, for the account of the LCG Fund, with all securities
not in bearer or book-entry form duly endorsed, or accompanied by duly
executed separate assignments or stock powers, in proper form for
transfer, with any required signature guarantees, and with all
necessary stock transfer stamps, sufficient to transfer good and
marketable title thereto (including all accrued interest and rights
pertaining thereto) to the custodian for the account of the LCG Fund
free and clear of all liens, encumbrances, rights, restrictions and
claims, except those specifically identified to the LCG Fund's
custodian and disclosed on the Assets List. All cash transferred shall
be in the form of immediately available funds payable to the order of
the LCG Fund's custodian for the account of the LCG Fund.
2. LIQUIDATION OF GS FUND, REGISTRATION OF SHARES AND ACCESS TO RECORDS.
(a) At the Effective Time of the Consolidation, the GS Fund
shall make a liquidating distribution to its shareholders as follows:
Shareholders of record of the GS Fund shall be credited with full and fractional
shares of the Class A Shares of beneficial interest that are issued by the LCG
Fund in connection with the Consolidation corresponding to the GS Fund shares
that are held of record by the shareholder at the Effective Time of the
Consolidation. Each such shareholder also shall have the right to receive any
unpaid dividends or other distributions that were declared before the Effective
Time of the Consolidation with respect to the GS Fund shares that are held of
record by the shareholder at the Effective Time of the Consolidation. Norwest
Trust shall record on its books the ownership of the respective LCG Fund shares
by such shareholders. All of the issued and outstanding shares of the GS Fund
at the Effective Time of the Consolidation shall be redeemed and canceled on the
books of MasterWorks at such time. Norwest Trust shall issue certificates
representing LCG Fund shares in accordance with the then current LCG Fund
prospectuses; provided, however, that Norwest Trust shall issue certificates
representing LCG Fund shares to replace certificates representing GS Fund shares
only upon the surrender of the certificates representing GS Fund shares. As soon
as reasonably possible after the Effective Time of the Consolidation,
MasterWorks shall wind up the affairs of the GS Fund and shall file any final
regulatory reports, including but not limited to any Form N-SAR and Rule 24f-2
filings, with respect to the GS Fund, and also shall take all other steps as are
necessary and proper to effect the termination or declassification of the GS
Fund in accordance with all applicable laws.
(b) If a request shall be made for a change of the registration
of shares of LCG Fund to a person other than the shareholder in which the name
of the shares are registered in the records of the GS Fund, it shall be a
condition of such registration of shares that there be furnished to the LCG Fund
an instrument of transfer properly endorsed, accompanied by any required
signature guarantees and otherwise in proper form for transfer and, if any of
such shares are outstanding in certificated form, the certificate representing
such shares, and that the person requesting such registration shall pay to the
LCG Fund any transfer or other taxes required by reason of such registration or
establish to the reasonable satisfaction of Norwest Trust that such tax has been
paid or is not applicable.
(c) At and after the Closing Date, MasterWorks shall provide
Norwest Trust and its transfer agent with immediate access to (a) all records
containing the names, addresses and taxpayer identification numbers of all of
the GS Fund's shareholders and the number and percentage ownership of the
outstanding GS Fund shares owned by each shareholder of the GS Fund, all as of
the Effective Time of the Consolidation, and (b) all original documentation
(including all applicable Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the GS Fund's shareholders'
taxpayer identification numbers and their liability for or exemption from
back-up withholding.
3. VALUATION TIME. The "VALUATION TIME" shall be the time as of which
the net asset value of shares of each of the GS Fund and the LCG Fund is
determined pursuant to Norwest Trust's valuation procedures on the Closing Date
or such earlier or later time as may be mutually agreed to in writing by the
parties hereto.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MASTERWORKS.
MasterWorks, on behalf of itself and, where appropriate, the GS Fund, represents
and warrants to, and agrees with, Norwest Trust and MSIT as follows:
(a) MasterWorks is a corporation duly created, validly existing
and in good standing under the laws of the State of Maryland. MasterWorks is
registered with the SEC as an open-end management investment company under the
1940 Act, and such registration is in full force and effect.
(b) MasterWorks has the power to own all of its properties and
assets, to carry on its business as now being conducted and described in its
currently effective Registration Statement on Form N-1A, to enter into this Plan
and to consummate the transactions contemplated herein, and has all necessary
federal, state and local qualifications and authorizations to own all of its
properties and assets, to carry on its business as now being conducted and
described in its currently effective Registration Statement on Form N-1A and to
consummate the transactions contemplated herein.
(c) The execution and delivery of the Plan and the transactions
contemplated herein have been duly authorized by the Board of Directors of
MasterWorks. The Plan has been executed and delivered by duly authorized
officers of MasterWorks, and represents a valid and binding contract,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement, moratorium, and other
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles. The execution and delivery of this Plan does
not, and, subject to the approval of shareholders referred to in Section 8, the
consummation of the transactions contemplated by this Plan will not, violate
MasterWorks' Amended and Restated Articles of Incorporation or By-Laws or any
material agreement, obligation, decree or arrangement to which it is a party or
by which it or its properties or assets are bound. Except for the approval of
shareholders of the GS Fund, no other action by MasterWorks is necessary to
authorize its officers to effectuate this Plan and the transactions contemplated
herein.
(d) The GS Fund has qualified as a regulated investment company
under Part I of Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue
Code of 1986, as amended (the "CODE"), in respect of each taxable year since the
commencement of its operations and qualifies and shall continue to qualify as a
regulated investment company for its taxable year ending upon its liquidation.
(e) MasterWorks has valued, and will continue to value, the
portfolio securities and other assets of the GS Fund in accordance with
applicable legal requirements.
(f) The materials included within the Form N-14 Registration
Statement (the "N-14 REGISTRATION STATEMENT") from its effective date with the
SEC, through the time of the shareholders meeting referred to in Section 8 and
the Effective Time of the Consolidation, insofar as they relate to MasterWorks
and the GS Fund: (i) shall comply in all material respects with the applicable
provisions of the Securities Act of 1933, as amended (the "1933 ACT"), the
Securities Exchange Act of 1934, as amended (the "1934 ACT") and the 1940 Act,
the rules and regulations thereunder, and state securities laws, and (ii) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein not misleading.
(g) All of the issued and outstanding shares of the GS Fund have
been duly authorized and validly issued and are validly outstanding, fully paid
and non-assessable, and were offered for sale and sold in conformity with the
registration requirements of all applicable
federal and state securities laws. There are no outstanding options, warrants or
other rights to subscribe for or purchase any GS Fund shares, nor are there any
securities convertible into GS Fund shares.
(h) MasterWorks shall operate the business of the GS Fund in the
ordinary course between the date hereof and the Effective Time of the
Consolidation, it being agreed that such ordinary course of business will
include the declaration and payment of customary dividends and distributions and
any other dividends and distributions deemed advisable in anticipation of the
Consolidation.
(i) At the Effective Time of the Consolidation, the GS Fund will
have good and marketable title to the Fund Assets and full right, power and
authority to assign, transfer, deliver and convey such assets.
(j) The financial statements of the GS Fund for the year ended
February 28, 1998, which are audited (the "GS FUND FINANCIAL STATEMENTS"),
copies of which have been previously delivered to Norwest Trust and MSIT, fairly
present the financial position of the GS Fund as of the date thereof and the
results of its operations and changes in its net assets for the periods
indicated and are in accordance with generally accepted accounting principles
consistently applied.
(k) To the knowledge of MasterWorks, there are no liabilities of
the GS Fund, whether or not determined or determinable, other than the
liabilities disclosed or provided for in the GS Fund Financial Statements and
liabilities incurred in the ordinary course of business subsequent to February
28, 1998 or otherwise previously disclosed in writing to Norwest Trust and MSIT.
(l) To the knowledge of MasterWorks, there are no claims, actions, suits,
investigations or proceedings of any type pending against the GS Fund or its
assets or businesses. In addition, to the knowledge of MasterWorks, there are no
claims, actions, suits, investigations or proceedings of any type threatened
against the GS Fund or its assets or businesses that would materially adversely
affect the GS Fund or its assets or businesses or which would prevent or hinder
consummation of the transactions contemplated herein. MasterWorks does not have
knowledge of any facts that it currently has reason to believe are likely to
form the basis for the institution of any such claim, action, suit,
investigation or proceeding against the GS Fund. For purposes of this provision,
investment underperformance or negative investment performance shall not be
deemed to constitute such facts, provided all required performance disclosures
have been made. The GS Fund is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body that materially
and adversely affects, or is reasonably likely to materially and adversely
affect, its business or its ability to consummate the transactions contemplated
herein.
(m) Except for contracts, agreements, franchises, licenses or
permits entered into or granted in the ordinary course of its business, in each
case under which no material default exists, MasterWorks, on behalf of the GS
Fund, is not a party to or subject to any material
contract, debt instrument, employee benefit plan, lease, franchise, license or
permit of any kind or nature whatsoever.
(n) The federal income tax returns of the GS Fund, copies of
which have been previously delivered to Norwest Trust and MSIT, have been filed
for all taxable years to and including the taxable year ended February 28, 1998,
and all taxes payable pursuant to such returns have been paid. To the best of
MasterWorks' knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns. The federal income
tax return of GS Fund for the taxable year ended February 28, 1999 will be
filed, and any taxes payable pursuant thereto will be paid, on or before their
due date, as the same may be properly extended.
(o) Since February 28, 1998, there has been no material adverse
change in the financial condition, results of operations, business, properties
or assets of the GS Fund. For all purposes under this Plan, investment
underperformance, negative investment performance and/or investor redemptions
shall not be considered material adverse changes, provided all required
performance disclosures have been made.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MSIT. MSIT, on
behalf of itself and, where appropriate, the GS Master Portfolio, represents and
warrants to, and agrees with, MasterWorks and Norwest Trust as follows:
(a) MSIT is a business trust, duly created, validly existing and
in good standing under the laws of the State of Delaware. MSIT is registered
with the SEC as an open-end management investment company under the 1940 Act,
and such registration is in full force and effect.
(b) MSIT has the power to own all of its properties and assets,
to carry on its business as now being conducted and described in its currently
effective Registration Statement on Form N-1A, to enter into this Plan and to
consummate the transactions contemplated herein, and has all necessary federal,
state and local qualifications and authorizations to own all of its properties
and assets, to carry on its business as now being conducted and described in its
currently effective Registration Statement on Form N-1A and to consummate the
transactions contemplated herein.
(c) The execution and delivery of the Plan have been duly
authorized by the Board of Trustees of MSIT. The Plan has been executed and
delivered by duly authorized officers of MSIT, and represents a valid and
binding contract, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, arrangement, moratorium
and other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The execution and delivery
of this Plan does not, and the consummation of the transactions contemplated by
this Plan will not, violate the Amended and Restated Agreement and Declaration
of Trust or By-Laws of MSIT or any material agreement, obligation, decree or
arrangement to which it is a party or by which it or its properties or assets
are bound. No other action by MSIT is necessary to authorize its officers to
effectuate the Plan and the transactions contemplated herein.
(d) MSIT has qualified the GS Master Portfolio as a partnership
under the Code, since its inception.
(e) MSIT has valued, and will continue to value, the portfolio
securities and other assets of the GS Master Portfolio in accordance with
applicable legal requirements.
(f) The materials included within the N-14 Registration
Statement from its effective date with the SEC, through the time of the
shareholders meeting referred to in Section 8 and the Effective Time of the
Consolidation, insofar as they relate to MSIT, (i) shall comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act and the
1940 Act, the rules and regulations thereunder, and state securities laws, and
(ii) shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements made therein not misleading.
(g) All of the issued and outstanding interests in the GS Master
Portfolio have been duly authorized and validly issued and are validly
outstanding, fully paid and non-assessable, and were offered for sale and sold
in conformity with the registration requirements of all applicable federal and
state securities laws, or available exemptions therefrom. There are no
outstanding options, warrants or other rights to subscribe for or purchase any
interests in the GS Master Portfolio, nor are there any securities convertible
into interests in the GS Master Portfolio.
(h) MSIT shall operate the business of the GS Master Portfolio
in the ordinary course between the date hereof and the Effective Time of the
Consolidation. It is understood that such ordinary course of business will
include the declaration and payment of customary dividends and distributions and
any other dividends and distributions deemed advisable in anticipation of the
Consolidation.
(i) The financial statements of the GS Master Portfolio for the
year ended February 28, 1998, which are audited (the "GS MASTER PORTFOLIO
FINANCIAL STATEMENTS"), copies of which have been previously delivered to
MasterWorks and Norwest Trust, fairly present the financial position of the GS
Master Portfolio as of the date thereof and the results of its operations and
changes in its net assets for the periods indicated and are in accordance with
generally accepted accounting principles consistently applied.
(j) To the knowledge of MSIT, there are no liabilities of the GS
Master Portfolio, whether or not determined or determinable, other than the
liabilities disclosed or provided for in the GS Master Portfolio Financial
Statements and liabilities incurred in the ordinary course of business
subsequent to February 28, 1998 or otherwise previously disclosed in writing to
MasterWorks and Norwest Trust.
(k) To the knowledge of MSIT, there are no claims, actions, suits,
investigations or proceedings of any type pending against the GS Master
Portfolio or its assets or businesses. In addition, to the knowledge of MSIT,
there are no claims, actions, suits, investigations or proceedings of any type
threatened against the GS Master Portfolio or its assets or businesses that
would materially adversely affect the GS Master Portfolio or its assets or
businesses or which would prevent or hinder consummation of the transactions
contemplated herein. MSIT is not aware of any facts that it currently has reason
to believe are likely to form the basis for the institution of any such claim,
action, suit, investigation or proceeding against the GS Master Portfolio. For
purposes of this provision, investment underperformance or negative investment
performance shall not be deemed to constitute such facts, provided all required
performance disclosures have been made. The GS Master Portfolio is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects, or is reasonably likely
to materially and adversely affect, its business or its ability to consummate
the transactions contemplated herein.
(l) Except for contracts, agreements, franchises, licenses or
permits entered into or granted in the ordinary course of its business, in each
case under which no material default exists, MSIT, on behalf of the GS Master
Portfolio, is not a party to or subject to any material contract, debt
instrument, employee benefit plan, lease, franchise, license or permit of any
kind or nature whatsoever.
(m) The federal income tax returns of the GS Master Portfolio,
copies of which have been previously delivered to MasterWorks and Norwest Trust,
have been filed for all taxable years to and including the taxable year ended
February 28, 1998, and all taxes payable pursuant to such returns have been
paid. To the best of MSIT's knowledge, no such return is currently under audit
and no assessment has been asserted with respect to such returns. The federal
income tax return of the GS Master Portfolio for the taxable year ended February
28, 1999 will be filed, and any taxes payable pursuant thereto will be paid, on
or before their due date, as the same may be properly extended.
(n) Since February 28, 1998, there has been no material adverse
change in the financial condition, results of operations, business, properties
or assets of the GS Master Portfolio. For all purposes under this Plan,
investment underperformance, negative investment performance and/or investor
redemptions shall not be considered material adverse changes, provided all
required performance disclosures have been made.
6. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NORWEST TRUST.
Norwest Trust, on behalf of itself and, where appropriate, the LCG Fund,
represents and warrants to, and agrees with MasterWorks and MSIT as follows:
(a) Norwest Trust is a business trust duly formed, legally
existing and in good standing under the laws of the State of Delaware. Norwest
Trust is registered with the SEC as an open-end management investment company
under the 1940 Act and such registration is in full force and effect.
(b) Norwest Trust has the power to own all of its properties and
assets, to carry on its business as now being conducted and described in its
currently effective Registration Statement on Form N-1A, to enter into this Plan
and to consummate the transactions contemplated herein, and has all necessary
federal, state and local qualifications and authorizations to own all of its
properties and assets, to carry on its business as now being conducted and
described in its currently effective Registration Statement on Form N-1A and to
consummate the transactions contemplated herein.
(c) The execution and delivery of the Plan have been duly
authorized by the Board of Trustees of Norwest Trust. The Plan has been executed
and delivered by duly authorized officers of Norwest Trust, and represents a
valid and binding contract, enforceable in accordance with its terms, subject as
to enforcement to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles. The execution and
delivery of this Plan does not, and the consummation of the transactions
contemplated by this Plan will not, violate the Amended and Restated Trust
Instrument or By-Laws of Norwest Trust or any material agreement, obligation,
decree or arrangement to which it is a party or by which it or its properties or
assets are bound. No other action by Norwest Trust is necessary to authorize its
officers to effectuate the Plan and the transactions contemplated herein.
(d) The LCG Fund has qualified as a regulated investment company
under Part I of Subchapter M of Subtitle A, Chapter 1, of the Code in respect of
each taxable year since the commencement of its operations and qualifies and
shall continue to qualify as a regulated investment company for its current
taxable year.
(e) Norwest Trust has valued, and will continue to value, the
portfolio securities and other assets of the LCG Fund in accordance with
applicable legal requirements.
(f) The N-14 Registration Statement, including the proxy
materials contained therein, from its effective date with the SEC through the
time of the shareholders meeting referred to in Section 8 and at the Effective
Time of the Consolidation, insofar as it relates to Norwest Trust, the LCG Fund,
the core portfolio in which the LCG Fund invests, or the Class A Shares of the
LCG Fund to be issued pursuant thereto (i) shall comply in all material respects
with the applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act,
the rules and regulations thereunder, and state securities laws, and (ii) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein not misleading.
(g) The shares of the LCG Fund to be issued and delivered to the
GS Fund for the account of the shareholders of the GS Fund, pursuant to the
terms hereof, shall have been duly authorized as of the Effective Time of the
Consolidation and, when so issued and delivered, shall be duly and validly
issued, fully paid and non-assessable, and no shareholder of the LCG Fund shall
have any preemptive right of subscription or purchase in respect thereto.
(h) All of the issued and outstanding shares of the LCG Fund
have been duly authorized and validly issued and are validly outstanding, fully
paid and non-assessable, and were offered for sale and sold in conformity with
the registration requirements of all applicable federal and state securities
laws. There are no outstanding options, warrants or other rights to subscribe
for or purchase any LCG Fund shares, nor are there any securities convertible
into LCG Fund shares.
(i) Norwest Trust shall operate the business of the LCG Fund in
the ordinary course between the date hereof and the Effective Time of the
Consolidation. It is understood that such ordinary course of business will
include the declaration and payment of customary dividends and distributions and
any other dividends and distributions deemed advisable in anticipation of the
Consolidation.
(j) The financial statements of the LCG Fund for the year ended
May 31, 1998, which are audited (the "LCG FUND FINANCIAL STATEMENTS"), copies of
which have been previously delivered to MasterWorks and MSIT, fairly present the
financial position of the LCG Fund as of the date thereof and the results of its
operations and changes in its net assets for the periods indicated and are in
accordance with generally accepted accounting principles consistently applied.
(k) To the knowledge of Norwest Trust, there are no liabilities
of the LCG Fund, whether or not determined or determinable, other than the
liabilities disclosed or provided for in the LCG Fund Financial Statements and
liabilities incurred in the ordinary course of business subsequent to May 31,
1998 or otherwise previously disclosed in writing to MasterWorks and MSIT.
(l) To the knowledge of Norwest Trust, there are no claims, actions, suits,
investigations or proceedings of any type pending against the LCG Fund or its
assets or businesses. In addition, to the knowledge of Norwest Trust, there are
no claims, actions, suits, investigations or proceedings of any type threatened
against the LCG Fund or its assets or businesses that would materially adversely
affect the LCG Fund or its assets or businesses or which would prevent or hinder
consummation of the transactions contemplated herein. Norwest Trust does not
have knowledge of any facts that it currently has reason to believe are likely
to form the basis for the institution of any such claim, action, suit,
investigation or proceeding against the LCG Fund. For purposes of this
provision, investment underperformance or negative investment performance shall
not be deemed to constitute such facts, provided all required performance
disclosures have been made. The LCG Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
that materially and adversely affects, or is reasonably likely to materially and
adversely affect, its business or its ability to consummate the transactions
contemplated herein.
(m) Except for contracts, agreements, franchises, licenses or
permits entered into or granted in the ordinary course of its business, in each
case under which no material default exists, Norwest Trust, on behalf of the LCG
Fund, is not a party to or subject to any material contract, debt instrument,
employee benefit plan, lease, franchise, license or permit of any kind or nature
whatsoever.
(n) The federal income tax returns of the LCG Fund, copies of
which have been previously delivered to MasterWorks and MSIT, have been filed
for all taxable years to and including the taxable year ended May 31, 1998, and
all taxes payable pursuant to such returns have been paid. To the best of
Norwest Trust's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns. The federal income
tax return of the LCG Fund for the taxable year ended May 31, 1999 will be
filed, and any taxes payable pursuant thereto will be paid, on or before their
due date, as the same may be properly extended.
(o) Since May 31, 1998, there has been no material adverse
change in the financial condition, results of operations, business, properties
or assets of the LCG Fund. For all purposes under this Plan, investment
underperformance, negative investment performance and/or investor redemptions
shall not be considered material adverse changes, provided all required
performance disclosures have been made.
7. REGULATORY FILINGS. Norwest Trust has prepared and filed, or will
promptly prepare and file, an N-14 Registration Statement, which shall include
all proxy materials required in connection with the GS Fund shareholder approval
referenced in Section 8, with the SEC and, where required, with appropriate
state securities regulatory authorities.
8. SHAREHOLDER ACTION. As soon as practicable after the effective date
of the N-14 Registration Statement, MasterWorks shall hold meeting(s) of the
shareholders of the GS Fund for the purpose of considering and voting upon:
(a) approval of this Plan and the Consolidation contemplated
hereby; and
(b) such other matters as may be determined by the Board of
Directors of MasterWorks.
9. CLOSING DATE, EFFECTIVE TIME OF THE CONSOLIDATION. The "CLOSING
DATE" shall be December 11, 1998, or such earlier or later date as may be
mutually agreed in writing by the parties hereto. Delivery of the Fund Assets
and the shares of the LCG Fund to be issued pursuant to Section 1 and the
liquidation of the GS Fund pursuant to Section 2 shall occur on the day
following the Closing Date, whether or not such day is a business day, or on
such other date, and at such place and time, as may be mutually agreed in
writing, by the parties hereto. The date and time at which such actions are
taken are referred to herein as the "EFFECTIVE TIME OF THE CONSOLIDATION." To
the extent any Fund Assets are, for any reason, not transferred to the LCG
Fund's custodian at the Effective Time of the Consolidation, MasterWorks shall
cause such Fund Assets to be transferred to the LCG Fund's custodian in
accordance with this Plan at the earliest practicable date thereafter.
10. CONDITIONS TO MASTERWORKS AND MSIT OBLIGATIONS. The obligations of
MasterWorks and MSIT hereunder shall be subject to the following conditions
precedent:
(a) This Plan and the Consolidation shall have been approved by
the Board of Trustees of Norwest Trust and by a majority of the shareholders of
the GS Fund in the manner required by applicable law and this Plan.
(b) All representations and warranties of Norwest Trust made in
this Plan shall be true and correct in all material respects as if made at and
as of the Valuation Time and the Effective Time of the Consolidation.
(c) Norwest Trust shall have delivered to MasterWorks a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to
MasterWorks and dated as of the Closing Date, to the effect that the
representations and warranties of Norwest Trust in this Plan are true and
correct at and as of the Valuation Time and that it has approved the Fund Assets
as being consistent with its investment objectives, policies and restrictions
and that the Fund Assets may otherwise be lawfully acquired by the LCG Fund.
(d) MasterWorks shall have received an opinion of Seward &
Kissel, as counsel to Norwest Trust, in a form reasonably satisfactory to
MasterWorks and dated as of the Closing Date, substantially to the effect that
(i) Norwest Trust is a business trust duly formed and legally existing under the
laws of the State of Delaware and is an open-end, management investment company
registered under the 1940 Act; (ii) the shares of the LCG Fund to be delivered
to the GS Fund as provided for by this Plan are duly authorized and upon
delivery will be validly issued, fully paid and non-assessable by Norwest Trust;
(iii) this Plan has been duly authorized, executed and delivered by Norwest
Trust, and represents a legal, valid and binding contract, enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto, and such
counsel shall express no opinion with respect to the application of equitable
principles in any proceeding whether at law or in equity; (iv) the execution and
delivery of this Plan did not, and the consummation of the transactions
contemplated by this Plan will not, violate the Amended and Restated Trust
Instrument or By-Laws of Norwest Trust or any material contract known to such
counsel to which Norwest Trust is a party or by which it is bound; and (v) no
consent, approval, authorization or order of any court or governmental authority
is required for the consummation by Norwest Trust of the transactions
contemplated by this Plan, except such as have been obtained under the 1933 Act,
the 1934 Act, the 1940 Act and the rules and regulations under those Acts, such
as may be required under state securities laws, such as may be required
subsequent to the Effective Time of the Consolidation and such as where the
failure to obtain the consent, approval, authorization or order would not have a
material adverse effect on the operation of the LCG Fund. Such opinion may rely
on the opinion of other counsel to the extent set forth in such opinion,
provided such other counsel is reasonably acceptable to MasterWorks.
(e) MasterWorks shall have received an opinion of Seward &
Kissel addressed to Norwest Trust and MasterWorks in a form reasonably
satisfactory to them, and dated as of the Closing Date, with respect to the
matters specified in Subsection 11(h).
(f) MasterWorks shall have received (i) a memorandum addressed
to Norwest Trust and MasterWorks, in a form reasonably satisfactory to them,
prepared by Forum Administrative Services, LLC, or another person approved by
the parties, concerning the registration of shares to be issued by Norwest Trust
pursuant to this Plan under applicable state securities laws or the exemption
from registration under such laws, and (ii) assurance reasonably satisfactory to
it that all permits and other authorizations necessary under state securities
laws to consummate the transactions contemplated by this Plan have been
obtained.
(g) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending the effectiveness shall have
been instituted, or to the knowledge of Norwest Trust, contemplated by the SEC.
(h) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Plan or the transactions contemplated herein.
(i) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking
to enjoin consummation of the transactions contemplated by this Plan under
Section 25(c) of the 1940 Act.
(j) Norwest Trust shall have performed and complied in all
material respects with each of its agreements and covenants required by this
Plan to be performed or complied with by it prior to or at the Valuation Time
and the Effective Time of the Consolidation.
(k) MasterWorks shall have received from Norwest Trust a duly
executed instrument whereby the LCG Fund assumes all of the liabilities of GS
Fund.
(l) MasterWorks shall have received a letter from KPMG Peat
Marwick LLP addressed to Norwest Trust and MasterWorks in a form reasonably
satisfactory to them, and dated as of the Closing Date, to the effect that on
the basis of limited procedures as agreed to by Norwest Trust and MasterWorks
and described in such letter (but not an examination in accordance with
generally accepted auditing standards) (i) nothing came to their attention that
caused them to believe that the unaudited pro forma financial statements
included in the N-14 Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of Rule 11-02 of
Regulation S-X or that the pro forma adjustments have not properly been applied
to the historical amounts in the compilation of those amounts, (ii) the data
used in the calculation of the current and pro forma expense ratios of the GS
Fund and the LCG Fund appearing in the N-14 Registration Statement, including
the proxy materials, agree with the underlying accounting records of the GS Fund
and the LCG Fund, as appropriate, or to written estimates provided by officers
of Norwest Trust or MasterWorks, as appropriate, having
responsibility for financial and reporting matters and were found to be
mathematically correct, and (iii) the information relating to the GS Fund and
the LCG Fund appearing in the N-14 Registration Statement that is expressed in
dollars or percentages of dollars has been obtained from the accounting records
of the GS Fund or the LCG Fund, as appropriate, or from schedules prepared by
officers of Norwest Trust or MasterWorks, as appropriate, having responsibility
for financial and reporting matters and such information is in agreement with
such records, schedules or computations made therefrom.
(m) Except to the extent prohibited by Rule 19b-1 under the 1940
Act, the LCG Fund shall have declared a dividend or dividends that, together
with all previous such dividends, shall have the effect of distributing to the
LCG Fund shareholders substantially all of its investment company taxable income
earned prior to the Closing Date and substantially all of its net capital gain
realized prior to such date.
(n) No party shall have terminated this Plan pursuant to Section
13 hereof.
(o) Each of MasterWorks and MSIT shall have received such
further assurances, including, but not limited to, further assurances from
Norwest Trust or any other person, concerning the performance of its obligations
hereunder and the consummation of the Consolidation as it shall deem necessary,
advisable or appropriate.
11. NORWEST TRUST CONDITIONS. The obligations of Norwest Trust
hereunder shall be subject to the following conditions precedent:
(a) This Plan and the Consolidation shall have been approved by
the Board of Trustees of MSIT, the Board of Directors of MasterWorks and by a
majority of the shareholders of the GS Fund in the manner required by applicable
law and this Plan.
(b) MSIT shall have delivered to Norwest Trust a statement of
assets and liabilities of the GS Master Portfolio, showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Valuation Time, certified by the Treasurer or Assistant Treasurer of MSIT as
having been prepared in accordance with generally accepted accounting principles
consistently applied. The statement of assets and liabilities shall indicate
which assets, if any, are or, after the Consolidation, will be subject to any
restrictions, legal or contractual, on the disposition thereof (including
restrictions as to the public offering or sale thereof under the 1933 Act) and
which assets, if any, are not readily marketable.
(c) MasterWorks shall have duly executed and delivered to
Norwest Trust such bills of sale, assignments, certificates and other
instruments of transfer (the "TRANSFER DOCUMENTS") as Norwest Trust may deem
necessary or desirable to transfer all of the GS Fund's right, title and
interest in and to the Fund Assets.
(d) All representations and warranties of MasterWorks and MSIT
made in this Plan shall be true and correct in all material respects as if made
at and as of the Valuation Time and the Effective Time of the Consolidation.
(e) Each of MasterWorks and MSIT shall have delivered to Norwest
Trust a certificate executed in its name by its President or Vice President and
its Treasurer or Assistant Treasurer, in a form reasonably satisfactory to
Norwest Trust and dated as of the Closing Date, to the effect that the
representations and warranties of MasterWorks or MSIT, as appropriate, in this
Plan are true and correct at and as of the Valuation Time.
(f) Norwest Trust shall have received an opinion of Morrison &
Foerster LLP, as counsel to MasterWorks, in a form reasonably satisfactory to
Norwest Trust and dated as of the Closing Date, substantially to the effect that
(i) MasterWorks is a corporation duly established and validly existing under the
laws of the State of Maryland and is an open-end, management investment company
registered under the 1940 Act; (ii) this Plan and the Transfer Documents have
been duly authorized, executed and delivered by MasterWorks and represent legal,
valid and binding contracts, enforceable in accordance with their terms, subject
to the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and such counsel shall express no opinion with
respect to the application of equitable principles in any proceeding, whether at
law or in equity; (iii) the execution and delivery of this Plan did not, and the
consummation of the transactions contemplated by this Plan will not, violate the
Amended and Restated Articles of Incorporation or By-Laws of MasterWorks or any
material contract known to such counsel to which MasterWorks is a party or by
which it is bound; (iv) the only shareholder approvals required with respect to
the consummation of the transactions contemplated by this Plan are the approval
of a majority of the shareholders of the GS Fund; and (v) no consent, approval,
authorization or order of any court or governmental authority is required for
the consummation by MasterWorks of the transactions contemplated by this Plan,
except such as have been obtained under the 1933 Act, the 1934 Act, the 1940 Act
and the rules and regulations under those Acts, such as may be required under
state securities laws, such as may be required subsequent to the Effective Time
of the Consolidation and such as where the failure to obtain the consent,
approval, authorization or order would not have a material adverse effect on the
operation of the GS Fund. Such opinion may rely on the opinion of other counsel
to the extent set forth in such opinion, provided such other counsel is
reasonably acceptable to Norwest Trust.
(g) Norwest Trust shall have received an opinion of Morrison &
Foerster LLP, as counsel to MSIT, in a form reasonably satisfactory to Norwest
Trust and dated as of the Closing Date, substantially to the effect that (i)
MSIT is a business trust duly established and validly existing under the laws of
the State of Delaware and is an open-end, management investment company
registered under the 1940 Act; (ii) this Plan has been duly authorized, executed
and delivered by MSIT and represents a legal, valid and binding contract,
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors rights generally and to court
decisions with respect thereto, and such counsel shall express no opinion with
respect to the application of equitable principles in any proceeding, whether at
law or in equity; (iii) the execution and delivery of this Plan did not, and the
consummation of the transactions contemplated by this Plan will not, violate the
Amended and Restated Agreement and Declaration of Trust or By-Laws of MSIT or
any material contract known to such counsel to which MSIT is a party or by which
it is bound; and (iv) no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by MSIT of the
transactions contemplated by this Plan, except such as have been obtained under
the 1933 Act, the 1934 Act, the 1940 Act and the rules and regulations under
those Acts and such as may be required under state securities laws, such as may
be required subsequent to the Effective Time of the Consolidation and such as
where failure to obtain the consent, approval, authorization or order would not
have a material adverse effect on the operation of the GS Master Portfolio. Such
opinion may rely on the opinion of other counsel to the extent set forth in such
opinion, provided such other counsel is reasonably acceptable to Norwest Trust.
(h) Norwest Trust shall have received an opinion of Seward &
Kissel addressed to Norwest Trust and MasterWorks in a form reasonably
satisfactory to them, and dated as of the Closing Date, substantially to the
effect that, for federal income tax purposes: (i) the transfer by the GS Fund of
all of the Fund Assets to the LCG Fund in exchange for shares of the LCG Fund,
and the distribution of such shares to the shareholders of the GS Fund, as
provided in this Plan, should constitute a reorganization within the meaning of
Section 368(a)(1)(C) of the Code; (ii) in accordance with Sections 361(a),
361(c)(1) and 357(a) of the Code, no gain or loss should be recognized by the GS
Fund as a result of such transactions; (iii) in accordance with Section 1032(a)
of the Code, no gain or loss should be recognized by the LCG Fund as a result of
such transactions; (iv) in accordance with Section 354(a)(1) of the Code, no
gain or loss should be recognized by the shareholders of the GS Fund on the
distribution to them by the GS Fund of shares of the LCG Fund in exchange for
their shares of the GS Fund; (v) in accordance with Section 358(a)(1) of the
Code, the basis of the LCG Fund shares received by each shareholder of the GS
Fund should be the same as the basis of the shareholder's GS Fund shares
immediately prior to the transactions; (vi) in accordance with Section 362(b) of
the Code, the basis of the Fund Assets received by the LCG Fund should be the
same as the basis of such Fund Assets in the hands of the GS Fund immediately
prior to the transactions; (vii) in accordance with Section 1223(l) of the Code,
a shareholder's holding period for the LCG Fund shares should be determined by
including the period for which the shareholder held the shares of the GS Fund
exchanged therefor, provided that the shareholder held such shares of the GS
Fund as a capital asset at the Effective Time of the Consolidation; (viii) in
accordance with Section 1223(2) of the Code, the holding period of the LCG Fund
with respect to the Fund Assets should include the period for which such Fund
Assets were held by the GS Fund; and (ix) in accordance with Section 381(a) of
the Code, the LCG Fund should succeed to the capital loss carryovers, if any, of
the GS Fund, but the use by the LCG Fund of any such capital loss carryovers
maybe subject to limitation under Section 383 of the Code.
(i) The Fund Assets to be transferred to the LCG Fund under this
Plan shall include only assets that have been determined by Norwest Trust to be
in accordance with the
LCG Fund's investment objective, policies and restrictions and include no assets
which the LCG Fund may not otherwise lawfully acquire.
(j) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Norwest Trust, contemplated by the SEC.
(k) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit or obtain damages or other relief in connection with this
Plan or the transactions contemplated herein.
(l) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking
to enjoin consummation of the transactions contemplated by this Plan under
Section 25(c) of the 1940 Act.
(m) Each of MasterWorks and MSIT shall have performed and
complied in all material respects with each of its respective agreements and
covenants required by this Plan to be performed or complied with by it prior to
or at the Valuation Time and the Effective Time of the Consolidation.
(n) Norwest Trust shall have received a letter from KPMG Peat
Marwick LLP addressed to Norwest Trust and MasterWorks described in Subsection
10(l).
(o) Except to the extent prohibited by Rule 19b-1 under the 1940
Act, the GS Fund shall have declared a dividend or dividends that, together with
all previous such dividends, shall have the effect of distributing to the GS
Fund shareholders substantially all of its investment company taxable income
earned prior to the Closing Date and substantially all of its net capital gain
realized prior to such date.
(p) No party shall have terminated this Plan pursuant to Section
13 hereof.
(q) Norwest Trust shall have received such further assurances,
including, but not limited to, further assurances from MasterWorks, MSIT or any
other person, concerning the performance of its obligations hereunder and the
consummation of the Consolidation as it shall deem necessary, advisable or
appropriate.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties hereto shall survive the completion of the
transactions contemplated herein.
13. TERMINATION OF PLAN. This Plan may be terminated by a party at or,
in the case of Subsection 13(c) below, at any time prior to, the Effective Time
of the Consolidation by a vote of a majority of its Board of Directors/Trustees
as provided below:
(a) By MasterWorks or MSIT if the conditions set forth in
Section 10 are not satisfied as specified in said Section;
(b) By Norwest Trust if the conditions set forth in Section 11
are not satisfied as specified in said Section; or
(c) By mutual consent of the parties.
In addition, MasterWorks or Norwest Trust may terminate this Plan at any time
prior to the Effective Date of the Consolidation if the party's Board of
Directors or Board of Trustees, as appropriate, determines that the consummation
of the transactions contemplated herein is not in the best interests of the
shareholders of the LCG Fund or the GS Fund, respectively, and gives notice to
the other parties hereto. It is understood and agreed that if Norwest Trust
terminates this Plan due to a determination by Norwest Trust's Board of Trustees
that the consummation of the transactions contemplated herein is not in the best
interest of the shareholders of the LCG Fund, Norwest Trust will take reasonable
steps to cooperate with MasterWorks in seeking a vote of the shareholders of the
GS Fund in favor of a plan of liquidation.
14. GOVERNING LAW. This Plan and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the laws of the
State of Delaware, except to the extent preempted by federal law.
15. BROKERAGE FEES AND EXPENSES.
(a) Each of MasterWorks, MSIT and Norwest Trust represents and
warrants that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
(b) [Each of the GS Fund, the GS Master Portfolio and the LCG
Fund shall be liable for its own expenses incurred in connection with entering
into and carrying out the provisions of this Plan, whether or not the
transactions contemplated hereby are consummated.]
16. AMENDMENTS. The parties hereto may, by agreement in writing
authorized by their respective Boards of Trustees and Board of Directors, amend
this Plan at any time before or after approval hereof by the shareholders of the
GS Fund, but after such approval, no amendment shall be made that materially
alters the obligations of any party hereto. Nothing in this Section 16 shall be
deemed to preclude Norwest Trust and MasterWorks from changing the Closing Date
or the Effective Time of the Consolidation by mutual agreement.
17. WAIVERS. At any time prior to the Closing Date, any party may by
written instrument signed by it (i) waive the effect of any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the agreements, covenants or conditions made for its
benefit contained herein.
18. COOPERATION. Each party hereto will cooperate with the others in
fulfilling its obligations under this Plan and will provide such information and
documentation as is reasonably requested by the other in carrying out the terms
hereof.
19. LIMITATION ON LIABILITIES. It is expressly agreed that (i) the
obligations of Norwest Trust and the LCG Fund hereunder shall not be binding
upon any of the Trustees, shareholders, nominees, officers, agents, or employees
of Norwest Trust personally, but shall bind only the assets and property of the
LCG Fund and not the other series of Norwest Trust; (ii) the obligations of
MasterWorks and the GS Fund hereunder shall not be binding upon any of the
Directors, shareholders, nominees, officers, agents or employees of MasterWorks
personally, but shall bind only the assets and property of the GS Fund and not
the other series of MasterWorks; and (iii) the obligations of MSIT and the GS
Master Portfolio hereunder shall not be binding upon any of the Trustees,
interestholders, nominees, officers, agents or employees of MSIT personally, but
shall bind only the assets and property of the GS Master Portfolio and not the
other series of MSIT. The execution and delivery by the parties' officers shall
not be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the assets and the
property of the GS Fund, the GS Master Portfolio and the LCG Fund, respectively.
20. NOTICES. Any notice, report, statement, certificate or demand
required or permitted by any provision of this Plan shall be in writing and,
unless this Plan otherwise provides, shall be given by prepaid telegraph,
telecopy, certified mail or overnight express courier to:
For Norwest Trust:
David I. Goldstein, Esq.
Forum Financial Group
Two Portland Square
Portland, ME 04101
With copies to:
Anthony C.J. Nuland
Seward & Kissel
1200 G Street, N.W., Suite 350
Washington, DC 20005
For MasterWorks and MSIT:
Richard H. Blank, Jr.
Stephens Inc.
111 Center Street
Little Rock, AR 72201
With copies to:
Robert M. Kurucza
Marco E. Adelfio
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W., Suite 5500
Washington, D.C. 20006
21. GENERAL. This Plan supersedes all prior agreements between the
parties (written or oral), is intended as a complete and exclusive statement of
the terms of the agreement between the parties and may not be changed or
terminated orally. This Plan may be executed in counterparts, which shall be
considered one and the same agreement, and shall become effective when the
counterparts have been executed by the parties hereto and delivered to each
party hereto. The headings contained in this Plan are for reference purposes
only and shall not affect in any way the meaning or interpretation of this Plan.
Nothing in this Plan, expressed or implied, is intended to confer upon any other
person any rights or remedies under or by reason of this Plan. No party hereto
may assign or transfer any right or obligation under this Plan without written
consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers designated below as of the date first
written above.
MASTERWORKS FUNDS INC.
ATTEST:
____________________________________________ By: ______________________________________________
Michael W. Nolte Richard H. Blank, Jr.
Assistant Secretary Chief Operating Officer,
Secretary and Treasurer
MANAGED SERIES INVESTMENT
TRUST
ATTEST:
____________________________________________ By: ______________________________________________
Michael W. Nolte Richard H. Blank, Jr.
Assistant Secretary Chief Operating Officer,
Secretary and Treasurer
NORWEST ADVANTAGE FUNDS
ATTEST:
____________________________________________ By: ______________________________________________
Name: Name:
Title: Title:
EXHIBIT B - PERFORMANCE INFORMATION FOR LARGE COMPANY GROWTH FUND
THIS DISCUSSION WAS WRITTEN FOR THE SHAREHOLDERS OF LARGE COMPANY AND CONTAINED
IN LARGE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED MAY
31, 1998. IT RELATES TO LARGE COMPANY'S PERFORMANCE AND MARKET ACTIVITY FOR THE
PERIOD ENDED MAY 31, 1998.
For the fiscal year ended May 31, l998, the Large Company Growth Fund
gained 32.29%, outperforming both the S&P 500 Index return of 30.67% and the
Lipper Growth Average of 25.85%. Returns were spread across a number of
holdings. Portfolio leaders included Pfizer, Ericsson, Cisco, and Home Depot.
Excellent fundamental results drove the portfolio's returns. Company holdings
have grown average earnings per share in excess of 25% over the past twelve
months. Unit volume growth was the major factor behind these outstanding
earnings gains. Importantly, the portfolio's superior earnings growth gap
relative to the S&P 500 Index continued to widen over the past year -- leading
to strong relative investment results. The S&P 500 Index earnings growth rate
continues to moderate from unsustainably high levels toward a 5%-l0% trend-line.
The Large Company Growth Fund invests exclusively in dynamic, high quality
growth stocks. Companies that sustain rapid earnings growth for a long period
offer investors several advantages. Since earnings growth drives stock prices,
these companies should offer above average investment return potential. In
addition, due to the sustained growth, their investment cycle is longer than
average and these companies' fundamental risk is lower than average. The Fund
utilizes a disciplined approach to increase the probability of finding and
investing in this select group of growth companies. The portfolio team invests
for the long-term to fully participate in these great companies' success.
The "what you see is what you get" fundamental environment is here. For
the past several years (l991-l997) many otherwise average companies have been
able to grow earnings well in excess of underlying sales growth. This was
unsustainable, and therefore S&P 500 Index earnings growth has naturally been
moderating toward the underlying sales growth rate (5%-7%). The Fund's projected
20% long-term earnings growth rate should outshine this average and provide
above average long-term investment returns. The overall moderate U.S. economic
growth rate and benign inflationary environment should continue to benefit
stocks, in general, and superior growth stocks, in particular.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH MAY 31, L998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME
BASED ON MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS
OF THE PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
LARGE COMPANY GROWTH FUND VS. STANDARD & POOR'S 500
INDEX ("S&P INDEX") AND LIPPER GROWTH AVERAGE ("LIPPER AVERAGE")
The following chart reflects the value of a $10,000 investment in the
Fund, including reinvested dividends and distributions, over the past 10 fiscal
year periods or since inception (for funds lacking l0-year records). The result
is compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
----------------------------------
[Chart reflects performance
indicated to left]
----------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Return
as of May 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I Shares* S&P Index Lipper Average**
- ----------------------------- -------------- ----------------- -----------------
One Year 30.67% 25.85%
32.39%
- ----------------------------- -------------- ----------------- -----------------
Five Year 22.14% 18.16%
20.39%
- ----------------------------- -------------- ----------------- -----------------
Ten Year 18.59% 16.43%
18.97%
- ----------------------------- -------------- ----------------- -----------------
Value May 31, l998 $56,861 $55,045 $45,823
- --------------------------------------------------------------------------------
*Prior to November 11, l994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, l994. The collective investment fund
performance was adjusted to reflect the Fund's l994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
l940 Act, nor subject to certain investment limitations, diversification
requirements, and other restrictions imposed by the l940 Act and the Internal
Revenue Code, which if applicable, may have adversely affected the performance
results.
**Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
EXHIBIT C - PLAN OF LIQUIDATION OF GROWTH STOCK FUND
PLAN OF LIQUIDATION
OF THE GROWTH STOCK FUND
OF MASTERWORKS FUNDS INC.
MasterWorks Funds Inc., a Maryland corporation (the "Company"), on
behalf of its Growth Stock Fund (the "Fund"), shall proceed to a complete
liquidation of the Fund according to the procedures set forth in this Plan of
Liquidation (the "Plan"). The Fund invests all of its assets in the Growth Stock
Master Portfolio (the "Master Portfolio") of Managed Series Instrument Trust
("MSIT"). The Plan has been approved by the Board of Directors of the Company
(the "Board") as being advisable and in the best interests of the Fund and its
shareholders. The Board has directed that this Plan be submitted to the holders
of the outstanding voting shares of the Fund (each a "Shareholder" and,
collectively, the "Shareholders"), voting in the aggregate without regard to
class, for their approval or rejection at a special meeting of shareholders and
has authorized the distribution of a Proxy Statement (the "Proxy Statement") in
connection with the solicitation of proxies for such meeting. Upon Shareholder
approval of the Plan, and a determination by the appropriate officers of the
Company that the Plan of Consolidation approved by the Board (the "Consolidation
Plan") will not be consummated on or before December 11, 1998, the Fund shall
voluntarily dissolve and completely liquidate in accordance with the
requirements of the Maryland General Corporation Law (the "MGCL") and the
Internal Revenue Code of 1986, as amended (the "Code"), as follows:
1. ADOPTION OF PLAN. The Plan shall become effective on the date
(the "Effective Date"), when both (i) the appropriate officers of the Company
determine that the Consolidation Plan will not be consummated on or before
December 11, 1998, and (ii) the Plan is approved by the Shareholders. As soon as
practicable after the Effective Date, the Fund shall cease offering and selling
its shares, except in connection with preexisting automated investment
arrangements.
2. LIQUIDATION AND DISTRIBUTION OF ASSETS. As soon as practicable
after the Effective Date and by December 11, 1998 (the "Liquidation Period"), or
as soon thereafter as practicable depending on market conditions and consistent
with the terms of this Plan, all assets of the Master Portfolio shall be
converted to cash or cash equivalents. During the Liquidation Period, Barclays
Global Fund Advisors and Wells Fargo Bank, N.A., as investment adviser and
investment sub-adviser, respectively, to the Master Portfolio, shall have the
authority to engage in such transactions as may be appropriate in anticipation
of the Fund's liquidation and dissolution, including liquidating investments on
such terms as they determine to be reasonable and in the best interests of the
Fund and its shareholders.
3. PROVISIONS FOR LIABILITIES. To the extent deemed advisable by the
appropriate Officers of the Company, the Fund shall pay or discharge or set
aside a reserve fund for, or
otherwise provide for the payment or discharge of, any liabilities and
obligations of the Fund, including, without limitation, contingent liabilities.
4. DISTRIBUTION TO SHAREHOLDERS. As soon as practicable after the
Liquidation Period, the Fund shall liquidate and distribute pro rata on the date
of liquidation (the "Liquidation Date") to its shareholders of record as of the
close of business on December 11, 1998 all of the assets of the Fund in complete
cancellation and redemption of all the outstanding shares of the Fund, except
for cash, bank deposits or cash equivalents in an estimated amount necessary to
(i) discharge any unpaid liabilities and obligations of the Fund on the Fund's
books on the Liquidation Date, including, but not limited to, income dividends
and capital gains distributions, if any, payable through the Liquidation Date,
and (ii) pay such contingent liabilities as the Board shall reasonably deem to
exist against the assets of the Fund on the Fund's books.
5. NOTICE AND FILINGS. As soon as practicable after the Effective
Date, the Company shall mail notice to the appropriate parties that this Plan
has been approved by the Board and the Shareholders and that the Fund will be
liquidating its assets, to the extent such notice is required under the MGCL,
and file such documents as may be required to effect the liquidation and
dissolution of the Fund pursuant to the MGCL. No shareholder shall have any
appraisal or dissenters rights in connection with this Plan.
6. AMENDMENT OR ABANDONMENT OF PLAN. The Board may modify or amend
this Plan at any time without Shareholder approval if it determines that such
action would be advisable and in the best interests of the Fund and its
Shareholders. If any amendment or modification appears necessary and in the
judgment of the Board will materially and adversely affect the interests of the
Shareholders, such an amendment or modification will be submitted to the
Shareholders for approval. In addition, the Board may abandon this Plan without
Shareholder approval at any time prior to the Liquidation Date if it determines
that abandonment would be advisable and in the best interests of the Fund and
its Shareholders.
7. POWERS OF BOARD AND OFFICERS. The Board and the officers of the
Fund are authorized to approve such changes to the terms of any of the
transactions referred to herein, to interpret any of the provisions of this
Plan, and to make, execute and deliver such other agreements, conveyances,
assignments, transfers, certificates and other documents and take such other
action as the Board and the officers of the Fund deem necessary or desirable in
order to carry out the provisions of this Plan and effect the complete
liquidation and dissolution of the Fund in accordance with the Code and the
MGCL.
8. TERMINATION OF BUSINESS OPERATIONS. As soon as practicable after
the Effective Date, the Fund shall cease to conduct business except as shall be
necessary in connection with the effectuation of its liquidation and
dissolution.
9. EXPENSES. The expenses of carrying out the terms of this Plan
shall be borne by the Fund, whether or not the liquidation contemplated by this
Plan is effected.
MASTERWORKS FUNDS INC.
PROXY SERVICES
MASTERWORKS FUNDS INC.
111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201
TELEPHONE: [1-800-222-8222]
PROXY
This Proxy is solicited on behalf of the Board of Directors of MasterWorks.
The undersigned hereby appoints R. Greg Feltus, Richard H. Blank, Jr., and Ann
Bonsteel, and each of them, attorneys and proxies of the undersigned, each with
power of substitution and resubstitution, to attend, vote and act for the
undersigned at the special meeting of shareholders of the Growth Stock Fund of
MasterWorks Funds, Inc. (the "Company") to be held at the principal executive
offices of the Company, 111 Center Street, Little Rock, Arkansas 72201, at 11:00
a.m. (Central time) on November 24, 1998 and at any adjournment(s) thereof,
casting votes according to the number of shares of the Growth Stock Fund which
the undersigned is entitled to vote with respect to the proposal listed below,
in accordance with the specification indicated, if any, and with all the powers
which the undersigned would possess if personally present, hereby revoking any
prior proxy to vote at such meeting, and hereby ratifying and confirming all
that said attorneys and proxies, or any of them, may lawfully do by virtue
thereof. The shares represented by this Proxy will be voted in accordance with
the instructions given by the undersigned. If no specific instructions are
given, such shares will be voted FOR the Proposals set forth below and in the
discretion of the proxies on any other matter that may come before the Meeting.
The Board of Directors of MasterWorks recommends a vote "FOR" the Proposals
listed below.
TO SAVE FURTHER SOLICITATION EXPENSE, PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS
FOLLOWS [X]
KEEP THIS PORTION FOR YOUR RECORDS
GROWTH STOCK FUND
DETACH AND RETURN THIS PORTION ONLY.
VOTE FOR PROPOSAL
FOR AGAINST ABSTAIN 1. To approve an Agreement and Plan of
[ ] [ ] [ ] Consolidation
for Growth Stock Fund and the transactions
contemplated therein, which include
(a) the transfer of all of the assets of
Growth Stock Fund to Large Company Growth
Fund, and the assumption by Large Company
Growth Fund of all of the liabilities of
Growth Stock Fund, in exchange for Class A
Shares of Large Company Growth Company;
and (b) the distribution to shareholders
of Growth Stock Fund of the Class A shares
of Large Company Growth Fund.
FOR AGAINST ABSTAIN 2. To approve the Plan of Liquidation of
[ ] [ ] [ ] Growth Stock Fund.
Receipt is acknowledged of the Combined Prospectus/Proxy Statement. (NOTE:
Checking the box labeled ABSTAIN will result in the shares covered by the Proxy
being treated as if they were voted AGAINST the Proposal.)
IMPORTANT: Please sign and date this proxy in the space provided. Execution by
shareholders who are not individuals must be made by an authorized signatory.
Executors, administrators, trustees, guardians or others signing in a
representative capacity should give their full title as such.
- ---------------- ----------------------- ------------
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPSECTUS
SUBJECT TO COMPLETION
October 1, 1998
GROWTH BALANCED FUND
INCOME EQUITY FUND
VALUGROWTH SM STOCK FUND
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
LARGE COMPANY GROWTH FUND
DIVERSIFIED SMALL CAP FUND
SMALL COMPANY STOCK FUND
SMALL CAP OPPORTUNITIES FUND
INTERNATIONAL FUND
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF NORWEST BANK MINNESOTA, N.A. AND
IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
INVESTING IN ANY MUTUAL FUND HAS RISK, AND IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN ANY OF THE FUNDS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER OR NOT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
1. PROSPECTUS SUMMARY
Highlights of the Funds.......................................
Expense Information...........................................
2. FINANCIAL HIGHLIGHTS .........................................
3. INVESTMENT OBJECTIVES AND POLICIES ...........................
Growth Balanced Fund..........................................
Income Equity Fund............................................
ValuGrowth Stock Fund.........................................
Diversified Equity Fund.......................................
Growth Equity Fund............................................
Large Company Growth Fund.....................................
Small Cap Diversified Fund....................................
Small Company Stock Fund......................................
Small Cap Opportunities Fund..................................
International Fund............................................
Core Portfolio Descriptions...................................
RISK CONSIDERATIONS...........................................
4. MANAGEMENT ...................................................
Investment Advisory Services..................................
5. CHOOSING A SHARE CLASS .......................................
A Shares......................................................
B Shares......................................................
C Shares......................................................
6. HOW TO BUY AND SELL SHARES ...................................
Minimum Investment............................................
Purchase Procedures...........................................
Account Application...........................................
General Information...........................................
Redemption Procedures.........................................
Other Redemption Matters......................................
Exchanges.....................................................
9. Dividends and Tax Matters ....................................
Dividends.....................................................
Tax Matters...................................................
10.Other Information ............................................
Determination of Net Asset Value..............................
Core Portfolios...............................................
Reallowances..................................................
1. OVERVIEW
The following is a summary of information about the Funds. Before investing, you
should consider the discussion under Investment Objectives and Policies and Risk
Considerations.
WHO SHOULD INVEST
No single Fund is a complete or balanced investment program, but each can serve
as a part of your overall investment program.
THE FUNDS
Growth Balanced Fund seeks a combination of current income and capital
appreciation. The other Funds seek capital growth or high capital return.
FUND PRIMARY INVESTMENTS
- - ---- -------------------
Growth Balanced Fund Stocks and bonds in several equity and fixed
income investment styles
Income Equity Fund Stocks with prospects of long-term capital
appreciation and above-average dividend income.
ValuGrowth Stock Fund Stocks of medium and large
capitalization companies that appear
undervalued and have potential for above-
average growth.
Diversified Equity Fund Diversified investments in five different
equity investment styles in order to moderate
fluctuations in the Fund's annual returns.
Growth Equity Fund Diversified investments in three different
equity investment styles in order to emphasize
capital appreciation and moderate
fluctuations in the Fund's annual returns.
Large Company Growth Fund Large, high-quality domestic companies with
potential for superior growth.
Diversified Small Cap Fund Diversified investments in different small
capitalization investment styles.
Small Company Stock Fund Stocks of small and medium-size domestic
companies with a market capitalization below
that of the average company in Standard &
Poor's 500 Composite Stock Price Index(C).
Small Cap Opportunities Fund Stocks of smaller companies with potential for
capital appreciation.
International Fund Stocks of high-quality companies based
outside of the United States.
CLASSES OF SHARES
This Prospectus offers three classes of shares. Each class has a different fee
structure. All of the Funds offer A Shares and B Shares. Growth Balanced Fund,
Income Equity Fund, Diversified Equity Fund and Growth Equity Fund also offer C
Shares.
2
* A Shares are generally offered at their net asset value plus an initial
sales charge. A Shares do not have distribution or shareholder servicing
fees.
* B Shares are offered at their net asset value. B Shares have distribution
and shareholder servicing fees and convert to A Shares within seven years
after purchase. If you redeem your B Shares within six years of purchase,
you pay a contingent deferred sales charge. The amount of the charge
depends on the length of time you hold the shares.
* C Shares are offered at their net asset value plus an initial sales charge
lower than that applied to A Shares. C Shares have distribution fees. If
you redeem your C Shares within one year of purchase, you pay a contingent
deferred sales charge.
FUND STRUCTURES
Some of the Funds invest directly in a portfolio of securities. Other Funds
invest in one or more other funds identified in this prospectus as Core
Portfolios. Except when necessary to describe a Fund's investment in a Core
Portfolio, this prospectus discusses a Fund's investments in a Core Portfolio as
if the investments were made directly in portfolio securities.
INVESTMENT ADVISERS
NORWEST INVESTMENT MANAGEMENT, INC. or NORWEST is the investment adviser for all
of the Funds and all but three of the Core Portfolios. Norwest, a subsidiary of
Norwest Bank Minnesota, N.A. or Norwest Bank, provides investment advice to
institutions, pension plans and other accounts and currently manages more than
$23.6 billion in assets. SCHRODER CAPITAL MANAGEMENT INC. or SCHRODER is the
investment adviser for three Core Portfolios: Schroder U.S. Smaller Companies
Portfolio, Schroder EM Core Portfolio and International Portfolio. Schroder
specializes in providing international investment advice. INVESTMENT SUBADVISERS
make investment decisions for certain Funds and Core Portfolios under Norwest's
general supervision. This prospectus generally refers to Norwest, Schroder or a
subadviser as an Adviser.
HOW TO BUY SHARES
The Funds require minimum initial investments of $1,000 and minimum subsequent
investments of $100. Currently, Small Cap Opportunities Fund is closed to new
investors.
EXCHANGES
If you own Fund shares, you may exchange them for shares of certain other funds.
Your exchange rights will vary depending on the class of shares you own.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's net capital gain, if any, is distributed at least annually.
* Income Equity Fund, ValuGrowth Stock Fund and Small Company Stock Fund
declare dividends of net investment income quarterly.
* All other Funds declare dividends of net investment income annually.
RISK FACTORS
All investments in the Funds are subject to risk and may decline in value. The
amount and types of risk vary from Fund to Fund depending on the Fund's
investment objective, the Adviser's ability to achieve the Fund's objective, the
markets the Fund invests in, the investments the Fund makes and prevailing
economic conditions over the period of your investment.
Every Fund also has the risk that its Adviser may not be successful in carrying
out its investment strategy. Your investment in a Fund will also have risk if
you do not plan to invest for a period that is long enough to permit the
investment to recover from an adverse market movement.
The Funds are subject to "market risk," which is the general risk that the value
of the Fund's investments may decline if the stock markets perform poorly. There
is a risk that a Fund's investments will underperform either the securities
markets generally or particular segments of the securities markets.
3
Funds that invest in smaller issuers or foreign issuers are riskier than other
Funds. Investments in smaller issuers are subject to greater market volatility
because securities of smaller issuers may not trade as often or be as widely
owned as the securities of larger issuers. Investments in foreign issuers are
subject to the risks of foreign political and economic instability and changes
in foreign exchange rates. Foreign investments are also subject to government
actions, including exchange controls and limits on repayments of foreign
investments. Foreign governments may nationalize, tax or confiscate investors'
assets.
Growth Balanced Fund divides its investments between fixed income securities and
equity securities in varying proportions, with an emphasis on equity securities.
If you invest in Growth Balanced Fund, your investment will be subject both to
the risks of fixed income securities and to the risks of equity securities. The
value of the Fund's fixed income investments generally will rise when interest
rates fall and fall when interest rates rise. The Fund's fixed income
investments are also subject to "credit risk," which is the risk that an issuer
will be unable, or will be perceived to be unable, to repay its obligations at
maturity.
In addition, the Adviser may vary, within a fixed range, the allocations of
Growth Balanced Fund's assets into each type of investment. There is a risk that
the allocations selected by the Adviser will not achieve the Fund's objective as
effectively as other possible allocations.
EXPENSE INFORMATION
The following table will assist you in understanding the expenses that you will
bear directly and indirectly if you invest in a Fund.
Shareholder Transaction Expenses
(applicable to each Fund)
A B C
Shares Shares Shares
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of public offering price) 5.5% Zero 1.0%
Maximum deferred dales charge
(as a percentage of the lesser of original purchase Zero 4.0%(1) 1.0%(2)
price or redemption proceeds)
ANNUAL FUND OPERATING EXPENSES(3)(7)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS AFTER APPLICABLE FEE WAIVERS AND EXPENSE REIMBURSEMENTS)
GROWTH INCOME
BALANCED FUND(6) EQUITY FUND
A B C A B C
Shares Shares Shares Shares Shares Shares
--------- --------- ---------- --------- ---------- ----------
Investment Advisory Fees (4)
Rule 12b-1 Fees (after fee waivers)(5)
Other Expenses (after fee waivers and
reimbursements)
Investment Advisory Fee - Core Portfolio(4)
Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
VALUGROWTH DIVERSIFIED
STOCK FUND EQUITYFUND(6)
A B A B C
Shares Shares Shares Shares Shares
--------------- -------------- --------- ---------- ----------
Investment Advisory Fees (4) Rule 12b-1 Fees (after fee waivers)(5) Other
Expenses (after fee waivers and reimbursements) Investment Advisory Fee - Core
Portfolio(4) Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
4
GROWTH LARGE COMPANY
EQUITY FUND(6) GROWTH FUND
A B C A B
Shares Shares Shares Shares Shares
--------- --------- ---------- ---------------- --------------
Investment Advisory Fees (4)
Rule 12b-1 Fees (after fee waivers)(5)
Other Expenses (after fee waivers and
reimbursements)
Investment Advisory Fee - Core Portfolio(4)
Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
DIVERSIFIED SMALL SMALL COMPANY
CAP FUND STOCK FUND(6)
A B A B
Shares Shares Shares Shares
--------------- -------------- ---------------- --------------
Investment Advisory Fees (4) Rule 12b-1 Fees (after fee waivers)(5) Other
Expenses (after fee waivers and reimbursements) Investment Advisory Fee - Core
Portfolio(4) Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
SMALL CAP INTERNATIONAL FUND
OPPORTUNITIES FUND
A B A B
Shares Shares Shares Shares
--------------- -------------- ---------------- --------------
Investment Advisory Fees (4)
Rule 12b-1 Fees (after fee waivers)(5)
Other Expenses (after fee waivers and
reimbursements)
Investment Advisory Fee - Core Portfolio(4)
Other Expenses - Core Portfolio(s)
(after fee waivers and reimbursements)
Total Operating Expenses(7)
(1) The maximum 4.0% deferred sales charge on B Shares applies to redemptions
during the first year after purchase; the charge declines to 3.0% during the
second and third years, 2.0% during the fourth and fifth years, 1.0% during
the sixth year and zero the following year.
(2) The 1.0% deferred sales charge on C Shares applies only to redemptions
during the first year after purchase.
(3) The expenses, and any waivers and fee reimbursements, for Growth Balanced
Fund, Diversified Small Cap Fund, Large Company Growth Fund and Class C
shares of Income Equity Fund, Diversified Equity Fund and Growth Equity Fund
are estimated.
(4) Absent waivers, Investment Advisory Fees for ValuGrowth Stock Fund would be
0.80% and for Growth Balanced Fund, Diversified Equity Fund, Growth Equity
Fund, Diversified Small Cap Fund and International Fund would be 0.25%.
Investment Advisory Fees --Core Portfolio states the investment advisory
fees of any Core Portfolios in which a Funds invests.
(5) Absent waivers, Rule 12b-1 Fees would be 1.00% for B Shares and [0.75%]
for C Shares.
(6) Norwest and the Funds' manager have agreed to waive fees and reimburse
expenses to maintain Small Company Stock Fund's total operating expenses at
or below 0.75% for A Shares and 1.50% for B Shares. Any proposed reduction
of those waivers or reimbursements would require review by the Funds' Board
of Trustees. Norwest and the Funds' manager have agreed to waive their fees
through May 31, 1999 to ensure that the combined investment advisory,
administrative and management services fees borne by Growth Balanced Fund,
Diversified Equity Fund and Growth Equity Fund do not exceed 0.68%, 0.75%
and 1.00%. Any reduction of that waiver after May 31, 1999 requires Board
approval.
(7) Absent estimated expense reimbursements and fee waivers, the expenses of A
Shares of Growth Balanced Fund, Income Equity Fund, ValuGrowth Stock Fund,
Diversified Equity Fund, Growth Equity Fund, Large Company Growth Fund,
Diversified Small Cap Fund, Small Company Stock Fund, Small Cap
Opportunities Fund and International Fund would be: Other Expenses, [___%],
[___%], [___%], [__%], [__%], [__%], [__%], [___%], [___%] and [___%],
respectively; Other Expenses - Core Portfolio(s), [__%], [___%], [__%],
[___%], [___%], [__%], [__%], [___%], [___%], [___%] and [___%],
respectively; and Total Operating Expenses, [__%], [__%],[___%], [___%],
[___%], [__%], [__%], [__%], [__%] and [___%], respectively. Absent expense
reimbursements and fee waivers, the expenses of B Shares of Income Equity
Fund, ValuGrowth Stock Fund, Diversified Equity Fund, Growth Equity Fund,
Small Company Stock Fund, Small Cap Opportunities Fund and International
Fund would be: Other Expenses, [___%], [___%], [___%], [___%], [___%],
[___%] and [___%], respectively; Other Expenses - Core Portfolio(s), [___%],
[___ %], [___%], [___%], [___%], [__%], and [___%], respectively; and Total
Operating Expenses, [___%], [___%], [___%], [___%], [___%], [___%] and
[___%], respectively. Absent estimated expense reimbursements and fee
waivers, the expenses of C Shares of [Growth Balanced Fund, Income Equity
Fund, Diversified Equity Fund and Growth Equity Fund] would be: Other
Expenses, [___%], [__%], [__%], [__%] respectively; Other Expenses - Core
Portfolio(s), [__%], [__%], [__%] and [__%], respectively; and Total
Operating Expenses [__%], [__%], [__%] and [__%] respectively. Except as
otherwise noted, expense reimbursements and fee waivers are voluntary and
may be reduced or eliminated at any time.
5
EXAMPLE
The Hypothetical Expense Example indicates the dollar amount of expenses you
would pay, assuming a $1,000 investment in a Fund's Shares, the expenses listed
in the Annual Fund Operating Expenses table, a 5% annual return, reinvestment of
all dividends and distributions, the deduction of the maximum initial sales
charge for A Shares and C Shares, the deduction of the contingent deferred sales
charge for B Shares and C Shares applicable to a redemption at the end of the
period and the conversion of B Shares to A Shares at the end of seven years. The
example does not represent past or future expenses or return. Actual expenses
and return may be greater or less than indicated.
Hypothetical Expense Example
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth Balanced Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
...............................................................................
Income Equity Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
...............................................................................
ValuGrowth Stock Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
...............................................................................
Diversified Equity Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
...............................................................................
Growth Equity Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
C Shares
Assuming redemption
at the end of the period
Assuming no redemption
...............................................................................
Small Company Stock Fund
A Shares
B Shares
Assuming redemption
at the end of the period
6
Assuming no redemption
...............................................................................
Small Cap Opportunities Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
...............................................................................
International Fund
A Shares
B Shares
Assuming redemption
at the end of the period
Assuming no redemption
7
2. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for the shorter of 10 years or the Fund's operating
history. Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would have
earned on an investment in a Fund, assuming reinvestment of all dividends and
distributions. The information from May 31, 1994 through May 31, 1998 has been
audited by _______________, independent auditors, whose reports, along with each
Fund's financial statements, are included in the Annual Report for the Funds,
which is available upon request. Other independent auditors audited information
for prior periods.
8
3. GLOSSARY
Term Definition
- - ---- ----------
Board The Board of Trustees of Norwest Advantage Funds
Duration A measure of a debt security's average life
that reflects the present value of the
security's cash flow.
Market Capitalization The total market value of a company's
outstanding common stock.
Non-Investment Grade Neither rated in one of the four highest long-
term rating categories by an NRSRO nor unrated
and determined by the Adviser to be of
comparable quality.
NRSRO A nationally recognized statistical rating
organization, such as S&P or Moody's
Investors Service, that rates fixed income
securities and preferred stock by relative
credit risk.
S&P Standard & Poor's Corporation
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(C), an index of small capitalization
companies
SEC Securities and Exchange Commission
U.S. Government Security An obligation issued or guaranteed as to
principal and interest by the U.S. Government,
its agencies or its instrumentalities, including
obligations issued or guaranteed by the U.S.
Treasury.
4. INVESTMENT OBJECTIVES AND POLICIES
This section discusses the investment objectives and policies of the Funds.
After each Fund's description, there is a short, alphabetical listing of the
Fund's primary risks. These risks are discussed below in Risk Considerations.
GROWTH BALANCED FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a
combination of current income and capital appreciation by diversifying
investment of the Fund's assets between stocks and bonds.
INVESTMENT POLICIES. The Fund is designed for investors seeking long-term
capital appreciation in the equity securities market in a balanced fund. The
Fund currently invests in 14 Core Portfolios.
The equity portion of the Fund's portfolio uses the five different equity
investment styles of Diversified Equity Fund. The blending of multiple equity
investment styles is intended to reduce the risk associated with the use of a
single style, which may move in and out of favor during the course of a market
cycle. The Fund invests the fixed income portion of its portfolio in Managed
Fixed Income Portfolio, Strategic Value Bond Portfolio and Positive Return
Portfolio. The blending of multiple fixed income investment styles is intended
to reduce the price and return volatility of, and provide more consistent
returns within, the Fund's fixed income investments.
The percentage of the Fund's assets invested in different styles may temporarily
deviate from the Fund's current allocation due to changes in market values. The
Adviser will effect transactions periodically to reestablish the current
allocation.
As market or other conditions change, the Adviser may attempt to enhance the
Fund's returns by changing the percentage of Fund assets invested in fixed
income and equity securities. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities. Absent unstable market
conditions, the Adviser does not anticipate making a substantial number of
percentage changes. When
9
the Adviser believes that a change in the current allocation percentages is
desirable, it will sell and purchase securities to effect the change. When the
Adviser believes that a change will be temporary (generally, 3 years or less),
it may choose to effect the change by using futures contracts.
GROWTH BALANCED FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
Investment Style CURRENT ALLOCATION RANGE OF INVESTMENT
- - ---------------- ------------------ -------------------
Diversified Equity Fund style 65% 45% - 85%
Index Portfolio 16.3% 11.3% - 21.3%
Income Equity Portfolio 16.3% 11.3% - 21.3%
Large Company style 16.3% 11.3% - 21.3%
Large Company Growth Portfolio 13.0% 9.0% - 17.0%
Disciplined Growth Portfolio 3.3% 2.3% - 4.3%
Diversified Small Cap style 6.5% 4.5% - 8.5%
Small Cap Index Portfolio 1.3% 0.9% - 1.7%
Small Company Growth Portfolio 1.6% 1.1% - 2%
Small Company Value Portfolio 1.6% 1.1% - 2%
Small Company Stock Portfolio 1.0% 0.7% - 1.4%
Small Cap Value Portfolio 1.0% 0.75% - 1.4%
International style 9.8% 6.8% - 12.8%
International Portfolio 9.3% 5.4% - 12.8%
Schroder EM Core Portfolio 0.5% 0% - 2.6%
Diversified Bond Fund style 35% 15% - 55%
Managed Fixed Income Portfolio 17.5% 7.5% - 27.5%
Strategic Value Bond Portfolio 5.8% 2.5% - 9.2%
Positive Return Bond Portfolio 11.7% 5% - 18.3%
TOTAL FUND ASSETS 100%
RISKS:
Credit risk Leverage risk
Currency Rate Risk Market risk
Foreign risk Prepayment risk
Interest rate risk Small company risk
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation consistent with above-average dividend income.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of large,
high-quality domestic companies that have above-average return potential based
on current market valuations. The Fund primarily emphasizes investing in
securities of companies with above-average dividend income. In selecting
securities for the Fund, 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. Large companies are those whose Market
Capitalization is greater than the median of the Russell 1000 Index.
The Fund may invest in preferred stock, convertible securities and foreign
securities. The Fund will not normally invest more than 10% of its assets in the
securities of a single issuer.
RISKS:
Currency risk Leverage risk
Foreign risk Market risk
VALUGROWTH STOCK FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide long-
term capital appreciation.
10
INVESTMENT POLICIES. The Fund invests primarily in medium- and large-
capitalization companies that, in the view of the Adviser, possess above average
growth characteristics and appear to be undervalued. Medium capitalization
companies are those companies whose Market Capitalization is in the range of
$500 million to $8 billion. Large companies are those companies whose Market
Capitalization is greater than the median of the Russell 1000 Index.
The Fund seeks to identify and invest in those companies with earnings and
dividends that the Adviser believes will grow both faster than inflation and
faster than the economy in general and whose growth the Adviser believes has not
yet been fully reflected in the market price of the companies' shares. In
seeking these investments, the Adviser relies primarily on a company by company
analysis rather than on a broader analysis of industry or economic sector
trends. The Adviser considers such matters as the quality of a company's
management, the existence of a leading or dominant position in a major product
line or market, the soundness of the company's financial position, and the
maintenance of a relatively high rate of return on invested capital and
shareholder's equity. Once companies are identified as possible investments, the
Adviser applies a number of valuation measures to determine the relative
attractiveness of each company and selects those companies whose shares are most
attractively priced.
The Fund may invest in companies that the Adviser considers to be "special
situations." Special situation companies often have the potential for
significant future earnings growth but have not performed well in the recent
past. These situations may include management turnarounds, corporate or asset
restructurings or significantly undervalued assets. These investments form a
comparatively small portion of the Fund's portfolio.
The Fund may invest up to 20% of its assets in securities of foreign issuers.
The Fund also may write covered calls and purchase calls on equity securities.
RISKS:
Currency Rate Risk Leverage risk
Foreign risk Market risk
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation while moderating annual return volatility by
diversifying its investments among different equity investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in a single investment style. The
Fund currently invests in 11 Core Portfolios.
The Fund's portfolio combines five different equity investment styles - an index
style, an income equity style, a large company style, a diversified small cap
style and an international style. The Fund allocates the assets dedicated to
large company investments to two Core Portfolios, the assets allocated to small
company investments to five Core Portfolios and the assets dedicated to
international investments to two Core Portfolios. Because Diversified Equity
Fund blends five equity investment styles, it is anticipated that its price and
return volatility will be less than that of Growth Equity Fund, which blends
three equity investment styles.
DIVERSIFIED EQUITY FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
CURRENT ALLOCATION RANGE OF
------------------ INVESTMENT
-----------
Index Portfolio 25% 23.5% - 26.5%
Income Equity Portfolio 25% 23.5% - 26.5%
Large Company style 25% 23.5% - 26.5%
Large Company Growth Portfolio 20% 18.5% - 21.5%
Disciplined Growth Portfolio 5% 3.5% - 6.5%
Diversified Small Cap style 10% 8.5% - 11.5%
Small Cap Index Portfolio 2.0% 0.5% - 3.5%
Small Company Growth Portfolio 2.4% 0.9% - 3.9%
Small Company Value Portfolio 2.4% 0.9% - 3.9%
Small Company Stock Portfolio 1.6% 0.1% - 3.1%
Small Cap Value Portfolio 1.6% 0.1% - 3.1%
International Style 15% 13.5% - 16.5%
International Portfolio 14.3% 10.8% - 16.5%
Schroder EM Core Portfolio 0.8% 0% - 3.3%
11
TOTAL FUND ASSETS 100%
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market value. The Adviser
will effect transactions daily to reestablish the current allocations. The
Adviser may make changes in the current allocations at any time in response to
market and other conditions. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities.
RISKS:
Currency Rate Risk Market risk
Foreign risk Small company risk
Leverage risk
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide a high
level of long-term capital appreciation while moderating annual return
volatility by diversifying its investments among different equity investment
styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
reduce the volatility and risk of investing in a single equity style. The Fund
currently invests in eight Core Portfolios.
The Fund's portfolio combines three different equity styles - a large company
growth style, a diversified small cap style and an international style. The Fund
allocates the assets dedicated to small company investments to five Core
Portfolios and the assets dedicated to international investments to two Core
Portfolios. It is anticipated that the Fund's price and return volatility will
be somewhat greater than those of Diversified Equity Fund, which blends five
equity styles.
GROWTH EQUITY FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
Current Allocation Range of Investment
------------------ -------------------
Large Company Growth Portfolio 35% 33% - 37%
Diversified Small Cap Style 35% 33% - 37%
Small Cap Index Portfolio 7.0% 5.0% - 9.0%
Small Company Growth Portfolio 8.4% 8.5% - 12.5%
Small Company Value Portfolio 8.4% 8.5% - 12.5%
Small Company Stock Portfolio 5.6% 3.6% - 7.6%
Small Cap Value Portfolio 5.6% 3.6% - 7.6%
International Style 30% 28% - 32%
International Portfolio 28.5% 22.4% - 32.0%
Schroder EM Core Portfolio 1.5% 0% - 6.4%
TOTAL FUND ASSETS 100%
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current allocations.
The Adviser may make changes in the current allocations at any time in response
to market or other conditions. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities.
RISKS:
Currency Rate Risk Market risk
Foreign risk Small company risk
Leverage risk
LARGE COMPANY GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation by investing primarily in large, high-quality
domestic companies that the Adviser believes have superior growth potential.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of large,
high-quality domestic companies that have superior
12
growth potential. Large companies are those companies whose Market
Capitalization is greater than the median of the Russell 1000 Index. In
selecting securities for the Fund, the Adviser seeks issuers whose stock is
attractively valued and whose fundamental characteristics both are significantly
better than the market average and support internal earnings growth capability.
The Fund's assets may be invested in the securities of companies whose growth
potential is, in the Adviser's opinion, generally unrecognized or misperceived
by the market.
The Fund may invest up to 20% of its assets in the securities of foreign issuers
and may hedge against currency risk by using foreign currency forward contracts.
The Fund will not invest more than 10% of its total assets in the securities of
a single issuer.
RISKS:
Currency risk Leverage risk
Foreign risk Market risk
DIVERSIFIED SMALL CAP FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation while moderating annual return volatility by
diversifying its investments across different small capitalization equity
investment styles.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in small capitalization equity
securities. The Fund invests in several different small capitalization equity
styles in order to reduce the risk of price and return volatility associated
with reliance on a single investment style. The Fund currently invests in five
Core Portfolios.
DIVERSIFIED SMALL CAP FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
CURRENT RANGE OF INVESTMENT
ALLOCATION -------------------
----------
Small Cap Index Portfolio 20% 18.5% - 21.5%
Small Company Growth Portfolio 24% 22.5% - 25.5%
Small Company Value Portfolio 24% 22.5% - 25.5%
Small Company Stock Portfolio 16% 14.5% - 17.5%
Small Cap Value Portfolio 16% 14.5% - 17.5%
-------
Total Fund Assets 100%
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current allocations.
The Adviser may make changes in the current allocations at any time in response
to market and other conditions. The Fund may also invest in more or fewer Core
Portfolios or invest directly in portfolio securities.
RISKS:
Currency risk Market risk
Foreign risk Small company risk
Leverage risk
SMALL COMPANY STOCK FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of small-
and medium-size domestic companies that have a Market Capitalization well below
that of the average company in the S&P 500 Index. Small companies are those
companies whose Market Capitalization is less than the largest stock in the
Russell 2000 Index. Medium companies are those companies whose Market
Capitalization ranges from $500 million to $8 billion.
In selecting securities for the Fund, the Adviser seeks securities with
significant price appreciation potential, and attempts to identify companies
that show above-average growth, as compared to long-term overall market growth.
The companies in which the Fund invests may be in a relatively early stage of
development or may produce goods and services that have favorable prospects for
growth due to
13
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, thereby allowing such companies to be successful. 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 Fund may invest up to 20% of its assets in the securities of foreign
issuers.
RISKS:
Currency risk Market risk
Foreign risk Small company risk
Leverage risk
SMALL CAP OPPORTUNITIES FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is capital
appreciation. Current income will be incidental to the objective of capital
appreciation.
INVESTMENT POLICIES. The Fund invests primarily in equity securities of U.S.
companies that, at the time of purchase, have Market Capitalizations of $1.5
billion or less. The Adviser attempts to identify securities of companies which
it believes can generate above-average earnings growth and sell at favorable
prices in relation to book values and earnings. The Adviser's assessment of the
competency of an issuer's management will be an important consideration in
selecting investments. These criteria are not rigid, and the Fund may make other
investments if they may help the Fund achieve its objective.
The Fund will invest principally in equity securities (common stocks, securities
convertible into common stocks or, subject to special limitations, rights or
warrants to subscribe for or purchase common stocks). The Fund may also invest
to a limited degree in non-convertible debt securities and preferred stocks when
the Adviser believes these investments will help the Fund achieve its objective.
The Fund currently intends to invest no more than 5% of its total assets in
securities of small, unseasoned companies, which, together with any
predecessors, have been in operation for less than three years.
The Fund currently intends to invest no more than 5% of its net assets in
Non-Investment Grade convertible and non-convertible securities. The Fund may
use options and futures contracts to manage risk. The Fund may also use options
to enhance return.
RISKS:
Leverage risk Small company risk
Market risk
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide
long-term capital appreciation by investing directly or indirectly in
high-quality companies based outside the United States.
INVESTMENT POLICIES. The Fund invests in a "multi-style" approach designed to
minimize the volatility and risk of investing in international securities. The
Fund's investment portfolio combines two different investment styles - an
international equity investment style and an international emerging markets
investment style. The Fund invests in two Core Portfolios.
INTERNATIONAL FUND ALLOCATION
The current allocations and ranges of investments by the Fund in each Core
Portfolio are:
CURRENT RANGE OF INVESTMENT
ALLOCATION -------------------
----------
International Portfolio 95% 80% - 100%
Schroder EM Core Portfolio 5% 0% - 20%
TOTAL FUND ASSETS 100%
The percentage of Fund assets invested in each Core Portfolio may temporarily
deviate from the current allocations due to changes in market values. The
Adviser will effect transactions daily to reestablish the current allocations.
The Adviser may make changes in the
14
current allocations at any time in response to market and other conditions. The
Fund may also invest in more or fewer Core Portfolios or invest directly in
portfolio securities.
RISKS:
Credit risk Interest rate risk
Currency rate risk Leverage risk
Foreign risk Market risk
Geographic concentration risk Prepayment risk
DESCRIPTIONS OF CORE PORTFOLIOS
POSITIVE RETURN BOND PORTFOLIO
The Core Portfolio seeks positive total return each calendar year regardless of
the bond market by investing in a portfolio of U.S. Government Securities and
corporate fixed income securities. The Core Portfolio's assets are divided into
two components, short bonds with maturities (or average life) of two 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 Core Portfolio will
vary between one and 30 years.
Under normal circumstances, the Core Portfolio will invest at least 50% of its
net assets in U.S. Government Securities, including Treasury securities. The
Core Portfolio only purchases securities that are rated, at the time of
purchase, within one of the two highest long-term rating categories assigned by
an NRSRO or that are unrated and determined by the Adviser to be of comparable
quality. The Adviser will not invest more than 25% of its assets in securities
rated in the second highest rating category. The Core Portfolio will limit its
investments in zero-coupon securities, securities with variable or floating
rates of interest and asset-backed securities to 25% of its net assets in each
type of security. The Core Portfolio may not invest in convertible securities,
mortgage pass-through securities or private placement securities. Within these
constraints, the Adviser purchases securities that it believes have
above-average yields.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
MANAGED FIXED INCOME PORTFOLIO
The Core Portfolio seeks consistent fixed income returns by investing primarily
in investment grade intermediate term obligations. The Core 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, while employing low risk
yield enhancement techniques to enhance return over a complete economic or
interest rate cycle. Intermediate-term obligations are securities with
maturities of between two and 20 years.
The Core Portfolio will limit its investment in mortgage-backed securities to
not more than 50% of its total assets and its investment in other asset-backed
securities to not more than 25% its net assets. In addition, the Core Portfolio
may not invest more than 30% of its assets in the securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury.
The Core Portfolio only purchases securities that are rated, at the time of
purchase, within the four highest long-term or two highest short-term rating
categories assigned by an NRSRO, or which are unrated and determined by the
Adviser to be of comparable quality.
The Core Portfolio invests in debt obligations with maturities (or average life
in the case of mortgage-backed and similar securities) ranging from overnight to
30 years. Under normal circumstances, the Core Portfolio will have an average
dollar-weighted portfolio maturity of between three and 12 years and a Duration
of between two and six years.
The Portfolio may also invest up to 10% of its total assets in: obligations
issued or guaranteed by governments the Adviser deems stable, or their
subdivisions, agencies or instrumentalities; loan or security participations;
obligations 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.
15
Risks:
Credit risk Leverage risk
Foreign risk Market risk
Interest rate risk Prepayment risk
STRATEGIC VALUE BOND PORTFOLIO
The Core Portfolio seeks total return by investing primarily in income-producing
securities. The Core Portfolio invests in a broad range of fixed income
instruments including corporate bonds, asset-backed securities, mortgage-related
securities, U.S. Government Securities, preferred stock, convertible bonds and
foreign bonds in order to create a strategically diversified portfolio of
high-quality fixed income investments.
The Adviser focuses on relative value as opposed to predicting the direction of
interest rates. In general, the Core Portfolio seeks higher current income
instruments such as corporate bonds and mortgage-backed and asset-backed
securities in order to enhance returns. The Adviser believes that this exposure
enhances performance in varying economic and interest rate cycles while avoiding
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 Core Portfolio's objective and purchases those
securities that will enhance its positioning.
To limit the Core Portfolio's credit risk, the Core Portfolio generally will
invest 65% of its assets in fixed income securities rated in one of the three
highest rating categories by at least one NRSRO, or which are unrated and
determined by the Adviser to be of comparable quality. In addition, the Core
Portfolio will limit its investment in Non-Investment Grade fixed income
securities to 20% of the Core Portfolio's assets.
The average maturity of the Core Portfolio will vary between five and 15 years.
In the case of mortgage-related, asset-backed and similar securities, the Core
Portfolio uses the security's average life in calculating the Core Portfolio's
average maturity. The Core Portfolio's Duration normally will vary between three
and eight years.
The Core Portfolio particularly seeks strategic diversification. The Core
Portfolio will not invest more than: (1) 75% of its assets in corporate bonds,
(2) 25% of its assets in one industry of the corporate market, (3) 50% of its
assets in asset-backed securities or (4) 60% of its assets in mortgage-related
securities. The Core Portfolio may invest in U.S. Government Securities without
restriction. The Core Portfolio generally will not invest more than 5% of its
assets in the corporate bonds of any one issuer.
The Core Portfolio may invest up to 20% of its total assets in Non-Investment
Grade fixed income securities rated in the fifth highest rating category by an
NRSRO or unrated and determined by the Adviser to be of comparable quality.
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.
RISKS:
Credit risk Market risk
Interest rate risk Prepayment risk
Leverage risk
INDEX PORTFOLIO
The Core Portfolio is designed to duplicate the return of the S&P 500 Index with
minimum tracking error, while also minimizing transaction costs. Under normal
circumstances, the Core Portfolio will hold stocks representing 100% of the
capitalization-weighted market values of the S&P 500 Index. The Adviser
generally executes portfolio transactions for the Core Portfolio only to
duplicate the composition of the S&P 500 Index, to invest cash received from
portfolio security dividends or investments in the Core Portfolio, and to raise
cash to fund redemptions. The Core Portfolio may hold cash or cash equivalents
to facilitate payment of the Core Portfolio's expenses or redemptions and may
invest in index futures contracts to a limited extent. For these and other
reasons, the Core Portfolio's performance can be expected to approximate but not
equal 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
16
firms in their respective industries.
RISKS:
Leverage risk Market risk
INCOME EQUITY PORTFOLIO
The Core Portfolio is described in the section of this prospects describing
Income Equity Fund.
LARGE COMPANY GROWTH PORTFOLIO
The Core Portfolio is described in the section of this prospectus describing
Large Company Growth Fund.
DISCIPLINED GROWTH PORTFOLIO
The Core Portfolio seeks capital appreciation by investing in common stocks of
larger companies. The Core 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 Core Portfolio invests in
companies with average Market Capitalizations greater than $5 billion.
The Core Portfolio seeks to identify growth companies that will report a level
of corporate earnings that exceed the level expected by investors. In seeking
these companies, the Adviser uses both quantitative and fundamental analysis and
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.
RISKS:
Leverage risk Market risk
SMALL CAP INDEX PORTFOLIO
The Core Portfolio seeks to replicate the return of the S&P Small Cap 600 Index
with minimum tracking error, while also minimizing transaction costs. Under
normal circumstances, the Core Portfolio will hold stocks representing 100% of
the capitalization-weighted market values of the S&P 600 Small Cap Index. The
Adviser generally executes portfolio transactions only to duplicate the
composition of the S&P 600 Small Cap Index, to invest cash received from
portfolio security dividends or investments in the Core Portfolio, and to raise
cash to fund redemptions. The Fund may hold cash or cash equivalents to
facilitate payment of the Fund's expenses or redemptions and may invest in index
futures contracts. For these and other reasons, the Core 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.
RISKS:
Leverage risk Market risk
SMALL COMPANY STOCK PORTFOLIO
The Core Portfolio is described in the section of this prospectus describing
Small Company Stock Fund.
SMALL COMPANY GROWTH PORTFOLIO
The Fund seeks long-term capital appreciation by investing 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. The Fund considers smaller companies to be those
with Market Capitalizations less than $1 billion at the time of the Fund's
purchase.
17
In selecting securities for the Fund, 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 Adviser may invest up to 10% of the Core Portfolio's total assets in foreign
securities. The Adviser will not invest more than 10% of the Core Portfolio's
total assets in the securities of a single issuer.
RISKS:
Currency rate risk Market risk
Foreign risk Small company risk
Leverage risk
SMALL COMPANY VALUE PORTFOLIO
The Core Portfolio seeks to provide long-term capital appreciation by investing
primarily in smaller companies whose Market Capitalization is less than the
largest stock in the Russell 2000 Index. 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 therefore may reduce
downside risk while offering potential for capital appreciation as a stock gains
favor among other investors and its stock price rises.
RISKS:
Leverage risk Small company risk
Market risk
SMALL CAP VALUE PORTFOLIO
The Core Portfolio seeks capital appreciation by investing in common stocks of
smaller companies. The Core Portfolio will normally invest substantially all its
assets in companies with Market Capitalizations that reflect the Market
Capitalizations of companies included int the Russell 2000 Index. The Core
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 are likely to report a level of corporate earnings exceeding
the level expected by investors. Companies are valued 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.
RISKS:
Leverage risk Small company risk
Market risk
INTERNATIONAL PORTFOLIO
The Core Portfolio seeks to provide long-term capital appreciation by investing
directly or indirectly in high-quality companies based outside the United
States. The Core Portfolio selects its investments on the basis of their
potential for capital appreciation without regard to current income. The Core
Portfolio may also invest in the securities of domestic closed-end investment
companies that invest primarily in foreign securities. The Core Portfolio's
investments will generally be 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
Core 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 Core Portfolio may concentrate its investments in a
particular country, region or type of investment.
The Core Portfolio may purchase preferred stock and convertible debt securities,
including convertible preferred stock. The Core Portfolio may also enter into
foreign exchange contracts, including forward contracts to purchase or sell
foreign currencies, in anticipation of its currency requirements and to protect
against possible adverse movements in foreign exchange rates.
RISKS:
Currency rate risk Leverage risk
18
Foreign risk Market risk
Geographic concentration risk
SCHRODER EM CORE PORTFOLIO
The Core Portfolio seeks to achieve long-term capital appreciation through
direct or indirect investment in equity and debt securities of issuers domiciled
or doing business in emerging market countries in regions such as Southeast
Asia, Latin America, and Eastern and Southern Europe. Current income is
incidental to the Core Portfolio's objective.
The Core Portfolio may invest, under normal market conditions, up to 65% of its
total assets in emerging market equity and debt securities, including common
stocks; convertible preferred stocks; stock rights and warrants; convertible
debt securities; and non-convertible debt securities.
The Adviser considers "Emerging market" countries generally to be all those
countries not included in the Morgan Stanley Capital International World Index
("MSCI World") of major world economies. If, however, the Adviser determines
that the economy of a MSCI World-listed country is an emerging market economy,
the Adviser may include such country in the emerging market category. The Core
Portfolio will not necessarily seek to diversify investments on a geographic
basis and may invest more than 25% of its total assets in issuers located in any
one country.
The Core Portfolio may invest up to 35% of its total assets in Non-Investment
Grade fixed income securities.
RISKS:
Credit risk Interest rate risk
Currency rate risk Leverage risk
Foreign risk Market risk
Geographic concentration risk Prepayment risk
5. RISK CONSIDERATIONS
The principal risks of the Funds are described below. Each Fund's exposure to
these risks depends upon its specific investment profile. The risks which apply
to each Fund are listed in the Fund's description above in Investment Objectives
and 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.
Non-Investment Grade securities are especially susceptible to this risk.
CURRENCY RATE RISK. The risk that fluctuations in the exchange rates between the
U.S. dollars and foreign currencies may negatively affect an investment.
FOREIGN RISK. The risk that foreign issuers may be subject to foreign political
and economic instability, 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 investors' assets.
Investments in issuers located or doing business in emerging or developing
markets are especially susceptible to these risks.
GEOGRAPHIC CONCENTRATION RISK. The risk that if a Fund concentrates its
investments in a single country or region, its portfolio will be more
susceptible to factors adversely affecting issuers located in that country or
region than would be a more geographically diverse securities portfolio.
INTEREST RATE RISK. The risk that changing interest rates may affect the value
of your investment. With fixed-rate securities, an increase in interest rates
typically causes the value of the Fund's 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 Fund that invests in fixed income
securities is subject to risk even if all the fixed income securities in the
Fund'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 derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
MARKET RISK. The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. 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 obligations when
interest rates fall, forcing the Fund to invest in
19
obligations with lower interest rates than the prepaid obligations.
SMALL COMPANY RISK. The risk that investments in smaller companies may be more
volatile than investments in larger companies. Smaller companies generally
experience higher growth rates and higher failure rates than do larger
companies. 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 generally has a disproportionate effect on their
market price, tending to make prices rise more in response to buying demand and
fall more in response to selling pressure.
6. COMMON POLICIES
Except as otherwise indicated, investment policies of the Funds are not deemed
to be fundamental and may be changed by the Board without shareholder approval.
UNRATED SECURITIES
Each Fund may retain a security whose rating has been lowered (or a security of
comparable quality to a security whose rating has been lowered) below the Fund's
lowest permissible rating category if the Fund's Adviser determines that
retaining the security is in the best interests of the Fund. 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
In an attempt to respond to adverse market, economic, political, or other
conditions, each Fund may assume a temporary defensive position and invest
without limit in cash or cash equivalents. During periods when and to the extent
that a Fund has assumed a temporary defensive position, it may not be pursuing
its investment objective.
PORTFOLIO TRANSACTIONS
From time to time a Fund 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
to a Fund or a Core Portfolio and a possible increase in short-term capital
gains or losses.
YEAR 2000
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers to the Funds do not properly process and
calculate date-related information and data after December 31, 1999. Norwest and
the Funds' manager are taking steps to address the Year 2000 issue for their
computer systems and to obtain reasonable assurances that comparable steps are
being taken by the Funds' other major service providers. While the Funds do not
anticipate any adverse effect on their computer systems from the year 2000,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. is the investment adviser for each Fund and
each Core Portfolio except the Core Portfolios advised by Schroder. In this
capacity, Norwest makes investment decisions for and administers the Funds' and
Core Portfolios' investment programs.
NORWEST INVESTMENT MANAGEMENT, INC., NORWEST CENTER, SIXTH STREET AND MARQUETTE,
MINNEAPOLIS, MN 55479
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. is the investment adviser for the
Schroder U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and
International Portfolio. In this capacity, Schroder makes investment decisions
for and administers those Core Portfolios' investment programs.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC., 787 SEVENTH AVENUE, 34TH FLOOR,
NEW YORK, NY 10019
Norwest and certain of the Funds and the Core Portfolios have retained
investment subadvisers to make investment decisions for and administer the
investment programs of those Funds and Core Portfolios. Norwest decides which
portion of the assets of a Fund or Core Portfolio the subadviser should manage
and supervises the subadvisers' performance of their duties. The subadvisers
are:
CRESTONE CAPITAL MANAGEMENT, INC. ("CRESTONE"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVICE
20
REGARDING COMPANIES WITH SMALL MARKET CAPITALIZATION TO VARIOUS CLIENTS,
INCLUDING INSTITUTIONAL INVESTORS. CRESTONE CAPITAL MANAGEMENT, INC., 7720 EAST
BELLVIEW AVE., SUITE 220, ENGLEWOOD, CO 80111
GALLIARD CAPITAL MANAGEMENT, INC. ("GALLIARD"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVISORY SERVICES TO BANK AND
THRIFT INSTITUTIONS, PENSION AND PROFIT SHARING PLANS, TRUSTS AND CHARITABLE
ORGANIZATIONS AND CORPORATE AND OTHER BUSINESS ENTITIES.
GALLIARD CAPITAL MANAGEMENT, INC., 800 LASALLE AVE. SUITE 2060, MINNEAPOLIS, MN
55479
PEREGRINE CAPITAL MANAGEMENT, INC. ("PEREGRINE"), AN INVESTMENT ADVISORY
SUBSIDIARY OF NORWEST BANK, PROVIDES INVESTMENT ADVISORY SERVICES TO CORPORATE
AND PUBLIC PENSION PLANS, PROFIT SHARING PLANS, SAVINGS-INVESTMENT PLANS AND
401(K) PLANS.
PEREGRINE CAPITAL MANAGEMENT, INC., LASALLE PLAZA, 800 LASALLE AVE., SUITE 1850,
MINNEAPOLIS, MN 55402.
SMITH ASSET MANAGEMENT GROUP, L.P. ("SMITH"), AN INVESTMENT ADVISORY AFFILIATE
OF NORWEST BANK, PROVIDES INVESTMENT MANAGEMENT SERVICES TO COMPANY RETIREMENT
PLANS, FOUNDATIONS, ENDOWMENTS, TRUST COMPANIES, AND HIGH NET WORTH INDIVIDUALS
USING A DISCIPLINED EQUITY STYLE.
SMITH ASSET MANAGEMENT GROUP, L.P., 500 CRESCENT COURT, SUITE 250, DALLAS, TX
75201
Listed below, for each Fund, are the portfolio managers primarily responsible
for the day-to-day management of the Fund's investments. The year a portfolio
manager began managing a Fund or Core Portfolio follows the manager's name in
parenthesis. The list includes the investment advisory fees payable to Norwest
or Schroder by the Fund and by any Core Portfolios in which it invests.
How investment advisory fees are paid depends on whether or not a Fund invests
in Core Portfolios.
* If a Fund invests directly in a portfolio of securities, Norwest receives
an investment advisory fee directly from the Fund.
* If a Fund invests in a single Core Portfolio, Norwest or Schroder receives
an investment advisory fee from the Core Portfolio.
* If a Fund invests in more than one Core Portfolio, Norwest or Schroder
receives an investment advisory fee from each of those Core Portfolios. In
addition, Norwest receives a fee from each Fund, except Cash Investment
Fund, for the "asset allocation services" of determining the Funds'
investments in the Core Portfolios and how much of the Fund's assets to
invest in each Core Portfolio.
If a Fund invests in more than one Core Portfolio, the total amount of the
investment advisory fee paid to Norwest or Schroder as a result of the
Fund's investments varies depending on how much of the Fund's assets are
invested in and the investment advisory fee payable to each Core Portfolio.
Norwest (and not the Funds or Core Portfolios) pays the subadvisers'
investment subadvisory fees. The investment subadvisory fees do not
increase the amount of the investment advisory fees paid to Norwest by the
Funds or Core Portfolios.
GROWTH BALANCED FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: POSITIVE RETURN BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: William D. Giese, CFA (19__) and Patricia Burns (1998). Mr.
Giese, a Senior Vice President of Peregrine, has been a portfolio manager at
Peregrine for more than ten years and has more than 20 years' experience in
fixed income securities management. Ms. Burns, a Senior Vice-President of
Peregrine, has been a portfolio manager at Peregrine for more than ten years.
She has been associated with Norwest since 1983.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: STRATEGIC VALUE BOND PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGERS: Richard Merriam, CFA (19__), John Huber (19__) and David Yim
(19__). Mr. Merriam, a managing partner of
21
Galliard since 1995, is responsible for investment process and strategy. He was
previously Chief Investment Officer of Insight Investment Management. Before, he
was the Senior Vice President of Washington Square Capital Management. Mr. Huber
is described above under Stable Income Fund. Mr. Yim, Portfolio Manager and
Director of Investment Research since 1995, previously worked for six years for
American Express Financial Advisors as a Research Analyst focusing on the
insurance and finance industries.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: MANAGED FIXED INCOME PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: GALLIARD
PORTFOLIO MANAGER: Richard Merriam, CFA (19__) and Ajay Mirza (1998). Mr.
Merriam is described above under Strategic Value Bond Portfolio. Mr. Mirza has
been a Portfolio Manager and Mortgage Specialist with Galliard since 1995. He
also has experience as a research analyst at Insight Investment Management and
Lehman Brothers.
ADVISORY FEE: 0.35% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__). Mr.
Sylvester has been associated with Norwest and Norwest Bank since 1979, and
currently is a Managing Director - Reserve Asset Management. He has over 20
years' experience in managing securities portfolios. Ms. White is a
Director-Reserve Asset Management and has been associated with Norwest or
Norwest Bank since 1991; from 1989 to 1991, she was a Portfolio Manager at
Richfield Bank and Trust.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) a Managing Director, Equities of
Norwest, has been associated with Norwest and its affiliates for over 20 years
in various investment related capacities.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (1998).
Mr. Dale, a Senior Vice President of Peregrine, has held various investment
management positions with Norwest, Peregrine and their affiliates since 1968.
Mr. Nussbaum, a Senior Vice President of Peregrine, has been associated with
Peregrine in various investment management positions since 1990. Mr. Nussbaum
was an analyst with Shawmut National Bank from 1988-1990.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_), Chief Investment Officer and
principal of the Smith Group, has held these positions since November 1995. Mr.
Smith previously served as senior portfolio manager with NationsBank, managing
approximately $1 billion in client assets. He also held positions as manager of
the institutional asset management group, manager of the disciplined equity
style, member of the Investment Policy Committee and sub-adviser for a portfolio
of AIM Management Company's Summit Fund.
ADVISORY FEE: Disciplined Growth Portfolio: 0.90% annually of the Core
Portfolio's average daily net assets. Small Cap Value Portfolio: 0.95% annually
of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Index Portfolio.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__), and Paul E. von Kuster, CFA
(19__). Mr. Mersky, the President of Peregrine, has held various investment
management positions with Norwest, Peregrine and their affiliates since 1977 and
was head of
22
investments for Norwest Bank from 1980 to 1984. Mr. von Kuster, a Senior Vice
President of Peregrine, has held various investment management positions with
Peregrine, Norwest and their affiliates since 1972.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh, CFA (1998)
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. Before joining Lord
Asset Managment, he was associated with Morgan Stanley Asset Management. Mr.
Pugh, a Senior Vice President of Peregrine, has been associated with Peregrine
since December 1997. Before joining Peregrine, Mr. Pugh was a senior equity
analyst and portfolio manager for Advantus Capital Management from 1994-1997 and
an analyst with Kemper Corporation from 1991-1994.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is the founder, President and a
Director of Crestone, which was incorporated in 1990.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) has been a Senior Vice President of
Schroder since January 1997. With the assistance of a Schroder investment
committee, he is primarily responsible for the day-to day management of the Core
Portfolio's investments. Previously Mr. Perelstein was a Managing Director at
MacKay Shields. He has more than 12 years of international and global investment
experience.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), assisted by the management team of
Heather Crighton (1997) and Mark Bridgeman (1997). Mr. Troiano, Chief Executive
Officer of Schroder since April 1, 1997, has been a Managing Director of
Schroder since October 1995 and has been employed by various Schroder affiliated
companies in the investment research and portfolio management areas since 1981.
Ms. Crighton and Mr. Bridgeman are Vice Presidents of Schroder and have been
employed by various Schroder affiliated companies in the investment research and
portfolio management areas since 1992 and 1990, respectively.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
INCOME EQUITY FUND
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under
Strategic Income Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
VALUGROWTH STOCK FUND
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David S. Lunt, CFA (1996), a Managing Director, Equities, has
been associated with Norwest and its affiliates since 1992. Previously Mr. Lunt
was a portfolio manager for FirsTier Bank and a securities analyst for Woodmen
Accident and Life Company.
ADVISORY FEE: 0.80% annually of the Fund's first $300 million of average daily
net assets; 0.76% annually of the next $400 million of average daily net assets;
0.72% annually of the remaining average daily net assets.
DIVERSIFIED EQUITY FUND
FUND INVESTMENT ADVISER: NORWEST
23
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.15% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INCOME EQUITY PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David L. Roberts, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.50% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: DISCIPLINED GROWTH PORTFOLIO
SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith (199_) is described above under Growth
Balanced Fund.
ADVISORY FEE:
DISCIPLINED GROWTH PORTFOLIO: 0.90% annually of the Core Portfolio's average
daily net assets.
SMALL CAP VALUE PORTFOLIO: 0.95% annually of the Core Portfolio's average daily
net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under
24
Growth Balanced Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
GROWTH EQUITY FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.95% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul E. von Kuster, CFA
(19__) are described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
ridgeman (1997) are described above under Growth Balanced Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
LARGE COMPANY GROWTH FUND
25
CORE PORTFOLIO: LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGER: John S. Dale, CFA (19__) and Gary E. Nussbaum, CFA (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.65% annually of the Core Portfolio's average daily net assets.
DIVERSIFIED SMALL CAP FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: SMALL CAP INDEX PORTFOLIO
INVESTMENT ADVISER: NORWEST
PORTFOLIO MANAGER: David D. Sylvester (19__) and Laurie R. White (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.25% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Robert B. Mersky, CFA (19__) and Paul von Kuster, CFA (19__)
are described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: PEREGRINE
PORTFOLIO MANAGERS: Tasso H. Coin, Jr. (19__) and Douglas G. Pugh (19__) are
described above under Growth Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIOS: SMALL CAP VALUE PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: SMITH
PORTFOLIO MANAGER: Stephen S. Smith, CFA (199_) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.95% annually of the Core Portfolio's average daily net assets.
SMALL COMPANY STOCK FUND
CORE PORTFOLIO: SMALL COMPANY STOCK PORTFOLIO
INVESTMENT ADVISER: NORWEST
INVESTMENT SUBADVISER: CRESTONE
PORTFOLIO MANAGER: Kirk McCown, CFA (19__) is described above under Growth
Balanced Fund.
ADVISORY FEE: 0.90% annually of the Core Portfolio's average daily net assets.
SMALL CAP OPPORTUNITIES FUND
CORE PORTFOLIO: SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Ms. Fariba Talebi (19__), a Group Vice President of Schroder,
is assisted by a small cap investment team. Ms. Talebi has served in Schroder's
investment research and portfolio management areas since 1987.
ADVISORY FEE: 0.60% annually of the Core Portfolio's average daily net assets.
26
INTERNATIONAL FUND
FUND INVESTMENT ADVISER: NORWEST
FUND ADVISORY FEE: 0.25% annually of the Fund's average daily net assets.
CORE PORTFOLIO: INTERNATIONAL PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: Michael Perelstein (1997) is described under Growth Balanced
Fund.
ADVISORY FEE: 0.45% annually of the Core Portfolio's average daily net assets.
CORE PORTFOLIO: SCHRODER EM CORE PORTFOLIO
INVESTMENT ADVISER: SCHRODER
PORTFOLIO MANAGER: John A. Troiano (1997), Heather Crighton (1997) and Mark
Bridgeman (1997) are described above under Growth Balanced Fund.
ADVISORY FEE: 1.00% annually of the Core Portfolio's average daily net assets.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in one
or more Core Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Core Portfolios. If a Fund
redeems assets from a Core Portfolio and invests them directly, Norwest receives
an investment advisory fee from the Fund for the management of those assets.
8. CHOOSING A SHARE CLASS
Sales charges and fees vary considerably between a Fund's classes. Consider the
differences in the classes' fee structures carefully before choosing which class
to purchase. In particular, consider how long you intend to invest in the Fund
and whether during that period it would be more advantageous to invest in a
class with an initial sales charge and comparatively low expenses, a class with
no sales charge but with a CDSC and distribution and shareholder servicing fees
or a class with a comparatively low initial sales charge, a comparatively low
CDSC and a distribution fee. Also, consider whether you might qualify for a
reduced sales charge on A Shares and whether any difference in total expenses
between classes would be offset by A Shares' higher yield. The SAI has more
information about ways to qualify for reduced sales charges and how reduced
sales charge alternatives operate.
A SHARES
The Funds offers A Shares at their next-determined net asset value
plus the following initial sales charge (no sales charge applies to
reinvestments of dividends or distributions):
SALES CHARGE
AS A PERCENTAGE OF*
AMOUNT OF PURCHASE OFFERING PRICE+ NET ASSET VALUE
Less than $50,000............... 5.50% 5.76%
$50,000 to $99,999.............. 4.50% 4.71%
$100,000 to $249,000............ 3.50% 3.63%
$250,000 to $499,000............ 2.50% 2.56%
$500,000 to $999,000............ 2.00% 2.04%
Over $1,000,000................. 0.00% 0.00%
*Rounded to the nearest one-hundredth percent.
+The amount of the initial sales charge is included in the offering price
If you redeem A Shares purchased with a reduced sales charge, the Funds may
impose a charge on the redemption depending on how long you have held the
shares.
27
B SHARES
The Funds offer B Shares at their net asset value per share. B Shares have
distribution and shareholder servicing fees of 1.00% of the average daily net
assets of the class under a Rule 12b-1 distribution plan. Because distribution
fees are paid out of the Funds' assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost more than paying a
front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem B Shares within six years
of purchase, there will be a CDSC on the redemption in the amount indicated
below. The amount of the CDSC will vary depending on the number of years between
the payment for the purchase of the shares and their redemption. You will pay
the CDSC on the lesser of the cost of the B Shares redeemed and their net asset
value upon redemption. The Funds do not impose a CDSC on B Shares purchased
through reinvestments of dividends and distributions.
YEAR SINCE PURCHASE CHARGE FOR EACH FUND
4.0%
First.................................................
3.0%
Second................................................
3.0%
Third.................................................
2.0%
Fourth................................................
2.0%
Fifth.................................................
1.0%
Sixth.................................................
None
Seventh...............................................
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares and C Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for more than six years, fourth from B Shares held for five years and C
Shares of the Fund and fifth from the longest outstanding B Shares of the Fund
held for less than five years.
CONVERSION FEATURE. B Shares will automatically convert to A Shares six years
from the end of the calendar month in which the Fund accepted your purchase. The
conversion will be on the basis of the relative net asset values of the shares,
without the imposition of any sales load, fee or other charge. For purposes of
conversion, the Funds will consider B Shares purchased through the reinvestment
of dividends and distributions to be held in a separate sub-account. Each time
any B Shares in your account (other than those in the sub-account) convert, a
corresponding pro rata portion of the shares in the sub-account will also
convert. The Funds may suspend the conversion feature in the future; in that
event, B Shares might continue to pay their distribution fee indefinitely.
C SHARES
The Funds offers C Shares at their next-determined net asset value plus an
initial sales charge of [1.0%] of the shares' offering price ([1.02]% of the
amount invested). There is no sales charge on reinvestments of dividends or
distributions. C Shares have distribution fees of 0.75% of the average daily net
assets of the class under a Rule 12b-1 distribution plan. Because distribution
fees are paid out of the Funds' assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost more than paying a
front-end sales charge.
CONTINGENT DEFERRED SALES CHARGE. If you redeem C Shares within one year of
purchase, there will be a 1.0% CDSC on the redemption. You will pay the CDSC on
the lesser of the cost of the C Shares redeemed and their net asset value upon
redemption. The Funds do not impose a CDSC on C Shares purchased through
reinvestments of dividends and distributions.
The Funds will redeem shares in the manner that results in the imposition of the
lowest CDSC. The Funds will automatically redeem shares first from any A Shares
of the Fund, second from B Shares and C Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for more than six years, fourth from B Shares held for five years and C
Shares of the Fund and fifth from the longest outstanding B Shares of the Fund
held for less than five years.
6. HOW TO BUY AND SELL SHARES
28
You may purchase Fund shares on "Fund Business Days" at their net asset value
next determined after acceptance of an order plus, in the case of A Shares and C
Shares, any applicable sales charge. Fund Business Days are all weekdays except
generally observed national holidays (New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
and Christmas) and Good Friday.
GENERAL PURCHASE INFORMATION
All of the Funds require a minimum initial investment of $1,000 and minimum
subsequent investments of $100. The Funds may waive their investment minimums.
Your shares will become eligible to receive dividends the Fund Business Day
after a purchase order is accepted.
The Funds reserve the right to reject any subscription for the purchase of
shares, including subscriptions by market timers. You will receive share
certificates for your shares only if you request them in writing. No
certificates are issued for fractional shares.
PURCHASING SHARES DIRECTLY
You may obtain an account application by writing Norwest Advantage Funds at the
following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
When you sign an application for a new Fund account, you are certifying that
your Social Security number or other taxpayer identification number is correct
and that you are not subject to backup withholding. If you violate certain
federal income tax provisions, the Internal Revenue Service can require the
Funds to withhold 31% of your distributions and redemptions.
You must pay for your shares in U.S. dollars by check or money order drawn on a
U.S. bank, by bank or federal funds wire transfer or by electronic bank
transfer. Cash cannot be accepted.
Call or write the transfer agent if you wish to participate in shareholder
services not offered on the account application or change information on your
account (such as addresses). Norwest Advantage Funds may in the future modify,
limit or terminate any shareholder privilege upon appropriate notice and may
charge a fee for certain shareholder services, although no such fees are
currently contemplated. You may terminate your participation in any shareholder
program by writing to Norwest Advantage Funds.
PURCHASES BY MAIL. You may send a check or money order (cash cannot be accepted)
along with a completed account application to Norwest Advantage Funds at the
address listed above. Checks and money orders are accepted at full value subject
to collection. Payment by a check drawn on any member of the Federal Reserve
System can normally be converted into federal funds within two business days
after receipt of the check. Checks drawn on some non-member banks may take
longer. If your check does not clear, the purchase order will be canceled and
you will be liable for any losses or fees incurred by Norwest Advantage Funds,
the transfer agent or the Funds' distributor.
To purchase shares for individual or Uniform Gift to Minors Act accounts, you
must write a check or purchase a money order payable to Norwest Advantage Funds
or endorse a check made out to you to Norwest Advantage Funds. For corporation,
partnership, trust, 401(k) plan or other non-individual type accounts, make the
check used to purchase shares payable to Norwest Advantage Funds. No other
methods of payment by check will be accepted for these types of accounts.
PURCHASES BY BANK WIRE. You must first telephone the Funds' transfer agent at
1-612-667-8833 or 1-800-338-1348 to obtain an account number before making an
initial investment in a Fund by bank wire. Then instruct your bank to wire your
money immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund][Class of Shares]
Account No.:
Account Name:
29
Complete and mail the account application promptly. Your bank may charge for
transmitting the money by wire. The Funds do not charge for the receipt of wire
transfers. The Funds treat payment by bank wire as a federal funds payment when
received.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. When you purchase a Fund's shares through a
financial institution, the shares may be held in your name or in the name of the
financial institution. Subject to your institution's procedures, you may have
Fund shares held in the name of your financial institution transferred into your
name. If your shares are held in the name of your financial institution, you
must contact the financial institution on matters involving your shares. Your
financial institution may charge you for purchasing, redeeming or exchanging
shares.
SUBSEQUENT PURCHASES OF SHARES
You may make subsequent purchases by mailing a check, by sending a bank wire or
through a financial institution as indicated above. All payments should clearly
indicate your name and account number.
GENERAL REDEMPTION INFORMATION
You may redeem a Fund shares as of the next determination of the Fund's net
asset value following acceptance by the transfer agent of the redemption order
in proper form (and any supporting documentation that the transfer agent may
require) subject to, in the case of B Shares and C Shares, a CDSC imposed on
most redemptions made within six years or one year of purchase. Redeemed shares
are not entitled to receive dividends after the day on which the redemption is
effective.
Normally, redemption proceeds are paid immediately following acceptance of a
redemption order. In any event, you will be paid within seven days, unless (i)
your bank has not cleared the check to purchase the shares (which may take up to
15 days), (ii) the New York Stock Exchange is closed (or trading is restricted)
for any reason other than normal weekend or holiday closings, (iii) there is an
emergency in which it is not practical for the Fund to sell its portfolio
securities or for the Fund to determine its net asset value or (iv) the SEC
deems it inappropriate for redemption proceeds to be paid. You can avoid the
delay of waiting for your bank to clear your check by paying for shares with
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to your record address.
To protect against fraud, the following must be in writing with a signature
guarantee: (1) endorsement on a share certificate; (2) instruction to change
your record name; (3) modification of a designated bank account for wire
redemptions; (4) instruction regarding an Automatic Investment Plan or Automatic
Withdrawal Plan; (5) dividend and distribution elections; (6) election of
telephone redemption privileges; (7) election of exchange or other privileges in
connection with your account; (8) written instruction to redeem shares whose
value exceeds $50,000; (9) redemption in an account when the account address has
changed within the last 30 days; (10) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(11) the payment of redemption proceeds to any address, person or account for
which there are not established standing instructions.
You may obtain signature guarantees at any of the following types of
organizations: authorized banks, broker-dealers, national securities exchanges,
credit unions, savings associations or other eligible institutions. The specific
institution providing the guarantee must be acceptable to the transfer agent.
Whenever a signature guarantee is required, the signature of each person
required to sign for the account must be guaranteed.
The Funds and the transfer agent will use reasonable procedures to verify that
telephone requests are genuine, including recording telephone instructions and
sending written confirmations of the transactions. Such procedures are necessary
because the Funds and transfer agent could be liable for losses due to
unauthorized or fraudulent telephone instructions. You should verify the
accuracy of a telephone instruction as soon as you receive the confirmation
statement. Telephone redemption and exchanges may be difficult to implement in
times of drastic economic or market changes. If you cannot reach the transfer
agent by telephone, you may mail or hand-deliver requests to the transfer agent.
Because of the cost of maintaining smaller accounts, Norwest Advantage Funds may
redeem, upon not less than 60 days' written notice, any account with a net asset
value of less than $1,000 immediately following any redemption.
REDEMPTION PROCEDURES
If you have invested directly in a Fund you may redeem your shares as described
below. If you have invested through a financial institution you may redeem
shares through the financial institution. If you wish to redeem shares by
telephone or receive redemption proceeds by bank wire you should complete the
appropriate sections of the account application. These privileges may not be
available until several weeks after the application is received. You may not
redeem certificated shares by telephone.
30
REDEMPTION BY MAIL. You may redeem shares by sending a written request to the
transfer agent accompanied by any share certificate you have been issued. Sign
all requests and endorse all certificates with signature guaranteed.
REDEMPTION BY TELEPHONE. If you have elected telephone redemption privileges,
you may redeem shares by telephoning the transfer agent at 1-800-338-1348 or
1-612-667-8833 and providing your shareholder account number, the exact name in
which the shares are registered and your Social Security number or other
taxpayer identification number. Norwest Advantage Funds will mail a check to
your record address or, if you have chosen wire redemption privileges, wire the
proceeds.
REDEMPTION BY BANK WIRE. If you have elected wire redemption privileges, you may
request a Fund to transmit redemption proceeds of more than $5,000 by federal
funds wire to a bank account you have designated in writing. You must have
chosen the telephone redemption privilege to request bank redemptions by
telephone. Redemption proceeds are wired on the Fund Business Day after the
transfer agent receives a redemption request in proper form.
EXCHANGES
You may exchange A Shares and B Shares for A Shares and B Shares, respectively,
of the Funds and of other funds of Norwest Advantage Funds that offer those
classes of shares. You may exchange C Shares of a Fund for C Shares of the other
Funds. You may also exchange your shares for some classes of certain money
market funds of Norwest Advantage Funds. Call or write the transfer agent for
both a list of funds that offer shares exchangeable with those of the Funds and
for prospectuses of those funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges you may make. The Funds, however, may limit your ability to
exchange shares if you exchange too often. Exchanges are subject to the fees
(other than CDSCs) charged by, and the limitations (including minimum investment
restrictions) of, the fund into which you are exchanging.
You may only exchange shares into a pre-existing account if that account is
identically registered. You must submit a new account application if you wish to
exchange shares into an account registered differently or with different
shareholder privileges. You may exchange into a fund only if that fund's shares
may legally be sold in your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase
of shares. You may realize a capital gain or loss depending on whether the value
of the shares redeemed is more or less than your basis in the shares at the time
of the exchange. The Funds may amend or terminate exchange procedures on 60
days' notice.
SALES CHARGES. Some exchanges of A Shares may require a sales charge in addition
to the sales charge you paid to purchase the shares. If you exchange into a fund
that imposes an initial sales charge greater than the sales charge you paid, you
must pay the difference between the sales charge of the fund you are exchanging
into and your Fund. For example, if you paid a 2% initial sales charge on a
purchase of shares and then exchanged those shares for shares of another fund
with a 3% initial sales charge, you would pay an additional 1% sales charge on
the exchange. The Funds deems A Shares acquired through the reinvestment of
dividends or distributions to have been acquired with a sales charge equal to
the maximum sales charge of the fund.
You may exchange B Shares without paying a CDSC. If you redeem B Shares you
received in an exchange, the CDSC will be calculated as if you never exchanged
the shares you originally purchased. B Shares acquired through an exchange will
also convert to A Shares when the B Shares originally purchased would convert to
A Shares.
EXCHANGES BY MAIL. You may make an exchange by sending a written request to the
transfer agent accompanied by any share certificates for the shares to be
exchanged. Sign all written requests and endorse all certificates with signature
guaranteed.
EXCHANGES BY TELEPHONE. If you have telephone exchange privileges, you may make
a telephone exchange by calling the transfer agent at 1-800-338-1348 or
1-612-667-8833 and giving your account number, the exact name in which the
shares are registered and your Social Security number or other taxpayer
identification number.
9. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared and paid as follows:
Declared and paid quarterly: Income Equity Fund, ValuGrowth
Stock Fund and Small Company
Stock Fund.
Declared and paid annually: Each other Fund.
31
Each Fund's net capital gain, if any, is distributed at least annually.
You have three choices for receiving dividends and distributions: the
Reinvestment Option, the Cash Option and the Directed Dividend Option.
* Under the Reinvestment Option, all dividends and distributions of a Fund
are automatically invested in additional shares of that Fund. You are
automatically assigned this option unless you select one of the other two
options.
* Under the Cash Option, you are paid all dividends and distributions in
cash.
* Under the Directed Dividend Option, if you own $10,000 or more of a Fund's
shares in a single account, you can have that Fund's dividends and
distributions reinvested in shares of another fund of Norwest Advantage
Funds. Call or write the transfer agent for more information about the
Directed Dividend Option.
All dividends and distributions are treated in the same manner for federal
income tax purposes whether received in cash or reinvested in shares of a Fund.
All dividends and distributions reinvested in a Fund are reinvested at the
Fund's net asset value as of the payment date of the dividend or distribution
TAX MATTERS
Dividends paid by a Fund out of its net investment income (including net
short-term capital gain) are taxable as ordinary income. Net capital gain may be
taxable at different rates depending on the length of time the Fund holds its
assets. Dividends (other than those of Funds that declare dividends daily) and
distributions reduce the net asset value of the Fund paying the dividend or
distribution by the amount of the dividend or distribution. Furthermore,
dividends or a distribution made shortly after you purchase shares, although in
effect a return of capital to you, are taxable.
If a Fund receives investment income from sources within foreign countries, that
income may be subject to foreign income or other taxes. International Fund
intends, if eligible to do so, to permit its shareholders to take a credit (or a
deduction) for foreign income and other taxes paid by International Portfolio
and Schroder EM Core Portfolio. If you own shares of International Fund, you
will be notified of your share of those foreign taxes and will be required to
treat the amount of the foreign taxes as additional income. In that event, you
may be entitled to claim a credit or deduction for those taxes.
10. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund determines its net asset value at 4:00p.m., Eastern Time on each Fund
Business Day by dividing the value of its net assets (i.e. the value of its
securities and other assets less its liabilities) by the number of shares
outstanding at the time the determination is made. The Funds value portfolio
securities at current market value if market quotations are readily available.
If market quotations are not readily available, the Funds value those securities
at fair value as determined by or under procedures adopted by the Board. The
Core Portfolios follow similar procedures in determining their net asset values.
European, Far Eastern and other international securities exchanges and
over-the-counter markets normally complete trading well before the close of
business on each Fund Business Day. Trading in foreign securities, however, may
not take place on all Fund Business Days or may take place on days that are not
Fund Business Days. The determination of the prices of foreign securities may be
based on the latest market quotations for the securities. If events occur that
affect the securities' value after the close of the markets on which they trade,
the Funds may make an adjustment to the value of the securities for purposes of
determining net asset value.
For purposes of determining net asset value, the Funds 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.
CORE PORTFOLIOS
Each Fund reserves the right to invest in one or more Core Portfolios. Each Fund
bears its pro rata share of the expenses of any Core Portfolio in which it
invests. The Board may redeem a Fund's investment in a Core Portfolio at any
time. The Fund could then invest directly in portfolio securities or could
re-invest in one or more different Core Portfolios that could have different
fees and expenses. A Fund might redeem, for example, if other investors had
sufficient voting power to change the investment objectives or policies of the
Core Portfolio in a manner detrimental to the Fund.
32
BROKER-DEALER REALLOWANCES
The Funds' distributor may pay a "broker-dealer's" reallowance to certain
financial intermediaries purchasing shares as principal or agent. Normally, the
distributor will reallow the amounts indicated below, although it may at times
reallow the entire sales charge. The distributor also may make additional
payments to certain intermediaries out of its own resources of up to 1.00% of
the net asset value of Fund shares purchased. Norwest Advantage Funds may change
the amount of the reallowance.
In addition, at its own expense, the distributor may provide compensation,
including financial assistance, to financial intermediaries in connection with
their conferences, employee sales or training programs, public seminars,
advertising campaigns or other special events. The distributor may, for example,
compensate the intermediaries with travel arrangements and lodging, tickets for
entertainment events and merchandise. The distributor may make this compensation
available only to intermediaries that have sold or are expected to sell
significant amounts of Fund shares or who charge an asset based fee, whether or
not they have a fiduciary relationship with their clients.
AMOUNT OF PURCHASE BROKER-DEALERS'
REALLOWANCE AS A
PERCENTAGE OF OFFERING
PRICE
Less than $50,000............... 5.00%
$50,000 to $99,999.............. 4.00%
$100,000 to $249,000............ 3.00%
$250,000 to $499,000............ 2.25%
$500,000 to $999,000............ 1.80%
$1,000,000 to 2,499,999......... 1.00%
$2,500,000 to 4,999,999......... 0.50%
Over $5,000,000................. 0.25%
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE. ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
33
If you would like more information about the Funds and their investments, you
may want to read the following documents:
STATEMENT OF ADDITIONAL INFORMATION. The Funds' statement of additional
information, or "SAI," contains detailed information about the Funds, such as
their investments, management and organization. It is incorporated into this
Prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. Additional Information about each Fund's
investments is available in its annual and semi-annual reports to shareholders.
In the annual report, each Fund's portfolio manager discusses the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
You may obtain free copies of the SAI, annual report and semi-annual report by
contacting your broker, trust officer or by contacting the Fund's distributor,
Forum Financial Services, Inc., at Two Portland Square, Portland, Maine 04101,
1-800-XXX-XXXX or 1-207-879-0001.
The Funds' reports and statement of additional information are available from
the Securities and Exchange Commission in Washington, D.C. You may obtain copies
of these documents, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington D.C. 20549-6009. Please call
1-800-SEC-0330 for information about the operation of the SEC's public reference
room. The Fund's reports and other information are also available on the SEC's
Web Site at http:// www.sec.gov.
The SEC's Investment Company Act file number for the Funds is 811-4881.
MUTUAL FUND PROSPECTUS
June 30, 1998
[GRAPHIC APPEARS HERE]
GROWTH STOCK FUND
SHORT-INTERMEDIATE TERM FUND
Advised by Barclays Global Fund Advisors
Sponsored and distributed by Stephens Inc.,
Member NYSE/SIPC
MasterWorks(R) Funds
MasterWorks Funds Inc. (the "Company") is an open-end, management investment
company. This Prospectus contains information about two of the Company's funds
the GROWTH STOCK AND SHORT-INTERMEDIATE-TERM FUNDS (collectively the Funds).
Please read this Prospectus before investing and retain it for future
reference. It sets forth concisely the information about the Funds that an
investor should know before investing. A Statement of Additional Information
("SAI") dated June 30, 1998 containing additional information about the Funds
has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus. The SAI is available without
charge by calling the Company at 1-888-204-3956 or by writing the Company at
the address printed on the back of the Prospectus. The SAI and other Fund
information is also on the SECs website (http://www.sec.gov).
----------------------
AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMIS-
SION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, BARCLAYS GLOBAL INVESTORS, N.A., INVESTORS BANK & TRUST CO. OR
ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
MASTERWORKS FUNDS INC.
GROWTH STOCK FUND
SHORT-INTERMEDIATE TERM FUND
PROSPECTUS
JUNE 30, 1998
HOW THE FUNDS WORK
Each Fund invests all of its assets in a corresponding Master Portfolio
(each, a "Master Portfolio") of Managed Series Investment Trust ("MSIT"), each
an open-end, management investment company, rather than in a portfolio of se-
curities. Each Fund has substantially the same investment objective as the
corresponding Master Portfolio and each Fund's investment experience corre-
sponds directly with the respective Master Portfolio's investment experience.
Interests in a Master Portfolio may be purchased only by other investment com-
panies or other accredited investors. References to a Fund are to the Fund or
its corresponding Master Portfolio as the context requires.
. THE GROWTH STOCK FUND seeks to outperform the S&P 500 Index over periods
of three to five years. The Fund invests primarily in common stocks of growth-
oriented, small- and medium-sized corporations.
. THE SHORT-INTERMEDIATE TERM FUND seeks to provide total returns higher
than those of the Lehman Brothers Intermediate Government/ Corporate Bond In-
dex. It pursues this goal by investing in a broad range of securities with
short- to intermediate-term maturities (two to five years) including U.S. gov-
ernment obligations, corporate bonds, mortgage- and asset-backed securities,
and money market instruments.
----------------------
BARCLAYS GLOBAL FUND ADVISORS IS THE INVESTMENT ADVISER TO THE MASTER PORTFO-
LIOS AND TOGETHER WITH ITS AFFILIATES PROVIDES OTHER SERVICES TO THE FUNDS
AND MASTER PORTFOLIOS FOR WHICH IT IS COMPENSATED. STEPHENS INC., WHICH IS
NOT AFFILIATED WITH BARCLAYS GLOBAL FUND ADVISORS, IS THE SPONSOR AND CO-
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE COMPANY.
TABLE OF CONTENTS
PAGE
--------
Prospectus Summary..................................................... 1
Summary of Fund Expenses............................................... 5
Explanation of Tables.................................................. 6
Financial Highlights................................................... 8
The Funds.............................................................. 11
Management of the Funds................................................ 21
How to Buy Shares...................................................... 25
How to Redeem Shares................................................... 29
Exchange Privilege..................................................... 32
Share Value............................................................ 33
Dividends and Distributions............................................ 34
Taxes.................................................................. 34
General Information.................................................... 35
APPENDIX
--------
Additional Investment Policies......................................... A-1
PROSPECTUS SUMMARY
The following summary provides investors with basic information about the
Funds. For more information, please refer specifically to the identified Pro-
spectus sections and generally to the Prospectus and SAI.
Q. WHO CAN INVEST IN THE FUNDS?
A. Shares of the Funds are offered primarily to a select group of investors.
These include:
. Participants in employee benefit plans ("Benefit Plans"), including re-
tirement plans, that have appointed one of the Company's Shareholder
Servicing Agents as plan trustee, plan administrator or other agent, or
whose plan trustee, plan administrator or other agent has a servicing
arrangement with a Shareholder Servicing Agent that permits investments
in Fund shares, and individuals who invest pursuant to an agreement be-
tween a Benefit Plan and a Shareholder Servicing Agent .
. Investors using proceeds that are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA") pur-
suant to arrangements between the sponsor or other agent of the quali-
fied Benefit Plan and a Shareholder Servicing Agent, or who have estab-
lished a tax-deferred retirement plan with a Shareholder Servicing
Agent.
. Investors who have a servicing arrangement with one of the Company's
Shareholder Servicing Agents that permits investments in Fund shares.
. Investors who have a servicing arrangement with Barclays Global Invest-
ors, N.A. ("BGI") and invest at least $1 million in a Fund.
See "How To Buy Shares."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUNDS?
A. Investments in a Fund are not bank deposits or obligations of Barclays
Global Fund Advisors ("BGFA") or BGI and are not insured by the Federal
Deposit Insurance Corporation ("FDIC"). Investments in the Funds are not
insured or guaranteed against loss of principal. When the value of the
portfolio securities in which the Funds invest declines, so does the value
of your Fund shares. Therefore, you should be prepared to accept some risk
with the money you invest in the Funds.
1
The stock investments of the Funds are subject to equity market risk. Eq-
uity market risk is the possibility that common stock prices will fluctu-
ate or decline over short or even extended periods. The U.S. stock market
tends to be cyclical, with periods when stock prices generally rise and
periods when prices generally decline. Throughout the first six months of
1998, the stock market, as measured by the S&P 500 Index and other com-
monly used indices, was trading at or close to record levels. There can be
no guarantee that these performance levels will continue.
The portfolio debt instruments of the Funds are subject to credit and in-
terest rate risk. Credit risk is the risk that issuers of the debt instru-
ments in which the Funds invest may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in
which the Funds invest. The value of the Funds portfolio debt instruments
generally changes inversely to market interest rates. Debt securities with
longer maturities, which tend to produce higher yields, are subject to po-
tentially greater price fluctuation than obligations with shorter maturi-
ties. Fluctuations in the market value of fixed income securities can be
reduced, but not eliminated, by variable rate or floating rate features.
In addition, some of the asset-backed securities in which the Short-Inter-
mediate Term Fund may invest are subject to extension risk. This is the
risk that when interest rates rise, prepayments of the underlying obliga-
tions slow, thereby lengthening the duration and potentially reducing the
value of these securities.
The Growth Stock Fund may invest a significant portion of its assets in
the securities of smaller and newer issuers. Investments in such companies
may present opportunities for capital appreciation because of high poten-
tial earnings growth. However, such investments may present greater risks
than investments in larger-size companies with more established operating
histories, diverse product lines and financial capacity. Securities of
small and new companies generally trade less frequently or in limited vol-
ume, or only in the over-the-counter market or on a regional securities
exchange. As a result, the prices of such securities may be more volatile
than those of larger, more established companies and, as a group, these
securities may suffer more severe price declines during periods of gener-
ally declining equity prices.
As with all mutual funds, there is no assurance that a Fund will achieve
its investment objective.
2
See "The Funds--Risk Considerations" and "Appendix--Additional Investment
Policies."
Q. HOW DO I INVEST IN THE FUNDS?
A. Shares of the Funds can be purchased by establishing an account arrange-
ment with a designated Shareholder Servicing Agent. Shares may be pur-
chased at net asset value ("NAV") on any day the Fund is open for business
(a "Business Day"). The Funds are open for business Monday through Friday
and are closed on standard New York Stock Exchange ("NYSE") holidays.
To invest in the Funds, contact a Shareholder Servicing Agent to receive
information and an Account Application. An Account Application must be
completed and signed to open an account.
See "How to Buy Shares."
Q. WHO MANAGES MY INVESTMENTS?
A. BGFA, as the investment adviser to the Master Portfolios, manages the in-
vestments of each Master Portfolio. The Company has not retained the serv-
ices of a separate investment adviser for the Funds because each Fund in-
vests all of its assets in the corresponding Master Portfolio. As of April
30, 1998, BGFA and its affiliates provided investment advisory services
for approximately $575 billion of assets.
See "Management of the Funds."
Q. WHAT ARE THE FEES FOR INVESTING?
A. Unlike certain other mutual funds which charge sales loads or other trans-
action fees, the Funds do not impose shareholder transaction fees on the
purchase, redemption or exchange of their shares. Shareholder Servicing
Agents, in accordance with the terms of their customer account arrange-
ments, may charge additional fees for maintaining customer accounts.
See "Management of the Funds."
Q. HOW ARE THE FUNDS' INVESTMENTS VALUED?
A. The price per share or NAV of each Fund is based on the NAV of interests
in the corresponding Master Portfolio. The NAV of interests in a Master
Portfolio is based on the total value of the portfolio
3
securities owned by the Master Portfolio (plus cash and other assets, net
of liabilities) divided by the number of outstanding interests in the Mas-
ter Portfolio. A new NAV for each Fund and Master Portfolio is calculated
on each Business Day.
See "Share Value."
Q. DO THE FUNDS PAY DIVIDENDS?
A. The Growth Stock Fund intends to pay quarterly dividends consisting of
substantially all of their net investment income and annual distributions
consisting of substantially all of its net realized capital gains. The
Short-Intermediate Term Fund intends to pay monthly dividends consisting
of substantially all of its net investment income and annual distributions
consisting of substantially all of its net realized capital gains. All
dividends and distributions are automatically reinvested at NAV in shares
of the Fund paying the dividend or distribution, unless payment in cash is
requested and your arrangement with a Shareholder Servicing Agent permits
the processing of cash payments. Each reinvestment increases the total
number of shares held by the shareholder.
See "Dividends and Distributions."
Q. ARE EXCHANGES TO OTHER FUNDS PERMITTED?
A. Yes. The exchange privilege enables an investor to exchange Fund shares
for shares of another fund offered by the Company provided such shares are
offered for sale in the investor's state of residence.
See "Exchange Privilege."
Q. HOW DO I REDEEM MY SHARES?
A. Shares of the Funds may be redeemed at NAV without the imposition of a
sales charge or redemption fee on any Business Day by letter or by tele-
phone (provided you have completed the "Redemption by Telephone" portion
of your account application). For more information contact Stephens Inc.
("Stephens") or your Shareholder Servicing Agent.
See "How to Redeem Shares."
4
SUMMARY OF FUND EXPENSES
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
GROWTH STOCK
FUND
------------
Management Fees (after waivers and reimbursements)/1/......... 0.58%
Co-Administration Fees........................................ 0.18%
-----
TOTAL FUND OPERATING EXPENSES (after waivers and
reimbursements)/2/.......................................... 0.76%
SHORT-
INTERMEDIATE
TERM FUND
------------
Management Fees............................................... 0.45%
Co-Administration Fees........................................ 0.18%
-----
TOTAL FUND OPERATING
EXPENSES.................................................... 0.63%
- - -----------
/1/ Management Fees (before waivers and reimbursements) would be 0.60% for the
Growth Stock Fund.
/2/ Total Fund Operating Expenses (before waivers and reimbursements) would be
0.78% for the Growth Stock Fund.
EXAMPLE OF EXPENSES
An investor would pay the following expenses on a $1,000 investment in a Fund,
assuming (1) a 5% annual return and (2) redemption at the end of each time pe-
riod:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Growth Stock Fund............................... $ 8 $24 $42 $94
Short-Intermediate Term Fund.................... $ 6 $20 $35 $79
5
EXPLANATION OF TABLES
The purpose of the foregoing tables is to assist an investor in understand-
ing the various fees and expenses that an investor in the Funds will pay di-
rectly or indirectly. The foregoing tables reflect expenses for each of the
Funds at both the Fund and the Master Portfolio levels. The tables do not re-
flect any charges that may be imposed by Shareholder Servicing Agents or Sell-
ing Agents, including BGFA, directly on customer accounts in connection with
an investment in the Funds. The following provides a general explanation of
the information provided in the table for each of the Funds.
ANNUAL FUND OPERATING EXPENSES reflect the level of ongoing fees expected to
be in effect during the current fiscal year. Management Fees reflects the
amounts paid for such services during the most recently completed fiscal year.
Co-Administration Fees reflects the contractual level of such fees currently
payable by each Fund. BGFA, BGI and Stephens each, in its sole discretion, may
waive or reimburse all or a portion of its respective fees charged to, or ex-
penses paid by, a Fund or Master Portfolio. Any waivers or reimbursements
would reduce a Fund's total expenses and have a favorable impact on its per-
formance. For more complete descriptions of the various costs and expenses you
can expect to incur as an investor in the Funds, please see the Prospectus
section captioned "Management of the Funds."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associ-
ated with a $1,000 investment in the Funds over stated periods, based on the
expenses in the table above and an assumed annual rate of return of 5%. This
annual rate of return should not be considered an indication of actual or ex-
pected Fund performance. In addition, the Example of Expenses should not be
considered a representation of past or future expenses; actual expenses and
returns may be greater or less than those shown above.
With regard to the combined fees and expenses of the Funds and the Master
Portfolios, the Company's Board of Directors has considered whether the vari-
ous costs and benefits of investing all of each Fund's assets in the corre-
sponding Master Portfolio rather than directly in a portfolio of securities
would be more or less than if the Fund invested in portfolio securities di-
rectly. The Company's Board of Directors believes that the aggregate per share
expenses of a Fund and its corresponding Master Portfolio will be less than or
approximately equal to the expenses such Fund would incur if it directly ac-
quired and managed the type of securities held by its corresponding Master
Portfolio. The Company's Board of
6
Directors believes that if other investors invest their assets in the Master
Portfolios, certain economic efficiencies may be realized with respect to the
Master Portfolios. For example, fixed expenses that otherwise would have been
borne solely by a Fund would be spread across a larger asset base provided by
more than one fund investing in a Master Portfolio. There can be no assurance
that these economic efficiencies will be achieved. See "Management of the
Funds" for more complete descriptions of the various costs and expenses appli-
cable to investors in each of the Funds.
Other mutual funds and accredited investors may invest in the Master Portfo-
lios. The expenses and, accordingly, the investment returns of such other mu-
tual funds may differ from those of the Funds. Information about other invest-
ment options in the Master Portfolios may be obtained by calling Stephens at
1-800-643-9691.
***
7
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING AS SHOWN)
The following information has been derived from the Financial Highlights in-
cluded in the Funds' financial statements for the fiscal year ended February
28, 1998. The financial statements are incorporated by reference into the
Funds' SAI and have been audited by KPMG Peat Marwick LLP, independent audi-
tors, whose report thereon dated April 3, 1998, also is incorporated by refer-
ence into the SAI. This information should be read in conjunction with the fi-
nancial statements and the notes thereto. The SAI has been incorporated by
reference into this Prospectus.
8
GROWTH STOCK FUND
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994(1)
------------ ------------ ------------ ------------ ------------
NAV, beginning of
period................. $ 14.07 $ 14.78 $ 11.64 $ 11.52 $ 10.00
Income from investment
operations:
Net investment income
(loss)................. (0.04) (0.06) (0.01) 0.00 (0.01)
Net realized and
unrealized gain (loss)
on investments......... 2.96 (0.43) 4.82 0.19 1.86
Total from investment
operations............. 2.92 (0.49) 4.81 0.19 1.85
Less distributions:
From net investment
income................. 0.00 0.00 (0.01) 0.00 0.00
From net realized
gains.................. (1.25) (0.22) (1.66) (0.07) (0.33)
-------- -------- -------- ------- -------
Total distributions..... (1.25) (0.22) (1.67) (0.07) (0.33)
-------- -------- -------- ------- -------
NAV, end of period...... $ 15.74 $ 14.07 $ 14.78 $ 11.64 $ 11.52
======== ======== ======== ======= =======
Total return (not
annualized)............ 21.61% (3.46)% 42.10% 1.70% 18.65%
Ratios/supplemental
data:
Net assets, end of
period (000)........... $237,014 $213,218 $178,584 $96,925 $45,443
Number of shares
outstanding, end of
period (000)........... 15,061 15,156 12,084 8,330 3,945
Ratios to average net
assets (annualized)(2)
Ratio of expenses to
average net assets..... 0.76% 0.76% 0.76% 0.76% 0.80%
Ratio of net investment
income (loss) to
average net assets..... (0.28)% (0.41)% (0.12)% (0.02)% (0.18)%
Portfolio turnover
rate................... 129% 129% 145% 27%+ 104%
Average commission rate
paid++................. $ 0.0604 $ 0.0777 -- -- --
Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses............... 0.78% 0.81% 0.86% 0.87% 0.80%
Ratio of net investment
income (loss) to
average net assets
prior to waived fees
and reimbursed
expenses............... (0.30)% (0.46%) (0.22%) (0.12%) (0.18%)
- - -----------
(1) The Fund commenced operations on July 2, 1993.
(2) Ratios include expenses charged by the Master Portfolios.
+ On May 26, 1994 the Fund was reorganized and began investing all of its
assets in the corresponding Master Portfolio of MSIT. This rate is for the
period from February 28, 1994 to May 25, 1994. The portfolio turnover rate
for the period beginning May 26, 1994 and ended February 28, 1995 was 93%
and reflects activity by the Master Portfolio which was audited by other
auditors. The portfolio turnover rates for the fiscal years ending Febru-
ary 29, 1996 and thereafter reflect activity by the Master Portfolio.
++ The average commission rate paid reflects activity by the Master Portfo-
lio. For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary depending
on, among other things, the mix of trades, trading practices and commis-
sion rate structures.
9
SHORT-INTERMEDIATE TERM FUND
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994(1)
------------ ------------ ------------ ------------ ------------
NAV, beginning of
period................. $ 9.19 $ 9.40 $ 9.15 $ 9.72 $10.00
Income from investment
operations:
Net investment income... 0.60 0.60 0.65 0.64 0.42
Net realized and
unrealized (loss) on
investments............ 0.16 (0.21) 0.25 (0.57) (0.28)
Total from investment
operations............. 0.76 0.39 0.90 0.07 0.14
Less distributions:
From net investment
income ................ (0.60) (0.60) (0.65) (0.64) (0.42)
From net realized
gains.................. 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------
Total distributions..... (0.60) (0.60) (0.65) (0.64) (0.42)
------- ------- ------- ------- ------
NAV, end of period ..... $ 9.35 $ 9.19 $ 9.40 $ 9.15 $ 9.72
======= ======= ======= ======= ======
Total return (not
annualized)............ 8.51% 4.29% 10.07% 0.89% 1.42%
Ratios/supplemental
data:
Net assets, end of
period (000)........... $10,829 $13,054 $13,704 $14,298 $5,258
Number of shares
outstanding, end of
period (000)........... 1,159 1,420 1,458 1,562 541
Ratios to average net
assets (annualized)(2)
Ratio of expenses to
average net assets..... 0.63% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets................. 6.40% 6.48% 6.82% 7.07% 6.02%
Portfolio turnover...... 77% 62% 105% 29%+ 277%
Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses............... N/A 1.29% 1.44% 1.41% 0.65%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses............... N/A 5.84% 6.03% 6.32% 6.02%
- - -----------
(1) The Fund commenced operations on July 2, 1993.
(2) Ratios include expenses charged by the Master Portfolios.
+ On May 26, 1994 the Fund was reorganized and began investing all of its as-
sets in the corresponding Master Portfolio of MSIT. This rate is for the
period from February 28, 1994 to May 25, 1994. The portfolio turnover rate
for the period beginning May 26, 1994 and ending February 28, 1995 was 96%
and reflects activity of the Master Portfolio which was audited by other
auditors. The portfolio turnover rates for the fiscal years ending February
29, 1996 and thereafter reflect activity by the Master Portfolio.
10
THE FUNDS
INVESTMENT OBJECTIVE AND POLICIES
The following is a summary of the investment objectives and policies of the
Funds.
GROWTH STOCK FUND
The Growth Stock Fund seeks above-average, long-term total return, with a
primary focus on capital appreciation. Current income is a secondary consider-
ation. This investment objective is fundamental and cannot be changed without
shareholder approval. The Growth Stock Fund seeks to achieve its investment
objective by investing all of its assets in the Growth Stock Master Portfolio
of MSIT, which has the same fundamental investment objective as the Growth
Stock Fund. The investment objective of the Growth Stock Master Portfolio is
to provide investors with above-average, long-term total return, with a pri-
mary focus on capital appreciation. The Growth Stock Master Portfolio seeks to
provide investors with a rate of total return that, over a three to five year
time horizon, exceeds that of the S&P 500 Index/1/ (before fees and expenses)
over comparable periods by investing in a diversified portfolio consisting
primarily of growth-oriented common stocks. The Growth Stock Master Portfolio
is advised by BGFA and sub-advised by Wells Fargo Bank, N.A. ("Wells Fargo
Bank").
Since the investment characteristics of the Growth Stock Fund directly cor-
respond to those of the Growth Stock Master Portfolio, the discussion below
relates to the various investments of and techniques employed by the Growth
Stock Master Portfolio.
The Growth Stock Master Portfolio invests primarily in common stocks that
Wells Fargo Bank, as sub-adviser, believes have better-than-average prospects
for appreciation. Under normal market conditions, the
- - --------------
/1/ S&P does not sponsor the Growth Stock Fund or the Growth Stock Master
Portfolio, nor is it affiliated in any way with BGFA, the Growth Stock
Master Portfolio or the Growth Stock Fund. "Standard & Poor's(R),"
"S&P(R)," "S&P 500(R)," and "Standard & Poor's 500(R)" are trademarks of
McGraw-Hill, Inc. and have been licensed for use by the Growth Stock Fund
and the Growth Stock Master Portfolio. The Growth Stock Fund and the
Growth Stock Master Portfolio are not sponsored, endorsed, sold, or pro-
moted by S&P and S&P makes no representation or warranty, express or im-
plied, regarding the advisability of investing in the Growth Stock Fund or
the Growth Stock Master Portfolio.
11
Master Portfolio will hold at least 20 common stock issues spread across mul-
tiple industry groups, with the majority of these holdings consisting of es-
tablished growth companies, turnaround or acquisition candidates, or attrac-
tive larger capitalization companies. The Master Portfolio also may invest up
to 25% of its assets in American Depositary Receipts ("ADRs") and similar in-
struments and may invest up to 15% of its assets in equity securities of com-
panies in emerging or less developed markets. The stock issues held by the
Master Portfolio may have some of the following characteristics: low or no
dividends; smaller market capitalizations; less market liquidity; relatively
short operating histories; aggressive capitalization structures (including
high debt levels); and involvement in rapidly growing/changing industries
and/or new technologies.
Additionally, it is expected that the Master Portfolio may from time to time
acquire securities through initial public offerings, and may acquire and hold
common stocks of smaller and newer issuers. It is expected that no more than
40% of the Master Portfolio's assets will be invested in these highly aggres-
sive issues at one time.
Though the Master Portfolio will hold a number of larger capitalization
stocks, under normal market conditions more than 50% of the Master Portfolio's
total assets will be invested in companies whose market capitalizations at the
time of acquisition are within the capitalization range of companies listed on
the S&P Small Cap 600 Index. As of May 1998, the capitalization range for the
S&P Small Cap 600 was from $40 million to $3.7 billion. The capitalization
range for the S&P Small Cap 600 Index is expected to change frequently. The
Master Portfolio may invest in companies with a market capitalization under
$40 million if the investment adviser to the Master Portfolio believes such
investments to be in the best interest of the Master Portfolio.
Under ordinary market conditions, at least 65% of the value of the total as-
sets of the Master Portfolio will be invested in common stocks and in securi-
ties which are convertible into common stocks that Wells Fargo Bank, as sub-
adviser, believes have better-than-average prospects for appreciation. The
Master Portfolio also may invest in convertible debt securities. At most, 5%
of the Master Portfolio's net assets will be invested in convertible debt se-
curities that are either not rated in the four highest rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs"),
such as Moody's Investor Service, Inc. ("Moody's") or Standard & Poor's Rating
Group ("S&P"), or unrated securities determined by Wells Fargo Bank to be of
comparable quality.
12
From time to time, when the adviser or sub-adviser determines that market
conditions make pursuing the Master Portfolio's basic investment strategy in-
consistent with the best interests of the Master Portfolio's investors, the
Fund may use temporary alternative strategies, primarily designed to reduce
fluctuations in the value of the Master Portfolio's assets. In implementing
these temporary "defensive" strategies, the Master Portfolio may invest in
preferred stock or investment-grade debt securities that are convertible into
common stock and in money market instruments. Generally, these temporary "de-
fensive" investments will not exceed 30% of the Master Portfolio's total as-
sets.
The Growth Stock Master Portfolio pursues an active-trading investment
strategy, and the length of time the Growth Stock Master Portfolio has held a
particular security is not generally a consideration in investment decisions.
Accordingly, the portfolio turnover rate of the Growth Stock Master Portfolio
may be higher than that of other growth stock funds that do not pursue an ac-
tive-trading investment strategy. Portfolio turnover generally involves some
expense to the Growth Stock Master Portfolio, including brokerage commissions
or dealer mark-ups, and other transaction costs on the sale of securities and
the reinvestment in other securities. The Growth Stock Fund bears a pro rata
portion of such transaction costs. Portfolio turnover also can generate short-
term capital gains tax consequences. For additional information relating to
portfolio turnover see "Taxes" in this Prospectus and "Portfolio Transactions"
and "Taxes" in the SAI.
A more complete description of the Growth Stock Master Portfolio's invest-
ments, investment activities, and investment restrictions is contained in "Ap-
pendix -- Additional Investment Policies" and in the SAI.
Portfolio Manager -- Mr. Jon Hickman assumed primary responsibility as lead
manager of the Growth Stock Master Portfolio in February, 1998. Mr. Hickman
has over sixteen years' experience in the investment management field. He
joined Wells Fargo Bank in 1986 managing equity and balanced portfolios for
individuals and employee benefit plans. He is a senior member of Wells Fargo
Bank's Equity Strategy Committee. Mr. Hickman has a B.A. and an M.B.A. in fi-
nance from Brigham Young University.
Mr. Thomas Zeifang, has also been responsible for the day-to-day management
of the Growth Stock Master Portfolio since June, 1997. Mr. Zeifang joined
Wells Fargo Bank in the summer of 1995 and is primarily responsible for pro-
viding fundamental equity analysis. Mr Zeifang was an analyst at Fleet Invest-
ment Advisors from 1992 to 1995 and prior to 1992 worked for three years as an
assistant portfolio manager at Marine
13
Midland Bank. Mr. Zeifang holds a B.B.A. in finance from Saint Bonaventure
University, an M.B.A. in finance and business policy from the William E. Simon
School of Business Administration, and is a Chartered Financial Analyst.
SHORT-INTERMEDIATE TERM FUND
The Short-Intermediate Term Fund seeks to provide a total return, before
fees and expenses, exceeding that of the Lehman Brothers Intermediate
Government/Corporate Bond Index (the "LB Intermediate Bond Index"). The LB In-
termediate Bond Index consists of government (Treasury and agency) and corpo-
rate debt obligations with remaining maturities between one and ten years.
Each issue is represented in the LB Intermediate Bond Index in proportion to
its outstanding market value. The exact composition of the LB Intermediate
Bond Index varies according to the characteristics of the securities outstand-
ing in the marketplace.
Historically, the LB Intermediate Bond Index has outperformed short-term in-
vestments such as Treasury bills and has generally experienced a positive re-
turn on an annual basis. The Fund's investment objective is fundamental and
cannot be changed without shareholder approval. The Short-Intermediate Term
Fund seeks to achieve its investment objective by investing all of its assets
in the Short-Intermediate Term Master Portfolio of MSIT, which has the same
fundamental investment objective as the Short-Intermediate Term Fund. The in-
vestment objective of the Short-Intermediate Term Master Portfolio is to pro-
vide investors with a total return, before fees and expenses, exceeding that
of the LB Intermediate Bond Index. The Short-Intermediate Term Master Portfo-
lio invests in a mix of the following types of instruments: U.S. Treasury and
agency debt securities, corporate bonds, collateralized mortgage obligations
and mortgage-backed securities, other types of asset-backed securities, and
money market instruments such as commercial paper, bankers' acceptances, cer-
tificates of deposits, fixed time deposits, repurchase agreements, and short-
term debt of the U.S. Government or its agencies. The Short-Intermediate Term
Master Portfolio is actively managed. Although its investment objective is re-
lated to the performance of the LB Intermediate Bond Index, the Short-Interme-
diate Term Master Portfolio does not attempt to replicate the portfolio compo-
sition of that Index. The Short-Intermediate Term Master Portfolio may hold
instruments with different maturities, as well as certain investment securi-
ties -- such as collateralized mortgage obligations and other asset-backed se-
curities -- which are not included in the Index. A more complete description
of the securities that may be purchased by
14
the Short-Intermediate Term Master Portfolio is contained in "Appendix-- Addi-
tional Investment Policies." As similar types of securities are developed in
the marketplace, they may be considered for investment by the Short-Intermedi-
ate Term Master Portfolio, but the Short-Intermediate Term Master Portfolio
may not invest in such securities prior to adding appropriate disclosure. The
Short-Intermediate Term Master Portfolio is advised by BGFA and sub-advised by
Wells Fargo Bank.
Since the investment characteristics of the Short-Intermediate Term Fund di-
rectly correspond to those of the Short-Intermediate Term Master Portfolio,
the discussion below relates to the various investments of and techniques em-
ployed by the Short-Intermediate Term Master Portfolio.
Under normal market conditions, the Short-Intermediate Term Master Portfolio
seeks to maintain an average weighted portfolio maturity generally in the 2-
to-5 year range. In the case of mortgage-related, asset-backed and similar se-
curities, the Portfolio uses the security's average life in calculating the
Portfolio's average maturity. Under unusual market conditions, the Short-In-
termediate Term Master Portfolio may shorten or lengthen its average weighted
portfolio maturity.
Only investment-grade securities are considered for investment. These secu-
rities will be identified by their ratings according to one of two major rat-
ing services, S&P and Moody's. The rating systems employed by each service are
described in the Appendix to this Prospectus. Each service classifies securi-
ties into broad categories starting with "investment grade" at the top and
ranging downward through more speculative classes, including so-called "junk
bonds," to securities that are virtually worthless. The "investment grade"
category is subdivided into four rating groups by both services. The four rat-
ing groups are called "AAA"/"Aaa," "AA"/"Aa," "A"/"A," and "BBB"/"Baa" by S&P
and Moody's, respectively. Obligations with the lowest investment grade rating
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade debt obligations. The
Short-Intermediate Term Master Portfolio may invest in securities of all four
rating groups; however, most of the Short-Intermediate Term Master Portfolio's
assets will be invested in securities that, at the time of purchase, are rated
in the third group or higher, denoted "A" or better by both rating services.
Asset-backed securities are further restricted to the top two rating groups at
time of purchase. Mortgage-related securities, which are issued or guaranteed
by U.S.
15
Government agencies, are all currently considered to be in the highest rating
category. Subsequent to its purchase by the Short-Intermediate Term Master
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Short-Intermedi-
ate Term Master Portfolio. Wells Fargo will consider such an event in deter-
mining whether the Short-Intermediate Term Master Portfolio should continue to
hold the obligation. To the extent the Short-Intermediate Term Master Portfo-
lio continues to hold such obligations, it may be subject to additional risk
of default.
In the marketplace it is generally the case that higher-risk securities
carry higher yields-to-maturity. That is, investors tend to demand higher re-
turns for securities with longer maturities or lower credit quality ratings
than for similar securities of shorter maturities or higher credit quality
ratings. The amount of increased return for increased risk, however, changes
from time to time. The Short-Intermediate Term Master Portfolio seeks to em-
phasize those maturity segments or rating groups that appear to offer the most
favorable returns to their risks, within the maturity and quality ranges de-
scribed above.
The Short-Intermediate Term Master Portfolio may invest some of its assets
(no more than 10% of total assets under normal market conditions) in high
quality money market instruments, which include U.S. Government obligations,
obligations of domestic and foreign banks, repurchase agreements, commercial
paper (including variable amount master demand notes) and short-term corporate
debt obligations. Such investments are made on an ongoing basis to provide li-
quidity and, to a greater extent on a temporary basis, when there is an unex-
pected or abnormal level of investor purchases or redemptions of Short-Inter-
mediate Term Master Portfolio shares or when "defensive" strategies are appro-
priate.
Portfolio turnover generally involves some expense to the Short-Intermediate
Term Master Portfolio, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in
other securities. The Short-Intermediate Term Fund bears a pro rata portion of
such transaction costs. Portfolio turnover also can generate short-term capi-
tal gains tax consequences. For additional information relating to portfolio
turnover see "Federal Income Tax Information" in this Prospectus and "Portfo-
lio Transactions" and "Federal Income Taxes" in the SAI.
Portfolio Managers -- Mr. Scott Smith has been co-manager of the portfolio
of the Short-Intermediate Term Master Portfolio since June of
16
1995. Mr. Smith joined Wells Fargo Bank in 1988 as a taxable money market
portfolio specialist. His experience includes a position with a private money
management firm with mutual fund investment operations. Mr. Smith holds a B.A.
from the University of San Diego and is a chartered financial analyst.
Mr. Paul Single has been co-manager for the day-to-day management of the
portfolio of the Short-Intermediate Term Master Portfolio since February,
1998. Mr. Single has managed taxable bond portfolios for over a decade, and
has specific expertise in mortgage-backed securities. Prior to joining Wells
Fargo Bank, in early 1988, he was a senior portfolio manager for Benham Capi-
tal Management Group. Mr. Single received his B.S. from Springfield
College.
RISK CONSIDERATIONS
General
Since the investment characteristics and, therefore, investment risks di-
rectly associated with such characteristics of each Fund correspond to those
of the Master Portfolio in which such Fund invests, the following is a discus-
sion of the risks associated with the investments of the Master Portfolios.
Once again, unless otherwise specified, references to the investment policies
and risks of a Fund also should be understood as references to the investment
policies and risks of the corresponding Master Portfolio.
The NAV per share of the Fund is neither insured nor guaranteed, is not
fixed and should be expected to fluctuate.
Equity Securities
The stock investments of the Funds are subject to equity market risk. Equity
market risk is the possibility that common stock prices will fluctuate or de-
cline over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when
prices generally decline. Throughout the first six months of 1998, the stock
market, as measured by the S&P 500 Index and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that these
performance levels will continue.
17
Debt Securities
The debt instruments in which the Funds invest are subject to credit and in-
terest rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Funds invest may default on the payment of principal and/or in-
terest. Interest-rate risk is the risk that increases in market interest rates
may adversely affect the value of the debt instruments in which the Funds in-
vest. The value of the debt instruments generally changes inversely to market
interest rates. Debt securities with longer maturities, which tend to produce
higher yields, are subject to potentially greater capital appreciation and de-
preciation than obligations with shorter maturities. Changes in the financial
strength of an issuer or changes in the ratings of any particular security may
also affect the value of these investments. In addition, some of the asset-
backed securities in which the Short-Intermediate Term Fund may invest are
subject to extension risk. This is the risk that when interest rates rise,
prepayments of the underlying obligations slow, thereby lengthening the dura-
tion and potentially reducing the value of these securities.
Although some of the Funds' securities are guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities, such securities are subject to inter-
est rate risk and the market value of these securities, upon which the Funds'
daily NAV is based, will fluctuate. No assurance can be given that the U.S.
Government would provide financial support to its agencies or instrumentali-
ties where it is not obligated to do so.
Foreign Securities
Investing in the securities of issuers in any foreign country, including
through American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and similar securities, involves special risks and considerations not
typically associated with investing in U.S. companies. These include differ-
ences in accounting, auditing and financial reporting standards; generally
higher commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of
the ability to transfer currency from a country); and political, social and
monetary or diplomatic developments that could affect U.S. investments in for-
eign countries. Additionally, dispositions of foreign securities and dividends
and interest payable on those securities may be subject to foreign taxes, in-
cluding withholding taxes. Foreign securities often trade with less frequency
and volume than domestic securities and, therefore, may exhibit greater
18
price volatility. Additional costs associated with an investment in foreign
securities may include higher custodial fees than apply to domestic custodial
arrangements and transaction costs of foreign currency conversions. Changes in
foreign exchange rates also will affect the value of securities denominated or
quoted in currencies other than the U.S. dollar. A Fund's performance may be
affected either unfavorably or favorably by fluctuations in the relative rates
of exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments.
Other Investment Considerations
The Short-Intermediate Term Fund may enter into futures transactions, each
of which involves risk. The futures contracts and options on futures contracts
that this Fund may purchase may be considered derivatives. Certain of the
floating- and variable-rate instruments that this Fund may purchase also may
be considered derivatives. Derivatives are financial instruments whose values
are derived, at least in part, from the prices of other securities or speci-
fied assets, indices or rates. The Short-Intermediate Term Fund may use some
derivatives as part of its short-term liquidity holdings and/or as substitutes
for comparable market positions in the underlying securities. Some derivatives
may be more sensitive than direct securities to changes in interest rates or
sudden market moves. Some derivatives also may be susceptible to fluctuations
in yield or value due to their structure or contract terms. The Short-Interme-
diate Term Fund may not use derivatives to create leverage without establish-
ing adequate "cover" in compliance with SEC leverage rules.
The Growth Stock Fund may invest a significant portion of its assets in the
securities of smaller and newer issues. Investments in such companies may
present opportunities for capital appreciation because of high potential earn-
ings growth. However, such investments may present greater risks than invest-
ments in larger-size companies with more established operating histories, di-
verse product lines and financial capacity. Securities of small and new compa-
nies generally trade less frequently or in limited volume, or only in the
over-the-counter market or on a regional securities exchange. As a result, the
prices of such securities may be more volatile than those of larger, more es-
tablished companies and, as a group, these securities may suffer more severe
price declines during periods of generally declining equity prices.
19
Year 2000
Many computer software systems in use today cannot distinguish the Year 2000
from the Year 1900. Most of the services provided to the Funds depend on the
smooth functioning of computer systems. Any failure to adapt these systems in
time could hamper a Fund's operations and services. The Funds' principal serv-
ice providers have advised the Funds that they are working on necessary
changes to their systems and that they expect their systems to be adapted in
time. There can, of course, be no assurance of success. In addition, because
the Year 2000 issue affects virtually all organizations, the companies or en-
tities in which the Funds invest also could be adversely impacted by the Year
2000 issue. The extent of such impact cannot be predicted.
PERFORMANCE
Cumulative total return of shares is computed on a per share basis and as-
sumes the reinvestment of dividends and distributions. Cumulative total return
of shares generally is expressed as a percentage rate which is calculated by
combining the income and principal charges for a specified period and dividing
by the NAV per share at the beginning of the period. Advertisements may in-
clude the percentage rate of total return of shares or may include the value
of a hypothetical investment in shares at the end of the period which assumes
the application of the percentage rate of total return.
The performance of the Short-Intermediate Term Fund may be advertised in
terms of yield. The yield on shares of these Funds is calculated by dividing
the Fund's net investment income per share earned during a specified period
(usually 30 days) by its NAV per share on the last day of such period and
annualizing the result.
Performance figures are based on historical results and are not intended to
indicate future performance. Investors should remember that performance is a
function of the type and quality of portfolio securities held by the Master
Portfolio in which the Fund invests and is affected by operating expenses.
Performance information, such as that described above, may not provide a basis
for comparison with other investments or other investment companies using a
different method of calculating performance.
Additional information about the performance of each Fund is contained in
the Annual Report which may be obtained by calling the Company at 1-888-204-
3956.
20
MANAGEMENT OF THE FUNDS
GENERAL -- The Company has not retained the services of an investment adviser
because each Fund's assets are invested in a corresponding Master Portfolio of
MSIT that has retained investment advisory services (see "Master Portfolio In-
vestment Adviser" below). Each Fund bears a pro rata portion of the fees paid
by the corresponding Master Portfolio. Each Fund invests in a series of MSIT
as follows:
MASTER
FUND PORTFOLIO
---- ---------
Growth Stock Fund...... Growth Stock Master Portfolio of MSIT
Short-Intermediate Term
Fund................. Short-Intermediate Term Master Portfolio of MSIT
MSIT is registered under the 1940 Act as an open-end management investment
company. MSIT was organized as a Delaware business trust on October 28, 1993.
BOARD OF DIRECTORS -- The business and affairs of the Company are managed
under the direction of its Board of Directors and in conformity with Maryland
law. The Company's Directors also serve as Trustees of MSIT. Additional infor-
mation regarding the Officers and Directors/Trustees of the Company and MSIT
is included in the SAI under "Management."
INVESTMENT ADVISER -- BGFA serves as investment adviser to the Master Port-
folios. BGFA provides investment guidance and policy direction in connection
with the management of each Master Portfolio's assets. BGFA is an indirect
subsidiary of Barclays Bank PLC ("Barclays") and is located at 45 Fremont
Street, San Francisco, California 94105. As of April 30, 1998, BGFA and its
affiliates provided investment advisory services for approximately $575 bil-
lion of assets.
For its advisory services to the Master Portfolios, BGFA is contractually en-
titled to receive from each Master Portfolio monthly fees at the following an-
nual rates of the respective Master Portfolio's average daily net assets:
ANNUAL
ADVISORY
MASTER PORTFOLIO FEES
---------------- --------
Growth Stock Master Portfolio....................................... .60%
Short-Intermediate Term Master Portfolio............................ .45%
21
The actual amount of advisory fees paid by each Master Portfolio, as a per-
centage of each Fund's average daily net assets, is set forth in this Prospec-
tus under the heading "Summary of Fund Expenses-Management Fees." Additional
information concerning the advisory fees paid by each Master Portfolio is
found in the Funds' SAI under "Investment Adviser".
Wells Fargo Bank currently serves as sub-adviser to each Master Portfolio.
Wells Fargo Bank, subject to the supervision and approval of BGFA, provides
investment advisory assistance and the day-to-day management of such Master
Portfolios' assets. For providing sub-advisory services to the Master Portfo-
lios, Wells Fargo Bank is entitled to receive from BGFA monthly fees at the
annual rate of 0.15% and 0.10% of the Growth Stock and Short-Intermediate Term
Master Portfolios' respective average daily net assets. For the fiscal year
ended February 28, 1998, Wells Fargo Bank received monthly fees at the annual
rate of 0.15% and 0.10% of the respective average daily net assets of the
Growth Stock and Short-Intermediate Term Funds.
Wells Fargo & Company, the parent company of Wells Fargo Bank, has signed a
definitive agreement to merge with Norwest Corporation. The proposed merger is
subject to certain regulatory approvals and must be approved by shareholders
of both holding companies. The merger is expected to close in the second half
of 1998. The combined company will be called Wells Fargo & Company. Wells
Fargo Bank has advised the Funds that the merger will not reduce the level or
quality of advisory and other services provided by Wells Fargo Bank to the
Funds.
BGFA, Barclays and their affiliates deal, trade and invest for their own ac-
count in the types of securities in which the Master Portfolios may invest and
may have deposit, loan and commercial banking relationships with the issuers
of securities purchased by the Master Portfolios. BGFA has informed the Master
Portfolios that in making investment decisions the Adviser does not obtain or
use material inside information in its possession.
Morrison & Foerster LLP, counsel to the Company and MSIT and special counsel
to BGFA and Wells Fargo Bank, has advised the Company, MSIT, BGFA and Wells
Fargo Bank that BGFA, Wells Fargo Bank and their affiliates may perform the
services contemplated by the Investment Advisory and Sub-Advisory Contracts
and this Prospectus without violation of the Glass-Steagall Act. Such counsel
has pointed out, however, that there are no controlling judicial or adminis-
trative
22
interpretations or decisions and that future judicial or administrative inter-
pretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and relating to the permissible activities
of banks and their subsidiaries or affiliates, as well as future changes in
such statutes, regulations and judicial or administrative decisions or inter-
pretations, could prevent such entities from continuing to perform, in whole
or in part, such services. If any such entity were prohibited from performing
any such services, it is expected that new agreements would be proposed or en-
tered into with another entity or entities qualified to perform such
services.
CO-ADMINISTRATORS -- Stephens and BGI are the Funds' co-administrators. Ste-
phens and BGI provide the Funds with administrative services, including gen-
eral supervision of the Funds' non-investment operations, coordination of the
other services provided to the Funds, compilation of information for reports
to the SEC and the state securities commissions, preparation of proxy state-
ments and shareholder reports, and general supervision of data compilation in
connection with preparing periodic reports to the Company's directors and of-
ficers. Stephens also furnishes office space and certain facilities to conduct
the Funds' business, and compensates the Company's directors, officers and em-
ployees who are affiliated with Stephens. In addition, except as outlined be-
low under "Expenses", Stephens and BGI will be responsible for paying all ex-
penses incurred by the Funds other than the fees payable to BGFA. For these
services, Stephens and BGI are entitled to a monthly fee, in the aggregate, at
the annual rate of each Fund's average daily net assets as shown below:
ANNUAL
CO-ADMINISTRATION
FUND FEE
---- -----------------
Growth Stock Fund.......................................... 0.18%
Short-Intermediate Term Fund............................... 0.18%
BGI has delegated certain of its duties as co-administrator to Investors
Bank & Trust Company ("IBT"). IBT, as sub-administrator, is compensated by BGI
for performing certain administration services. Prior to October 21, 1996,
Stephens was the Funds' sole administrator and received fees for its services
as described in the SAI.
DISTRIBUTOR -- Stephens is the distributor for the Funds shares. Stephens is
a full service broker/dealer and investment advisory firm located at 111 Cen-
ter Street, Little Rock, Arkansas 72201. Stephens and its predecessor have
been providing securities and investment services
23
for more than 60 years. Additionally, it has been providing discretionary
portfolio management services since 1983. Stephens currently manages invest-
ment portfolios for pension and profit sharing plans, individual investors,
foundations, insurance companies and university endowments. Stephens, as the
Company's sponsor and the principal underwriter of the Funds within the mean-
ing of the 1940 Act, has entered into a Distribution Agreement with the Com-
pany pursuant to which Stephens has the responsibility for distributing Fund
shares. The Distribution Agreement provides that Stephens shall act as agent
for the Funds for the sale of their shares, and may enter into Selling Agree-
ments with selling agents that wish to make available Fund shares to their re-
spective customers ("Selling Agents"). Stephens does not receive a fee for
providing distribution services to the Funds. BGI presently acts as a Selling
Agent, but does not receive any fee from the Funds for such activities.
CUSTODIAN -- IBT currently acts as the Funds' custodian. The principal busi-
ness address of IBT is 200 Clarendon Street, Boston, Massachusetts 02111. IBT
is not entitled to receive compensation for its custodial services so long as
it is entitled to receive compensation for providing sub-administration serv-
ices to the Funds.
TRANSFER AND DIVIDEND DISBURSING AGENT -- IBT also acts as the Company's
transfer and dividend disbursing agent.
SHAREHOLDER SERVICING AGENTS -- The Funds have adopted a Shareholder Servic-
ing Plan pursuant to which they have entered into a Shareholder Servicing
Agreement with BGI, and may enter into similar agreements with other entities
("Shareholder Servicing Agents") for the provision of certain services to the
Funds. The services provided may include personal services relating to share-
holder accounts, such as answering shareholder inquiries, providing reports
and other information, and providing services related to the maintenance of
shareholder accounts. For these services, each Shareholder Servicing Agent is
entitled to receive a monthly fee equal to the percentage rate listed below of
the average daily net assets of such Fund represented by shares owned during
the period for which payment is being made by investors with whom the Share-
holder Servicing Agent maintains a servicing relationship, or an amount which
equals the maximum amount payable to the Shareholder Servicing Agent under ap-
plicable laws, regulations or rules, including the Conduct Rules of the Na-
tional Association of Securities Dealers, Inc., whichever is less. Stephens
and BGI as co-administrators have agreed to pay these shareholder servicing
fees out of the fees each receives for co-administration services.
24
ANNUAL
SHAREHOLDER
SERVICING
FUND FEE
---- -----------
Growth Stock Fund................................................ .10%
Short-Intermediate Term Fund..................................... .10%
A Shareholder Servicing Agent may impose certain conditions on its custom-
ers, subject to the terms of this Prospectus, in addition to or different from
those imposed by the Fund, such as requiring a higher minimum initial invest-
ment or payment of a separate fee for additional services. Each Shareholder
Servicing Agent is required to agree to disclose any fees it may directly
charge its customers who are shareholders of the Funds and to notify them in
writing at least thirty days before it imposes any transaction fees.
EXPENSES -- Except for extraordinary expenses, brokerage and other expenses
connected with the execution of portfolio transactions and certain other ex-
penses which are borne by the Funds, Stephens and BGI have agreed to bear all
costs of the Funds' and the Company's operations.
HOW TO BUY SHARES
WHO MAY INVEST
Only the following types of investors are eligible to invest in shares of
the Funds:
. Participants in Benefit Plans ("Plan Participants"), including retire-
ment plans, who have appointed one of the Company's Shareholder Servic-
ing Agents as plan trustee, plan administrator or other agent, or whose
plan trustee, plan administrator or other agent has a servicing arrange-
ment with a Shareholder Servicing Agent that permits investments in Fund
shares, and Plan Participants who invest pursuant to an agreement be-
tween such a Benefit Plan and a Shareholder Servicing Agent.
. Investors using proceeds that are being rolled over directly from a
qualified Benefit Plan to an IRA pursuant to arrangements between the
sponsor or other agent of the qualified Benefit Plan and a Shareholder
Servicing Agent.
. Investors who have a servicing arrangement with one of the Company's
Shareholder Servicing Agents that permits investments in Fund shares
("Qualified Buyers").
25
. Investors who have a servicing arrangement with BGI and invest at least
$1 million in a Fund ("Direct Buyers").
Eligible investors may purchase Fund shares in one of the several ways de-
scribed below. For more information or additional forms, call 1-888-204-3956.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request by an investor or the investor's representa-
tive, the Company or Stephens will transmit or cause to be transmitted prompt-
ly, without charge, a paper copy of the electronic Prospectus.
MINIMUM INVESTMENT AMOUNT
In most cases, investors in Fund shares are not required to establish or
maintain a minimum investment amount. However, Direct Buyers are required to
make an initial investment in Fund shares of at least $1 million (although
this requirement may be waived under certain conditions). All investments in
Fund shares are subject to a determination by the Company that the investment
instructions are complete. If shares are purchased by a check that does not
clear, the Company reserves the right to cancel the purchase and hold the in-
vestor responsible for any losses or fees incurred. The Company reserves the
right in its sole discretion to suspend the availability of a Fund's shares
and to reject any purchase requests. Certificates for Fund shares are not is-
sued. Shareholder Servicing Agents may establish investment amount and account
balance requirements different from those of the Funds and may charge fees in
addition to those charged by the Fund.
GENERAL
Shares of the Funds may be purchased on any Business Day at the NAV per
share next determined after an order in proper form is received by the Trans-
fer Agent. Purchase orders that are received by the Transfer Agent before the
close of regular trading on the NYSE (currently 1:00 p.m., Pacific time) will
be executed at the NAV determined as of the close of regular trading on the
NYSE on that Business Day. Orders received by the Transfer Agent after the
close of regular trading on the NYSE are executed on the next Business Day.
The investor's Shareholder Servicing Agent is responsible for the prompt
transmission of the investor's purchase order to the Transfer Agent on the in-
vestor's behalf. Under certain circumstances, a Shareholder Servicing Agent
may establish an earlier deadline for receipt of orders or an investor's order
transmitted to a Shareholder Servicing Agent may not be received by the Trans-
fer Agent on the same day.
26
Federal regulations require that an investor provide a valid taxpayer iden-
tification number ("TIN"), which is usually the investor's social security
number or employee identification number, upon opening or reopening an ac-
count.
BENEFIT PLANS
Shares of the Funds are offered to Benefit Plans that have appointed one of
the Funds' Shareholder Servicing Agents as plan trustee, plan administrator or
other agent, or whose plan trustee, plan administrator or other agent has a
servicing arrangement with a Shareholder Servicing Agent that permits invest-
ments in Fund shares. Benefit Plans include 401(k) plans and plans qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), health and welfare plans and executive deferred compensation plans.
For additional information about Benefit Plans that may be eligible to invest
in Fund shares, prospective investors should contact a Shareholder Servicing
Agent.
Fund investments by participants in 401(k) plans are typically made by pay-
roll deductions arranged between participants and their employers. Partici-
pants in the MasterWorks 401(k) program are included in this group. Partici-
pants also may make direct contributions to their accounts in special circum-
stances such as the transfer of a rollover amount from another 401(k) plan or
from a rollover IRA. Investors should contact their employer's benefits de-
partment for more information about contribution methods.
Plan Participants who have established an account with a Shareholder Servic-
ing Agent may purchase Fund shares in accordance with their account arrange-
ments with such Shareholder Servicing Agent. The Shareholder Servicing Agent
is responsible for the prompt transmission of purchase orders. Shareholder
Servicing Agents may charge additional fees for maintaining customer accounts
other than those charged by the Funds.
IRAS, KEOGHS AND OTHER INDIVIDUAL RETIREMENT PLANS
An investor may be entitled to invest in shares of the Funds through a tax-
deferred retirement plan. In addition to offering investments in Fund shares
through IRA rollovers, a Shareholder Servicing Agent may offer other types of
tax-deferred or tax-advantaged plans, including a Keogh retirement plan for
self-employed professional persons, sole proprietors and partnerships. Contact
a Shareholder Servicing Agent for materials describing plans available through
it, and their benefits, provisions and fees.
27
Application materials for opening an IRA rollover, Keogh retirement plan or
other individual retirement plan can be obtained from a Shareholder Servicing
Agent. Completed retirement plan applications should be returned to the in-
vestor's Shareholder Servicing Agent for approval and processing. If an in-
vestor's retirement plan application is incomplete or improperly filled out,
there may be a delay before the Fund account is opened. Investors should con-
sult their Shareholder Servicing Agent.
PURCHASES BY QUALIFIED BUYERS
Qualified Buyers may open a Fund account and make additional purchases
through a Shareholder Servicing Agent with whom they have an account arrange-
ment. Shareholder Servicing Agents may transmit purchase orders to the Trans-
fer Agent on behalf of investors, including purchase orders for which payment
is to be made by wire or by transfer from an Approved Bank designated in an
investor's Account Application ("Approved Bank Account").
PURCHASES BY DIRECT BUYERS
Direct Buyers may open a Fund account by completing an Account Application.
Direct Buyers may purchase Fund shares by contacting the Transfer Agent, by
instructing the Transfer Agent to debit an Approved Bank Account or by wire.
TO PURCHASE FUND SHARES
By Check: Initial and subsequent investments should be sent to MasterWorks
Funds, Inc., c/o Investors Bank and Trust Co., P.O. Box 9130, Mail Code MFD23,
Boston, MA 02117-9130.
By Wire: Investors establishing new accounts should telephone Investors Bank
& Trust Co., at 1-888-204-3956 prior to sending the bank wire.
Investors should instruct their bank to wire funds as follows:
Investors Bank & Trust Co.
ABA #011-001-438
Attn: Transfer Agent
Account #DDA 555555535
For Further Credit to: MasterWorks Funds, Inc.
Shareholder Account Name:
Shareholder Account Number:
28
IN-KIND PURCHASES
Payment for shares of a Fund may, at the discretion of BGFA as investment
adviser, be made in the form of securities that are permissible investments
for such Fund. Shares purchased in exchange for securities can not be redeemed
until the exchange transaction has settled. For further information, see "Pur-
chase and Redemption of Shares" in the SAI.
HOW TO REDEEM SHARES
GENERAL
Investors may redeem all or a portion of their Fund shares on any Business
Day without any charge by the Company. The redemption price of the shares is
the next determined NAV of the Fund calculated after the Company has received
a redemption request in proper form. Redemption proceeds may be more or less
than the amount invested depending on the Fund's NAV at the time of purchase
and redemption.
The Company generally remits redemption proceeds from a Fund within seven
days after a redemption order is received in proper form, absent extraordinary
circumstances. Such extraordinary circumstances could include a period during
which an emergency exists as a result of which (a) disposal by the Master
Portfolio in which such Fund invests of securities owned by the Master Portfo-
lio is not reasonably practicable or (b) it is not reasonably practicable for
the Fund or the relevant Master Portfolio to determine fairly the value of its
net assets, or a period during which the SEC by order permits deferral of re-
demptions for the protection of Fund shareholders. In addition, the Company
may defer payment of a shareholder's redemption until reasonably satisfied
that such shareholder's investments made by check have been collected (which
can take up to ten days from the purchase date). Payment of redemption pro-
ceeds may be made in portfolio securities.
Redemption orders that are received by the Transfer Agent before the close
of regular trading on the NYSE (currently 1:00 p.m., Pacific time), will be
executed at the NAV determined as of the close of regular trading on the NYSE
on that Business Day. Redemption orders that are received by the Transfer
Agent after the close of regular trading on the NYSE, will be executed on the
next Business Day. The investor's Shareholder Servicing Agent is responsible
for the prompt transmission of redemption orders to the Funds on the invest-
or's behalf. Under certain
29
circumstances, a Shareholder Servicing Agent may establish an earlier deadline
for receipt of orders or an investor's order transmitted to a Shareholder Ser-
vicing Agent may not be received by the Transfer Agent on the same day.
Unless the investor has made other arrangements with an appropriate Share-
holder Servicing Agent, and the Transfer Agent has been informed of such ar-
rangements, proceeds of a redemption order made by the investor through the
investor's Shareholder Servicing Agent are credited to the investor's Approved
Bank Account. If no such account is designated, a check for the proceeds is
mailed to the investor's address of record or, if such address is no longer
valid, the proceeds are credited to the investor's account with the investor's
Shareholder Servicing Agent.
REDEMPTIONS BY BENEFIT PLANS, IRAS, KEOGHS AND OTHER INDIVIDUAL RETIREMENT
PLANS
Investors in these types of plans are subject to restrictions on withdrawing
their money under the Code. Each type of plan has established procedures for
withdrawals, which are disclosed to investors at the time of purchase. Invest-
ors may obtain more information by contacting their employer and/or their
Shareholder Servicing Agent. The redemption procedures outlined in the remain-
der of this section do not apply to investors in Benefit Plans or retirement
plans. Investors in these types of plans should contact their Shareholder Ser-
vicing Agent regarding redemption procedures applicable to them.
REDEMPTIONS BY QUALIFIED BUYERS
Qualified Buyers should contact their Shareholder Servicing Agent regarding
redemption procedures applicable to them. The redemption procedures outlined
in the remainder of this section do not apply to Qualified Buyers.
REDEMPTIONS BY DIRECT BUYERS
Redemptions by Mail
1. Write a letter of instruction. Indicate the dollar amount or number of
Fund shares to be redeemed, the Fund account number and TIN (where applica-
ble).
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all owners must sign.
30
Written requests for redemptions should be mailed to MasterWorks Funds,
Inc., c/o Investors Bank and Trust Co., P.O. Box 9130, Mail Code MFD23, Bos-
ton, MA 02117-9130.
Unless other instructions are given in proper form, a check for the redemp-
tion proceeds is sent to the investor's address of record.
Redemptions by Telephone
Telephone redemption or exchange privileges are made available to Direct
Buyers who have completed the "Redemptions by Telephone" section of their
Fund's account application. These privileges authorize the Transfer Agent to
act on telephone instructions from any person representing himself or herself
to be the investor and reasonably believed by the Transfer Agent to be genu-
ine. The Company requires the Transfer Agent to employ reasonable procedures,
such as requiring a form of personal identification, to confirm that instruc-
tions are genuine and, if it does not follow such procedures, the Company and
the Transfer Agent may be liable for any losses due to unauthorized or fraudu-
lent instructions. Neither the Company nor the Transfer Agent will be liable
for following telephone instructions reasonably believed to be genuine.
If you have completed the Redemption by Telephone portion of a Fund's ac-
count application, you may redeem Fund shares on any Business Day by calling
the Transfer Agent at 1-888-204-3956 before the close of regular trading on
the NYSE, generally 4:00p.m. Eastern Time.
During times of drastic economic or market conditions, investors may experi-
ence difficulty in contacting the Transfer Agent by telephone to request a re-
demption or exchange of Fund shares. In such cases, investors should consider
using the other redemption procedures made available to such investors. Use of
these other redemption procedures may result in the investor's redemption re-
quest being processed at a later time than it would have been if telephone re-
demption had been used. During the delay, the Fund's NAV may fluctuate.
Expedited Redemptions by Letter and Telephone
A Direct Buyer may request an expedited redemption of Fund shares by letter,
in which case the investor's receipt of redemption proceeds, but not the
Fund's receipt of the investor's redemption request, would be expedited. Tele-
phone redemption and exchange privileges are made available to an investor au-
tomatically upon the opening of an
31
account unless the investor declines the privilege. The investor also may re-
quest an expedited redemption of Fund shares by telephone on any Business Day,
in which case both the investor's receipt of redemption proceeds and the
Fund's receipt of the investor's redemption request would be expedited.
Direct Buyers may request expedited redemption by telephone by calling the
Transfer Agent at 1-888-204-3956.
Direct Buyers may request expedited redemption by mailing an expedited re-
demption request to the Transfer Agent.
Upon request, proceeds of expedited redemptions are wired or credited to the
investor's Approved Bank Account. The Company reserves the right to impose a
charge for wiring redemption proceeds. When proceeds of an individual or cor-
porate investor's expedited redemption are to be paid to someone else, to an
address other than that of record, or to an account with an approved bank that
the investor has not predesignated in his or her Account Application, the ex-
pedited redemption request must be made by letter and the signature(s) on the
letter must be guaranteed in the manner discussed above, regardless of the
amount of the redemption. If the investor's expedited redemption request is
received by the Transfer Agent on a Business Day, the investor's redemption
proceeds are transmitted to the investor's Approved Bank Account on the next
Business Day (assuming the investor's investment check has cleared as de-
scribed above), absent extraordinary circumstances. Such extraordinary circum-
stances could include those described above as potentially delaying redemp-
tions, and also could include situations involving an unusually heavy volume
of wire transfer orders on a national or regional basis or communication or
transmittal delays that could cause a brief delay in the wiring or crediting
of funds.
EXCHANGE PRIVILEGE
The exchange privilege enables an investor to purchase, in exchange for
shares of a Fund, shares of another fund offered by the Company in the invest-
or's state of residence. Before undertaking an exchange into another fund, in-
vestors should obtain and read a copy of the current prospectus of the fund
into which the exchange is being made. A prospectus may be obtained by calling
the Company at 1-888-204-3956.
Shares are exchanged at the next determined NAV. No fees are currently
charged to shareholders directly in connection with exchanges,
32
although the Company reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal exchange fee in accordance with rules
promulgated by the SEC. The Company reserves the right to limit the number of
times shares may be exchanged and to reject in whole or in part any exchange
request into a fund when management believes that such action would be in the
best interests of such fund's other shareholders, such as when management be-
lieves such action would be appropriate to protect a fund against disruptions
in portfolio management resulting from frequent transactions by those seeking
to time market fluctuations. Any such rejection is made by management on a
prospective basis only, upon notice to the shareholder given not later than 10
days following such shareholder's most recent exchange. The exchange privilege
may be modified or terminated at any time upon 60 days' written notice to
shareholders.
SHARE VALUE
Shares of each Fund are sold on a continuous basis at the applicable offer-
ing price next determined after an order in proper form is received by the
Transfer Agent. NAV per share is determined each Business Day as of the close
of regular trading on the NYSE (currently 1:00 p.m., Pacific time).
The NAV of a share of each Fund is the value of total net assets attribut-
able to such Fund divided by the number of outstanding shares of that Fund.
The value of the net assets is determined daily by adjusting the net assets at
the beginning of the day by the value of shareholder activity, net investment
income and net realized and unrealized gains or losses for that day. Net in-
vestment income is calculated each day as daily income less expenses. The NAV
of each Fund is expected to fluctuate daily and is expected to differ. Each
Fund's investment in the corresponding Master Portfolio is valued at the NAV
of such Master Portfolio's shares. Each Master Portfolio calculates the NAV of
its shares on the same days and at the same time as the corresponding Fund.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, each Master Portfolio's assets are valued
at current market prices, or if such prices are not readily available, at fair
value as determined in good faith in accordance with guidelines approved by
the appropriate Board of Trustees. Prices used for such valuations may be pro-
vided by independent pricing services. For further information regarding the
methods employed in valuing each Master Portfolio's investments, see "Determi-
nation of Net Asset Value" in the SAI.
33
DIVIDENDS AND DISTRIBUTIONS
The Growth Stock Fund intends to pay quarterly dividends consisting of sub-
stantially all of its net investment income and annual distributions consist-
ing of substantially all of its net realized capital gains. The Short-Interme-
diate Term Fund intends to pay monthly dividends consisting of substantially
all of its net investment income and annual distributions consisting of sub-
stantially all of its net realized capital gains. All dividends and distribu-
tions are automatically reinvested at NAV in shares of the Fund paying such
dividend or distribution, unless payment in cash is requested and your ar-
rangement with a Shareholder Servicing Agent permits the processing of cash
payments.
Dividends and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed on the payment date. Although a dividend
or distribution paid to an investor on newly acquired shares shortly after
purchase would represent, in substance, a return of capital, the dividend or
distribution may consist of net investment income or net realized capital gain
and, accordingly, would be taxable to the investor.
TAXES
GENERAL
Distributions from a Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from a Fund's net capi-
tal gain (generally, the excess of net long-term capital gains over net short-
term capital loss) are designated as capital gain distributions and taxable to
the Fund's shareholders as net capital gains. Noncorporate shareholders may be
taxed on such gain at preferential rates. In general, your distributions will
be taxable when paid, whether you take such distributions in cash or have them
automatically reinvested in additional Fund shares. However, distributions de-
clared in October, November, and December and distributed by the following
January will be taxable as if they were paid by December 31. A portion of the
Growth Stock Fund's distributions to corporate shareholders may qualify for
the dividends-received deduction in the hands of such shareholders. Distribu-
tions from the Short-Intermediate Term Fund are not expected to qualify for
this deduction.
Your redemptions (including redemptions in-kind) and exchanges of Fund
shares will ordinarily result in a taxable capital gain or loss,
34
depending on the amount you receive for your shares (or are deemed to receive
in the case of exchanges) and the cost of your shares. See "Federal Income
Taxes -- Disposition of Fund Shares" in the SAIs.
If you buy shares of a Fund shortly before it distributes its annual gains,
your distribution from the Fund will, in effect, be a taxable return of part
of your investment. Similarly, if you buy shares of a Fund that holds appreci-
ated securities in its portfolio, you will receive a taxable return of part of
your investment if and when the Fund sells the appreciated securities and re-
alizes the gain. Some of the Funds have built up, or have the potential to
build up, high levels of unrealized appreciation.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to with-
holding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAIs.
BENEFIT PLAN INVESTORS
As a general matter, benefit plans, their sponsors and their participants
are not subject to federal income taxes at the time of receipt of net invest-
ment income and capital gain distributions.
However, such tax-exempt investors may be subject to tax on certain unre-
lated taxable income which could arise, for example, when such investors ac-
quire shares in the Fund through the use of leverage. Tax-exempt investors
should consult their tax advisors regarding the unrelated business taxable in-
come rules.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the im-
portant federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in the SAI.
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY
Each Fund is a series of the Company. The Company was organized as a Mary-
land corporation on October 15, 1992 and currently offers
35
twelve series of shares. The Company's principal office is located at 111 Cen-
ter Street, Little Rock, Arkansas 72201.
The Board of Directors of the Company supervises the Funds' activities and
monitors their contractual arrangements with various service providers. Addi-
tional information about the Directors and officers of the Company is included
in the Funds' SAI under "Management." Although the Company is not required to
hold regular annual shareholder meetings, occasional annual or special meet-
ings may be required for purposes such as electing or removing Directors, ap-
proving advisory contracts and distribution plans and changing a Fund's in-
vestment objectives or fundamental investment policies.
VOTING
All shares of the Company have equal voting rights and will be voted in the
aggregate, rather than by fund, unless otherwise required by law (such as when
a matter affects only one fund). Shareholders of the Funds are entitled to one
vote for each share owned and fractional votes for fractional shares owned.
Depending on the terms of a particular Benefit Plan and the matter being sub-
mitted to a vote, a sponsor may request direction from individual participants
regarding a shareholder vote. In addition, whenever a Fund is requested to
vote on matters pertaining to a Master Portfolio, the Company will hold a
meeting of the Fund's shareholders and will cast its vote as instructed by
Fund shareholders. The directors of the Company will vote shares for which
they receive no voting instructions in the same proportion as the shares for
which they do receive voting instructions. A more detailed description of the
voting rights and attributes of the shares is contained in the "Capital Stock"
section of the SAI.
Whenever a Fund, as a Master Portfolio interestholder, is requested to vote
on any matter submitted to interestholders of such Master Portfolio, the Fund
will hold a meeting of its shareholders to consider such matters. The Fund
will cast its votes in proportion to the votes received from its shareholders.
Shares for which the Fund receives no voting instructions are voted in the
same proportion as the votes received from the other Fund shareholders. If a
Master Portfolio's investment objective or policies are changed, the corre-
sponding Fund may elect to change its objective or policies to correspond to
those of the Master Portfolio. The Fund may also elect to redeem its interests
in the Master Portfolio and either seek a new investment company with a match-
ing objective in which to invest or retain its own investment adviser to man-
age the
36
Fund's portfolio in accordance with its objective. In the latter case, the
Fund's inability to find a substitute investment company in which to invest or
equivalent management services could adversely affect shareholders' invest-
ments in the Fund.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, Three Embarcadero Center, San Francisco, California
94111, serves as independent auditors for the Company.
LEGAL COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Washington, D.C.
20006, serves as counsel to the Company.
INFORMATION ON THE FUNDS
The Company provides annual and semi-annual reports to all shareholders. The
annual reports contain audited financial statements and other information
about the Funds including additional information on performance. Shareholders
may obtain a copy of the Company's most recent annual report without charge by
phoning 1-888-204-3956.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE COMPANY'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS' SHARES
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OF-
FERING MAY NOT LAWFULLY BE MADE.
37
APPENDIX -- ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain investments and additional in-
vestment policies for each Fund, except as otherwise indicated. REFERENCES TO
THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF A FUND, UNLESS
OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES TO THE INVESTMENTS AND
INVESTMENT POLICIES AND RESTRICTIONS OF THE CORRESPONDING MASTER PORTFOLIO.
U.S. GOVERNMENT OBLIGATIONS -- The Funds may invest in various types of U.S.
Government obligations. U.S. Government obligations include securities issued
or guaranteed as to principal and interest by the U.S. Government, its agen-
cies or instrumentalities. Payment of principal and interest on U.S. Govern-
ment obligations (i) may be backed by the full faith and credit of the United
States (as with U.S. Treasury obligations and GNMA certificates) or (ii) may
be backed solely by the issuing or guaranteeing agency or instrumentality it-
self (as with FNMA notes). In the latter case, the investor must look princi-
pally to the agency or instrumentality issuing or guaranteeing the obligation
for ultimate repayment, which agency or instrumentality may be privately
owned. There can be no assurance that the U.S. Government would provide finan-
cial support to its agencies or instrumentalities where it is not obligated to
do so. As a general matter, the value of debt instruments, including U.S. Gov-
ernment obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government obliga-
tions are subject to fluctuations in yield or value due to their structure or
contract terms.
SECURITIES OF NON-U.S. ISSUERS -- The Funds may invest in certain securities
of non-U.S. issuers as discussed below.
Obligations of Foreign Governments, Banks and Corporations -- Each Fund may
invest in U.S. dollar-denominated short-term obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities that are determined by BGFA to be of comparable
quality to the other obligations in which such Fund may invest. The Funds may
also invest in debt obligations of supranational entities. Supranational enti-
ties include international organizations designated or supported by governmen-
tal entities to promote economic reconstruction or development and interna-
tional banking institutions and related government agencies. Examples include
the International Bank for Reconstruction and Development
A-1
(the World Bank), the European Coal and Steel Community, the Asian Development
Bank and the InterAmerican Development Bank. The percentage of each Fund's as-
sets invested in obligations of foreign governments and supranational entities
will vary depending on the relative yields of such securities, the economic
and financial markets of the countries in which the investments are made and
the interest rate climate of such countries.
The Short-Intermediate Term Fund may invest up to 25% of its total assets in
high-quality, short-term (one year or less) debt obligations of foreign
branches of U.S. banks or U.S. branches of foreign banks that are denominated
in and pay interest in U.S. dollars. The Short-Intermediate Term Fund may in-
vest in debt securities issued by domestic corporations, U.S. dollar-denomi-
nated debt securities issued by Canadian corporations, or Yankee bonds. Yankee
bonds are U.S. dollar-denominated obligations issued by foreign governments or
companies.
Emerging Market Securities -- The Growth Stock Fund may invest up to 15% of
its assets in equity securities of companies in "emerging markets." The Fund
considers countries with emerging markets to include the following: (i) coun-
tries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank for Reconstruction and Development (more commonly re-
ferred to as the World Bank); and (iii) countries listed in World Bank publi-
cations as developing. The adviser may invest in those emerging markets that
have a relatively low gross national product per capita, compared to the
world's major economies, and which exhibit potential for rapid economic
growth. The adviser believes that investment in equity securities for emerging
market issuers offers significant potential for long-term capital apprecia-
tion.
Equity securities of emerging market issuers may include common stock, pre-
ferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity inter-
ests in foreign investment funds or trusts and real estate investment trust
securities. The Fund also may invest in American Depositary Receipts, European
Depositary Receipts, Continental Depositary Receipts, Global Depositary Re-
ceipts, International Depositary Receipts and similar instruments of such is-
suers.
Emerging market countries include, but are not limited to: Argentina, Bra-
zil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines,
A-2
Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and
Turkey. A company is considered in a country, market or region if it conducts
its principal business activities there, namely, if it derives a significant
portion (at least 50%) of its revenues or profits from goods produced or sold,
investments made, or services performed therein or has at least 50% of its as-
sets situated in such country, market or region.
American Depositary Receipts and Similar Instruments-The Growth Stock Fund
may invest in foreign securities through American Depositary Receipts
("ADRs"), Canadian Depositary Receipts ("CDRs"), European Depositary Receipts
("EDRs"), International Depositary Receipts ("IDRs") and Global Depositary Re-
ceipts ("GDRs") or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs (spon-
sored or unsponsored) are receipts typically issued by a U.S. bank or trust
company and traded on a U.S. stock exchange, and CDRs are receipts typically
issued by a Canadian bank or trust company that evidence ownership of under-
lying foreign securities. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information in the U.S. and, therefore, such
information may not correlate to the market value of the unsponsored ADR. EDRs
and IDRs are receipts typically issued by European banks and trust companies,
and GDRs are receipts issued by either a U.S. or non-U.S. banking institution,
that evidence ownership of the underlying foreign securities. Generally, ADRs
in registered form are designed for use in U.S. securities markets and EDRs
and IDRs in bearer form are designed primarily for use in Europe. The Fund may
invest up to 25% of its assets in these types of securities.
FLOATING- AND VARIABLE-RATE OBLIGATIONS-The Funds may purchase debt instru-
ments with interest rates that are periodically adjusted at specified inter-
vals or whenever a benchmark rate or index changes. These adjustments gener-
ally limit the increase or decrease in the amount of interest received on the
debt instruments. Floating- and variable-rate instruments are subject to in-
terest-rate risk and credit risk.
BONDS -- Certain of the debt instruments purchased by the Short-Intermediate
Term Fund may be bonds. A bond is an interest-bearing security issued by a
company or governmental unit. The issuer of a bond has a contractual obliga-
tion to pay interest at a stated rate on specific dates and to repay principal
(the bond's face value) periodically or on a
A-3
specified maturity date. An issuer may have the right to redeem or "call" a
bond before maturity, in which case the investor may have to reinvest the pro-
ceeds at lower market rates. Most bonds bear interest income at a "coupon"
rate that is fixed for the life of the bond. The value of a fixed rate bond
usually rises when market interest rates fall, and falls when market interest
rates rise. Accordingly, a fixed rate bond's yield (income as a percent of the
bond's current value) may differ from its coupon rate as its value rises or
falls.
Other types of bonds bear income at an interest rate that is adjusted peri-
odically. Because of their adjustable interest rates, the value of "floating-
rate" or "variable-rate" bonds fluctuates much less in response to market in-
terest rate movements than the value of fixed rate bonds. Also, the Funds may
treat some of these bonds as having a shorter maturity for purposes of calcu-
lating the weighted average maturity of their investment portfolios. Bonds may
be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of liqui-
dation, are paid before subordinated debt. Bonds may be unsecured (backed only
by the issuer's general creditworthiness) or secured (also backed by specified
collateral).
ASSET-BACKED SECURITIES -- The Short-Intermediate Term Fund may invest in
mortgage-related securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgages in which payments of both in-
terest and principal on the securities are made monthly, in effect "passing
through" monthly payments made by the individual borrowers on the residential
mortgage loans which underlie the securities (net of fees paid to the issuer
or guarantor of the securities). Early repayment of principal on mortgage
pass-through securities (arising from prepayments of principal due to sale of
the underlying property, refinancing, or foreclosure, net of fees and costs
which may be incurred) may expose the Fund to a lower rate of return upon re-
investment of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Like other fixed-income securities, when interest rates rise,
the value of a mortgage-related security generally will decline; however, when
interest rates decline, the value of mortgage-related securities with prepay-
ment features may not increase as much as other fixed-income securities. Pay-
ment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government or its agencies or instrumentali-
ties. Mortgage pass-
A-4
through securities created by non-government issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported by vari-
ous forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance, and letters of credit, which may be issued by governmen-
tal entities, private insurers or the mortgage poolers.
The Fund may invest up to 25% of its total assets in investment grade col-
lateralized mortgage obligations ("CMOs"). CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. The Fund may purchase
CMOs that are:
(1) collateralized by fixed rate or adjustable rate mortgages that are
guaranteed, as to payment of principal and interest, by a U.S. Government
agency or instrumentality;
(2) directly guaranteed, as to payment of principal and interest by the
issuer, which guarantee is collateralized by U.S. Government securities;
or
(3) collateralized by mortgage-backed securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
The Short-Intermediate Term Fund may invest in asset-backed securities,
which are unrelated to mortgage loans. These asset-backed securities may con-
sist of undivided fractional interests in pools of consumer loans or receiv-
ables held in trust. Examples include certificates for automobile receivables
(CARS) and credit card receivables (CARDS). Payments of principal and interest
on these asset-backed securities are "passed through" on a monthly or other
periodic basis to certificate holders and are typically supported by some form
of credit enhancement, such as a letter of credit, surety bond, limited guar-
anty, or subordination. The extent of credit enhancement varies, but usually
amounts to only a fraction of the asset-backed security's par value until ex-
hausted. Ultimately, asset-backed securities are dependent upon payment of the
consumer loans or receivables by individuals, and the certificate holder fre-
quently has no recourse to the entity that originated the loans or receiv-
ables. The actual maturity and realized yield will vary based upon the prepay-
ment experience of the underlying asset pool and prevailing interest rates at
the time of prepayment. Asset-backed securities are relatively new in -
A-5
struments and may be subject to greater risk of default during periods of eco-
nomic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund experiencing difficulty in valuing or
liquidating such securities.
OPTIONS TRANSACTIONS -- The Growth Stock Fund may invest in call and put op-
tions on a specific security. The Fund may invest up to 15% of its assets,
represented by the premium paid, in the purchase of call and put options in
respect of specific securities (or groups of "baskets" of specific securi-
ties). The purchaser of an option risks a total loss of the premium paid for
the option if the price of the underlying security does not increase or de-
crease sufficiently to justify exercise. The seller of an option, on the other
hand, will recognize the premium as income if the option expires unrecognized
but foregoes any capital appreciation in excess of the exercise price in the
case of a call option and may be required to pay a price in excess of current
market value in the case of a put option. The Fund may engage in unlisted
over-the-counter options with broker/dealers deemed creditworthy by the advis-
er. Closing transactions for such options are usually effected directly with
the same broker/dealer that effected the original option transaction. A Fund
bears the risk that the broker/dealer will fail to meet its obligations. There
is no assurance that a liquid secondary trading market exists for closing out
an unlisted option position. Furthermore, unlisted options are not subject to
the protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to perform
in connection with the purchase or sale of options.
INVESTMENT COMPANY SECURITIES -- Each Master Portfolio may invest in securi-
ties issued by other investment companies which principally invest in securi-
ties of the type in which the Master Portfolio invests. Under the 1940 Act, a
Master Portfolio's investment in such securities currently is limited to, sub-
ject to certain exceptions, (i) 3% of the total voting stock of any one in-
vestment company, (ii) 5% of the Master Portfolio's net assets with respect to
any one investment company and (iii) 10% of the Master Portfolio's net assets
in the aggregate. Investments in the securities of other investment companies
generally will involve duplication of advisory fees and certain other ex-
penses. The Master Portfolios may also purchase shares of exchange listed
closed-end funds.
ILLIQUID SECURITIES -- Each Fund may invest up to 15% of the value of its
net assets in securities as to which a liquid trading market
A-6
does not exist, provided such investments are consistent with its investment
objective. Such securities may include securities that are not readily market-
able, such as certain securities that are subject to legal or contractual re-
strictions on resale, participation interests that are not subject to the de-
mand feature described above, floating- and variable-rate demand obligations
as to which the Master Portfolio cannot exercise the related demand feature
described above on not more than seven days' notice and as to which there is
no secondary market and repurchase agreements providing for settlement more
than seven days after notice.
CONVERTIBLE SECURITIES -- The Growth Stock Fund may invest in convertible
securities that provide current income and are issued by companies with the
characteristics described above for the Fund and that have a strong earnings
and credit record. The Fund may purchase convertible securities that are
fixed-income debt securities or preferred stocks, and which may be converted
at a stated price within a specific period of time into a certain quantity of
the common stock of the same issuer. Convertible securities, while usually
subordinate to similar nonconvertible securities, are senior to common stocks
in an issuer's capital structure. Convertible securities offer flexibility by
providing the investor with a steady income stream (which generally yield a
lower amount than similar nonconvertible securities and a higher amount than
common stocks) as well as the opportunity to take advantage of increases in
the price of the issuer's common stock through the conversion feature. Fluctu-
ations in the convertible security's price can reflect changes in the market
value of the common stock or changes in market interest rates. At most, 5% of
the Fund's net assets will be invested, at the time of purchase, in convert-
ible securities that are not rated in the four highest rating categories by
one or more NRSROs, such as Moody's or S&P, or unrated but determined by BGFA
or Wells Fargo Bank to be of comparable quality.
CORPORATE REORGANIZATIONS
The Growth Stock Fund may invest in securities for which a tender or ex-
change offer has been made or announced, and in securities of companies for
which a merger, consolidation, liquidation or similar reorganization proposal
has been announced if, in the judgment of BGFA or Wells Fargo Bank, there is a
reasonable prospect of capital appreciation significantly greater than the
added portfolio turnover expenses inherent in the short term nature of such
transactions. The principal risk associated with such investments is that such
offers or proposals may not be consummated within the time and under the terms
contemplated
A-7
at the time of the investment, in which case, unless such offers or proposals
are replaced by equivalent or increased offers or proposals which are consum-
mated, the Funds may sustain a loss.
SHORT-TERM INSTRUMENTS AND TEMPORARY INVESTMENTS
The Funds may invest in high-quality money market instruments on an ongoing
basis to provide liquidity, for temporary purposes when there is an unexpected
level of shareholder purchases or redemptions or when "defensive" strategies
are appropriate. The instruments in which the Funds may invest include: (i)
short-term obligations issued or guaranteed by the U.S. Government, its agen-
cies or instrumentalities (including government-sponsored enterprises); (ii)
negotiable certificates of deposit ("CDs"), bankers' acceptances, fixed time
deposits and other obligations of domestic banks (including foreign branches)
that have more than $1 billion in total assets at the time of investment and
that are members of the Federal Reserve System or are examined by the Comp-
troller of the Currency or whose deposits are insured by the FDIC; (iii) com-
mercial paper rated at the date of purchase "Prime-1" by Moody's or "A-1+" or
"A-1" by S&P, or, if unrated, of comparable quality as determined by BGFA or
Wells Fargo Bank; (iv) non-convertible corporate debt securities (e.g., bonds
and debentures) with remaining maturities at the date of purchase of not more
than one year that are rated at least "Aa" by Moody's or "AA" by S&P; (v) re-
purchase agreements; and (vi) short-term, U.S. dollar-denominated obligations
of foreign banks (including U.S. branches) that, at the time of investment
have more than $10 billion, or the equivalent in other currencies, in total
assets and in the opinion of BGFA or Wells Fargo Bank are of comparable qual-
ity to obligations of U.S. banks which may be purchased by the Master Portfo-
lio.
Bank Obligations -- Each Fund may invest in bank obligations, including cer-
tificates of deposit, time deposits, bankers' acceptances and other short-term
obligations of domestic banks, foreign subsidiaries of domestic banks, foreign
branches of domestic banks, and domestic and foreign branches of foreign
banks, domestic savings and loan associations and other banking institutions.
Certificates of deposit are negotiable certificates evidencing the obliga-
tion of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking institu-
tion for a specified period of time at a stated interest rate. Time
A-8
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the FDIC.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include unin-
sured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt InstrumentS -- Each Fund may
invest in commercial paper (including variable amount master demand notes),
which consists of short-term, unsecured promissory notes issued by corpora-
tions to finance short-term credit needs. Commercial paper is usually sold on
a discount basis and has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand obligations that permit
the investment of fluctuating amounts at varying market rates of interest pur-
suant to arrangements between the issuer and a commercial bank acting as agent
for the payee of such notes whereby both parties have the right to vary the
amount of the outstanding indebtedness on the notes. The investment adviser
and/or sub-adviser to each Fund monitors on an ongoing basis the ability of an
issuer of a demand instrument to pay principal and interest on demand.
Each Fund also may invest in non-convertible corporate debt securities
(e.g., bonds and debentures) with not more than one year remaining to maturity
at the date of settlement. A Fund will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P. Subsequent to its purchase by the Fund, an issue of securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. The investment adviser and/or sub-adviser
to each Fund will consider such an event in determining whether the Fund
should continue to hold the obligation. To the extent the Fund continues to
hold such obligations, it may be subject to additional risk of default.
Repurchase Agreements -- Each Fund may enter into repurchase agreements
wherein the seller of a security to a Fund agrees to repurchase that security
from the Fund at a mutually-agreed upon time and price. The period of maturity
is usually quite short, often overnight or a few days, although it may extend
over a number of months. A Fund may enter into repurchase agreements only with
respect to securities that
A-9
could otherwise be purchased by the Fund, and all repurchase transactions must
be collateralized. A Fund may incur a loss on a repurchase transaction if the
seller defaults and the value of the underlying collateral declines or is oth-
erwise limited or if receipt of the security or collateral is delayed. The
Funds may participate in pooled repurchase agreement transactions with other
funds advised by BGFA or Wells Fargo Bank. See "Additional Permitted Invest-
ment Activities" in the SAI for additional information.
FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY TRANSACTIONS
- - -- Each Fund may purchase or sell securities on a when-issued or delayed-de-
livery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased
or sold on a when-issued, delayed-delivery or forward commitment basis involve
a risk of loss if the value of the security to be purchased declines, or the
value of the security to be sold increases, before the settlement date. Al-
though a Fund will generally purchase securities with the intention of acquir-
ing them, a Fund may dispose of securities purchased on a when-issued, de-
layed-delivery or a forward commitment basis before settlement when deemed ap-
propriate by the adviser.
BORROWING MONEY -- As a fundamental policy, each Fund is permitted to borrow
to the extent permitted under the 1940 Act. However, each Fund currently in-
tends to borrow money only for temporary or emergency (not leveraging) purpos-
es, and may borrow up to one-third of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. When
borrowings exceed 5% of a Fund's total assets, the Fund will not make any in-
vestments.
LOANS OF PORTFOLIO SECURITIES -- Each Fund may lend securities from their
portfolios to brokers, dealers and financial institutions (but not individu-
als) in order to increase the return on such Fund's portfolio. The value of
the loaned securities may not exceed one-third of a Fund's total assets and
loans of portfolio securities are fully collateralized based on values that
are marked-to-market daily. The Funds will not enter into any portfolio secu-
rity lending arrangement having a duration of longer than one year. The prin-
cipal risk of portfolio lending is potential default or insolvency of the bor-
rower. In either of these cases, a Fund could experience delays in recovering
securities or collateral or could lose all or part of the value of the loaned
securities. The Funds may pay reasonable administrative and custodial fees in
connection with loans of
A-10
portfolio securities and may pay a portion of the interest or fee earned
thereon the borrower or a placing broker. See "Additional Permitted Investment
Activities" in the SAI for additional information.
INVESTMENT POLICIES -- THE FUNDS
The investment objective of each Fund as set forth in the first sentence of
the section describing such Fund under the heading entitled "The Funds -- In-
vestment Objective and Policies", is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the out-
standing voting securities of such Fund as described under "Capital Stock" in
the SAI. In addition, any fundamental investment policy may not be changed
without shareholder approval. If the Board of Directors of the Company deter-
mines, however, that the investment objective of a Fund can best be achieved
by a substantive change in a non-fundamental investment policy or strategy,
the Board may make such change without shareholder approval and will disclose
any such material changes in the then current prospectus.
As matters of fundamental policy, a Fund may: (i) not purchase securities of
any issuer (except U.S. Government obligations) if as a result, with respect
to 75% of its total assets, more than 5% of the value of its total assets
would be invested in the securities of such issuer or, with respect to 100% of
its total assets, a Fund would own more than 10% of the outstanding voting se-
curities of such issuer provided that this restriction shall not prevent a
Fund from investing all of its assets in its corresponding Master Portfolio;
(ii) borrow from banks up to 20% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 20% of the current value of its net assets
(but investments may not be purchased while any such outstanding borrowing in
excess of 5% of its net assets exists); (iii) make loans of portfolio securi-
ties in accordance with its investment policies; and (iv) not invest 25% or
more of its total assets (i.e., concentrate) in any particular industry, ex-
cept that a Fund will concentrate its assets in any one industry for the same
period as does the S&P 500 Index and except that a Fund may invest 25% or more
of its assets in U.S. Government obligations, provided that this restriction
shall not prevent a Fund from investing all of its assets in its corresponding
Master Portfolio.
The Funds reserve the right to invest up to 15% of the current value of
their net assets in repurchase agreements having maturities of more than seven
days and other illiquid securities. Disposing of illiquid or restricted secu-
rities may involve additional costs and require additional time.
A-11
INVESTMENT RATINGS
The following describes how three of the major rating agencies classify
their investment ratings. Ratings of debt securities represent the rating
agency's opinion regarding their quality, and are not a guarantee of quality.
Credit ratings attempt to evaluate the safety of principal and interest pay-
ments, and do not evaluate the risks of fluctuations in market value. Further-
more, rating agencies may fail to make timely changes in credit ratings in re-
sponse to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates. Subsequent to purchase by a
Master Portfolio, the rating of a debt security may be reduced below the mini-
mum rating required for initial purchase by the Master Portfolio or the secu-
rity may cease to be rated. BGFA will consider either such event in determin-
ing whether a Master Portfolio should continue to hold the security. In no
event will a Master Portfolio hold more than 5% of its net assets in debt se-
curities rated below "BBB" by S&P or below "Baa" by Moody's or in unrated low
quality (below investment grade) debt securities. BGFA does not make any rep-
resentation that the investment ratings provided by such rating agencies are
accurate or complete.
STANDARD & POOR'S RATINGS
Bond Ratings. Bonds rated "AAA" have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
Bonds rated "A" have a strong capacity to pay interest and repay principal al-
though it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated "BBB" by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay prin-
cipal for debt in this category than in higher rated categories.
Commercial Paper Ratings. Commercial paper with the greatest capacity for
timely payment is rated "A" by S&P. Issues within this category are further
redefined with designations "1", "2" and "3" to indicate the relative degree
of safety; "A-1," the highest of the three, indicates the degree of safety is
very high.
A-12
MOODY'S INVESTORS SERVICE RATINGS
Bond Ratings. Bonds rated "Aaa" by Moody's are judged to be of the best
quality. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. Bonds rated "Aa" are judged to be of
high quality by all standards. They are rated lower than the best bonds be-
cause margins of protection may not be as large or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than is the case with
"Aaa" securities. Bonds that are rated "A" possess many favorable investment
attributes and are to be considered upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but ele-
ments may be present which suggest a susceptibility to impairment sometime in
the future. Bonds which are rated "Baa" by Moody's are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured. In-
terest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically unre-
liable over longer periods of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Commercial Paper Ratings. Moody's employs the designations of "Prime-1,"
"Prime-2" and "Prime-3" to indicate the relative capacity of the rated issuers
to repay punctually. "Prime-1" is the highest commercial paper rating assigned
by Moody's. Issuers of "Prime-1" obligations must have a superior capacity for
repayment of short-term promissory obligations, and will normally be evidenced
by leading market positions in well established industries, high rates of re-
turn on funds employed, conservative capitalization structures with moderate
reliance on debt and ample asset protection, broad margins in earnings cover-
age of fixed financial charges and high internal cash generation, and well es-
tablished access to a range of financial markets and assured sources of alter-
nate liquidity.
FITCH INVESTORS SERVICE RATINGS
Bond Ratings. Bonds rated "BBB" by Fitch are considered to be investment
grade and of satisfactory quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic con-
ditions and circumstances, however, are more likely to weaken this ability
than with bonds having higher ratings.
A-13
SPONSOR, DISTRIBUTOR AND ADMINISTRATOR
Stephens Inc.
Little Rock, Arkansas
INVESTMENT ADVISER
Barclays Global Fund Advisors
San Francisco, California
CUSTODIAN
Investors Bank & Trust Company
Boston, Massachusetts
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company
Boston, Massachusetts
LEGAL COUNSEL
Morrison & Foerster LLP
Washington, D.C.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
San Francisco, California
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMI-
NAL OFFENSE.
MasterWorks(R) Funds
c/o Investors Bank and Trust Co.
200 Clarendon Street
Boston, MA 02116
NORWEST ADVANTAGE FUNDS
Form N-14
Part B
Statement of Additional Information
STATEMENT OF ADDITIONAL INFORMATION
Transfer of the assets and liabilities of
Growth Stock Fund, a series of
MasterWorks Funds Inc.
111 Center Street
Little Rock, Arkansas 72201
by and in exchange for shares of
Large Company Growth Fund, a
series of Norwest Advantage Funds
Two Portland Square, Portland, Maine 04101
This Statement of Additional Information relating to the proposed
transfer of the assets and liabilities of Growth Stock Fund, a series of
MasterWorks Funds, Inc. to Large Company Growth Fund, a series of Norwest
Advantage Funds, in exchange for shares of Large Company Growth Fund consists of
this cover page and the following described documents, each of which is attached
hereto:
(1) Statement of Additional Information offering shares of Large
Company Growth Fund dated October 1, 1998.
(2) Statement of Additional Information offering shares of Growth
Stock Fund dated June 30, 1998.
(3) Report of Independent Auditors and financial statements of
Large Company Growth Fund for the fiscal year ended May 31,
1998, incorporated by reference to the Annual Report to
Shareholders of Norwest Advantage Funds filed on August 7,
1998, accession no.
0001047469-98-029811, File Nos. 33-0645, 811-4881.
(4) Report of Independent Auditors and financial statements of
Growth Stock Fund for the fiscal year ended February 28, 1998,
incorporated by reference to the Annual Report to Shareholders
of MasterWorks Funds Inc. filed on May 1, 1998, accession no.
0000927016-98-001762, File Nos. 033-51426, 811-07332.
(5) Unaudited pro forma combined financial information for the
period ended May 31, 1998. The pro forma financial statements
give effect to the transaction as if it had occurred on
December 11, 1997.
This Statement of Additional Information is not a prospectus. A
Combined Prospectus/Proxy Statement dated October [ ], 1998 relating to the
above referenced matter may be obtained without charge by writing to Forum
Financial Group, Two Portland Square, Portland, Maine 04101 or by calling
1-207-879-1900. This Statement of Additional Information relates to, and should
be read in conjunction with, such Combined Prospectus/Proxy Statement.
This Statement of Additional Information is dated October [], 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
- --------------------------------------------------------------------------------
Cash Investment Fund Minnesota Tax-Free Fund
Ready Cash Investment Fund Strategic Income Fund
U.S. Government Fund Moderate Balanced Fund
Treasury Plus Fund Growth Balanced Fund
Treasury Fund Aggressive Balanced-Equity Fund
Municipal Money Market Fund Index Fund
Stable Income Fund Income Equity Fund
Limited Term Government Income Fund ValuGrowthSM Stock Fund
Intermediate Government Income Fund Diversified Equity Fund
Diversified Bond Fund Growth Equity Fund
Income Fund Large Company Growth Fund
Total Return Bond Fund Small Company Stock Fund
Limited Term Tax-Free Fund Small Company Growth Fund
Tax-Free Income Fund Diversified Small Cap Fund
Colorado Tax-Free Fund Small Cap Opportunities Fund
Minnesota Intermediate Tax-Free Fund International Fund
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING: DISTRIBUTION:
Norwest Bank Minnesota, N.A. Forum Financial Services, Inc.
Transfer Agent Manager and Distributor
733 Marquette Avenue Two Portland Square
Minneapolis, MN 55479-0040 Portland, Maine 04101
(612) 667-8833/(800) 338-1348 (207) 879-1900
Norwest Advantage Funds is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended.
This Statement of Additional Information supplements the Prospectuses dated
October 1, 1998, as may be amended from time to time, offering the following
classes of shares of the series of Norwest Advantage Funds: Cash Investment
Fund, Ready Cash Investment Fund (Public Entities Shares, Investor Shares and
Exchange Shares), U.S. Government Fund, Treasury Plus Fund, Treasury Fund,
Municipal Money Market Fund (Institutional Shares and Investor Shares), A
Shares, B Shares and I Shares of Stable Income Fund, Intermediate Government
Income Fund, Income Fund, Total Return Bond Fund, Tax-Free Income Fund, Colorado
Tax-Free Fund, Minnesota Tax-Free Fund, ValuGrowth Stock Fund, Small Company
Stock Fund, Small Cap Opportunities Fund and International Fund, A Shares, B
Shares, C Shares and I Shares of Growth Balanced Fund, Income Equity Fund,
Diversified Equity Fund and Growth Equity Fund and I Shares Limited Term
Government Income Fund, Diversified Bond Fund, Limited Term Tax-Free Fund,
Minnesota Intermediate Tax-Free Fund, Strategic Income Fund, Moderate Balanced
Fund, Aggressive Balanced-Equity Fund, Index Fund, Large Company Growth Fund,
Small Company Growth Fund and Diversified Small Cap Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A CORRESPONDING PROSPECTUS, COPIES OF WHICH MAY BE OBTAINED BY AN INVESTOR
WITHOUT CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED ABOVE.
TABLE OF CONTENTS
Page
Introduction
1. Investment Policies
Security Ratings Information
Money Market Fund Matters
Fixed Income Investments
Mortgage-Backed And Asset-Backed Securities
Interest Rate Protection Transactions
Hedging And Option Income Strategies
Foreign Currency Transactions
Equity Securities and Additional Information Concerning the Equity Funds
Illiquid Securities and Restricted Securities
Borrowing And Transactions Involving Leverage
Repurchase Agreements
Temporary Defensive Position
2. Information Concerning Colorado and Minnesota
Colorado
Minnesota
3. Investment Limitations
Fundamental Limitations
Non-Fundamental Limitations
4. Performance and Advertising Data
SEC Yield Calculations
Total Return Calculations
Multiclass, Collective Trust Fund and Core-Gateway Performance
Other Advertisement Matters
5. Management
Trustees and Officers
Investment Advisory Services
Management and Administrative Services
Distribution
Transfer Agent
Custodian
Portfolio Accounting
Expenses
6. Portfolio Transactions
7. Additional Purchase and Redemption Information Statement of
Intention Exchanges Redemptions Contingent Deferred Sales
Charge (A Shares) Contingent Deferred Sales Charge (A Shares
and B Shares) Conversion of B Shares and Exchange Shares
i
TABLE OF CONTENTS
Page
8. Taxation
9. Additional Information About the Trust and the Shareholders of
the Funds Determination of Net Asset Value - Money Market
Funds Counsel and Auditors General Information Shareholdings
Financial Statements Registration Statement
Appendix A - Description of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Table 1 - Investment Advisory Fees B-
Table 2 - Management Fees B-
Table 3 - Distribution Fees B-
Table 4 - Sales Charges B-
Table 5 - Accounting Fees B-
Table 6 - Commissions B-
Table 7 - 5% Shareholders B-
Appendix C - Performance Data C-1 Table 1 - Money Market Fund C-1 Table
2 - Yields C-1 Table 3 - Total Returns C-
Appendix D - Other Advertisement Matters D-1
ii
INTRODUCTION
GLOSSARY
"Adviser" means Norwest, Schroder or a Subadviser.
"Board" means the Board of Trustees of the Trust.
"Balanced Fund" means Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive
Balanced-Equity Fund.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Core Portfolio" means 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 Growth Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio, Small Cap
Value Portfolio, Small Cap Index Portfolio and International
Portfolio, series of Core Trust, and Schroder U.S. Smaller Companies
Portfolio and Schroder EM Core Portfolio, two series of Schroder Core.
"Core Trust" means Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" means the Board of Trustees of Core Trust.
"Crestone" means Crestone Capital Management, Inc., the investment
subadvisor to Small Company Stock Portfolio, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive
Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund,
Diversified Small Cap Fund and Small
Company Stock Fund.
"Custodian" means Norwest Bank acting in its capacity as custodian of a
Fund.
"Equity Fund" means Income Equity Fund, Index Fund, ValuGrowth Stock
Fund, Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Diversified Small Cap Fund, Small Company Stock Fund, Small
Company Growth Fund, Small Cap Opportunities Fund and International
Fund.
"FAS" means Forum Administrative Services, Limited Liability Company,
the Trust's administrator.
"Fitch" means Fitch IBCA, Inc.
"Forum" means Forum Financial Services, Inc., a registered
broker-dealer and distributor of the Trust's shares.
"Forum Accounting" means Forum Accounting Services, Limited Liability
Company, the Trust's fund accountant.
"Fund" means each of the thirty-two separate series of the Trust to
which this SAI relates as identified on the cover page.
"Galliard" means Galliard Capital Management, Inc., the investment
subadviser to Stable Income Portfolio, Strategic Value Bond Portfolio,
Managed Fixed Income Portfolio, Stable Income Fund, Diversified Bond
1
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund and Aggressive Balanced-Equity Fund.
"Income Funds" means Stable Income Fund, Limited Term Government Income
Fund, Intermediate Government Income Fund, Diversified Bond Fund,
Income Fund and Total Return Bond Fund.
"Money Market Funds" means Cash Investment Fund, Ready Cash Investment
Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund and
Municipal Money Market Fund.
"Moody's" means Moody's Investors Service.
"Norwest" means Norwest Investment Management, Inc., the investment
adviser to each Fund and each Core Portfolio except Schroder U.S.
Smaller Companies Portfolio, International Portfolio and Schroder EM
Core Portfolio.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"NRSRO" means a nationally recognized statistical rating organization.
"Peregrine" means Peregrine Capital Management, Inc., the investment
subadviser to Positive Return Bond Portfolio, Small Company Value
Portfolio, Large Company Growth Portfolio, Small Company Growth
Portfolio, Diversified Bond Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund and Small Company Growth Fund.
"Schroder" means Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund, Growth Equity Fund,
International Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive Balanced-Equity Fund and
investment adviser to Schroder U.S. Smaller Companies Portfolio,
Schroder EM Core Portfolio and International Portfolio.
"Schroder Advisors" means Schroder Fund Advisors Inc., the
administrator to Schroder U.S. Smaller Companies Portfolio and
Schroder EM Core Portfolio.
"Schroder Core" means Schroder Capital Funds, an open-end, management
investment company registered under the 1940 Act.
"Schroder Core Board" means the Board of Trustees of Schroder Core.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Smith" means Smith Asset Management Group, L.P.
"Stock Index Futures" means futures contracts that relate to
broadly-based stock indices.
"Subadviser" means Crestone Capital Management, Inc., Galliard Capital
Management, Inc., Peregrine Capital Management, Inc., Schroder Capital
Management Inc. and Smith Asset Management Group, L.P.
"Tax Free Income Fund" means each of Limited Term Tax-Free Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund and Minnesota Tax-Free Fund.
"Transfer Agent" means Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of a Fund.
2
"Trust" means Norwest Advantage Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986. On July 30, 1993, Prime Value Funds,
Inc. was reorganized as a Delaware business trust under the name "Norwest
Funds." The Trust is currently named "Norwest Advantage Funds."
Norwest, a subsidiary of Norwest Bank, is each Funds' investment adviser.
Norwest also is the investment adviser of each Core Portfolio except Schroder
U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and International
Portfolio. Norwest Bank, a subsidiary of Norwest Corporation, is the Trust's
transfer agent, dividend disbursing agent and custodian. Norwest employs the
Subadvisers to subadvise certain of the Funds and Core Portfolios. Forum serves
as the Trust's manager and as distributor of the Trust's shares. FAS serves as
each Fund's administrator.
Each of Ready Cash Investment Fund, Stable Income Fund, Total Return Bond Fund,
Index Fund, Income Equity Fund, Large Company Growth Fund, Small Company Stock
Fund, Small Company Growth Fund and Small Cap Opportunities Fund invests all of
its investable assets in a Core Portfolio with substantially similar investment
objectives and policies.
Each of Cash Investment Fund, Diversified Bond Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund, Diversified Small Cap Fund and
International Fund invests all of its investable assets in more than one Core
Portfolio. Each Core Portfolio invests using a different investment style. The
percentage of each of these Fund's (except Cash Investment Fund's) assets
invested in each Core Portfolio may be changed at any time in response to market
or other conditions. Allocations are made within specified ranges as described
in each Fund's prospectus under "Investment Objectives and Policies."
The other Funds invest directly in portfolio securities.
Each Fund that invest in one or more Core Portfolios bears its pro rata share of
the expenses of the Core Portfolio(s) in which the it invests.
1. INVESTMENT POLICIES
The following discussion supplements the disclosure in the prospectuses about
each Fund's investments, investment techniques, strategies and risks (as well as
those of any Core Portfolio(s), in which the Fund invests). Certain Funds 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 smaller capitalization companies). If a Fund
that invests in one or more Core Portfolios is described as being able to make a
certain type of investment, the Fund is making that type of investment through
the Core Portfolio or Core Portfolios.
3
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund and Aggressive Balanced-Equity Fund.
"Income Funds" means Stable Income Fund, Limited Term Government Income
Fund, Intermediate Government Income Fund, Diversified Bond Fund,
Income Fund and Total Return Bond Fund.
"Money Market Funds" means Cash Investment Fund, Ready Cash Investment
Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund and
Municipal Money Market Fund.
"Moody's" means Moody's Investors Service.
"Norwest" means Norwest Investment Management, Inc., the investment
adviser to each Fund and each Core Portfolio except Schroder U.S.
Smaller Companies Portfolio, International Portfolio and Schroder EM
Core Portfolio.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"NRSRO" means a nationally recognized statistical rating organization.
"Peregrine" means Peregrine Capital Management, Inc., the investment
subadviser to Positive Return Bond Portfolio, Small Company Value
Portfolio, Large Company Growth Portfolio, Small Company Growth
Portfolio, Diversified Bond Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund and Small Company Growth Fund.
"Schroder" means Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund, Growth Equity Fund,
International Fund, Strategic Income Fund, Moderate Balanced Fund,
Growth Balanced Fund and Aggressive Balanced-Equity Fund and
investment adviser to Schroder U.S. Smaller Companies Portfolio,
Schroder EM Core Portfolio and International Portfolio.
"Schroder Advisors" means Schroder Fund Advisors Inc., the
administrator to Schroder U.S. Smaller Companies Portfolio and
Schroder EM Core Portfolio.
"Schroder Core" means Schroder Capital Funds, an open-end, management
investment company registered under the 1940 Act.
"Schroder Core Board" means the Board of Trustees of Schroder Core.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Smith" means Smith Asset Management Group, L.P.
"Stock Index Futures" means futures contracts that relate to
broadly-based stock indices.
"Subadviser" means Crestone Capital Management, Inc., Galliard Capital
Management, Inc., Peregrine Capital Management, Inc., Schroder Capital
Management Inc. and Smith Asset Management Group, L.P.
"Tax Free Income Fund" means each of Limited Term Tax-Free Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund and Minnesota Tax-Free Fund.
"Transfer Agent" means Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of a Fund.
4
"Trust" means Norwest Advantage Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986. On July 30, 1993, Prime Value Funds,
Inc. was reorganized as a Delaware business trust under the name "Norwest
Funds." The Trust is currently named "Norwest Advantage Funds."
Norwest, a subsidiary of Norwest Bank, is each Funds' investment adviser.
Norwest also is the investment adviser of each Core Portfolio except Schroder
U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio and International
Portfolio. Norwest Bank, a subsidiary of Norwest Corporation, is the Trust's
transfer agent, dividend disbursing agent and custodian. Norwest employs the
Subadvisers to subadvise certain of the Funds and Core Portfolios. Forum serves
as the Trust's manager and as distributor of the Trust's shares. FAS serves as
each Fund's administrator.
Each of Ready Cash Investment Fund, Stable Income Fund, Total Return Bond Fund,
Index Fund, Income Equity Fund, Large Company Growth Fund, Small Company Stock
Fund, Small Company Growth Fund and Small Cap Opportunities Fund invests all of
its investable assets in a Core Portfolio with substantially similar investment
objectives and policies.
Each of Cash Investment Fund, Diversified Bond Fund, Strategic Income Fund,
Moderate Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund, Diversified Small Cap Fund and
International Fund invests all of its investable assets in more than one Core
Portfolio. Each Core Portfolio invests using a different investment style. The
percentage of each of these Fund's (except Cash Investment Fund's) assets
invested in each Core Portfolio may be changed at any time in response to market
or other conditions. Allocations are made within specified ranges as described
in each Fund's prospectus under "Investment Objectives and Policies."
The other Funds invest directly in portfolio securities.
Each Fund that invest in one or more Core Portfolios bears its pro rata share of
the expenses of the Core Portfolio(s) in which the it invests.
1. INVESTMENT POLICIES
The following discussion supplements the disclosure in the prospectuses about
each Fund's investments, investment techniques, strategies and risks (as well as
those of any Core Portfolio(s), in which the Fund invests). Certain Funds 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 smaller capitalization companies). If a Fund
that invests in one or more Core Portfolios is described as being able to make a
certain type of investment, the Fund is making that type of investment through
the Core Portfolio or Core Portfolios.
5
SECURITY RATINGS INFORMATION
The Funds' investments are subject to credit risk relating to the financial
condition of the issuers of the securities that each Fund holds. To limit credit
risk, each Fund invests at least 65% of its assets in debt securities that are
considered investment grade, which means rated in the top four long-term rating
categories or top two short-term rating categories by an NRSRO, or unrated and
determined by the Adviser to be of comparable quality. Certain Funds have
greater restrictions. T
The lowest long-term ratings that are investment grade for corporate bonds,
including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the
case of S&P and Fitch; for preferred stock are "Baa" in the case of Moody's and
"BBB" in the case of S&P and Fitch; and for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, "A-2" in the case of
S&P and "F-2" in the case of Fitch.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. 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.
Moody's, S&P 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 bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund (neither event requiring sale of such security by a Fund
- --except in certain cases with respect to the Money Market Funds), Norwest will
determine whether the Fund should continue to hold the obligation. To the extent
that the ratings given by a NRSRO may change as a result of changes in such
organizations or their rating systems, the Investment Adviser will attempt to
substitute comparable ratings. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
ratings. An issuer's current financial condition may be better or worse than a
rating indicates.
MONEY MARKET FUND MATTERS
The MONEY MARKET Funds invest only in high quality, short-term money market
instruments determined by the Adviser, under procedures adopted by the Board, to
be eligible for purchase and to present minimal credit risks. Each Fund will
invest only in U.S. dollar-denominated instruments that have a remaining
maturity of 397 days or less (as calculated pursuant to Rule 2a-7 under the 1940
Act and will maintain a dollar-weighted average portfolio maturity of 90 days or
less. Securities with ultimate maturities of greater than 397 days may be
purchased in accordance with Rule 2a-7. Under that Rule, only those long-term
instruments that have demand features which comply with certain requirements and
certain variable rate U.S. Government Securities, as described below, may be
purchased. The securities in which the Funds may invest may have fixed, variable
or floating rates of interest.
Except to the limited extent permitted by Rule 2a-7 and except for U.S.
Government Securities, no Fund will invest more than 5% of its total assets in
the securities of any one issuer. Also, a Fund may not purchase a security if
the value of all securities held by the Fund and issued or guaranteed by the
same issuer (including letters of credit in support of a security) would exceed
10% of the Fund's total assets. Those requirements apply with respect to only
75% of the total assets of Municipal Money Market Fund. In addition, to ensure
adequate liquidity, no Fund may invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in more than seven
days.
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 Norwest, pursuant to guidelines adopted by the Board, to be of
comparable quality. Except for Municipal Money Market Fund, each Fund will
invest at least 95% of its total assets in securities in the highest rating
category as determined pursuant to Rule 2a-7.
6
The market value of the interest-bearing debt securities held by the Funds,
including municipal securities, will be affected by changes in interest rates.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates;
(i.e., a decline in interest rates produces an increase in market value, while
an increase in rates produces a decrease in market value.) Moreover, the longer
the remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. In addition, changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. Obligations of issuers of debt
securities, including municipal securities, are also subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. The possibility exists, therefore, that, as a result of bankruptcy,
litigation or other conditions, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may be materially affected.
Although each Fund only invests in high quality money market instruments, an
investment in the Fund is subject to risk even if all securities in the Fund's
portfolio are paid in full at maturity. All money market instruments, including
U.S. Government Securities, can change in value as a result of changes interest
rates and/or the issuer's actual or perceived creditworthiness.
Municipal Money Market Fund is subject to the issuer diversification rules
described in paragraph (1) under "Investment Limitations, Nonfundamental
Limitations." Except for Municipal Money Market Fund, a Money Market Fund may
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 the requisite
number of NRSROs (a "second tier security") if immediately after the acquisition
thereof the Fund would have invested more than (A) the greater of one percent of
its total assets or one million dollars in securities issued by that issuer
which are second tier securities, or (B) five percent of its total assets in
second tier securities.
Immediately after the acquisition of any put, no more than five percent of a
Money Market Fund's total assets may be invested in securities issued by or
subject to conditional puts from the same institution and no more than ten
percent of a Money Market Fund's total assets may be invested in securities
issued by or subject to unconditional puts (including guarantees) from the same
institution. However, these restrictions only apply with respect to 75% of
Municipal Money Market Fund's total assets.
INVESTMENT BY FEDERAL CREDIT UNIONS
U.S. GOVERNMENT FUND and TREASURY FUND limit their investments, as described in
each of the Prospectuses for those Funds, to investments that are legally
permissible for Federally chartered credit unions under applicable provisions of
the Federal Credit Union Act (including 12 U.S.C. Section 1757(7), (8) and (15))
and the applicable rules and regulations of the National Credit Union
Administration (including 12 C.F.R. Part 703, Investment and Deposit
Activities), as such statutes and rules and regulations may be amended. Treasury
Fund limits its investments to Treasury obligations, including Treasury STRIPS
with a maturity of less than 13 months. U.S. Government Fund limits its
investments to U.S. Government Securities (including Treasury STRIPS),
repurchase agreements fully collateralized by U.S. Government Securities and
other government related zero-coupon securities, such as TIGRs and CATs. All
zero-coupon securities in which the Fund invests will have a maturity of less
than 13 months. Certain U.S. Government Securities owned by the Fund may be
mortgage or asset backed, but, except to reduce interest rate risk, no such
security will be (i) a stripped mortgage backed security ("SMBS"), (ii) a
collateralized mortgage obligation ("CMO") or real estate mortgage investment
conduit ("REMIC") that meets any of the tests outlined in 12 C.F.R. Section
703.5(g) or (iii) a residual interest in a CMO or REMIC. In order to reduce
interest rate risk the Fund may purchase a SMBS, CMO, REMIC or residual interest
in a CMO or REMIC but only in accordance with 12 C.F.R. Section 703.5(i). Each
Fund also may invest in reverse repurchase agreements in accordance with 12
C.F.R. 703.4(e).
FIXED INCOME INVESTMENTS
7
ALL FUNDS. Yields on fixed income securities, including municipal securities,
are dependent on a variety of factors, including the general conditions of the
money market and other fixed income securities markets, the size of a particular
offering, the maturity of the obligation and the rating of the issue. An
investment in a Fund that invests in fixed income securities is subject to risk
even if all fixed income securities in the Fund's portfolio are paid in full at
maturity. All fixed income securities, including U.S. Government Securities, can
change in value when there is a change in interest rates or the issuer's actual
or perceived creditworthiness or ability to meet its obligations.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
The longer the remaining maturity (and duration) of a security, the greater will
be the effect of interest rate changes on the market value of that security.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of the debt securities of that issuer. Obligations of issuers
of fixed income securities (including municipal securities) are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of municipal issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. The
possibility exists, therefore, that, the ability of any issuer to pay, when due,
the principal of and interest on its debt securities may become impaired.
A Fund may invest in fixed income securities include those issued by the
governments of foreign countries or by those countries' political subdivisions,
agencies or instrumentalities as well as by supranational organizations such as
the International Bank for Reconstruction and Development and the Inter-American
Development Bank if the Adviser believes that the securities do not present
risks inconsistent with a Funds' investment objective.
The corporate debt securities in which the Funds may invest include corporate
bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliate's current obligations and is
frequently unsecured. Variable and floating rate demand notes are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to a direct arrangement 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. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7 day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
U.S. GOVERNMENT SECURITIES
ALL FUNDS. The Funds may invest in U.S. Government Securities that are U.S.
Treasury Securities and obligations issued or guaranteed by U.S. Government
agencies and instrumentalities and backed by the full faith and credit of the
U.S. Government, such as those guaranteed by the Small Business Administration
or issued by the Government National Mortgage Association. In addition, Funds
may invest in U.S. Government Securities that are supported primarily or solely
by the creditworthiness of the issuer, such as securities of the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Tennessee Valley Authority. There is no guarantee that the U.S. Government
will support securities not backed by its full faith and credit. Accordingly,
although these securities have historically involved little risk of loss of
principal if held to maturity, they may involve more risk than securities backed
by the U.S. Government's full faith and credit. A Fund will invest in the
obligations of such agencies or instrumentalities only when Norwest believes
that the credit risk with respect thereto is consistent with the Fund's
investment policies.
BANK OBLIGATIONS
8
ALL FUNDS (EXCEPT TREASURY FUND AND TREASURY PLUS FUND). A Fund may invest in
obligations of financial institutions, including negotiable certificates of
deposit, bankers' acceptances and time deposits of U.S. banks (including savings
banks and savings associations), foreign branches of U.S. banks, foreign banks
and their non-U.S. branches (Eurodollars), U.S. branches and agencies of foreign
banks (Yankee dollars), and wholly-owned banking-related subsidiaries of foreign
banks.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. 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 the Fund but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation and could reduce the Fund's yield. Although fixed-time deposits do
not in all cases have a secondary market, there are no contractual restrictions
on the Fund's right to transfer a beneficial interest in the deposits to third
parties. Deposits subject to early withdrawal penalties or that mature in more
than seven days are treated as illiquid securities if there is no readily
available market for the securities. A Fund's investments in the obligations of
foreign banks and their branches, agencies or subsidiaries may be obligations of
the parent, of the issuing branch, agency or subsidiary, or both. Investments in
foreign bank obligations are limited to banks and branches located in countries
which the Advisers believe do not present undue risk.
Small Cap Opportunities Fund may invest in obligations (including certificates
of deposit and bankers' acceptances) of U.S. banks that have total assets at the
time of purchase in excess of $1 billion and are members of the Federal Deposit
Insurance Corporation. Each other Fund may, invest in obligations of financial
institutions, including negotiable certificates of deposit, bankers' acceptances
and time deposits of U.S. banks (including savings banks and savings
associations), foreign branches of U.S. banks, foreign banks and their non-U.S.
branches (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and wholly-owned banking-related subsidiaries of foreign banks. A
Fund's investments in the obligations of foreign banks and their branches,
agencies or subsidiaries may be obligations of the parent, of the issuing
branch, agency or subsidiary, or both. Investments in foreign bank obligations
are limited to banks and branches located in countries which the Fund's Adviser
believes do not present undue risk.
The Funds (other than Small Cap Opportunities Fund) may invest in Eurodollar
certificates of deposit, which are U.S. dollar denominated certificates of
deposit issued by offices of foreign and domestic banks located outside the
United States; Yankee certificates of deposit, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank; and
Canadian time deposits, which are essentially the same as ETDs, except that they
are issued by Canadian offices of major Canadian banks.
Investments in instruments of foreign banks, branches or subsidiaries may
involve certain risks, including future political and economic developments, the
possible imposition of foreign withholding taxes on interest income payable on
such securities, the possible seizure or nationalization of foreign deposits,
differences from domestic banks in applicable accounting, auditing and financial
reporting standards, and the possible establishment of exchange controls or
other foreign governmental laws or restrictions applicable to the payment of
certificates of deposit or time deposits which might affect adversely the
payment of principal and interest on such securities held by the Fund.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
ALL FUNDS EXCEPT THE MONEY MARKET FUNDS. Except for the Money Market Funds and
Small Cap Opportunities Fund, each Fund may assume a temporary defensive
position and may invest without limit in commercial paper that is rated in one
of the two highest rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality. Certain additional Funds may invest in
commercial paper as an investment and not as a temporary defensive position.
Except as noted below with respect to variable master demand notes, issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
9
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. 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. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
Small Cap Opportunities Fund may invest in commercial paper, i.e., short-term
unsecured promissory notes issued in bearer form by bank holding companies,
corporations and finance companies. The commercial paper purchased by Small Cap
Opportunities Fund for temporary defensive purposes consists of direct
obligations of domestic issuers which, at the time of investment, are rated
"P-1" by Moody's Investors Service ("Moody's") or "A-1" by Standard & Poor's
("S&P"), or securities which, if not rated, are issued by companies having an
outstanding debt issue currently rated Aa by Moody's or AAA or AA by S&P.
GUARANTEED INVESTMENT CONTRACTS
The FIXED INCOME FUNDS may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest at a rate based on an index. The GICs provide 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, and these charges will be deducted from the value of the deposit fund. A
Fund will purchase a GIC only when the Adviser has determined that the GIC
presents minimal credit risks to the Fund and is of comparable quality to
instruments in which the Fund may otherwise invest. Because a Fund may not
receive the principal amount of a GIC from the insurance company on seven days'
notice or less, a GIC may be considered an illiquid investment. The term of a
GIC will be one year or less.
In determining the average weighted portfolio maturity of a Fund, a GIC will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate. The interest rate on a GIC may be
tied to a specified market index and is guaranteed not to be less than a certain
minimum rate.
ZERO COUPON SECURITIES
ALL FUNDS. A Fund may invest in Treasury Bills and separately traded principal
and interest components of securities issued or guaranteed by the U.S. Treasury.
The separately traded components are traded independently under the Treasury's
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program or as Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may
invest in other types of related zero-coupon securities. For instance, a number
of banks and brokerage firms separate the principal and interest portions of
U.S. Treasury securities and sell them separately in the form of receipts or
certificates representing undivided interests in these instruments. These
instruments are generally held by a bank in a custodial or trust account on
behalf of the owners of the securities and are known by various names, including
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS"). For the purpose solely
of an investment policy of investing at least 65% of a Fund's assets in U.S.
Government Securities, such securities are currently not deemed to be U.S.
Government Securities but rather securities issued by the bank or brokerage firm
involved. Zero-coupon securities also may be issued by corporations and
municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. 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.
10
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. These securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Federal tax
law requires that a Fund accrue a portion of the discount at which a zero-coupon
security was purchased as income each year even though the Fund receives no
interest payment in cash on the security during the year. Interest on these
securities, however, is reported as income by the Fund and must be distributed
to its shareholders. 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 the Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
MUNICIPAL SECURITIES
CASH INVESTMENT FUND, MUNICIPAL MONEY MARKET FUND, FIXED INCOME FUNDS AND
TAX-EXEMPT FIXED INCOME FUNDS. Municipal securities are issued by 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 sanitary districts) of the
states, territories and possessions of the United States or their political
subdivisions. In addition, municipal securities include securities issued by or
on behalf of public authorities to finance various privately operated
facilities, such as industrial development bonds or other private activity bonds
that are backed only by the assets and revenues of the non-governmental user
(such as manufacturing enterprises, hospitals, colleges or other entities).
The Funds may invest in municipal bonds, notes and leases. Municipal securities
may be zero-coupon securities. Yields on municipal securities are dependent on a
variety of factors, including the general conditions of the municipal security
markets and the fixed income markets in general, the size of a particular
offering, the maturity of the obligation and the rating of the issue. The
achievement of a Fund's investment objective is dependent in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due.
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL BONDS. Municipal bonds can be classified as either "general
obligation" or "revenue" bonds. General obligation bonds are secured by a
municipality's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other tax, but not from general
tax revenues. Municipal bonds include industrial development bonds. 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.
A Fund may invest in tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund will acquire private activity securities only if the interest
payments on the security are exempt from federal income taxation (other than the
Alternative Minimum Tax (AMT)).
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. General obligation
bonds are used to fund a wide range of public projects, including construction
or improvement of schools, highways and roads, and water and sewer systems. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility,
11
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. 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. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
Small Cap Opportunities Fund may invest in commercial paper, i.e., short-term
unsecured promissory notes issued in bearer form by bank holding companies,
corporations and finance companies. The commercial paper purchased by Small Cap
Opportunities Fund for temporary defensive purposes consists of direct
obligations of domestic issuers which, at the time of investment, are rated
"P-1" by Moody's Investors Service ("Moody's") or "A-1" by Standard & Poor's
("S&P"), or securities which, if not rated, are issued by companies having an
outstanding debt issue currently rated Aa by Moody's or AAA or AA by S&P.
GUARANTEED INVESTMENT CONTRACTS
The FIXED INCOME FUNDS may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest at a rate based on an index. The GICs provide 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, and these charges will be deducted from the value of the deposit fund. A
Fund will purchase a GIC only when the Adviser has determined that the GIC
presents minimal credit risks to the Fund and is of comparable quality to
instruments in which the Fund may otherwise invest. Because a Fund may not
receive the principal amount of a GIC from the insurance company on seven days'
notice or less, a GIC may be considered an illiquid investment. The term of a
GIC will be one year or less.
In determining the average weighted portfolio maturity of a Fund, a GIC will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate. The interest rate on a GIC may be
tied to a specified market index and is guaranteed not to be less than a certain
minimum rate.
ZERO COUPON SECURITIES
ALL FUNDS. A Fund may invest in Treasury Bills and separately traded principal
and interest components of securities issued or guaranteed by the U.S. Treasury.
The separately traded components are traded independently under the Treasury's
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program or as Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may
invest in other types of related zero-coupon securities. For instance, a number
of banks and brokerage firms separate the principal and interest portions of
U.S. Treasury securities and sell them separately in the form of receipts or
certificates representing undivided interests in these instruments. These
instruments are generally held by a bank in a custodial or trust account on
behalf of the owners of the securities and are known by various names, including
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS"). For the purpose solely
of an investment policy of investing at least 65% of a Fund's assets in U.S.
Government Securities, such securities are currently not deemed to be U.S.
Government Securities but rather securities issued by the bank or brokerage firm
involved. Zero-coupon securities also may be issued by corporations and
municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. 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.
12
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. These securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Federal tax
law requires that a Fund accrue a portion of the discount at which a zero-coupon
security was purchased as income each year even though the Fund receives no
interest payment in cash on the security during the year. Interest on these
securities, however, is reported as income by the Fund and must be distributed
to its shareholders. 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 the Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
MUNICIPAL SECURITIES
CASH INVESTMENT FUND, MUNICIPAL MONEY MARKET FUND, FIXED INCOME FUNDS AND
TAX-EXEMPT FIXED INCOME FUNDS. Municipal securities are issued by 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 sanitary districts) of the
states, territories and possessions of the United States or their political
subdivisions. In addition, municipal securities include securities issued by or
on behalf of public authorities to finance various privately operated
facilities, such as industrial development bonds or other private activity bonds
that are backed only by the assets and revenues of the non-governmental user
(such as manufacturing enterprises, hospitals, colleges or other entities).
The Funds may invest in municipal bonds, notes and leases. Municipal securities
may be zero-coupon securities. Yields on municipal securities are dependent on a
variety of factors, including the general conditions of the municipal security
markets and the fixed income markets in general, the size of a particular
offering, the maturity of the obligation and the rating of the issue. The
achievement of a Fund's investment objective is dependent in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due.
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL BONDS. Municipal bonds can be classified as either "general
obligation" or "revenue" bonds. General obligation bonds are secured by a
municipality's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other tax, but not from general
tax revenues. Municipal bonds include industrial development bonds. 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.
A Fund may invest in tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund will acquire private activity securities only if the interest
payments on the security are exempt from federal income taxation (other than the
Alternative Minimum Tax (AMT)).
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. General obligation
bonds are used to fund a wide range of public projects, including construction
or improvement of schools, highways and roads, and water and sewer systems. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility,
13
class of facilities, or, in some cases, from the proceeds of a special excise or
other specific revenue source, but not from general tax revenues. Revenue bonds
are issued to finance a wide variety of capital projects including electric,
gas, water and sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. 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.
Revenue bonds issued by housing authorities may be secured in a number of ways,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.
While at one time the pertinent provisions of the Code permitted private
activity bonds to bear tax-exempt interest in connection with virtually any type
of commercial or industrial project (subject to various restrictions as to
authorized costs, size limitations, state per capita volume restrictions, and
other matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial projects
originally financed with tax-exempt bonds. In future years, the types of
projects qualifying under the Code for tax-exempt financing could become
increasingly limited.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes, revenue anticipation notes, bond anticipation
notes, construction loan notes and tax-exempt commercial paper. Tax anticipation
notes are issued to finance working capital needs of municipalities, and are
payable from various anticipated future seasonal tax revenues, such as income,
sales, use and business taxes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenues, such as federal revenues
available under various federal revenue sharing programs. Bond anticipation
notes are issued to provide interim financing until long-term financing can be
arranged and are typically payable from proceeds of the long-term bonds.
Construction loan notes are sold to provide construction financing. After
successful completion and acceptance, many such projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage Association. Tax-exempt
commercial paper is a short-term obligation with a stated maturity of 365 days
or less. It is issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in anticipation of
longer term financing. Municipal notes also include longer term issues that are
remarketed to investors periodically, usually at one year intervals or less.
MUNICIPAL LEASES. 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 a wide variety of
equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Municipal leases
frequently have special risks not normally associated with general obligation or
revenue bonds. 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
14
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.
PARTICIPATION INTERESTS. The Funds may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests usually carry a demand feature backed by a letter of
credit or guarantee of the bank or institution permitting the holder to tender
them back to the bank or other institution. Prior to purchasing any
participation interest, the Funds will obtain appropriate assurances that the
interest earned by the Funds from the obligations in which it holds
participation interests is exempt from federal and, in the case of Colorado
Tax-Free Fund and Minnesota Tax-Free Fund, applicable state income tax.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a stand-by commitment, and the aggregate price which
a Fund pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. The primary purpose of this practice is to
permit a Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, a Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Fund's policy is to enter into stand-by
commitment transactions only with municipal securities dealers which, in the
view of Norwest, present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When a Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.
PUTS ON MUNICIPAL SECURITIES. The Funds may acquire "puts" with respect to
municipal securities. A put gives the Fund the right to sell the municipal
security at a specified price at any time on or before a specified date. The
Funds may sell, transfer or assign a put only in conjunction with its sale,
transfer or assignment of the underlying security or securities. The amount
payable to a Fund upon its exercise of a "put" is normally: (1) the Fund's
acquisition cost of the municipal securities (excluding any accrued interest
which the Fund paid on their acquisition), less any amortized market premium or
plus any amortized market or original issue discount during the period the Fund
owned the securities, plus (2) all interest accrued on the securities since the
last interest payment date during that period.
Puts may be acquired by the Funds to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of a Fund's assets
at a rate of return more favorable than that of the underlying security. The
Funds expect that they will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Funds may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities). The Funds intend to enter into puts only with dealers, banks
and broker-dealers which, in the Fund's Adviser's opinion, present minimal
credit risks.
Puts may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of a Fund's assets.
15
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to
(i) whether the interest is or is not includable in the calculation of
alternative minimum taxes imposed on individuals and corporations, (ii) whether
the costs of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions, and (iii) other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of the Code and
related requirements governing the issuance of tax-exempt bonds, industry
practice has uniformly required as a condition to the issuance of such bonds,
but particularly for revenue bonds, an opinion of nationally recognized bond
counsel as to the tax-exempt status of interest on the bonds.
VARIABLE AND FLOATING RATE SECURITIES
ALL FUNDS. The Funds may invest in securities (including mortgage-related
securities) with variable or floating rates of interest. These securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (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. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of the Fund to maintain a
stable net asset value. 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 Fund may be tied to Treasury or other
government securities or indices on those securities as well as any other rate
of interest or index. Certain variable rate securities (including
mortgage-related securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as "inverse
floaters"). For instance, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During times when short-term
interest rates are relatively low as compared to long-term interest rates a Fund
may attempt to enhance its yield by purchasing inverse floaters. Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This form of leverage may have the effect of
increasing the volatility of the security's market value while increasing the
security's, and thus the Fund's, yield. Money Market Funds may not invest in
inverse floaters and certain other variable and floating rates securities that
do not imply with Rule 2a-7.
There may not be an active secondary market for certain floating or variable
rate instruments (particularly inverse floaters and similar instruments) which
could make it difficult for a Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights (such as puts) it
may have. A Fund could, for this or other reasons, suffer a loss with respect to
those instruments. The Adviser monitors the liquidity of each Fund's investment
in variable and floating rate instruments, but there can be no guarantee that an
active secondary market will exist.
The Funds, except U.S. Government Fund and Treasury Fund, also may purchase
variable and floating rate demand notes of corporations, which are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangement with the issuer of the
instrument. The issuer of these obligations often has the right, after a given
period, to prepay their outstanding principal amount of the obligations upon a
specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a seven day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. A Fund will purchase these securities only when the 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 an Adviser will
be able to limit the effects of principal fluctuations and, accordingly, a Fund
may incur losses on those securities even if held to maturity without issuer
default.
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. The payment of principal and interest by issuers of certain securities
purchased by the Funds may be guaranteed by
16
letters of credit or other credit facilities offered by banks or other financial
institutions. Such guarantees will be considered in determining whether a
municipal security meets the Funds' investment quality requirements.
Variable rate obligations purchased by the Funds may include participation
interests in variable rate obligations purchased by the Funds from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Funds can exercise the
right, on not more than thirty days' notice, to sell such an instrument back to
the bank from which it purchased the instrument and draw on the letter of credit
for all or any part of the principal amount of a Fund's participation interest
in the instrument, plus accrued interest, but will do so only (1) as required to
provide liquidity to a Fund, (2) to maintain a high quality investment
portfolio, or (3) upon a default under the terms of the demand instrument. Banks
and other financial institutions retain portions of the interest paid on such
variable rate obligations as their fees for servicing such instruments and the
issuance of related letters of credit, guarantees and repurchase commitments.
A Fund will not purchase participation interests in variable rate obligations
unless it is advised by counsel or receives a ruling of the Internal Revenue
Service that interest earned by the Funds from the obligations in which it holds
participation interests is exempt from Federal income tax. The Internal Revenue
Service has announced that it ordinarily will not issue advance rulings on
certain of the Federal income tax consequences applicable to securities, or
participation interests therein, subject to a put. Each Fund's Adviser monitors
the pricing, quality and liquidity of variable rate demand obligations and
participation interests therein held by the Fund on the basis of published
financial information, rating agency reports and other research services to
which the Adviser may subscribe.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
ALL FUNDS. Mortgage-backed securities represent an interest in a pool of
mortgages originated by lenders such as commercial banks, savings associations
and mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments 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.
UNDERLYING MORTGAGES. 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, but may be made to purchasers of mobile homes or
other real estate interests. 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 Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local 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.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged,
however, the market for conventional pools is smaller and less liquid than the
market for government and government-related mortgage pools.
17
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to a Fund if the securities were acquired at a
premium. 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 mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted by
investment dealers based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgages. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of a
Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"), a wholly-owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller-servicers. The Federal Home
Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMCs national
portfolio. FNMA and FHLMC each guarantee the payment of principal and interest
on the securities they issue. These securities, however, are not backed by the
full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. 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. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit
18
the maximum amount by which the interest rate paid by the borrower may change at
each reset date or over the life of the loan and, accordingly, fluctuation in
interest rates above these levels could cause such mortgage securities to "cap
out" and to behave more like long-term, fixed-rate debt securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to a Fund will decrease as the coupon rate
resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying a Fund's
ARMs may lag behind changes in market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus,
investors could suffer some principal loss if they sold Fund shares before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule 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 payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. 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-based 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. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities.
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.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class). Currently, no fund may
purchase IOs or POs.
19
TYPES OF CREDIT ENHANCEMENT. To lessen the effect of failures by obligors on
Mortgage Assets to make payments, mortgage-backed securities may contain
elements of credit enhancement. Credit enhancement falls into two categories:
(1) liquidity protection and (2) protection against losses resulting after
default by an obligor on the underlying assets and collection of all amounts
recoverable directly from the obligor and through liquidation of the collateral.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets (usually the bank, savings association
or mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion of
the assets in the pool. Such 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 such approaches. The Funds will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of security.
Examples of credit enhancement arising out of the structure of the transaction
include: (1) "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class); (2) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses); and (3) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. 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
LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND,
DIVERSIFIED BOND FUND, INCOME FUND, TOTAL RETURN BOND FUND, and BALANCED FUNDS.
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, assets other than mortgage-backed 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 (credit card) agreements. No Fund may invest more than 10 percent of its
net assets in asset-backed securities that are backed by a particular type of
credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-backed securities and, accordingly, are subject to
many of the same risks. 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 different parties.
Payments of principal and interest may be guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial
institution. Asset-backed securities do not always have the benefit of a
security interest in collateral comparable to the security interests associated
with mortgage-backed securities. 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-backed 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.
A Fund may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, 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 (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
20
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Fund may invest.
Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. 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. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. 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 the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
ALL FUNDS. Some tranches of mortgage-backed securities, including CMOs, are
structured so that investors receive only principal payments generated by the
underlying collateral. Principal only securities ("POs") usually sell at a deep
discount from face value on the assumption that the purchaser will ultimately
receive the entire face value through scheduled payments and prepayments;
however, the market values of POs are extremely sensitive to prepayment rates,
which, in turn, vary with interest rate changes. If interest rates are falling
and prepayments accelerate, the value of the PO will increase. On the other
hand, if rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Fund may receive less cash back than
it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT
INCOME FUND, DIVERSIFIED BOND FUND, BALANCED FUNDS. To manage its exposure to
different types of investments, a Fund may enter into interest rate, currency
and mortgage (or other asset) swap agreements and may purchase and sell interest
rate "caps," "floors" and "collars." In a typical interest rate swap agreement,
one party agrees to make regular payments equal to a floating interest rate on a
specified amount (the "notional principal amount") in return for payments equal
to a fixed interest rate on the same amount for a specified period. If a swap
agreement provides for payment in different currencies, the parties may also
agree to exchange the notional principal amount. Mortgage swap agreements are
similar to interest rate swap agreements, except that the notional principal
amount is tied to a reference pool of mortgages. In a cap or floor, one party
agrees, usually in return for a fee, to make payments under particular
circumstances. For example, the purchaser of an interest rate cap has the right
to receive payments to the extent a specified interest rate exceeds an agreed
upon level; the purchaser of an interest rate floor has the right to receive
payments to the extent a specified interest rate falls below an agreed upon
level. A collar entitles the purchaser to receive payments to the extent a
specified interest rate falls outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Funds performance.
Swap agreements involve risks depending upon the counterparties'
21
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
A Fund expects to enter into interest rate protection transactions to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities it anticipates
purchasing at a later date. The Funds intend to use these transactions as a
hedge and not as a speculative investment.
A Fund 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. Inasmuch as these interest rate
protection transactions are entered into for good faith hedging purposes, and
inasmuch as segregated accounts will be established with respect to such
transactions, the Funds believe such obligations do not constitute senior
securities. The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account by a custodian
that satisfies the requirements of the 1940 Act. The Funds also will establish
and maintain such segregated accounts with respect to its total obligations
under any interest rate swaps that are not entered into on a net basis and with
respect to any interest rate caps, collars and floors that are written by the
Fund.
A Fund will enter into interest rate protection transactions only with banks and
other institutions the Adviser believes to present minimal credit risks. If
there is a default by the other party to such a transaction, the Fund will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND, INTERMEDIATE GOVERNMENT
INCOME FUND, DIVERSIFIED BOND FUND, TOTAL RETURN BOND FUND, BALANCED FUNDS,
INDEX FUND, DIVERSIFIED EQUITY FUND AND SMALL CAP OPPORTUNITIES FUND. A Fund may
seek to enhance its return through the writing (selling) and purchasing of
exchange-traded and over-the-counter options on fixed income securities or
indices. A Fund may also to attempt to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase through the use of those options and the purchase and sale of
interest rate futures contracts and options on those futures contracts. These
instruments are often referred to as "derivatives," which may be defined as
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. A Fund may only write options that are covered. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security or futures contract or maintains cash, U.S.
Government Securities or other liquid debt securities in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option. Certain futures strategies employed by a Balanced Fund in making
temporary allocations may not be deemed to be for bona fide hedging purposes, as
defined by the Commodity Futures Trading Commission. A Fund may enter into these
futures contracts only if the aggregate of initial margin deposits for open
futures contract positions does not exceed 5 percent of the Fund's total assets.
RISK CONSIDERATIONS. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on Norwest's ability
to predict movements in the prices of individual securities and fluctuations in
the general securities markets; (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
22
skills and techniques needed to trade these instruments are different from those
needed to select the other securities in which the Fund 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
Fund's ability to limit exposures by closing its positions; (5) the possible
need to defer closing out of certain options, futures contracts and related
options to avoid adverse tax consequences; and (6) the potential for unlimited
loss when investing in futures contracts or writing options for which an
offsetting position is not held.
Other risks include the inability of the Fund, 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 Fund. In addition, the futures exchanges may limit the
amount of fluctuation permitted in certain futures contract prices during a
single trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price. There can be no assurance
that a liquid market will exist at a time when a Fund seeks to close out a
futures position or 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. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, Norwest may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures 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.
LIMITATIONS. Except for the futures contracts strategies of the Balanced Funds
used for making temporary allocations among fixed-income and equity securities,
the Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. Schroder U.S. Smaller Companies
Portfolio may purchase a call or put only if, after such purchase, the value of
all put and call options held by the Core Portfolio would not exceed 5% of the
Core Portfolio's total assets. No other Fund may purchase any call or put option
on a futures contract if the premiums associated with all such options held by
the Fund would exceed 5 percent of the Fund's total assets as of the date the
option is purchased. No Fund may sell a put option if the exercise value of all
put options written by the Fund would exceed 50 percent of the Fund's total
assets or sell a call option if the exercise value of all call options written
by the Fund would exceed the value of the Fund's assets. In addition, the
current market value of all open futures positions held by a Fund will not
exceed 50 percent of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to 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 security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
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 stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. 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.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make 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
23
contracts are closed out prior to the expiration date of the contract. In
addition to the Funds listed at the beginning of this section, "Futures
Contracts and Options," a Fund using the Index Fund investment style may invest
in index futures contracts to a limited extent.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options 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.
COVERED CALLS AND HEDGING
Each Fund (other than the Money Market Funds), may (i) purchase or sell (write)
put and call options on securities to enhance the Fund's performance and (ii)
seek to hedge against a decline in the value of securities owned by it or an
increase in the price of securities which it 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 financial futures contracts and related options. Certain
Funds currently do no not intend to enter into any such transactions. Whether or
not used for hedging purposes, these investments techniques involve risks that
are different in certain respects from the investment risks associated with the
other investments of a Fund. Principal among such risks are: (1) the possible
failure of such instruments as hedging techniques in cases where the price
movements of the securities underlying the options or futures do not follow the
price movements of the portfolio securities subject to the hedge; (2)
potentially unlimited loss associated with futures transactions and the possible
lack of a liquid secondary market for closing out a futures position; and (3)
possible losses resulting from the inability of the Core Portfolio's Adviser to
correctly predict the direction of stock prices, interest rates and other
economic factors. To the extent a Fund invests in foreign securities, it may
also invest in options on foreign currencies, foreign currency futures contracts
and options on those futures contracts. Use of these instruments is subject to
regulation by the SEC, the several options and futures exchanges upon which
options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their option income and hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities, currencies or
other options or futures positions whose values are expected to offset ("cover")
its obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it to an obligation to another party unless it owns either: (1) an
offsetting ("covered") position or (2) cash, U.S. Government Securities or other
liquid securities (or other assets as may be permitted by the SEC) with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Funds will set aside cash, U.S. Government
Securities or other liquid securities (or other assets as may be permitted by
the SEC) in a segregated account with its custodian in the prescribed amount.
Any assets used for cover or held in a segregated account cannot be sold or
closed out while the hedging or option income strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices
24
may be higher or lower than the market value of the underlying currency.
A Fund may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Fund will purchase or write an option only if that option is traded
on a recognized U.S. options exchange or if the Adviser believes that a liquid
secondary market for the option exists. When a Fund purchases an OTC option, it
relies on the dealer from which it has purchased the OTC option to make or take
delivery of the currency underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction. OTC options and the securities
underlying these options currently are treated as illiquid securities by the
Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon certain
factors, including the market price of the underlying securities, index or
currency, 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.
Certain Funds may purchase call options on debt securities that the Fund's
Adviser intends to include in the Fund's portfolio in order to fix the cost of a
future purchase. Call options may also be purchased as a means of participating
in an anticipated price increase of a security on a more limited risk basis than
would be possible if the security itself were purchased. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit the potential loss to the Fund to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Fund either sells or exercises the option, any profit
eventually realized will be reduced by the premium paid. A Fund may similarly
purchase put options in order to hedge against a decline in market value of
securities held in its portfolio. The put enables the Fund to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Fund is limited to the option premium paid. If the market price of
the underlying security is lower than the exercise price of the put, any profit
the Fund realizes on the sale of the security would be reduced by the premium
paid for the put option less any amount for which the put may be sold.
An Adviser may write call options when it believes that the market value of the
underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs.
Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO. The Core Portfolio may write covered
calls on up to 100% of its total assets or employ one or more types of
instruments to hedge ("Hedging Instruments"). When hedging to attempt to protect
against declines in the market value of the Core Portfolio's securities, to
permit the Core Portfolio to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities for
investment reasons, the Core Portfolio would: (1) sell Stock Index Futures; (2)
purchase puts on such futures or securities; or (3) write covered calls on
securities or on Stock Index Futures. When hedging to establish a position in
the equities markets as a temporary substitute for purchasing particular equity
securities (which the Core Portfolio will normally purchase and then terminate
the hedging position), the Core Portfolio would: (1) purchase Stock Index
Futures, or (2) purchase calls on such Futures or on securities. The Core
Portfolio's strategy of hedging with Stock Index Futures and options on such
Futures will be incidental to the Core Portfolio's activities in the underlying
cash market.
The Core Portfolio may write (i.e., sell) call options ("calls") if: (1) the
calls are listed on a domestic securities or commodities exchange and (2) the
calls are "covered" (i.e., the Core Portfolio owns the securities subject to the
call or other securities acceptable for applicable escrow arrangements) while
the call is outstanding. A call written on a
25
Stock Index Future must be covered by deliverable securities or segregated
liquid assets. If a call written by the Core Portfolio is exercised, the Core
Portfolio forgoes any profit from any increase in the market price above the
call price of the underlying investment on which the call was written.
When the Core Portfolio writes a call on a security, it receives a premium and
agrees to sell the underlying securities to a purchaser of a corresponding call
on the same security during the call period (usually not more than 9 months) at
a fixed exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Core Portfolio if the price of the
underlying security should decline during the call period, which may be offset
to some extent by the premium.
To terminate its obligation on a call it has written, the Core Portfolio may be
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of option
transaction costs and the premium previously received on the call written was
more or less than the price of the call subsequently purchased. A profit may
also be realized if the call lapses unexercised, because the Core Portfolio
retains the underlying security and the premium received. Any such profits are
considered short-term capital gains for Federal income tax purposes, and when
distributed by the Core Portfolio are taxable as ordinary income. If the Core
Portfolio could not effect a closing purchase transaction due to the lack of a
market, it would have to hold the callable securities until the call lapsed or
was exercised.
The Core Portfolio may also write calls on Stock Index Futures without owning a
futures contract or a deliverable bond, provided that at the time the call is
written, the Core Portfolio covers the call by segregating in escrow an
equivalent dollar amount of liquid assets. The Core Portfolio will segregate
additional liquid assets if the value of the escrowed assets drops below 100% of
the current value of the Stock Index Future. In no circumstances would an
exercise notice require the Core Portfolio to deliver a futures contract; it
would simply put the Core Portfolio in a short futures position, which is
permitted by the Core Portfolio's hedging policies.
PURCHASING CALLS AND PUTS. The Core Portfolio may purchase put options ("puts")
which relate to: (1) securities held by it; (2) Stock Index Futures (whether or
not it holds such Stock Index Futures in its portfolio); or (3) broadly-based
stock indices. The Core Portfolio may not sell puts other than those it
previously purchased, nor purchase puts on securities it does not hold. The Core
Portfolio may purchase calls: (1) as to securities, broadly-based stock indices
or Stock Index Futures or (2) to effect a "closing purchase transaction" to
terminate its obligation on a call it has previously written. A call or put may
be purchased only if, after such purchase, the value of all put and call options
held by the Core Portfolio would not exceed 5% of the Core Portfolio's total
assets.
When the Core Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The
Core Portfolio benefits only if the call is sold at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the call and
the call is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Core Portfolio
will lose its premium payments and the right to purchase the underlying
investment. When the Core Portfolio purchases a call on a stock index, it pays a
premium, but settlement is in cash rather than by delivery of an underlying
investment.
When the Core Portfolio purchases a put, it pays a premium and, except as to
puts on stock indices, has the right to sell the underlying investment to a
seller of a corresponding put on the same investment during the put period at a
fixed exercise price. Buying a put on a security or Stock Index Future the Core
Portfolio owns enables the Core Portfolio to attempt to protect itself during
the put period against a decline in the value of the underlying investment below
the exercise price by selling the underlying investment at the exercise price to
a seller of a corresponding put. If the market price of the underlying
investment is equal to or above the exercise price and, as a result, the put is
not exercised or resold, the put will become worthless at its expiration date
and the Core Portfolio will lose its premium payment and the right to sell the
underlying investment; the put may, however, be sold prior to expiration
(whether or not at a profit).
26
Purchasing a put on either a stock index or on a Stock Index Future not held by
the Core Portfolio permits the Core Portfolio either to resell the put or to buy
the underlying investment and sell it at the exercise price. The resale price of
the put will vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise price and, as a
result, the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in price of the underlying
investment, the Core Portfolio could exercise or sell the put at a profit to
attempt to offset some or all of its loss on its portfolio securities. When the
Core Portfolio purchases a put on a stock index, or on a Stock Index Future not
held by it, the put protects the Core Portfolio to the extent that the index
moves in a similar pattern to the securities held. In the case of a put on a
stock index or Stock Index Future, settlement is in cash rather than by the Core
Portfolio's delivery of the underlying investment.
STOCK INDEX FUTURES. The Core Portfolio may buy and sell futures contracts only
if they are Stock Index Futures. A stock index is "broadly-based" if it includes
stocks that are not limited to issuers in any particular industry or group of
industries. Stock Index Futures obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, the Core Portfolio will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Core Portfolio's custodian in an account registered in the futures
broker's name; however the futures broker can gain access to that account only
under specified conditions. As the future is marked to market to reflect changes
in its market value, subsequent margin payments, called variation margin, will
be paid to or by the futures broker on a daily basis. Prior to expiration of the
future, if the Core Portfolio elects to close out its position by taking an
opposite position, a final determination of variation margin is made, additional
cash is required to be paid by or released to the Core Portfolio, and any loss
or gain is realized for tax purposes. Although Stock Index Futures by their
terms call for settlement by the delivery of cash, in most cases the obligation
is fulfilled without such delivery, by entering into an offsetting transaction.
All futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index Futures are similar
to puts and calls on securities or futures contracts except that all settlements
are in cash and gain or loss depends on changes in the index in question (and
thus on price movements in the stock market generally) rather than on price
movements in individual securities or futures contracts. When the Core Portfolio
buys a call on a stock index or Stock Index Future, it pays a premium. During
the call period, upon exercise of a call by the Core Portfolio, a seller of a
corresponding call on the same index will pay the Core Portfolio an amount of
cash to settle the call if the closing level of the stock index or Stock Index
Future upon which the call is based is greater than the exercise price of the
call; that cash payment is equal to the difference between the closing price of
the index and the exercise price of the call times a specified multiple (the
"multiplier") which determines the total dollar value for each point of
difference. When the Core Portfolio buys a put on a stock index or Stock Index
Future, it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Core Portfolio's exercise of its put, to
deliver to the Core Portfolio an amount of cash to settle the put if the closing
level of the stock index or Stock Index Future upon which the put is based is
less than the exercise price of the put; that cash payment is determined by the
multiplier, in the same manner as described above as to calls.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. The Core
Portfolio's custodian, or a securities depository acting for the custodian, will
act as the Core Portfolio's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Core Portfolio
has written options, or as to other acceptable escrow securities, so that no
margin will be required for such transactions. OCC will release the securities
on the expiration of the option or upon the Core Portfolio's entering into a
closing transaction. An option position may be closed out only on a market which
provides secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular option.
The Core Portfolio's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Core Portfolio
may cause the Core Portfolio to sell related portfolio securities, thus
27
increasing its turnover rate in a manner beyond the Core Portfolio's control.
The exercise by the Core Portfolio of puts on securities or Stock Index Futures
may cause the sale of related investments, also increasing portfolio turnover.
Although such exercise is within the Core Portfolio's control, holding a put
might cause the Core Portfolio to sell the underlying investment for reasons
which would not exist in the absence of the put. The Core Portfolio will pay a
brokerage commission each time it buys or sells a call, a put or an underlying
investment in connection with the exercise of a put or call. Such commissions
may be higher than those which would apply to direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of such investments, and, consequently, put and call options offer
large amounts of leverage. The leverage offered by trading in options could
result in the Core Portfolio's net asset value being more sensitive to changes
in the value of the underlying investments.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. The Core Portfolio
must operate within certain restrictions as to its long and short positions in
Stock Index Futures and options thereon under a rule (the "CFTC Rule") adopted
by the CFTC under the Commodity Exchange Act (the "CEA"), which excludes the
Core Portfolio from registration with the CFTC as a "commodity pool operator"
(as defined in the CEA) if it complies with the CFTC Rule. Under these
restrictions the Core Portfolio will not, as to any positions, whether short,
long or a combination thereof, enter into Stock Index Futures and options
thereon for which the aggregate initial margins and premiums exceed 5% of the
fair market value of its total assets, with certain exclusions as defined in the
CFTC Rule. Under the restrictions, the Core Portfolio also must, as to its short
positions, use Stock Index Futures and options thereon solely for bona-fide
hedging purposes within the meaning and intent of the applicable provisions
under the CEA.
Transactions in options by the Core Portfolio are subject to limitations
established by each of the exchanges governing the maximum number of options
that may be written or held by a single investor or group of investors acting in
concert, regardless of whether the options were written or purchased on the same
or different exchanges or are held in one or more accounts or through one or
more exchanges or brokers. Thus, the number of options which the Core Portfolio
may write or hold may be affected by options written or held by other entities,
including other investment companies having the same or an affiliated Adviser.
Position limits also apply to Stock Index Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the 1940 Act, when the Core
Portfolio purchases a Stock Index Future, the Core Portfolio will maintain, in a
segregated account or accounts with its custodian bank, cash or liquid assets in
an amount equal to the market value of the securities underlying such Stock
Index Future, less the margin deposit applicable to it.
LIMITS ON USE OF HEDGING INSTRUMENTS. The Core Portfolio intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). One of the tests for such qualification for taxable years
beginning on or before August 5, 1997 is that less than 30% of its gross income
in that year must be derived from gains realized on the sale of securities held
for less than three months. Due to this limitation, the Core Portfolio will
limit the extent to which it engages in the following activities, but will not
be precluded from them: (1) selling investments, including Stock Index Futures,
held for less than three months, whether or not they were purchased on the
exercise of a call held by the Core Portfolio; (2) purchasing calls or puts
which expire in less than three months; (3) effecting closing transactions with
respect to calls or puts purchased less than three months previously; (4)
exercising puts held for less than three months; and (5) writing calls on
investments held for less than three months.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks discussed above,
there is a risk in using short hedging by selling Stock Index Futures or
purchasing puts on stock indices that the prices of the applicable index (thus
the prices of the Hedging Instruments) will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of the Core Portfolio's equity
securities. The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants
28
decide to make or take delivery, liquidity in the futures markets could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions.
The risk of imperfect correlation increases as the composition of the Core
Portfolio's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price of
the equity securities being hedged and movements in the price of the Hedging
Instruments, the Core Portfolio may use Hedging Instruments in a greater dollar
amount than the dollar amount of equity securities being hedged if the
historical volatility of the prices of such equity securities being hedged is
more than the historical volatility of the applicable index. It is also possible
that where the Core Portfolio has used Hedging Instruments in a short hedge, the
market may advance and the value of equity securities held in the Core
Portfolio's portfolio may decline. If this occurred, the Core Portfolio would
lose money on the Hedging Instruments and also experience a decline in value in
its equity securities. However, while this could occur for a very brief period
or to a very small degree, the value of a diversified portfolio of equity
securities will tend to move over time in the same direction as the indices upon
which the Hedging Instruments are based.
If the Core Portfolio uses Hedging Instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
Futures, on securities or on stock indices, it is possible that the market may
decline; if the Core Portfolio then concludes not to invest in equity securities
at that time because of concerns as to possible further market decline or for
other reasons, the Core Portfolio will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the equity securities
purchased.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
Foreign currency options are discussed below under Foreign Currency
Transactions.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of an index option, fluctuations in the market
sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with respect to
that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new, and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, a Fund would have to exercise the option which it purchased
in order to realize any profit. The inability to effect a closing transaction on
an option written by a Fund may result in material losses to the Fund.
29
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will fail to
perform its obligations, in which case the Fund could be worse off than if the
contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
A Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, a Fund may sell foreign currency futures contracts when its
Adviser anticipates a general weakening of foreign currency exchange rates that
could adversely affect the market values of the Fund's foreign securities
holdings. A Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. A Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. A Fund may write call options on foreign currency futures
contracts as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Fund is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
30
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. A Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in Norwest's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, a Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents, and
the Fund may be required to pay any fees, taxes or charges associated with such
delivery which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section a Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margin and premiums required to establish such positions would exceed 5%
of the Fund's net assets.
31
FOREIGN CURRENCY TRANSACTIONS
DIVERSIFIED BOND FUND, BALANCED FUNDS, DIVERSIFIED SMALL CAP FUND, DIVERSIFIED
EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH
FUND, AND INTERNATIONAL FUND. Investments in foreign companies will usually
involve the currencies of foreign countries. In addition, a Fund may temporarily
hold funds in bank deposits in foreign currencies pending the completion of
certain investment programs. Accordingly, the value of the assets of a Fund, as
measured in U.S. dollars, may be affected by changes in foreign currency
exchange rates and exchange control regulations. In addition, the Fund may incur
costs in connection with conversions between various currencies.
Changes in foreign currency exchange rates will affect the U.S. dollar values of
securities denominated in currencies other than the U.S. dollar. The rate of
exchange between the U.S. dollar and other currencies fluctuates in response to
forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
When investing in foreign securities a Fund usually effects currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange market. The Fund incurs foreign exchange expenses in converting
assets from one currency to another.
A Fund may enter into foreign currency forward contracts or currency futures or
options contracts for the purchase or sale of foreign currency to "lock in" the
U.S. dollar price of the securities denominated in a foreign currency or the
U.S. dollar value of interest and dividends to be paid on such securities, or to
hedge against the possibility that the currency of a foreign country in which a
Fund has investments may suffer a decline against the U.S. dollar.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days (usually less
than one year) from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers and involve the risk that the other party
to the contract may fail to deliver currency when due, which could result in
losses to the Fund. A forward contract generally has no deposit requirement, and
no commissions are charged at any stage for trades. Foreign exchange dealers
realize a profit based on the difference between the price at which they buy and
sell various currencies.
A Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, a Fund may enter into forward contracts in connection with existing
portfolio positions. For example, when an Adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract to sell, for a fixed amount
of dollars, the amount of foreign currency approximating the value of some or
all of the Fund's investment securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Advisers do
not intend to enter into forward contracts on a regular or continuous basis and
will not do so if, as a result, a Fund will have more than 25 percent of the
value of its total assets committed to such contracts or the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's investment securities or other assets denominated in that
currency.
32
At or before the settlement of a forward contract, a Fund may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an offsetting
transaction, it will realize a gain or a loss to the extent that there has been
a change in forward contract prices. Additionally, although forward contracts
may tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.
Like foreign exchange contracts and foreign currency forward contracts, options
contracts are often referred to as derivatives, which may be defined as
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 Funds have no present intention to enter into currency futures
or options contracts but may do so in the future. A forward currency contract is
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. This method of attempting
to hedge the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. Although the strategy of engaging in foreign currency
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency, it could also limit the potential gain from an increase in the
value of the currency. No Fund intends to maintain a net exposure to such
contracts where the fulfillment of the Fund's obligations under such contracts
would obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities or other assets denominated in that
currency. A Fund will not enter into these contracts for speculative purposes
and will not enter into non-hedging currency contracts. These contracts involve
a risk of loss if the Adviser fails to predict currency values correctly.
A Fund may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange fluctuation on foreign securities the Fund
holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Hedging and Option Income
Strategies -- Options Strategies" which influence foreign exchange sales and
investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, a Fund may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market. When required by applicable regulatory
guidelines, a Fund will set aside cash, U.S. Government Securities or other
liquid assets in a segregated account with its custodian in the prescribed
amount.
EQUITY SECURITIES AND ADDITIONAL INFORMATION CONCERNING THE EQUITY FUNDS
COMMON STOCK AND PREFERRED STOCK
COMMON STOCKS AND WARRANTS -- BALANCED FUNDS, EQUITY FUNDS. PREFERRED STOCK --
BALANCED FUNDS, EQUITY FUNDS, TOTAL RETURN BOND FUND. Common stockholders are
the owners of the company issuing the stock and,
33
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, generally, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Fund 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 Fund of a portfolio security to meet redemptions
by shareholders or otherwise may require the Fund 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. The
market value of all securities, including equity securities, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth. A Fund may invest in warrants,
which are options to purchase an equity security at a specified price (usually
representing a premium over the applicable market value of the underlying equity
security at the time of the warrant's issuance) and usually during a specified
period of time. Unlike convertible securities and preferred stocks, warrants do
not pay a fixed dividend. Investments in warrants involve certain risks,
including the possible lack of a liquid market for the resale of the warrants,
potential price fluctuations as a result of speculation or other factors and
failure of the price of the underlying security to reach a level at which the
warrant can be prudently exercised (in which case the warrant may expire without
being exercised, resulting in the loss of the Fund's entire investment therein).
CONVERTIBLE SECURITIES
INCOME FUND, TOTAL RETURN BOND FUND, BALANCED FUNDS, EQUITY FUNDS. Convertible
securities, which include convertible debt, convertible preferred stock and
other securities exchangeable under certain circumstances for shares of common
stock, are fixed income securities or preferred stock which generally may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they ordinarily provide a stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. These securities are usually senior to common stock in a
company's capital structure, but usually are subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock. Except for Small Cap
Opportunities Fund, the Funds may only invest in convertible securities that are
investment grade.
Although no securities investment is without some risk, investment in
convertible securities generally entails less risk than in the issuer's common
stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally: (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
34
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund 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.
EQUITY-LINKED SECURITIES
BALANCED FUNDS AND EQUITY FUNDS. Equity-linked securities are securities that
are convertible into or based upon the value of, equity securities upon certain
terms and conditions. The following are three examples of equity-linked
securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatory convertible
into common stock after a period of time, usually three years, during which the
investors' capital gains are capped, usually at 30%. Commonly, PERCS may be
redeemed by the issuer either at any time or when the issuer's common stock is
trading at a specified price level or better. The redemption price starts at the
beginning of the PERCS' duration period at a price that is above the cap by the
amount of the extra dividends the PERCS holder is entitled to receive relative
to the common stock over the duration of the PERCS and declines to the cap price
shortly before maturity of the PERCS. In exchange for having the cap on capital
gains and giving the issuer the option to redeem the PERCS at any time or at the
specified common stock price level, a Fund may be compensated with a
substantially higher dividend yield than that on the underlying common stock.
Funds that seek current income find PERCS attractive because a PERCS provides a
higher dividend income than that paid with respect to a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, the Investment Fund may be compensated with the higher
yield, contingent on how well the underlying common stock does. Funds that seek
current income find ELKS attractive because ELKS provide a higher dividend
income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Fund will not receive
any interest payments until the notes mature, typically in 15 or 20 years, when
the notes are redeemed at face, or par, value. The yield on LYONs, typically, is
lower-than-market rate for debt securities of the same maturity, due in part to
the fact that the LYONs are convertible into common stock of the issuer at any
time at the option of the holder of the LYON. Commonly, LYONs are redeemable by
the issuer at any time after an initial period or if the issuer's common stock
is trading at a specified price level or better, or, at the option of the
holder, upon certain fixed dates. The redemption price typically is the purchase
price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Fund will receive
only the lower-than-market yield unless the underlying common stock increases in
value at a substantial rate. LYONs are attractive to investors when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
35
WARRANTS
EQUITY FUNDS. A warrant is an option to purchase an equity security at a
specified price (usually representing a premium over the applicable market value
of the underlying equity security at the time of the warrant's issuance) and
usually during a specified period of time. The price of warrants does not
necessarily move parallel to the prices of the underlying securities. Warrants
have no voting rights, receive no dividends and have no rights with respect to
the assets of the issuer. Unlike convertible securities and preferred stocks,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for the resale of the
warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised. To the extent that the market
value of the security that may be purchased upon exercise of the warrant rises
above the exercise price, the value of the warrant will tend to rise. To the
extent that the exercise price equals or exceeds the market value of such
security, the warrants will have little or no market value. If a warrant is not
exercised within the specified time period, it will become worthless and the
Fund will lose the purchase price paid for the warrant and the right to purchase
the underlying security.
HIGH YIELD/JUNK BONDS
INCOME FUND, DIVERSIFIED BOND FUND, TOTAL RETURN BOND FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND, MINNESOTA TAX-FREE FUND, STRATEGIC INCOME FUND,
MODERATE BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND
AND SMALL CAP OPPORTUNITIES FUND may invest in bonds rated below "Baa" by
Moody's or "BBB" by S&P (commonly known as "high yield/high risk securities" or
"junk bonds"). Securities rated less than "Baa" by Moody's or "BBB" by S&P are
classified as non-investment grade securities and are considered speculative by
those rating agencies. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield/high risk securities market in
the 1980's had paralleled a long economic expansion, many issuers subsequently
have been affected by adverse economic and market conditions. It should be
recognized that an economic downturn or increase in interest rates is likely to
have a negative effect on: (1) the high yield bond market; (2) the value of high
yield/high risk securities; and (3) the ability of the securities' issuers to
service their principal and interest payment obligations, to meet their
projected business goals or to obtain additional financing. In addition, the
market for high yield/high risk securities, which is concentrated in relatively
few market makers, may not be as liquid as the market for investment grade
securities. Under adverse market or economic conditions, the market for high
yield/high risk securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the Fund
could find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the Fund's
net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Fund 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 the Fund's Adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation to
restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Fund's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund's
Adviser may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If a Fund experiences unexpected
net redemptions, the Fund's Adviser
36
may be forced to sell the Fund's higher rated securities, resulting in a decline
in the overall credit quality of the Fund's portfolio and increasing the
exposure of the Core Portfolio to the risks of high yield/high risk securities.
ILLIQUID AND RESTRICTED SECURITIES
EACH FUND limits its purchase of illiquid securities. No Fund may knowingly
acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than 15 percent (10 percent in the case of the
Money Market Funds) of the Fund's net assets taken at current value would be
invested in securities which are not readily marketable. Illiquid securities are
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and include, among other things, repurchase agreements not entitling
the holder to payment within seven days and restricted securities (other than
those determined to be liquid pursuant to guidelines established by the Board or
Core Board). Under the supervision of the Board or Core Board, the Advisers
determine and monitor the liquidity of the portfolio securities.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 ("restricted securities"),
securities which are otherwise not readily marketable, such as over-the-counter
options, and repurchase agreements not entitling the holder to payment of
principal in 7 days. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a Fund might also have to register
restricted securities in order to dispose of them, resulting in expense and
delay. A Fund might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on the issuer's ability to honor
a demand for repayment of the unregistered security. A security's contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the Securities Act of 1933 or other exemptions, the Advisers may determine that
such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board (or, in the case of the Core Portfolios, the
Core Trusts' board of trustees). These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular Rule
144A security, a Fund's holdings of that security may be illiquid.
The Board and, in the case of the Core Portfolios, the Core Trust Board, has the
ultimate responsibility for determining whether specific securities are liquid
or illiquid and has delegated the function of making day-to-day determinations
of liquidity to the Adviser of each Fund, pursuant to guidelines approved by the
applicable board. The Advisers take into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
and quotations for the security; (2) the number of dealers willing to purchase
or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
The Advisers monitor the liquidity of the securities held by each Fund and
report periodically on such decisions to the Board or Core Trust Board, as
applicable.
In connection with a Fund's original purchase of restricted securities, it may
negotiate rights with the issuer to have such securities registered for sale at
a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Fund with the issuer at the time
such securities are purchased by a Fund. When registration is required, however,
a considerable period may elapse between a decision to sell the securities and
the time the Fund would be permitted to sell such securities. A similar delay
might be experienced in attempting to sell such securities pursuant to an
exemption from registration. Thus, a Fund may not be able to obtain as favorable
a price as that prevailing at the time of the decision to sell.
37
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
LOANS OF PORTFOLIO SECURITIES
EACH FUND may lend its portfolio securities. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on each
business day, at least equal the market value of the loaned securities and must
consist of cash, bank letters of credit, U.S. Government securities, or other
cash equivalents in which the Fund is permitted to invest. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the issuing
bank must be satisfactory to the Fund. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any finders' or
administrative fees the Fund pays in arranging the loan. The Fund may share the
interest it receives on the collateral securities with the borrower as long as
it realizes at least a minimum amount of interest required by the lending
guidelines established by the Trust's Board of Trustees. The Fund will not lend
its portfolio securities to any officer, director, employee or affiliate of the
Fund or an Adviser. The terms of the Core Portfolio's loans must meet certain
tests under the Code and permit the Core Portfolio to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
TECHNIQUES INVOLVING LEVERAGE
ALL FUNDS. Use of leveraging involves special risks and may involve speculative
investment techniques. The Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when-issued or forward commitment basis. In
addition, certain funds may engage in dollar roll transactions and Intermediate
Government Income Fund may purchase securities on margin and sell securities
short (other than against the box). Each of these transactions involve the use
of "leverage" when cash made available to the Fund through the investment
technique is used to make additional portfolio investments. In addition, the use
of swap and related agreements may involve leverage. The Funds use these
investment techniques only when Norwest to a Fund believes that the leveraging
and the returns available to the Fund from investing the cash will provide
shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. 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
Fund. Leverage may involve the creation of a liability that requires the Fund 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 transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund 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 being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
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 Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not
leveraged. Similarly, the effect of leverage in a declining market could be a
greater decrease in net asset value per share than if the Fund were not
leveraged. In an extreme case, if the Fund's current investment income were not
sufficient to meet the interest expense of leveraging, it could be necessary for
the Fund to liquidate certain of its investments at an inappropriate time. The
use of leverage may be considered speculative.
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set aside and maintain in a segregated account cash
and other liquid securities in accordance with SEC guidelines. The account
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions. The Fund's commitments may include: (1)
the Fund's obligations to repurchase securities under a reverse repurchase
agreement, settle when-issued and forward commitment transactions and make
payments under a cap or floor (see "Swap Agreements"); and (2) the greater of
the market value of securities sold short or the value of the securities at the
time of the short sale (reduced by any margin deposit). The net amount of the
excess, if any, of a Fund's obligations over its entitlements with respect to
each interest rate swap will be calculated on a daily basis and an amount at
least equal to the accrued excess will be maintained in the segregated account.
If the Fund enters into an interest rate swap on other than a net basis, the
Fund will maintain the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap in their segregated account.
REPURCHASE AGREEMENTS, SECURITIES LENDING, REVERSE REPURCHASE AGREEMENTS,
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLL TRANSACTIONS.
A Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including "dollar roll" transactions)
entails certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, the Fund might suffer a loss. Failure by the other
party to deliver a security purchased by the Fund may result in a missed
opportunity to make an alternative investment. The Advisers monitor the
creditworthiness of counterparties to these transactions and intend to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income to be earned from the transaction justifies
the attendant risks. Counterparty insolvency risk with respect to repurchase
agreements is reduced by favorable insolvency laws that allow the Fund, 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 and,
accordingly, securities lending involves more risk than does the use of
repurchase agreements. As a result of entering forward commitments and reverse
repurchase agreements, as well as lending its securities, a Fund may be exposed
to greater potential fluctuations in the value of its assets and net asset value
per share.
REPURCHASE AGREEMENTS -- ALL FUNDS (EXCEPT TREASURY FUND) may enter into
repurchase agreements and may lend portfolio securities to brokers, dealers and
other financial institutions. These investments may entail certain risks not
associated with direct investments in securities. For instance, in the event
that bankruptcy or similar proceedings were commenced against a counterparty in
these transactions or a counterparty defaulted on its obligations, a Fund may
have difficulties in exercising its rights to the underlying securities, may
incur costs and experience time delays in disposing of them and may suffer a
loss.
38
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will limit securities lending to not more than 33
1/3% (25% in the case of Small Cap Opportunities Fund) of the value of its total
assets.
The Funds may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. Small Cap Opportunities Fund may invest only in
repurchase agreements maturing in seven days or less. In a typical repurchase
agreement, the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed-upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed-upon rate is unrelated to the interest rate on that
security. The Adviser will monitor the value of the underlying security at the
time the transaction is entered into and at all times during the term of the
repurchase agreement to ensure that the value of the security always equals or
exceeds the repurchase price (including accrued interest). In the event of
default by the seller under the repurchase agreement, the Core Portfolio may
have difficulties in exercising its rights to the underlying securities and may
incur costs and experience time delays in connection with the disposition of
such securities. To evaluate potential risks, the Adviser reviews the
credit-worthiness of those banks and dealers with which the Core Portfolio
enters into repurchase agreements.
Counterparties to a Money Market Fund's repurchase agreements must be 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.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve book-entry system.
Repurchase agreements are considered to be loans by a Fund for certain purposes
under the 1940 Act. The Trust's custodian maintains possession of the collateral
underlying a repurchase agreement, which has a market value, determined daily,
at least equal to the repurchase price, and which consists of the types of
securities in which the Fund may invest directly. International Portfolio and,
with respect to the portion of their assets managed in the International Fund
style, Diversified Equity Fund, Growth Equity Fund and each Balanced Fund, may
enter into repurchase agreements with foreign entities.
SECURITIES LENDING -- ALL FUNDS. A Fund may lend securities from its portfolios
to brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. A Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. A Fund may pay fees
to arrange the loans. Schroder U.S. Smaller Companies Portfolio will not lend
portfolio securities in excess of 25% of the value of the Core Portfolio's total
assets. No other Fund will lend portfolio securities in excess of 33 1/3 percent
of the value of the Fund's total assets.
REVERSE REPURCHASE AGREEMENTS -- ALL FUNDS. A Fund may enter into reverse
repurchase agreements, transactions in which the Fund 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. Because
certain of the incidents of ownership of the security are retained by the Fund,
reverse repurchase agreements may be viewed as a form of borrowing by the Fund
from the buyer, collateralized by the security sold by the Fund. A Fund will use
the proceeds of reverse repurchase agreements to fund redemptions or to make
investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the Fund
with those monies. Any significant
39
commitment of a Fund's assets to the reverse repurchase agreements will tend to
increase the volatility of the Fund's net asset value per share.
Counterparties to a Money Market Fund's reverse repurchase agreements must be 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.
Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS -- ALL FUNDS. A Fund may purchase
fixed income securities on a "when-issued" or "forward commitment" basis. When
these transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within 3 months after the transaction. During the period between a
commitment and settlement, no payment is made for the securities purchased and
no interest on the security accrues to the purchaser. At the time a Fund makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by a Fund may result in a loss or a missed
opportunity to make an alternative investment. The use of when-issued
transactions and forward commitments enables a Fund to hedge against anticipated
changes in interest rates and prices. If Norwest or Schroder were to forecast
incorrectly the direction of interest rate movements, however, a Fund might be
required to complete these transactions when the value of the security is lower
than the price paid by the Fund. Except for dollar-roll transactions, a Fund
will not purchase securities on a when-issued or forward commitment basis if, as
a result, more than 15 percent (35 percent in the case of Total Return Bond
Fund) of the value of the Fund's total assets would be committed to such
transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds purchase securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
When-issued securities may include bonds purchased on a "when, and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Commitment of a Fund's assets to the purchase of securities
on a when-issued or forward commitment basis will tend to increase the
volatility of the Funds net asset value per share.
When-issued or delayed delivery transactions arise when securities are purchased
by a Fund with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price and yield to the Fund at
the time it enters into the transaction. In those cases, the purchase price and
the interest rate payable on the securities are fixed on the transaction date
and delivery and payment may take place a month or more after the date of the
transaction. When a Fund enters into a delayed delivery transaction, it becomes
obligated to purchase securities and it has all of the rights and risks
attendant to ownership of the security, although delivery and payment occur at a
later date. To facilitate such acquisitions, the Fund will maintain with its
custodian a separate account with portfolio securities in an amount at least
equal to such commitments.
At the time a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value. The value of the fixed income securities to be delivered in the
future will fluctuate as interest rates and the credit of the underlying issuer
vary. On delivery dates for such transactions, the Fund will meet its
obligations from maturities, sales of the securities held in the separate
account or from other available sources of cash. A Fund generally has the
ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If a Fund chooses to dispose of the right to
acquire a when-issued security prior to its
40
acquisition, it could, as with the disposition of any other portfolio
obligation, realize a gain or loss due to market fluctuation.
To the extent a Fund engages in when-issued or delayed delivery transactions, it
will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes.
The use of when-issued transactions and forward commitments enables the Fund 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 Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values. When-issued securities and forward
commitments may be sold prior to the settlement date, but a Fund enters into
when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. In some instances,
the third-party seller of when-issued or forward commitment securities may
determine prior to the settlement date that it will be unable to meet its
existing transaction commitments without borrowing securities. If advantageous
from a yield perspective, a Fund may, in that event, agree to resell its
purchase commitment to the third-party seller at the current market price on the
date of sale and concurrently enter into another purchase commitment for such
securities at a later date. As an inducement for a Fund to "roll over" its
purchase commitment, the Fund may receive a negotiated fee. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of a Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Fund's net asset value. For purposes of the Funds' investment policies, the
purchase of securities with a settlement date occurring on a Public Securities
Association approved settlement date is considered a normal delivery and not a
when-issued or forward commitment purchase.
DOLLAR ROLL TRANSACTIONS -- FIXED INCOME FUNDS AND BALANCED FUNDS. A Fund may
enter into "dollar roll" transactions wherein the Fund sells fixed income
securities, typically mortgage-backed securities, and makes a commitment to
purchase similar, but not identical, securities at a later date from the same
party. Like a forward commitment, during the roll period no payment is made for
the securities purchased and no interest or principal payments on the security
accrue to the purchaser, but the Fund assumes the risk of ownership. A Fund 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. Like other
when-issued securities or firm commitment agreements, dollar roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the price at which a Fund is committed to purchase similar
securities. In the event the buyer of securities under a dollar roll transaction
becomes insolvent, the Funds 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 Funds obligation to repurchase the securities.
The Funds will engage in roll transactions for the purpose of acquiring
securities for its portfolio and not for investment leverage. Each Fund will
limit its obligations on dollar roll transactions to 35 percent of the Fund's
net assets.
BORROWING. EACH FUND may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, in amounts up to 33 1/3 percent of
the Fund's total assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, a Fund might have
to sell portfolio securities to meet interest or principal payments at a time
when investment considerations would not favor such sales. Except as otherwise
noted, no Fund may purchase securities for investment while any borrowing
equaling five percent or more of the Fund's total assets is outstanding or
borrow for purposes other than meeting redemptions in an amount exceeding five
percent of the value of the Fund's total assets. A Fund's use of borrowed
proceeds to make investments would subject the Fund to the risks of leveraging.
Reverse repurchase agreements, short sales not against the box, 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
Fund maintains a segregated account.
MARGIN AND SHORT SALES
41
LIMITED TERM GOVERNMENT INCOME FUND AND INTERMEDIATE GOVERNMENT INCOME FUND.
When a Fund purchases securities on margin, it only pays part of the purchase
price and borrows the remainder. As a borrowing, a Fund's purchase of securities
on margin is subject to the limitations and risks described in Borrowing above.
In addition, if the value of the securities purchased on margin decreases such
that the Fund's borrowing with respect to the security exceeds the maximum
permissible borrowing amount, the Fund will be required to make margin payments
(additional payments to the broker to maintain the level of borrowing at
permissible levels). A Fund's obligation to satisfy margin calls may require the
Fund to sell securities at an inappropriate time.
Each Fund may make short sales of securities which it does not own or have the
right to acquire in anticipation of a decline in the market price for the
security. When the Fund makes a short sale, the proceeds it receives are
retained by the broker until the Fund replaces the borrowed security. In order
to deliver the security to the buyer, a Fund must arrange through a broker to
borrow the security and, in so doing, the Fund becomes obligated to replace the
security borrowed at its market price at the time of replacement, whatever that
price may be. Short sales create opportunities to increase a Fund's return but,
at the same time, involve special risk considerations and may be considered a
speculative technique. Since a Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, the Fund's net asset
value per share, will tend to increase more when the securities it has sold
short decrease in value, and to decrease more when the securities it has sold
short increase in value, than would otherwise be the case if it had not engaged
in such short sales. Short sales theoretically involve unlimited loss potential,
as the market price of securities sold short may continuously increase, although
a Fund may mitigate such losses by replacing the securities sold short before
the market price has increased significantly. Under adverse market conditions, a
Fund might have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
Certain Funds may enter into short sales as described in the prospectus of that
Fund. The Funds may make short sales of securities against the box. A short sale
is "against the box" to the extent that while the short position is open, the
Fund 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. Under recently enacted legislation, if a
Core Portfolio has unrealized gain with respect to a long position and enters
into a short sale against-the-box, the Core 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 Fund'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 futures contracts.
TEMPORARY DEFENSIVE POSITION
EACH FUND EXCEPT THE MONEY MARKET FUNDS, when business or financial conditions
warrant, may assume a temporary defensive position and invest without limit in
cash or prime quality cash equivalents, 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 (United States banks in the case of Small Cap Opportunities Fund)
that have, at the time of investment, except in the case of International Fund,
total assets in excess of one billion dollars and that are insured by the
Federal Deposit Insurance Corporation; (3) commercial paper of prime quality
rated Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the Adviser to be of comparable quality; (4) repurchase agreements
covering any of the securities in which the Fund may invest directly; and (5)
shares of money market funds registered under the 1940 Act within the limits
specified therein. During periods when and to the extent that a Fund has assumed
a temporary defensive position, it may not be pursuing its investment objective.
Prime quality instruments are those that are 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. Apart from temporary defensive purposes, a
Fund may at any time invest a portion of its assets in cash and cash equivalents
as described above (in United States banks in the case of Small Cap
Opportunities Fund). Except during periods when the Fund assumes a temporary
defensive position, each Equity Fund and Aggressive Balanced -- Equity Fund will
have at least 65% of its total assets invested in common stock and International
Fund will have at least
42
65% of its net assets invested in securities of companies domiciled outside the
United States. International Portfolio and Schroder EM Core Portfolio and may
hold cash and bank instruments denominated in any major foreign currency.
When a Tax-Exempt Fixed Income Fund assumes a temporary defensive position, it
is likely that its shareholders will be subject to federal and applicable state
income taxes on a greater portion of their income dividends received from the
Fund.
SMALL COMPANY INVESTMENT CONSIDERATIONS AND RISK FACTORS.
GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND, DIVERSIFIED EQUITY FUND,
GROWTH EQUITY FUND, DIVERSIFIED SMALL CAP FUND, SMALL COMPANY STOCK FUND, SMALL
COMPANY GROWTH FUND AND SMALL CAP OPPORTUNITIES FUND. While all investments have
risks, 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 rise more in response to buying demand and fall
more in response to selling pressure).
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 Core 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 Core
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, the Core Portfolio may be forced to dispose of its holdings at
prices lower than might otherwise be obtained.
FOREIGN INVESTMENT RISKS.
MODERATE BALANCED FUND, GROWTH BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND,
DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL
COMPANY GROWTH FUND 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 to shareholders;
commission rates payable on foreign transactions are generally higher than in
the U.S.; foreign accounting, auditing and financial reporting standards differ
from those in the U.S. and, accordingly, less information may be available about
foreign companies than is available about issuers of comparable securities in
the U.S.; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than U.S. securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Core 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. A decline in the value of a particular foreign currency against the
U.S. dollar occurring after the Core Portfolio's income has been earned and
computed in U.S. dollars may require the Core Portfolio to liquidate portfolio
securities to acquire sufficient U.S. dollars to fund redemptions. Similarly, if
the exchange rate declines between the time the Core Portfolio incurs expenses
in U.S.
43
dollars and the time such expenses are paid, the Core Portfolio may be required
to liquidate additional foreign securities to purchase the U.S. dollars required
to meet such expenses.
GEOGRAPHIC CONCENTRATION.
COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND and MINNESOTA
TAX-FREE FUND invest principally in municipal securities issued by issuers
within a particular state and the state's political subdivisions. Those Funds
are more susceptible to factors adversely affecting issuers of those municipal
securities than would be a more geographically diverse municipal securities
portfolio. In addition, to the extent they may concentrate their investments in
a particular jurisdiction, MUNICIPAL MONEY MARKET FUND, LIMITED TERM TAX-FREE
FUND AND TAX-FREE INCOME FUND will be subject to similar risks. These risks
arise from the financial condition of the state and its political subdivisions.
To the extent state or local governmental entities are unable to meet their
financial obligations, the income derived by a Fund, its ability to preserve or
realize appreciation of its portfolio assets or its liquidity could be impaired.
To the extent a Fund's investments are primarily concentrated in issuers located
in a particular state, the value of the Fund's shares may be especially affected
by factors pertaining to that state's economy and other factors specifically
affecting the ability of issuers of that state to meet their obligations. As a
result, the value of the Fund's assets may fluctuate more widely than the value
of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county or local governments and
quasi-government agencies to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amounts of tax and other revenues available to
governmental issuers may be affected from time to time by economic, political
and demographic conditions within their state. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to governmental
issuers may also affect their ability to meet obligations. Payments of principal
of and interest on private activity securities will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political or
demographic conditions in the state.
DIVERSIFICATION MATTERS.
COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND AND MINNESOTA
TAX-FREE FUND are non-diversified, which means that they have greater latitude
than a diversified fund with respect to the investment of their assets in the
securities of relatively few municipal issuers. As non-diversified portfolios,
these Funds may present greater risks than a diversified fund. However, each
Fund intends to comply with applicable diversification requirements of the
Internal Revenue Code. These requirements provide that, as of the last day of
each fiscal quarter: (1) with respect to 50% of its assets, a Fund may not: (a)
own the securities of a single issuer, other than a U.S. Government security,
with a value of more than 5% of the Fund's total assets; or (b) own more than
10% of the outstanding voting securities of a single issuer; and (2) a Fund may
not own the securities of a single issuer, other than a U.S. Government
security, with a value of more than 25% of the Fund's total assets.
II. INFORMATION CONCERNING COLORADO AND MINNESOTA
Following is a brief summary of some of the factors that may affect the
financial condition of the State of Colorado and the State of Minnesota and
their respective political subdivisions. It is not a complete or comprehensive
description of these factors or an analysis of financial conditions and may not
be indicative of the financial condition of issuers of obligations held by
Colorado Tax Free Fund, Minnesota Intermediate Tax-Free Fund and Minnesota
Tax-Free Fund or any particular projects financed with the proceeds of such
obligations. Many factors not included in the summary, such as the national
economy, social and environmental policies and conditions, and the national and
international markets for products produced in each state could have an adverse
impact on the financial condition of a State and its political subdivisions,
including the issuers of obligations held by a Fund. It is not possible to
predict whether and to what extent those factors may affect the financial
condition of a State and its political subdivisions, including the issuers of
obligations held by a Fund.
44
The following summary is based on publicly available information that has not
been independently verified by the Trust or its legal counsel.
COLORADO
THE COLORADO STATE ECONOMY
Among the most significant sectors of the State's economy are services, trade,
manufacture of durable and non-durable goods and tourism. Between late 1984 and
mid-1987, the State's economy was adversely affected by numerous factors,
including the contraction of the energy sector, layoffs by advanced technology
firms and an excess supply of both residential and nonresidential buildings
causing employment in the construction sector to decline. As a result of these
conditions, certain areas of the State experienced particularly high
unemployment. Furthermore, in 1986, for the first time in 32 years, job
generation in the State was negative and, in 1986, for the first time in 21
years, the State experienced negative migration, with more people leaving the
State than moving in.
From 1987 through 1996, there has been moderate but steady improvement in the
Colorado economy: per-capita income increased approximately 54.9% (4.5% in 1996)
and retail trade sales increased approximately 81.9% (6.9% in 1996). The State's
estimated growth rate is above the national growth rate and the State's
unemployment rate is still below the national unemployment rate (in 1996 the
State's unemployment rate was 4.2% and the United State's unemployment rate was
5.4%).
The State of Colorado's political subdivisions include approximately 1,600 units
of local government in Colorado, including counties, statutory cities and towns,
home-rule cities and counties, school districts and a variety of water,
irrigation, and other special districts and special improvement districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness.
STATE REVENUES
The State operates on a fiscal year beginning July 1 and ending June 30. Fiscal
year 1996 refers to the fiscal year ended June 30, 1996.
The State derives all of its General Fund revenues from taxes. The two most
important sources of these revenues are sales and use taxes and personal income
taxes, which accounted for approximately 31.5% and 53.2%, respectively, of total
General Fund revenues during fiscal year 1995 and approximately 31.0% and 54.3%,
respectively, of total General Fund revenues during fiscal year 1996. The ending
General Fund balance for fiscal year 1995 was $488.5 million and for fiscal year
1996 was approximately $368.5 million.
The Colorado Constitution contains strict limitations on the ability of the
State to create debt except under certain very limited circumstances. However,
the constitutional provision has been interpreted not to limit the ability of
the State to issue certain obligations which do not constitute debt, including
short-term obligations which do not extend beyond the fiscal year in which they
are incurred and lease purchase obligations which are subject to annual
appropriation. The State is authorized pursuant to State statutes to issue
short-term notices to alleviate temporary cash flow shortfalls. The most recent
issue of such notes, issued on July 1, 1997, was given the highest rating
available for short-term obligations by S&P (SP-1+) and Fitch (F-1+) (A rating
on such notes was not requested from, and consequently no rating was given by,
Moody's). Because of the short-term nature of such notes, their ratings should
not be considered necessarily indicative of the State's general financial
condition.
TAX AND SPENDING LIMITATION AMENDMENT
On November 3, 1992, the Colorado voters approved a State constitutional
amendment (the "Amendment") that restricts the ability of the State and local
governments to increase taxes, revenues, debt and spending. The Amendment
provides that its provisions supersede conflicting State constitutional, State
statutory, charter or other State or local provisions.
45
The provisions of the Amendment apply to "districts," which are defined in the
Amendment as the State or any local government, with certain exclusions. Under
the terms of the Amendment, districts must have prior voter approval to impose
any new tax, tax rate increase, mill levy increase, valuation for assessment
ratio increase and extension of an expiring tax. Such prior voter approval is
also required, except in certain limited circumstances, for the creation of "any
multiple-fiscal year direct or indirect district debt or other financial
obligation." The Amendment prescribes the timing and procedures for any
elections required by the Amendment.
Because the Amendment's voter approval requirements apply to any "multiple
fiscal year" debt or financial obligation, short-term obligations which do not
extend beyond the fiscal year in which they are incurred are exempt from the
voter approval requirements of the Amendment. In addition, the Colorado Court of
Appeals has determined that lease purchase obligations subject to annual
appropriation are not subject to the voter approval requirements of the
Amendment. The Amendment's voter approval requirements and other limitations
(discussed in the following paragraph) do not apply to "enterprises," which are
defined in the Amendment as follows: "a government-owned business authorized to
issue its own revenue bonds and receiving under 10% of annual revenue in grants
from all Colorado state and local governments combined."
Among other provisions, the Amendment requires the establishment of emergency
reserves, limits increases in district revenues and limits increases in district
fiscal year spending. As a general matter, annual State fiscal year spending may
change not more than inflation plus the percentage change in State population in
the prior calendar year. Annual local district fiscal year spending may change
no more than inflation in the prior calendar year plus annual local growth, as
defined in and subject to the adjustments provided in the Amendment. The
Amendment provides that annual district property tax revenues may change no more
than inflation in the prior calendar year plus annual local growth, as defined
in and subject to the adjustments provided in the Amendment. District revenues
in excess of the limits prescribed by the Amendment are required, absent voter
approval, to be refunded by any reasonable method, including temporary tax
credits or rate reductions. The State anticipates that revenues in excess of the
limits applicable for the 1996 fiscal year will be refunded to certain taxpayers
in the State in accordance with the Amendment. In addition, the Amendment
prohibits new or increased real property transfer taxes, new State real property
taxes and new local district income taxes. The Amendment also provides that a
local district may reduce or end its subsidy to any program (other than public
education through grade 12 or as required by federal law) delegated to it by the
State General Assembly for administration.
This description is not intended to constitute a complete description of all of
the provisions of the Amendment. Furthermore, many provisions of the Amendment
and their application are unclear. Several statutes have been enacted since the
passage of the Amendment attempting to clarify the application of the Amendment
with respect to certain governmental entities and activities and numerous court
decisions have been rendered interpreting certain of the Amendment's provisions.
However, many provisions of the Amendment may require further legislative or
judicial clarification. The future impact of the Amendment on the financial
operations and obligations of the State and local governments in the State
cannot be determined at this time. Attempts to apply the provisions of the
Amendment to obligations issued prior to the approval of the Amendment may be
challenged as violation of protections afforded by the federal constitution
against impairment of contracts.
MINNESOTA
The following information has been derived from the 1997 edition of HISTORICAL
ECONOMIC STATISTICS and the ECONOMIC REPORT TO THE GOVERNOR for 1993 and 1994,
both prepared by the Economic Resource Group, and COMPARE MINNESOTA: AN ECONOMIC
AND STATISTICAL FACT BOOK 1996/1997 by the Minnesota Department of Trade and
Economic Development. In a number of instances, the information in these sources
is current through 1994.
THE STRUCTURE OF THE MINNESOTA STATE'S ECONOMY
Diversity and a significant natural resource base are two important
characteristics of the State's economy.
46
When viewed in 1994 on an aggregate level, the structure of the State's economy
parallels the structure of the United States economy as a whole. State
employment in 10 major sectors was distributed in approximately the same
proportions as national employment. In all sectors, the share of total State
employment was within 2.5 percentage points of national employment share.
Some unique characteristics of the State's economy are apparent in employment
concentrations in many major industries. The State's high technology industries
accounted for more than 7% of all employment in the State of 1994, and the
State's concentration of high technology employment is 50% higher than the
United States average. This emphasis is partly explained by the location in the
State of Honeywell, IBM, 3M Company, Unisys and Seagate Technology.
The importance of the State's resource base for overall employment is apparent
in the employment mix in non-durable goods industries. The State's concentration
of employment in 1994 was 50% higher than the United States average in the food
and kindred products industry and almost 50% higher in the forest and forestry
products industry. Both of these rely heavily on renewable resources in the
State. Over half of the State's acreage is devoted to agricultural purposes, and
nearly one-third to forestry.
The printing and publishing industry and medical products manufacturing industry
are also relatively more important in the State than in the United States. From
1985 to 1994, employment in the State's printing and publishing industry grew
28.2%, compared to the United States growth rate of 7.8% over the same period.
Printing and publishing companies provided 2.9% of all of the State's private
industry jobs in 1994. In the medical products manufacturing industry, the
State's concentration of employment in 1994 was the second highest in the nation
and twice the United States average.
Mining is currently a less significant factor in the State economy than it once
was. Mining employment, primarily in the iron ore or taconite industry, dropped
from 17.3 thousand in 1979 to 7.4 thousand in 1994. It is not expected that
mining employment will return to 1979 levels. However, Minnesota retains
significant quantities of taconite as well as copper, nickel, cobalt, and peat
which may be utilized in the future.
EMPLOYMENT GROWTH IN THE STATE
In the period 1985 to 1994, employment in non-farm industries increased 24.1%,
compared to an increase of 16.9% in the United States. Manufacturing has been a
strong sector, with Minnesota employment outperforming its United States
counterpart in the period from 1985 to 1994 with an increase of 10.5% compared
to a decrease of 4.9% in the United States in the same period. Over 40% of the
total increase in Minnesota non-farm employment between the years 1985-1994
resulted from a 45.5% increase in employees in the services industry during this
period. Mining was the only industry where employment decreased between
1985-1994 in both Minnesota and the United States, dropping by 9.4% in Minnesota
and 34.8% in the United States.
PERFORMANCE OF THE STATE'S ECONOMY
Since 1980, State per capita personal income has been within three percentage
points of national per capita personal income. The State's per capita income,
which is computed by dividing personal income by total resident population, has
generally remained above the national average in spite of the early 1980's
recessions and some difficult years in agriculture. In 1994, Minnesota per
capita personal income was 102.6% of its U.S. counterpart.
In the level of personal income per capita, Minnesota ranked second among twelve
north central states in both 1992 and 1994. During the period 1985 to 1994,
Minnesota ranked second among such states in annual average growth of personal
income and fifth during the period 1993 to 1994. Minnesota ranked twentieth
nationally and third among the twelve north central states with a per capita
disposable income of $18,792 in 1994. During 1990-1992, wage and salary
disbursements which constitute some 60% of total personal income grew 12.3% in
Minnesota as compared to 8.3% for the United States. Personal income in
Minnesota grew more rapidly than seven other north central states' averages
during 1993-1994, and faster than the United States average. From 1985 to 1994,
Minnesota non-agricultural employment grew 24.1% while such employment in the
United States grew 16.9%.
47
During the 1990-1993 period, Minnesota non-agricultural employment increased
5.1%, while regional employment increased 1.3%.
The annual employment rate in Minnesota was below that of the United States and
of the twelve north central states for every year during the ten-year period of
1985 to 1994. In 1994, the State's unemployment rate was 3.9% compared to the
United States average of 6.1% and the twelve north central state's average of
5.1%.
POPULATION TRENDS IN THE STATE
Minnesota resident population grew from 4,074,000 in 1980 to 4,565,000 in 1994,
for a growth rate of 12.1%. The United States growth rate between 1980 and 1994
was 15.1% and the overall growth rate for the twelve north central states was
4.4%. Minnesota population is currently forecast to grow 12.3% between 1994 and
2010.
III. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of the
Fund: (1) the term 1940 Act includes the rules thereunder, SEC interpretations
and any exemptive order upon which the Fund may rely and (2) the term Code
includes the rules thereunder, IRS interpretations and any private letter ruling
or similar authority upon which the Fund may rely.
Except as required by the 1940 Act or the Code, 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 Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy cannot be changed without the affirmative vote of the
lesser of: (1) more than 50% of the outstanding shares of the Fund or (2) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund. Reference to any Fund that invests in one or more Core
Portfolios includes reference to the Core Portfolio(s) in which that Fund
invests, which has the same fundamental policies as the Fund.
(1) DIVERSIFICATION
EACH FUND (other than Colorado Tax-Free Fund, Minnesota
Intermediate Tax-Free Fund and Minnesota Tax-Free Fund) 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: (1) more than 5% of the
Fund's total assets would be invested in the securities of a
single issuer or (2) the Fund would own more than 10% of the
outstanding voting securities of any single issuer
(2) CONCENTRATION
(a) CASH INVESTMENT FUND and READY CASH INVESTMENT FUND may not
purchase a security if, as a result, more than 25% of the
Fund'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 Fund will
invest more than 25% of the value of the
48
Fund'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 Fund may invest in one or
more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(b) TREASURY FUND, U.S. GOVERNMENT FUND AND MUNICIPAL MONEY
MARKET FUND may not purchase a security if, as a result,
more than 25% of the Fund'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,
in foreign government securities, or in obligations of
domestic commercial banks (including U.S. branches of
foreign banks subject to regulations under U.S. laws
applicable to domestic banks and, to the extent that its
parent is unconditionally liable for the obligation, foreign
branches of U.S. banks); (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). Notwithstanding anything to
the contrary, to the extent permitted by the 1940 Act, the
Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in
other investment companies pursuant to Section 12(d)(1)(A)
of the 1940 Act, the Fund treats the assets of the
investment companies in which it invests as its own for
purposes of this policy.
(c) Treasury Plus Fund may not purchase a security if, as a
result, more than 25% of the Fund's total assets would be
invested in securities of issuers conducting their principal
business activities in the same industry. For purposes of
this limitation, there is no limit on (i) investments in
U.S. Government securities, in repurchase agreements
covering U.S. Government securities, in securities issued by
the states, territories and possessions of the United States
("municipal securities") or in foreign government securities
or (ii) investment in issuers domiciled in a single
jurisdiction. Notwithstanding anything to the contrary, to
the extent permitted by the 1940 Act, the Fund may invest in
one or more investment companies; provided that, except to
the extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy. For purposes
of this policy (i) "mortgage related securities," as that
term is defined in the 1934 Act are treated as securities of
an issuer in the industry of the primary type of asset
backing the security, (ii) financial service companies are
classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance) and (iii) utility companies are classified
according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
(d) Income Fund, Limited Term Tax-Free Fund, Tax-Free Income
Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund, Minnesota Tax-Free Fund and ValuGrowth Stock
Fund may not purchase a security if, as a result, more than
25% of the Fund'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 repurchase agreements covering U.S.
Government Securities; (2) municipal securities are not
treated as involving a single industry; (3) financial
service companies are classified according to the end users
of their services (for example, automobile finance, bank
finance and diversified finance); and (4) 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 Fund may invest in one
or more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the
49
1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of
this policy.
(e) TOTAL RETURN BOND FUND may not purchase a security if, as a
result, more than 25% of the Fund'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, or in repurchase agreements covering U.S.
Government Securities; (2) mortgage-related or
housing-related securities (including mortgage-related or
housing-related U.S. Government Securities) and municipal
securities are not treated as involving a single industry;
(3) financial service companies are classified according to
the end users of their services (for example, automobile
finance, bank finance and diversified finance); and (4)
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 Fund
may invest in one or more investment companies; provided
that, except to the extent the Fund invests in other
investment companies pursuant to Section 12(d)(1)(A) of the
1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of
this policy.
(f) SMALL COMPANY STOCK FUND may not purchase a security if, as
a result, more than 25% of the Fund'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, or in repurchase agreements covering U.S.
Government Securities, municipal securities are not treated
as involving a single industry; (2) financial service
companies are classified according to the end users of their
services (for example, automobile finance, bank finance and
diversified finance); and (3) 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 Fund may invest in one or
more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(g) DIVERSIFIED SMALL CAP FUND AND SMALL CAP OPPORTUNITIES FUND
may not purchase a security if, as a result, more than 25%
of the Fund'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.
Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(h) STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH
BALANCED FUND, AGGRESSIVE BALANCED FUND, INCOME EQUITY FUND,
INDEX FUND, DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND,
LARGE COMPANY GROWTH FUND, AND SMALL COMPANY GROWTH FUND may
not purchase a security if, as a result, more than 25% of
the Fund'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); and 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 Fund may invest in one or
more investment
50
companies; provided that, except to the extent the Fund
invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Fund treats the assets of
the investment companies in which it invests as its own for
purposes of this policy.
(i) International Fund may not purchase a security if, as a
result, more than 25% of the Fund'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, or in repurchase agreements covering U.S.
Government Securities; (2) there is no limit on investment
in issuers domiciled in a single country; (3) financial
service companies are classified according to the end users
of their services (for example, automobile finance, bank
finance and diversified finance); and (4) 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 Fund may invest in one
or more investment companies; provided that, except to the
extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(3) BORROWING
(a) Each MONEY MARKET FUND, INCOME FUND, TOTAL RETURN BOND FUND,
each TAX-FREE INCOME FUND, VALUGROWTH STOCK FUND, SMALL
COMPANY STOCK FUND, DIVERSIFIED SMALL CAP FUND and SMALL CAP
OPPORTUNITIES FUND may borrow money from banks or by entering
into reverse repurchase agreements, but the Fund will limit
borrowings to amounts not in excess of 33 1/3% of the value of
the Fund's total assets (computed immediately after the
borrowing).
(b) STABLE INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH BALANCED
FUND, AGGRESSIVE BALANCED-EQUITY FUND, INDEX FUND, INCOME
EQUITY FUND, DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND,
LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH FUND AND
INTERNATIONAL FUND may borrow money for temporary or emergency
purposes, including the meeting of redemption requests, but
not in excess of 33 1/3% of the value of the Fund's total
assets (as computed immediately after the borrowing).
(c) TREASURY PLUS FUND may not borrow money if, as a result,
outstanding borrowings would exceed an amount equal to 33 1/3%
of the Fund's total assets. For purposes of this limitation,
the following are not treated as borrowing to the extent they
are fully collateralized: (i) the delayed delivery of
purchased securities (such as the purchase of when-issued
securities), (ii) reverse repurchase agreements; (iii) dollar
roll transactions; and (iv) the lending of securities.
(4) ISSUANCE OF SENIOR SECURITIES
NO FUND may issue senior securities except to the extent permitted by
the 1940 Act.
(5) UNDERWRITING ACTIVITIES
(a) TREASURY PLUS FUND may not underwrite (as that term is defined
by the 1933 Act) securities issued by other persons except, to
the extent that in connection with the disposition of the
Fund's assets, the Fund may be considered to be an
underwriter.
(b) NO OTHER FUND may underwrite securities of other issuers,
except to the extent that the Fund may be considered to be
acting as an underwriter in connection with the disposition of
portfolio securities.
51
(6) MAKING LOANS
(a) TREASURY PLUS FUND may not make loans to other parties. For
purposes of this limitation, entering into repurchase
agreements, lending securities and acquiring any debt security
are not deemed to be the making of loans.
(b) NO OTHER FUND may make loans, except a Fund may enter into
repurchase agreements, purchase debt securities that are
otherwise permitted investments and lend portfolio securities.
(7) PURCHASES AND SALES OF REAL ESTATE
(a) EACH FUND (other than DIVERSIFIED SMALL CAP FUND, SMALL CAP
OPPORTUNITIES FUND AND TREASURY PLUS FUND) may not purchase or
sell real estate or any interest therein or real estate
limited partnership interests, except that the Fund 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.
(b) DIVERSIFIED SMALL CAP FUND and SMALL CAP OPPORTUNITIES FUND
may not purchase or sell real estate or any interest therein,
except that it may invest in debt obligations secured by real
estate or interests therein or securities issued by companies
that invest in real estate or interests therein.
(c) TREASURY PLUS FUND may not purchase or sell real estate,
unless acquired as a result of ownership of securities or
other investments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate
business).
(8) PURCHASES AND SALES OF COMMODITIES
(a) EACH FIXED INCOME FUND, EQUITY FUND (OTHER THAN DIVERSIFIED
SMALL CAP FUND AND SMALL CAP OPPORTUNITIES FUND) and BALANCED
FUND may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell
physical commodities; provided that currency and
currency-related contracts and contracts on indices will not
be deemed to be physical commodities.
(b) DIVERSIFIED SMALL CAP FUND AND SMALL CAP OPPORTUNITIES FUND
may not purchase or sell physical commodities unless acquired
as a result of owning securities or other instruments, but it
may purchase, sell or enter into financial options and futures
and forward currency contracts and other financial contracts
or derivative instruments.
(c) TREASURY PLUS FUND may not purchase or sell physical
commodities unless acquired as a result of the ownership of
securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments
backed by physical commodities).
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund. Reference to a Fund includes reference to its
corresponding Core Portfolio, if applicable, which has the same fundamental
policies as the Fund. The policies of a Fund may be changed by the Board, or in
the case of its corresponding Core Portfolio, the Core Trust Board.
(1) DIVERSIFICATION
52
(a) To the extent required to qualify as a regulated investment
company, and with respect to 50% of its assets, MUNICIPAL
MONEY MARKET FUND may not purchase a security other than a
U.S. Government Security, if as a result, more than 5% of the
Fund' s total assets would be invested in the section as a
single issuer or the Fund would own more than 10% of the
outstanding rated securities of any single issuer.
(b) COLORADO TAX-FREE FUND, MINNESOTA INTERMEDIATE TAX-FREE FUND
and MINNESOTA TAX-FREE FUND, the Fund are "non-diversified" as
that term is defined in the 1940 Act.
(c) With respect to each of COLORADO TAX-FREE FUND, MINNESOTA
INTERMEDIATE TAX-FREE FUND and MINNESOTA TAX-FREE FUND, to
the extent required to qualify as a regulated investment
company under the Code, as amended, the Fund may not
purchase a security (other than a U.S. Government security
or a security of an investment company) if, as a result: (1)
with respect to 50% of its assets, more than 5% of the
Fund's total assets would be invested in the securities of
any single issuer; (2) with respect to 50% of its assets,
the Fund would own more than 10% of the outstanding
securities of any single issuer; or (3) more than 25% of the
Fund's total assets would be invested in the securities of
any single issuer.
(2) BORROWING
(a) EACH FUND'S (other than TREASURY PLUS FUND'S, INTERMEDIATE
GOVERNMENT INCOME FUND'S and DIVERSIFIED BOND FUND'S)
borrowings for other than temporary or emergency purposes or
meeting redemption requests may not exceed an amount equal
to 5% of the value of the Fund's net assets. When STABLE
INCOME FUND, LIMITED TERM GOVERNMENT INCOME FUND,
INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND FUND,
STRATEGIC INCOME FUND, MODERATE BALANCED FUND, GROWTH
BALANCED FUND, AGGRESSIVE BALANCED-EQUITY FUND, INCOME
EQUITY FUND, INDEX FUND, DIVERSIFIED EQUITY FUND, GROWTH
EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH
FUND AND INTERNATIONAL FUND establish a segregated account
to limit the amount of leveraging with respect to certain
investment techniques, they do not treat those techniques as
involving borrowings for purposes of this or other borrowing
limitations.
(b) TREASURY PLUS FUND may not purchase or sell physical
commodities unless acquired as a result of the ownership of
securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures
contracts or from investing in securities or other
instruments backed by physical commodities).
(3) ILLIQUID SECURITIES
(a) No MONEY MARKET FUND other than TREASURY PLUS FUND may
acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than 10% of
the Fund'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, as amended ("Restricted Securities").
(b) Each Fixed Income Fund, Equity Fund and Balanced Fund may
not acquire securities or invest in repurchase agreements
with respect to any securities if, as result, more than 15%
of the Fund'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, as amended ("Restricted Securities").
53
(c) TREASURY PLUS FUND may not invest more than 10% of its net
assets in illiquid assets such as: (i) securities that
cannot be disposed of within seven days at their
then-current value, (ii) repurchase agreements not entitling
the holder to payment of principal within seven days and
(iii) securities subject to restrictions on the sale of the
securities to the public without registration under the 1933
Act ("restricted securities") that are not readily
marketable. The Fund may treat certain restricted securities
as liquid pursuant to guidelines adopted by the Board of
Trustees.
(4) OTHER INVESTMENT COMPANIES
NO FUND may invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
(5) MARGIN AND SHORT SALES
(a) EACH FUND (other than TREASURY PLUS FUND, LIMITED TERM
GOVERNMENT INCOME FUND AND INTERMEDIATE GOVERNMENT INCOME
FUND) 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 Fund other than Treasury Plus Fund may make margin
deposits in connection with permitted transactions in
options, futures contracts and options on futures contracts.
No Fund (other than Treasury Plus Fund, Diversified Small
Cap Fund and Small Cap Opportunities Fund) may enter short
sales if, as a result, more that 25% of the value of the
Fund'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.
(b) Treasury Plus Fund may not sell securities short, unless it
owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short (short sales
"against the box"), and provided that transactions in
futures contracts and options are not deemed to constitute
selling securities short. The Fund may not purchase
securities on margin, except that the Fund may use
short-term credit for clearance of the Fund's transactions,
and provided that the initial and variation margin payments
in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on
margin.
(6) UNSEASONED ISSUERS
NO FUND (other than TREASURY PLUS FUND, DIVERSIFIED SMALL CAP FUND and
SMALL CAP OPPORTUNITIES FUND) may 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 Fund could invest, if, as
a result, more than 5% of the value of the Fund's total assets would be
so invested; provided, that each Fund may invest all or a portion of
its assets in another diversified, open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund.
(7) PLEDGING
NO FUND may pledge, mortgage, hypothecate or encumber any of its assets
except to secure permitted borrowings or to secure other permitted
transactions.
(9) SECURITIES WITH VOTING RIGHTS
NO MONEY MARKET FUND or FIXED INCOME FUND may purchase securities
having voting rights except securities of other investment companies;
provided that the Funds may hold securities with voting rights
54
obtained through a conversion or other corporate transaction of the
issuer of the securities, whether or not the Fund was permitted to
exercise any rights with respect to the conversion or other
transaction.
(10) LENDING OF PORTFOLIO SECURITIES
NO FUND (other than SMALL CAP OPPORTUNITIES FUND) may lend portfolio
securities if the total value of all loaned securities would exceed 33
1/3% of the Fund's total assets, as determined by SEC guidelines.
SMALL CAP OPPORTUNITIES FUND may not lend portfolio securities if the
total value of all loaned securities would exceed 25% of its total
assets.
(11) REAL ESTATE LIMITED PARTNERSHIPS
NO FUND other than TREASURY PLUS FUND may invest in real estate
limited partnerships.
(12) OPTIONS AND FUTURES CONTRACTS
(a) NO MONEY MARKET FUND may invest in options, futures
contracts or options on futures contracts.
(b) NO FIXED INCOME FUND, EQUITY FUND (other than SMALL CAP
OPPORTUNITIES FUND) or BALANCED FUND may purchase an option
if, as a result, more that 5% of the value of the Fund's total
assets would be so invested.
(13) WARRANTS
NO FUND may invest in warrants if: (1) more than 5% of the value of the
Fund's net assets would will be invested in warrants (valued at the
lower of cost or market) or (2) more than 2% of the value of the Fund'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 Fund attached to securities are deemed to have
no value.
(14) TREASURY FUND INVESTMENT LIMITATIONS
TREASURY FUND may not enter into repurchase agreements or purchase any
security other than those that are issued or guaranteed by the U.S.
Treasury, including separately traded principal and interest components
of securities issued or guaranteed by the U.S. Treasury.
(15) PURCHASES AND SALES OF COMMODITIES
NO MONEY MARKET FUND except TREASURY PLUS FUND may 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.
TREASURY PLUS FUND may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities.
(16) ValuGROWTH STOCK FUND INVESTMENT LIMITATIONS
VALUGROWTH STOCK FUND may not enter into commitments under when-issued
and forward commitment obligations in an amount greater than 15% of the
value of the Fund's total assets.
(17) EXERCISING CONTROL OF ISSUERS
55
TREASURY PLUS FUND may not make investments for the purpose of
exercising control of an issuer. Investments by the Fund in entities
created under the laws of foreign countries solely to facilitate
investment in securities in that country will not be deemed the making
of investments for the purpose of exercising control
IV. PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. All performance
information for a Fund is calculated on a class basis. Each Fund's yield and
total return fluctuate in response to market conditions and other factors.
Investment return and principal value will fluctuate, and shares, when redeemed,
may be worth more or less than their original cost.
A Fund's performance may be quoted in terms of yield or total return. A Fund's
yield is a way of showing the rate of income the Fund earns on its investments
as a percentage of the Fund's share price. To calculate standardized yield for
the Money Market Funds, a Fund takes the income it earned from its investments
for a 7-day period (net of expenses), divides it by the average number of shares
entitled to receive dividends, and expresses the result as an annualized
percentage rate based on the Fund's share price at the end of the 7-day period.
With respect to each of the other Funds, to calculate standardized yield, a Fund
takes the income it earned from its investments for a 30-day period (net of
expenses), divides it by the average number of shares entitled to receive
dividends, and expresses the result as an annualized percentage rate based on
the Fund's share price at the end of the 30-day period. Municipal Money Market
Fund and the Tax-Exempt Fixed Income Funds may also quote tax-equivalent yields,
which show the taxable yields a shareholder would have to earn to equal the
Fund's tax-free yield, after taxes. A tax equivalent yield is calculated by
dividing the Fund's tax-free yield by one minus a stated federal, state or
combined federal and state tax rate.
A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and distributions are
reinvested. A cumulative total return reflects a Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same cumulative total
return if the Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results. Published yield quotations are, and total return figures
may be, based on amounts invested in a Fund net of sales charges that may be
paid by an investor. A computation of yield or total return that does not take
into account sales charges paid by an investor will be higher than a similar
computation that takes into account payment of sales charges.
For a listing of certain performance data as of November 30, 1997 (see Appendix
C-- Performance Data, Table 3-- Total Returns).
In performance advertising, the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Fund Tracking Companies"). The
Funds may also compare any of their performance information with the performance
of recognized stock, bond and other indexes, including but not limited to the
Municipal Bond Buyers Indices, the Salomon Brothers Bond Index, Shearson Lehman
Bond Index, the Standard & Poor's 500 Composite Stock Price Index, Russell 2000
Index, Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, the Dow Jones Industrial Average, U.S. Treasury bonds, bills or notes and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce. These indices may be comprised of a composite of various recognized
securities indices to reflect the investment policies of a Fund that invests its
assets
56
using different investment styles. Indices are not used in the management of a
Fund but rather are standards by which an Adviser and shareholders may compare
the performance of a Fund to an unmanaged composite of securities with similar,
but not identical, characteristics as the Fund. This material is not to be
considered representative or indicative of future performance. The Funds may
refer to general market performances over past time periods such as those
published by Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and
Inflation Yearbook"). In addition, the Funds may also refer in such materials to
mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of the Funds
and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in a Fund
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yields of a Fund are
not fixed or guaranteed, and an investment in a Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of a Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
MONEY MARKET FUNDS
Yield quotations for the Money Market Funds will include an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven-calendar-day period and are calculated by dividing the
net change during the seven-day period in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period, and multiplying the quotient by 365/7. For this
purpose, the net change in account value reflects the value of additional shares
purchased with dividends declared on the original share and dividends declared
on both the original share and any such additional shares, but would not reflect
any realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
annualized yield quotation used by a Money Market Fund is calculated by
compounding the current yield quotation for such period by adding 1 to the
product, raising the sum to a power equal to 365/7, and subtracting 1 from the
result. The standardized tax equivalent yield is the rate an investor would have
to earn from a fully taxable investment in order to equal a Fund's yield after
taxes. Tax equivalent yields are calculated by dividing the Fund's yield by one
minus the stated Federal or combined Federal and state tax rate. If a portion of
a Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
FIXED INCOME AND EQUITY FUNDS
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's interest income (in accordance with specific standardized rules) for a
given 30 days or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income in accordance with specific
standardized rules) in order to arrive at an annual percentage rate. In general,
interest income is reduced with respect to municipal securities purchased at a
premium over their par value by subtracting a portion of the premium from income
on a daily basis. In general, interest income is increased with respect to
municipal securities purchased at original issue at a discount by adding a
portion of the discount to daily income. Capital gains and losses generally are
excluded from these calculations.
The standardized tax equivalent yield is the rate an investor would have to earn
from a fully taxable investment in order to equal a Fund's yield after taxes.
Tax equivalent yields are calculated by dividing the Fund's yield by one minus
the stated Federal or combined Federal and state tax rate. If a portion of a
Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
57
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, any change in the Fund's net asset value per
share over the period and maximum sales charge, if any, applicable to purchases
of the Fund's shares. Average annual total returns are calculated, through the
use of a formula prescribed by the SEC, by determining the growth or decline in
value of a hypothetical historical investment in a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years. The
average annual total return is computed separately for each class of shares of a
Fund. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods. For example, average annual
total return may be calculated without assuming payment of the sales load
according to the following formula:
P(1+U)n = ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming non payment of
the maximum sales load at the beginning of the stated
period.
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the stated period
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance
58
information may be quoted numerically or in a table, graph, or similar
illustration. Period total return is calculated according to the following
formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total return above
MULTICLASS, COLLECTIVE INVESTMENT AND COMMON TRUST FUND AND CORE-GATEWAY
PERFORMANCE
MULTICLASS PERFORMANCE
When a Fund has more than one class of shares, performance calculations for the
classes of shares that are created after the initial class may be stated so as
to include the performance of the initial class or classes of the Fund.
Generally, performance of the initial class is not restated to reflect the
expenses or expense ratio of the subsequent class. For instance, if A Shares of
a Fund are created after I Shares have been in existence, the inception of
performance for the A Shares will be deemed to be the inception date of the I
Shares and the performance of the I Shares (based on the I Shares actual
expenses) from the inception of I Shares to the inception of A Shares will be
deemed to be the performance of A Shares for that period. For standardized total
return calculations, the current maximum initial sales load and applicable 12b-1
fees on A Shares would be used in determining the total return of A Shares as if
assessed at the inception of I Shares. Generally, the performance of B Shares
will be calculated only from the inception date of B Shares, regardless of the
existence of prior share classes in the same Fund.
COLLECTIVE INVESTMENT AND COMMON TRUST FUND PERFORMANCE
Prior to November 11, 1994, Norwest Bank managed several collective investment
funds each of which had an investment objective and investment policies that
were in all material respects equivalent to a particular Fund which became the
successor to the collective investment fund. Therefore, the performance for
these Funds includes the performance of their predecessor collective investment
funds for periods before those Funds became mutual funds on November 11, 1994.
The collective investment fund performance was adjusted to reflect those Funds'
1994 estimate of their expense ratios for the first year of operations as a
mutual fund (without giving effect to any fee waivers or expense
reimbursements). Prior to October 1, 1997, Norwest Bank managed a common trust
fund which had an investment objective and investment policies that were in all
material respects equivalent to one of the Funds which became the successor to
the collective investment fund. Therefore, the performance for the Fund includes
the performance of the predecessor common trust fund for the period before the
Fund became a mutual fund on October 1, 1997. The common trust fund performance
was adjusted to reflect the Fund's 1997 estimate of its expense ratio for the
first year of operation as a mutual fund (without giving effect to any fee
waivers or expense reimbursements). The collective investment funds and common
trust fund were not registered under the 1940 Act nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Code, which, if applicable, may have adversely
affected the performance result. The performance of International Fund reflects
the historical performance of Schroder International Equity Fund (managed by
Schroder Capital Management International Inc.) in which International Fund's
predecessor collective investment fund invested.
CORE-GATEWAY PERFORMANCE
When a Fund invests all of its investable assets in Core portfolio that has a
performance history prior to the investment by the Fund, the Fund will assume
the performance history of the Core Portfolio. That history may be restated to
reflect the estimated expenses of the Fund.
OTHER ADVERTISEMENT MATTERS
59
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge; excluding sales charges from a total return calculation produces a
higher return figure. Any performance information may be presented numerically
or in a table, graph or similar illustration.
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) biographical descriptions of the Funds'
portfolio managers and the portfolio management staff of the Advisers or
summaries of the views of the portfolio managers with respect to the financial
markets; (7) the results of a hypothetical investment in a Fund over a given
number of years, including the amount that the investment would be at the end of
the period; (8) the effects of earning Federally and, if applicable, state
tax-exempt income from a Fund or investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan; and (9) the net
asset value, net assets or number of shareholders of a Fund as of one or more
dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
60
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
With respect to the Funds that invest in municipal securities and distribute
Federally tax-exempt (and in certain cases state tax exempt) dividends, the
Funds may advertise the benefits of and other effects of investing in municipal
securities. For instance, the Funds' advertisements may note that municipal
bonds have historically offered higher after tax yields than comparable taxable
alternatives for those persons in the higher tax brackets, that municipal bond
yields may tend to outpace inflation and that changes in tax law have eliminated
many of the tax advantages of other investments. The combined Federal and state
income tax rates for a particular state may also be described and advertisements
may indicate equivalent taxable and tax-free yields at various approximate
combined marginal Federal and state tax bracket rates. All yields so advertised
are for illustration only are not necessarily representative of a Fund's yield.
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has for more than 60 years been
committed to quality products and outstanding service to assist its customers in
meeting their financial goals and setting forth the reasons that Norwest
believes that it has been successful as a national financial service firm.
V. MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years and age as of April 1, 1998 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 and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability
Company (a mutual fund administrator), Forum Financial Corp. (a
registered transfer agent), and other companies within the Forum
Financial Group of companies. Mr. Keffer is a Director, Trustee and/or
officer of various registered investment companies for which Forum
Financial Services, Inc. or its affiliates serves as manager,
administrator or distributor. His address is Two Portland Square,
Portland, Maine 04101.
ROBERT C. BROWN, Trustee,* Age 65.
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corporation since February 1993. Prior
thereto, he was Manager of Capital Markets Group, Norwest
61
Corporation (a multi-bank holding company and parent of Norwest),
until 1991. His address is 1431 Landings Place, Sarasota, Florida
34231.
DONALD H. BURKHARDT, Trustee, Age 70.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 76.
President and sole Director of James C. Harris & Co., Inc. (a
financial consulting firm). Mr. Harris is also a liquidating trustee
and former Director of First Midwest Corporation (a small business
investment company). His address is 6950 France Avenue South,
Minneapolis, Minnesota 55435.
RICHARD M. LEACH, Trustee, Age 63.
President of Richard M. Leach Associates (a financial consulting firm)
since 1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor
Investments (a registered investment adviser), a Director of
Mountainview Broadcasting (a radio station) and Managing Director of
Digital Techniques, Inc. (an interactive video design and
manufacturing company). His address is P.O. Box 1888, New London, New
Hampshire 03257.
JOHN S. MCCUNE,* Trustee, Age 46.
President, Norwest Investment Services, Inc. (a broker-dealer
subsidiary of Norwest bank) His address is 608 2nd Avenue South,
Minneapolis, Minnesota 55479.
TIMOTHY J. PENNY, Trustee, Age 45.
Senior Counselor to the public relations firm of Himle-Horner since
January 1995 and Senior Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since January 1995. Prior
thereto Mr. Penny was the Representative to the United States Congress
from Minnesota's First Congressional District. His address is 500
North State Street, Waseca, Minnesota 56095.
DONALD C. WILLEKE, Trustee, Age 56.
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
SARA M. MORRIS, Vice President and Treasurer, Age 33.
Managing Director, Forum Financial Services, Inc., with which she has
been associated since 1994. Prior thereto, from 1991 to 1994 Ms. Morris
was Controller of Wright Express Corporation (a national credit card
company) and for six years prior thereto was employed at Deloitte &
Touche LLP as an accountant. Ms. Morris is also an officer of various
registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor.
Her address is Two Portland Square, Portland, Maine 04101.
DAVID I. GOLDSTEIN, Vice President and Secretary, Age 35.
Managing Director and General Counsel, Forum Financial Services, Inc.,
with which he has been associated since 1991. Mr. Goldstein is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
62
THOMAS G. SHEEHAN, Vice President and Assistant Secretary, Age 42.
Managing Director and Counsel, Forum Financial Services, Inc., with
which he has been associated since 1993. Prior thereto, Mr. Sheehan
was Special Counsel to the Division of Investment Management of the
SEC. Mr. Sheehan is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
PAMELA J. WHEATON, Assistant Treasurer, Age 38.
Manager - Tax and Compliance Group, Forum Financial Services, Inc.,
with which she has been associated since 1989. Ms. Wheaton is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. Her address is Two
Portland Square, Portland, Maine 04101.
MAX BERUEFFY, Assistant Secretary (age 44)
Senior Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto, Mr. Berueffy was on the staff of
the U.S. Securities and Exchange Commission for seven years, first in
the appellate branch of the Office of the General Counsel, then as a
counsel to Commissioner Grundfest and finally as a senior special
counsel in the Division of Investment Management. Mr. Berueffy is also
Secretary or Assistant Secretary of various registered investment
companies for which Forum Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
DON L. EVANS, Assistant Secretary, Age 49.
Assistant Counsel, Forum Financial Services, Inc., with which he has
been associated since 1995. Prior thereto, Mr. Evans was associated
with the law firm of Bisk & Lutz and prior thereto was associated with
the law firm of Weiner & Strother. Mr. Evans is also an officer of
various registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine.
EDWARD C. LAWRENCE, Assistant Secretary, Age 28.
Fund Administrator, Forum Financial Services, Inc., with which he has
been associated since 1997. Prior thereto, Mr. Lawrence was a
self-employed contractor on antitrust cases with the law firm of White
& Case. After graduating from law school, from 1994-1996, Mr. Lawrence
worked as an assistant public defender for the Missouri State Public
Defender's Office. His address is Two Portland Square, Portland, Maine
04101.
COMPENSATION OF TRUSTEES AND OFFICERS OF THE TRUST
Each Trustee of the Trust is paid a retainer fee in the total amount of $5,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year or
compensation or reimbursement for his associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $6,000 from the Trust and
Norwest
63
Select Funds allocated pro rata between the Trust and Norwest Select Funds based
upon relative net assets, for his services as Chairman. Each Trustee was elected
by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1998, which was the fiscal year end of all of the
Trust's portfolios.
TOTAL COMPENSATION FROM
TOTAL COMPENSATION THE TRUST AND NORWEST
FROM THE TRUST SELECT FUNDS
-------------- ------------
Mr. Brown $ $
Mr. Burkhardt $ $
Mr. Harris $ $
Mr. Leach $ $
Mr. Penny $ $
Mr. Willeke $ $
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1997 total expenses of the Trustees (other than Mr. Keffer) was $ and total
expenses of the trustees of Norwest Select Funds was $.
As of April 1, 1998, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Funds.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer, Goldstein, Butt, Sheehan, and Misses Clark and
Walker, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, (see
"Management -- Trustees and Officers -- Trustees and Officers of the Trust.")
JOHN Y. KEFFER,* Chairman and President.
COSTAS AZARIADIS, Trustee, Age 53.
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 54.
Managing Director, Forum Financial Services, Inc. since September 1991.
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is Two Portland Square, Portland, Maine
04101.
J. MICHAEL PARISH, Trustee, Age 53.
Partner at the law firm of Reid & Priest. Prior thereto he was a partner at
the law firm of Winthrop Stimson Putnam & Roberts since 1989. His address
is 40 Wall Street, New York, New York 10005.
SARA M. MORRIS, Treasurer
64
PAMELA J. WHEATON, Assistant Treasurer
DAVID I. GOLDSTEIN, Secretary.
THOMAS G. SHEEHAN, Assistant Secretary.
TRUSTEES AND OFFICERS OF SCHRODER CORE
The Trustees and officers of Schroder Core and their principal occupations
during the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer and Sheehan, officers of Schroder Core, currently
serve as officers of the Trust. Accordingly, for background information
pertaining to these officers, (see "Management - Trustees and Officers -
Trustees and Officers of the Trust.")
PETER E. GUERNSEY, Oyster Bay, New York - Trustee of the Trust - Insurance
Consultant since August 1986; prior thereto Senior Vice President, Marsh &
McLennan, Inc., insurance brokers.
JOHN I. HOWELL, Greenwich, Connecticut - Trustee of the Trust - Private
Consultant since February 1987; Honorary Director, American International Group,
Inc.; Director, American International Life Assurance Company of New York.
CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York - Trustee of the
Trust - Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation).
MARK J. SMITH(b), 33 Gutter Lane, London, England - President and Trustee of the
Trust - Senior Vice President and Director of Schroder; Director and Senior Vice
President, Schroder Fund Advisors Inc..
ROBERT G. DAVY, 787 Seventh Avenue, New York, New York - a Vice-President of the
Trust - Director of Schroder and Schroder Capital Management International Ltd.
since 1994; Senior Vice President and Director of Schroder; prior thereto,
employed by various affiliates of Schroders plc in various positions in the
investment research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON(b)(c), 787 Seventh Avenue, New York, New York -
Vice President of the Trust Secretary of SCM since July 1995; Senior Vice
President and General Counsel of Schroders U.S. Holdings Inc. since May 1987;
prior thereto, partner of Sullivan & Worcester, a law firm.
RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York - a Vice President of
the Trust; Deputy Chairman of Schroder since October 1995; Director and
Executive Vice President of Schroder Capital Management International Ltd. since
1989.
BARBARA GOTTLIEB(c), 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust and Vice President of Schroder Fund Advisors Inc.; prior
thereto held various positions with SWIS affiliates.
65
JOHN Y. KEFFER, 2 Portland Square, Portland, Maine - Vice President of the
Trust. President of Forum Financial Services, Inc., the Fund's
sub-administrator, and Forum Financial Corp., the Fund's transfer and dividend
disbursing agent and fund accountant.
JANE P. LUCAS, (c) 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Director and Senior Vice President Schroder; Director of SCM since
September 1995; Director of Schroder Fund Advisors Inc.; Assistant Director
Schroder Investment Management Ltd. since June 1991.
GERARDO MACHADO, 787 Seventh Avenue, New York, New York - Assistant Secretary of
the Trust - Associate, Schroder.
CATHERINE A. MAZZA, 787 Seventh Avenue, New York, New York - Vice President of
the Trust - President of Schroder Fund Advisors Inc. since 1997; Group Vice
President of Schroder; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine - Assistant Treasurer and
Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. since
1993; prior thereto, Special Counsel, U.S. Securities and Exchange Commission,
Division of Investment Management, Washington, D.C.
FARIBA TALEBI, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - Group Vice President of Schroder, employed in various positions in the
investment research and portfolio management areas since 1987.
JOHN A. TROIANO(b), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Managing Director and Senior Vice President of Schroder since
October 1995; Director of Schroder Fund Advisors Inc.; Director of Schroder
since 1991; prior thereto, employed by various affiliates of Schroder in various
positions in the investment research and portfolio management areas since 1981.
IRA L. UNSCHULD, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - Vice President of Schroder since April, 1993 and an Associate from July,
1990 to April, 1993; prior to July, 1990, employed by various financial
institutions as a securities or financial analyst.
ALEXANDRA POE, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust - First Vice President of Schroder; Fund Counsel and
Senior Vice President of Schroder Fund Advisors Inc. since August 1996; prior
thereto an investment management attorney with Gordon Altman Butowsky Weitzen
Shalov & Wein since July 1994; prior thereto counsel and Vice President of
Citibank, N.A. since 1989.
MARY KUNKEMUELLER, 787 Seventh Avenue, New York, New York - Vice President of
Schroder Fund Advisors Inc.
INVESTMENT ADVISORY SERVICES
GENERAL
Table 1 in Appendix B shows, with respect to each Fund, the dollar amount of
fees payable under the Investment Advisory Agreements between Norwest and the
Trust or Norwest and Core Trust, if the Fund invests in one or more Core
Portfolios, the amount of fee that was waived by Norwest, if any, and the actual
fee received by Norwest. That table also shows similar information with respect
to Schroder for its services to International Portfolio and Schroder U.S.
Smaller Companies Portfolio. The data is for the past three fiscal years or a
shorter period if the Fund has been in operation for a shorter period.
The advisory fee for each Fund is disclosed in the Fund's prospectuses. All
investment advisory fees are accrued daily and paid monthly. Each Adviser, in
its sole discretion, may waive or continue to waive all or any portion of its
investment advisory fees.
66
In addition to receiving its advisory fee from the Funds, each Adviser or its
affiliates may act and be compensated as investment manager for its clients with
respect to assets which are invested in a Fund. In some instances Norwest or its
affiliates may elect to credit against any investment management, custodial or
other fee received from, or rebate to, a client who is also a shareholder in a
Fund an amount equal to all or a portion of the fees received by Norwest or any
of its affiliates from a Fund with respect to the client's assets invested in
the Fund.
NORWEST INVESTMENT MANAGEMENT
Subject to the general supervision of the Board, Norwest makes investment
decisions for the Funds and continuously reviews, supervises and administers
each Fund's investment program or oversees the investment decisions of the
investment subadvisers, as applicable. Norwest provides its investment advisory
services indirectly to each Fund that operates in a Core and Gateway Structure
(other than Schroder U.S. Smaller Companies Portfolio, Schroder EM Core
Portfolio and International Portfolio) through its investment advisory services
of the Core Portfolios. In addition, subject to the general supervision of the
Board, Norwest continuously reviews and determines the allocation of the assets
of Diversified Bond Fund, Strategic Income Fund, Moderate Balanced Fund, Growth
Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth
Equity Fund, Diversified Small Cap Fund and International Fund among the various
investment styles and Core Portfolios in which those Funds invest. Norwest,
which is located at Norwest Center, Sixth Street and Marquette, Minneapolis,
Minnesota 55479, is an indirect subsidiary of Norwest Corporation, a multi-bank
holding company that was incorporated under the laws of Delaware in 1929. As of
June 30, 1997, Norwest Corporation had assets of $83.6 billion, which made it
the 11th largest bank holding company in the United States. As of June 30, 1997,
Norwest and its affiliates managed assets with a value of approximately $52.9
billion.
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. For further information about the
investment subadvisory services for certain Funds and the advisory services for
International Portfolio of Core Trust. (See "Management -- Investment Advisory
Services -- Schroder Capital Management International, Inc.," "--Sub-Advisers"
- -- Crestone Capital Management, Inc.," "-- Galliard Capital Management, Inc.,"
"-- Peregrine Capital Management, Inc.," "-- United Capital Management, Inc."
And "-- Smith Asset Management Group, L.P.") Under its various Investment
Advisory Agreements, Norwest may delegate its responsibilities to any investment
subadviser approved by the Board and, as applicable, shareholders, with respect
to all or a portion of the assets of the Fund. With respect to each Fund, the
Investment Advisory Agreement between the Trust and Norwest will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by vote of the shareholders, and in either case, by a majority of
the Trustees who are not interested persons of any party to the Investment
Advisory Agreement, at a meeting called for the purpose of voting on the
Investment Advisory Agreement.
Each Investment Advisory Agreement is terminable without penalty with respect to
the Fund on 60 days' written notice: (1) by the Board or by a vote of a majority
of the outstanding voting securities of the Fund to the Adviser or (2) by the
Adviser on 60 days' written notice to the Trust. Each Investment Advisory
Agreement shall terminate upon assignment. The Investment Advisory Agreements
also provide that, with respect to the Funds, neither Norwest nor its personnel
shall be liable for any mistake of judgment or in any event whatsoever, except
for lack of good faith, provided that nothing in the Investment Advisory
Agreements shall be deemed to protect, or purport to protect, the Adviser
against liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of Norwest's duties or by reason of reckless
disregard of its obligations and duties under the Investment Advisory
Agreements. The Investment Advisory Agreements provide that Norwest may render
services to others.
Norwest acts as investment adviser to Cash Investment Fund, Ready Cash
Investment Fund, U.S. Government Fund, Treasury Plus Fund, Treasury Fund,
Municipal Money Market Fund, Stable Income Fund, Limited Term Government Income
Fund, Intermediate Government Income Fund, Diversified Bond Fund, Income Fund,
Total Return Bond Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund,
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Index Fund, Income Equity Fund, ValuGrowthSM
Stock Fund, Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Small Company Stock Fund, Small
67
Company Growth Fund, Small Cap Opportunities Fund, Diversified Small Cap Fund
and International Fund. The investment advisory agreements between Norwest and
Core Trust on behalf of the portfolios are identical to the Investment Advisory
Agreements between the Trust and Norwest, except for the fees payable thereunder
and certain immaterial matters.
Norwest Investment Management, Inc. is a part of Norwest Corporation which as of
June 30, 1997, was a $83.6 billion financial services company providing banking,
insurance, investments, mortgage and consumer finance through 3,844 stores in
all 50 states, Canada, the Caribbean, Central America and elsewhere
internationally.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.-- SCHRODER U.S. SMALLER COMPANIES
PORTFOLIO/INTERNATIONAL PORTFOLIO
Subject to the general supervision of the Core Boards, Schroder Capital
Management International Inc. makes investment decisions for Schroder U.S.
Smaller Companies Portfolio, International Portfolio and Schroder EM Core
Portfolio and continuously reviews, supervises and administers those Core
Portfolio's investment programs.
Small Cap Opportunities Fund invests all of its assets in Schroder U.S. Smaller
Companies Portfolio and International Fund invests all of its assets in
International Portfolio and Schroder EM Core Portfolio. Pursuant to a separate
Advisory Agreement between Schroder Core and Schroder, Schroder acts as
investment adviser to Schroder U.S. Smaller Companies Portfolio and is required
to furnish at its expense all services, facilities and personnel necessary in
connection with managing Schroder U.S. Smaller Companies Portfolio's investments
and effecting portfolio transactions for Schroder U.S. Smaller Companies
Portfolio. Pursuant to a separate Advisory Agreement between Core Trust and
Schroder, 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 International Portfolio's investments and
effecting portfolio transactions for International Portfolio. The Advisory
Agreements between Schroder U.S. Smaller Companies Portfolio, International
Portfolio, Schroder EM Core Portfolio and Schroder will continue in effect only
if such continuance is specifically approved at least annually: (1) by the
applicable Trust Board or by vote of a majority of the outstanding voting
interests of the Core Portfolio, and, in either case (2) by a majority of the
applicable Trust's trustees who are not parties to the Advisory Agreement or
interested persons of any such party (other than as trustees of the applicable
Trust), at a meeting called for the purpose of voting on the Advisory Agreement;
provided further, however, that if the Advisory Agreement or the continuation of
the Agreement is not approved as to a Core Portfolio, the Adviser may continue
to render to that Core Portfolio the services described herein in the manner and
to the extent permitted by the Act and the rules and regulations thereunder.
On behalf of each Fund that invests all or a portion of its assets in Schroder
U.S. Smaller Companies Portfolio or International Portfolio, Norwest and the
Trust have entered into an Investment Subadvisory Agreement with Schroder. An
Investment Subadvisory Agreement would become operative and Schroder would
directly manage a Fund's assets if the Board determined it was no longer in the
best interest of the Fund to invest in smaller companies or international
securities by investing in another registered investment company. In that event,
pursuant to the Investment Subadvisory Agreement Schroder would makes investment
decisions directly for a Fund and continuously review, supervise and administer
the Fund's investment program with respect to that portion, if any, of the
Fund's portfolio that Norwest has so delegated. Schroder would be required to
furnish at its own expense all services, facilities and personnel necessary in
connection with managing of the Funds' investments and effecting portfolio
transactions for the Funds (to the extent of Norwest's delegation).
68
The Investment Subadvisory Agreements will continue in effect only if such
continuance is specifically approved at least annually: (1) by the Board or by
vote of a majority of the outstanding voting securities of the applicable Fund,
and, in either case, (2) by a majority of the applicable Trust's trustees who
are not parties to the Investment Subadvisory Agreements or interested persons
of any such party (other than as trustees of the applicable Trust), at a meeting
called for the purpose of voting on the Investment Subadvisory Agreements;
provided further, however, that if the Investment Subadvisory Agreements or the
continuation of the Agreements is not approved as to a Fund, the Subadviser may
continue to render to that Fund the services described herein in the manner and
to the extent permitted by the Act and the rules and regulations thereunder.
Each Investment Subadvisory Agreement is terminable without penalty with respect
to the Fund on 60 days' written notice when authorized either by majority vote
of the Fund's shareholders or by the Board, or by Schroder on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreements also provide that, with
respect to the Funds, neither Schroder nor its personnel shall 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 the Adviser against liability
by reason of willful misfeasance, bad faith or gross negligence in the
performance of Schroder's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreements. The
Investment Subadvisory Agreements provide that Schroder may render services to
others.
No payments are made under the Funds' Investment Subadvisory Agreements with
Schroder because no assets are allocated to Schroder to manage directly.
The Advisory Agreements between Schroder and Core Trust and Schroder and
Schroder Core on behalf of International Portfolio, Schroder EM Core Portfolio
and Schroder U.S. Smaller Companies Portfolio, respectively are identical to the
Investment Advisory Agreements between the Trust and Norwest, except for the
fees payable thereunder and certain immaterial matters.
SUB-ADVISERS
The Adviser pays a fee to each of the Subadvisers. These fees do not increase
the fees paid by shareholders of the Funds. The amount of the fees paid by
Norwest to each Subadviser may vary from time to time as a result of periodic
negotiations with the Subadviser regarding such matters as the nature and extent
of the services (other than investment selection and order placement activities)
provided by the Subadviser to the Fund, the increased cost and complexity of
providing services to the Fund, the investment record of the Subadviser in
managing the Fund and the nature and magnitude of the expenses incurred by the
Subadviser in managing the Fund's assets and by the Adviser in overseeing and
administering management of the Fund. However, the contractual fee payable to
each Fund by Norwest for investment advisory services will not vary as a result
of those negotiations.
Norwest performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Norwest will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with the Fund's fundamental investment objectives and policies, authorizing
Subadvisers to engage in certain investment techniques for the Fund, and
recommending to the Board of Trustees whether sub-advisory agreements should be
renewed, modified or terminated. Norwest also may from time to time recommend
that the Board of Trustees replace one or more Subadvisers or appoint additional
Subadvisers, depending on the Adviser's assessment of what combination of
Subadvisers it believes will optimize each Fund's chances of achieving its
investment objectives. The sub-advisory agreements with respect to the Funds
and, with respect to the Core Portfolios, are identical, except for the fees
payable and certain other non-material matters.
CRESTONE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with the Small Company Stock Fund, Strategic Income Fund, Moderate
Balanced Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund,
Diversified Equity Fund, Growth Equity Fund and Diversified Small Cap Fund (the
69
"Funds"), Norwest has entered into an Investment Subadvisory Agreement with
Crestone, located at 7720 East Belleview Avenue, Suite 220, Englewood, Colorado
80111 with respect to Small Company Stock Portfolio. Crestone is registered with
the SEC as an investment adviser and is a non-wholly owned subsidiary of
Norwest. Pursuant to the Investment Subadvisory Agreement, Crestone makes
investment decisions for the Funds and continuously reviews, supervises and
administers the Funds' investment program with respect to that portion, if any,
of the Funds' investment portfolio that Norwest believes should be invested
using Crestone as a subadviser. Currently, Crestone manages all of the assets of
Small Company Stock Portfolio and has done so since the Core Portfolio's
inception. Norwest supervises the performance of Crestone including its
adherence to the Funds' investment objectives and policies and pays Crestone a
fee for its investment management services. For its services under the
Investment Subadvisory Agreement, Norwest pays Crestone a fee based on the Core
Portfolio's average daily net assets at an annual rate of 0.40% on the first $30
million; 0.30% on the next $30 million; 0.20% on the next $40 million and 0.15%
on all sums in excess of $100 million. For Small Company Stock Fund's fiscal
years ended May 31, 1996, 1995 and 1994, Norwest paid Crestone subadvisory fees
of $180,748, $137,862 and $8,792, respectively.
Under its Investment Subadvisory Agreement, Crestone makes investment decisions
for the Core Portfolio and continuously reviews, supervises and administers each
Fund's investment program with respect to that portion, if any, of the Fund's
investment portfolio for which Norwest has delegated management responsibility.
Crestone is required to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of the Funds' investments and
effecting portfolio transactions for each Fund (to the extent of Norwest's
delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolio, and, in either case; (2) by
a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to the Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to the Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Crestone on 60 days written notice to the Core Trust, and will
automatically terminate in the event of its assignment. The Investment
Subadvisory Agreement also provides that, with respect to the Core Portfolio,
neither Crestone nor its personnel shall 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 Crestone against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Crestone's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Subadvisory Agreement. The Investment Subadvisory Agreement
provides that Crestone may render services to others.
Crestone also currently serves as Investment Subadviser to the Funds pursuant to
a separate investment subadvisory agreement between Crestone and Norwest. The
investment subadvisory agreement with respect to the Funds is identical to the
Investment Subadvisory Agreement, except for the fees payable thereunder (no fee
is payable under the investment subadvisory agreement with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
GALLIARD CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Stable Income Fund, Diversified Bond Fund, Total Return Bond
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund and
Aggressive Balanced-Equity Fund (the "Funds"), Norwest has entered into an
Investment Subadvisory Agreement with Galliard, located at 800 LaSalle Avenue,
Suite 2060, Minneapolis, Minnesota 55479 with respect to Stable Income
Portfolio, Strategic Value Bond Portfolio and Managed Fixed Income Portfolio.
70
Galliard is registered with the SEC as an investment adviser and is an
investment advisory subsidiary of Norwest Bank. Pursuant to the Investment
Subadvisory Agreement, Galliard makes investment decisions for each of the Funds
and continuously reviews, supervises and administers each Fund's investment
program with respect to that portion, if any, of the Fund's investment portfolio
that Norwest believes should be invested using Galliard as a subadviser.
Currently, Galliard manages all the assets of each Core Portfolio and has done
so since each Core Portfolio's inception. Norwest supervises the performance of
Galliard including its adherence to the Core Portfolios' investment objectives
and policies and pays Galliard a fee for its investment management services.
Under its Investment Subadvisory Agreement, Galliard makes investment decisions
for each Core Portfolio and continuously reviews, supervises and administers
each Fund's investment program with respect to that portion, if any, of the
Fund's investment portfolio for which Norwest has delegated management
responsibility. Galliard is required to furnish at its own expense all services,
facilities and personnel necessary in connection with managing of each Fund's
investments and effecting portfolio transactions for each Fund (to the extent of
Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolios, and, in either case; (2)
by a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to each Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Galliard on 60 days written notice to the Core Trust, and will
automatically terminate in the event of its assignment. The Investment
Subadvisory Agreement also provides that, with respect to each Core Portfolio,
neither Galliard nor its personnel shall 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 Galliard against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Galliard's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Subadvisory Agreement. The Investment Subadvisory Agreement
provides that Galliard may render services to others.
Galliard also currently serves as Investment Subadviser to the Funds pursuant to
a separate investment subadvisory agreement between Smith and Norwest. The
investment subadvisory agreement with respect to the Funds is identical to the
Investment Subadvisory Agreement, except for the fees payable thereunder (no fee
is payable under the investment subadvisory agreement with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
71
PEREGRINE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Diversified Bond Fund, Strategic Income Fund, Moderate Balanced
Fund, Growth Balanced Fund, Aggressive Balanced-Equity Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Diversified Small Cap Fund
and Small Company Growth Fund (the "Funds"), Norwest has entered into an
Investment Subadvisory Agreement with Peregrine, located at 800 LaSalle Avenue,
Suite 1850, Minneapolis, Minnesota 55479 with respect to Positive Bond
Portfolio, Large Company Growth Portfolio, Small Company Growth Portfolio and
Small Company Value Portfolio. Peregrine is registered with the SEC as an
investment adviser and is an investment advisory subsidiary of Norwest Bank.
Pursuant to the Investment Subadvisory Agreement, Peregrine makes investment
decisions for each of the Funds and continuously reviews, supervises and
administers each Fund's investment program with respect to that portion, if any,
of the Fund's investment portfolio that Norwest believes should be invested
using Peregrine as a subadviser. Currently, Peregrine manages all the assets of
each Core Portfolio and has done so since each Core Portfolio's inception.
Norwest supervises the performance of Peregrine including its adherence to the
Core Portfolios' investment objectives and policies and pays Peregrine a fee for
its investment management services.
Under its Investment Subadvisory Agreement, Peregrine makes investment decisions
for each Core Portfolio and continuously reviews, supervises and administers
each Fund's investment program with respect to that portion, if any, of the
Fund's investment portfolio for which Norwest has delegated management
responsibility. Peregrine is required to furnish at its own expense all
services, facilities and personnel necessary in connection with managing of each
Fund's investments and effecting portfolio transactions for each Fund (to the
extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolios, and, in either case; (2)
by a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to each Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Peregrine on 60 days written notice to the Core Trust, and will
automatically terminate in the event of its assignment. The Investment
Subadvisory Agreement also provides that, with respect to each Core Portfolio,
neither Peregrine nor its personnel shall 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 Peregrine against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Peregrine's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Subadvisory Agreement. The Investment Subadvisory Agreement
provides that Peregrine may render services to others.
Peregrine also currently serves as Investment Subadviser to the Funds pursuant
to a separate investment subadvisory agreement between Peregrine and Norwest.
The investment subadvisory agreement with respect to the Funds is identical to
the Investment Subadvisory Agreement, except for the fees payable thereunder (no
fee is payable under the investment subadvisory agreement with respect to a Fund
to the extent that the Fund is invested in an investment company) and certain
immaterial matters.
72
SMITH ASSET MANAGEMENT GROUP, L.P.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Strategic Income Fund, Moderate Balanced Fund, Growth Balanced
Fund, Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth Equity
Fund and Diversified Small Cap Fund (the "Funds") , Norwest has entered into an
Investment Subadvisory Agreement with Smith, located at 500 Crescent Court,
Suite 250, Dallas, Texas with respect to Disciplined Growth Portfolio and Small
Cap Value Portfolio. Smith is registered with the SEC as an investment adviser.
Pursuant to the Investment Subadvisory Agreement, Smith makes investment
decisions for each of the Portfolios and continuously reviews, supervises and
administers each Core Portfolio's investment program with respect to that
portion, if any, of the Fund's investment portfolio that Norwest believes should
be invested using Smith as a subadviser. Currently, Smith manages all the assets
of each Core Portfolio and has done so since each Core Portfolio's inception.
Norwest supervises the performance of Smith including its adherence to the Core
Portfolios' investment objectives and policies and pays Smith a fee for its
investment management services. As of October 1, 1997, for its services under
the Investment Subadvisory Agreement, Norwest pays Smith a fee based on
Disciplined Growth Portfolio's and Small Cap Value Portfolio's average daily net
assets at an annual rate of 0.35% and 0.45%, respectively.
Under its Investment Subadvisory Agreement, Smith makes investment decisions for
each Core Portfolio and continuously reviews, supervises and administers each
Fund's investment program with respect to that portion, if any, of the Fund's
investment portfolio for which Norwest has delegated management responsibility.
Smith is required to furnish at its own expense all services, facilities and
personnel necessary in connection with managing of each Fund's investments and
effecting portfolio transactions for each Fund (to the extent of Norwest's
delegation).
The Investment Subadvisory Agreement will continue in effect with respect to a
Core Portfolio only if such continuance is specifically approved at least
annually: (1) by the Core Trust Board or by vote of a majority of the
outstanding voting securities of the Core Portfolios, and, in either case; (2)
by a majority of the Core Trust's trustees who are not parties to the Investment
Subadvisory Agreement or interested persons of any such party (other than as
trustees of the Core Trust), at a meeting called for the purpose of voting on
the Investment Subadvisory Agreement; provided further, however, that if the
Investment Subadvisory Agreement or the continuation of the Agreement is not
approved, the Subadviser may continue to render to each Core Portfolio the
services described in the Investment Subadvisory Agreement in the manner and to
the extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Core Portfolio on 60 days' written notice when authorized either by
majority vote of the Core Portfolio's shareholders or by the Core Trust Board,
or by Smith on 60 days written notice to the Core Trust, and will automatically
terminate in the event of its assignment. The Investment Subadvisory Agreement
also provides that, with respect to each Core Portfolio, neither Smith nor its
personnel shall 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 Smith against liability by reason of willful misfeasance, bad faith
or gross negligence in the performance of Smith's duties or by reason of
reckless disregard of its obligations and duties under the Investment
Subadvisory Agreement. The Investment Subadvisory Agreement provides that Smith
may render services to others.
Smith also currently serves as Investment Subadviser to the Funds pursuant to a
separate investment subadvisory agreement between Smith and Norwest. The
investment subadvisory agreement with respect to the Funds is identical to the
Investment Subadvisory Agreement, except for the fees payable thereunder (no fee
is payable under the investment subadvisory agreement with respect to a Fund to
the extent that the Fund is invested in an investment company) and certain
immaterial matters.
DORMANT INVESTMENT ADVISORY ARRANGEMENTS
Norwest has been retained as a "dormant" or "back-up" investment adviser to
manage any assets redeemed and invested directly by a Fund that invests in one
or more Core Portfolios. Norwest does not receive any compensation under this
arrangement as long as a Fund invests entirely in Core Portfolios. If a Fund
redeems assets from a Core
73
Portfolio and invests them directly, Norwest receives an investment advisory fee
from the Fund for the management of those assets. Norwest's dormant investment
advisory fees are at the following rates:
Fee as a
Fund % of the Fund's average daily net assets
---- ----------------------------------------
Cash Investment Fund 0.20% for the first $300 million;
0.16% for the next $400 million;
0.12% for the remaining assets.
Ready Cash Investment Fund 0.40% for the first $300 million;
0.36% for the next $400 million;
0.32% for the remaining assets
Stable Income Fund 0.30%
Diversified Bond Fund 0.35%
Total Return Bond Fund 0.50%
Strategic Income Fund 0.45%
Moderate Balanced Fund 0.53%
Growth Balanced Fund 0.58%
Aggressive Balanced-Equity Fund 0.63%
Index Fund 0.15%
Income Equity Fund 0.50%
Diversified Equity Fund 0.65%
Growth Equity Fund 0.90%
Large Company Growth Fund 0.65%
Diversified Small Cap Fund 0.90%
Small Company Stock Fund 0.90%
Small Cap Opportunities Fund 0.60%
Small Company Growth Fund 0.90%
International Fund 0.85%
If a Core Portfolio is advised by Schroder or by a Subadviser, Schroder
or the Subadviser has also been retained as a dormant subadviser of each Fund
that invests in that Core Portfolio (except that Galliard, investment subadviser
to Strategic Value Bond Portfolio, has not been retained as a subadviser to
Total Return Bond Portfolio and Smith has not been retained as an investment
subadviser for any Fund). Norwest (and not the Funds) would pay Schroder and the
Subadviser the fees for providing those services.
SHAREHOLDER SERVICING AND CUSTODY
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Trust (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Trust (unless such accounts are maintained
by sub-transfer agents or processing agents), performs other transfer agency
functions and acts as dividend disbursing agent for the Trust. The Transfer
Agent is permitted to subcontract any or all of its functions with respect to
all or any portion of the Trust's shareholders to one or more qualified
sub-transfer agents or processing agents, which may be affiliates of the
Transfer Agent. Sub-transfer agents and processing agents may be "Processing
Organizations" as described under "How to Buy Shares -- Purchase Procedures."
The Transfer Agent is permitted to compensate those agents for their services;
however, that compensation may not increase the aggregate amount of payments by
the Trust to the Transfer Agent. For its services, the Transfer Agent receives a
fee with respect to each Fund at an annual rate of 0.25% of each Fund's average
daily net assets attributable to each class of the Fund (0.20% in the case of
Cash Investment Fund and 0.10% in the case of Municipal Money Market Fund -
Institutional Shares).
74
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of FAS, Norwest, any other investment
adviser or investment subadviser to a Fund, or Norwest in its capacity as
administrator pursuant to an investment administration or similar agreement.
With respect to each Fund, Forum has entered into a Management Agreement that
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by the shareholders and, in either case, by a
majority of the Trustees who are not interested persons of any party to the
Management Agreement.
On behalf of the Trust and with respect to each Fund, Forum: (1) oversees: (a)
the preparation and maintenance by the Advisers and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (b) the reconciliation of
account information and balances among the Advisers and the Trust's custodian,
transfer agent, dividend disbursing agent and fund accountant; (c) the
transmission of purchase and redemption orders for Shares; (d) the notification
of the Advisers of available funds for investment; and (e) the performance of
fund accounting, including the calculation of the net asset value per Share; (2)
oversees the Trust's receipt of the services of persons competent to perform
such supervisory, administrative and clerical functions as are necessary to
provide effective operation of the Trust; (3) oversees the performance of
administrative and professional services rendered to the Trust by others,
including its administrator, custodian, transfer agent, dividend disbursing
agent and fund accountant, as well as accounting, auditing, legal and other
services performed for the Trust; (4) provides the Trust with adequate general
office space and facilities and provides, at the Trust's request and expense,
persons suitable to the Board to serve as officers of the Trust; (5) oversees
the preparation and the printing of the periodic updating of the Trust's
registration statement, Prospectuses and SAIs, the Trust's tax returns, and
reports to its shareholders, the SEC and state and other securities
administrators; (6) oversees the preparation of proxy and information statements
and any other communications to shareholders; (7) with the cooperation of the
Trust's counsel, Advisers and other relevant parties, oversees the preparation
and dissemination of materials for meetings of the Board; (8) oversees the
preparation, filing and maintenance of the Trust's governing documents,
including the Trust Instrument, Bylaws and minutes of meetings of Trustees,
Board committees and shareholders; (9) oversees registration and sale of Fund
shares, to ensure that such shares are properly and duly registered with the SEC
and applicable state and other securities commissions; (10) oversees the
calculation of performance data for dissemination to information services
covering the investment company industry, sales literature of the Trust and
other appropriate purposes; (11) oversees the determination of the amount of and
supervises the declaration of dividends and other distributions to shareholders
as necessary to, among other things, maintain the qualification of each Fund as
a regulated investment company under the Code, as amended, and oversees the
preparation and distribution to appropriate parties of notices announcing the
declaration of dividends and other distributions to shareholders; (12) reviews
and negotiates on behalf of the Trust normal course of business contracts and
agreements; (13) maintains and reviews periodically the Trust's fidelity bond
and errors and omission insurance coverage; and (14) advises the Trust and the
Board on matters concerning the Trust and its affairs.
The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that neither Forum nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of Forum's
or their duties or by reason of reckless disregard of their obligations and
duties under the Management Agreement.
FAS manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of Forum, Norwest, or any other
investment adviser or investment subadviser to a Fund, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Fund, Forum has entered into a Administrative
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
75
On behalf of the Trust and with respect to each Fund, FAS: (1) provides the
Trust with, or arranges for the provision of, the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Trust; (2) assists in the
preparation and the printing and the periodic updating of the Trust's
registration statement, Prospectuses and SAIs, the Trust's tax returns, and
reports to its shareholders, the SEC and state and other securities
administrators; (3) assists in the preparation of proxy and information
statements and any other communications to shareholders; (4) assists the
Advisers in monitoring Fund holdings for compliance with Prospectus and SAI
investment restrictions and assist in preparation of periodic compliance
reports; (5) with the cooperation of the Trust's counsel, the Advisers, the
officers of the Trust and other relevant parties, is responsible for the
preparation and dissemination of materials for meetings of the Board; (6) is
responsible for preparing, filing and maintaining the Trust's governing
documents, including the Trust Instrument, Bylaws and minutes of meetings of
Trustees, Board committees and shareholders; (7) is responsible for maintaining
the Trust's existence and good standing under state law; (8) monitors sales of
shares and ensures that such shares are properly and duly registered with the
SEC and applicable state and other securities commissions; (9) is responsible
for the calculation of performance data for dissemination to information
services covering the investment company industry, sales literature of the Trust
and other appropriate purposes; and (10) is responsible for the determination of
the amount of and supervises the declaration of dividends and other
distributions to shareholders as necessary to, among other things, maintain the
qualification of each Fund as a regulated investment company under the Code, as
amended, and prepares and distributes to appropriate parties notices announcing
the declaration of dividends and other distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Agreement also provides that neither FAS nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of FAS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administrative Agreement.
Pursuant to their agreements with the Trust, Forum and FAS may subcontract any
or all of their duties to one or more qualified subadministrators who agree to
comply with the terms of Forum's Management Agreement or FAS's Administration
Agreement, respectively. Forum and FAS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAS pursuant to their Management and
Administration Agreements with the Trust.
For their services, Forum and FAS each receives a fee with respect to U.S.
Government Fund, Treasury Fund, Institutional Shares of Municipal Money Market
Fund, Limited Term Government Income Fund, Intermediate Government Income Fund,
Income Fund, each Tax-Free Fixed Income Fund, ValuGrowth Stock Fund, Contrarian
Stock Fund and International Fund at an annual rate of 0.05% of the Fund's (of
class') average daily net assets, with respect to Investor Shares of Municipal
Money Market Fund at an annual rate of 0.10% of the class' average daily net
assets, with respect to Investor Shares of Ready Cash Investment Fund at an
annual rate of 0.075% of the class' average daily net asset, and with respect to
each other Fund at an annual rate of 0.025% of the Fund's average daily net
assets.
Table 2 in Appendix B shows the dollar amount of fees payable to Forum for its
management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding), the amount of fee that was
waived by Forum, if any, and the actual fee received by Forum. The data is for
the past three fiscal years or shorter period if the Fund has been in operation
for a shorter period.
CORE PORTFOLIOS OF CORE TRUST
Forum manages all aspects of Core Trust's operations with respect to the
portfolios except those which are the responsibility of Norwest or Schroder.
With respect to each Core Portfolio, Forum has entered into a management
agreement (the "Core Trust Management Agreement") that will continue in effect
only if such continuance is specifically approved at least annually by the Core
Trust Board or by the shareholders and, in either case, by a majority of the
Trustees who are not interested persons of any party to the Core Trust
Management Agreement.
76
Under the Core Trust Management Agreement, Forum performs similar services for
each Core Portfolio as it and FAS perform for the Blended Funds under the
Management and Administration Agreements, to the extent the services are
applicable to the Core Portfolios and their structure. Forum and FAS waive their
fees payable by each of the Blended Funds under the Management and
Administration Agreements to the extent those Funds incur indirectly management
fees charged by Forum to a Blended Portfolio.
FAS also serves as an administrator of each Core Portfolio (except Schroder U.S.
Smaller Companies Portfolio and Schroder EM Core Portfolio) and provides
services to the Core Portfolios that are similar to those provided to the Funds
by Forum and FAS. For its services FAS receives a fee with respect to each Core
Portfolio (other than Schroder U.S. Smaller Companies Portfolio and Schroder EM
Core Portfolio) at an annual rate of 0.05% of the Core Portfolio's average daily
net assets (0.15% in the case of International Portfolio). Schroder Advisors
Inc. ("Schroder Advisors") serves as the administrator of Schroder U.S. Smaller
Companies Portfolio and Schroder EM Core Portfolio and FAS serves as the
subadministrator of those Core Portfolios. FAS provides certain management and
administrative services necessary for the Schroder Core Core Portfolios'
operations, other than the administrative services provided to those Core
Portfolios by Schroder. For its services, FAS receives a fee at an annual rate
of 0.10% of each Core Portfolio's average daily net assets.
NORWEST ADMINISTRATIVE SERVICES
Under an Administrative Servicing Agreement between the Trust and Norwest with
respect to Small Cap Opportunities Fund and International Fund, Norwest performs
ministerial, administrative and oversight functions for the Funds and undertakes
to reimburse certain excess expenses of the Funds. Among other things, Norwest
gathers performance and other data from Schroder as the adviser of Schroder U.S.
Smaller Companies Portfolio and International Portfolio and from other sources,
formats the data and prepares reports to the Funds' shareholders and the
Trustees. Norwest also ensures that Schroder is aware of pending net purchases
or redemptions of each Fund's shares and other matters that may affect
Schroder's performance of its duties. Lastly, Norwest has agreed to reimburse
each Fund for any amounts by which its operating expenses (exclusive of
interest, taxes and brokerage fees, organization expenses and, if applicable,
distribution expenses, all to the extent permitted by applicable state law or
regulation) exceed the limits prescribed by any state in which the Funds' shares
are qualified for sale. No fees will be paid to Norwest under the Administrative
Servicing Agreement unless the each of the Fund's assets are invested solely in
Schroder U.S. Smaller Companies Portfolio or International Portfolio and
Schroder EM Core Portfolio (in the case of Small Cap Opportunities Fund and
International Fund, respectively) or in a portfolio of another registered
investment company. This agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by the
shareholders and, in either case, by a majority of the Trustees who are not
parties to the Management Agreement or interested persons of any such party.
The Administrative Service Agreement provides that neither Norwest nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's or their duties or by reason of reckless disregard of its or their
obligations and duties under the agreement.
Under the agreement, Norwest receives a fee with respect to Small Cap
Opportunities Fund and International Fund at an annual rate of 0.25% of the
Funds' average daily net assets Small Cap Opportunities Fund and International
Fund incur total management and administrative fees at a higher rate than many
other mutual funds, including other funds of the Trust.
Table 2 in Appendix B shows the dollar amount of fees payable under the
Servicing Agreement, the amount of the fee that was waived, if any, and the
amount received by Norwest for the past three fiscal years of the Fund.
77
SCHRODER ADMINISTRATIVE SERVICES
Schroder Core has entered into an Administrative Services Agreement with
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, pursuant to
which Schroder Advisors provides management and administrative services
necessary for the operation of Schroder U.S. Smaller Companies Portfolio,
including coordination of the services performed by the Core Portfolio's
Adviser, transfer agent, custodian, independent accountants, legal counsel and
others. Schroder Advisors is a wholly-owned subsidiary of Schroder, and is a
registered broker-dealer organized to act as administrator and distributor of
mutual funds.
For these services, Schroder Advisors will receive a fee from Schroder Core at
the annual rate of 0.10% of the average daily net assets of the Core Portfolio.
The Administrative Services Agreement is terminable with respect to the Core
Portfolio without penalty, at any time, by vote of a majority of the trustees of
Schroder Core who are not "interested persons" of Schroder Core and who have no
direct or indirect financial interest in the operation of the Administrative
Services Agreement, upon not more than 60 days' written notice to Schroder
Advisors or by vote of the holders of a majority of the shares of the Core
Portfolio, or, upon 60 days' notice, by Schroder Advisors. The Administrative
Services Agreement will terminate automatically in the event of its assignment.
On behalf of the Core Portfolio, Schroder Core has entered into a
Sub-Administration Agreement with Forum. Pursuant to the Sub-Administration
Agreement, Forum assists Schroder Advisors with certain of its responsibilities
under the Administrative Services Agreement, including shareholder reporting and
regulatory compliance.
The Sub-Administration Agreement is terminable with respect to the Core
Portfolio without penalty, at any time, by the board of trustees of Schroder
Core upon 60 days' written notice to Forum or by Forum upon 60 days' written
notice to the Core Portfolio.
Schroder Advisors provides certain management and administrative services
necessary for the Core Portfolios' operations, other than the administrative
services provided to the Core Portfolios by Schroder. For its services, Schroder
Advisors receives no fee from Schroder U.S. Smaller Companies Portfolio and
0.075% from Schroder EM Core Portfolio.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of shares of the Funds on a
"best efforts" basis pursuant to a Distribution Services Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party and, with respect to each class of a Fund
for which there is an effective plan of distribution adopted pursuant to Rule
12b-1, who do not have any direct or indirect financial interest in any
distribution plan of the Fund or in any
78
agreement related to the distribution plan cast in person at a meeting called
for the purpose of voting on such approval ("12b-1 Trustees").
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty: (1) by the Board or by a vote of
the Fund's shareholders or, with respect to each class of a Fund for which there
is an effective plan of distribution adopted pursuant to Rule 12b-1, a majority
of 12b-1 Trustees, on 60 days' written notice to Forum or (2) by Forum on 60
days' written notice to the Trust.
Under the Distribution Services Agreement related to the Funds that offer A
Shares, Forum receives, and may reallow to certain financial institutions, the
initial sales charges assessed on purchases of A Shares of the Funds. With
respect to B Shares of each Fund that offers B Shares and C Shares of each Fund
that offers C Shares and with respect to Exchange Shares of Ready Cash
Investment Fund, the Funds have adopted a distribution plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan") which authorizes the payment to Forum
under the Distribution Services Agreement of a distribution services fee for B
Shares, C Shares and Exchange Shares, which may not exceed an annual rate of
0.75%, and a maintenance fee for B Shares and Exchange Shares in an amount equal
to 0.25%, of the average daily net assets of the Fund attributable to the B
Shares and Exchange Shares.
DISTRIBUTION PLAN. B Shares and C Sharesof a Fund are sold at their net asset
value per share without the imposition of a sales charge at the time of
purchase. With respect to B Shares and C Shares, each Fund has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan")
providing for distribution payments, at an annual rate of up to 0.75% of the
average daily net assets of the Fund attributable to the B Shares (the
"distribution services fee"), by each Fund to Forum, to compensate Forum for its
distribution activities. The distribution payments due to Forum from each Fund
comprise: (1) sales commissions at levels set from time to time by the Board
("sales commissions"); and (2) an interest fee calculated by applying the rate
of 1% over the prime rate to the outstanding balance of uncovered distribution
charges. The current sales commission rate for 3.0% for the Tax-Free Fixed
Income Funds and 4.0% for other Funds and Forum currently expects to pay sales
commissions to each broker-dealer at the time of sale of up to 3.0% or 4.0%, as
applicable, of the purchase price of B Shares of each Fund sold by the
broker-dealer.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares. The combined contingent
deferred sales charge and distribution services fee on B Shares are intended to
finance the distribution of those shares by permitting an investor to purchase
shares through broker-dealers without the assessment of an initial sales charge
and, at the same time, permitting Forum to compensate broker-dealers in
connection with the sales of the shares. Proceeds from the contingent deferred
sales charge with respect to a Fund are paid to Forum to defray the expenses
related to providing distribution-related services in connection with the sales
of B Shares, such as the payment of compensation to broker-dealers selling B
Shares. Forum may spend the distribution services fees it receives as it deems
appropriate on any activities primarily intended to result in the sale of B
Shares.
Under the Plan, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to that Fund. Uncovered distribution charges are equivalent
to all sales commissions previously due (plus interest), less amounts received
pursuant to the Plan and all contingent deferred sales charges previously paid
to Forum. At May 31, 1998, Ready Cash Investment Fund (Exchange Shares), Stable
Income Fund, Intermediate Government Income Fund, Income Fund, Total Return Bond
Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund,
Income Equity Fund, ValuGrowth Stock Fund, Diversified Equity Fund, Growth
Equity Fund, Small Company Stock Fund, Small Cap Opportunities Fund and
International Fund had uncovered distribution expenses of $,$,$,$,$,$,$,$,$, $,
$, $, $ and $, respectively, or approximately %,%,%,%,%,%,%,%,%, %, %, %, %, %
and % of each respective Fund's net assets attributable to B Shares as of the
same date.
The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to a Fund is not related directly to the
amount of expenses incurred by Forum in connection with providing distribution
services to the B Shares and may be higher or lower than those expenses. Forum
may be considered to have realized a
79
profit under the Plan if, at any time, the aggregate amounts of all distribution
services fees and contingent deferred sales charge payments previously made to
Forum exceed the total expenses incurred by Forum in distributing B Shares.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B Shares or C Shares or reduce the Fund's current net
assets in respect of distribution services fees which may become payable under
the Plan in the future.
In the event that the Plan is terminated or not continued with respect to a
Fund, the Fund may, under certain circumstances, continue to pay distribution
services fees to Forum (but only with respect to sales that occurred prior to
the termination or discontinuance of the Plan). In deciding whether to purchase
B Shares and C Shares of a Fund, investors should consider that payments of
distribution services fees could continue until such time as there are no
uncovered distribution charges under the Plan attributable to that Fund. In
approving the Plan, the Board determined that there was a reasonable likelihood
that the Plan would benefit each Fund and its B shareholders.
Periods with a high level of sales of B Shares of a Fund accompanied by a low
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of B Shares of a Fund accompanied by a high
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to reduce uncovered distribution charges. A high level
of sales of B Shares during the first few years of operations, coupled with the
limitation on the amount of distribution services fees payable by a Fund with
respect to B Shares during any fiscal year, would cause a large portion of the
distribution services fees attributable to a sale of the B Shares to be accrued
and paid by the Fund to Forum with respect to those shares in fiscal years
subsequent to the years in which those shares were sold. The payment delay would
in turn result in the incurrence and payment of increased interest fees under
the Plan.
The Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plan requires the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Funds and Forum pursuant to the Plan
and identifying the distribution activities for which those expenditures were
made.
The Plan provides that, with respect to each class of each Fund to which it
applies, it will remain in effect for one year from the date of its adoption and
thereafter may continue in effect for successive annual periods provided it is
approved by the shareholders of the respective class or by the Board, including
a majority of the 12b-1 trustees. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments to the Plan must be approved by the trustees in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of the Board or by the shareholders of the respective classes.
The Plan is "semi-enhanced" in that under the circumstances described below,
payments to Forum under the Plan continue while there are uncovered distribution
charges even though the Plan has been terminated. Uncovered distribution charges
include all sales commissions previously due, plus interest, less amounts
previously received by Forum (or other distributor) pursuant to the Plan and
contingent deferred sales charges previously paid to Forum. The Plan provides
that in the event of a Complete Termination (as defined below) of the Plan with
respect to a Fund, payments by a Fund in consideration of sales of B Shares that
occurred prior to termination of the Plan will cease. A Complete Termination in
respect of any Fund means: (1) the 12b-1 Trustees acting in good faith have
determined that termination is in the best interest of the Trust and the
shareholders of the Fund; (2) the Trust does not alter the terms of the CDSC
applicable to the B Shares of the Fund outstanding at the time of the
termination; (3) the Trust does not pay any portion of the asset based sales
charge or service fees to an entity other than the distributor or its assignee
(unless the distributor at the time of the termination was in material breach
under the Distribution Agreement in respect of the Fund); and (4) the Fund does
not adopt a distribution plan relating to a class of shares of the Fund that has
a sales load structure substantially similar (as defined in the Plan) to that of
the B shares.
80
In the event of a termination of the Plan that does not satisfy clauses (2), (3)
and (4) of the definition of a Complete Termination above, Ready Cash Investment
Fund, ValuGrowth Stock Fund, Small Company Stock Fund, Income Fund, Tax-Free
Income Fund, Total Return Bond Fund and Minnesota Tax-Free Fund would continue
to pay distribution services fees for no more than four years. In contrast,
payments by Stable Income Fund, Intermediate Government Income Fund, Growth
Equity Fund and Diversified Equity Fund would continue until such time as there
exist no outstanding uncovered distribution charges attributable to the Fund
and, therefore, could continue for periods of time beyond four years after the
date of termination.
In addition, pursuant to the Plan, each of Stable Income Fund, Income Equity
Fund, Intermediate Government Income Fund, Diversified Equity Fund and Growth
Equity Fund may, subject to approval by the Trustees, assume and pay: (i) any
uncovered distribution charges of the distributor of a fund whose assets are
being acquired by the Fund and (ii) any other amounts expended for distribution
on behalf of such fund that are not reimbursed or paid by the fund upon the
merger or combination with or acquisition of substantially all of the assets of
that fund.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
for B Shares in an amount equal to 0.25% of the average daily net assets of the
Fund attributable to B Shares for providing personal services to shareholder
accounts. The maintenance fee may be paid by Forum to broker-dealers in an
amount not to exceed 0.25% of the value of the B Shares held by the customers of
the broker-dealers. The distribution services fee and the maintenance fee are
each accrued daily and paid monthly and will cause a Fund's B Shares to have a
higher expense ratio and to pay lower dividends than A Shares of that Fund.
Notwithstanding the discontinuation of distribution services fees with respect
to a Fund, the Fund may continue to pay maintenance fees.
Table 3 in Appendix B shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1994, 1995 and 1996. With respect to each Fund, Forum has paid brokers that sold
B Shares in amounts greater than the distribution fees received by Forum with
respect to that Fund. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
Table 4 in Appendix B shows the dollar amount of sales charges payable to Forum
with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares) and the amount of sales charge retained
by Forum and not reallowed to other persons. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
TRANSFER AGENT
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Trust (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Trust (unless such accounts are maintained
by sub-transfer agents or processing agents), performs other transfer agency
functions and acts as dividend disbursing agent for the Trust. The Transfer
Agent is permitted to subcontract any or all of its functions with respect to
all or any portion of the Trust's shareholders to one or more qualified
sub-transfer agents or processing agents, which may be affiliates of the
Transfer Agent. Sub-transfer agents and processing agents may be "Processing
Organizations" as described below. The Transfer Agent is permitted to compensate
those agents for their services; however, that compensation may not increase the
aggregate amount of payments by the Trust to the Transfer Agent.
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as
Transfer Agent of the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating and changing
account designations and
81
addresses; (3) providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; (4) assisting in processing purchase
and redemption transactions and receiving wired funds; (5) transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
(6) verifying shareholder signatures in connection with changes in the
registration of shareholder accounts; (7) furnishing periodic statements and
confirmations of purchases and redemptions; (8) transmitting proxy statements,
annual reports, prospectuses and other communications from the Trust to its
shareholders; (9) receiving, tabulating and transmitting to the Trust proxies
executed by shareholders with respect to meetings of shareholders of the Trust;
and (10) providing such other related services as the Trust or a shareholder may
request.
For its services, the Transfer Agent receives a fee computed daily and paid
monthly from the Trust, with respect to each Fund, at an annual rate of 0.25% of
the Fund's average daily net assets attributable to each class of the Fund
(0.20% plus expenses in the case of Cash Investment Fund and 0.10% plus expenses
in the case of Municipal Money Market Fund - Institutional Shares).
CUSTODIAN
Norwest Bank serves as each Fund's and each Core Portfolio's (other than
Schroder U.S. Smaller Companies Portfolio and Schroder EM Core Portfolio)
custodian and may appoint subcustodians for the foreign securities and other
assets held in foreign countries. For its custodial services, Norwest Bank
receives a fee with respect to each Fund and each Core Portfolio at an annual
rate of 0.02% of the first $100 million of the Fund's or Core Portfolio's
average daily net assets, 0.015% of the next $100 million of the Fund's or Core
Portfolio's average daily net assets and 0.01% of the Fund's or Core Portfolio's
remaining average daily net assets. No fee is directly payable by a Fund to the
extent the Fund is invested in a Core Portfolio. With respect to International
Portfolio, Norwest receives a fee at an annual rate of 0.075% of the Core
Portfolio's average daily net assets. The Chase Manhattan Bank, N.A. serves as
custodian of Schroder U.S. Smaller Companies Portfolio and Schroder EM Core
Portfolio and is paid a fee for its services.
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as each Fund's and each Core Portfolio's
(other than Schroder U.S. Smaller Companies Portfolio's) custodian (in this
capacity the "Custodian"). The Chase Manhattan Bank, N.A., acts as custodian for
Schroder U.S. Smaller Companies Portfolio, but plays no role in making decisions
as to the purchase or sale of portfolio securities. The Custodian's
responsibilities include safeguarding and controlling the Trust's cash and
securities, determining income and collecting interest on Fund investments. The
fee is computed and paid monthly, based on the average daily net assets of the
Fund, the number of portfolio transactions of the Fund and the number of
securities in the Fund's portfolio.
Pursuant to rules adopted under the 1940 Act, a Fund 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 upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Funds foreign assets in accordance with applicable regulations.
No Fund will pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Each Fund so invested incurs, however,
its proportionate share of the custodial fees of the Core Portfolio(s) in which
it invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and
82
in either case by a majority of the Trustees who are not parties to the Fund
Accounting Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Fund Accounting Agreement.
Under the Fund Accounting Agreement, Forum Accounting prepares and maintains
books and records of each Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per share of each
Fund (and class thereof) and dividends and capital gain distributions and
prepares periodic reports to shareholders and the SEC. For its services, Forum
Accounting receives from the Trust with respect to each Fund (other than a
Gateway Fund) a fee of $3,000 per month plus for each additional class of the
Fund above one $1,000 per month. In addition, Forum Accounting is paid
additional surcharges for each of the following: (1) Funds with asset levels
exceeding $100 million - $500/month, Funds with asset levels exceeding $250
million - $1000/month, Funds with asset levels exceeding $500 million -
$1,500/month, Funds with asset levels exceeding $1,000 million - $2,000/month;
(2) Funds requiring international custody - $1,000/month; (3) Funds with more
than 30 international positions - $1,000/month; (4) Tax free money market Funds
- - $1,000/month; (5) Funds with more than 25% of net assets invested in asset
backed securities - $1,000/month, Funds with more than 50% of net assets
invested in asset backed securities - $2,000/month; (6) Funds with more than 100
security positions - $1,000/month; and (7) Funds with a monthly portfolio
turnover rate of 10% or greater - $1,000/month.
Forum Accounting receives from the Trust with respect to each Gateway Fund a
standard gateway fee of $1,000 per month plus for each additional class of the
Fund above one - $1,000 per month. Forum Accounting also receives a fee of
$2,000 per month for each Gateway Fund operating pursuant to Section 12(d)(1)(E)
of the 1940 Act that invests in more than one security. In addition to the
standard gateway fees, Forum Accounting is entitled to receive from the Trust
with respect to each Gateway Fund operating pursuant to Section 12(d)(1)(H) of
the 1940 Act additional surcharges as described above if the Fund invests in
securities other than investment companies (calculated as if the securities were
the Fund's only assets)
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1998. On January 1, 1999, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the Trust to
reflect changes in the Consumer Price Index for the preceding calendar year, as
published by the U.S. Department of Labor, Bureau of Labor Statistics. Forum
shall notify the Trust each year of the new rates, if applicable
Forum Accounting is required to use its best judgment and efforts in rendering
fund accounting services and is not be liable to the Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Fund or based, if applicable, upon information, instructions or requests
with respect to a Fund given or made to Forum Accounting by an officer of the
Trust duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
Forum Accounting performs similar services for the Core Portfolios and, in
addition, acts as the Core Portfolios' transfer agent.
Forum, FAS, and Forum Accounting are members of the Forum Financial Group of
companies which together provide a full range of services to the investment
company and financial services industry. As of March 1, 1998, Forum, FAS and
Forum Accounting were controlled by John Y. Keffer, President and Chairman of
the Trust.
Table 5 in Appendix B shows the dollar amount of fees payable to Forum
Accounting for its accounting services with respect to each Fund, the amount of
fee that was waived by Forum Accounting, if any, and the actual fee
83
received by Forum Accounting. The data is for the past three fiscal years or
shorter period if the Fund has been in operation for a shorter period.
EXPENSES
Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Funds, the Trust has confirmed its obligation to pay all the Trust's
expenses. The Funds' expenses include Trust expenses attributable to the Funds,
which are allocated to each Fund, and expenses not specifically attributable to
the Funds, which are allocated among the Funds and all other funds of the Trust
in proportion to their average net assets. Each service provider to a Fund may
elect to waive (or continue to waive) all or a portion of their fees, which are
accrued daily and paid monthly. Any such waivers will have the effect of
increasing a Fund's performance for the period during which the waiver is in
effect. Fee waivers are voluntary and may be reduced or eliminated at any time.
Each Fund bears all costs of its operations. The costs borne by the Funds
include a pro rata portion of the following: legal and accounting expenses;
Trustees' fees and expenses; insurance premiums, custodian and transfer agent
fees and expenses; brokerage fees and expenses; expenses of registering and
qualifying the Fund's shares for sale with the SEC and with various state
securities commissions; expenses of obtaining quotations on fund securities and
pricing of the Fund's shares; a portion of the expenses of maintaining the
Fund's legal existence and of shareholders' meetings; and expenses of
preparation and distribution to existing shareholders of reports, proxies and
prospectuses. Trust expenses directly attributed to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the series of the
Trust in relation to the net assets of each series.
Each service provider to the Trust or their agents and affiliates also may act
in various capacities for, and receive compensation from, their customers who
are shareholders of a Fund. Under agreements with those customers, these
entities may elect to credit against the fees payable to them by their customers
or to rebate to customers all or a portion of any fee received from the Trust
with respect to assets of those customers invested in a Fund.
The expenses of each Fund that invest in one or more Core Portfolios include the
Fund's pro rata share of the expenses of the Core Portfolios in which the Fund
invests, which are borne indirectly by the Fund's shareholders.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(1) interest charges, taxes, brokerage fees and commissions; (2) certain
insurance premiums; (3) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (4) telecommunications
expenses; (5) auditing, legal and compliance expenses; (6) costs of the Trust's
formation and maintaining its existence; (7) costs of preparing and printing the
Trust's prospectuses, statements of additional information, account application
forms and shareholder reports and delivering them to existing and prospective
shareholders; (8) costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of shares of the Trust; (9) costs of reproduction, stationery and
supplies; (10) compensation of the Trust's trustees, officers and employees and
costs of other personnel performing services for the Trust who are not officers
of Norwest, Forum or affiliated persons of Norwest or Forum; (11) costs of
corporate meetings; (12) registration fees and related expenses for registration
with the SEC and the securities regulatory authorities of other countries in
which the Trust's shares are sold; (13) state securities law registration fees
and related expenses; (14) fees and out-of-pocket expenses payable to Forum
Financial Services, Inc. under any distribution, management or similar
agreement; (15) and all other fees and expenses paid by the Trust pursuant to
any distribution or shareholder service plan adopted pursuant to Rule 12b-1
under the Act.
VI. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the
Funds, relates equally to the Core Portfolios.
PORTFOLIO TRANSACTIONS
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The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
The Funds have no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. The Advisers seek "best execution" for all
portfolio transactions, but a Fund may pay higher than the lowest available
commission rates when an Adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on U.S. securities exchanges.
Purchases and sales of portfolio securities for the Money Market Funds and Fixed
Income Funds usually are principal transactions. Debt instruments 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. The Equity Funds and the Balanced Funds generally will effect
purchases and sales of equity securities through brokers who charge commissions
except in the over-the-counter markets. Purchases of debt and equity securities
from underwriters of the securities include a disclosed fixed commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price. In
the case of debt securities and equity 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. Allocations of
transactions to brokers and dealers and the frequency of transactions are
determined by the Advisers in their best judgment and in a manner deemed to be
in the best interest of shareholders of each Fund rather than by any formula.
The primary consideration is prompt execution of orders in an effective manner
and at the most favorable price available to the Fund. In transactions on stock
exchanges in the United States, commissions are negotiated, whereas on foreign
stock exchanges commissions are generally fixed. Where transactions are executed
in the over-the-counter market, each Fund will seek to deal with the primary
market makers; but when necessary in order to obtain best execution, they will
utilize the services of others. In all cases the Funds will attempt to negotiate
best execution.
The Money Market Funds and Fixed Income Funds may effect purchases and sales
through brokers who charge commissions, although the Trust does not anticipate
that the Money Market Funds will do so. Table 6 in Appendix B shows the
aggregate brokerage commissions with respect to each Fund. The data presented is
for the past three fiscal years or a shorter period if the Fund has been in
operation for a shorter period, except as otherwise noted. Any material change
in the last two years in the amount of brokerage commissions paid by a fund was
due to an increase or decrease in the Fund's assets.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, each of the Board, Core Trust Board and Schroder Core Board has
authorized the Advisers to employ their respective affiliates to effect
securities transactions of the Funds or the Core Portfolios, provided certain
other conditions are satisfied. No Fund has an understanding or arrangement to
direct any specific portion of its brokerage to an affiliate of an Adviser, and
will not direct brokerage to an affiliate of an Adviser in recognition of
research services. Payment of brokerage commissions to an affiliate of an
Adviser for effecting such transactions is subject to Section 17(e) of the 1940
Act, which requires, among other things, that commissions for transactions on
securities exchanges paid by a registered investment company to a broker which
is an affiliated person of such investment company, or an affiliated person of
another person so affiliated, not exceed the usual and customary brokers'
commissions for such transactions. It is the Fund's policy that commissions paid
to Schroder Securities Limited, Norwest Investment Services, Inc. ("NISI") and
other affiliates of an Adviser will, in the judgment of the Adviser responsible
for making portfolio decisions and selecting brokers, be: (1) at least as
favorable as commissions contemporaneously charged by the affiliate on
comparable transactions for its most favored unaffiliated customers and (2) 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 disinterested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of an Adviser by the Funds satisfy
the foregoing standards. The Core Trust and Schroder Core Boards have adopted
similar policies with respect to the Core Portfolios.
85
During the last three fiscal years certain Funds paid brokerage commissions to
NISI, a wholly-owned broker-dealer subsidiary of the parent of Norwest, Norwest
Corporation. The following table indicates the Funds that paid commissions to
NISI, the aggregate amounts of commissions paid, the percentage of aggregate
brokerage commissions paid to NISI and the percentage of the aggregate dollar
amount of transactions involving payment of commissions that were effected
through NISI.
Percentage of
Commission
Aggregate Percentage Transactions
Commissions of Commissions Executed
Paid to NISI Paid to NISI Through NISI
------------ ------------ ------------
ValuGrowth Stock Fund
- - ---------------------
Year Ended May 31, 1998
Year Ended May 31, 1997 $41,474 8.25% 8.05%
Year Ended May 31, 1996 $10,494 2.41% 1.73%
The practice of placing orders with NISI is consistent with each Fund's
objective of obtaining best execution and is not dependent on the fact that NISI
is an affiliate of Norwest.
The Funds and the Core Portfolios may not always pay the lowest commission or
spread available. Rather, in determining the amount of commissions, including
certain dealer spreads, paid in connection with securities transactions, an
Adviser takes into account factors such as size of the order, difficulty of
execution, efficiency of the executing broker's facilities (including the
services described below) and any risk assumed by the executing broker. The
Advisers may also take into account payments made by brokers effecting
transactions for a Fund or Core Portfolio: (1) to the Fund or Core Portfolio or
(2) to other persons on behalf of the Fund or Core Portfolio for services
provided to the Fund or Core Portfolio for which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Funds and Core
Portfolios to pay these brokers a higher amount of commission than may be
charged by other brokers. Such research and analysis is of the types described
in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended, and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. Such research and analysis may be used by the Advisers in
connection with services to clients other than the Funds and Core Portfolios,
and not all such services may be used by the Adviser in connection with the
Funds. An Adviser's fees are not reduced by reason of the Adviser's receipt of
the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Boards
may determine, an Adviser may consider sales of shares of the Fund as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Fund.
Investment decisions for the Funds (and for the Core Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Advisers 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 the respective Adviser's opinion, is equitable to each and
in accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for a Fund
and other client accounts managed by the Advisers occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
86
The Advisers monitor the creditworthiness of counterparties to the Funds'
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal credit risks and the benefits from the
transaction justify the attendant risks.
During their last fiscal year, certain Funds acquired securities issued by their
"regular brokers and dealers" or the parents of those brokers and dealers.
Regular brokers and dealers means the 10 brokers or dealers that: (1) received
the greatest amount of brokerage commissions during the Fund's last fiscal year;
(2) engaged in the largest amount of principal transactions for portfolio
transactions of the Fund during the Fund's last fiscal year; or (3) sold the
largest amount of the Fund's shares during the Fund's last fiscal year.
Following is a list of the regular brokers and dealers of the Funds whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of May 31, 1998.
Regular Broker Value of
or Dealer Securities Held
--------- ---------------
PORTFOLIO TURNOVER. The frequency of portfolio transactions of a Fund (the
portfolio turnover rate) will vary from year to year depending on many factors.
From time to time a Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. An annual portfolio turnover rate of 100% would occur if all of the
securities in a Fund were replaced once in a period of one year. Higher
portfolio turnover rates may result in increased brokerage costs to a Fund or a
Core Portfolio and a possible increase in short-term capital gains or losses. In
order to qualify as a regulated investment company for Federal tax purposes for
taxable years beginning on or before August 5, 1997, less than 30% of the gross
income of the Fund in that year must be derived from the sale of securities held
by the Fund for less than three months. See "Taxation" below. The change in
portfolio turnover rate for Income Fund and Intermediate Government Income Fund
from 1995 to 1996 was due in part to the change in portfolio managers. Other
significant changes in portfolio turnover rates was due to changing market
conditions and the effect of those conditions on the Funds' investment policies.
VII. ADDITIONAL PURCHASE, REDEMPTION AND
EXCHANGE INFORMATION GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary. Due to the higher expenses of B Shares,
the net asset value of B Shares will generally be lower than the net asset value
of the other classes. The per share net asset value of each class of a Fund
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes.
MONEY MARKET FUNDS
As described in the Prospectuses, under certain circumstances a Money Market
Fund may close early and advance time by which the Fund must receive a purchase
or redemption order and payments. In that case, if an investor placed an order
after the cut-off time the order would be processed on the follow-up business
day and the investor's access to the fund would be temporarily limited.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. The Funds' transfer agent and distributor or their
affiliates may be Processing Organizations. Financial institutions, including
Processing Organizations, may charge their customers a fee for their services
and are responsible for promptly transmitting purchase, redemption and other
requests to the Funds.
87
If you purchase shares through a Processing Organization, you will be subject to
the Processing Organization's procedures, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable when you invest in a Fund directly. When you
purchase a Fund's shares through a Processing Organization, you may or may not
be the shareholder of record and, subject to your institution's procedures, you
may have Fund shares transferred into your name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
Processing Organizations may also enter purchase orders with payment to follow.
You may not be eligible for
certain shareholder services when you purchase shares through a Processing
Organization.
Contact your Processing Organization for further information. If you hold shares
through a Processing Organization, the Funds may confirm purchases and
redemptions to the Processing Organization, which will provide you with
confirmations and periodic statements. The Funds are not responsible for the
failure of any Processing Organization to carry out its obligations.
SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN. You may elect the Automatic Investment Plan if you
purchase A Shares, B Shares, C Shares, I Shares or Investor Shares. Under the
Automatic Investment Plan, you may authorize monthly amounts of $50 or more to
be withdrawn automatically from a designated bank account (other than a passbook
savings account) and sent to the transfer agent for investment in a Fund. Call
or write the transfer agent for an application. Norwest Advantage Funds may
modify or terminate the Automatic Investment Plan if it is unable to settle any
transaction with your bank. If the Automatic Investment Plan is terminated
before your account totals $1,000, the Funds may redeem your account.
RETIREMENT ACCOUNTS The Funds (except Municipal Money Market Fund and the
Tax-Free Fixed Income Funds) may be a suitable investment vehicle for part or
all of the assets held in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). Call the Funds at 1-800-338-1348 or 1-612-667-8833 to
obtain an IRA account application. Generally, all contributions and investment
earnings in an IRA will be tax-deferred until withdrawn. If certain requirements
are met, investment earnings held in a Roth IRA will not be taxed even when
withdrawn. You may contribute up to $2,000 annually to an IRA. Only
contributions to Traditional IRAs are tax-deductible. However, that deduction
may be reduced if you or your spouse is an active participant in an
employer-sponsored retirement plan and you have adjusted gross income above
certain levels. Your ability to contribute to a Roth IRA also may be restricted
if you or, if you are married, you and your spouse has adjusted gross income
above certain levels.
Your employer may also contribute to your IRA as part of a Savings Incentive
Match Plan for Employees, or "SIMPLE plan," established after December 31, 1996.
Under a SIMPLE plan, you may contribute up to $6,000 annually to your IRA, and
your employer must generally match such contributions up to 3% of your annual
salary. Alternatively, your employer may elect to contribute to your IRA 2% of
the lesser of your earned income or $160,000.
This information on IRAs is based on regulations in effect as of January 1, 1998
and summarizes only some of the important federal tax considerations affecting
IRA contributions. These comments are not meant to be a substitute for tax
planning. Consult your tax advisors about your specific tax situation.
AUTOMATIC WITHDRAWAL PLAN If you hold more than $1,000 of a Fund's A Shares, B
Shares, C Shares, I Shares or Investor Shares or $10,000 of a Fund's
Institutional Shares in an account, you may establish an "Automatic Withdrawal
Plan" to provide for the preauthorized payment from your account of $250 or more
on a monthly, quarterly, semi-annual or annual basis. The transfer agent will
redeem the number of shares necessary to provide the amount of the payment. Any
taxable gain or loss is recognized upon redemption of the shares. Call or write
the transfer agent for an application. The Funds may suspend a withdrawal plan
without notice if the account contains insufficient funds to effect a withdrawal
or if the account balance is less than the required minimum amounts at any time.
88
CHECKWRITING You may elect checkwriting privileges if you own shares of a Money
Market Fund. Call or write the transfer agent for an application. If you elect
checkwriting privileges, you will receive checks that may be made payable to any
person in any amount of $500.00 or more. When a check is presented for payment,
the transfer agent will redeem the number of shares necessary to cover the
amount of the check. You cannot write checks against shares for which
certificates have been issued. The Funds will not honor a check for an amount
greater than the value of the uncertificated shares held in your account. In
addition, you may not liquidate your entire account by means of a check. Normal
restrictions on your ability to redeem shares will apply to redemptions by
check. The transfer agent may also restrict your ability to use checks.
Checkwriting procedures may be changed, modified or terminated at any time upon
written notification.
REOPENING ACCOUNTS You may reopen an account without filing a new account
application at any time within one year after your account is closed, provided
that the information on the account application on file with the Funds is still
applicable.
PURCHASES OF A SHARES: SALES CHARGE WAIVERS
WAIVERS OF SALES CHARGES. The Trust does not assess sales charge on the
following types of purchases:
* purchases by any bank, trust company or other institution acting on
behalf of its fiduciary customer accounts or any other account maintained
by its trust department (including a pension, profit sharing or other
employee benefit trust created pursuant to a plan qualified under Section
401 of the Internal Revenue Code of 1986, as amended);
* purchases by any financial intermediary acting on behalf of its asset based
fee account customers;
* purchases by trustees and officers of the Trust; directors, officers and
full-time employees of the Trust's manager, of Norwest Corporation or of
any of their affiliates; the spouse, direct ancestor or direct descendant
("relatives") of any such person; any trust or individual retirement
account or self-employed retirement plan for the benefit of any such person
or relative; or the estate of any such person or relative;
* purchases by any registered investment adviser with whom the distributor
has entered into a share purchase agreement and which is acting on behalf
of its fiduciary customer accounts; or
* purchases of A Shares made pursuant to the Directed Dividend Option from
the proceeds of dividends and distributions of another fund of the Trust
that assesses a sales charge.
* purchases of at least $50,000 through an individual retirement account in A
Shares of Diversified Equity Fund or Growth Equity Fund, when the
shareholder makes a non-binding commitment to subsequently enroll the
assets in the Norwest WealthBuilder IRA program, an asset allocation
program offered by Norwest Investment Services, Inc. ("NISI"). In
connection with purchases of A Shares of Diversified Equity Fund or Growth
Equity Fund with no sales charge, Forum makes payments to NISI of up to
1.00% of the value of the shares purchased.
If you purchase A Shares without paying a sales charge, you many only resell the
shares to the Fund and you must make the purchase with the intent of investing
in the Fund.
If you qualify for a reduced sales charge, you or your Processing Organization
must both notify the transfer agent when you purchase the shares that you intend
to qualify for the reduced sales charge and verify that you qualify. The Trust
may modify or terminate reduced sales charge privileges at any time.
REINSTATEMENT PRIVILEGE. If you redeem a Fund's A Shares, you will not have to
pay a sales charge if you repurchase some or all of the shares you redeemed
within 60 days of the redemption.
89
INVESTORS IN OTHER FUND FAMILIES. You will not have to pay a sales charge on a
purchase of A Shares if, within the past 60 days, you have redeemed at net asset
value shares of a mutual fund that imposed a sales charge equal to or greater
than that applicable to the A Shares and you use those redemption proceeds to
purchase the Fund's shares.
SELF-DIRECTED 401(K) PROGRAMS. If you purchase less than $100,000 of a Fund's A
Shares through a self-directed 401(k) program or other qualified retirement plan
offered by Norwest, the Trust's manager or their affiliates, your purchase will
eligible for the reduced sales charge applicable to a single purchase of
$100,000.
RIGHT OF ACCUMULATION. If you purchase A Shares, you may qualify for a
cumulative quantity discount or right of accumulation ("ROA"). If you elect a
ROA, the applicable sales charge will be based on the total of your current
purchase and the net asset value (at the end of the previous Fund Business Day)
of some or all of the A Shares you hold. For example, if you own A Shares of
Income Fund with a net asset value of $500,000 and purchase an additional
$50,000 of the Fund's A Shares, the additional purchase would be subject to a
sales charge at the 2.0% rate applicable to a $550,000 purchase rather than at
the 3.5% rate applicable to a $50,000 purchase.
In addition, if you have previously purchased A Shares of another fund of the
Trust that is sold with a sales charge equal to or greater than the sales charge
imposed on the Fund's A Shares, you also may qualify for a ROA and may aggregate
existing investments in A Shares of all those funds with your current purchase
of the Fund's A Shares to determine the applicable sales charge. In addition, if
your spouse, direct ancestor or direct descendant holds A Shares, those
shareholdings also may be combined for purposes of the ROA.
STATEMENT OF INTENTION. You also may obtain a reduced sales charge by making
cumulative purchases under a "Statement of Intention." A Statement of Intention
is a written statement expressing your intent to invest $50,000 or more in a
Fund's A Shares within a period of 13 months. Under a Statement of Intention,
you may make a series of purchases of shares where each purchase will be at net
asset value plus the sales charge applicable at the time of the purchase to a
single purchase of the total dollar amount of shares you promised to purchase.
Complete the appropriate portion of the account application to select the
Statement of Intention.
The Statement of Intention is not a binding obligation upon you to purchase the
full amount indicated. A Shares purchased with the first 5% of such amount will
be held subject to a registered pledge (while remaining registered in the name
of the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such pledged shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. When the full amount indicated has been purchased, the
shares will be released from pledge.
CALCULATION OF OFFERING PRICE. Set forth below is an example of the method of
computing the offering price of the A Shares of the Funds that offer A Shares.
Other shares of the Trust are offered at their next determined net asset value.
The example assumes a purchase of A Shares of the Fixed Income and Equity Funds'
in an amount such that the purchase would be subject to each Fund's maximum
sales charges set forth in the Prospectus at a price based on the net asset
value per share of A Shares of each Fund at May 31, 1997. The maximum sales
charge as of April 1, 1998 are 5.5% for each Equity Fund and 4.0% for each Fixed
Income Fund, except Stable Income Fund, for which it was 1.50%. Offering price
is determined as follows: Net asset value per share times the sum of one (1)
plus the sales charge expressed as a percentage (for example 5.5% would equal
0.055).
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NET ASSET OFFERING
VALUE PER SHARE PRICE
--------------- -----
STABLE INCOME FUND $10.24 $10.39
INTERMEDIATE GOVERNMENT INCOME FUND $10.84 $11.27
INCOME FUND $ 9.27 $ 9.64
TOTAL RETURN BOND FUND $ 9.40 $ 9.78
TAX-FREE INCOME FUND $10.05 $10.45
COLORADO TAX-FREE FUND $10.22 $10.63
MINNESOTA TAX-FREE FUND $10.57 $10.99
INCOME EQUITY FUND $33.16 $34.98
VALUGROWTH STOCK FUND $25.06 $26.44
DIVERSIFIED EQUITY FUND $36.51 $38.52
GROWTH EQUITY FUND $32.49 $34.28
SMALL COMPANY STOCK FUND $13.95 $14.72
SMALL CAP OPPORTUNITIES FUND $19.83 $20.92
INTERNATIONAL FUND $21.66 $22.85
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of A Shares may purchase, with the proceeds from a redemption of
all or part of their shares, A Shares of the other Funds that offer A Shares or
Investor Shares of Ready Cash Investment Fund or Municipal Money Market Fund.
Shareholders of B Shares may purchase, with the proceeds from a redemption of
all or part of their shares, B Shares of the other Funds that offer B Shares or
Exchange Shares of Ready Cash Investment Fund. Shareholders of I Shares may
purchase, with the proceeds from a redemption of all or part of their shares, I
Shares of the other Funds or Institutional Shares of Ready Cash Investment Fund
or Municipal Money Market Fund or shares of U.S. Government Fund and Treasury
Fund.
Shareholders of Investor Shares of Ready Cash Investment Fund and Municipal
Money Market Fund may purchase, with the proceeds from a redemption of all or
part of their shares, Investor Shares of the other Fund or A Shares of the Funds
that offer A Shares. Shareholders of Exchange Shares of Ready Cash Investment
Fund may purchase, with the proceeds from a redemption of all or part of their
shares, B Shares of the Funds that offer B Shares.
Shareholders of Public Entities Shares of Ready Cash Investment Fund and
Municipal Money Market Fund and others who are eligible to purchase I Shares may
purchase, with the proceeds from a redemption of all or part of their shares,
Institutional Shares of these Funds, or I Shares of the other Funds of the
Trust.
Shareholders of Institutional Shares of Municipal Money Market Fund who are not
eligible to purchase I Shares may purchase, with the proceeds from a redemption
of all or part of their shares, shares of Cash Investment Fund, U.S. Government
Fund and Treasury Fund. Similarly, shareholders of Cash Investment Fund, U.S.
Government Fund and Treasury Fund who are not eligible to purchase I Shares may
purchase, with the proceeds from a redemption of all or part of their shares,
shares of the other two Funds or Institutional Shares of Municipal Money Market
Fund.
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Shareholders of A Shares or Investor Shares making an exchange will be subject
to the applicable sales charge of any A Shares acquired in the exchange;
provided, that the sales charge charged with respect to the acquired shares will
be assessed at a rate that is equal to the excess (if any) of the rate of the
sales charge that would be applicable to the acquired shares in the absence of
an exchange over the rate of the sales charge previously paid on the exchanged
shares. For purposes of the preceding sentence, A Shares acquired through the
reinvestment of dividends or distributions are deemed to have been acquired with
a sales charge rate equal to that paid on the shares on which the dividend or
distribution was paid.
In addition, A Shares and Investor Shares acquired by a previous exchange
transaction involving shares on which a sales charge has directly or indirectly
been paid (e.g., shares purchased with a sales charge or issued in connection
with an exchange transaction involving shares that had been purchased with a
sales charge), as well as additional shares acquired through reinvestment of
dividends or distributions on such shares will be treated as if they had been
acquired subject to that sales charge.
Exchange Shares may only be acquired in exchange for B Shares of a Fund. B
Shares ("original B Shares") may be exchanged for Exchange Shares without the
payment of any contingent deferred sales charge; however, B Shares or Exchange
Shares acquired as a result of an exchange and subsequently redeemed will
nonetheless be subject to the contingent deferred sales charge applicable to the
original B Shares as if those shares were being redeemed at that time. Exchange
Shares may be exchanged without the payment of any contingent deferred sales
charge; however, B Shares acquired as a result of such exchange and subsequently
redeemed will nonetheless be subject to the contingent deferred sales charge
applicable to the original B Shares as if those shares were being redeemed at
that time.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting the securities to cash.
The Trust has filed a formal election with the SEC pursuant to which a Fund will
only effect a redemption in portfolio securities if the particular shareholder
is redeeming more than $250,000 or 1% of the Fund's total net assets, whichever
is less, during any 90-day period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES)
CONTINGENT DEFERRED SALES CHARGE. A Shares of a Fund on which no initial sales
charge was assessed due to the amount purchased in a single transaction or
pursuant to the Cumulative Quantity Discount or a Statement of Intention and
that are redeemed (including certain redemptions in connection with an exchange)
within specified periods after the purchase date of the shares will be subject
to contingent deferred sales charges equal to the percentages set forth below of
the dollar amount subject to the charge. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being redeemed and their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from the reinvestment of
dividends and distributions.
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STABLE INCOME FUND
AMOUNT OF PURCHASE PERIOD SHARES HELD REIMBURSEMENT CHARGE
$1,000,000 to $4,999,999........................... Less than one year 0.50%
One to two years 0.25%
Over $5,000,000...................................... Less than one year 0.25%
INTERMEDIATE GOVERNMENT INCOME FUND,
INCOME FUND, TOTAL RETURN BOND FUND AND THE
TAX-FREE FIXED INCOME FUNDS
AMOUNT OF PURCHASE PERIOD SHARES HELD REIMBURSEMENT CHARGE
$1,000,000 to $2,499,999........................... Less than one year 0.75%
One to two years 0.50%
$2,500,000 to $4,999,999............................. Less than one year 0.50%
Over $5,000,000...................................... Less than one year 0.25%
CONTINGENT DEFERRED SALES
EQUITY FUNDS CHARGED AS A % OF DOLLAR
AMOUNT OF PURCHASE PERIOD SHARES HELD AMOUNT SUBJECT TO CHANGE
$1,000,000 to $2,499,999.......... Less than one year 1.00%
One to two years 0.75%
$2,500,000 to $4,999,999.......... Less than one year 0.50%
Over $5,000,000................... Less than one year 0.25%
No contingent deferred sales charge is charged on redemptions to the same extent
as is the case for B Shares. The contingent deferred sales charge on shares
purchased through an exchange from another fund of the Trust is based upon the
original purchase date and price of the other Fund's shares. For A shareholders
with a Statement of Intention that do not purchase $1,000,000 of a Fund's A
Shares pursuant to their Statement, no contingent deferred sales charge is
imposed. The Statement of Intention provides for a contingent deferred sales
charge in certain other cases. Further information about the contingent deferred
sales charge is contained in the SAI.
A Shares of the Funds on which no initial sales charge was assessed pursuant to
the Right of Accumulation or Statement of Intention, that are redeemed within
specified periods after the purchase date will be subject to a contingent
deferred sales charge upon redemption.
RIGHT OF ACCUMULATION
Contingent deferred sales charges may be charged on A Shares purchased without
an initial sales charge pursuant to the Cumulative Quantity Discount (Right of
Accumulation) that are redeemed within the first two years after purchase. No
initial sales charge will apply to A Shares purchased if the value of those
shares on the date of purchase plus the net asset value of all A Shares held by
the shareholder (as of the close of business on the previous Fund Business Day)
exceed $1,000,000. In that case the contingent deferred sales charge will apply
to redemptions of shares within the first two years after purchase. For example,
if a shareholder has made prior purchases of A Shares which now have a value of
$900,000, the purchase of $150,000 of A Shares will not be subject to an initial
sales charge but will be subject to the contingent deferred sales charge. The
$900,000 of A Shares is not subject to the contingent deferred sales charge.
STATEMENT OF INTENTION
93
Contingent deferred sales charges may be charged on redemptions of A Shares
purchased without an initial sales charge pursuant to a Statement of Intention
("SOI") that are redeemed within the first two years after purchase. If a
shareholder purchases $1,000,000 or more within a 13 month period under an SOI,
no initial sales charge will apply with respect to the entire amount purchased.
However, the contingent deferred sales charge will apply with respect to the
entire amount purchased amount if the shareholder never purchases $1,000,000 or
more of A Shares under the SOI. The contingent deferred sales charge will not
apply to SOIs of under $1,000,000 and will not be applied to SOIs for a greater
amount. The holding period for each A Share, however, shall be determined from
the date the share was purchased. If the shareholder redeems A Shares during the
period that the SOI is in effect, a contingent deferred sales charge will be
charged at the time the shareholder has purchased $1,000,000 or more worth of A
Shares pursuant to the SOI and will be assessed at the rate applicable in the
case of a single purchase of the minimum amount specified in the SOI. If the
shareholder purchases less than the amount specified under the SOI, an
additional contingent deferred sales charge may be assessed in respect of A
Shares previously redeemed based on the amount actually purchased pursuant to
the SOI.
REINSTATEMENT PRIVILEGE
A Shares purchased by a shareholder within 60 days following the redemption by
the shareholder of A Shares in the same Fund with a value at least equal to the
A Shares being purchased will not be subject to a contingent deferred sales
charge; provided, however, that this exemption is not applicable to more than
two purchases within a 12-month period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES AND B SHARES)
With respect to A Shares and B Shares of the Funds, certain redemptions are not
subject to any contingent deferred sales charge. No contingent deferred sales
charge is imposed on: (1) redemptions of shares acquired through the
reinvestment of dividends and distributions; (2) involuntary redemptions by a
Fund of shareholder accounts with low account balances; (3) redemptions of
shares following the death or disability of a shareholder if the Fund is
notified within one year of the shareholder's death or disability; and (4)
redemptions to effect a distribution (other than a lump sum distribution) from
an IRA, Keogh plan or Section 403(b) custodial account or from a qualified
retirement plan. For these purposes, the term disability shall have the meaning
ascribed thereto in Section 72(m)(7) of the Code. Under that provision, a person
is considered disabled if the person is unable to engage in any substantial
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long-continued and
indefinite duration. Appropriate documentation satisfactory to the Fund is
required to substantiate any shareholder death or disability.
No contingent deferred sales charge is imposed on: (1) redemptions of Shares
acquired through the reinvestment of dividends and distributions; (2)
involuntary redemptions by a Fund of shareholder accounts with low account
balances; (3) redemptions of Shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability; (4) redemptions to effect a distribution (other than a lump sum
distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan; and (5) redemptions by any registered
investment adviser with whom Forum has entered into a share purchase agreement
and which is acting on behalf of its fiduciary customer accounts. See the SAI
for further information.
CONVERSION OF B SHARES AND EXCHANGE SHARES
The conversion of Exchange Shares to Investor Shares and B Shares to A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that: (1) the assessment of the distribution services fee with respect to the
Exchange Shares and B Shares does not result in the Funds dividends or
distributions constituting "preferential dividends" under the Code and (2) the
conversion of Exchange Shares and B Shares does not constitute a taxable event
under Federal income tax law. The conversion of Exchange Shares to Investor
Shares and B Shares to A Shares may be suspended if such an opinion is no longer
available at the time the conversion is to occur. In that event, no further
conversions would occur, and shares might continue to be subject to a
distribution services fee for an indefinite period, which may extend beyond the
specified number of years for conversion of the original B Shares.
94
VIII. TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Since each Money Market Fund and Fixed Income Fund expects to derive
substantially all of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of such Funds' dividends or
distributions will qualify for the dividends-received deduction for
corporations.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Fund or Core Portfolio at the end of
each taxable year will be "marked to market" and treated for Federal income tax
purposes as though sold for fair market value on the last business day of such
taxable year. Gain or loss realized by a Fund or Core Portfolio on section 1256
contracts generally will be considered 60% long-term and 40% short-term capital
gain or loss. Each Fund or Core Portfolio can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund or Core Portfolio upon the lapse or sale of such options held by such
Fund or Core Portfolio will be either long-term or short-term capital gain or
loss depending upon the Fund's (or Core Portfolio's) holding period with respect
to such option. However, gain or loss realized upon the lapse or closing out of
such options that are written by a Fund or Core Portfolio will be treated as
short-term capital gain or loss. In general, if a Fund or Core Portfolio
exercises an option, or an option that a Fund or Core Portfolio has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund or Core Portfolio may
constitute a "straddle" for Federal income tax purposes. A straddle of which at
least one, but not all, the positions are section 1256 contracts may constitute
a "mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Fund's (or Core Portfolio's) gains and
losses with respect to straddle positions by requiring, among other things,
that: (1) loss realized on disposition of one position of a straddle not be
recognized to the extent that a Fund has unrealized gains with respect to the
other position in such straddle; (2) a Fund's (or Core Portfolio's) holding
period in straddle positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather than long-term
capital gain); (3) losses recognized with respect to certain straddle positions
which are part of a mixed straddle and which are non-section 1256 positions be
treated as 60% long-term and 40% short-term capital loss; (4) losses recognized
with respect to certain straddle positions which would otherwise constitute
short-term capital losses be treated as long-term capital losses; and (5) the
deduction of interest and carrying charges attributable to certain straddle
positions may be deferred. Various elections are available to a Fund or Core
Portfolio which may mitigate the effects of the straddle rules, particularly
with respect to mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by a Fund or Core Portfolio all of the
offsetting positions of which consist of section 1256 contracts.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of foreign currencies, from the disposition of debt
securities denominated in a foreign currency, or from the disposition of a
forward contract denominated in a
95
foreign currency which are attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the asset and the date of
disposition also are treated as ordinary gain or loss.
A Fund's (or Core Portfolio's) investments in zero coupon securities will be
subject to special provisions of the Code which may cause the Fund to recognize
income without receiving cash necessary to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
federal income and excise taxes. In order to satisfy those distribution
requirements the Fund or Core Portfolio may be forced to sell other portfolio
securities.
If International Fund is eligible to do so, the Fund intends to file an election
with the Internal Revenue Service to pass through to its shareholders its share
of the foreign taxes paid by the Fund. Pursuant to this election, a shareholder
will be required to: (1) include in gross income rata share of foreign taxes
paid by the Fund; (2) treat his pro rata share of such foreign taxes as having
been paid by him; and (3) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a credit against
federal income taxes. No deduction for foreign taxes may be claimed by an
individual shareholder who does not itemize deductions. In addition, certain
shareholders may be subject to rules which limit or reduce their ability to
fully deduct, or claim a credit for, their pro rata share of the foreign taxes
paid by the Fund. Under recently enacted legislation, a shareholder's foreign
tax credit with respect to a dividend received from the Fund will be disallowed
unless the shareholder holds shares in the Fund at least 16 days during the
30-day period beginning 15 days before the date on which the shareholder becomes
entitled to receive the dividend.
IX. ADDITIONAL INFORMATION ABOUT THE TRUST AND
THE SHAREHOLDERS OF THE FUNDS
DETERMINATION OF NET ASSET VALUE - MONEY MARKET FUNDS
Pursuant to the rules of the SEC, the Board has established procedures to
stabilize each Money Market Funds' net asset value at $1.00 per share. These
procedures include a review of the extent of any deviation of net asset value
per share as a result of fluctuating interest rates, based on available market
rates, from the Fund's $1.00 amortized cost price per share. Should that
deviation exceed 1/2 of 1%, the Board will consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. Each Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument with a remaining maturity
greater than 397 days or subject to a repurchase agreement having a duration of
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those U.S. dollar-denominated instruments that the Board has
determined present minimal credit risks and will comply with certain reporting
and recordkeeping procedures. The Trust has also established procedures to
ensure that portfolio securities meet the Funds' high quality criteria.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
_____________________, 99 High Street, Boston, MA 02110, independent auditors,
served as the independent auditors for the Trust for the fiscal years ended May
31, 1994 and thereafter. For the prior fiscal periods another audit firm acted
as independent auditors of the Trust's predecessor corporation.
96
GENERAL INFORMATION
The Trust is divided into thirty nine separate series representing shares of the
Funds. The Trust received an order from the SEC permitting the issuance and sale
of separate classes of shares representing interests in each of the Trust's
existing funds; however, the Trust currently issues and operates the various
Funds, separate classes of shares under the provisions of 1940 Act.
The Board has determined that currently no conflict of interest exists between
or among each Fund's A Shares, B Shares, C Shares and I Shares, among Ready Cash
Investment Fund's Public Entities, Investor and Exchange Shares and between
Municipal Money Market Fund's Institutional and Investor Shares. On an ongoing
basis, the Board, pursuant to its fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
In order to adopt the name Norwest Funds, the Trust agreed in each Investment
Advisory Agreement with Norwest that if Norwest ceases to act as Adviser to the
Trust or any Fund whose name includes the word "Norwest," or if Norwest requests
in writing, the Trust shall take prompt action to change the name of the Trust
and any such Fund to a name that does not include the word "Norwest." Norwest
may from time to time make available without charge to the Trust for the Trust's
use any marks or symbols owned by Norwest, including marks or symbols containing
the word "Norwest" or any variation thereof, as Norwest deems appropriate. Upon
Norwest's request in writing, the Trust shall cease to use any such mark or
symbol at any time. The Trust has acknowledged that any rights in or to the word
"Norwest" and any such marks or symbols which exist or may exist, and under any
and all circumstances, shall continue to be, the sole property of Norwest.
Norwest may permit other parties, including other investment companies, to use
the word "Norwest" in their names without the consent of the Trust. The Trust
shall not use the word "Norwest" in conducting any business other than that of
an investment company registered under the Act without the permission of
Norwest.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Fund) and may
divide portfolios or series into classes of shares (such as Exchange Shares);
the costs of doing so will be borne by the Trust. Currently the authorized
shares of the Trust are divided into thirty-nine separate series.
CLASSES OF SHARES. Each class of a Fund may have a different expense ratio and
different sales charges (including distribution fees) and each class'
performance will be affected by its expenses and sales charges. For more
information on any other class of shares of the Fund, investors may contact the
Transfer Agent at (612)667-8833 or (800) 338-1348 or the Fund's distributor.
Investors may also contact their Norwest sales representative to obtain
information about the other classes. Sales personnel of broker-dealers and other
financial institutions selling the Fund's shares may receive differing
compensation for selling different classes of shares.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each series of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except
97
that expenses related to the distribution of the shares of each class (and
certain other expenses such as transfer agency and administration expenses) are
borne solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular series
or class, except if the matter affects only one series or class or voting by
series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. Shareholders have available certain procedures for the removal of
Trustees. There are no conversion or preemptive rights in connection with shares
of the Trust. All shares, when issued in accordance with the terms of the
offering, will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a series is entitled to
the shareholder's pro rata share of all dividends and distributions arising from
that series' assets and, upon redeeming shares, will receive the portion of the
series' net assets represented by the redeemed shares.
The Core Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the Core Portfolio will be entitled
to vote in proportion to its relative beneficial interest in the Core Portfolio.
When required by the 1940 Act and other applicable law, the Fund will solicit
proxies from its shareholders and will vote its interest in the Core Portfolio
in proportion to the votes cast by its shareholders.
From time to time, certain shareholders may own a large percentage of the Shares
of the Fund and, accordingly, may be able to greatly affect (if not determine)
the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Certain Funds seek to achieve their investment objectives by investing all of
their investable assets in Core Portfolios. Accordingly, the Core Portfolios
directly acquires portfolio securities and the Funds acquire an indirect
interest in those securities. The Core Portfolios are separate series of Core
Trust and Schroder Core, business trusts organized under the laws of the State
of Delaware in 1994. The assets of each Core Portfolios belong only to, and the
liabilities of each Core Portfolios are borne solely by, that Core Portfolio and
no other series of Core Trust or Schroder Core.
THE CORE PORTFOLIO. The Funds' investments in the Core Portfolios are in the
form of non-transferable beneficial interests. All investors in a Core Portfolio
will invest on the same terms and conditions and will pay a proportionate share
of the Core Portfolio's expenses.
Core Portfolios do not sell its shares directly to members of the general
public. Other investors in Core Portfolios, such as other investment companies,
that might sell their shares to the public are not be required to sell their
shares at the same public offering price as the Funds, and could have different
advisory and other fees and expenses than the Funds. Therefore, Fund
shareholders may have different returns than shareholders in other investment
companies that invest in the Core Portfolios. Information regarding any such
funds is available by calling Forum at (207) 879-0001.
CERTAIN RISKS OF INVESTING IN CORE PORTFOLIOS. The Funds' investment in the Core
Portfolios may be affected by the actions of other large investors in the Core
Portfolios. For example, if a Core Portfolio had a large investor other than a
Fund that redeemed its interest, the Core Portfolio's remaining investors
(including the Fund) might, as a result, experience higher pro rata operating
expenses, thereby producing lower returns. As there may be other investors in a
Core Portfolio, there can be no assurance that any issue that receives a
majority of the votes cast by a Fund's shareholders will receive a majority of
votes cast by all investors in the Core Portfolio; indeed, other investors
holding a majority interest in a Core Portfolio could have voting control of the
Core Portfolio.
A Fund may withdraw its entire investment from a Core Portfolio at any time, if
the Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in the Core Portfolio with power to, and who did by a vote of all
investors (including the Fund), change
98
the investment objective or policies of the Core Portfolio in a manner not
acceptable to the Board. A withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Core Portfolio.
That distribution could result in a less diversified portfolio of investments
for the Fund and could affect adversely the liquidity of the Fund's portfolio.
If the Fund decided to convert those securities to cash, it would incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from the Core Portfolio, the Board would consider what action might be taken,
including the management of the Fund's assets directly by the Adviser or the
investment of the Fund's assets in another pooled investment entity. The
inability of the Fund to find a suitable replacement investment, in the event
the Board decided not to permit the Adviser to manage the Fund's assets
directly, could have a significant impact on shareholders of the Fund.
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, and custodian to an investment company and
to purchase shares of the investment company as agent for and upon the order of
a customer and, in connection therewith, to retain a sales charge or similar
payment. Forum believes that Norwest and any bank or other bank affiliate that
may also perform Processing Organization or similar services for the Trust and
its shareholders without violating applicable federal banking rules. If a bank
or bank affiliate were prohibited in the future from so acting, changes in the
operation of the Trust could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
SHAREHOLDINGS
Table 7 to Appendix A lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of March 2, 1998.
FINANCIAL STATEMENTS
The financial statements of each Fund for the semi-annual period ended November
30, 1997 (which include statements of assets and liabilities, statements of
operations, statements of changes in net assets, notes to financial statements,
financial highlights and portfolios of investments) are included in the
Semi-Annual Report to Shareholders of the Trust delivered along with this SAI
and are incorporated herein by reference. The financial statements of each Fund
for the year ended May 31, 1997 (which include statements of assets and
liabilities, statements of operations, statements of changes in net assets,
notes to financial statements, financial highlights, portfolios of investments
and the independent auditors' report thereon) are included in the Annual Report
to Shareholders of the Trust delivered along with this SAI and are incorporated
herein by reference.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
99
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated "Aaa" are judged by Moody's to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in "Aaa"
securities.
Bonds which are rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Those bonds in the "Aa", "A", "Baa", "Ba" or "B" groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols "Aa1", "A1", "Baa1", "Ba1", and "B1".
100
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated "AA" have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated "A" have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated "BBB" are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Bonds rated "BB" have less near-term
vulnerability to default than other speculative issues. However, they face major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments.
Bonds rated "B" have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated "CCC" have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated "C" typically are subordinated to senior debt which as assigned an
actual or implied "CCC" debt rating. This rating may also be used to indicate
imminent default.
The "C" rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating "Cl" is reserved
for income bonds on which no interest is being paid.
Bonds are rated "D" when the issue is in payment default, or the obligor has
filed for bankruptcy. The "D" rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from "AA" to "CCC" may be modified by the addition of a plus
(+) or minus (-) sign to show the relative standing within the rating category.
101
DUFF & PHELPS CREDIT RATING CO. ("D&P")
Duff & Phelps Long-Term Rating Scale
- - ------------------------------------
AAA: Highest credit quality. The risk factors are negligible.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
102
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
"AAA" Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, shorter-term debt of these issuers is generally rated F-1+.
"A" Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
"BB" Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
"B" Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
"CCC" Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
"CC" Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
"C" Bonds are in imminent default in payment of interest or principal.
"DDD", "DD", and "D" Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
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.
103
PREFERRED STOCK
Moody's Investors Service
Moody's rates preferred stock as follows:
An issue rated "aaa" is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated "aa" is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated "a" is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated "baa" is considered to be a medium-grade, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
An issue rated "ba" is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated "ca" is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor prospects
of ever attaining any real investment standing. This is the lowest rated class
of preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
"AAA" is the highest rating that is assigned by S&P to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock
obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
104
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.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE. 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.
STANDARD & POOR'S. 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 IBCA, INC. Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
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+.
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".
OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
"Prime-1" and "Prime-2". Both are judged investment grade, to indicate the
relative repayment ability of rated issuers.
105
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. "Prime-1" repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "Prime-2" by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated "Prime-1" but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S
S&P's two highest commercial paper ratings are "A-1" and "A-2". Issues assigned
an "A" rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. An "A-1" designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an "A-2" designation is strong. However, the relative degree of safety is not as
high as for issues designated "A-1". "A-3" issues have a satisfactory capacity
for timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated "A-2" are regarded as having only an adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
FITCH IBCA, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
"F-1+". Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1". Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated "F-1+".
106
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Norwest and the Trust with respect to each Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. That table also shows the dollar amount of fees payable under the
investment advisory agreements between Schroder and Core Trust with respect to
International Portfolio and Small Cap Opportunities Fund, the amount of fee that
was waived by Schroder, if any, and the actual fee received by Schroder. The
data is for the past three fiscal years or shorter period if the Fund/Portfolio
has been in operation for a shorter period.
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND ------- ------ --------
Year Ended May 31, 1998
Year Ended May 31, 1997 2,805,919 0 2,805,919
Year Ended May 31, 1996 2,383,128 0 2,383,128
Year Ended May 31, 1995 2,067,323 0 2,067,323
READY CASH INVESTMENT FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 6,267,045 50,148 6,216,897
Year Ended May 31, 1996 4,128,532 44,547 4,083,985
Year Ended May 31, 1995 2,153,906 71,093 2,082,813
U.S. GOVERNMENT FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 2,538,240 0 2,538,240
Year Ended May 31, 1996 2,205,102 0 2,205,102
Year Ended May 31, 1995 1,687,958 0 1,687,958
TREASURY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,548,275 0 1,548,275
Year Ended May 31, 1996 1,308,984 0 1,308,984
Year Ended May 31, 1995 1,152,801 0 1,152,801
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 2,394,475 369,405 2,025,070
Year Ended May 31, 1996 1,907,103 303,321 1,603,782
Year Ended May 31, 1995 987,273 175,377 811,896
STABLE INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 334,768 0 334,768
107
Year Ended May 31, 1996 106,127 0 106,127
Year End October 31, 1995 114,429 0 114,429
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ------ --------
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,355,907 0 1,355,907
Year Ended May 31, 1996 142,125 0 142,125
Year End October 31, 1995 160,764 0 160,764
DIVERSIFIED BOND FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 598,019 0 598,019
Year Ended May 31, 1996 344,777 0 344,777
Year End October 31, 1995 607,061 0 607,061
INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,385,988 277,198 1,108,790
Year Ended May 31, 1996 981,244 196,249 784,995
Year Ended May 31, 1995 560,463 149,529 410,934
TOTAL RETURN BOND FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 651,181 357,998 293,183
Year Ended May 31, 1996 584,872 352,590 232,282
Year Ended May 31, 1995 305,162 244,711 60,451
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 88,741 63,145 25,596
Year Ended May 31, 1996 N/A N/A N/A
TAX-FREE INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,537,966 1,236,539 301,427
Year Ended May 31, 1996 1,187,026 1,032,179 154,847
Year Ended May 31, 1995 671,570 306,789 364,781
COLORADO TAX-FREE FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 299,582 238,690 60,892
Year Ended May 31, 1996 286,768 286,768 0
Year Ended May 31, 1995 257,147 257,147 0
108
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 212,616 190,702 21,914
Year Ended May 31, 1996 154,733 154,733 0
Year Ended May 31, 1995 67,504 67,504 0
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ------ --------
STRATEGIC INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 589,365 0 589,365
Year Ended May 31, 1996 376,529 0 376,529
Year Ended October 31, 1995 547,353 0 547,353
MODERATE BALANCED FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 2,185,490 0 2,185,490
Year Ended May 31, 1996 1,208,825 0 1,208,825
Year End October 31, 1995 1,722,174 0 1,722,174
GROWTH BALANCED FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 2,688,223 0 2,688,223
Year Ended May 31, 1996 1,424,260 0 1,424,260
Year End October 31, 1995 1,849,672 0 1,849,672
INCOME EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,906,693 0 1,906,693
Year Ended May 31, 1996 227,790 0 227,790
Year End October 31, 1995 187,584 0 187,584
INDEX FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 563,081 212,327 350,754
Year Ended May 31, 1996 193,373 143,795 49,578
Year End October 31, 1995 212,875 0 212,875
VALUGROWTH STOCK FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,475,664 18,446 1,457,218
Year Ended May 31, 1996 1,335,281 16,691 1,318,590
Year Ended May 31, 1995 1,132,507 4,813 1,127,694
109
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 6,874,776 0 6,874,776
Year Ended May 31, 1996 3,038,858 0 3,038,858
Year End October 31, 1995 3,737,147 0 3,737,147
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------- ----- --------
GROWTH EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 7,205,405 0 7,205,405
Year Ended May 31, 1996 3,342,391 0 3,342,390
Year End October 31, 1995 3,961,897 0 3,961,897
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 651,110 0 651,110
Year Ended May 31, 1996 274,152 0 274,152
Year End October 31, 1995 362,480 0 362,480
SMALL COMPANY STOCK FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,481,914 419,413 1,062,501
Year Ended May 31, 1996 909,200 327,218 581,982
Year Ended May 31, 1995 322,908 322,908 0
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 3,513,581 0 3,513,581
Year Ended May 31, 1996 1,653,578 0 1,653,578
Year End October 31, 1995 1,984,348 0 1,984,348
DIVERSIFIED SMALL CAP FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 N/A N/A N/A
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 N/A N/A N/A
INTERNATIONAL FUND*
Year Ended May 31, 1998
Year Ended May 31, 1997 812,485 0 812,485
Year Ended May 31, 1996 316,701 0 316,701
Year End October 31, 1995 367,007 0 367,007
* Represents investment advisory fees paid to Schroder Capital Management Inc.
by International Portfolio of Core Trust.
110
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to: (1) Forum for
its management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding); (2) Norwest for its
administrative services with respect to International Fund; and (3) Forum with
respect to its administrative securities with respect to International
Portfolio. Also shown are the amount of fees that were waived by Forum and
Norwest, if any, and the actual fees received by Forum and Norwest. The data is
for the past three fiscal years or shorter period if the Fund has been in
operation for a shorter period.
(I) MANAGEMENT FEES TO FORUM
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND ------- ------ --------
Year Ended May 31, 1998
Year Ended May 31, 1997 1,252,466 127,192 1,125,274
Year Ended May 31, 1996 1,076,303 160,959 915,344
Year Ended May 31, 1995 944,718 263,073 681,645
U.S. GOVERNMENT FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,140,934 12,114 1,128,820
Year Ended May 31, 1996 1,002,126 40,949 961,177
Year Ended May 31, 1995 786,649 135,127 651,522
TREASURY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 728,447 595,668 132,779
Year Ended May 31, 1996 627,992 448,841 179,151
Year Ended May 31, 1995 558,734 467,978 90,756
READY CASH INVESTMENT FUND
Investor Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 1,070,654 14,082 1,056,572
Year Ended May 31, 1996 760,979 60,072 700,907
Year Ended May 31, 1995 391,466 147,704 243,762
Institutional Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 2,595,399 2,413,208 182,191
Year Ended May 31, 1996 1,569,081 1,569,081 0
Year Ended May 31, 1995 739,794 589,996 149,797
Exchange Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 850 850 0
Year Ended May 31, 1996 273 273 0
Year Ended May 31, 1995 417 331 86
111
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
MUNICIPAL MONEY MARKET FUND
INVESTOR SHARES
Year Ended May 31, 1998
Year Ended May 31, 1997 121,330 78,834 42,496
Year Ended May 31, 1996 115,294 65,869 49,425
Year Ended May 31, 1995 82,763 75,983 6,780
INSTITUTIONAL SHARES
Year Ended May 31, 1998
Year Ended May 31, 1997 1,275,270 1,017,363 257,907
Year Ended May 31, 1996 990,763 814,669 176,094
Year Ended May 31, 1995 481,393 393,600 87,793
STABLE INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 12,730 12,730 0
Year Ended May 31, 1996 623 623 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 799 799 0
Year Ended May 31, 1996 33 33 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 98,060 98,060 0
Year Ended May 31, 1996 34,720 34,720 0
Year End October 31, 1995 38,143 38,143 0
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 14,471 14,471 0
Year Ended May 31, 1996 666 666 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 9,953 9,953 0
Year Ended May 31, 1996 412 412 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 386,457 151,928 234,529
Year Ended May 31, 1996 41,991 41,991 0
Year End October 31, 1995 48,716 48,716 0
DIVERSIFIED BOND FUND
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 170,862 110,901 59,961
Year Ended May 31, 1996 98,508 69,269 29,239
112
Year Ended October 31, 1995 173,446 147,461 25,985
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 10,585 10,585 0
Year Ended May 31, 1996 11,894 11,894 0
Year Ended May 31, 1995 12,210 11,607 603
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 6,826 6,826 0
Year Ended May 31, 1996 6,732 6,732 0
Year Ended May 31, 1995 5,559 3,553 2,006
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 536,985 436,300 100,685
Year Ended May 31, 1996 373,872 353,908 19,964
Year Ended May 31, 1995 206,416 124,725 81,691
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 5,187 5,187 0
Year Ended May 31, 1996 2,416 2,416 0
Year Ended May 31, 1995 674 674 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 4508 4508 0
Year Ended May 31, 1996 3,264 3,264 0
Year Ended May 31, 1995 923 923 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 250,777 24,127 226,650
Year Ended May 31, 1996 228,269 12,744 215,525
Year Ended May 31, 1995 120,468 17,639 102,829
LIMITED TERM TAX-FREE FUND
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 17,748 17,748 0
Year Ended May 31, 1996 N/A N/A N/A
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
TAX-FREE INCOME FUND
A Shares
113
Year Ended May 31, 1998
Year Ended May 31, 1997 58,862 42,638 16,224
Year Ended May 31, 1996 67,046 27,085 39,961
Year Ended May 31, 1995 64,084 64,084 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 13,295 13,295 0
Year Ended May 31, 1996 9,866 9,866 0
Year Ended May 31, 1995 6,348 5,591 757
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 543,029 288,245 254,784
Year Ended May 31, 1996 397,898 304,725 93,173
Year Ended May 31, 1995 198,196 139,199 58,997
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 54,902 49,840 5,062
Year Ended May 31, 1996 53,988 48,022 5,966
Year Ended May 31, 1995 56,039 40,684 15,355
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 13,532 13,115 417
Year Ended May 31, 1996 11,566 11,566 0
Year Ended May 31, 1995 9,429 7,791 1,638
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 51,399 44,432 6,967
Year Ended May 31, 1996 49,153 41,507 7,646
Year Ended May 31, 1995 37,392 31,974 5,418
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 51,795 33,434 18,361
Year Ended May 31, 1996 43,885 26,289 17,596
Year Ended May 31, 1995 19,236 19,236 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 20,364 14,581 5,783
Year Ended May 31, 1996 13,910 10,499 3,411
Year Ended May 31, 1995 5,974 5,974 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 12,888 10,362 2,526
Year Ended May 31, 1996 4,098 2,630 1,468
Year Ended May 31, 1995 1,781 1,622 159
STRATEGIC INCOME FUND
Year Ended May 31, 1998
114
Year Ended May 31, 1997 130,970 115,223 15,747
Year Ended May 31, 1996 83,673 69,584 14,089
Year Ended October 31, 1995 121,634 121,634 0
115
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
MODERATE BALANCED FUND ------- ------ --------
Year Ended May 31, 1998
Year Ended May 31, 1997 412,357 278,998 133,359
Year Ended May 31, 1996 228,080 126,077 102,003
Year Ended October 31, 1995 324,938 212,921 112,017
GROWTH BALANCED FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 463,486 303,389 160,097
Year Ended May 31, 1996 245,562 136,905 108,657
Year Ended October 31, 1995 318,909 209,411 109,498
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 37,101 30,944 6,157
Year Ended May 31, 1996 1,196 1,196 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 23,583 23,583 0
Year Ended May 31, 1996 670 670 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 320,654 168,477 152,177
Year Ended May 31, 1996 43,691 43,691 0
Year Ended October 31, 1995 37,517 37,517 0
INDEX FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 375,387 213,759 161,628
Year Ended May 31, 1996 128,916 93,961 34,955
Year Ended October 31, 1995 141,917 141,917 0
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 33,232 29,323 3,909
Year Ended May 31, 1996 27,427 27,427 0
Year Ended May 31, 1995 24,465 24,465 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 11,318 11,318 0
Year Ended May 31, 1996 8,763 8,763 0
Year Ended May 31, 1995 5,593 4,617 976
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 324,366 194,534 129,832
116
Year Ended May 31, 1996 297,630 147,086 150,544
Year Ended May 31, 1995 253,243 148,800 104,443
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 14,322 14,322 0
Year Ended May 31, 1996 99 99 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 15,913 15,913 0
Year Ended May 31, 1996 96 96 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 1,027,423 723,040 304,383
Year Ended May 31, 1996 467,322 238,224 229,098
Year Ended October 31, 1995 574,946 287,473 287,473
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 10,336 10,336 0
Year Ended May 31, 1996 100 100 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 4,347 4,347 0
Year Ended May 31, 1996 25 25 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 785,917 545,815 240,102
Year Ended May 31, 1996 371,252 187,661 183,591
Year Ended October 31, 1995 440,211 286,104 154,107
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 100,171 87,896 12,275
Year Ended May 31, 1996 42,177 40,150 2,027
Year Ended October 31, 1995 55,766 55,766 0
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 11,966 10,318 1,648
Year Ended May 31, 1996 5,800 5,800 0
Year Ended May 31, 1995 1,655 1,515 140
B Shares
117
Year Ended May 31, 1998
Year Ended May 31, 1997 8,329 8,329 0
Year Ended May 31, 1996 4,426 4,426 0
Year Ended May 31, 1995 1,051 1,051 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 276,089 90,214 185,875
Year Ended May 31, 1996 171,614 15,664 155,950
Year Ended May 31, 1995 61,876 14,997 46,878
118
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
SMALL COMPANY GROWTH FUND ------- ------ --------
Year Ended May 31, 1998
Year Ended May 31, 1997 390,398 185,644 204,754
Year Ended May 31, 1996 183,731 76,278 107,453
Year Ended October 31, 1995 220,483 177,287 43,196
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 122 122 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 44 44 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 26,560 26,560 0
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 1,494 1,494 0
Year Ended May 31, 1996 345 345 0
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 1,247 1,247 0
Year Ended May 31, 1996 395 395 0
I Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 177,707 4,264 173,443
Year Ended May 31, 1996 69,616 0 69,616
Year Ended October 31, 1995 205,140 41,566 163,574
119
(II) ADMINISTRATIVE FEES TO NORWEST
INTERNATIONAL FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 451,118 0 451,118
Year Ended May 31, 1996 175,887 0 175,887
Year Ended October 31, 1995 205,150 0 205,150
(III) ADMINISTRATIVE FEES TO FORUM
INTERNATIONAL PORTFOLIO
Year Ended May 31, 1998
Year Ended May 31, 1997 270,828 0 270,828
Year Ended May 31, 1996 105,567 11,873 93,694
Year Ended October 31, 1995 122,669 70,043 52,626
120
TABLE 3 - DISTRIBUTION FEES
The following table shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1995 and 1996. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period. Only Exchange Shares and B
Shares incur distribution fees.
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEE FEE FEE
PAYABLE WAIVED RETAINED
READY CASH INVESTMENT FUND ------ ------ --------
Exchange Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 4,249 1,062 3,187
Year Ended May 31, 1996 1,023 1,023 0
Year Ended May 31, 1995 2,050 2,050 0
STABLE INCOME FUND
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 7,992 1,998 5,994
Year Ended May 31, 1996 245 245 0
INTERMEDIATE GOVERNMENT INCOME FUND
B Shares
Year Ended May 31, 1997 99,968 24,882 75,086
Year Ended May 31, 1996 2,646 2,646 0
INCOME FUND
B Shares
Year Ended May 31, 1997 34,127 8,532 25,595
Year Ended May 31, 1996 25,247 6,666 18,581
Year Ended May 31, 1995 27,796 6,949 20,847
TOTAL RETURN BOND FUND
B Shares
Year Ended May 31, 1997 22,540 5,635 16,905
Year Ended May 31, 1996 12,239 3,619 8,620
Year Ended May 31, 1995 4,612 1,153 3,459
TAX-FREE INCOME FUND
B Shares
Year Ended May 31, 1997 66,476 16,619 49,857
Year Ended May 31, 1996 36,997 2,390 34,607
Year Ended May 31, 1995 31,738 7,934 23,803
COLORADO TAX-FREE FUND
B Shares
Year Ended May 31, 1997 67,660 16,915 50,745
Year Ended May 31, 1996 43,374 207 43,167
Year Ended May 31, 1995 47,144 11,786 35,358
121
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEE FEE FEE
PAYABLE WAIVED RETAINED
MINNESOTA TAX-FREE FUND ------- ------ --------
B Shares
Year Ended May 31, 1997 101,817 25,454 76,363
Year Ended May 31, 1996 52,163 0 52,163
Year Ended May 31, 1995 30,386 8,880 21,506
INCOME EQUITY FUND
B Shares
Year Ended May 31, 1997 235,827 58,957 176,872
Year Ended May 31, 1996 5,031 0 5,031
VALUGROWTH STOCK FUND
B Shares
Year Ended May 31, 1997 56,592 14,148 42,444
Year Ended May 31, 1996 32,860 5,269 27,591
Year Ended May 31, 1995 27,965 6,991 20,974
DIVERSIFIED EQUITY FUND
B Shares
Year Ended May 31, 1997 159,132 39,783 119,349
Year Ended May 31, 1996 719 719 0
GROWTH EQUITY FUND
B Shares
Year Ended May 31, 1997 43,471 10,868 32,603
Year Ended May 31, 1996 187 187 0
SMALL COMPANY STOCK FUND
B Shares
Year Ended May 31, 1997 41,641 10,410 31,231
Year Ended May 31, 1996 16,598 4,077 12,521
Year Ended May 31, 1995 5,256 2,038 3,218
SMALL CAP OPPORTUNITIES FUND
B Shares
Year Ended May 31, 1997 431 108 323
INTERNATIONAL FUND
B Shares
Year Ended May 31, 1997 12,465 3,116 9,349
Year Ended May 31, 1996 2,959 2,930 29
122
TABLE 4 - SALES CHARGES
The following table shows: (1) the dollar amount of sales charges payable to
Forum with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares); (2) the amount of sales charge retained
by Forum and not reallowed to other persons; and (3) the amount of contingent
deferred sales charge ("CDSL") paid to Forum. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
SALES RETAINED CDSL
CHARGES AMOUNT PAID
------- ------ ----
STABLE INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 3,200 320 --
Year Ended May 31, 1996 423 52 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,526
Year Ended May 31, 1996 -- -- 75
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 13,182 1,187 --
Year Ended May 31, 1996 1,482 129 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 31,694
Year Ended May 31, 1996 -- -- 964
INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 11,979 1,121 --
Year Ended May 31, 1996 1,567,755 4,428 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 11,887
Year Ended May 31, 1996 -- -- 8,272
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 3,908 363 --
Year Ended May 31, 1996 1,194,198 3,074 --
B Shares
Year Ended May 31, 1997 -- -- 7,505
Year Ended May 31, 1996 -- -- 2,853
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 74,101 6,646 --
123
Year Ended May 31, 1996 5,429,389 12,264 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 15,724
Year Ended May 31, 1996 -- -- 6,576
124
SALES RETAINED CDSL
CHARGES AMOUNT PAID
COLORADO TAX-FREE FUND ------- ------ ----
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 38,085 3,321 --
Year Ended May 31, 1996 2,889,945 7,135 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 11,889
Year Ended May 31, 1996 -- -- 12,557
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 53,290 4,744 --
Year Ended May 31, 1996 4,598,204 12,506 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 13,097
Year Ended May 31, 1996 -- -- 8,412
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 320,385 1,121 --
Year Ended May 31, 1996 10,996 1,088 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 38,812
Year Ended May 31, 1996 -- -- 570
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 38,540 3,759 --
Year Ended May 31, 1996 1,162,647 4,628 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 10,770
Year Ended May 31, 1996 -- -- 12,911
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 485,324 8,286 --
Year Ended May 31, 1996 50,658 15 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 23,510
Year Ended May 31, 1996 -- -- 0
GROWTH EQUITY FUND
A Shares
125
Year Ended May 31, 1998
Year Ended May 31, 1997 175,495 5,347 --
Year Ended May 31, 1996 26,825 7 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,972
Year Ended May 31, 1996 -- -- 0
SALES RETAINED CDSL
CHARGES AMOUNT PAID
SMALL COMPANY STOCK FUND ------- ------ ----
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 23,419 2,335 --
Year Ended May 31, 1996 1,309,565 5,153 2,972
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 6,411
Year Ended May 31, 1996 -- -- --
SMALL CAP OPPORTUNITIES FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 11,604 1,178 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- --
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 8,728 874 --
Year Ended May 31, 1996 269 30 --
B Shares
Year Ended May 31, 1998
Year Ended May 31, 1997 -- -- 2,086
Year Ended May 31, 1996 -- -- 213
126
TABLE 5 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to Forum Accounting
for its accounting services with respect to each Fund, the amount of fee that
was waived by Forum Accounting, if any, and the actual fee received by Forum
Accounting. The table also shows similar information with respect to
International Portfolio. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
FEE FEE FEE
PAYABLE WAIVED RETAINED
CASH INVESTMENT FUND ------- ------ --------
Year Ended May 31, 1998
Year Ended May 31, 1997 65,000 0 65,000
Year Ended May 31, 1996 49,000 0 49,000
Year Ended May 31, 1995 36,000 0 36,000
U.S. GOVERNMENT FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 60,000 0 60,000
Year Ended May 31, 1996 46,000 0 46,000
Year Ended May 31, 1995 36,000 0 36,000
TREASURY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 54,500 0 54,500
Year Ended May 31, 1996 43,500 0 43,500
Year Ended May 31, 1995 36,000 0 36,000
READY CASH INVESTMENT FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 86,000 0 86,000
Year Ended May 31, 1996 63,000 0 63,000
Year Ended May 31, 1995 48,000 0 48,000
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 90,000 0 90,000
Year Ended May 31, 1996 72,500 0 72,500
Year Ended May 31, 1995 60,000 0 60,000
STABLE INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 92,500 26,041 66,459
Year Ended May 31, 1996 37,452 7,136 30,316
Year Ended October 31, 1995 51,700 0 51,700
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 85,500 24,146 61,354
Year Ended May 31, 1996 29,452 5,322 24,130
Year Ended October 31, 1995 52,700 0 52,700
DIVERSIFIED BOND FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 54,000 15,223 38,777
127
Year Ended May 31, 1996 29,500 5,561 23,939
Year Ended October 31, 1995 36,700 0 36,700
INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 93,000 0 93,000
Year Ended May 31, 1996 79,500 0 79,500
Year Ended May 31, 1995 64,000 0 64,000
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
TOTAL RETURN BOND FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 57,500 0 57,500
Year Ended May 31, 1995 50,000 0 50,000
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 24,000 0 24,000
Year Ended May 31, 1996 N/A N/A N/A
TAX-FREE INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 91,000 0 91,000
Year Ended May 31, 1996 66,000 0 66,000
Year Ended May 31, 1995 62,000 0 62,000
COLORADO TAX-FREE FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 60,000 0 60,000
Year Ended May 31, 1995 55,000 0 55,000
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 64,000 0 64,000
Year Ended May 31, 1996 56,000 0 56,000
Year Ended May 31, 1995 55,300 0 55,300
STRATEGIC INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 60,000 17,019 42,981
Year Ended May 31, 1996 32,500 6,054 26,446
Year Ended October 31, 1995 54,266 0 54,266
MODERATE BALANCED FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 62,000 17,546 44,454
Year Ended May 31, 1996 36,000 7,104 28,896
Year Ended October 31, 1995 52,266 0 52,266
GROWTH BALANCED FUND
Year Ended May 31, 1998
128
Year Ended May 31, 1997 61,000 17,237 43,763
Year Ended May 31, 1996 34,000 6,591 27,409
Year Ended October 31, 1995 50,833 0 50,833
INCOME EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 71,500 20,160 51,340
Year Ended May 31, 1996 22,935 4,293 18,642
Year Ended October 31, 1995 34,700 0 34,700
VALUGROWTH STOCK FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 66,000 0 66,000
Year Ended May 31, 1996 57,500 0 57,500
Year Ended May 31, 1995 48,500 0 48,500
129
FEE FEE FEE
PAYABLE WAIVED RETAINED
------- ------ --------
INDEX FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 60,000 8,393 51,607
Year Ended May 31, 1996 30,500 5,659 24,841
Year Ended October 31, 1995 46,266 0 46,266
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 81,500 22,995 58,505
Year Ended May 31, 1996 30,306 6,216 24,090
Year Ended October 31, 1995 34,700 0 34,700
GROWTH EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 79,000 22,311 56,689
Year Ended May 31, 1996 30,306 6,216 24,090
Year Ended October 31, 1995 34,700 0 34,700
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 38,000 10,750 27,250
Year Ended May 31, 1996 21,000 3,755 17,245
Year Ended October 31, 1995 34,700 0 34,700
SMALL COMPANY STOCK FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 76,000 0 76,000
Year Ended May 31, 1996 60,500 0 60,500
Year Ended May 31, 1995 51,000 0 51,000
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 55,000 5,536 49,464
Year Ended May 31, 1996 30,000 5,759 24,241
Year Ended October 31, 1995 36,700 0 36,700
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 26,057 26,057 0
INTERNATIONAL FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 36,000 10,148 25,852
Year Ended May 31, 1996 23,000 3,952 19,048
Year Ended October 31, 1995 51,766 39,766 12,000
INTERNATIONAL PORTFOLIO
Year Ended May 31, 1998
Year Ended May 31, 1997 90,000 0 90,000
130
Year Ended May 31, 1996 50,500 8,500 42,000
Year Ended October 31, 1995 77,967 8,567 69,400
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
AGGREGATE
COMMISSIONS PAID
DIVERSIFIED BOND FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 N/A
Year Ended May 31, 1996 5,261
Year Ended October 31, 1995 1,750
STRATEGIC INCOME FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 14,867
Year Ended May 31, 1996 8,406
Year Ended October 31, 1995 9,298
MODERATE BALANCED FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 50,414
Year Ended May 31, 1996 54,332
Year Ended October 31, 1995 57,931
GROWTH BALANCED FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 83,720
Year Ended May 31, 1996 69,732
Year Ended October 31, 1995 66,361
INCOME EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 301,308
Year Ended May 31, 1996 52,904
Year Ended October 31, 1995 25,321
INDEX FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 157,319
Year Ended May 31, 1996 121,170
Year Ended October 31, 1995 107,321
VALUGROWTH STOCK FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 502,785
Year Ended May 31, 1996 436,274
Year Ended May 31, 1995 485,176
Year Ended May 31, 1994 553,049
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1998
131
Year Ended May 31, 1997 226,652
Year Ended May 31, 1996 175,648
Year Ended October 31, 1995 180,093
AGGREGATE
COMMISSIONS PAID
GROWTH EQUITY FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 130,483
Year Ended May 31, 1996 127,666
Year Ended October 31, 1995 115,993
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 59,924
Year Ended May 31, 1996 42,229
Year Ended October 31, 1995 60,264
Small Company Stock Fund
Year Ended May 31, 1998
Year Ended May 31, 1997 458,447
Year Ended May 31, 1996 208,021
Year Ended May 31, 1995 67,471
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 1,365,750
Year Ended May 31, 1996 785,875
Year Ended October 31, 1995 600,341
SMALL CAP OPPORTUNITIES FUND
Year Ended May 31, 1998
Year Ended May 31, 1997 N/A
INTERNATIONAL FUND*
Year Ended May 31, 1998
Year Ended May 31, 1997 N/A
Year Ended May 31, 1996 188,849
Year Ended October 31, 1995 348,358
* Reflects commission paid by International Portfolio; International Fund paid
no commissions directly during either year.
132
TABLE 7 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of ___________, 1998, as
well as their percentage holding of all shares of the Fund. Certain persons own
shares of the Funds of record only, including Alpine & Co., BHC Securities,
Inc., EMSEG & Co., First Stock Co., Norwest Bank Minnesota, N.A. and Stout & Co.
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUND
---------------- ----------- ----- ----
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Exchange Shares
Public Entities Shares
133
U.S. GOVERNMENT FUND
TREASURY FUND
134
MUNICIPAL MONEY MARKET
FUND
Investor Shares
Institutional Shares
STABLE INCOME FUND
A Shares
B Shares
INTERMEDIATE GOVERNMENT
INCOME FUND
A Shares
INCOME FUND
A Shares
I Shares
TOTAL RETURN BOND FUND
A Shares
B Shares
I Shares
135
LIMITED TERM TAX-FREE FUND
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
136
B Shares
I Shares
MINNESOTA TAX-FREE FUND
I Shares
VALUGROWTH STOCK FUND
A Shares
VALUGROWTH STOCK FUND
I Shares
GROWTH EQUITY FUND
A Shares
SMALL COMPANY STOCK FUND
A Shares
B Shares
I Shares
SMALL CAP OPPORTUNITIES
FUND
A Shares
INTERNATIONAL FUND
A Shares
B Shares
I Shares
137
APPENDIX C - PERFORMANCE DATA
TABLE 1 - MONEY MARKET FUND YIELDS
As of May 31, 1998, the seven day yield, seven day effective yield and, for
Municipal Money Market Fund, the seven day tax equivalent yield, of each class
of the Money Market Funds was as follows. For the tax-equivalent yield
quotations, the assumed federal income tax rate is 39.6%.
EFFECTIVE TAX-EQUIVALENT TAX-EQUIVALENT
YIELD YIELD YIELD EFFECTIVE YIELD
----- ----- ----- ---------------
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Institutional Shares
Exchange Shares
U.S. GOVERNMENT FUND
TREASURY FUND
MUNICIPAL MONEY MARKET FUND
Investor Shares
Institutional Shares
TABLE 2 - YIELDS
For the 30-day period ended May 31, 1998 the annualized yield and, where
applicable, the tax equivalent yield of each class of the Fixed Income Funds,
Balanced Funds and Equity Funds was as follows. For the tax-equivalent yield
quotations, the assumed Federal income tax rate is 39.6%. In addition, for the
tax-equivalent yields of the Colorado and Minnesota Tax-Free Funds, the assumed
Colorado and Minnesota income tax rates are 5% and 8.5%, respectively.
TAX EQUIVALENT
YIELD YIELD
STABLE INCOME FUND ----- -----
A Shares
B Shares
I Shares
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
B Shares
I Shares
DIVERSIFIED BOND FUND
A Shares
B Shares
I Shares
138
TAX EQUIVALENT
YIELD YIELD
INCOME FUND ----- -----
A Shares N/A
B Shares N/A
I Shares N/A
TOTAL RETURN BOND FUND
A Shares N/A
B Shares N/A
I Shares N/A
LIMITED TERM TAX-FREE FUND
A Shares N/A
B Shares N/A
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
B Shares
I Shares
MINNESOTA TAX-FREE FUND
A Shares
B Shares
I Shares
STRATEGIC INCOME FUND
I Shares N/A N/A
MODERATE BALANCED FUND
I Shares N/A N/A
GROWTH BALANCED FUND
I Shares N/A N/A
DIVERSIFIED EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
GROWTH EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INDEX FUND
I Shares N/A
/TABLE
TAX EQUIVALENT
YIELD YIELD
VALUGROWTH STOCK FUND
A Shares N/A
B Shares N/A
I Shares N/A
INCOME EQUITY FUND
A Shares N/A
B Shares N/A
I Shares N/A
LARGE COMPANY GROWTH FUND
I Shares N/A
SMALL COMPANY STOCK FUND
A Shares N/A
B Shares N/A
I Shares N/A
SMALL COMPANY GROWTH FUND
I Shares N/A
SMALL CAP OPPORTUNITIES FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INTERNATIONAL FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
139
TABLE 3 - TOTAL RETURNS
The average annual total return of each class of each Fund for the periods ended
____________, 1998 was as follows. For the money market funds, the yields shown
in Table 1 more closely reflect the current earnings of each fund than the total
return quotation. The actual dates of the commencement of each Fund's
operations, or the commencement of the offering of each class' shares, is listed
in the Fund's financial statements. The performance of the Funds marked with an
asterisk (*) includes the performance of a collective investment fund or a
common trust fund prior to its conversion into the Fund. (See "Performance and
Advertising Data -- Multiclass, Collective Investment Fund, Common Trust Fund
and Core-Gateway Performance.") Prior to 1989, the collective investment funds
and common trust fund were valued on the calendar quarter; therefore the
following chart does not reflect a Since Inception figure as of the fiscal year
end for those funds adopting collective investment or common trust fund
performance. Calendar quarter performance is available from the adviser.
SEC STANDARDIZED RETURNS
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Institutional Shares
Exchange Shares
U.S. GOVERNMENT FUND
TREASURY FUND
MUNICIPAL MONEY MARKET FUND
Investor Shares
Institutional Shares
STABLE INCOME FUND
A Shares
B Shares
I Shares
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares
B Shares
I Shares
DIVERSIFIED BOND FUND*
I Shares
INCOME FUND
A Shares
B Shares
I Shares
TOTAL RETURN BOND FUND
A Shares
B Shares
I Shares
LIMITED TERM TAX-FREE FUND
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
B Shares
I Shares
SEC STANDARDIZED RETURNS (CONTINUED)
140
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
- --------------------------------------------------------------------------------
MINNESOTA INTERMEDIATE
TAX-FREE FUND*
I Shares
MINNESOTA TAX-FREE FUND
A Shares
B Shares
I Shares
STRATEGIC INCOME FUND*
I Shares
MODERATE BALANCED FUND*
I Shares
GROWTH BALANCED FUND*
I Shares
INCOME EQUITY FUND*
A Shares
B Shares
I Shares
INDEX FUND*
I Shares
VALUGROWTH STOCK FUND
A Shares
B Shares
I Shares
DIVERSIFIED EQUITY FUND*
A Shares
B Shares
I Shares
GROWTH EQUITY FUND*
A Shares
B Shares
I Shares
LARGE COMPANY GROWTH FUND*
I Shares
SMALL COMPANY STOCK FUND
A Shares
B Shares
I Shares
SMALL COMPANY GROWTH FUND*
I Shares
SMALL CAP OPPORTUNITIES FUND
A Shares
B Shares
I Shares
INTERNATIONAL FUND*
A Shares
B Shares
I Shares
141
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD)
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
MONTHS DATE YEARS YEARS INCEPTION
---------------------------------------------------------------------------------------------------------------------
CASH INVESTMENT FUND
READY CASH INVESTMENT FUND
Investor Shares
Institutional Shares
Exchange Shares
U.S. GOVERNMENT FUND
TREASURY FUND
MUNICIPAL MONEY MARKET FUND
Investor Shares
Institutional Shares
STABLE INCOME FUND
A Shares
B Shares
I Shares
LIMITED TERM GOVERNMENT
INCOME FUND
I Shares
INTERMEDIATE GOVERNMENT
INCOME FUND*
A Shares
B Shares
I Shares
DIVERSIFIED BOND FUND*
I Shares
INCOME FUND
A Shares
B Shares
I Shares
TOTAL RETURN BOND FUND
A Shares
B Shares
I Shares
LIMITED TERM TAX-FREE FUND
I Shares
TAX-FREE INCOME FUND
A Shares
B Shares
I Shares
COLORADO TAX-FREE FUND
A Shares
B Shares
I Shares
142
NON STANDARDIZED RETURNS (WITHOUT A SALES LOAD) (CONTINUED)
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN YEARS SINCE
MONTHS DATE YEARS YEARS INCEPTION
- - -------------------------------------------------------------------------------------------------------------------
MINNESOTA INTERMEDIATE
TAX-FREE FUND*
I Shares
MINNESOTA TAX-FREE FUND
A Shares
B Shares
I Shares
STRATEGIC INCOME FUND*
I Shares
MODERATE BALANCED FUND*
I Shares
GROWTH BALANCED FUND*
I Shares
INCOME EQUITY FUND*
A Shares
B Shares
I Shares
INDEX FUND*
I Shares
VALUGROWTH STOCK FUND
A Shares
B Shares
I Shares
DIVERSIFIED EQUITY FUND*
A Shares
B Shares
I Shares
GROWTH EQUITY FUND*
A Shares
B Shares
I Shares
LARGE COMPANY GROWTH FUND*
I Shares
SMALL COMPANY STOCK FUND
A Shares
B Shares
I Shares
SMALL COMPANY GROWTH FUND*
I Shares
SMALL CAP OPPORTUNITIES FUND
A Shares
B Shares
I Shares
INTERNATIONAL FUND*
A Shares
B Shares
I Shares
143
APPENDIX D - OTHER ADVERTISEMENT MATTERS
From time to time, the sales material for the Funds may include a discussion of,
and commentary by senior management of the Adviser on, the following.
The Trust may compare the Fund family against other bank-managed mutual funds or
other investment companies based on asset size. The Adviser believes the Funds'
growth may be attributed to three things: disciplined investment process,
utilizing talented people and focusing on customer needs.
The Funds utilize a disciplined process which relies heavily upon its investment
managers and an experienced investment research team. This approach maximizes
consistency by ensuring that no individual manager's style unduly influences a
fund's style.
NORWEST CORPORATION
1929 Northwestern National Bank and several upper midwest banks form a
holding company called Northwestern National Bancorporation. "Banco"
acquires 90 banks in its first year.
1932 At is peak, Banco owns a total of 139 affiliate banks.
1982 Banco enters the consumer finance business by acquiring Dial Finance
Company.
1983 The 87 affiliates of Banco are reborn as
"Norwest Corporation."
1989 Norwest consolidates its operations in the new 57-story Norwest Center
in downtown Minneapolis.
1997 Norwest reaches $50 billion in assets under management, including $19
billion in mutual funds.
NORWEST ADVANTAGE FUNDS
1946 Inception of the Common Trust Funds, the company's first pooled
investment vehicles.
1987 Norwest introduces two new open-ended
registered investment company funds
(commonly known as mutual funds), called the Prime Value Funds. In less
than one year, assets under management reach $500 million.
1992 The Norwest mutual fund family expands to 11 mutual funds. Assets under
management grow to $3.2 billion.
1994 Conversion to Norwest Collective Funds (bank collective investment
funds) into NORWEST ADVANTAGE FUNDS (mutual funds).
1998 NORWEST ADVANTAGE FUNDS family includes 41 mutual funds with over $20
billion in assets under management.
NORWEST CENTER
MINNEAPOLIS, MINNESOTA
DESIGNED BY WORLD-RENOWNED ARCHITECT CESAR PELLI, THE NORWEST CENTER WAS
CONSTRUCTED IN 1988. SINCE THEN, IT HAS RECEIVED SEVERAL PRESTIGIOUS
ARCHITECTURAL AWARDS, INCLUDING THE LARGE SCALE OFFICE AWARD OF EXCELLENCE, FROM
THE URBAN LAND INSTITUTE (1989); THE NAIOP (MINNESOTA) AWARD FOR EXCELLENCE --
DOWNTOWN BUILDING OF THE YEAR (1989); THE BOMA (MINNEAPOLIS) OFFICE BUILDING OF
THE YEAR, OVER 500,000 SQ. FT. (1993); AND THE BOMA (MIDWEST NORTHERN REGION)
OFFICE BUILDING OF THE YEAR, OVER 500,000 SQ. FT. (1994). THE NORWEST CENTER IS
LOCATED IN THE FINANCIAL DISTRICT OF MINNEAPOLIS AT 90 SOUTH SEVENTH STREET.
MASTERWORKS FUNDS INC.
STATEMENT OF ADDITIONAL INFORMATION
GROWTH STOCK FUND
SHORT-INTERMEDIATE TERM FUND
JUNE 30, 1998
MasterWorks Funds Inc. ("Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains information
about two of the Company's funds-- GROWTH STOCK AND SHORT-INTERMEDIATE TERM
FUNDS, (each, a "Fund" and collectively, the "Funds").
Each of the Short-Intermediate Term and Growth Stock Funds seeks to achieve
its investment objective by investing all of its assets in the
Short-Intermediate Term and Growth Stock Master Portfolios (collectively, the
"Master Portfolios") respectively, of Managed Series Investment Trust ("MSIT" at
times, the "Trust"). Barclays Global Fund Advisors ("BGFA") serves as investment
advisor to the corresponding Master Portfolios and Wells Fargo Bank, N.A.
("Wells Fargo Bank") serves as sub-adviser to the Growth Stock and
Short-Intermediate Term Master Portfolios. References to the investments,
investment policies and risks of the Funds unless otherwise indicated, should be
understood as references to the investments, investment policies and risks of
the corresponding Master Portfolios.
This SAI is not a prospectus and should be read in conjunction with the
Funds' current Prospectus, also dated June 30, 1998. All terms used in this
SAI that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
MasterWorks Funds Inc., c/o Investors Bank & Trust Co., -- Transfer Agent,
P.O. Box 9130, Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-888-204-
3956.
TABLE OF CONTENTS
General Information................................................ 1
Investment Restrictions............................................ 1
Additional Permitted Investment Activities......................... 5
Management......................................................... 9
Purchase and Redemption of Shares.................................. 15
Determination of Net Asset Value................................... 16
Taxes.............................................................. 17
Performance Information............................................ 23
Portfolio Transactions............................................. 26
Capital Stock...................................................... 28
Other.............................................................. 31
Counsel............................................................ 31
Independent Auditors............................................... 31
Financial Information.............................................. 31
SAI Appendix....................................................... A-1
Financial Statements............................................... F-1
GENERAL INFORMATION
The Company is a registered investment company which currently offers twelve
series, including the Funds. MSIT is a registered investment company consisting
of the Growth Stock and Short-Intermediate Term Master Portfolios. Each Fund
invests all of its assets in the corresponding Master Portfolio of the Trusts
(as illustrated below), which has the same or substantially the same investment
objective as the related Fund.
FUND CORRESPONDING MASTER PORTFOLIO
---- ------------------------------
Growth Stock Fund Growth Stock Master Portfolio
Short-Intermediate Term Fund Short-Intermediate Term Master Portfolio
On or about December 30, 1993, the Company's Board of Directors approved,
primarily for marketing purposes, the change of its corporate name from
"WellsFunds Inc." to "Stagecoach Inc." On or about March 15, 1996, the Company
changed its corporate name from "Stagecoach Inc." to "MasterWorks Funds
Inc."
INVESTMENT RESTRICTIONS
Each Fund and Master Portfolio has adopted investment policies which may be
fundamental or non-fundamental. Fundamental policies cannot be changed without
approval by the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding voting securities of
such Fund or Master Portfolio, as the case may be. Non-fundamental policies may
be changed without shareholder approval by vote of a majority of the Directors
of the Company or the Trustees of the Trusts, as the case may be, at any time.
FUNDAMENTAL INVESTMENT RESTRICTIONS. The Funds are subject to the following
investment restrictions, all of which are fundamental policies.
i
The Funds may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of any Fund's investments in that industry would be 25% or
more of the current value of such Fund's total assets, provided that there is no
limitation with respect to investments in obligations of the U.S. Government,
its agencies or instrumentalities, and provided further, that a Fund may invest
all its assets in a diversified open-end management investment company, or
series thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard for the limitations set forth in this
paragraph;
(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities issued
by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that a Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts, and except that the
Growth Stock Fund may enter into futures and options contracts in accordance
with its respective investment policies;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting
and provided further, that the purchase by a Fund of securities issued by a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective, policies and restrictions as such
Fund shall not constitute an underwriter for purposes of this paragraph (6);
(7) make investments for the purpose of exercising control or management;
provided that a Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (7);
(8) borrow money or issue senior securities as defined in the 1940 Act,
except that each Fund may borrow from banks up to 10% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 10% of the current value
of its net assets (but investments may not be purchased while any such
outstanding borrowing in excess of 5% of its net assets exists);
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the Growth Stock Fund may enter
into futures and options contracts in accordance with its respective investment
policies, and except that the Growth Stock Fund may purchase securities with put
rights in order to maintain liquidity, and except that both Funds may invest up
to 5% of their net assets in warrants in accordance with their investment
policies stated below;
1
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of a
Fund's, total assets would be invested in the securities of any one issuer or,
with respect to 100% of its total assets a Fund's ownership would be more than
10% of the outstanding voting securities of such issuer; provided that a Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (10); or
(11) make loans, except that each Fund may purchase or hold debt instruments
or lend their portfolio securities in accordance with their investment policies,
and may enter into repurchase agreements.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Funds are subject to the
following investment restrictions, all of which are non-fundamental policies.
(1) The Funds may not, unless required by their investment strategy of
replicating the composition of a published market index:
(a) purchase or retain securities of any issuer if the officers or
Directors of the Company or the investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;
(b) purchase securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth, possession,
territory, the District of Columbia or by an entity in existence at least three
years, or the securities are backed by the assets and revenues of any of the
foregoing if, by reason thereof, the value of its aggregate investments in such
securities will exceed 5% of its total assets, provided that this restriction
does not affect the Fund's ability to invest all or a portion of its assets in
the corresponding Master Portfolio of MSIT.
(2) The Funds reserve the right to invest up to 15% of the current value of
their net assets in fixed time deposits that are subject to withdrawal penalties
and that have maturities of more than seven days, repurchase agreements maturing
in more than seven days or other illiquid securities. However, this limit should
not prevent a Fund from investing all of its assets in the corresponding Master
Portfolio of MSIT.
(3) The Funds may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchases will be limited to temporary investments in
shares of unaffiliated investment companies and the Investment Adviser will
waive its advisory fees for that portion of the Master Portfolio's assets so
invested, except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
FUNDAMENTAL INVESTMENT RESTRICTIONS. The Master Portfolios are subject to
the following investment restrictions, all of which are fundamental
policies.
The Master Portfolios may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of a Master Portfolio's investments in that industry would be
25% or more of the current value of such Master Portfolio's total assets,
provided that there is no limitation with respect to investments in (i)
obligations of the U.S. Government, its agencies or instrumentalities;
2
(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities issued
by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that a Master Portfolio may purchase securities of an issuer
which invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Master Portfolio's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) borrow money or issue senior securities as defined in the 1940 Act,
except that each Master Portfolio may borrow from banks up to 10% of the current
value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10% of
the current value of its net assets (but investments may not be purchased while
any such outstanding borrowing in excess of 5% of its net assets exists);
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the Growth Stock Master
Portfolio may purchase securities with put rights in order to maintain
liquidity, and except that each Master Portfolio may invest up to 5% of its net
assets in warrants in accordance with their investment policies stated
below;
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of a
Master Portfolio's total assets would be invested in the securities of any one
issuer or, with respect to 100% of its total assets such Master Portfolio's
ownership would be more than 10% of the outstanding voting securities of such
issuer; or
(11) make loans, except that the Master Portfolios may purchase or hold debt
instruments or lend their portfolio securities in accordance with their
investment policies, and may enter into repurchase agreements.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Master Portfolios are subject
to the following non-fundamental policies.
(1) The Master Portfolios may not:
(a) purchase or retain securities of any issuer if the officers or
Trustees of MSIT or the investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;
3
(b) purchase securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth, possession,
territory, the District of Columbia or by an entity in existence at least three
years, or the securities are backed by the assets and revenues of any of the
foregoing if, by reason thereof, the value of its aggregate investments in such
securities will exceed 5% of its total assets;
(2) Each Master Portfolio reserves the right to invest up to 15% of the
current value of its net assets in fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days,
repurchase agreements maturing in more than seven days or other illiquid
securities.
(3) Each Master Portfolio may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act, provided that any such purchases will be limited to temporary investments
in shares of unaffiliated investment companies and the Investment Adviser will
waive its advisory fees for that portion of the MSIT Master Portfolio's assets
so invested, except when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Repurchase Agreements. Each Master Portfolio may engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
although the underlying security may mature in more than thirteen months. A
Master Portfolio may enter into repurchase agreements wherein the seller of a
security to the Master Portfolio agrees to repurchase that security from the
Master Portfolio at a mutually agreed-upon time and price that involves the
acquisition by the Master Portfolio of an underlying debt instrument, subject to
the seller's obligation to repurchase, and the Master Portfolio's obligation to
resell, the instrument at a fixed price usually not more than one week after its
purchase. The Master Portfolio's custodian has custody of, and holds in a
segregated account, securities acquired as collateral by the Master Portfolio
under a repurchase agreement. Repurchase agreements are considered by the staff
of the SEC to be loans by the Master Portfolio. A Master Portfolio may enter
into repurchase agreements only with respect to securities of the type in which
it may invest, including government securities and mortgage-related securities,
regardless of their remaining maturities, and requires that additional
securities be deposited with the custodian if the value of the securities
purchased should decrease below resale price. Wells Fargo Bank monitors on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by the Master
Portfolio in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by a Master Portfolio may be
delayed or limited. While it does not presently appear possible to eliminate all
risks from these transactions (particularly the possibility of a decline in the
market value of the underlying securities, as well as delay and costs to a
Master Portfolio in connection with insolvency proceedings), it is the policy of
each Master Portfolio to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
Each Master Portfolio considers on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase agreements. Repurchase
agreements are considered to be loans by a Master Portfolio under the 1940
Act.
Floating- and Variable-Rate Obligations. Each Master Portfolio may
purchase floating- and variable-rate obligations as described in the Prospectus.
A Master Portfolio may purchase floating- and variable-rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess of
thirteen months, but which permit the holder to demand payment of principal at
any time, or at
4
specified intervals not exceeding thirteen months. Variable rate
demand notes include master demand notes that are obligations that permit a
Master Portfolio to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Master Portfolio, as
lender, and the borrower. The interest rates on these notes fluctuate from time
to time. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders of such obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate, such as a bank's prime rate,
and is adjusted automatically each time such rate is adjusted. The interest rate
on a variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, a Master Portfolio's
right to redeem is dependent on the ability of the borrower to pay principal and
interest on demand. Such obligations frequently are not rated by credit rating
agencies and a Master Portfolio may invest in obligations which are not so rated
only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the
Master Portfolio may invest. Wells Fargo Bank, on behalf of each Master
Portfolio, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in a Master Portfolio's
portfolio. A Master Portfolio will not invest more than 10% of the value of its
total net assets in floating- or variable-rate demand obligations whose demand
feature is not exercisable within seven days. Such obligations may be treated as
liquid, provided that an active secondary market exists.
Unrated, Downgraded and Below Investment Grade Investments. A Master
----------------------------------------------------------
Portfolio may purchase instruments that are not rated if, in the opinion of the
adviser, BGFA, such obligation is of investment quality comparable to other
rated investments that are permitted to be purchased by such Master Portfolio.
After purchase by a Master Portfolio, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Master
Portfolio. Neither event will require a sale of such security by a Master
Portfolio provided that the amount of such securities held by a Master Portfolio
does not exceed 5% of the Master Portfolio's net assets. To the extent the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, each Master Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the SAI Appendix.
Because the Master Portfolios are not required to sell downgraded
securities, and because the Growth Stock Master Portfolio is permitted to
purchase securities that are rated below investment grade, or if unrated are of
comparable quality, each Master Portfolio could hold up to 5% of its net assets
in debt securities rated below "Baa" by Moody's or below "BBB" by S&P or if
unrated, low quality (below investment grade) securities.
Although they may offer higher yields than do higher rated securities, low
rated and unrated low quality debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated low quality debt are traded are more
limited than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish a Master Portfolio's
ability to sell the securities at fair value either to meet redemption requests
or to
5
respond to changes in the economy or in the financial markets and could
adversely affect and cause fluctuations in the daily net asset value of a Master
Portfolio's shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated or
unrated low quality debt securities, especially in a thinly traded market.
Analysis of the creditworthiness of issuers of low rated or unrated low quality
debt securities may be more complex than for issuers of higher rated securities,
and the ability of a Master Portfolio to achieve its investment objective may,
to the extent it holds low rated or unrated low quality debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the
Master Portfolio held exclusively higher rated or higher quality securities.
Low rated or unrated low quality debt securities may be more susceptible to
real or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, the Master Portfolios may incur additional expenses to
seek recovery.
Letters of Credit. Certain of the debt obligations (including municipal
-----------------
securities, certificates of participation, commercial paper and other short-term
obligations) which a Master Portfolio may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
BGFA, as investment adviser, are of comparable quality to issuers of other
permitted investments of such Master Portfolio may be used for letter of
credit-backed investments.
Pass-Through Obligations. Certain of the debt obligations in which the
------------------------
Short-Intermediate Term Master Portfolio may invest may be pass-through
obligations that represent an ownership interest in a pool of mortgages and the
resultant cash flow from those mortgages. Payments by homeowners on the loans in
the pool flow through to certificate holders in amounts sufficient to repay
principal and to pay interest at the pass-through rate. The stated maturities of
pass-through obligations may be shortened by unscheduled prepayments of
principal on the underlying mortgages. Therefore, it is not possible to predict
accurately the average maturity of a particular pass-through obligation.
Variations in the maturities of pass-through obligations will affect the yield
of any Master Portfolio investing in such obligations. Furthermore, as with any
debt obligation, fluctuations in interest rates will inversely affect the market
value of pass-through obligations. The Short-Intermediate Term Master Portfolio
may invest in pass-through obligations that are supported by the full faith and
credit of the U.S. Government (such as those issued by the Government National
Mortgage Association) or those that are guaranteed by an agency or
instrumentality of the U.S. Government or government-sponsored enterprise (such
as the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation) or bonds collateralized by any of the foregoing.
When-Issued Securities. Certain of the securities in which the Master
----------------------
Portfolios may invest will be purchased on a when-issued basis, in which case
delivery and payment normally take place within 45 days after the date of the
commitment to purchase. The Master Portfolios only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may
6
sell them before the settlement date if it is deemed advisable. When-issued
securities are subject to market fluctuation, and no income accrues to the
purchaser during the period prior to issuance. The purchase price and the
interest rate that will be received on debt securities are fixed at the time the
purchaser enters into the commitment. Purchasing a security on a when-issued
basis can involve a risk that the market price at the time of delivery may be
lower than the agreed-upon purchase price, in which case there could be an
unrealized loss at the time of delivery. The Master Portfolios currently do not
intend to invest more than 5% of its assets in when-issued securities during the
coming year. Each Master Portfolio will establish a segregated account in which
it will maintain cash or liquid, high-grade debt securities in an amount at
least equal in value to the Master Portfolio's commitments to purchase when-
issued securities. If the value of these assets declines, a Master Portfolio
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such
commitments.
Loans of Portfolio Securities. The Master Portfolios may lend securities
-----------------------------
from their portfolios to brokers, dealers and financial institutions (but not
individuals) if cash, U.S. Government securities or other high-quality debt
obligations equal to at least 100% of the current market value of the securities
loan (including accrued interest thereon) plus the interest payable to such
Master Portfolio with respect to the loan is maintained with the Master
Portfolio. In determining whether to lend a security to a particular broker,
dealer or financial institution, the Master Portfolio's investment adviser will
consider all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities will be fully collateralized based on values
that are marked to market daily. The Master Portfolios will not enter into any
portfolio security lending arrangement having a duration of longer than one
year. Any securities that a Master Portfolio may receive as collateral will not
become part of the Master Portfolio's investment portfolio at the time of the
loan and, in the event of a default by the borrower, the Master Portfolio will,
if permitted by law, dispose of such collateral except for such part thereof
that is a security in which the Master Portfolio is permitted to invest. During
the time securities are on loan, the borrower will pay the Master Portfolio any
accrued income on those securities, and the Master Portfolio may invest the cash
collateral and earn income or receive an agreed-upon fee from a borrower that
has delivered cash-equivalent collateral. The Master Portfolios will not lend
securities having a value that exceeds one-third of the current value of its
total assets. Loans of securities by a Master Portfolio will be subject to
termination at the Master Portfolio's or the borrower's option. A Master
Portfolio may pay reasonable administrative and custodial fees in connection
with a securities loan and may pay a negotiated portion of the interest or fee
earned with respect to the collateral to the borrower or the placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with the Company, BGFA, Wells Fargo Bank (the sub-adviser to the Master
Portfolios) or the Distributor.
Investment in Warrants. Each Master Portfolio may invest up to 5% of its net
----------------------
assets at the time of purchase in warrants (other than those that have been
acquired in units or attached to other securities), including not more than 2%
of each of their net assets in warrants which are not listed on the New York or
American Stock Exchange. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time. The
prices of warrants do not necessarily correlate with the prices of the
underlying securities. Each Master Portfolio may only purchase warrants on
securities in which it may invest directly.
7
MANAGEMENT
Directors and Officers. The following information supplements and should be
----------------------
read in conjunction with the Prospectus section entitled "Management of the
Funds". Directors and officers of the Company, together with information as to
their principal business occupations during the last five years, are shown
below. Each of the Officers and Directors of the Company serve in the identical
capacity as Officers and Trustees of the Trusts. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors who are deemed to be an "interested person" of the Company, as defined
in the 1940 Act, are indicated by an asterisk.
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
----------------------- ----------- -------------------
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services
President Inc.; Senior Vice President of Stephens
Sports Management Inc.; and President of
Investors Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance, Calloway
P.O. Box 7285 School of Business and Accounting
Reynolda Station Wake Forest University, since 1982.
Winston-Salem, NC 27109
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Chairman of Home Account Network, Inc.;
4 Beaufain Street Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.;
President of Morse Investment
Corporation; and Co-Managing Partner
of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Vice President of Stephens Inc.;
Operating Director of Stephens Sports
Officer, Management Inc.; and Director of
Secretary and Capo Inc.
Treasurer
8
COMPENSATION TABLE
For the Fiscal Year Ended February 28, 1998
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEX
- - ----------------- ---------------------- ------------------
Jack S. Euphrat $ 11,250 $ 11,250
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho $ 11,250 $ 11,250
Director
*Zoe Ann Hines/1/ 0 0
Director
*W. Rodney Hughes $ 11,000 $ 11,000
Director
Robert M. Joses/2/ $ 1,000 $ 1,000
Director
*J. Tucker Morse $ 11,000 $ 11,000
Director
- - ---------------
/1/ Zoe Ann Hines retired as of January 28, 1998.
/2/ Robert M. Joses retired as of December 31, 1997.
Directors of the Company are compensated annually by the Company and by all
the registrants in the fund complex for their services as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company, Master Investment Portfolio and MSIT are considered
to be members of the same fund complex, as such term is defined in Form N-1A
under the 1940 Act (the "BGFA Fund Complex"). Stagecoach Funds, Inc., Stagecoach
Trust and Life & Annuity Trust together form a separate fund complex (the "Wells
Fargo Fund Complex"). Prior to December 15, 1997, the Wells Fargo Fund Complex
also included Overland Express Funds, Inc. and Master Investment Trust. On that
date, Overland Express Funds, Inc. was consolidated with and into Stagecoach
Funds, Inc. and Master Investment Trust was dissolved. Each of the Directors and
the Officers of the Company serves in the identical capacity as
Directors/Trustees and Officers of each registered open-end management
investment company in both the BGFA and Wells Fargo Fund Complexes. The
Directors are compensated by other companies and trusts within the fund complex
for their services as Directors/Trustees to such companies and trusts. Currently
the Directors do not receive any retirement benefits or deferred compensation
from the Company or any other member of each fund complex. As of the date of
this SAI, Directors and officers of the Company as a group beneficially owned
less than 1% of the outstanding shares of the Company.
Master/Feeder Structure. Each Fund seeks to achieve its investment objective
-----------------------
by investing all of its assets into the corresponding Master Portfolio of MSIT.
The Funds and other entities investing in a Master Portfolio are each liable for
all obligations of such Master Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself is unable to meet its
obligations. Accordingly, the Company's Board of Directors
9
believes that neither a Fund nor its shareholders will be adversely affected by
investing Fund assets in a Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from such Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Management of the Funds" in the Prospectus for
additional description of the Funds' and Master Portfolios' expenses and
management.
A Fund may withdraw its investment in a Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of such Fund and its shareholders. Upon any such withdrawal, the
Company's Board would consider alternative investments, including investing all
of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies described below with respect
to its corresponding Master Portfolio.
The investment objective and other fundamental policies of a Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives and Policies" in the Prospectus. Whenever a Fund, as an
interestholder of the corresponding Master Portfolio, is requested to vote on
any matter submitted to interestholders of such Master Portfolio, the Fund will
hold a meeting of its shareholders to consider such matters. The Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which a Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of a Master Portfolio which are non-fundamental may be
changed by vote of a majority of the Trust's Trustees without interestholder
approval. If a Master Portfolio's investment objective or fundamental or
non-fundamental policies are changed, the Fund may elect to change its objective
or policies to correspond to those of the Master Portfolio. A Fund also may
elect to redeem its interests in the corresponding Master Portfolio and either
seek a new investment company with a matching objective in which to invest or
retain its own investment adviser to manage the Fund's portfolio in accordance
with its objective. In the latter case, a Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. A Fund will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of such Fund or the corresponding Master
Portfolio, to the extent possible. See "Investment Objectives and Policies" in
the Prospectus for additional information regarding the Funds' and the Master
Portfolios' investment objectives and policies.
Investment Adviser. Pursuant to an Investment Advisory Contract with each
------------------
Master Portfolio, BGFA provides investment guidance and policy direction in
connection with the management of each Master Portfolio's assets. Pursuant to
the Advisory Contracts, BGFA furnishes to the Trust's Board of Trustees periodic
reports on the investment strategy and performance of each Master Portfolio.
BGFA has agreed to provide to the Master Portfolios, among other things, money
market security and fixed-income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition, credit conditions and average maturities of each Master
Portfolio's investment portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.60% and
0.45% of the average daily net assets of the Growth Stock and Short-Intermediate
Term Master Portfolios, respectively, as compensation for its advisory services
to such Master Portfolio.
10
Each Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the respective Master Portfolio's outstanding voting securities or by the
Trust's Board of Trustees and (ii) by a majority of the Trustees of the Trust
who are not parties to the Advisory Contract or "interested persons" (as defined
in the 1940 Act) of any such party. Each Advisory Contract may be terminated on
60 days' written notice by either party and will terminate automatically if
assigned.
The Advisory Contracts provide that the advisory fee is accrued daily and
paid monthly. Out of the fees that BGFA receives from the Master Portfolios, it
pays Wells Fargo Bank, for its sub-advisory services, a percentage of each
Master Portfolio's average daily net assets as agreed by BGFA and Wells Fargo
Bank. BGFA is compensated for its custodial services to the Master Portfolio and
the Funds out of the advisory fee from each Master Portfolio.
For the period beginning March 1, 1995 and ended December 31, 1995, the
corresponding Master Portfolio of each Fund paid to Wells Fargo Bank the
advisory fees indicated below, without waivers:
3/1/95 - 12/31/95
MASTER PORTFOLIO FEES PAID
---------------- -----------------
Growth Stock Master Portfolio $ 662,204
Short-Intermediate Term Master Portfolio $ 47,460
For the period beginning January 1, 1996 and ended February 29, 1996 and for
the fiscal year ended February 28, 1997, the corresponding Master Portfolio of
each Fund paid to BGFA the advisory fees indicated below, without
waivers:
1/1/96 - 2/29/96 FYE 2/28/97
MASTER PORTFOLIO FEES PAID FEES PAID
---------------- --------- ---------
Growth Stock Master Portfolio $ 164,817 $1,334,600
Short-Intermediate Term Master Portfolio $ 9,923 $ 58,891
For the fiscal year ended February 28, 1998, the corresponding Master
Portfolio of each Fund paid to BGFA the advisory fees indicated below and BGFA
waived the indicated amounts:
FYE 2/28/98
MASTER PORTFOLIO FEES PAID FEES WAIVED
---------------- --------- -----------
Growth Stock Master Portfolio $1,309,435 $ 45,153
Short-Intermediate Term Master Portfolio $ 50,170 $ 0
Investment Sub-Adviser. Effective January 1, 1996, the Master Portfolios,
----------------------
pursuant to separate investment sub-advisory contracts with Wells Fargo Bank,
retained Wells Fargo Bank as its investment sub-adviser. Wells Fargo Bank is
responsible for the day-to-day portfolio management of each MSIT Master
Portfolio. The same Wells Fargo Bank investment professionals that previously
managed the investment portfolio of each MSIT Master Portfolio will continue,
subject to the overall supervision of BGFA, to manage each such Master
Portfolio's investment portfolio. Subject to the direction of the Trust's Board
of Trustees and the overall supervision and control of BGFA and the Trust, Wells
Fargo Bank is responsible for investing and reinvesting each Master Portfolio's
assets. In this regard, Wells Fargo Bank is responsible for implementing and
monitoring the performance of the investment model employed with respect to each
Master Portfolio, in accordance with the investment objective, policies and
restrictions set forth in the Prospectus, and furnishes to BGFA periodic reports
on the investment activity and performance of the Master Portfolios, and such
additional reports and information as BGFA and the Trust's Board of Trustees and
officers shall reasonably request. Wells Fargo Bank is entitled to receive
11
from BGFA an amount equal to 0.15% and 0.10% of the average daily net assets of
the Growth Stock and Short-Intermediate Term Master Portfolios, respectively, as
compensation for its sub-advisory services.
For the period beginning January 1, 1996 and ended February 29, 1996, and
for the fiscal years ended February 28, 1997 and February 28, 1998, BGFA paid to
Wells Fargo Bank the following sub-advisory fees for services provided to the
corresponding Master Portfolio of each Fund, without waivers:
1/1/96 - 2/29/96 FYE 2/28/97 FYE 2/28/98
MASTER PORTFOLIO FEES PAID FEES PAID FEES PAID
- - ---------------- ---------------- ----------- -----------
Growth Stock Master Portfolio $41,297 $332,700 $337,502
Short-Intermediate Term Master Portfolio $12,801 $ 13,020 $ 11,102
Co-Administrators. The Company has engaged Stephens Inc. ("Stephens") and
-----------------
Barclays Global Investors, N.A. ("BGI") to provide certain administration
services to the Funds. Pursuant to a Co-Administration Agreement with the
Company, Stephens and BGI provide as administration services, among other
things: (i) general supervision of the operation of the Funds, including
coordination of the services performed by the investment adviser, transfer and
dividend disbursing agent, custodian, shareholder servicing agent, independent
auditors and legal counsel; (ii) general supervision of regulatory compliance
matters, including the compilation of information for documents such as reports
to, and filings with, the SEC and state securities commissions, and preparation
of proxy statements and shareholder reports for the Funds; and (iii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Company's officers and Board of Directors.
Stephens also furnishes office space and certain facilities required for
conducting the business of the Company together with those ordinary clerical and
bookkeeping services that are not being furnished by the Fund's investment
adviser. Stephens also pays the compensation of the Company's Directors,
officers and employees who are affiliated with Stephens.
In addition, except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and certain
expenses which are borne by the Funds, Stephens and BGI have agreed to bear all
costs of the Funds' and the Company's operations including, but not limited to,
transfer and dividend disbursing agency fees, shareholder servicing fees, and
expenses of printing and preparing prospectuses, SAIs and other Fund materials.
For providing such services, Stephens and BGI, in the aggregate, are entitled to
0.18% of the average daily net assets of each of the Growth Stock and
Short-Intermediate Term Funds. Effective October 21, 1996, BGI contracted with
Investors Bank & Trust Company ("IBT") to provide certain sub-administration
services. Prior to October 21, 1996, Stephens served as sole administrator to
the Funds.
For the fiscal years ended February 29, 1996 and February 28, 1997, the
Funds paid administration and co-administration fees to Stephens as
follows:
FUND FYE 2/29/96 FYE 2/28/97
---- ----------- -----------
Growth Stock Fund $ 68,886 $149,995
Short-Intermediate Term Fund $ 6,381 $ 8,685
For the period beginning October 21, 1996 and ended February 28, 1997, the
Funds paid co-administration fees to BGI as follows:
12
FUND 10/21/96 - 2/28/97
---- ------------------
Growth Stock Fund $69,346
Short-Intermediate Term Fund $ 3,817
For the fiscal year ended February 28, 1998, the Funds paid
co-administration fees jointly to Stephens and BGI as follows:
FUND FYE 2/28/98
---- -----------
Growth Stock $405,996
Short-Intermediate $ 20,045
Distributor. Stephens acts as the exclusive distributor of each Fund's
-----------
shares pursuant to an Amended and Restated Distribution Agreement (the
"Distribution Agreement") with the Company on behalf of the Funds. Shares are
sold on a continuous basis by Stephens as agent, although Stephens is not
obligated to sell any particular amount of shares. No compensation is payable by
the Company to Stephens for its distribution services. The term and termination
provisions of the Distribution Agreement are substantially similar to those of
the Agreement with the Adviser discussed above.
Shareholder Servicing Plan. Each of the Funds has adopted a Shareholder
--------------------------
Servicing Plan (each a "Servicing Plan" and collectively the "Servicing Plans").
Under each Servicing Plan and pursuant to each Servicing Agreement, a Fund may
pay one or more servicing agents, as compensation for performing certain
services, monthly fees at the annual rate of up to 0.10% of the average daily
net assets of the Short-Intermediate Term and Growth Stock Funds. Payments to a
servicing agent by a Fund will be based upon the average daily net assets of the
shares of the Fund owned of record by the servicing agent on behalf of
customers, or by its customers directly, during the period for which payment is
made.
The Servicing Plans will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Qualified Directors. The Servicing Agreement may be
terminated automatically if assigned, or may be terminated at any time not more
than 60 days' nor less than 30 day's after notice, by a vote of a majority of
the Disinterested Directors or by a vote of the majority of the outstanding
voting securities of the Shares of a Fund of the Company or the affected
Fund(s). The Servicing Plans may not be amended to increase materially the
amount payable thereunder without the approval of a majority of the Company's
Board of Directors, including a majority of the Disinterested Directors cast at
a meeting called for that specific purpose.
The Servicing Plans require that the servicing agent shall provide to the
Treasurer of the Company, at least quarterly, a written report of the amounts
expended by the servicing agent (and purposes therefor) under each Servicing
Plan, and shall provide to the Company's Board of Directors such information as
may reasonably be necessary to an informed determination of whether the
Agreement shall be implemented or continued.
For the fiscal year ended February 28, 1997,/1/ the Funds paid shareholder
servicing fees as follows and the indicated amounts were waived:
FEES FEES
FUND PAID WAIVED
---- ---- ------
Growth Stock Fund $139,134 $112,482
Short-Intermediate Term Fund $ 8,448 $ 8,448
- - ---------------
/1/ Beginning October 21, 1996, shareholder servicing fees were paid out of
co-administration fees.
13
Custodian. IBT, concurrent with its appointment as sub-administrator for the
---------
Funds on October 21, 1996, also has been retained as custodian to each Fund and
Master Portfolio and performs such services at 200 Clarendon Street, Boston,
Massachusetts 02116. The custodian, among other things, maintains a custody
account or accounts in the name of each Fund; receives and delivers all assets
for each Fund upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of each
Fund and pays all expenses of each Fund. IBT is not entitled to receive
compensation for its services as custodian so long as it is entitled to receive
fees from BGI for providing sub-administration services to the Funds. Prior to
October 21, 1996, BGI served as custodian to the Funds and was not entitled to
receive a fee. For the fiscal year ended February 28, 1998, the Funds did not
pay any custody fees.
Transfer and Dividend Disbursing Agent. IBT has been retained to act as the
--------------------------------------
transfer and dividend disbursing agent for the Funds. For its services as
transfer and dividend disbursing agent to the Fund, IBT is entitled to receive
an annual maintenance fee computed on the basis of the number of shareholder
accounts that it maintains for the Funds and to be reimbursed for out-of-pocket
expenses or advances incurred by it in performing its obligations under the
agreement. The annual maintenance fee is paid as follows:
ANNUAL FEE
----------
Up to 200 accounts* $6,000 per feeder/class
From 201 to 250 accounts $8,500 per feeder/class
Over 250 accounts $10,000 per feeder/class
- - ---------------
* Defined as each account that is set up for an individual or plan sponsor on
a fund by fund basis.
In addition, the agreement contemplates that IBT will be reimbursed for
other expenses incurred by it at the request or with the written consent of the
Funds, including, without limitation, any equipment or supplies which the
Company specifically orders or requires IBT to order.
Prior to March 2, 1998, Wells Fargo Bank served as transfer and
dividend disbursing agent to the Funds, and was entitled to receive a monthly
fee at an annual rate of 0.03% of the average daily net assets of each Fund for
such services.
PURCHASE AND REDEMPTION OF SHARES
Terms of Purchase. The Funds are generally open Monday through Friday and
-----------------
are closed on weekends and NYSE holidays. The holidays on which the NYSE is
closed currently are: New Year's Day, Martin Luther King, Jr.'s. Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Company reserves the right to reject any
purchase order and to change the amount of the minimum investment and subsequent
purchases in the Funds.
Payment for shares of a Fund may, at the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund and must
meet the investment objective, policies and limitations of the Fund as described
in the Prospectus. In connection with an in-kind securities payment, a Fund may
require, among other things, that the securities (i) be valued on the day of
purchase in accordance with the pricing methods used by the Fund; (ii) are
accompanied by satisfactory assurance that the Fund will have good and
marketable title to such securities received by it; (iii) are not subject to
14
any restrictions upon resale by the Fund; (iv) be in proper form for transfer to
the Fund; (v) are accompanied by adequate information concerning the basis and
other tax matters relating to the securities. All dividends, interest,
subscription or other rights pertaining to such securities shall become the
property of the Fund engaged in the in-kind purchase transaction and must be
delivered to such Fund by the investor upon receipt from the issuer. Securities
acquired through an in-kind purchase will be acquired for investment and not for
immediate resale. Shares purchased in exchange for securities generally cannot
be redeemed until the transfer has settled. Each Fund immediately will transfer
to its corresponding Master Portfolio any and all securities received by it in
connection with an in-kind purchase transaction, in exchange for interests in
such Master Portfolio.
Suspension of Redemptions. Under the 1940 Act, a Fund may suspend the right
-------------------------
of redemption or postpone the date of payment upon redemption for any period
during which the NYSE is closed (other than customary weekend and holiday
closings, or during which trading is restricted, or during which as determined
by the SEC by rule or regulation) an emergency exists as a result of which
disposal or valuation of portfolio securities is not reasonably practicable, or
for such periods as the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company also may
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse a Fund
for any losses sustained by reason of the failure of a shareholder to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of a
Fund as provided from time to time in the Prospectus.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for a Fund is determined on each day the Fund is
open for trading. Each Fund's investment in the corresponding Master Portfolio
of the Trusts are valued at the net asset value of such Master Portfolio'
shares.
Because the Master Portfolios are closed on certain days when the NYSE is
open for business, shareholders would not be able to redeem their shares on
certain days when there may be significant changes in the value of a Master
Portfolio's portfolio securities.
Master Portfolio securities for which market quotations are available are
valued at latest prices. Securities of a Master Portfolio for which the primary
market is a national securities exchange or the National Association of
Securities Dealers Automated Quotations National Market System are valued at
last sale prices. In the absence of any sale of such securities on the valuation
date and in the case of other securities, including U.S. Government securities
but excluding money market instruments maturing in 60 days or less, the
valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost with cost being the
value of the security on the preceding day (61st day). Futures contracts will be
marked to market daily at their respective settlement prices determined by the
relevant exchange. Options listed on a national exchange are valued at the last
sale price on the exchange on which they are traded at the close of the NYSE,
or, in the absence of any sale on the valuation date, at latest quoted bid
prices. Options not listed on a national exchange are valued at latest quoted
bid prices. Debt securities maturing in 60 days or less are valued at amortized
cost. In all
15
cases, bid prices will be furnished by an independent pricing service approved
by the Board of Trustees. Prices provided by an independent pricing service may
be determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Securities held under a repurchase
agreement will be valued at a price equal to the amount of the cash investment
at the time of valuation on the valuation date. The market value of the
underlying securities shall be determined in accordance with the applicable
procedures, as described above, for the purpose of determining the adequacy of
collateral. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by MSIT's Board of Trustees and in accordance with
procedures adopted by the Trustees.
TAXES
The following information supplements and should be read in conjunction with
the Prospectus section entitled "Taxes." The Prospectus describes generally the
tax treatment of distributions by the Funds. This section of the SAI includes
additional information concerning income taxes.
General. The Company intends to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for tax purposes
and thus the provisions of the Code applicable to regulated investment companies
will generally be applied individually to each Fund, rather than to the Company
as a whole. Accordingly, net capital gain, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, each Fund will not be taxed on its net investment income and capital
gains distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) each Fund diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash, government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income(which, for this purpose
includes net short-term capital gains) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. The Funds intend to pay out substantially all
of their net investment income and net realized capital gains (if any) for each
year.
16
In addition, a regulated investment company must, in general, derive less
than 30% of its gross income for a taxable year from the sale or other
disposition of securities or options thereon held for less than three months.
However, this restriction has been repealed with respect to a regulated
investment company's taxable years beginning after August 5, 1997.
Each Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in a Master Portfolio. Under the Code, each
Master Portfolio will be treated as a non-publicly traded partnership rather
than as a regulated investment company or a corporation. As a non-publicly
traded partnership, any interest, dividends, gains and losses of the Master
Portfolio shall be deemed to have been "passed through" to the corresponding
Fund (and the Master Portfolio's other investors) in proportion to each Fund's
ownership interest in the Master Portfolio. Therefore, to the extent that a
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the corresponding Fund would be deemed to have realized and recognized
its proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, each Master Portfolio will seek to minimize
recognition by its investors (such as a Fund) of interest, dividends, gains or
losses without a corresponding distribution.
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise
tax.
Taxation of Master Portfolio Investments. Except as otherwise provided
herein, gains and losses realized by a Master Portfolio on the sale of portfolio
securities generally will be capital gains and losses. Such gains and losses
ordinarily will be long-term capital gains and losses if the securities have
been held by the Master Portfolio for more than one year at the time of
disposition of the securities.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a Master
Portfolio at a market discount (generally at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of
market discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Master Portfolio held the debt
obligation.
If an option granted by a Master Portfolio lapses or is terminated through a
closing transaction, such as a repurchase by the Master Portfolio of the option
from its holder, the Master Portfolio will realize a short-term capital gain or
loss, depending on whether the premium income is greater or less than the amount
paid by the Master Portfolio in the closing transaction. Some realized capital
losses may be deferred if they result from a position which is part of a
"straddle," discussed below. If securities are sold by a Master Portfolio
pursuant to the exercise of a call option granted by it, the Master Portfolio
will add the premium received to the sale price of the securities delivered in
determining the amount of gain or loss on the sale.
Under Section 1256 of the Code, a Master Portfolio will be required to "mark
to market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed non-equity options. In this regard,
Section 1256 contracts will be deemed to have been sold at market value. Under
Section 1256 of the Code, sixty percent (60%) of any net gain or loss realized
on all dispositions of Section 1256 contracts, including deemed dispositions
under the mark-to-market regime, will generally be treated as long-term capital
gain or loss, and the remaining forty percent (40%) will be treated as
17
short-term capital gain or loss. Transactions that qualify as designated hedges
are excepted from the mark-to-market and 60%/40% rules.
Under Section 988 of the Code, a Master Portfolio will generally recognize
ordinary income or loss to the extent gain or loss realized on the disposition
of portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Master Portfolios will attempt to monitor Section 988
transactions, where applicable, to avoid adverse federal income tax impact to
the Funds and their shareholders.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256 of the Code,
described above. If a regulated investment company were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The regulated investment company may make one or
more elections with respect to "mixed straddles." Depending upon which election
is made, if any, the results with respect to the regulated investment company
may differ. Generally, to the extent the straddle rules apply to positions
established by a regulated investment company, losses realized by the regulated
investment company may be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and the conversion
transaction rules, short-term capital loss on straddle positions may be
recharacterized as long-term capital loss, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.
If a Master Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Master Portfolio must recognize gain (but not loss) with respect to that
position. For this purpose, a constructive sale occurs when the Master Portfolio
enters into one of the following transactions with respect to the same or
substantially identical property: (i) a short sale; (ii) an offsetting notional
principal contract; (iii) a futures or forward contract, or (iv) other
transactions identified in future Treasury Regulations.
If a Master Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), the Master Portfolio may be subject to federal income tax and
an interest charge imposed by the Internal Revenue Service ("IRS") upon certain
distributions from the PFIC or the Master Portfolio's disposition of its PFIC
shares. If the Master Portfolio invests in a PFIC, the Master Portfolio intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Master Portfolio will be treated as recognizing at the
end of each taxable year the difference, if any, between the fair market value
of its interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may be suspended. The Master Portfolio
will adjust its basis in the PFIC shares by the amount of income (or loss)
recognized. Although such income (or loss) will be taxable to the Master
Portfolio as ordinary income (or loss) notwithstanding any distributions by the
PFIC, the Master Portfolio will not be subject to federal income tax or the
interest charge with respect to its interest in the PFIC, if it makes the
available election.
Foreign Taxes. Income and dividends received by a Fund (through a Master
Portfolio) from foreign securities and gains realized by the Fund on the
disposition of foreign securities may be subject to
18
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Although in some circumstances a regulated investment company can elect
to "pass through" foreign tax credits to its shareholders, the Funds do not
expect to be eligible to make such an election.
Capital Gain Distributions. Distributions which are designated by a Fund as
capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do not exceed the Fund's actual net capital
gain for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in a
written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers generally were taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers generally are now taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months, and a maximum rate of 25% for
certain gains attributable to the sale of real property. The 1997 Act retains
the treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Funds. The IRS has
published a notice applicable to pass-through entities until regulations are
promulgated. Pursuant to the notice, each Fund is permitted (but not required)
to designate the portion of its capital gain distributions, if any, to which the
28%, 25% and 20% rates described in the preceding paragraph apply, based on the
net amount of each class of capital gain realized by the Fund determined as if
the Fund is a noncorporate taxpayer. Noncorporate shareholders of the Funds may
therefore qualify for the reduced rate of tax on capital gain distributions paid
by the Funds.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
redemption (including a redemption in-kind) or exchanges ordinarily will result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less,
19
then (unless otherwise disallowed) any loss on the sale or exchange of that Fund
share will be treated as long-term capital loss to the extent of the designated
capital gain distribution. This loss disallowance rule does not apply to losses
realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Obviously, the amount
of tax payable by any taxpayer will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.
Backup Withholding. The Company may be required to withhold, subject to
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges and redemptions in-kind) paid or credited to an individual Fund
shareholder, unless the shareholder certifies that his or her taxpayer
identification number ("TIN"), which usually is his or her social security
number, provided to the Company is correct and that the shareholder is not
subject to backup withholding, or the IRS notifies the Company that the
shareholder's TIN is incorrect or that the shareholder is subject to backup
withholding. Such tax withheld does not constitute any additional tax imposed on
the shareholder, and may be claimed as a credit against the shareholder's
federal income tax liability, if any, or otherwise will be refundable. An
investor must provide a valid TIN to the Company upon opening or reopening an
account. Failure to furnish a valid TIN to the Company could also subject the
investor to penalties imposed by the IRS. Foreign shareholders of the Funds
(described below) generally are not subject to backup withholding.
Corporate Shareholders. Corporate shareholders of the Funds may be eligible
for the dividends-received deduction on dividends distributed out of a Fund's
net investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. A distribution by a Fund attributable to dividends
of a domestic corporation will only qualify for the dividends-received deduction
if (i) the corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
Foreign Shareholders. Under the Code, distributions of net investment income
by a Fund to a nonresident alien individual, foreign trust (i.e., trust which a
U.S. court is able to exercise primary supervision over administration of that
trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to federal income tax
withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain generally are not subject to federal income tax
withholding.
20
New Regulations. On October 6, 1997, the Treasury Department issued new
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations generally will be
effective for payments made after December 31, 1999, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions paid to foreign shareholders
which is subject to federal income tax withholding. Prospective investors are
urged to consult their own tax advisors regarding the application to them of the
New Regulations.
Other Matters. Investors should be aware that the investments to be made by
a Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Funds will seek to avoid significant noncash income, such noncash income
could be recognized by a Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the federal income tax considerations
generally affecting investments in a Fund. Each investor is urged to consult his
or her tax advisor regarding specific questions as to federal, state, local and
foreign taxes.
PERFORMANCE INFORMATION
As indicated in the Prospectus, the Funds may advertise certain total return
information computed in the manner described in the Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T") will
be computed by using the value at the end of a specified period ("ERV") of a
hypothetical initial investment ("P") over a period of years ("n") according to
the following formula: P(1+T)/n/ = ERV. In addition, as indicated in the
Prospectus, the Funds, at times, also may calculate total return based on net
asset value per share (rather than the public offering price) in which case the
figures would not reflect the effect of any sales charge that would have been
paid by an investor, or based on the assumption that a sales charge other than
the maximum sales charge (reflecting a Volume Discount) was assessed provided
that total return data derived pursuant to the calculation described above also
are presented.
The average annual total returns on the Funds from July 2, 1993 (commencement of
operations) to February 28, 1998 and for the fiscal year ended February 28, 1998
were as follows:
COMMENCEMENT
THROUGH
FUND 2/28/98 FYE 2/28/98
- - ---- ------- -----------
Growth Stock Fund 16.20% 21.61%
Short-Intermediate Term Fund 5.34% 8.51%
The cumulative total returns on the Funds from July 2, 1993 (commencement of
operations) to February 28, 1998 were as follows:
COMMENCEMENT
THROUGH
FUND 2/28/98
- - ---- ------------
Growth Stock Fund 101.30%
Short-Intermediate Term Fund 27.46%
21
As indicated in the Prospectus the Short-Intermediate Term Fund may
advertise certain yield information. As, and to the extent required by the SEC,
yield will be calculated based on a 30-day (or one-month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula: YIELD = 2[(((a-b)/cd)+1)6-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. The net investment income of a
Fund includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in a Fund's net investment income. For purposes of sales literature,
yield also may be calculated on the basis of the net asset value per share
rather than public offering price, provided that the yield data derived pursuant
to the calculation described above also are presented.
The yield of the Short-Intermediate Term Fund for the 30-day period ended
February 28, 1998 was 5.65%.
Generally. The yield for a Fund fluctuates from time to time, unlike bank
---------
deposits or other investments that pay a fixed yield for a stated period of
time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality, composition,
maturity and market conditions as well as the expenses allocated to the Fund.
Yield information for a Fund may be useful in reviewing the performance of
the Fund and for providing a basis for comparison with investment alternatives.
A Fund's yield, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.
In addition, investors should recognize that changes in the net asset values
of shares of a Fund affect the yield of such Fund for any specified period, and
such changes should be considered together with the Fund's yield in ascertaining
the Fund's total return to shareholders for the period. Yield information for
the Funds may be useful in reviewing the performance of such Funds and for
providing a basis for comparison with investment alternatives. The yield of a
Fund, however, may not be comparable to the yields from investment alternatives
because of differences in the foregoing variables and differences in the methods
used to value portfolio securities, compute expenses and calculate yield.
Performance Comparisons. From time to time and only to the extent the
-----------------------
comparison is appropriate for a Fund, the Company may quote the performance of a
Fund in advertising and other types of literature and may compare the
performance of a Fund to the performance of various indices and investments for
which reliable performance data is available. The performance of a Fund may be
compared in advertising and other literature to averages, performance rankings
and other information prepared by recognized mutual fund statistical services.
The performance information for the Short-Intermediate Term Fund also may be
compared, in reports and promotional literature, to the Consumer Price Index,
the Salomon One Year Treasury Benchmark Index, Ten Year U.S. Government Bond
Average, S&P's Corporate Bond Yield Averages, Schabacker Investment Management
Indices, Salomon Brothers High Grade Bond Index, Lipper General Bond Fund
Average, Lipper Intermediate Investment Grade Debt Fund Average, Lehman Brothers
Government/Corporate Bond Index, Lehman Brothers Intermediate
Government/Corporate Bond Index, and Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index. The performance
22
information for the Short-Intermediate Term Fund and the Bond Index Fund also
may be compared to the S&P Index, the Dow Jones Industrial Average, the Lehman
Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), or to other indices of bonds, stocks, or
government securities, or by other services, companies, publications, or persons
who monitor mutual funds on overall performance or other criteria, but not to
money market mutual funds.
Performance information for the Growth Stock Fund may be compared, in
reports and promotional literature, to the S&P 500 Index, the Wilshire 5000
Equity Index, the Lehman Brothers 20+ Treasury Index, Donoghue's Money Fund
Averages, the Lehman Brothers 5-7 Year Treasury Index, Lehman Brothers
Government Bond Index, Lehman Brothers Treasury Bond Index, Lipper Balanced Fund
Average, Lipper Growth Fund Average, Lipper Flexible Portfolio Fund Average,
Lehman Brothers Intermediate Treasury Index, 91-Day Treasury Bill Average, or
other appropriate managed or unmanaged indices of the performance of various
types of investments, so that investors may compare a Fund's results with those
of indices widely regarded by investors as representative of the security
markets in general. Unmanaged indices may assume the reinvestment of dividends,
but generally do not reflect deductions for administrative and management costs
and expenses. Managed indices generally do reflect such deductions.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing BGFA, and its affiliates and
predecessors, as one of the first investment managers to advise investment
accounts using asset allocation and index strategies. The Company also may
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day." The
Company also may disclose in advertising and other types of sales literature the
assets and categories of assets under management by the Master Portfolios'
investment adviser, sub-investment adviser or their affiliates.
A Fund's performance also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., (including the Lipper
General Bond Fund Average, the Lipper Intermediate Investment Grade Debt Fund
Average, the Lipper Bond Fund Average, the Lipper Growth Fund Average, the
Lipper Flexible Fund Average), Donoghue's Money Fund Report, including
Donoghue's Taxable Money Market Fund Average or Morningstar, Inc., independent
services which monitor the performance of mutual funds. A
23
Fund's performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare a Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results.
Other Advertising Items. The Company may discuss in advertising and other
-----------------------
types of literature that a Fund has been assigned a rating by a nationally
recognized statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare a
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare a Fund's
past performance with other rated investments. Of course past performance cannot
be a guarantee of future results. The Company also may include from time to
time, a reference to certain marketing approaches of the Distributor, including,
for example, a reference to a potential shareholder being contacted by a
selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
PORTFOLIO TRANSACTIONS
Since each Fund invests all of its assets in a corresponding Master
Portfolio of MSIT, set forth below is a description of the Master Portfolios'
policies governing portfolio securities transactions.
Purchases and sales of equity securities on a securities exchange usually
are effected through brokers who charge a negotiated commission for their
services. Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in light of generally prevailing rates. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Stephens, Barclays Global Investors Services or Wells Fargo Securities Inc. In
the over- the-counter-market, securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
that includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount.
Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities also may be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions.
Under the 1940 Act, persons affiliated with a Master Portfolio are
prohibited from dealing with the Master Portfolio as a principal in the purchase
and sale of portfolio securities unless an exemptive order allowing such
transactions is obtained from the Commission or an exemption is otherwise
available. A Master Portfolio may purchase securities from underwriting
syndicates of which Stephens or Wells Fargo
24
Bank is a member under certain conditions in accordance with the provisions of a
rule adopted under the 1940 Act and in compliance with procedures adopted by
MSIT's Board of Trustees.
A Master Portfolio has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by Board of Trustees, BGFA and Wells Fargo Bank are
responsible for each Master Portfolio's investment decisions and the placing of
portfolio transactions. In placing orders, it is the policy of each Master
Portfolio to obtain the best overall terms taking into account the dealer's
general execution and operational facilities, the type of transaction involved
and other factors such as the dealer's risk in positioning the securities
involved. BGFA and Wells Fargo Bank generally seek reasonably competitive
spreads or commissions.
In assessing the best overall terms available for any transaction, BGFA and
Wells Fargo Bank each consider factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Certain of the brokers or dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master Portfolios. BGFA considers such
rebates in assessing the best overall terms available for any transaction. Wells
Fargo Bank may cause the Master Portfolios to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such brokerage
and research services might consist of reports and statistics relating to
specific companies or industries, general summaries of groups of stocks or bonds
and their comparative earnings and yields, or broad overviews of the stock,
bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Master Portfolio. MSIT's Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which Wells Fargo Bank exercises investment discretion.
Conversely, the Master Portfolio may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), an adviser must make a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided by a broker provide an
adviser with lawful and appropriate assistance in the performance of its
investment decision-making responsibilities." Accordingly, the price to the
Master Portfolio in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to each Master Portfolio's investment
25
program. Research services received from brokers supplement Wells Fargo Bank's
own research and may include the following types of information: statistical and
background information on industry groups and individual companies; forecasts
and interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance information
on securities and information concerning prices of securities; and information
supplied by specialized services to Wells Fargo Bank and to MSIT's Trustees with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment used
to communicate research information, the arranging of meetings with management
of companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing its research and analysis; and,
therefore, it may benefit the Master Portfolios by improving the quality of
Wells Fargo Bank's investment advice.
Portfolio Turnover. The portfolio turnover rates for the Short-Intermediate
------------------
Term and Growth Stock Master Portfolios generally are not expected to exceed
300% and 200%, respectively. The high portfolio turnover rates for the Master
Portfolios may result in higher transaction (i.e., principal markup/markdown,
brokerage, and other transaction) costs. The portfolio turnover rate will not be
a limiting factor when BGFA or Wells Fargo Bank deem portfolio changes
appropriate.
Brokerage Commissions. For the fiscal years ended February 29, 1996,
---------------------
February 28, 1997 and February 28, 1998, the corresponding Master Portfolio of
each Fund paid the dollar amounts of brokerage commissions indicated below.
None of these brokerage commissions were paid to affiliated brokers.
MASTER PORTFOLIO COMMISSIONS PAID
---------------- ----------------
FYE 2/29/96 FYE 2/28/97 FYE 2/28/98
----------- ----------- -----------
Growth Stock Master Portfolio $355,046 $394,483 $494,115
Short-Intermediate Term Master $ 0 $ 0 $ 0
Portfolio
Securities of Regular Broker/Dealers. As of February 28, 1998, the
------------------------------------
corresponding Master Portfolio of each Fund did not own any securities of its
"regular brokers or dealers" or their parents, as defined in the 1940 Act.
CAPITAL STOCK
The Company, an open-end, management investment company, was incorporated in
Maryland on October 15, 1992. The authorized capital stock of the Company
consists of 12,100,000,000 shares having a par value of $.001 per share. As of
the date of this SAI, the Company's Board of Directors has authorized the
issuance of twelve series of shares. The Board of Directors may, in the future,
authorize the issuance of other series of capital stock representing shares of
additional investment portfolios or funds.
26
All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy would be voted upon only by shareholders of
the Fund. Additionally, approval of an advisory contract is a matter to be
determined separately by fund. Approval by the shareholders of a fund is
effective as to that fund whether or not sufficient votes are received from the
shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in the Prospectus of each Fund and in this
SAI, the term "majority," when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any year
in which it is not required to elect Directors under the 1940 Act. However, the
Company has undertaken to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a Director or Directors if
requested in writing by the holders of at least 10% of the Company's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act.
Each share of a Fund represents an equal proportional interest in the Fund
with each other share and is entitled to such dividends and distributions out of
the income earned on the assets belonging to the Fund as are declared in the
discretion of the Directors. In the event of the liquidation or dissolution of
the Company, shareholders of a Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a distribution
of any general assets not attributable to a particular investment portfolio that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
MSIT is an open-end, series management investment companies organized as a
Delaware business trust. MSIT was organized on October 28, 1993. In accordance
with Delaware law and in connection with the tax treatment sought by the MSIT,
MSIT's Declaration of Trust provides that its investors would be personally
responsible for Trust liabilities and obligations, but only to the extent MSIT's
property is insufficient to satisfy such liabilities and obligations. The
Declaration of Trust also provides that MSIT shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its investors, Trustees, officers, employees and
agents covering possible tort and other liabilities, and that investors will be
indemnified to the extent they are held liable for a disproportionate share of
Trust obligations. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and MSIT itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of MSIT are not
binding upon its Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declarations of Trust protects a Trustee against any liability to
which
27
the Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.
The interests in each Master Portfolio of MSIT have substantially identical
voting and other rights as those rights enumerated above for shares of the
Funds. MSIT also intends to dispense with annual meetings, but is required by
Section 16(c) of the Act to hold a special meeting and assist investor
communications under the circumstances described above with respect to a
Company. Whenever a Fund is requested to vote on a matter with respect to its
Master Portfolio, the Fund will hold a meeting of Fund shareholders and will
cast its votes as instructed by such shareholders.
In a situation where a Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of a Master Portfolio, such
Fund will vote such shares in the same proportion as the shares for which the
Fund does receive voting instructions.
As of June 1, 1998, the shareholders identified below were known by the
Company to own 5% or more of the indicated Fund's outstanding shares in the
following capacity:
NAME AND ADDRESS PERCENTAGE NATURE OF
NAME OF FUND OF SHAREHOLDER OF FUND OWNERSHIP
- - ------------ ---------------- ---------- ---------
Growth Stock Fund Merrill Lynch Trust Co FSB 83.03% Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162
Fidelity Investments Institutional 9.33% Record
Operations Co. (FIIOC) as agent for certain
employee benefit plans
100 Magellan Way KWIC
Covington, KY 41015
Short-Intermediate Merrill Lynch Trust Co FSB 70.78% Record
Term Fund FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162
Merrill Lynch Pierce Fenner & Smith 26.38% Record
For the sole benefit of its customers 4800 Deer Lake
Drive, East, 3rd Floor Jacksonville, FL 32246
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a Fund, or is identified as the holder of record of
more than 25% of a Fund and has voting and/or investment powers, it may be
presume to control such Fund.
28
OTHER
The Registration Statement of MSIT and the Company, including the Prospectus
for each Fund, the SAI and the exhibits filed therewith, may be examined at the
office of the SEC in Washington, D.C. Statements contained in a Prospectus or
the SAI as to the contents of any contract or other document referred to herein
or in a Prospectus are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, NW, Suite 5500,
Washington, D.C. 20006-1812, as counsel for the Company, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditor for the
Company and the Trusts. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The audited financial statements, including the portfolio of investments,
and independent auditors' report for the fiscal year ended February 28, 1998 for
the Funds and corresponding Master Portfolios are hereby incorporated by
reference to the MasterWorks Funds Inc. Annual Report, as filed with the SEC on
May 1, 1998. The audited financial statements are attached to all SAIs delivered
to shareholders or prospective shareholders.
29
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
CORPORATE BONDS
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
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 have speculative
characteristics as well. Moody's applies numerical modifiers "1," "2" and "3" in
each rating category from "Aa" through "Baa" in its rating system. The modifier
"1" indicates that the security ranks in the higher end of its category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
CORPORATE COMMERCIAL PAPER
Moody's: The highest rating for corporate commercial paper is "Prime-1".
Issuers rated "Prime-1" have a "superior capacity for repayment of short-term
promissory obligations." Issuers rated "Prime-2" "have a strong capacity for
repayment of short-term promissory obligations," but earnings trends, while
sound, will be subject to more variation.
S&P: The "A-1" rating for corporate commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
30
Annual Report
MAY 31, 1998
INSTITUTIONAL FUNDS
[LOGO] NORWEST ADVANTAGE FUNDS-Registered Trademark-
FIXED INCOME FUNDS
- - ------------------------------------
Stable Income Fund
Limited Term Government Income Fund
Intermediate Government Income Fund
Diversified Bond Fund
Income Fund
Total Return Bond Fund
TAX-FREE FIXED INCOME FUNDS
- - ------------------------------------
Limited Term Tax-Free Fund
Tax-Free Income Fund
Colorado Tax-Free Fund
Minnesota Intermediate Tax-Free Fund
Minnesota Tax-Free Fund
BALANCED FUNDS
- - ------------------------------------
Strategic Income Fund
Moderate Balanced Fund
Growth Balanced Fund
Aggressive Balanced-Equity Fund
EQUITY FUNDS
- - ------------------------------------
Index Fund
Income Equity Fund
ValuGrowth-SM- Stock Fund
Diversified Equity Fund
Growth Equity Fund
Large Company Growth Fund
Diversified Small Cap Fund
Small Company Stock Fund
Small Cap Opportunities Fund
Small Company Growth Fund
Contrarian Stock Fund
International Fund
PERFORMA FUNDS
- - ------------------------------------
Performa Strategic Value Bond Fund
Performa Disciplined Growth Fund
Performa Small Cap Value Fund
Performa Global Growth Fund
NOT FDIC INSURED. NO BANK GUARANTEE. MAY LOSE VALUE.
TABLE OF CONTENTS MAY 31, 1998
- --------------------------------------------------------------------------------
PAGE
----
MESSAGE TO OUR SHAREHOLDERS............................................... 1
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA.......................... 2
Stable Income Fund............................................... 2
Limited Term Government Income Fund.............................. 3
Intermediate Government Income Fund.............................. 4
Diversified Bond Fund............................................ 5
Income Fund...................................................... 6
Total Return Bond Fund........................................... 7
Limited Term Tax-Free Fund....................................... 8
Tax-Free Income Fund............................................. 9
Colorado Tax-Free Fund........................................... 10
Minnesota Intermediate Tax-Free Fund............................. 11
Minnesota Tax-Free Fund.......................................... 12
Strategic Income Fund............................................ 13
Moderate Balanced Fund........................................... 14
Growth Balanced Fund............................................. 15
Aggressive Balanced-Equity Fund.................................. 16
Index Fund....................................................... 17
Income Equity Fund............................................... 18
ValuGrowth Stock Fund............................................ 19
Diversified Equity Fund.......................................... 20
Growth Equity Fund............................................... 21
Large Company Growth Fund........................................ 22
Diversified Small Cap Fund....................................... 23
Small Company Stock Fund......................................... 24
Small Cap Opportunities Fund..................................... 25
Small Company Growth Fund........................................ 26
International Fund............................................... 27
Performa Strategic Value Bond Fund............................... 28
Performa Disciplined Growth Fund................................. 29
Performa Small Cap Value Fund.................................... 30
Performa Global Growth Fund...................................... 31
NORWEST ADVANTAGE FUNDS
Independent Auditors' Report.............................................. 33
Statements of Assets and Liabilities...................................... 34
Statements of Operations.................................................. 38
Statements of Changes in Net Assets....................................... 42
Financial Highlights...................................................... 46
Notes to Financial Statements............................................. 57
Supplementary Information (Unaudited)..................................... 65
Schedules of Investments.................................................. 66
Stable Income Fund............................................... 66
Limited Term Government Income Fund.............................. 66
Intermediate Government Income Fund.............................. 66
Diversified Bond Fund............................................ 67
Income Fund...................................................... 67
Total Return Bond Fund........................................... 68
Limited Term Tax-Free Fund....................................... 68
Tax-Free Income Fund............................................. 71
Colorado Tax-Free Fund........................................... 74
Minnesota Intermediate Tax-Free Fund............................. 76
Minnesota Tax-Free Fund.......................................... 82
Strategic Income Fund............................................ 84
Moderate Balanced Fund........................................... 85
Growth Balanced Fund............................................. 85
Aggressive Balanced-Equity Fund.................................. 85
Index Fund....................................................... 86
Income Equity Fund............................................... 86
ValuGrowth Stock Fund............................................ 86
Diversified Equity Fund.......................................... 87
Growth Equity Fund............................................... 87
Large Company Growth Fund........................................ 88
[LOGO]
TABLE OF CONTENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
PAGE
----
NORWEST ADVANTAGE FUNDS (CONTINUED)
Diversified Small Cap Fund....................................... 88
Small Company Stock Fund......................................... 88
Small Cap Opportunities Fund..................................... 88
Small Company Growth Fund........................................ 88
Contrarian Stock Fund............................................ 88
International Fund............................................... 89
Notes to Schedules of Investments................................ 90
NORWEST ADVANTAGE PERFORMA FUNDS
Independent Auditors' Report.............................................. 94
Statements of Assets and Liabilities...................................... 95
Statements of Operations.................................................. 96
Statements of Changes in Net Assets....................................... 97
Financial Highlights...................................................... 98
Notes to Financial Statements............................................. 99
Supplementary Information (Unaudited)..................................... 101
Schedules of Investments.................................................. 102
Performa Strategic Value Bond Fund............................... 102
Performa Disciplined Growth Fund................................. 102
Performa Small Cap Value Fund.................................... 102
Performa Global Growth Fund...................................... 102
CORE TRUST (DELAWARE)
Independent Auditors' Report.............................................. 104
Report of Independent Accountants......................................... 105
Statements of Assets and Liabilities...................................... 106
Statements of Operations.................................................. 108
Statements of Changes in Net Assets....................................... 110
Financial Highlights...................................................... 112
Notes to Financial Statements............................................. 113
Schedules of Investments.................................................. 118
Stable Income Portfolio.......................................... 118
Managed Fixed Income Portfolio................................... 119
Positive Return Bond Portfolio................................... 121
Strategic Value Bond Portfolio................................... 121
Index Portfolio.................................................. 123
Income Equity Portfolio.......................................... 129
Disciplined Growth Portfolio..................................... 130
Large Company Growth Portfolio................................... 131
Small Cap Index Portfolio........................................ 132
Small Company Stock Portfolio.................................... 140
Small Cap Value Portfolio........................................ 141
Small Company Value Portfolio.................................... 143
Small Company Growth Portfolio................................... 144
International Portfolio.......................................... 146
Notes to Schedules of Investments................................ 149
SCHRODER CAPITAL FUNDS
Report of Independent Accountants......................................... 152
Statements of Assets and Liabilities...................................... 153
Statements of Operations.................................................. 154
Statements of Changes in Net Assets....................................... 155
Financial Highlights...................................................... 156
Notes to Financial Statements............................................. 157
Schedules of Investments.................................................. 160
Schroder U.S. Smaller Companies Portfolio........................ 160
Schroder Global Growth Portfolio................................. 161
Schroder EM Core Portfolio....................................... 163
[LOGO]
A MESSAGE TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------
July 21, 1998
Dear Valued Shareholder,
We are pleased to present the 1998 Annual Report for
Norwest Advantage Funds. This report includes thirty-one
of our thirty-nine Funds. Our five money market funds and
three Wealthbuilder II Portfolios are reported separately.
Norwest Advantage Funds experienced another year of
significant growth, with net assets increasing from $14.7
billion to $20.8 billion as of May 31, 1998. Our success
can be partly attributed to the confidence and support of
our shareholders generated by the continued positive
performance of many of the Funds. Of course, we will
continue to provide prudent management to maintain that
confidence.
Events in Southeast Asia dominated headlines during
the past year. Asia's emerging markets were battered by a
currency free fall that began in Thailand and swept across
Malaysia, Indonesia, South Korea, Hong Kong and the
Philippines, sparking a rout from which the region has not
yet recovered. At the same time, Japan's economic and
banking problems sent that country into a severe
recession.
While the U.S. economy has felt the impact of the
Asian "flu", our financial markets have proved quite
resilient. Indeed, the combination of low inflation,
declining interest rates and strong consumer spending have
helped our economy grow at a steady rate, with the S&P 500
Composite Stock Price Index climbing nearly 30% during the
fiscal year ended May 31, 1998. Because underlying
economic fundamentals in the U.S. remain solid, we are
cautiously optimistic that our financial markets will
continue to perform relatively well. Still, investors will
experience volatile equity markets until Asian economies
improve.
One of the most significant effects of developments in
Asia has been the historic "decoupling" of U.S. stock and
bond markets. Deflationary forces, especially evident in
commodity prices, have lowered our overall inflation rate
to very near one percent. Therefore, concerns over Fed
tightening have waned, once again.
While the stock market has retreated from recent highs
due to concerns over corporate earnings, the bond market
has staged a remarkable rally in this environment.
Interest rates on 30-year Treasury bonds have declined
from 7 percent in May of last year to less than 6 percent
currently, breaking through levels that many thought were
impenetrable without evidence of an economic slowdown.
Keep in mind that not all global markets are in
turmoil. European markets have surged during the past year
thanks to falling interest rates married with growing
enthusiasm for the EURO. In fact, conversion to the EURO,
which will be introduced January 1, 1999, has accelerated
the movement toward greater competitiveness and
free-market capitalism. As a result, Europe's market
indices have climbed more than a third in the last year.
Market volatility is always unnerving to investors.
Yet volatility underscores the importance of two
tried-and-true investment concepts: diversification to
reduce risk and a long-term outlook to weather market
fluctuations. To meet your investment needs and tolerance
for risk, we offer a wide variety of mutual
funds--including new funds we introduced this year--along
with personalized service to help you achieve your goals.
If you have questions or need information, please call us
at 1-(800) 338-1348 or (612) 667-8833, option 2. Thank you
for choosing Norwest Advantage Funds. We look forward to
working with you in the future.
Sincerely,
/s/ John Y. Keffer
John Y. Keffer,
CHAIRMAN, NORWEST ADVANTAGE
FUNDS
[LOGO]
1
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA MAY 31, 1998
-------------------------------------------------------------------------------
STABLE INCOME FUND
THE STABLE INCOME FUND outperformed its benchmark, the Merrill One-Year T-Bill
Index, for the fiscal year ended May 31, 1998 with a return of 6.28% versus
5.91%. In addition, the Stable Income Fund performed favorably versus its Lipper
peer groups. The Lipper Ultra Short Category gained 5.73% while the Lipper Short
Investment Grade Category rose 6.53%.
The Fund's performance can be attributed to the strong domestic economy.
Continued economic growth and favorable news on inflation propelled interest
rates lower during the year. Intermediate and long treasury bonds outperformed
short treasuries as the yield curve flattened significantly. The yield on the
two year Treasury Note decreased 0.67% while the yield on the 30-year Treasury
Bond fell 1.11% during the fiscal year.
The Fund's positioning was largely unchanged throughout the course of the year.
Spread sectors such as the corporate and asset backed markets endured a volatile
year as troubles in the far east impacted risk premiums. The mortgage market
enjoyed a phenomenal year in the face of a 115 basis point rally in interest
rates during the past twelve months. Maturities and cash flows from our mortgage
backed and ARM positions were reinvested in corporates, taxable municipals,
asset backed securities and treasury notes. The Fund's duration was maintained
at one year while earning our yield advantage versus the benchmark.
Fund strategy will continue to focus on selection of undervalued securities and
sectors rather than interest rate forecasting. We essentially manage the Fund
towards a targeted duration of one year. We attempt to outperform the benchmark
by building in a yield advantage, relative to the benchmark, through an emphasis
on corporate, mortgage-backed and asset-backed securities.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
STABLE INCOME FUND VS. ONE-YEAR U.S. TREASURY BILL ("INDEX") AND
MERRILL LYNCH TREASURY BILL 1 YEAR ("ML INDEX")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with two broad-based securities market indices. The Fund's total return
includes operating expenses and sales charges (if applicable) that reduce
returns, while the total return of the Indices do not. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
---------------------------------------------------------
A SHARES B SHARES I SHARES INDEX ML INDEX
----------- ----------- --------- --------- ---------
ONE YEAR 4.74% 4.75% 6.28% 5.91% 5.91%
SINCE INCEPTION 5.95% 5.06% 6.38% 6.13% 6.13%
INCEPTION DATE 11/11/94* 5/17/96 11/11/94 10/31/94 10/31/94
VALUE MAY 31, 1998 $12,288 $11,136 $12,463 $12,376 $12,376
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Fund ML Index Index
11/09/94 $10,000.00 $10,000.00 $10,000.00
May-95 10,450.00 10,428.46 10,428.46
May-96 11,038.06 11,011.63 11,011.69
May-97 11,727.14 11,684.85 11,684.84
May-98 12,463.00 12,375.82 12,375.94
* 5/2/96 was the inception date of Class A Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF I SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES IN SALES
CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDICES ARE UNMANAGED AND ARE NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
2
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
-------------------------------------------------------------------------------
LIMITED TERM GOVERNMENT INCOME FUND
This Fund commenced operations on October 1, 1997. From inception through May
31, 1998, an eight-month period, the Fund returned 4.42%. As of May 31, 1998, it
has exceeded its benchmark, the Lipper Short Intermediate U.S. Government
Average peer group for the calendar year-to-date, three-month and one month time
periods.
After converting this Fund, we spent many months restructuring it, to enable it
to compete effectively within its peer group. We built a mortgage position to
improve the yield, and lengthened its maturity to provide better return from
price appreciation.
We positioned the fund for a declining interest rate scenario, which turned out
to be the correct strategy during the last eight months. This Fund is positioned
around a three-year maturity, in which interest rates declined 0.32% from
October 1, 1997 to May 31, 1998. Another strategy that added to performance was
our limited use of callable securities, such as mortgages and callable agencies.
Callable securities tend to hinder performance when interest rates decline.
As we enter our new fiscal year, we continue to be bullish on the bond market
and expect interest rates to continue to decline. Therefore, we are not planning
any major strategic changes to the fund structure in the upcoming months.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
-------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
LIMITED TERM GOVERNMENT INCOME FUND VS. MERRILL LYNCH 1 TO 3 YEAR GOVERNMENT
INDEX ("INDEX")
AND LIPPER SHORT INTERMEDIATE U.S. GOVERNMENT AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
TOTAL RETURN AS OF MAY 31, 1998
---------------------------------
LIPPER
I SHARES INDEX AVERAGE+
--------- --------- -----------
SINCE INCEPTION 4.42% 4.22% 4.20%
INCEPTION DATE 10/1/97 9/30/97 9/30/97
VALUE MAY 31, 1998 $10,442 $10,422 $10,420
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE INDEX
09/30/97 $10,000.00 $10,000.00 $10,000.00
10/31/97 10,090.31 10,090.00 10,073.80
11/30/97 10,109.25 10,107.15 10,098.78
12/31/97 10,198.97 10,181.95 10,167.56
01/31/98 10,311.59 10,290.89 10,265.12
02/28/98 10,285.19 10,283.69 10,275.02
03/31/98 10,323.51 10,313.51 10,317.73
04/30/98 10,371.65 10,354.77 10,366.28
05/31/98 10,442.12 10,420.00 10,421.88
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
3
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND
For the fiscal year ended May 31, 1998 the Fund completed another successful
year of outperforming its benchmark, the Lipper Intermediate U.S. Government
Average. The Fund's total return exceeded the benchmark total return by 88 basis
points, returning 10.19% vs. 9.31%.
We positioned the Fund for a declining interest rate scenario, which turned out
to be the correct strategy during the last twelve months. This Fund is
positioned in the intermediate part of the yield curve, and interest rates
declined 0.81% in the five year Treasury Note and 1.11% in the ten year Treasury
Note during the fiscal year. The second strategy that added to performance was
our limited use of callable securities, such as mortgages and callable agencies.
Callable securities tend to hinder performance when interest rates decline.
In addition to strategies that are related to declining interest rates, we also
structured our bond maturities to resemble more of a barbell, thus anticipating
that the yield curve would flatten. This indeed was the case, as the two-year
treasury note decreased 0.67% in yield during the fiscal year, while the
ten-year decreased 1.11% in yield. When a longer bond decreases in yield more
than a shorter bond, the yield curve flattens.
As we enter our new fiscal year, we continue to be bullish on the bond market
and expect interest rates to continue to decline. Therefore, we are not planning
any major strategic changes to the fund structure in the upcoming months.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
INTERMEDIATE GOVERNMENT INCOME FUND VS. LEHMAN BROTHERS INTERMEDIATE GOVERNMENT
INDEX
("LEHMAN INDEX") AND LIPPER INTERMEDIATE U.S. GOVERNMENT AVERAGE ("LIPPER
AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securites market index and a peer based average. The
Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------------------------------
LEHMAN LIPPER
A SHARES B SHARES I SHARES* INDEX AVERAGE+
--------- ----------- ----------- --------- -----------
ONE YEAR 5.80% 7.38% 10.19% 10.30% 9.31%
FIVE YEAR 4.15% N.A. 5.00% 6.77% 5.65%
TEN YEAR 6.78% N.A. 7.21% 8.50% 7.79%
SINCE INCEPTION N.A. 6.10% N.A. N.A. N.A.
INCEPTION DATE N.A.** 5/17/96 N.A. N.A. N.A.
VALUE MAY 31, 1998 $19,279 $11,284 $20,081 $22,628 $21,181
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX LIPPER AVERAGE
05/31/88 $10,000.00 $10,000.00 $10,000.00
May-89 10,802.99 10,912.51 10,938.18
May-90 11,562.33 11,897.81 11,815.25
May-91 12,854.19 13,312.04 13,185.31
May-92 14,213.12 14,819.69 14,691.00
May-93 15,727.93 16,307.76 16,088.41
May-94 15,285.55 16,613.18 16,095.62
May-95 16,566.95 18,153.57 17,549.13
May-96 17,132.96 18,978.39 18,124.81
May-97 18,223.84 20,513.84 19,377.10
May-98 20,080.67 22,627.68 21,180.56
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
** 5/2/96 was the inception date of Class A Shares of the Fund; however
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF I SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES IN SALES
CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED. THE FUND IS PROFESSIONALLY MANAGED
WHILE THE INDEX IS UNMANAGED AND IS NOT AVAILABLE FOR INVESTMENT.
[LOGO]
4
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
DIVERSIFIED BOND FUND
For the fiscal year ended May 31, 1998, the Fund returned 12.39%. The
Diversified Bond Fund is made up of three different fixed income styles: managed
fixed income, positive return and strategic value. Bond management styles
perform differently in various interest rate and economic environments. The
managed fixed income style is a core approach that provides moderate levels of
return in strong bond markets and a low level of volatility across long periods
of time. The positive return style is designed to provide investors the ability
to fully participate in a falling rate environment (strong bond market) while
affording a cushion against losses in a rising rate environment. The strategic
value style is an approach that takes advantage of undervalued sectors and
higher yielding securities.
All three styles comprising the Fund performed well during the fiscal year. The
core style, managed fixed income, rose 10.30%, while the strategic value style
gained 6.90%. The positive return component, which is modeled to outperform in a
rallying market by increasing its exposure to longer maturity bonds, gained
17.00% during the fiscal year.
The fiscal year proved to be a healthy environment for bonds. Continued economic
growth and favorable news on inflation helped fuel a market rally. Bond yields
declined significantly across the yield curve, with the yield on the 30-year
Treasury Bond falling 1.11% during the fiscal year. The Lehman Brothers
Intermediate Government/ Corporate Index, which is commonly used as a measure of
the performance of intermediate maturity bonds, gained 8.82% during this period.
These gains are reflected in the Fund's performance.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
DIVERSIFIED BOND FUND VS. LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE
INDEX
("LEHMAN INDEX") AND LIPPER INTERMEDIATE INVESTMENT GRADE DEBT AVERAGE ("LIPPER
AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and peer based average. The
Fund's total return includes operating expenses that reduce returns, while the
total return of the Index does not. The Lipper Average does not include sales
charges but does include management fees and expenses. The Lipper Average is
calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY
31, 1998
-------------------------------------
LEHMAN LIPPER
I SHARES* INDEX AVERAGE+
----------- ----------- -----------
ONE YEAR 12.39% 8.82% 9.86%
FIVE YEAR 6.22% 6.30% 6.32%
TEN YEAR 7.57% 8.34% 8.27%
VALUE MAY 31,
1998 $ 20,764 $ 22,296 $ 22,141
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX LIPPER AVERAGE
05/31/88 $10,000.00 $10,000.00 $10,000.00
May-89 10,925.43 10,921.43 10,973.69
May-90 11,811.44 11,912.28 11,776.72
May-91 13,066.58 13,332.30 13,091.57
May-92 14,394.58 14,876.23 14,658.11
May-93 15,359.02 16,424.76 16,291.83
May-94 15,601.21 16,639.31 16,361.67
May-95 16,715.22 18,243.72 18,022.07
May-96 17,393.27 19,081.24 18,716.22
May-97 18,475.98 20,488.26 20,154.22
May-98 20,764.44 22,295.91 22,140.79
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
5
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
INCOME FUND
For the fiscal year ended May 31, 1998 the Fund completed another successful
year of outperforming its benchmark, the Lipper Corporate Debt A- Rated average.
The Fund's total return exceeded its benchmark total return by 150 basis points,
returning 12.35% vs. 10.78%.
The Fund's performance is the result of two different strategies. We positioned
the Fund for a declining interest rate scenario, which turned out to be the
correct strategy during the last twelve months. This Fund is positioned around a
ten-year maturity, in which interest rates declined 1.11% for the fiscal year on
the 10-Year Treasury Note. The second strategy that added to performance was our
limited use of callable securities, such as mortgages and callable agencies.
Callable securities tend to hinder performance when interest rates decline.
In addition to strategies that are related to declining interest rates, we also
structured our bond maturities to resemble more of a barbell, thus anticipating
that the yield curve would flatten. This indeed was the case, as the two-year
Treasury Note decreased 0.67% in yield for the fiscal year, while the
thirty-year decreased 1.11% in yield. When a longer bond decreases in yield more
than a shorter bond, the yield curve flattens.
As we enter our new fiscal year, we continue to be bullish on the bond market
and expect interest rates to continue to decline. Therefore, we are not planning
any major strategic changes to the fund structure in the upcoming months.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
INCOME FUND VS. LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX
("LEHMAN INDEX I"), LEHMAN BROTHERS AGGREGATE INDEX ("LEHMAN INDEX II") AND
LIPPER CORPORATE DEBT A-RATED AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with two broad-based securities market indices and a peer based
average. The Fund's total return includes operating expenses and sales charges
(if applicable) that reduce returns, while the total return of the Indices do
not. The Lipper Average does not include sales charges but does include
management fees and expenses. The Lipper Average is calculated by taking an
arithmetic average of the returns of the funds in the group. Investment return
and principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
----------------------------------------------------------------------
LEHMAN LEHMAN LIPPER
A SHARES B SHARES I SHARES INDEX I INDEX II** AVERAGE+
--------- ----------- --------- --------- ----------- -----------
ONE YEAR 7.97% 9.52% 12.35% 8.82% 10.91% 10.78%
FIVE YEAR 4.78% N.A. 5.62% 6.30% 7.08% 6.55%
TEN YEAR 7.83% N.A. 8.26% 8.34% 9.23% 8.73%
SINCE INCEPTION N.A. 4.63% N.A. N.A. N.A. N.A.
INCEPTION DATE N.A. 8/5/93 N.A.* N.A. N.A. N.A.
VALUE MAY 31, 1998 $21,248 $12,444 $22,113 $22,296 $24,181 $23,104
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX LEHMAN INDEX II LIPPER AVERAGE
05/31/88 $9,600 $10,000 $10,000 $10,000
May-89 10,442.58 10,921.43 $11,151.59 11,096.42
May-90 11,351.72 11,912.28 12,196.92 11,902.79
May-91 12,756.91 13,332.30 13,724.71 13,274.70
May-92 14,489.22 14,876.23 15,432.88 14,970.53
May-93 16,150.02 16,424.76 17,179.18 16,819.39
May-94 15,895.57 16,639.31 17,298.53 16,905.69
May-95 17,245.73 18,243.72 19,285.81 18,707.27
May-96 17,691.31 19,081.24 20,130.01 19,367.34
May-97 18,892.60 20,488.26 21,802.03 20,855.79
May-98 21,247.75 22,295.91 24,181.36 23,103.84
* 8/2/93 was the inception date of Class I Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
** Because the fund includes asset backed securities and has a longer duration
than reflected in Lehman Index I, Lehman Index II is a more suitable benchmark.
For this reason, we have also included the comparison to Lehman Index II.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF A SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE GREATER OR LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES
IN SALES CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT
CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
6
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
TOTAL RETURN BOND FUND
For the fiscal year ended May 31, 1998, the Fund under-performed its benchmark,
the Lipper Corporate Debt A- Rated Fund Average, with a return of 9.45% versus
10.78%. Prior to January 9, 1998, the Fund's investment decisions were based on
an analysis of major changes in the direction of interest rates. After January
9, 1998, although investing in similar type securities, the Fund investment
decisions are based on relative value as opposed to the prediction of interest
rates. In general, particular emphasis is placed on higher current income
instruments such as corporate bonds and mortgage/asset-backed securities in
order to enhance returns. It is believed that this exposure enhances performance
in varying economic and interest rate cycles while avoiding excessive risk
concentrations.
The Fund's fiscal year 1998 performance reflects a strong domestic economy.
Continued economic growth and favorable news on inflation propelled interest
rates lower during the year. Intermediate and long treasury bonds outperformed
short treasuries as the yield curve flattened significantly. The yield on the
two year Treasury Note decreased 0.67% while the yield on the 30-year Treasury
Bond fell 1.11% during the fiscal year. The Fund's performance was also impacted
by spread sectors such as corporate and asset backed markets which endured a
volatile year as troubles in the far east impacted risk premiums. The mortgage
market enjoyed a phenomenal year in the face of a 115 basis point rally in
interest rates during the past twelve months.
Going forward, the Fund's strategy will continue to focus on relative value as
opposed to prediction of the direction of interest rates. Particular emphasis
will be placed on higher current income instruments such as corporate bonds and
mortgage/asset-backed securities in order to enhance returns. Strategic
diversification will enhance performance in varying economic and interest rate
cycles while avoiding excessive risk concentrations.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TOTAL RETURN BOND FUND VS. LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE
INDEX
("LEHMAN INDEX") AND LIPPER CORPORATE DEBT A- RATED AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
---------------------------------------------------------
LEHMAN LIPPER
A SHARES B SHARES I SHARES INDEX AVERAGE+
--------- ----------- --------- --------- -----------
ONE YEAR 5.08% 6.64% 9.45% 8.82% 10.78%
SINCE INCEPTION 5.09% 5.15% 6.10% 6.21% 6.19%
INCEPTION DATE 12/31/93 12/31/93 12/31/93 12/31/93 12/31/93
VALUE MAY 31, 1998 $12,114 $12,194 $12,634 $13,047 $13,036
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX LIPPER AVERAGE A SHARES B SHARES
31-Dec-93 $10,000.00 $10,000.00 $10,000.00 $9,600.00 $10,000.00
May-94 $9,806.26 $9,737.19 $9,538.54 $9,413.01 $9,780.42
May-95 $10,731.01 $10,676.07 $10,555.03 $10,299.38 $10,620.53
May-96 $11,098.00 $11,166.18 $10,927.45 $10,650.54 $10,899.52
May-97 $11,869.05 $11,989.56 $11,767.26 $11,379.00 $11,582.77
May-98 $12,991.31 $13,047.38 $13,035.66 $12,455.37 $12,583.14
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
7
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
LIMITED TERM TAX-FREE FUND
For the fiscal year ended May 31, 1998 the Fund outperformed its benchmark, the
Lipper Short Intermediate Municipal Debt average. The Fund's total return
exceeded its benchmark total return by 141 basis points, returning 6.70% vs.
5.29%.
The Fund achieved its outstanding results this fiscal year primarily because the
Fund managers remained focused on making investments in bonds which offered
above average potential for return. Most of these opportunities were found in
bonds which have call options and in bonds which offer a prudent level of credit
risk. However, substantially all the Fund's assets remain invested in municipal
securities that are rated within the top four grades by a nationally recognized
rating securities organization.
The Fund's return was also impacted to a lessor extent by the fact that
municipal bond interest rates declined approximately 50 basis points from the
beginning of the fiscal year (June 1, 1997) through the end of 1997. Since
January 1, 1998, rates have remained nearly unchanged after 5 months of narrow
range-bound trading. However, because of the low risk profile of the Limited
Term Fund, the fund did not achieve its outstanding performance by making
significant directional interest rate bets.
It continues to be our goal to provide our shareholders a reliable dividend of
tax-free income while managing interest rate risk and credit risk to a
responsible level.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
LIMITED TERM TAX-FREE FUND VS. LEHMAN 3 YEAR MUNICIPAL BOND INDEX ("LEHMAN
INDEX") AND
LIPPER SHORT INTERMEDIATE MUNICIPAL DEBT AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF
MAY 31, 1998
-----------------------------------
LEHMAN LIPPER
I SHARES INDEX AVERAGE+
----------- --------- -----------
ONE YEAR 6.70% 5.66% 5.29%
SINCE INCEPTION 8.27% 5.45% 4.98%
INCEPTION DATE 10/1/96 9/30/96 9/30/96
VALUE MAY 31, 1998 $11,415 $10,922 $10,842
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Fund Lehman Index Lipper Average
10/01/96 $10,000.00 $10,000.00 $10,000.00
10/31/96 10,387.14 10,070.00 10,065.00
11/30/96 10,536.75 10,163.65 10,163.64
12/31/96 10,515.16 10,168.73 10,158.56
01/31/97 10,555.28 10,213.48 10,190.05
02/28/97 10,621.12 10,263.52 10,244.05
03/31/97 10,566.34 10,210.15 10,178.49
04/30/97 10,616.42 10,254.05 10,216.15
05/31/97 10,698.74 10,337.11 10,296.86
06/30/97 10,780.21 10,398.10 10,362.76
07/31/97 10,977.15 10,521.84 10,490.22
08/31/97 10,906.22 10,500.80 10,460.85
09/30/97 10,999.06 10,576.40 10,530.94
10/31/97 11,072.12 10,622.94 10,572.01
11/30/97 11,102.17 10,653.74 10,602.67
12/31/97 11,207.96 10,726.19 10,676.89
01/31/98 11,282.21 10,781.97 10,745.22
02/28/98 11,288.81 10,819.70 10,757.04
03/31/98 11,331.12 10,837.01 10,772.10
04/30/98 11,286.51 10,821.84 10,744.09
05/31/98 11,415.19 10,922.48 10,841.86
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
8
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
TAX-FREE INCOME FUND
For the fiscal year ended May 31, 1998 the Fund outperformed its benchmark, the
Lipper General Municipal Debt Average. The Fund's total return exceeded its
benchmark total return by 101 basis points, returning 10.22% vs. 9.21%.
The Fund's return reflects the following strategy. The Tax-Free Income Fund has
made significant investments in long duration bonds which offer significant
appreciation potential in a falling interest rate environment. Municipal bond
interest rates declined approximately 50 basis points from the beginning of the
fiscal year (June 1, 1997) through the end of 1997. Since January 1, 1998, rates
have remained nearly unchanged after 5 months of narrow range-bound trading. As
a result, the Fund's longer duration investments have performed well enough to
propel the Net Asset Value (NAV) of the Fund higher, resulting in total returns
which are better than the average national tax exempt fund in the Lipper General
Municipal Debt Average.
While anticipating, and being well positioned, for falling interest rates, the
Fund has also made investments in mortgage backed securities and lower rated
investment grade bonds which may offer less appreciation potential than long
bonds. However, we feel these investments are warranted when the opportunity for
above average yield and long term rates of return are likely to be achieved.
These investments make a significant contribution towards helping the fund
continue to pay a high dividend of tax-free income to our shareholders.
It continues to be our goal to provide our shareholders a reliable dividend of
tax-free income while managing interest rate risk and credit risk to a
responsible level.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TAX-FREE INCOME FUND VS. LEHMAN BROTHERS 10-YEAR MUNICIPAL INDEX ("LEHMAN
INDEX")
AND LIPPER GENERAL MUNICIPAL DEBT AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
----------------------------------------------------------
LEHMAN LIPPER
A SHARES B SHARES I SHARES INDEX AVERAGE+
---------- ---------- ---------- ---------- ----------
ONE YEAR 5.91% 7.52% 10.22% 9.27% 9.21%
FIVE YEAR 5.93% N.A. 6.80% 7.17% 5.93%
SINCE INCEPTION 6.55% 5.83% 7.04% 8.34% 7.29%
INCEPTION DATE 8/1/89 8/6/93 8/1/89* 7/31/89 7/31/89
VALUE MAY 31, 1998 $17,519 $13,126 $18,251 $20,303 $18,621
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX LIPPER AVERAGE
8/1/89 $9,600.00 $10,000.00 $10,000.00
May-90 $9,945.87 $10,597.49 $10,330.39
May-91 10,857.32 11,698.16 11,318.72
May-92 11,688.57 12,785.29 12,448.95
May-93 12,607.90 14,359.04 13,961.81
May-94 12,826.99 14,845.95 14,159.00
May-95 13,907.64 16,179.16 15,300.14
May-96 14,643.21 17,176.28 15,841.98
May-97 15,878.36 18,580.75 17,050.85
May-98 17,518.88 20,303.30 18,621.10
* 8/2/93 was the inception date of Class I Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF A SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE GREATER OR LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES
IN SALES CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT
CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
9
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
COLORADO TAX-FREE FUND
For the fiscal year ended May 31, 1998 the Fund outperformed its benchmark, the
Lipper Colorado Municipal Debt Average. The Fund's total return exceeded its
benchmark total return by 51 basis points, returning 9.97% vs. 9.46%.
The Fund's return reflects the following strategy. The Norwest Colorado Tax-Free
Fund has made significant investments in long duration bonds which offer
significant appreciation potential in a falling interest rate environment.
Municipal bond interest rates declined approximately 50 basis points from the
beginning of the fiscal year (June 1, 1997) through the end of 1997. Since
January 1, 1998, rates have remained nearly unchanged after 5 months of narrow
range-bound trading. These investments have performed well enough to propel the
Net Asset Value (NAV) of the fund higher, resulting in total returns which are
better than the average Colorado tax exempt fund in the Lipper Colorado
Municipal Debt Average.
While anticipating, and being well positioned, for falling interest rates, the
Fund has also made investments in mortgage backed securities and lower rated
investment grade bonds which may offer less appreciation potential than long
bonds. However, we feel these investments are warranted when the opportunity for
above average yield and long term rates of return are likely to be achieved.
These investments make a significant contribution towards helping the fund
continue to pay a high dividend of tax-free income to our shareholders.
It continues to be our goal to provide our shareholders a reliable dividend of
tax-free income while managing interest rate risk and credit risk to a
responsible level.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
COLORADO TAX-FREE FUND VS. LEHMAN BROTHERS 10-YEAR MUNICIPAL INDEX ("LEHMAN
INDEX")
AND LIPPER COLORADO MUNICIPAL DEBT AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
----------------------------------------------------------
LEHMAN LIPPER
A SHARES B SHARES I SHARES INDEX AVERAGE+
---------- ---------- ---------- ---------- ----------
ONE YEAR 5.56% 7.25% 9.97% 9.27% 9.46%
SINCE INCEPTION 5.85% 5.93% 6.72% 7.17% 6.17%
INCEPTION DATE 6/1/93 8/2/93 6/1/93* 5/31/93 5/31/93
VALUE MAY 31, 1998 $13,291 $13,215 $13,846 $14,140 $13,489
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX LIPPER AVERAGE
6/1/93 $9,600.00 $10,000.00 $10,000.00
May-94 9,794.06 10,339.09 10,192.73
May-95 10,526.09 11,267.58 10,997.42
May-96 11,089.34 11,962.00 11,467.77
May-97 12,087.08 12,940.10 12,323.28
May-98 13,290.90 14,139.73 13,489.34
* 8/23/93 was the inception date of Class I Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF A SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE GREATER OR LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES
IN SALES CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT
CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
10
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND
For the fiscal year ended May 31, 1998, the Fund achieved a total return of
7.90%, compared to a 7.01% return for the Lipper Other States Intermediate
Municipal Debt Average.
Our expectation had been for interest rates to gradually decline and the Fund
was positioned accordingly. Interest rates did not trend downward in a straight
line but moved in a narrow trading range throughout the year. However, over the
course of the entire year, long-term high grade municipal bonds moved lower by
nearly one-half of one percent contributing to the Fund's good relative
performance. The Fund was somewhat longer in duration than most funds in its
Lipper peer group in a falling interest rate environment and therefore
outperformed the average.
In managing the Fund, besides duration, we were also always mindful of
convexity, which has recently been an important determinant of relative
performance. We evaluate our holdings and prospective issues in terms of their
upside price potential compared to their downside price risk given a change in
interest rates. This Fund has a large segment of high coupon short maturity
issues with very low price volatility. We have balanced these holdings with some
longer duration issues that are sensitive to changes in interest rates. This has
given the Fund good relative total return as well as a very attractive dividend
yield given its duration profile. Over the past year, this structure has proven
to perform very well in the kind of market environment that we have experienced,
with interest rates fluctuating in a narrow trading range.
The Minnesota municipal market has had a fairly plentiful supply of bonds over
the past year. For the 1998 calendar year to date, new issue totals are up 50%
over last year. Similar to the national market, quality spreads in Minnesota are
extremely narrow. Therefore, we have kept a very high quality profile in the
Fund. Our cash position is 1-2% at the present time which is lower than the 3-5%
that we normally keep in cash equivalents. However, this Fund has about 4%
maturing within one year.
Our outlook for interest rates remains positive. Inflation appears to be quite
non-threatening. The economic turmoil in Asia is likely to slow the US economy
causing further declines in interest rates. For the time being, we will continue
to keep our duration a bit longer than the peer group average with the
expectation that falling interest rates will give the Fund good relative total
return performance. At the same time we will continue to seek high current
income exempt from Federal and Minnesota state income taxes.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
MINNESOTA INTERMEDIATE TAX-FREE FUND VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX
("LEHMAN INDEX") AND OTHER STATE INTERMEDIATE MUNICIPAL DEBT AVERAGE ("LIPPER
AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN
AS OF MAY 31, 1998
---------------------------------------
LEHMAN LIPPER
I SHARES INDEX AVERAGE+
----------- ------------- -----------
ONE YEAR 7.90% 9.38% 7.01%
FIVE YEAR 5.72% 6.73% 5.19%
TEN YEAR 6.87% 8.41% 6.54%
VALUE MAY 31, 1998 $19,440 $22,430 $18,854
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE LEHMAN INDEX
5/31/88 $10,000.00 $10,000.00 $ 10,000.00
May-89 10,870.38 10,628.26 11,150.88
May-90 11,646.78 11,306.93 11,966.98
May-91 12,658.47 12,290.92 13,173.17
May-92 13,574.30 13,321.77 14,466.36
May-93 14,718.64 14,637.14 16,196.73
May-94 15,168.16 15,001.78 16,596.66
May-95 16,250.44 16,026.65 18,108.04
May-96 16,942.40 16,618.32 18,935.70
May-97 18,021.60 17,619.53 20,505.66
May-98 19,440.21 18,854.18 22,429.65
Prior to October 1, 1997, Norwest Investment Management managed a common trust
fund with an investment objective and investment policies that were, in all
material respects, equivalent to the Fund. The performance for the Fund includes
the performance of the predecessor common trust fund for periods before it
became a mutual fund on October 1, 1997. The common trust fund performance was
adjusted to reflect the Fund's 1997 estimate of its expense ratio for the first
year of operations as a mutual fund, including any applicable sales load
(without giving effect to any fee waivers or expense reimbursements). The common
trust fund was not registered under the Investment Company Act of 1940 (the
"1940 Act"), nor subject to certain investment limitations, diversification
requirements, and other restrictions imposed by the 1940 Act and the Internal
Revenue Code, which, if applicable, may have adversely affected the performance
results.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
11
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
MINNESOTA TAX-FREE FUND
For the fiscal year ended May 31, 1998, the Fund achieved a total return of
9.71%, compared to an 8.38% return for the Lipper Minnesota Muni Debt average.
Our expectation has been for interest rates to gradually decline and the Fund
was positioned accordingly. Interest rates have not trended downward in a
straight line but have moved in a narrow trading range throughout the year.
However, over the course of the entire year long-term high grade municipal bonds
moved lower by nearly one-half of one percent and that has contributed to the
Fund's good relative performance. The Fund was somewhat longer in duration than
most funds in its Lipper peer group in a falling interest rate environment and
therefore outperformed the average.
In managing the Fund, besides duration we are also always mindful of convexity,
which has recently been an important determinant of relative performance. We
evaluate our holdings and prospective issues in terms of their upside price
potential compared to their downside price risk given a change in interest rates
in either direction. We try to minimize holdings with downside risk that exceeds
the upside possibility.
The Minnesota municipal market has had a fairly plentiful supply of bonds over
the past year. For the 1998 calendar year to date, new issue totals are up 50%
over last year. Similar to the national market, quality spreads in Minnesota are
extremely narrow. Therefore, we have kept a very high quality profile in the
Fund. Our cash position is 1-2% at the present time which is lower than the 3-5%
that we normally keep in cash equivalents.
Our outlook for interest rates remains positive. Inflation appears to be quite
non-threatening. The economic turmoil in Asia is likely to slow the US economy
causing further declines in interest rates. For the time being, we will continue
to keep our duration a bit longer than the peer group average with the
expectation that falling interest rates will give the Fund good relative total
return performance. At the same time we will continue to seek high current
income exempt from Federal and Minnesota state income taxes.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
MINNESOTA TAX-FREE FUND VS. LEHMAN BROTHERS 10-YEAR MUNICIPAL INDEX
("LEHMAN INDEX") AND LIPPER MINNESOTA MUNICIPAL DEBT AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------------------------------------
LIPPER
A SHARES B SHARES I SHARES LEHMAN INDEX AVERAGE+
----------- ----------- ----------- ------------- -----------
ONE YEAR 5.33% 6.89% 9.71% 9.27% 8.38%
FIVE YEAR 5.53% N.A. 6.39% 7.17% 5.56%
TEN YEAR 7.00% N.A. 7.44% 8.63% 7.41%
SINCE INCEPTION N.A. 5.43% N.A. N.A. N.A.
INCEPTION DATE N.A. 8/6/93 N.A.* N.A. N.A.
VALUE MAY 31, 1998 $19,685 $12,898 $20,504 $22,883 $20,453
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX LIPPER AVERAGE
5/31/88 $10,000.00 $10,000.00 $10,000.00
May-89 11,167.74 10,982.14 11,174.95
May-90 11,818.04 11,944.02 11,845.34
May-91 12,793.30 13,184.56 12,918.75
May-92 13,757.56 14,409.82 14,041.48
May-93 15,043.43 16,183.53 15,601.32
May-94 15,350.70 16,732.30 15,916.68
May-95 16,646.86 18,234.92 17,089.62
May-96 17,307.88 19,358.74 17,608.17
May-97 18,688.98 20,941.65 18,872.31
May-98 20,504.50 22,883.08 20,453.46
* 8/2/93 was the inception date of Class I Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF A SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE GREATER OR LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES
IN SALES CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT
CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
12
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
STRATEGIC INCOME FUND
This Fund, which has a 20% stock and 80% bond mix, posted a gain of 14.13% for
the fiscal year ended May 31, 1998. Prior to October 1, 1997, the Fund was
called the Conservative Balanced Fund and at that time had a 25% stock and 75%
bond mix. We implemented the asset allocation and name changes to better
position the Fund as a consistent total-return, income-oriented fund.
Fiscal year 1998 was a profitable one for investors in the domestic equity
market. A healthy economy and benign inflation, which has displayed no signs of
acceleration, coupled with sizable cash inflows into the market, have all helped
fuel the continuing stock market rally. Large company stocks were the best
performers during the fiscal year, with the S&P 500 Index of large cap stocks
gaining 30.67%. Small cap stocks, represented by the Russell 2000 Index, also
fared well, returning 21.25%.
The fiscal year also proved to be a healthy environment for bonds. Continued
economic growth and favorable news on inflation helped fuel a market rally. Bond
yields declined significantly across the yield curve, with the yield on the
30-year Treasury Bond falling 1.11% during the fiscal year. The Lehman Brothers
Intermediate Government/Corporate Index, which is commonly used as a measure of
the performance of intermediate maturity bonds, gained 8.82% during this period.
The diversified equity portfolio, which makes up 20% of the Fund's assets, had a
solid fiscal year, returning 26.12%. This portfolio is comprised of large cap
growth and value stocks, small company growth and value issues and non-U.S.
stocks. The diversified bond style, comprising 55% of the Fund, turned in
12.39%; this portfolio consists of high quality U.S. government and agency
bonds, corporate issues, as well as asset-backed and mortgage-backed
instruments. The stable income component, at 15% of the assets, contributed
6.27%. This style invests in diversified, high quality, shorter maturity bonds.
The short maturity investment segment, which is a money market portfolio,
yielded approximately 5.42%; this represents 10% of the Fund. The diversified
bond style, comprising 55% of the Fund, turned in 12.39%, while the stable
income portion, at 15% of assets, contributed 6.27%. The short maturity
investment segment yielded approximately 5.42%; this represents 10% of the Fund.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
STRATEGIC INCOME FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX"), LEHMAN
BROTHERS
INTERMEDIATE GOVERNMENT/CORPORATE INDEX ("LEHMAN INDEX") AND
FUND COMPOSITE BENCHMARK ("BENCHMARK")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with two broad-based securities market indices and a peer based
average. The Fund's total return includes operating expenses that reduce
returns, while the total return of the Indices do not. The Lipper Average does
not include sales charges but does include management fees and expenses. The
Lipper Average is calculated by taking an arithmetic average of the returns of
the funds in the group. Investment return and principal value of an investment
in the Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE
NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
--------------------------------------------------
LEHMAN
I SHARES* S&P INDEX INDEX BENCHMARK++
----------- --------- ----------- -------------
ONE YEAR 14.13% 30.67% 8.82% 12.17%
FIVE YEAR 9.25% 22.14% 6.30% 8.83%
SINCE INCEPTION 9.51% 18.05% 8.40% 9.36%
INCEPTION DATE 5/1/89 4/30/89 4/30/89 4/30/89
VALUE MAY 31, 1998 $ 22,852 $ 45,182 $ 20,819 $ 22,552
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LEHMAN INDEX S&P INDEX BENCHMARK
4/30/89 $10,000.00 $10,000.00 $10,000.00 $10,000.00
May-89 10,187.78 10,198.00 10,355.60 10,196.19
May-90 11,272.56 11,123.21 12,128.96 11,122.13
May-91 12,506.45 12,449.18 13,555.88 12,227.53
May-92 13,686.27 13,890.84 14,888.61 13,471.66
May-93 14,681.22 15,336.79 16,614.40 14,770.11
May-94 15,244.26 15,537.13 17,317.55 15,174.33
May-95 16,586.75 17,035.26 20,807.88 16,643.98
May-96 18,271.87 17,817.30 26,720.51 18,255.12
May-97 20,023.11 19,131.12 34,577.08 20,105.92
May-98 22,852.17 20,819.04 45,181.95 22,551.91
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
++ Composite benchmark represents the appropriate base allocation percentages
applied to the Lipper Universe averages of the underlying component portfolios.
Lipper Analytical Services, Inc. is an independent mutual fund rating service
that ranks funds in various fund categories by making comparative calculations
using total returns. Although gathered from reliable sources, data accuracy and
completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDICES ARE UNMANAGED AND ARE NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
13
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
MODERATE BALANCED FUND
This Fund, which has a 40% stock and 60% bond mix, gained 17.04% during the
fiscal year ended May 31, 1998. Fiscal year 1998 was a profitable one for
investors in the domestic equity market. A healthy economy and benign inflation,
which has displayed no signs of acceleration, coupled with sizable cash inflows
into the market, have all helped fuel the continuing stock market rally. Large
company stocks were the best performers during the fiscal year, with the S&P 500
Index of large cap stocks gaining 30.67%. Small cap stocks, represented by the
Russell 2000 Index, also fared well, returning 21.25%.
The fiscal year also proved to be a healthy environment for bonds. Continued
economic growth and favorable news on inflation helped fuel a market rally. Bond
yields declined significantly across the yield curve, with the yield on the
30-year Treasury Bond falling 1.11% during the fiscal year. The Lehman Brothers
Intermediate Government/ Corporate Index, which is a commonly used as a measure
of the performance of intermediate maturity bonds, gained 8.82% during this
period.
The diversified bond style, comprising 45% of the Fund, turned in 12.39%; this
portfolio consists of high quality U.S. government and agency bonds, corporate
issues, as well as asset-backed and mortgage-backed instruments. The stable
income style, at 15% of assets contributed 6.27% during the fiscal year. This
style invests in diversified, high quality, shorter maturity bonds. The
diversified equity style, which is 40% of the Fund's assets, had an excellent
fiscal year, returning 26.12%. This portfolio is comprised of large cap growth
and value stocks, small company growth and value issues and non-U.S. stocks.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
MODERATE BALANCED FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX"), LEHMAN
BROTHERS
INTERMEDIATE GOVERNMENT/CORPORATE INDEX ("LEHMAN INDEX") AND
FUND COMPOSITE BENCHMARK ("BENCHMARK")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with two broad-based securities market indices and a peer based
average. The Fund's total return includes operating expenses that reduce
returns, while the total return of the Indices do not. The Lipper Average does
not include sales charges but does include management fees and expenses. The
Lipper Average is calculated by taking an arithmetic average of the returns of
the funds in the group. Investment return and principal value of an investment
in the Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE
NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
--------------------------------------------------
LEHMAN
I SHARES* S&P INDEX INDEX BENCHMARK++
----------- --------- ----------- -------------
ONE YEAR 17.04% 30.67% 8.82% 15.10%
FIVE YEAR 11.35% 22.14% 6.30% 10.77%
SINCE INCEPTION 11.29% 18.05% 8.40% 10.72%
INCEPTION DATE 5/1/89 4/30/89 4/30/89 4/30/89
VALUE MAY 31, 1998 $ 26,460 $ 45,182 $ 20,819 $ 25,234
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Fund Lehman Index S&P Index Benchmark
4/30/89 $10,000.00 $10,000.00 $10,000.00 $10,000.00
May/89 10,227.10 10,198.00 10,355.60 10,222.32
May/90 11,660.18 11,123.21 12,128.96 11,222.89
May/91 12,989.39 12,449.18 13,555.88 12,346.94
May/92 14,304.45 13,890.84 14,888.61 13,672.22
May/93 15,447.02 15,336.79 16,614.40 15,130.36
May/94 16,101.31 15,537.13 17,317.55 15,652.39
May/95 17,721.50 17,035.26 20,807.88 17,316.26
May/96 20,176.69 17,817.30 26,720.51 19,543.51
May/97 22,606.77 19,131.12 34,577.08 21,924.01
May/98 26,460.03 20,819.04 45,181.95 25,234.12
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
++ Composite benchmark represents the appropriate base allocation percentages
applied to the Lipper Universe averages of the underlying component portfolios.
Lipper Analytical Services, Inc. is an independent mutual fund rating service
that ranks funds in various fund categories by making comparative calculations
using total returns. Although gathered from reliable sources, data accuracy and
completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDICES ARE UNMANAGED AND ARE NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
14
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
GROWTH BALANCED FUND
The assets of the Fund consist of a 65% stock and 35% bond mix, and experienced
a return of 21.40% during the fiscal period ended May 31, 1998. Fiscal year 1998
was a profitable one for investors in the domestic equity market. A healthy
economy and benign inflation, which has displayed no signs of acceleration,
coupled with sizable cash inflows into the market, have all helped fuel the
continuing stock market rally. Large company stocks were the best performers
during the fiscal year, with the S&P 500 Index of large cap stocks gaining
30.67%. Small cap stocks, represented by the Russell 2000 Index, also fared
well, returning 21.25%. Returns in foreign equity markets were more volatile
during the year. While European markets generally fared well, Asian markets
performed quite poorly. The currency crisis that hit the developing Southeast
Asian markets in late 1997 had a ripple effect, spreading to the more mature
markets of the Pacific Rim as well. The MSCI EAFE Index of international stocks
gained 11.11% during this period.
The fiscal year also proved to be a healthy environment for bonds. Continued
economic growth and favorable news on inflation helped fuel a market rally. Bond
yields declined significantly across the yield curve, with the yield on the
30-year Treasury Bond falling 1.11% during the fiscal year. The Lehman Brothers
Intermediate Government/Corporate Index, which is commonly used as a measure of
the performance of intermediate maturity bonds, gained 8.82% during this period.
The diversified equity component, which makes up 65% of the Fund's assets,
performed extremely well during the fiscal year, gaining 26.12%. This component
is comprised of large cap growth and value stocks, small company growth and
value issues and non-U.S. stocks. The diversified bond style, comprising 35% of
assets, returned 12.39%; this portfolio consists of high quality U.S. government
and agency bonds, corporate issues, as well as asset-backed and mortgage-backed
instruments.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
GROWTH BALANCED FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX"), LEHMAN
BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX ("LEHMAN INDEX"), FUND COMPOSITE BENCHMARK
("BENCHMARK")
AND LIPPER BALANCED FUND AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with two broad-based securities market indices and two peer based
averages. The Fund's total return includes operating expenses that reduce
returns, while the total return of the Indices do not. The Lipper Averages do
not include sales charges but do include management fees and expenses. The
Lipper Averages are calculated by taking an arithmetic average of the returns of
the funds in the group. Investment return and principal value of an investment
in the Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE
NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------------------------------
LEHMAN LIPPER
I SHARES* S&P INDEX INDEX BENCHMARK++ AVERAGE+
--------- --------- --------- ------------- -----------
ONE YEAR 21.40% 30.67% 8.82% 19.44% 19.29%
FIVE YEAR 14.57% 22.14% 6.30% 13.85% 13.56%
SINCE INCEPTION 13.41% 18.05% 8.40% 12.80% 12.65%
INCEPTION DATE 5/1/89 4/30/89 4/30/89 4/30/89 4/30/89
VALUE MAY 31, 1998 $31,389 $20,819 $45,182 $29,894 $29,526
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Fund Lehman Index S&P Index Benchmark Lipper Average
4/30/89 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
May-89 10,153.68 10,198.00 10,355.60 10,262.81 10,306.00
May-90 11,703.43 11,123.21 12,128.96 11,393.43 11,251.02
May-91 13,171.09 12,449.18 13,555.88 12,521.86 12,626.42
May-92 14,606.90 13,890.84 14,888.61 13,938.92 14,019.79
May-93 15,891.77 15,336.79 16,614.40 15,622.39 15,629.70
May-94 16,642.59 15,537.13 17,317.55 16,352.87 16,167.97
May-95 18,639.94 17,035.26 20,807.88 18,319.17 18,102.26
May-96 22,326.23 17,817.30 26,720.51 21,681.58 21,336.09
May-97 25,856.88 19,131.12 34,577.08 25,029.41 24,751.40
May-98 31,388.92 20,819.04 45,181.95 29,894.07 29,525.53
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
++ Composite benchmark represents the appropriate base allocation percentages
applied to the Lipper Universe averages of the underlying component portfolios.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDICES ARE UNMANAGED AND ARE NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
15
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
AGGRESSIVE BALANCED-EQUITY FUND
THE AGGRESSIVE BALANCED-EQUITY FUND was launched on December 2, 1997. The assets
of the Fund consist of an 80% stock and 20% bond mix, and experienced a return
of 10.55% since its inception through May 31, 1998. Fiscal year 1998 was a
profitable one for investors in the domestic equity market. A healthy economy
and benign inflation, which has displayed no signs of acceleration, coupled with
sizable cash inflows into the market, have all helped fuel the continuing stock
market rally. Large company stocks were the best performers during the fiscal
year, with the S&P 500 Index of large cap stocks gaining 30.67%. Small cap
stocks, represented by the Russell 2000 Index, also fared well, returning
21.25%. Returns in foreign equity markets were more volatile during the year.
While European markets generally fared well, Asian markets performed quite
poorly. The currency crisis that hit the developing Southeast Asian markets in
late 1997 had a ripple effect, spreading to the more mature markets of the
Pacific Rim as well. The MSCI EAFE Index of international stocks gained 11.11%
during this period.
The fiscal year also proved to be a healthy environment for bonds. Continued
economic growth and favorable news on inflation helped fuel a market rally. Bond
yields declined significantly across the yield curve, with the yield on the
30-year Treasury Bond falling 1.11% during the fiscal year. The Lehman Brothers
Intermediate Government/ Corporate Index, which is commonly used as a measure of
the performance of intermediate maturity bonds, gained 8.82% during this period.
The diversified equity component, which makes up 80% of the Fund's assets, is
comprised of large cap growth and value stocks, small company growth and value
issues and non-U.S. stocks. The diversified bond style, comprising 20% of
assets, consists of high quality U.S. government and agency bonds, corporate
issues, as well as asset-backed and mortgage-backed instruments.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
AGGRESSIVE BALANCED-EQUITY FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX"),
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX ("LEHMAN INDEX") AND
LIPPER AGGRESSIVE BALANCED-EQUITY
FUND WEIGHTED LIPPER PEER GROUP ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with two broad-based securities market indices and a peer based
average. The Fund's total return includes operating expenses that reduce
returns, while the total return of the Indices do not. The Lipper Average does
not include sales charges but does include management fees and expenses. The
Lipper Average is calculated by taking an arithmetic average of the returns of
the funds in the group. Investment return and principal value of an investment
in the Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE
NOR A GUARANTEE OF FUTURE RESULTS.
TOTAL RETURN AS OF MAY 31, 1998
-------------------------------------------
LEHMAN LIPPER
I SHARES S&P INDEX INDEX AVERAGE+
--------- --------- --------- ----------
SINCE INCEPTION 10.55% 15.06% 3.64% 10.89%
INCEPTION DATE 12/2/97 11/30/97 11/30/97 11/30/97
VALUE MAY 31, 1998 $11,055 $11,506 $10,364 $11,089
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE S&P INDEX LEHMAN INDEX
11/30/97 $10,000.00 $10,000.00 $ 10,000.00 $ 10,000.00
12/31/97 10,013.29 10,134.16 10,171.74 10,079.94
01/31/98 10,143.46 10,204.77 10,284.24 10,212.01
02/28/98 10,704.21 10,760.16 11,025.94 10,204.23
03/31/98 11,084.71 11,174.60 11,590.58 10,237.01
04/30/98 11,224.90 11,260.24 11,707.18 10,288.30
05/31/98 11,054.67 11,088.77 11,505.93 10,363.76
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDICES ARE UNMANAGED AND ARE NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
16
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
INDEX FUND
During the fiscal year ended May 31, 1998, the Fund experienced a gain of
30.32%. Fiscal year 1998 was a profitable one for investors in the domestic
equity market. A healthy economy and benign inflation, which has displayed no
signs of acceleration, coupled with sizable cash inflows into the market, have
all helped fuel the continuing stock market rally. Large company stocks were the
best performers during the fiscal year, with the S&P 500 Index (the "Index") of
large cap stocks gaining 30.67%.
The objective of the Index Fund is to replicate the return of the Index with a
minimum of tracking error. To achieve this goal, the Fund is invested in all 500
securities that make up the Index and in the same weightings as in the Index. A
small portion of the Fund's assets are kept in cash in order to handle
redemptions and purchases without having to trade stocks. This minimizes
transaction costs. On the down side, this can hurt performance; we reduce the
drag of cash by hedging our cash position by investing in S&P 500 futures
contracts, giving us, in effect, a 100% equity position. The result is a fund
that very closely tracks the performance of the Index.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
INDEX FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX") AND
LIPPER STANDARD & POOR'S 500 INDEX OBJECT AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN
AS OF MAY 31, 1998
-----------------------------------
S&P LIPPER
I SHARES* INDEX AVERAGE+
----------- --------- -----------
ONE YEAR 30.32% 30.67% 29.88%
FIVE YEAR 21.44% 22.14% 21.51%
TEN YEAR 17.96% 18.59% 17.96%
VALUE MAY 31, 1998 $52,225 $55,045 $52,198
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND S&P INDEX LIPPER AVERAGE
5/31/88 $10,000.00 $10,000.00 $10,000.00
May/89 12,600.83 12,616.28 12,579.28
May/90 14,536.67 14,776.77 14,570.76
May/91 16,273.76 16,515.19 16,220.09
May/92 17,784.69 18,138.86 17,744.20
May/93 19,769.57 20,241.41 19,691.66
May/94 20,438.63 21,098.06 20,432.71
May/95 24,378.22 25,350.35 24,431.54
May/96 31,060.60 32,553.73 31,218.73
May/97 40,073.46 42,125.42 40,188.67
May/98 52,225.23 55,045.39 52,197.86
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
17
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
INCOME EQUITY FUND
During the fiscal year ended May 31, 1998, the Fund experienced a gain of
28.61%, out-performing the Lipper Equity Income average of 25.00%. The Income
Equity Fund investment objective is to provide capital appreciation consistent
with above-average dividend income by investing long-term in large
capitalization, high quality companies. We believe the best way to accumulate
wealth in the stock market is to fully participate in bull markets and preserve
those gains in bear markets. During fiscal year 1998, the Fund boosted its gross
dividend yield versus the S&P 500 to the highest relative yield since inception.
The Fund benefited from emphasis in the basic industries (led by DuPont),
consumer cyclicals (led by Dayton Hudson), and consumer staples sectors (led by
Sara Lee). The Fund also gained from its emphasis on large capitalization
companies with strong franchises that have taken action to increase market
share, cut costs, commit resources to higher margin businesses, and focus on
enhancing shareholder value. These companies were found in numerous business
sectors over this past year. DuPont, one of the Fund's top performers, was +42%
for the fiscal year by focusing on growing its high growth life sciences
business. Honeywell's chief executive, Michael Bonsignore, has been successful
at growing sales at a 10% rate and earnings 20% over the past three years.
McDonalds (+31%) has taken initiatives that should accelerate earnings growth.
In addition, the Fund has benefited from investing in domestic companies with
significant revenue generated from non-U.S. sources, particularly Europe. Fund
holdings have not been significantly impacted by problems in South East Asia. We
believe global economic growth potential is quite good, and the exposure to
global economies should add value in the near term.
Over the course of the fiscal year, the Fund reduced its relative weighting in
energy by selling a partial position in Schlumberger, and increased the
weighting in consumer staples, particularly Pepsico, and consumer cyclicals,
particularly J.C. Penney and McDonalds. In Energy, Schlumberger (+32%) has
developed proprietary technology to enhance oil and gas recovery, pushing
earnings per share up at a 20% plus annual rate. 3M believes that their new
product entries, technology, and delivery capabilities are better now than at
any time in the past 30 years. Earnings per share have been growing about 10%
per year, in spite of being hurt by negative currency adjustments. The stock has
excellent potential, but significantly lagged this past year with a return of
only 3%. American Home Products gained 30% this past year on a 13% earnings per
share increase and a recently announced merger with Monsanto. At fiscal year end
May 1998, each of these companies had excellent earnings growth expectations,
yet, as a group, they sell at a discount to the market. We believe that these
companies have better growth prospects, higher dividend yield, and a better
valuation based on a lower average P/E ratio.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
INCOME EQUITY FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX") AND
LIPPER EQUITY INCOME AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
-------------------------------------------------------------
S&P LIPPER
A SHARES B SHARES I SHARES* INDEX AVERAGE+
----------- ----------- ----------- --------- -----------
ONE YEAR 21.56% 24.67% 28.61% 30.67% 25.00%
FIVE YEAR 19.15% N.A. 20.50% 22.14% 17.73%
SINCE INCEPTION 17.00% 23.60% 17.72% 18.52% 14.93%
INCEPTION DATE 3/31/89** 5/2/96 3/31/89 3/31/89 3/31/89
VALUE MAY 31, 1998 $ 42,228 $ 15,555 $ 44,676 $ 47,525 $ 35,844
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Fund S&P Index Lipper Average
3/31/89 $10,000.00 $10,000.00 $10,000.00
May-89 10,971.51 10,892.70 10,697.74
May-90 12,616.31 12,758.04 11,458.68
May-91 14,583.81 14,258.97 12,402.45
May-92 15,888.85 15,660.82 13,922.06
May-93 17,577.37 17,476.13 15,840.79
May-94 17,786.58 18,215.74 16,675.25
May-95 22,101.42 21,887.11 18,905.30
May-96 28,379.64 28,106.40 23,358.26
May-97 34,737.86 36,370.45 28,674.94
May-98 44,675.90 47,525.36 35,844.27
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
** 5/2/96 was the inception date of Class A Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF I SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES IN SALES
CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
18
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
VALUGROWTH STOCK FUND
The ValuGrowth Stock Fund participated in the strong stock market advance during
the fiscal year ending May 31, 1998. While the Fund delivered strong absolute
returns, it under-performed relative to its peer group, trailing the Lipper
Growth Average 21.18% versus 25.85%. The majority of the under-performance was
attributable to our failure to keep up with a rally in smaller capitalization
issues early in the year due to our bias toward large capitalization stocks.
While large caps recovered during the next few months and out-performed for the
year, specific stock performance and our underweight position in consumer
cyclical stocks prevented us from recovering the prior period's
under-performance. Value outperformed growth by a meaningful amount during the
year, providing a head wind to those of us within the peer group with a growth
bias. Our strongest core holdings included: EMC (+109%), Gentex (+81%), Cisco
Systems (+70%), Ericsson (+57%) and State Street (+56%). Under-performers
included: Intel (-13%), Kimberly-Clark (-1%), Thermo Electron (+4%),
Consolidated Natural Gas (+8%), and Baxter International (+10%).
We have anticipated a slowdown in domestic economic activity for some time. Our
conviction was strengthened as a result of the collapse in Southeast Asian
economies and markets. Although we were clearly early, we remain convinced that
the economy will slow, so we have positioned the portfolio accordingly. We
reduced the economic sensitivity of the portfolio significantly during the past
year. We cut our basic materials exposure in half. We reduced our capital goods
exposure from a modest overweight to a modest underweight. We continue to
underweight consumer cyclical stocks, which detracted considerably from
performance during the past year due to the strength in consumer spending. We
added to our consumer staples exposure during the year but remain slightly
underweight in the sector. Based on our economic outlook, we would prefer to
overweight consumer staples. Unfortunately, we are experiencing difficulty
finding value in the sector. We established positions in Becton Dickinson
(medical products), ConAgra (food products), and International Home Foods (food
products) and sold positions in Vencor (deteriorating fundamentals), and
Medtronic (valuation).
We neutralized our overweight position in finance, a sector which had boosted
performance. We reduced our exposure to companies with significant sensitivity
to the stock market (brokerage and investment management companies) due to our
belief that the risk/return tradeoff in the stock market is less attractive at
this juncture. While we continue to believe that these companies are well
positioned long term, we harbor near-term concerns. We both added to and
diversified our overweight position in technology during the year. Technology
stocks underperformed during fiscal 1998, due to Asian concerns and a
significant reduction in personal computer inventories. However, we remain
bullish longer term. We reduced our utility exposure from a slight overweight to
an underweight position. Our timing here left something to be desired as Asia's
debacle prompted many investors to pile into stable earners with minimal
international exposure, despite the longer-term challenges facing this industry.
We continue to overweight electric and gas utilities in the portfolio for their
defensive characteristics and interest sensitivity. We are underweight the oil
sector based on our outlook for continued weak demand and excess supply.
We continue be cautious in the near-term. We expect to maintain a cash balance
that will provide us with some downside protection and liquidity to take
advantage of opportunities in a volatile market. We believe the market is
relatively fully valued with upside potential from here accompanied by
significant downside risk in light of our belief that we are in the later stages
of the economic and market cycle. As always, we emphasize growth, quality and
value. Companies that can meet expectations in a challenging economic
environment will be rewarded. Investors seek quality in the face of uncertainty.
Valuation matters when the rising tide recedes. We anticipate this type of
environment in fiscal 1999 and believe we have positioned the Fund to
out-perform.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
VALUGROWTH STOCK FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX")
AND LIPPER GROWTH AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
-------------------------------------------------------------
S&P LIPPER
A SHARES B SHARES I SHARES INDEX AVERAGE+
----------- ----------- ----------- --------- -----------
ONE YEAR 14.48% 17.30% 21.18% 30.67% 25.85%
FIVE YEAR 14.09% N.A. 15.35% 22.14% 18.16%
TEN YEAR 14.56% N.A. 15.19% 18.59% 16.43%
SINCE INCEPTION N.A. 15.08% N.A. N.A. N.A.
INCEPTION DATE N.A. 8/5/93 N.A.* N.A. N.A.
VALUE MAY 31, 1998 $ 38,968 $ 19,912 $ 40,285 $ 55,045 $ 45,823
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND S&P INDEX LIPPER AVERAGE
5/31/88 $9,450.00 $10,000.00 $10,000.00
May-89 11,611.39 12,616.28 12,526.74
May-90 14,058.51 14,776.77 14,188.17
May-91 15,370.75 16,515.19 15,979.15
May-92 17,412.78 18,138.86 17,664.68
May-93 19,035.27 20,241.41 19,882.94
May-94 19,357.66 21,098.06 20,888.22
May-95 21,433.18 25,350.35 23,758.04
May-96 26,082.70 32,553.73 30,796.94
May-97 32,164.71 42,125.42 36,411.70
May-98 38,968.20 55,045.39 45,822.97
* 8/2/93 was the inception date of Class I Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF A SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE GREATER OR LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES
IN SALES CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT
CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
19
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
DIVERSIFIED EQUITY FUND
During the fiscal year ended May 31, 1998, the Fund experienced a gain of
26.12%. We were pleased with the performance of all five of the unique and
complementary equity styles that make up the strategic asset allocation of the
Fund. We employ these styles to help moderate the Fund's annual return
volatility, improve its performance and provide effective diversification across
equity investing.
Fiscal year 1998 was a profitable one for investors in the domestic equity
market. A healthy economy and benign inflation, which has displayed no signs of
acceleration, coupled with sizable cash inflows into the market, have all helped
fuel the continuing stock market rally. Large company stocks were the best
performers during the fiscal year, with the S&P 500 Index of large cap stocks
gaining 30.67%. Small cap stocks, represented by the Russell 2000 Index, also
fared well, returning 21.25%. Returns in foreign equity markets were more
volatile during the year. While European markets generally fared well, Asian
markets performed quite poorly. The currency crisis that hit the developing
Southeast Asian markets in late 1997 had a ripple effect, spreading to the more
mature markets of the Pacific Rim as well. The MSCI EAFE Index of international
stocks gained 11.11% during this period.
The large company style of the Diversified Equity Fund, which invests in large
cap growth stocks, gained 29.87% during the past fiscal year. The income equity
style, which purchases higher yielding large cap issues, returned 28.61%, while
the index style, which tracks the S&P 500 Index, turned in 30.32%. The
diversified small cap style, which is comprised of a diversified portfolio of
small company growth and value stocks, also fared well with a return of 21.38%.
Returns on the international style of non-U.S. growth stocks were 11.20% during
this period.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
DIVERSIFIED EQUITY FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX"),
FUND COMPOSITE BENCHMARK ("BENCHMARK") AND
LIPPER GROWTH & INCOME AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and two peer based averages.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Averages do not include sales charges but do include management fees
and expenses. The Lipper Averages are calculated by taking an arithmetic average
of the returns of the funds in the group. Investment return and principal value
of an investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. PAST PERFORMANCE
IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
----------------------------------------------------------------------------
LIPPER
A SHARES B SHARES I SHARES* S&P INDEX BENCHMARK++ AVERAGE+
----------- ----------- ----------- --------- ------------- -----------
ONE YEAR 19.16% 22.13% 26.12% 30.67% 24.60% 25.61%
FIVE YEAR 18.00% N.A. 19.34% 22.14% 17.95% 18.68%
SINCE INCEPTION 16.85% 22.72% 17.56% 18.86% 15.84% 16.25%
INCEPTION DATE 1/1/89** 5/6/96 1/1/89 12/31/88 12/31/88 12/31/88
VALUE MAY 31, 1998 $38,476 $15,575 $45,909 $50,887 $39,937 $41,292
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Fund S&P Index Benchmark Lipper Average
12/31/88 $10,000.00 $10,000.00 $10,000.00 $10,000.00
May-89 11,533.25 11,663.14 11,436.30 11,459.19
May-90 13,663.41 13,660.41 12,897.87 12,704.15
May-91 15,510.73 15,267.50 14,038.65 14,078.21
May-92 17,271.45 16,768.50 15,549.23 15,642.79
May-93 18,958.99 18,712.21 17,487.72 17,528.33
May-94 20,169.59 19,504.13 18,707.16 18,434.77
May-95 23,494.33 23,435.17 21,131.17 21,147.83
May-96 30,144.82 30,094.35 26,799.89 26,691.92
May-97 36,402.34 38,942.92 32,053.10 32,872.02
May-98 45,909.04 50,886.81 39,936.92 41,291.67
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
** 5/2/96 was the inception date of Class A Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
++ Composite benchmark represents the appropriate base allocation percentages
applied to the Lipper Universe averages of the underlying component portfolios.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF I SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES IN SALES
CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
20
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
During the fiscal year ended May 31, 1998, the Fund experienced a gain of
22.52%. We were pleased with the performance of all three equity styles that
make up the Fund. This Fund is globally diversified, with investments in large
and small capitalization stocks, spread over the domestic and international
stock markets. We employ these styles to help moderate the Fund's annual return
volatility, improve its performance and provide effective diversification across
equity investing.
Fiscal year 1998 was a profitable one for investors in the domestic equity
market. A healthy economy and benign inflation, which has displayed no signs of
acceleration, coupled with sizable cash inflows into the market, have all helped
fuel the continuing stock market rally. Large company stocks were the best
performers during the fiscal year, with the S&P 500 Index of large cap stocks
gaining 30.67%. Small cap stocks, represented by the Russell 2000 Index, also
fared well, returning 21.25%. Returns in foreign equity markets were more
volatile during the year. While European markets generally fared well, Asian
markets performed quite poorly. The currency crisis that hit the developing
Southeast Asian markets in late 1997 had a ripple effect, spreading to the more
mature markets of the Pacific Rim as well. The MSCI EAFE Index of international
stocks gained 11.11% during this period.
The large company growth portfolio of the Growth Equity Fund gained 32.29%
during the past fiscal year. The small company style, which is comprised of a
diversified portfolio of small company growth and value stocks, also fared well
with a return of 21.38%. The small company segment also fared well with a return
of 21.38%. Returns on the international portfolio were 11.20% during this
period.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
GROWTH EQUITY FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX"),
FUND COMPOSITE BENCHMARK ("BENCHMARK") AND
LIPPER GROWTH AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and two peer based averages.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Averages do not include sales charges but do include management fees
and expenses. The Lipper Averages are calculated by taking an arithmetic average
of the returns of the funds in the group. Investment return and principal value
of an investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. PAST PERFORMANCE
IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
----------------------------------------------------------------------------
LIPPER
A SHARES B SHARES I SHARES* S&P INDEX BENCHMARK++ AVERAGE+
----------- ----------- ----------- --------- ------------- -----------
ONE YEAR 15.82% 18.63% 22.52% 30.67% 21.36% 25.85%
FIVE YEAR 16.14% N.A. 17.45% 22.14% 16.17% 18.16%
SINCE INCEPTION 15.97% 17.23% 16.69% 18.05% 14.20% 15.87%
INCEPTION DATE 5/1/89** 5/6/96 5/1/89 4/30/89 4/30/89 4/30/89
VALUE MAY 31, 1998 $ 38,476 $ 14,213 $ 40,691 $ 45,182 $ 33,442 $ 38,153
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Fund S&P Index Benchmark Lipper Average
4/30/89 $10,000.00 $10,000.00 $10,000.00 $10,000.00
May-89 10,314.96 10,355.60 10,237.35 10,430.00
May-90 12,477.71 12,128.96 11,622.75 11,813.34
May-91 14,188.29 13,555.88 12,510.73 13,304.54
May-92 16,141.15 14,888.61 13,904.84 14,707.95
May-93 18,198.77 16,614.40 15,801.67 16,554.91
May-94 20,212.96 17,317.55 17,351.08 17,391.93
May-95 22,556.35 20,807.88 18,995.28 19,781.39
May-96 29,103.52 26,720.51 24,700.23 25,642.11
May-97 33,211.37 34,577.08 27,555.47 30,317.07
May-98 40,690.54 45,181.95 33,441.93 38,153.07
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
** 5/2/96 was the inception date of Class A Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
++ Composite benchmark represents the appropriate base allocation percentages
applied to the Lipper Universe averages of the underlying component portfolios.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF I SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES IN SALES
CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
21
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
For the fiscal year ended May 31, 1998, the Large Company Growth Fund gained
32.29%, outperforming both the S&P 500 Index return of 30.67% and the Lipper
Growth Average of 25.85%. Returns were spread across a number of holdings.
Portfolio leaders included Pfizer, Ericsson, Cisco, and Home Depot. Excellent
fundamental results drove the portfolio's returns. Company holdings have grown
average earnings per share in excess of 25% over the past twelve months. Unit
volume growth was the major factor behind these outstanding earnings gains.
Importantly, the portfolio's superior earnings growth gap relative to the S&P
500 Index continued to widen over the past year--leading to strong relative
investment results. The S&P 500 Index earnings growth rate continues to moderate
from unsustainably high levels toward a 5%-10% trend-line. The Large Company
Growth Fund invests exclusively in dynamic, high quality growth stocks.
Companies that sustain rapid earnings growth for a long period offer investors
several advantages. Since earnings growth drives stock prices, these companies
should offer above average investment return potential. In addition, due to the
sustained growth, their investment cycle is longer than average, and these
companies' fundamental risk is lower than average. The Fund utilizes a
disciplined approach to increase the probability of finding and investing in
this select group of growth companies. The portfolio team invests for the
long-term to fully participate in these great companies' success.
The "what you see is what you get" fundamental environment is here. For the past
several years (1991-1997) many otherwise average companies have been able to
grow earnings well in excess of underlying sales growth. This was unsustainable,
and therefore S&P 500 Index earnings growth has naturally been moderating toward
the underlying sales growth rate (5%-7%). The Fund's projected 20% long-term
earnings growth rate should outshine this average and provide above average
long-term investment returns. The overall moderate U.S. economic growth rate and
benign inflationary environment should continue to benefit stocks, in general,
and superior growth stocks, in particular.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
LARGE COMPANY GROWTH FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX") AND
LIPPER GROWTH AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF
MAY 31, 1998
---------------------------------
S&P LIPPER
I SHARES* INDEX AVERAGE+
---------- --------- ----------
ONE YEAR 32.29% 30.67% 25.85%
FIVE YEAR 20.39% 22.14% 18.16%
TEN YEAR 18.97% 18.59% 16.43%
VALUE MAY 31, 1998 $56,861 $55,045 $45,823
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND S&P INDEX LIPPER AVERAGE
5/31/88 $10,000.00 $10,000.00 $10,000.00
May-89 12,383.37 12,616.28 12,526.74
May-90 15,160.03 14,776.77 14,188.17
May-91 18,660.83 16,515.19 15,979.15
May-92 21,932.73 18,138.86 17,664.68
May-93 22,473.20 20,241.41 19,882.94
May-94 23,264.41 21,098.06 20,888.22
May-95 26,637.13 25,350.35 23,758.04
May-96 35,253.21 32,553.73 30,796.94
May-97 42,983.03 42,125.42 36,411.70
May-98 56,860.85 55,045.39 45,822.97
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance results.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
22
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP FUND
The Diversified Small Cap Fund was launched on December 31, 1997 and has gained
5.20% since its inception through May 31, 1998. The Fund is comprised of five
different small cap investing styles: two value styles, two growth styles and an
index style. The index style tracks the S&P 600 Index of small company stocks.
We employ these styles to help moderate the Fund's annual return volatility,
improve its performance and provide effective diversification across small cap
investing.
Small cap stocks started fiscal 1998 strongly only to see their relative
performance ebb as negative events unfolded in the Far East and investors sought
the safety and liquidity of large cap stocks. Characteristic of a risk-averse
environment, small value stocks performed well, with the Russell 2000 Value
Index rising 26.70% for the fiscal period end versus a 15.90% increase in small
growth stocks, as measured by the Russell 2000 Growth Index.
As small stocks continue to lag large cap stocks, investor psychology is clearly
nearing its nadir. Despite small stocks having nearly reached record low
relative valuations, we have yet to see much change in investors' appetites for
large stocks. Relative performance prospects for small stocks in general are
outstanding. The superior earnings momentum and inexpensive valuations present
in these stocks should ultimately grab investor attention.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
DIVERSIFIED SMALL CAP FUND VS. RUSSELL 2000 VALUE INDEX ("RUSSELL INDEX") AND
LIPPER SMALL CAP AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
TOTAL RETURN AS OF MAY 31, 1998
--------------------------------
RUSSELL LIPPER
I SHARES INDEX AVERAGE+
--------- --------- ----------
SINCE INCEPTION 5.20% 4.69% 5.54%
INCEPTION DATE 12/31/97 12/31/97 12/31/97
VALUE MAY 31, 1998 $10,520 $10,469 $10,554
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE RUSSELL INDEX
12/31/97 $10,000.00 $10,000.00 $10,000.00
01/31/98 9,880.00 9,833.00 9,842.00
02/28/98 10,690.00 10,598.01 10,569.32
03/31/98 11,170.00 11,092.93 11,004.78
04/30/98 11,220.00 11,185.01 11,065.31
05/31/98 10,520.00 10,554.17 10,468.89
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
23
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
SMALL COMPANY STOCK FUND
For the fiscal year ended May 31, 1998, the Small Company Stock Fund rose 8.12%,
under-performing the Lipper Small Cap universe average of 23.04%. Virtually all
of the under-performance came in a 10 week period from mid October to the end of
1997, when small cap stocks were taken apart over "Asian Flu" fears.
Sector weighting decisions made during the fiscal year that contributed to the
Fund's under-performance included over-weighting technology and energy and
under-weighting financials. Individual security selection was a more positive
factor, highlighting the unfortunate sector bets. In light of this experience
the Fund will no longer tolerate any noticeable deviation from the sector
weightings in the S&P 600. The portfolio is now attractively valued, less
volatile, and better diversified with much less turnover than in 1997.
Small cap stocks perform inversely to fear. The technology sector, in
particular, still contains a strong hangover from Asian fallout and looks to be
having a tough year. We are cautious on stocks at the margin and are deploying
capital only into higher quality companies with good prospects over 2-3 years at
prices we believe are clearly compelling. However, we do believe that currently
many smaller companies offer more attractive investment opportunities than
larger companies based on their valuations and growth prospects. We look for a
much better May 1998 to May 1999.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
SMALL COMPANY STOCK FUND VS. RUSSELL 2000 INDEX ("RUSSELL INDEX") AND
LIPPER SMALL CAP AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
--------------------------------------------------------
RUSSELL LIPPER
A SHARES B SHARES I SHARES INDEX AVERAGE+
---------- ---------- --------- --------- ----------
ONE YEAR 2.14% 4.29% 8.12% 21.40% 23.04%
SINCE INCEPTION 11.86% 12.14% 13.20% 14.91% 17.08%
INCEPTION DATE 12/31/93 12/31/93 12/31/93 12/31/93 12/31/93
VALUE MAY 31, 1998 $16,410 $16,790 $17,297 $18,477 $20,069
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
A SHARES RUSSELL INDEX LIPPER AVERAGE I SHARES B SHARES
12/31/93 $ 9,450.00 $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
5/31/94 9,372.32 9,640.59 9,565.07 9,877.73 9,884.66
5/31/95 10,330.93 10,479.44 10,841.03 10,882.10 10,805.36
5/31/96 14,278.96 14,234.16 15,649.11 15,050.20 14,838.24
5/31/97 15,184.80 15,219.76 16,310.97 15,997.80 15,648.87
5/31/98 16,410.34 18,477.05 20,069.05 17,297.25 16,790.17
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE RISKS INVOLVED IN SEEKING CAPITAL APPRECIATION FROM INVESTMENTS PRINCIPALLY
IN COMPANIES WITH SMALL MARKET CAPITALIZATION ARE SET FORTH IN THE PROSPECTUS.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
24
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
SMALL CAP OPPORTUNITIES FUND
For the fiscal year ended May 31, 1998, the Small Cap Opportunities Fund gained
21.95%. For this same period the Lipper Small Cap average and the Russell 2000
Index returned 23.04% and 21.40%, respectively. Despite a healthy U.S. economy,
benign inflation and no sign of rising interest rates, the performance of small
stocks was impacted by the Asian crisis, volatile market conditions and a
serious correction in October. Smaller companies significantly under-performed
larger companies during this period bringing relative valuations to their lowest
levels since 1990.
Sector level performance was again volatile during the period. The best
performing sector during the fiscal year was utilities. The Fund did not
participate in this gain due to a lack of exposure to this sector. This was
largely offset by out-performance in financials, technology and consumer
staples. Both consumer staples and consumer cyclical sectors performed well.
Leading securities of the Fund in these two sectors were Suiza Foods Corporation
and Pillowtex Corporation.
Due to plummeting oil prices, energy was the worst performing sector of the
Russell 2000. The Fund out-performed in this sector due to prudent stock
selection. Technology was the second worst performing sector in the market for
the period; however, the Fund's underweight position and management's
conservative stance and focused stock selection enabled the Fund's technology
holdings to out-perform.
The Fund remained well-diversified across sectors with investments continuing to
be made primarily on a bottom-up and opportunistic basis. Looking forward,
management continues to search for quality companies with attractive growth
prospects which are run by incentivized management and trading at reasonable
valuations. We believe that currently many smaller companies offer more
attractive investment opportunities than larger companies based on their
valuations and growth prospects. We will remain focused on our
research-intensive individual stock selection, concentrating on underfollowed
and misunderstood companies that can offer superior earnings growth.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
SMALL CAP OPPORTUNITIES VS. RUSSELL 2000 INDEX ("RUSSELL INDEX") AND
LIPPER SMALL CAP AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
----------------------------------------------------------
RUSSELL LIPPER
A SHARES B SHARES I SHARES INDEX AVERAGE+
---------- ---------- ---------- ---------- ----------
ONE YEAR 15.26% 18.03% 21.95% 21.40% 23.04%
SINCE INCEPTION 22.93% 20.85% 24.39% 15.67% 17.96%
INCEPTION DATE 8/1/93* 11/8/96 8/1/93 7/31/93 7/31/93
VALUE MAY 31, 1998 $27,141 $13,741 $28,732 $20,208 $22,220
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND RUSSELL INDEX LIPPER AVERAGE
8/1/93 $10,000.00 $10,000.00 $10,000.00
May-94 11,343.34 10,543.59 10,590.13
May-95 13,372.60 11,461.01 12,002.83
May-96 21,144.48 15,567.42 17,326.19
May-97 23,559.88 16,645.33 18,058.97
May-98 28,732.19 20,207.73 22,219.80
* 10/9/96 was the inception date of Class A Shares of the Fund; however,
performance information has been calculated using the inception date of the
initial class of shares.
The Fund has assumed the performance history of the portfolio, which it invests,
restated to reflect the expenses of the fund.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF I SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES IN SALES
CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
THE RISKS INVOLVED IN SEEKING CAPITAL APPRECIATION FROM INVESTMENTS PRINCIPALLY
IN COMPANIES WITH SMALL MARKET CAPITALIZATION ARE SET FORTH IN THE PROSPECTUS.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
25
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
For the fiscal year ended May 31, 1998, the Small Company Growth Fund rose
22.38%, under-performing the Lipper Small Cap universe average of 23.04% while
out-performing the Russell 2000 Index average of 21.40%. Small stocks started
fiscal 1998 strongly only to see their relative performance ebb as negative
events unfolded in the Far East and investors sought the safety and liquidity of
large cap stocks. Characteristic of a risk-averse environment, small value
stocks performed well, rising 26.70% in the fiscal year 1998 versus a 15.90%
increase in small growth stocks (as represented by the Russell 2000
sub-indices).
The Fund's twelve-month results were boosted by the strength in the overlooked
segment of the portfolio. Outstanding stocks included Dime Bancorp, Gulfstream
Aero, Cooper Cameron, Valassis Communications and Symantec. Small, rapidly
growing Discovery Phase stocks posted respectable gains despite being
significantly penalized by under-performance in the technology sector where
concerns over Asia prevailed. Strong performances were turned in by consumer
stocks Warnaco and Stage Stores, Watson Pharmaceutical and Sepracor in
healthcare and business service stock, Legato.
As small stocks continue to lag the general stock market, investor psychology is
clearly nearing its nadir. Despite small stocks having nearly reached record low
relative valuations, we have yet to see much change in investors' appetites for
large stocks. Relative performance prospects for the Fund (as well as small
stocks in general) are outstanding. The superior earnings momentum and
inexpensive valuations present in the Fund's stocks should ultimately grab
investor attention.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
SMALL COMPANY GROWTH FUND VS. RUSSELL 2000 INDEX ("RUSSELL INDEX") AND
LIPPER SMALL CAP AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF
MAY 31, 1998
---------------------------------
RUSSELL LIPPER
I SHARES* INDEX AVERAGE+
---------- --------- ----------
ONE YEAR 22.38% 21.40% 23.04%
FIVE YEAR 18.79% 15.52% 17.66%
TEN YEAR 20.76% 13.06% 16.72%
VALUE MAY 31, 1998 $66,028 $34,140 $46,980
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND RUSSELL INDEX LIPPER AVERAGE
5/31/88 $10,000.00 $10,000.00 $10,000.00
May-89 12,294.16 12,130.37 12,539.34
May-90 12,979.13 11,945.72 13,698.45
May-91 18,130.46 12,752.17 15,197.05
May-92 21,538.07 14,190.32 17,318.07
May-93 27,909.60 16,591.59 20,823.40
May-94 29,731.48 17,813.02 22,390.93
May-95 67,890.00 19,362.97 25,377.83
May-96 71,378.00 26,300.61 36,633.11
May-97 71,809.00 28,121.69 38,182.44
May-98 66,028.00 34,140.23 46,979.77
* Prior to November 11, 1994, Norwest Investment Management managed a collective
trust fund with investment objectives and policies that were, in all material
respects, equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods before
it became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance result.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE RISKS INVOLVED IN SEEKING CAPITAL APPRECIATION FROM INVESTMENTS PRINCIPALLY
IN COMPANIES WITH SMALL MARKET CAPITALIZATION ARE SET FORTH IN THE PROSPECTUS.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
26
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL FUND
For the fiscal year ended May 31, 1998, the International Fund rose 11.19%,
under-performing the Lipper International universe average of 13.85% while
out-performing the MSCI EAFE Index average of 11.11%. On a calendar year-to-date
basis, the Fund is exceeding its Lipper benchmark by 65 basis points. Fiscal
year 1998 was marked by the Asian financial crisis that began to unfold in late
1997. In response, the Fund took a defensive stance due to concerns over
extended valuations. The Fund's exposure to those countries hardest hit, the
emerging markets of Southeast Asia, was minimal and ended the fiscal year at
approximately 0.7% of the portfolio. However, aftershocks and currency turmoil
had a ripple effect throughout many parts of the world, including the U.S. The
more mature markets of the Pacific Rim were also hit but the Fund's holdings
were concentrated in Australia and Singapore with generally stronger economic
fundamentals. Unusually, the Fund sold completely out of Hong Kong in November
1997.
Management has also been scaling back investments in Japan in the past year,
focusing on high-quality companies with visible earnings growth primarily in the
efficient exporting sector. The primary reason behind this decision was the
Japanese government's failure to provide a satisfactory economic stimulus
package. Those proposals put forward in recent months have not been positive
enough to ensure a self-sustaining expansion in Japan.
The bright spot in the international picture has been Europe. In particular,
Continental Europe (where the Fund closed out the year with a weighting of 56%)
delivered the most value-added to the Fund as investments there kept pace with
the bull-market. The Mediterranean markets of Italy, Spain and Portugal were
especially rewarding as markets there rose as a result of their economies having
met the entry criteria for joining the European Monetary and Economic Union
(EMU). Management believes the EMU project will have a beneficial effect for
equity investors in Europe from both a top-down and bottom-up perspective. In
the U.K. company valuations are attractive, and the market has benefited from
stock buybacks and merger announcements, albeit that it has lagged most
Continental European markets. The potential for higher short-term interest rates
in response to domestic wage pressures remains an issue for the market and for
much of the period the strong currency has hurt the competitiveness of the U.K.
manufacturing and export sectors.
Looking ahead, it would be unrealistic to expect markets to compound the returns
seen in early 1998 through the rest of the year. With gains harder to come by as
the year progresses, we expect to become more defensive in terms of our
investment strategy. Europe will remain our favored area for investment, since
corporate profit momentum is strongest in that region.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES. THE PERFORMANCE FOR ALL
OTHER CLASSES WOULD BE LOWER.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
INTERNATIONAL FUND VS. MSCI EAFE INDEX ("INDEX") AND
LIPPER INTERNATIONAL AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses and sales charges (if
applicable) that reduce returns, while the total return of the Index does not.
The Lipper Average does not include sales charges but does include management
fees and expenses. The Lipper Average is calculated by taking an arithmetic
average of the returns of the funds in the group. Investment return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------------------------------
LIPPER
A SHARES B SHARES I SHARES* INDEX AVERAGE+
--------- ----------- ----------- --------- -----------
ONE YEAR 5.09% 7.39% 11.19% 11.11% 13.85%
FIVE YEAR 12.03% N.A. 13.30% 9.47% 11.68%
TEN YEAR 9.10% N.A. 9.72% 6.39% 9.83%
SINCE INCEPTION N.A. 11.26% N.A. N.A. N.A.
INCEPTION DATE N.A.** 5/12/95 N.A. N.A. N.A.
VALUE MAY 31, 1998 $23,902 $14,059 $25,299 $18,592 $25,542
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND INDEX LIPPER AVERAGE
5/31/88 $10,000.00 $10,000.00 $10,000.00
May-89 10,715.38 10,846.02 11,102.95
May-90 13,216.15 11,110.33 13,141.83
May-91 12,218.70 10,511.62 12,758.65
May-92 12,721.51 10,159.42 13,785.75
May-93 13,546.24 11,825.16 14,694.95
May-94 17,262.14 13,428.80 17,352.06
May-95 17,864.08 14,088.04 17,399.24
May-96 20,638.83 15,592.61 20,022.55
May-97 22,753.28 16,733.19 22,434.87
May-98 25,298.92 18,592.10 25,542.07
* Prior to November 11, 1994, Norwest Investment Management managed a
collective trust fund with investment objectives and policies that were, in all
material respects, equivalent to the Fund. The performance of the Fund includes
the performance of the predecessor collective investment fund for the periods
before it became a mutual fund on November 11, 1994. The collective investment
fund performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance result.
** April 12, 1995 was the inception date of Class A Shares of the Fund; however,
performance information has been calculated using the inception date November
11, 1994 of the initial class of shares.
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
THE ABOVE GRAPH REPRESENTS PERFORMANCE INFORMATION OF I SHARES (THE SOLE CLASS
OF SHARES PRIOR TO THE INCEPTION OF THE OTHER CLASSES). PERFORMANCE OF THE OTHER
CLASSES WILL BE LESS THAN THE PERFORMANCE SHOWN BASED ON DIFFERENCES IN SALES
CHARGES AND EXPENSES PAID BY SHAREHOLDERS INVESTING IN THE DIFFERENT CLASSES.
INVESTING IN FOREIGN SECURITIES INVOLVES GREATER RISKS THAN INVESTING IN
SECURITIES OF U.S. ISSUERS, INCLUDING CURRENCY FLUCTUATION AND POLITICAL
UNCERTAINTY.
THE RETURNS ABOVE ARE CALCULATED USING THE APPLICABLE SALES CHARGE FOR CLASS A
SHARES AND THE APPLICABLE DEFERRED SALES CHARGE FOR CLASS B SHARES.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
27
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
PERFORMA STRATEGIC VALUE BOND FUND
The Performa Strategic Value Bond Fund was launched on October 15, 1997. The
Fund invests in a broad range of fixed income instruments including corporate
bonds, asset-backed securities, mortgage-related securities, U.S. Government
securities, preferred stock, convertible bonds and foreign bonds in order to
create a strategically diversified portfolio of high quality fixed income
investments. The Fund has achieved a return of 6.20% since its inception. For
calendar year-to-date 1998, the Fund's return of 3.41% is out-performing the
Lipper Corporate Debt A-Rated Average peer group return of 2.92%.
The Fund's performance can be attributed to the strong domestic economy.
Continued economic growth and favorable news on inflation propelled interest
rates lower during the year. Intermediate and long treasury bonds outperformed
short treasuries as the yield curve flattened significantly. The yield on the
two year Treasury Note decreased 0.67% while the yield on the 30-year Treasury
Bond fell 1.11% during the fiscal year. The Fund's performance was also impacted
by spread sectors such as corporate and asset backed markets which endured a
volatile year as troubles in the far east impacted risk premiums. The mortgage
market enjoyed a phenomenal year in the face of a 115 basis point rally in
interest rates during the past twelve months.
The Fund's strategy focuses on relative value as opposed to prediction of the
direction of interest rates. Particular emphasis is placed on higher current
income instruments such as corporate bonds and mortgage/asset-backed securities
in order to enhance returns. Strategic diversification will enhance performance
in varying economic and interest rate cycles while avoiding excessive risk
concentrations.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
PERFORMA STRATEGIC VALUE BOND FUND VS. LEHMAN BROTHERS AGENCY INDEX ("LEHMAN
INDEX")
AND LIPPER CORPORATE DEBT A-RATED AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------
LEHMAN LIPPER+
I SHARES INDEX AVERAGE
----------- ----------- ---------
SINCE INCEPTION 6.20% 6.20% 5.73%
INCEPTION DATE 10/15/97 9/30/97 9/30/97
VALUE MAY 31, 1998 $10,620 $10,620 $10,573
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE LEHMAN INDEX
09/30/97 $10,000.00 $10,000.00 $10,000.00
10/31/97 10,111.04 10,131.00 10,165.21
11/30/97 10,155.19 10,173.55 10,210.98
12/31/97 10,270.28 10,273.25 10,313.12
01/31/98 10,462.13 10,404.75 10,443.31
02/28/98 10,440.05 10,384.98 10,432.70
03/31/98 10,468.38 10,418.21 10,469.26
04/30/98 10,517.61 10,464.05 10,518.94
05/31/98 10,620.21 10,572.88 10,619.54
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
28
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
PERFORMA DISCIPLINED GROWTH FUND
The Performa Disciplined Growth Fund was launched on October 15, 1997 and has
gained 4.50% since its inception through May 31, 1998. The Disciplined Growth
management style identifies companies that are expected to report future
positive earnings surprises and to experience future upward revisions in Wall
Street's opinion of the earnings power of the company. Earnings Per Share (EPS)
surprises are the difference between the actual EPS reported from continuing
operations for the quarter and the analysts' consensus estimate for the quarter.
Both positive earnings surprises and positive earnings revisions are related to
positive relative investment performance. Upon the sale of any security, all of
the proceeds are fully reinvested in the single most attractive company not
already in the portfolio, as determined by our stock selection process.
Securities are equally weighted at purchase (2.5% of the portfolio) and are
trimmed for risk control purposes when they reach a 4% position. We peg our
sector weights within a range of 1/2 to 1- 1/2 times the S&P 500 Index sector
weights.
The portfolio benefited from several companies during the period. Lucent
Technologies' (+80%) strength has been due to a string of positive earnings
surprises, improving margins and strong global revenue growth opportunities.
Schering-Plough (+63%) has risen on the strength of Claritin sales and the
approval of several new drugs by the FDA. Among the retailers TJX Companies
(+52%), the world's largest off-price apparel retailer, and Dayton Hudson
(+54%), operator of Target and Mervyn's, continued to benefit from the strong
economy and improving operating margins. Tommy Hilfiger (+40%), a designer and
marketer of men's and children's apparel, benefited from a positive earnings
surprise in February and two meaningful acquisitions. Travelers (+68%) rose
steadily on two positive earnings surprises before rallying further on news of
its proposed merger with Citicorp. A few of the under-performing issues were SCI
Systems (-26%), which fell amid rumors it was losing a contract with a major
customer, and Sun Microsystems (-15%) and National Semiconductor (-36%) fell
after negative earnings surprises. Additionally, Helmerich & Payne (-36%), an
oil services company, suffered in tandem with the rest of its industry due to
the decline in oil prices. Qualcomm (-19%) fell after pre-announcing that it
would miss its earnings estimates for the first quarter of 1998 due to weak
demand in Asia.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
PERFORMA DISCIPLINED GROWTH FUND VS. STANDARD & POOR'S 500 INDEX ("S&P INDEX")
AND LIPPER GROWTH AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------
LIPPER
I SHARES S&P INDEX AVERAGE+
----------- --------- -----------
SINCE INCEPTION 4.50% 16.36% 9.55%
INCEPTION DATE 10/15/97 9/30/97 9/30/97
VALUE MAY 31, 1998 $10,450 $11,636 $10,955
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE S&P INDEX
09/30/97 $10,000.00 $10,000.00 $10,000.00
10/31/97 9,300.00 9,622.00 9,666.00
11/30/97 9,520.00 9,783.65 10,113.44
12/31/97 9,538.98 9,878.55 10,287.13
01/31/98 9,358.81 9,924.98 10,400.90
02/28/98 10,119.52 10,673.32 11,151.02
03/31/98 10,579.96 11,149.35 11,722.06
04/30/98 10,750.12 11,285.38 11,839.98
05/31/98 10,449.83 10,954.71 11,636.45
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
29
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
PERFORMA SMALL CAP VALUE FUND
The Performa Small Cap Value Fund was launched on October 15, 1997 and has
gained 1.60% since its inception through May 31, 1998. The Small Cap Value Fund
attempts to find substantially undervalued companies that are expected to report
a positive earnings surprise. The actual report of the positive earnings
typically influences Wall Street to revise upward the future expectations for
the company, often causing an advance in the company's share price. Earnings Per
Share (EPS) surprises are the difference between the actual EPS reported from
continuing operations for the quarter and the analysts' consensus estimate for
the quarter. Upon the sale of any security, all of the proceeds are fully
reinvested in the single most attractive company not already in the portfolio,
as determined by our stock selection process. Securities are equally weighted at
purchase (1.6% of the portfolio) and are trimmed for risk control purposes when
they reach a 3% position.
The portfolio benefited from several companies during the period including
Steiner Leisure (+70%) and Anchor Gaming (+39%), both which gained from
increased levels of discretionary spending. Steiner Leisure, the leading
provider of skin and hair care products for cruise ships, advanced due to the
rise in the number of cruise ship passengers. Anchor Gaming, a diversified
gaming company, benefited from increased demand for its slot machines. In the
financial services sector, LandAmerica Financial Group (+53%) and Fidelity
National Financial (+38%) benefited from the strong real estate market. America
West Airlines (+34%), aided by the strength of the domestic travel market,
produced a string of positive earnings surprises. The biggest under-performers
included Pool Energy Services (-23%), an oilfield servicing company, which fell
on a $0.01 negative earnings surprise in accordance with continued weakness in
the oilfield services sector. Likewise, Trico Marine Services (-28%), a provider
of marine support services to the oil and gas industry, sold off due to falling
oil prices. Novacare (-22%), a medical rehabilitation and health care management
company, fell due to a reduction in Medicare/Medicaid reimbursement rates.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
PERFORMA SMALL CAP VALUE FUND VS. RUSSELL 2000 INDEX ("RUSSELL INDEX")
AND LIPPER SMALL CAP AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------
RUSSELL LIPPER
I SHARES INDEX AVERAGE+
----------- --------- -----------
SINCE INCEPTION 1.60% 1.20% 0.30%
INCEPTION DATE 10/15/97 9/30/97 9/30/97
VALUE MAY 31, 1998 $10,160 $10,120 $10,030
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE RUSSELL INDEX
09/30/97 $10,000.00 $10,000.00 $10,000.00
10/31/97 9,290.00 9,564.00 9,560.70
11/30/97 9,300.00 9,425.32 9,498.86
12/31/97 9,210.00 9,503.55 9,665.12
01/31/98 9,160.00 9,344.84 9,512.59
02/28/98 10,000.00 10,071.87 10,215.97
03/31/98 10,650.00 10,542.23 10,637.31
04/30/98 10,760.00 10,629.73 10,696.17
05/31/98 10,160.00 10,030.21 10,120.10
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
30
INVESTMENT ADVISER'S REPORT AND PERFORMANCE DATA (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
PERFORMA GLOBAL GROWTH FUND
The Performa Global Growth Fund was launched on October 15, 1997 and has gained
6.30% since its inception through May 31, 1998. Fiscal year 1998 was marked by
the Asian financial crisis that began to unfold in late 1997. In response, the
Fund took a defensive stance due to concerns over extended valuations. The
Fund's exposure to those countries hardest hit, the emerging markets of
Southeast Asia, was minimal and ended the fiscal year at approximately 1.0% of
the portfolio. However, aftershocks and currency turmoil had a ripple effect
throughout many parts of the world, including the U.S. The more mature markets
of the Pacific Rim were also hit but the Fund's holdings were concentrated in
Australia and Singapore with generally stronger economic fundamentals.
Unusually, the Fund sold completely out of Hong Kong in November 1997.
Management has also been scaling back investments in Japan in the past year,
focusing on high-quality companies with visible earnings growth primarily in the
efficient exporting sector. The primary reason behind this decision was the
Japanese government's failure to provide a satisfactory economic stimulus
package. Those proposals put forward in recent months have not been positive
enough to ensure a self-sustaining expansion in Japan.
The bright spot in the international picture has been Europe. In particular,
Continental Europe (where the Fund closed out the year with a weighting of 38%)
delivered the most value-added to the Fund as investments there kept pace with
the bull-market. The Mediterranean markets of Italy, Spain and Portugal were
especially rewarding as markets there rose as a result of their economies having
met the entry criteria for joining the European Monetary and Economic Union
(EMU). Management believes the EMU project will have a beneficial effect for
equity investors in Europe from both a top-down and bottom-up perspective. In
the U.K. company valuations are attractive, and the market has benefited from
stock buybacks and merger announcements, albeit that it has lagged most
Continental European markets. The potential for higher short-term interest rates
in response to domestic wage pressures remains an issue for the market and for
much of the period the strong currency has hurt the competitiveness of the U.K.
manufacturing and export sectors.
The last year has again seen a strong performance by U.S. equities although
volatility has increased in response to Asia's problems. For most of the time
the market has focused on the potentially beneficial impact on inflation of a
stronger dollar and more spare capacity worldwide rather than on the slowing
trend of profit growth that was particularly apparent in the first quarter. In
view of this and of the historically high valuations at which the U.S. market is
trading, management has maintained a cautious position on the U.S.
Looking ahead, it would be unrealistic to expect markets to compound the returns
seen in early 1998 through the rest of the year. With gains harder to come by as
the year progresses, we expect to become more defensive in terms of our
investment strategy. Europe will remain our favored area for investment, since
corporate profit momentum is strongest in that region.
THE OPINIONS EXPRESSED REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH MAY
31, 1998. THE MANAGER'S OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON
MARKET AND OTHER CONDITIONS. THE COMPOSITION, INDUSTRIES AND HOLDINGS OF THE
PORTFOLIO ARE SUBJECT TO CHANGE.
THE PERFORMANCE REPRESENTS INFORMATION OF I SHARES.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
PERFORMA GLOBAL GROWTH FUND VS. MSCI WORLD INDEX ("INDEX")
AND LIPPER GLOBAL AVERAGE ("LIPPER AVERAGE")
- --------------------------------------------------------------------------------
The following chart reflects the value of a $10,000 investment in the Fund,
including reinvested dividends and distributions, over the past 10 fiscal year
periods or since inception (for funds lacking 10-year records). The result is
compared with a broad-based securities market index and a peer based average.
The Fund's total return includes operating expenses that reduce returns, while
the total return of the Index does not. The Lipper Average does not include
sales charges but does include management fees and expenses. The Lipper Average
is calculated by taking an arithmetic average of the returns of the funds in the
group. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
TOTAL RETURN AS OF MAY 31, 1998
-----------------------------------
LIPPER
I SHARES INDEX AVERAGE+
----------- --------- -----------
SINCE INCEPTION 6.30% 11.15% 7.77%
INCEPTION DATE 10/15/97 9/30/97 9/30/97
VALUE MAY 31, 1998 $10,630 $11,115 $10,777
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FUND LIPPER AVERAGE INDEX
9/30/97 $10,000.00 $10,000.00 $10,000.00
10/31/97 9,390.00 9,356.00 9,472.07
11/30/97 9,330.00 9,375.65 9,638.08
12/31/97 9,500.00 9,490.03 9,753.93
1/31/98 9,740.00 9,585.88 10,024.13
2/28/98 10,140.00 10,269.35 10,700.58
3/31/98 10,470.00 10,772.55 11,150.79
4/30/98 10,570.00 10,920.14 11,258.08
5/31/98 10,630.00 10,777.08 11,115.31
+ Source: Lipper Analytical Services, Inc. is an independent mutual fund rating
service that ranks funds in various fund categories by making comparative
calculations using total returns. Although gathered from reliable sources, data
accuracy and completeness cannot be guaranteed.
INVESTING IN FOREIGN SECURITIES INVOLVES GREATER RISKS THAN INVESTING IN
SECURITIES OF U.S. ISSUERS, INCLUDING CURRENCY FLUCTUATION AND POLITICAL
UNCERTAINITY.
TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN FEES AND EXPENSES NOT BEEN
VOLUNTARILY WAIVED AND/OR REIMBURSED.
THE FUND IS PROFESSIONALLY MANAGED WHILE THE INDEX IS UNMANAGED AND IS NOT
AVAILABLE FOR INVESTMENT.
[LOGO]
31
(This page has been left blank intentionally.)
[LOGO]
32
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders
Norwest Advantage Funds
We have audited the accompanying statements of assets
and liabilities of Stable Income Fund, Limited Term
Government Income Fund, Intermediate Government Income
Fund, Diversified Bond Fund, Income Fund, Total Return
Bond Fund, Limited Term Tax-Free Fund, Tax-Free Income
Fund, Colorado Tax-Free Fund, Minnesota Intermediate
Tax-Free Fund, Minnesota Tax-Free Fund, Strategic Income
Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Index Fund, Income Equity
Fund, ValuGrowth Stock Fund, Diversified Equity Fund,
Growth Equity Fund, Large Company Growth Fund, Diversified
Small Cap Fund, Small Company Stock Fund, Small Cap
Opportunities Fund, Small Company Growth Fund, Contrarian
Stock Fund and International Fund, portfolios of Norwest
Advantage Funds (collectively the "Funds"), including the
schedules of investments, as of May 31, 1998, and the
related statements of operations for the periods presented
on pages 38 to 41, statements of changes in net assets for
the periods presented on pages 42 to 45, and financial
highlights for the periods presented on pages 46 to 56.
These financial statements and financial highlights are
the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures
included confirmation of securities owned as of May 31,
1998, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as well
as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of the Funds as
of May 31, 1998, the results of their operations for the
periods presented on pages 38 to 41, statements of changes
in net assets for the periods presented on pages 42 to 45,
and financial highlights for the periods presented on
pages 46 to 56, in conformity with generally accepted
accounting principles.
[SIGNATURE]
Boston, Massachusetts
July 21, 1998
[LOGO]
33
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
LIMITED TERM INTERMEDIATE
STABLE GOVERNMENT GOVERNMENT DIVERSIFIED
INCOME INCOME INCOME BOND INCOME
FUND FUND FUND FUND FUND
------------- ------------- ------------- ------------- -------------
ASSETS
Investments (Note 2)
Investments at cost......... $ 153,173,297 $ 65,429,984 $409,456,642 $ 129,059,732 $ 294,568,081
Net unrealized appreciation
(depreciation).......... 154,435 426,595 9,051,191 4,949,586 5,973,364
------------- ------------- ------------- ------------- -------------
TOTAL INVESTMENTS AT VALUE... 153,327,732 65,856,579 418,507,833 134,009,318 300,541,445
Cash collateral for
securities loaned (Notes
2 and 5)................. - 19,577,739 111,336,350 - 75,904,850
Receivable for dividends,
interest and other
receivables.............. - 798,283 4,586,234 970 3,986,728
Receivable for investments
sold..................... - - - - -
Receivable for Fund shares
issued................... 1,578,152 40,074 591,408 939,663 560,243
Organization costs, net of
amortization (Note 2).... 17,317 2,530 17,317 17,317 -
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS.................. 154,923,201 86,275,205 535,039,142 134,967,268 380,993,266
------------- ------------- ------------- ------------- -------------
LIABILITIES
Payable for investments
purchased................ - - - - -
Payable for cash collateral
security loans (Notes 2
and 5)................... - 19,577,739 111,336,350 - 75,904,850
Payable for Fund shares
redeemed................. 300,529 238,910 482,818 105,198 298,139
Payable to Norwest and
affiliates (Note 3)...... 20,786 9,557 206,176 22,702 164,692
Payable to other related
parties (Note 3)......... 209 5,639 12,538 4,310 13,768
Accrued expenses and other
liabilities.............. 8,222 25,327 36,889 4,284 62,893
Dividends payable............ 1,045 305,472 16,616 - 1,467,180
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES............. 330,791 20,162,644 112,091,387 136,494 77,911,522
------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $ 154,592,410 $ 66,112,561 $422,947,755 $ 134,830,774 $ 303,081,744
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
COMPONENTS OF NET ASSETS
Paid in capital.............. $ 161,290,620 $ 65,355,253 $440,239,981 $ 122,936,988 $ 309,548,295
Undistributed (distributions
in excess of) net
investment income........ 201,603 - 436,911 4,469,507 14,155
Accumulated net realized gain
(loss) from investments
sold..................... (7,054,248) 330,713 (26,780,328) 2,474,693 (12,454,070)
Net unrealized appreciation
(depreciation) from
investments.............. 154,435 426,595 9,051,191 4,949,586 5,973,364
------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $ 154,592,410 $ 66,112,561 $422,947,755 $ 134,830,774 $ 303,081,744
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
NET ASSETS BY SHARE CLASS
A Shares..................... $ 8,560,633 $ - $ 14,325,131 $ - $ 7,661,147
B Shares..................... 1,816,509 - 8,276,537 - 4,854,758
I Shares..................... 144,215,268 66,112,561 400,346,087 134,830,774 290,565,839
------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $ 154,592,410 $ 66,112,561 $422,947,755 $ 134,830,774 $ 303,081,744
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
SHARES OF BENEFICIAL INTEREST
A Shares..................... 830,463 - 1,276,727 - 782,898
B Shares..................... 176,371 - 738,111 - 496,903
I Shares..................... 13,997,290 6,689,310 35,666,858 4,988,168 29,721,541
NET ASSET VALUE PER SHARE
(Nets Assets Divided by
Shares of Beneficial
Interest)
A Shares..................... $ 10.31 $ - $ 11.22 $ - $ 9.79
B Shares..................... $ 10.30 $ - $ 11.21 $ - $ 9.77
I Shares..................... $ 10.30 $ 9.88 $ 11.22 $ 27.03 $ 9.78
OFFERING PRICE PER SHARE
(NAV/(1-MAXIMUM SALES
LOAD)
A Shares..................... $ 10.47 $ - $ 11.69 $ - $ 10.20
B Shares..................... $ 10.30 $ - $ 11.21 $ - $ 9.77
I Shares..................... $ 10.30 $ 9.88 $ 11.22 $ 27.03 $ 9.78
MAXIMUM SALES LOAD
A Shares..................... 1.50% N/A 4.00% N/A 4.00%
B Shares..................... N/A N/A N/A N/A N/A
I Shares..................... N/A N/A N/A N/A N/A
See Notes to Financial Statements
[LOGO]
34
MAY 31, 1998
- --------------------------------------------------------------------------------
MINNESOTA
TOTAL RETURN LIMITED TERM TAX-FREE COLORADO INTERMEDIATE MINNESOTA
BOND TAX-FREE INCOME TAX-FREE TAX-FREE TAX-FREE
FUND FUND FUND FUND FUND FUND
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
Investments (Note 2)
Investments at cost......... $116,308,024 $ 52,843,983 $ 306,668,801 $ 70,839,513 $196,594,108 $ 67,078,296
Net unrealized appreciation
(depreciation).......... (710,074) 1,096,299 18,195,697 4,336,142 11,276,962 3,251,225
------------- ------------- ------------- ------------- ------------- -------------
TOTAL INVESTMENTS AT VALUE... 115,597,950 53,940,282 324,864,498 75,175,655 207,871,070 70,329,521
Cash collateral for
securities loaned (Notes
2 and 5)................. - - - - - -
Receivable for dividends,
interest and other
receivables.............. - 994,540 6,234,308 1,384,554 3,340,635 938,761
Receivable for investments
sold..................... - - 5,676,153 - - -
Receivable for Fund shares
issued................... 93,227 238,690 408,799 394,899 355,000 426,907
Organization costs, net of
amortization (Note 2).... 3,814 - - - 2,530 -
------------- ------------- ------------- ------------- ------------- -------------
TOTAL ASSETS.................. 115,694,991 55,173,512 337,183,758 76,955,108 211,569,235 71,695,189
------------- ------------- ------------- ------------- ------------- -------------
LIABILITIES
Payable for investments
purchased................ - - 2,226,065 977,540 750,000 500,000
Payable for cash collateral
security loans (Notes 2
and 5)................... - - - - - -
Payable for Fund shares
redeemed................. 431,650 361,414 645,225 5,596 119,208 61,935
Payable to Norwest and
affiliates (Note 3)...... 2,921 19,316 123,386 23,029 81,306 20,033
Payable to other related
parties (Note 3)......... 171 6,459 29,813 9,435 6,993 8,802
Accrued expenses and other
liabilities.............. 14,654 10,826 54,372 15,312 67,093 96,327
Dividends payable............ 483,787 173,089 1,180,064 172,583 859,538 126,236
------------- ------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES............. 933,183 571,104 4,258,925 1,203,495 1,884,138 813,333
------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $114,761,808 $ 54,602,408 $ 332,924,833 $ 75,751,613 $209,685,097 $ 70,881,856
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
COMPONENTS OF NET ASSETS
Paid in capital.............. $113,037,676 $ 53,643,830 $ 319,094,870 $ 71,968,873 $198,169,405 $ 67,876,931
Undistributed (distributions
in excess of) net
investment income........ (15,111) - (509,881) - - (41,761)
Accumulated net realized gain
(loss) from investments
sold..................... 2,449,317 (137,721) (3,855,853) (553,402) 238,730 (204,539)
Net unrealized appreciation
(depreciation) from
investments.............. (710,074) 1,096,299 18,195,697 4,336,142 11,276,962 3,251,225
------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $114,761,808 $ 54,602,408 $ 332,924,833 $ 75,751,613 $209,685,097 $ 70,881,856
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS BY SHARE CLASS
A Shares..................... $ 3,029,837 $ - $ 35,120,669 $ 34,253,605 $ - $ 33,596,807
B Shares..................... 2,648,226 - 11,070,063 9,155,647 - 16,549,424
I Shares..................... 109,083,745 54,602,408 286,734,101 32,342,361 209,685,097 20,735,625
------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $114,761,808 $ 54,602,408 $ 332,924,833 $ 75,751,613 $209,685,097 $ 70,881,856
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
SHARES OF BENEFICIAL INTEREST
A Shares..................... 314,635 - 3,332,933 3,203,431 - 3,040,821
B Shares..................... 274,524 - 1,050,353 855,231 - 1,498,165
I Shares..................... 11,313,696 5,156,597 27,195,137 3,024,183 20,910,720 1,876,678
NET ASSET VALUE PER SHARE
(Nets Assets Divided by
Shares of Beneficial
Interest)
A Shares..................... $ 9.63 $ - $ 10.54 $ 10.69 $ - $ 11.05
B Shares..................... $ 9.65 $ - $ 10.54 $ 10.71 $ - $ 11.05
I Shares..................... $ 9.64 $ 10.59 $ 10.54 $ 10.69 $ 10.03 $ 11.05
OFFERING PRICE PER SHARE
(NAV/(1-MAXIMUM SALES
LOAD)
A Shares..................... $ 10.03 $ - $ 10.98 $ 11.14 $ - $ 11.51
B Shares..................... $ 9.65 $ - $ 10.54 $ 10.71 $ - $ 11.05
I Shares..................... $ 9.64 $ 10.59 $ 10.54 $ 10.69 $ 10.03 $ 11.05
MAXIMUM SALES LOAD
A Shares..................... 4.00% N/A 4.00% 4.00% N/A 4.00%
B Shares..................... N/A N/A N/A N/A N/A N/A
I Shares..................... N/A N/A N/A N/A N/A N/A
STRATEGIC
INCOME
FUND
-------------
ASSETS
Investments (Note 2)
Investments at cost......... $ 212,814,996
Net unrealized appreciation
(depreciation).......... 22,914,227
-------------
TOTAL INVESTMENTS AT VALUE... 235,729,223
Cash collateral for
securities loaned (Notes
2 and 5)................. -
Receivable for dividends,
interest and other
receivables.............. -
Receivable for investments
sold..................... -
Receivable for Fund shares
issued................... 365,473
Organization costs, net of
amortization (Note 2).... 17,317
-------------
TOTAL ASSETS.................. 236,112,013
-------------
LIABILITIES
Payable for investments
purchased................ -
Payable for cash collateral
security loans (Notes 2
and 5)................... -
Payable for Fund shares
redeemed................. 762,521
Payable to Norwest and
affiliates (Note 3)...... 62,380
Payable to other related
parties (Note 3)......... 7,241
Accrued expenses and other
liabilities.............. 26,034
Dividends payable............ -
-------------
TOTAL LIABILITIES............. 858,176
-------------
NET ASSETS.................... $ 235,253,837
-------------
-------------
COMPONENTS OF NET ASSETS
Paid in capital.............. $ 204,844,526
Undistributed (distributions
in excess of) net
investment income........ 5,557,090
Accumulated net realized gain
(loss) from investments
sold..................... 1,937,994
Net unrealized appreciation
(depreciation) from
investments.............. 22,914,227
-------------
NET ASSETS.................... $ 235,253,837
-------------
-------------
NET ASSETS BY SHARE CLASS
A Shares..................... $ -
B Shares..................... -
I Shares..................... 235,253,837
-------------
NET ASSETS.................... $ 235,253,837
-------------
-------------
SHARES OF BENEFICIAL INTEREST
A Shares..................... -
B Shares..................... -
I Shares..................... 12,026,676
NET ASSET VALUE PER SHARE
(Nets Assets Divided by
Shares of Beneficial
Interest)
A Shares..................... $ -
B Shares..................... $ -
I Shares..................... $ 19.56
OFFERING PRICE PER SHARE
(NAV/(1-MAXIMUM SALES
LOAD)
A Shares..................... $ -
B Shares..................... $ -
I Shares..................... $ 19.56
MAXIMUM SALES LOAD
A Shares..................... N/A
B Shares..................... N/A
I Shares..................... N/A
[LOGO]
35
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
- --------------------------------------------------------------------------------
AGGRESSIVE
MODERATE GROWTH BALANCED- INCOME VALUGROWTH
BALANCED BALANCED EQUITY INDEX EQUITY STOCK
FUND FUND FUND FUND FUND FUND
------------- ------------- ------------- ------------- --------------- -------------
ASSETS
Investments (Note 2)
Investments at cost......... $ 370,612,330 $ 485,236,203 $ 8,457,459 $ 543,775,057 $ 1,016,081,095 $468,089,897
Net unrealized appreciation
(depreciation)........... 95,499,121 180,892,326 363,399 242,644,714 340,345,590 176,005,920
------------- ------------- ------------- ------------- --------------- -------------
TOTAL INVESTMENTS AT VALUE... 466,111,451 666,128,529 8,820,858 786,419,771 1,356,426,685 644,095,817
Cash collateral for
securities loaned (Notes
2 and 5)................. - - - - - 152,027,585
Receivable for dividends,
interest and other
receivables.............. - 2,256 21 253 - 999,493
Receivable for investments
sold..................... - - - - - 2,799,200
Receivable for Fund shares
issued................... 289,077 501,932 50,208 1,989,754 1,927,441 223,477
Organization costs, net of
amortization (Note 2).... 17,317 17,317 12,226 17,317 17,318 -
------------- ------------- ------------- ------------- --------------- -------------
TOTAL ASSETS.................. 466,417,845 666,650,034 8,883,313 788,427,095 1,358,371,444 800,145,572
------------- ------------- ------------- ------------- --------------- -------------
LIABILITIES
Payable for investments
purchased................ - - - - - -
Payable for cash collateral
security loans (Notes 2
and 5)................... - - - - - 152,027,585
Payable for Fund shares
redeemed................. 1,867,411 623,385 1,438 4,133,387 798,141 1,541,422
Payable to Norwest and
affiliates (Note 3)...... 141,792 208,987 - - 278,492 480,754
Payable to other related
parties (Note 3)......... 11,501 23,903 - 25,590 97,682 69,519
Accrued expenses and other
liabilities.............. 13,406 35,804 10,006 62,705 274,704 160,267
Dividends payable............ - - - - 8,114 96,162
------------- ------------- ------------- ------------- --------------- -------------
TOTAL LIABILITIES............. 2,034,110 892,079 11,444 4,221,682 1,457,133 154,375,709
------------- ------------- ------------- ------------- --------------- -------------
NET ASSETS.................... $ 464,383,735 $ 665,757,955 $ 8,871,869 $ 784,205,413 $ 1,356,914,311 $645,769,863
------------- ------------- ------------- ------------- --------------- -------------
------------- ------------- ------------- ------------- --------------- -------------
COMPONENTS OF NET ASSETS
Paid in capital.............. $ 353,522,130 $ 467,280,720 $ 8,483,035 $ 533,652,960 $ 1,008,842,590 $538,928,835
Undistributed (distributions
in excess of) net
investment income........ 9,151,144 7,652,666 35,981 5,167,381 3,083,891 288,928
Accumulated net realized gain
(loss) from investments
sold..................... 6,211,340 9,932,243 (10,546) 2,740,358 4,642,241 65,767,735
Net unrealized appreciation
(depreciation) from
investments.............. 95,499,121 180,892,326 363,399 242,644,714 340,345,589 40,784,365
------------- ------------- ------------- ------------- --------------- -------------
NET ASSETS.................... $ 464,383,735 $ 665,757,955 $ 8,871,869 $ 784,205,413 $ 1,356,914,311 $645,769,863
------------- ------------- ------------- ------------- --------------- -------------
------------- ------------- ------------- ------------- --------------- -------------
NET ASSETS BY SHARE CLASS
A Shares..................... $ - $ - $ - $ - $ 75,143,699 $ 27,770,996
B Shares..................... - - - - 67,385,248 8,942,632
I Shares..................... 464,383,735 665,757,955 8,871,869 784,205,413 1,214,385,364 609,056,235
------------- ------------- ------------- ------------- --------------- -------------
NET ASSETS.................... $ 464,383,735 $ 665,757,955 $ 8,871,869 $ 784,205,413 $ 1,356,914,311 $645,769,863
------------- ------------- ------------- ------------- --------------- -------------
------------- ------------- ------------- ------------- --------------- -------------
SHARES OF BENEFICIAL INTEREST
A Shares..................... - - - - 1,824,483 1,060,700
B Shares..................... - - - - 1,638,756 350,468
I Shares..................... 20,208,229 23,726,741 803,338 16,914,840 29,487,952 23,293,762
NET ASSET VALUE PER SHARE
(Nets Assets Divided by
Shares of Beneficial
Interest)
A Shares..................... $ - $ - $ - $ - $ 41.19 $ 26.18
B Shares..................... $ - $ - $ - $ - $ 41.12 $ 25.52
I Shares..................... $ 22.98 $ 28.06 $ 11.04 $ 46.36 $ 41.18 $ 26.15
OFFERING PRICE PER SHARE
(NAV/(1-MAXIMUM SALES
LOAD)
A Shares..................... $ - $ - $ - $ - $ 43.59 $ 27.70
B Shares..................... $ - $ - $ - $ - $ 41.12 $ 25.52
I Shares..................... $ 22.98 $ 28.06 $ 11.04 $ 46.36 $ 41.18 $ 26.15
MAXIMUM SALES LOAD
A Shares..................... N/A N/A N/A N/A 5.50% 5.50%
B Shares..................... N/A N/A N/A N/A N/A N/A
I Shares..................... N/A N/A N/A N/A N/A N/A
See Notes to Financial Statements
[LOGO]
36
MAY 31, 1998
- --------------------------------------------------------------------------------
LARGE SMALL SMALL
DIVERSIFIED GROWTH COMPANY DIVERSIFIED COMPANY CAP
EQUITY EQUITY GROWTH SMALL CAP STOCK OPPORTUNITIES
FUND FUND FUND FUND FUND FUND
--------------- --------------- ------------- ------------- ------------- -------------
ASSETS
Investments (Note 2)
Investments at cost......... $ 1,036,588,753 $ 775,275,086 $ 154,903,429 $ 12,556,265 $ 127,103,449 $267,193,672
Net unrealized appreciation
(depreciation)........... 626,614,760 297,201,851 77,156,496 (189,622) 1,381,337 30,657,298
--------------- --------------- ------------- ------------- ------------- -------------
TOTAL INVESTMENTS AT VALUE... 1,663,203,513 1,072,476,937 232,059,925 12,366,643 128,484,786 297,850,970
Cash collateral for
securities loaned (Notes
2 and 5)................. - - - - - -
Receivable for dividends,
interest and other
receivables.............. - - - 302 - 27,077
Receivable for investments
sold..................... - - - - - -
Receivable for Fund shares
issued................... 1,698,934 2,010,271 566,013 222,452 37,005 360,821
Organization costs, net of
amortization (Note 2).... 17,317 17,317 17,317 3,191 3,814 -
--------------- --------------- ------------- ------------- ------------- -------------
TOTAL ASSETS.................. 1,664,919,764 1,074,504,525 232,643,255 12,592,588 128,525,605 298,238,868
--------------- --------------- ------------- ------------- ------------- -------------
LIABILITIES
Payable for investments
purchased................ - - - - - -
Payable for cash collateral
security loans (Notes 2
and 5)................... - - - - - -
Payable for Fund shares
redeemed................. 5,856,230 2,565,330 57,663 35,290 1,550,622 223,333
Payable to Norwest and
affiliates (Note 3)...... 564,307 406,234 47,438 - 15,318 103,025
Payable to other related
parties (Note 3)......... 97,729 46,468 12,745 - 691 18,899
Accrued expenses and other
liabilities.............. 159,836 48,331 26,184 6,133 16,589 56,707
Dividends payable............ 1,231 5,162 - - 5,259 -
--------------- --------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES............. 6,679,333 3,071,525 144,030 41,423 1,588,479 401,964
--------------- --------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $ 1,658,240,431 $ 1,071,433,000 $ 232,499,225 $ 12,551,165 $ 126,937,126 $297,836,904
--------------- --------------- ------------- ------------- ------------- -------------
--------------- --------------- ------------- ------------- ------------- -------------
COMPONENTS OF NET ASSETS
Paid in capital.............. $ 1,001,823,383 $ 728,905,416 $ 152,928,762 $ 12,830,921 $ 127,471,616 $266,933,221
Undistributed (distributions
in excess of) net
investment income........ 6,542,972 188,975 - 2,549 - -
Accumulated net realized gain
(loss) from investments
sold..................... 23,259,316 45,136,758 2,413,967 (92,683) (1,915,871) 246,385
Net unrealized appreciation
(depreciation) from
investments.............. 626,614,760 297,201,851 77,156,496 (189,622) 1,381,381 30,657,298
--------------- --------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $ 1,658,240,431 $ 1,071,433,000 $ 232,499,225 $ 12,551,165 $ 126,937,126 $297,836,904
--------------- --------------- ------------- ------------- ------------- -------------
--------------- --------------- ------------- ------------- ------------- -------------
NET ASSETS BY SHARE CLASS
A Shares..................... $ 56,349,583 $ 21,567,222 $ - $ - $ 8,425,570 $ 6,869,528
B Shares..................... 81,547,567 16,615,229 - - 5,798,713 6,139,544
I Shares..................... 1,520,343,281 1,033,250,549 232,499,225 12,551,165 112,712,843 284,827,832
--------------- --------------- ------------- ------------- ------------- -------------
NET ASSETS.................... $ 1,658,240,431 $ 1,071,433,000 $ 232,499,225 $ 12,551,165 $ 126,937,126 $297,836,904
--------------- --------------- ------------- ------------- ------------- -------------
--------------- --------------- ------------- ------------- ------------- -------------
SHARES OF BENEFICIAL INTEREST
A Shares..................... 1,308,622 603,693 - - 701,993 291,083
B Shares..................... 1,910,091 471,669 - - 501,468 263,316
I Shares..................... 35,309,777 28,923,928 5,820,560 1,192,923 9,446,445 12,066,360
NET ASSET VALUE PER SHARE
(Nets Assets Divided by
Shares of Beneficial
Interest)
A Shares..................... $ 43.06 $ 35.73 $ - $ - $ 12.00 $ 23.60
B Shares..................... $ 42.69 $ 35.23 $ - $ - $ 11.56 $ 23.32
I Shares..................... $ 43.06 $ 35.72 $ 39.94 $ 10.52 $ 11.93 $ 23.61
OFFERING PRICE PER SHARE
(NAV/(1-MAXIMUM SALES
LOAD)
A Shares..................... $ 45.57 $ 37.81 $ - $ - $ 12.70 $ 24.97
B Shares..................... $ 42.69 $ 35.23 $ - $ - $ 11.56 $ 23.32
I Shares..................... $ 43.06 $ 35.72 $ 39.94 $ 10.52 $ 11.93 $ 23.61
MAXIMUM SALES LOAD
A Shares..................... 5.50% 5.50% N/A N/A 5.50% 5.50%
B Shares..................... N/A N/A N/A N/A N/A N/A
I Shares..................... N/A N/A N/A N/A N/A N/A
SMALL
COMPANY CONTRARIAN
GROWTH STOCK INTERNATIONAL
FUND FUND FUND
------------- ------------- -------------
ASSETS
Investments (Note 2)
Investments at cost......... $ 681,042,796 $ 3,105,301 $230,045,859
Net unrealized appreciation
(depreciation)........... 68,646,409 532,387 55,379,523
------------- ------------- -------------
TOTAL INVESTMENTS AT VALUE... 749,689,205 3,637,688 285,425,382
Cash collateral for
securities loaned (Notes
2 and 5)................. - 408,445 -
Receivable for dividends,
interest and other
receivables.............. - 4,684 -
Receivable for investments
sold..................... - - -
Receivable for Fund shares
issued................... 262,317 - 151,367
Organization costs, net of
amortization (Note 2).... 17,317 3,814 17,317
------------- ------------- -------------
TOTAL ASSETS.................. 749,968,839 4,054,631 285,594,066
------------- ------------- -------------
LIABILITIES
Payable for investments
purchased................ - - -
Payable for cash collateral
security loans (Notes 2
and 5)................... - 408,445 -
Payable for Fund shares
redeemed................. 1,335,436 6,584 115,836
Payable to Norwest and
affiliates (Note 3)...... 160,604 - 182,430
Payable to other related
parties (Note 3)......... 69,600 - 23,846
Accrued expenses and other
liabilities.............. 133,810 (988) 18,023
Dividends payable............ - - -
------------- ------------- -------------
TOTAL LIABILITIES............. 1,699,450 414,041 340,135
------------- ------------- -------------
NET ASSETS.................... $ 748,269,389 $ 3,640,590 $285,253,931
------------- ------------- -------------
------------- ------------- -------------
COMPONENTS OF NET ASSETS
Paid in capital.............. $ 630,196,203 $ 3,717,886 $225,730,480
Undistributed (distributions
in excess of) net
investment income........ - - 1,993,474
Accumulated net realized gain
(loss) from investments
sold..................... 49,426,777 (609,683) 2,150,454
Net unrealized appreciation
(depreciation) from
investments.............. 68,646,409 532,387 55,379,523
------------- ------------- -------------
NET ASSETS.................... $ 748,269,389 $ 3,640,590 $285,253,931
------------- ------------- -------------
------------- ------------- -------------
NET ASSETS BY SHARE CLASS
A Shares..................... $ - $ - $ 3,341,739
B Shares..................... - - 2,245,447
I Shares..................... 748,269,389 3,640,590 279,666,745
------------- ------------- -------------
NET ASSETS.................... $ 748,269,389 $ 3,640,590 $285,253,931
------------- ------------- -------------
------------- ------------- -------------
SHARES OF BENEFICIAL INTEREST
A Shares..................... - - 140,185
B Shares..................... - - 94,749
I Shares..................... 22,208,195 332,988 11,724,494
NET ASSET VALUE PER SHARE
(Nets Assets Divided by
Shares of Beneficial
Interest)
A Shares..................... $ - $ - $ 23.84
B Shares..................... $ - $ - $ 23.70
I Shares..................... $ 33.69 $ 10.93 $ 23.85
OFFERING PRICE PER SHARE
(NAV/(1-MAXIMUM SALES
LOAD)
A Shares..................... $ - $ - $ 25.23
B Shares..................... $ - $ - $ 23.70
I Shares..................... $ 33.69 $ 10.93 $ 23.85
MAXIMUM SALES LOAD
A Shares..................... N/A N/A 5.50%
B Shares..................... N/A N/A N/A
I Shares..................... N/A N/A N/A
[LOGO]
37
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIMITED TERM INTERMEDIATE
STABLE GOVERNMENT GOVERNMENT DIVERSIFIED TOTAL RETURN
INCOME INCOME INCOME BOND INCOME BOND
FUND FUND FUND FUND FUND FUND
------------- ------------ ------------- ------------- ------------- --------------
INVESTMENT INCOME
Interest income.............. $ 8,575,225 $ 2,631,549 $ 27,933,414 $ 10,032,656 $ 19,786,506 $ 8,763,142
Dividend income.............. - - - - - -
Securities lending income
(Notes 2 and 5).......... 19,371 12,944 78,101 37,121 74,088 60,220
Net expenses from Portfolios
(Note 1)................. (505,824) - - (643,196) - (609,422)
------------- ------------ ------------- ------------- ------------- --------------
TOTAL INVESTMENT INCOME...... 8,088,772 2,644,493 28,011,515 9,426,581 19,860,594 8,213,940
------------- ------------ ------------- ------------- ------------- --------------
EXPENSES
Advisory (Note 3)............ - 141,185 1,315,676 - 1,404,711 -
Management and Administration
(Note 3)................. 78,116 42,784 394,778 466,115 280,942 75,268
Transfer agent (Note 3)...... - - - 376,973 - -
A Shares.................... 23,040 - 32,096 - 14,457 7,832
B Shares.................... 3,563 - 21,542 - 9,916 6,141
I Shares.................... 312,209 106,958 943,087 - 677,983 306,329
Custody (Note 3)............. - 8,557 - - 43,094 -
Accounting (Note 3).......... 37,500 33,000 84,000 13,500 89,000 37,500
Legal (Note 3)............... 2,288 387 6,889 2,466 6,329 14,221
Compliance................... 40,779 29,971 41,964 12,809 38,575 28,157
Audit........................ 9,908 12,288 16,439 5,060 10,564 5,551
Trustees..................... 1,713 384 5,153 2,038 3,604 1,704
Reporting.................... - - - - - -
Distribution fees - B Shares
(Note 3)................. 14,253 - 86,167 - 39,664 24,563
Amortization of organization
costs (Note 2)........... 11,920 389 11,920 11,920 - 6,539
Miscellaneous................ 22,256 5,473 45,035 10,118 37,233 15,058
------------- ------------ ------------- ------------- ------------- --------------
TOTAL EXPENSES............... 557,545 381,376 3,004,746 900,999 2,656,072 528,863
FEES WAIVED AND EXPENSES
REIMBURSED (NOTE 3)..... (171,842) (209,288) (229,516) (488,659) (519,647) (159,119)
------------- ------------ ------------- ------------- ------------- --------------
NET EXPENSES................. 385,703 172,088 2,775,230 412,340 2,136,425 369,744
------------- ------------ ------------- ------------- ------------- --------------
NET INVESTMENT INCOME
(LOSS)................... 7,703,069 2,472,405 25,236,285 9,014,241 17,724,169 7,844,196
------------- ------------ ------------- ------------- ------------- --------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss)
on Securities......... - 382,561 590,854 - 5,713,653 -
Investments in
Portfolios (Note
1).................. 180,042 - - 3,385,362 - 3,752,024
Foreign currency
transactions from
investments in
Portfolios.......... - - - - - -
Financial futures
transactions from
investments in
Portfolios.......... - - - - - -
------------- ------------ ------------- ------------- ------------- --------------
Net Realized Gain (Loss)
on Investments...... 180,042 382,561 590,854 3,385,362 5,713,653 3,752,024
------------- ------------ ------------- ------------- ------------- --------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Securities............ - 426,595 12,638,932 - 8,900,463 -
Investments in
Portfolios (Note
1).................. 280,340 - - 5,676,343 - 120,524
Foreign currency
transactions from
investments in
Portfolios.......... - - - - - -
Financial futures
transactions from
investments in
Portfolios.......... - - - - - -
------------- ------------ ------------- ------------- ------------- --------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Investments........... 280,340 426,595 12,638,932 5,676,343 8,900,463 120,524
------------- ------------ ------------- ------------- ------------- --------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS....... 460,382 809,156 13,229,786 9,061,705 14,614,116 3,872,548
------------- ------------ ------------- ------------- ------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS................ $ 8,163,451 $ 3,281,561 $ 38,466,071 $ 18,075,946 $ 32,338,285 $ 11,716,744
------------- ------------ ------------- ------------- ------------- --------------
------------- ------------ ------------- ------------- ------------- --------------
(a) Beginning of Period....... Jun 1, 1997 Oct 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
See Notes to Financial Statements
[LOGO]
38
FOR THE PERIOD ENDED MAY 31, 1998 (A)
- --------------------------------------------------------------------------------
MINNESOTA
LIMITED TERM TAX-FREE COLORADO INTERMEDIATE MINNESOTA
TAX-FREE INCOME TAX-FREE TAX-FREE TAX-FREE
FUND FUND FUND FUND FUND
------------- ------------- ------------- ----------------- -----------------
INVESTMENT INCOME
Interest income.............. $ 2,484,741 $ 17,824,401 $ 3,725,440 $ 7,841,610 $ 3,239,158
Dividend income.............. - - - - -
Securities lending income
(Notes 2 and 5).......... - - - - -
Net expenses from Portfolios
(Note 1)................. - - - - -
------------- ------------- ------------- ----------------- -----------------
TOTAL INVESTMENT INCOME...... 2,484,741 17,824,401 3,725,440 7,841,610 3,239,158
------------- ------------- ------------- ----------------- -----------------
EXPENSES
Advisory (Note 3)............ 242,621 1,566,676 332,299 348,564 298,301
Management and Administration
(Note 3)................. 48,524 313,284 66,460 139,426 59,660
Transfer agent (Note 3)...... - - - - -
A Shares.................... - 77,446 76,699 - 75,450
B Shares.................... - 22,777 19,758 - 33,808
I Shares.................... 121,311 683,116 69,693 348,564 39,893
Custody (Note 3)............. 9,705 46,334 13,292 23,929 11,932
Accounting (Note 3).......... 38,000 91,000 62,000 39,000 64,000
Legal (Note 3)............... 680 4,957 1,837 5,500 2,489
Compliance................... 14,584 40,368 5,947 60,733 8,983
Audit........................ 11,819 11,917 7,744 11,240 11,539
Trustees..................... 601 4,007 842 1,256 733
Reporting.................... - - - - -
Distribution fees - B Shares
(Note 3)................. - 91,106 79,031 - 135,230
Amortization of organization
costs (Note 2)........... - - - 389 -
Miscellaneous................ 14,121 61,634 25,792 27,308 29,054
------------- ------------- ------------- ----------------- -----------------
TOTAL EXPENSES............... 501,966 3,014,622 761,394 1,005,909 771,072
FEES WAIVED AND EXPENSES
REIMBURSED (NOTE 3)..... (186,579) (1,066,660) (303,438) (169,417) (311,754)
------------- ------------- ------------- ----------------- -----------------
NET EXPENSES................. 315,387 1,947,962 457,956 836,492 459,318
------------- ------------- ------------- ----------------- -----------------
NET INVESTMENT INCOME
(LOSS)................... 2,169,354 15,876,439 3,267,484 7,005,118 2,779,840
------------- ------------- ------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss)
on Securities......... (40,641) 5,515,394 477,006 329,218 348,871
Investments in
Portfolios (Note
1).................. - - - - -
Foreign currency
transactions from
investments in
Portfolios.......... - - - - -
Financial futures
transactions from
investments in
Portfolios.......... - - - - -
------------- ------------- ------------- ----------------- -----------------
Net Realized Gain (Loss)
on Investments...... (40,641) 5,515,394 477,006 329,218 348,871
------------- ------------- ------------- ----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Securities............ 949,055 8,997,364 2,416,938 11,276,962 2,099,959
Investments in
Portfolios (Note
1).................. - - - - -
Foreign currency
transactions from
investments in
Portfolios.......... - - - - -
Financial futures
transactions from
investments in
Portfolios.......... - - - - -
------------- ------------- ------------- ----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Investments........... 949,055 8,997,364 2,416,938 11,276,962 2,099,959
------------- ------------- ------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS....... 908,414 14,512,758 2,893,944 11,606,180 2,448,830
------------- ------------- ------------- ----------------- -----------------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS................ $ 3,077,768 $ 30,389,197 $ 6,161,428 $ 18,611,298 $ 5,228,670
------------- ------------- ------------- ----------------- -----------------
------------- ------------- ------------- ----------------- -----------------
(a) Beginning of Period....... Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Oct 1, 1997 Jun 1, 1997
STRATEGIC MODERATE GROWTH
INCOME BALANCED BALANCED
FUND FUND FUND
----------------- ----------------- -----------------
INVESTMENT INCOME
Interest income.............. $ 8,824,834 $ 16,585,871 $ 13,867,878
Dividend income.............. 597,402 2,540,292 5,313,422
Securities lending income
(Notes 2 and 5).......... 36,915 112,025 170,507
Net expenses from Portfolios
(Note 1)................. (747,263) (2,043,920) (2,984,394)
----------------- ----------------- -----------------
TOTAL INVESTMENT INCOME...... 8,711,888 17,194,268 16,367,413
----------------- ----------------- -----------------
EXPENSES
Advisory (Note 3)............ - - -
Management and Administration
(Note 3)................. 549,267 1,326,744 1,786,062
Transfer agent (Note 3)...... 448,465 1,080,476 1,459,632
A Shares.................... - - -
B Shares.................... - - -
I Shares.................... - - -
Custody (Note 3)............. - - -
Accounting (Note 3).......... 14,500 13,500 13,500
Legal (Note 3)............... 3,471 8,360 10,298
Compliance................... 41,454 23,338 47,463
Audit........................ 5,574 5,678 5,734
Trustees..................... 2,105 5,527 7,234
Reporting.................... - - -
Distribution fees - B Shares
(Note 3)................. - - -
Amortization of organization
costs (Note 2)........... 11,920 11,920 11,920
Miscellaneous................ 17,905 36,848 48,069
----------------- ----------------- -----------------
TOTAL EXPENSES............... 1,094,661 2,512,391 3,389,912
FEES WAIVED AND EXPENSES
REIMBURSED (NOTE 3)..... (406,067) (751,036) (942,647)
----------------- ----------------- -----------------
NET EXPENSES................. 688,594 1,761,355 2,447,265
----------------- ----------------- -----------------
NET INVESTMENT INCOME
(LOSS)................... 8,023,294 15,432,913 13,920,148
----------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss)
on Securities......... - - -
Investments in
Portfolios (Note
1).................. 4,002,567 16,374,147 27,523,368
Foreign currency
transactions from
investments in
Portfolios.......... 31,173 127,983 232,499
Financial futures
transactions from
investments in
Portfolios.......... 150,860 693,347 1,202,823
----------------- ----------------- -----------------
Net Realized Gain (Loss)
on Investments...... 4,184,600 17,195,477 28,958,690
----------------- ----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Securities............ - - -
Investments in
Portfolios (Note
1).................. 10,896,378 35,268,764 67,658,980
Foreign currency
transactions from
investments in
Portfolios.......... (9,830) (34,232) (28,152)
Financial futures
transactions from
investments in
Portfolios.......... (53,605) (264,531) (330,277)
----------------- ----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Investments........... 10,832,943 34,970,001 67,300,551
----------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS....... 15,017,543 52,165,478 96,259,241
----------------- ----------------- -----------------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS................ $ 23,040,837 $ 67,598,391 $ 110,179,389
----------------- ----------------- -----------------
----------------- ----------------- -----------------
(a) Beginning of Period....... Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
[LOGO]
39
STATEMENTS OF OPERATIONS (CONCLUDED)
-------------------------------------------------------------------------------
AGGRESSIVE
BALANCED- INCOME VALUGROWTH DIVERSIFIED
EQUITY INDEX EQUITY STOCK EQUITY
FUND FUND FUND FUND FUND
------------- ------------- ------------- ------------- -------------
INVESTMENT INCOME
Interest income.............. $ 32,911 $ 1,259,434 $ 862,070 $ 1,010,671 $ 2,838,104
Dividend income.............. 28,853 9,408,796 22,280,841 7,006,424 20,472,824
Securities lending income
(Notes 2 and 5).......... 706 203,341 170,078 112,006 483,095
Net expenses from Portfolios
(Note 1)................. (12,839) (1,131,646) (5,315,679) - (8,247,260)
------------- ------------- ------------- ------------- -------------
TOTAL INVESTMENT INCOME...... 49,631 9,739,925 17,997,310 8,129,101 15,546,763
------------- ------------- ------------- ------------- -------------
EXPENSES
Advisory (Note 3)............ - - - 4,141,066 -
Management and Administration
(Note 3)................. 7,251 338,880 547,178 530,300 4,510,187
Transfer agent (Note 3)...... 6,043 1,525,921 - - -
A Shares.................... - - 143,905 57,240 100,022
B Shares.................... - - 120,266 19,407 141,839
I Shares.................... - - 2,294,822 1,249,103 3,481,810
Custody (Note 3)............. - - - 68,030 -
Accounting (Note 3).......... 9,468 13,500 37,500 77,500 37,500
Legal (Note 3)............... 1,025 8,903 15,199 6,635 27,929
Compliance................... 12,143 71,919 228,500 152,195 94,513
Audit........................ 5,002 5,259 13,986 9,542 6,067
Trustees..................... 15 7,368 11,074 5,518 18,488
Reporting.................... - - - - -
Distribution fees - B Shares
(Note 3)................. - - 481,065 77,628 567,355
Amortization of organization
costs (Note 2)........... 1,350 11,920 11,920 - 11,920
Miscellaneous................ 151 50,436 123,616 56,302 148,639
------------- ------------- ------------- ------------- -------------
TOTAL EXPENSES............... 42,448 2,034,106 4,029,031 6,450,466 9,146,269
FEES WAIVED AND EXPENSES
REIMBURSED (NOTE 3)......... (31,091) (1,639,548) (283,466) (1,089,144) (2,074,788)
------------- ------------- ------------- ------------- -------------
NET EXPENSES................. 11,357 394,558 3,745,565 5,361,322 7,071,481
------------- ------------- ------------- ------------- -------------
NET INVESTMENT INCOME
(LOSS)................... 38,274 9,345,367 14,251,745 2,767,779 8,475,282
------------- ------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss)
on Securities......... - - - 102,163,282 -
Investments in
Portfolios (Note
1).................. (4,959) 12,410,973 12,683,426 - 86,182,032
Foreign currency
transactions from
investments in
Portfolios.......... (1,335) - - - 724,621
Financial futures
transactions from
investments in
Portfolios.......... (6,142) 4,231,292 - - 3,828,975
------------- ------------- ------------- ------------- -------------
Net Realized Gain (Loss)
on Investments...... (12,436) 16,642,265 12,683,426 102,163,282 90,735,628
------------- ------------- ------------- ------------- -------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Securities............ - - - (16,652,982) -
Investments in
Portfolios (Note
1).................. 352,418 126,003,935 217,868,488 - 237,081,512
Foreign currency
transactions from
investments in
Portfolios.......... 2,351 - - - 49,408
Financial futures
transactions from
investments in
Portfolios.......... 8,630 1,120,508 - - (492,760)
------------- ------------- ------------- ------------- -------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Investments........... 363,399 127,124,443 217,868,488 (16,652,982) 236,638,160
------------- ------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS...... 350,963 143,766,708 230,551,914 85,510,300 327,373,788
------------- ------------- ------------- ------------- -------------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $ 389,237 $ 153,112,075 $ 244,803,659 $ 88,278,079 $ 335,849,070
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
(a) Beginning of Period...... Dec 2, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
GROWTH
EQUITY
FUND
----------------
INVESTMENT INCOME
Interest income.............. $ 2,538,706
Dividend income.............. 8,657,228
Securities lending income
(Notes 2 and 5).......... 411,151
Net expenses from Portfolios
(Note 1)................. (7,886,351)
----------------
TOTAL INVESTMENT INCOME...... 3,720,734
----------------
EXPENSES
Advisory (Note 3)............ -
Management and Administration
(Note 3)................. 3,093,583
Transfer agent (Note 3)...... -
A Shares.................... 47,273
B Shares.................... 31,107
I Shares.................... 2,464,789
Custody (Note 3)............. -
Accounting (Note 3).......... 37,500
Legal (Note 3)............... 18,214
Compliance................... 53,131
Audit........................ 5,897
Trustees..................... 12,795
Reporting.................... -
Distribution fees - B Shares
(Note 3)................. 124,429
Amortization of organization
costs (Note 2)........... 11,920
Miscellaneous................ 112,413
----------------
TOTAL EXPENSES............... 6,013,051
FEES WAIVED AND EXPENSES
REIMBURSED (NOTE 3)......... (1,089,838)
----------------
NET EXPENSES................. 4,923,213
----------------
NET INVESTMENT INCOME
(LOSS)................... (1,202,479)
----------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss)
on Securities......... -
Investments in
Portfolios (Note
1).................. 123,803,474
Foreign currency
transactions from
investments in
Portfolios.......... 1,136,779
Financial futures
transactions from
investments in
Portfolios.......... (18,521)
----------------
Net Realized Gain (Loss)
on Investments...... 124,921,732
----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Securities............ -
Investments in
Portfolios (Note
1).................. 79,226,410
Foreign currency
transactions from
investments in
Portfolios.......... (110,241)
Financial futures
transactions from
investments in
Portfolios.......... )(4
----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Investments........... 79,116,165
----------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS...... 204,037,897
----------------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $ 202,835,418
----------------
----------------
(a) Beginning of Period...... Jun 1, 1997
See Notes to Financial Statements
[LOGO]
40
FOR THE PERIOD ENDED MAY 31, 1998 (A)
- --------------------------------------------------------------------------------
LARGE SMALL SMALL
COMPANY DIVERSIFIED COMPANY SMALL CAP COMPANY
GROWTH SMALL CAP STOCK OPPORTUNITIES GROWTH
FUND FUND FUND FUND FUND
------------- ------------- ------------- ----------------- -----------------
INVESTMENT INCOME
Interest income.............. $ 93,163 $ 6,373 $ 533,972 $ 579,354 $ 1,694,128
Dividend income.............. 964,931 14,952 596,771 1,071,914 1,856,653
Securities lending income
(Notes 2 and 5).......... 72,741 614 127,334 - -
Net expenses from Portfolios
(Note 1)................. (1,196,438) (21,292) (1,774,480) (1,460,534) (6,394,230)
------------- ------------- ------------- ----------------- -----------------
TOTAL INVESTMENT INCOME...... (65,603) 647 (516,403) 190,734 (2,843,449)
------------- ------------- ------------- ----------------- -----------------
EXPENSES
Advisory (Note 3)............ - - - - -
Management and Administration
(Note 3)................. 100,812 6,854 108,264 589,817 377,362
Transfer agent (Note 3)...... 443,701 5,712 - - 1,720,851
A Shares.................... - - 22,439 7,924 -
B Shares.................... - - 14,424 5,640 -
I Shares.................... - - 429,261 471,297 -
Custody (Note 3)............. - - - - -
Accounting (Note 3).......... 13,500 7,694 37,500 37,500 13,500
Legal (Note 3)............... 3,276 26 10,181 29,624 12,061
Compliance................... 34,377 13,366 31,428 81,682 99,106
Audit........................ 5,572 5,001 10,393 5,072 10,583
Trustees..................... 2,103 12 2,405 2,036 8,010
Reporting.................... - - - - -
Distribution fees - B Shares
(Note 3)................. - - 57,698 22,558 -
Amortization of organization
costs (Note 2)........... 11,920 246 6,539 - 11,920
Miscellaneous................ 10,258 400 20,907 19,589 41,432
------------- ------------- ------------- ----------------- -----------------
TOTAL EXPENSES............... 625,519 39,311 751,439 1,272,739 2,294,825
FEES WAIVED AND EXPENSES
REIMBURSED (NOTE 3)......... (46,729) (32,933) (244,727) (290,406) (81,216)
------------- ------------- ------------- ----------------- -----------------
NET EXPENSES................. 578,790 6,378 506,712 982,333 2,213,609
------------- ------------- ------------- ----------------- -----------------
NET INVESTMENT INCOME
(LOSS)................... (644,393) (5,731) (1,023,115) (791,599) (5,057,058)
------------- ------------- ------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss)
on Securities......... - - - - -
Investments in
Portfolios (Note
1).................. 13,678,786 (97,558) 34,416,452 4,160,372 119,313,461
Foreign currency
transactions from
investments in
Portfolios.......... - - - - -
Financial futures
transactions from
investments in
Portfolios.......... - (642) - - -
------------- ------------- ------------- ----------------- -----------------
Net Realized Gain (Loss)
on Investments...... 13,678,786 (98,200) 34,416,452 4,160,372 119,313,461
------------- ------------- ------------- ----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Securities............ - - - - -
Investments in
Portfolios (Note
1).................. 33,488,238 (189,624) (23,455,025) 23,475,868 (11,277,547)
Foreign currency
transactions from
investments in
Portfolios.......... - - - - -
Financial futures
transactions from
investments in
Portfolios.......... - - - - -
------------- ------------- ------------- ----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Investments........... 33,488,238 (189,624) (23,455,025) 23,475,868 (11,277,547)
------------- ------------- ------------- ----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS...... 47,167,024 (287,824) 10,961,427 27,636,240 108,035,914
------------- ------------- ------------- ----------------- -----------------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $ 46,522,631 $ (293,555) $ 9,938,312 $ 26,844,641 $ 102,978,856
------------- ------------- ------------- ----------------- -----------------
------------- ------------- ------------- ----------------- -----------------
(a) Beginning of Period...... Jun 1, 1997 Dec 31, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
CONTRARIAN
STOCK INTERNATIONAL
FUND FUND
----------------- -----------------
INVESTMENT INCOME
Interest income.............. $ 21,897 $ 1,205,867
Dividend income.............. 88,079 3,564,097
Securities lending income
(Notes 2 and 5).......... - 107,120
Net expenses from Portfolios
(Note 1)................. - (1,726,854)
----------------- -----------------
TOTAL INVESTMENT INCOME...... 109,976 3,150,230
----------------- -----------------
EXPENSES
Advisory (Note 3)............ 47,418 -
Management and Administration
(Note 3)................. 5,928 1,266,141
Transfer agent (Note 3)...... - -
A Shares.................... - 7,230
B Shares.................... - 4,875
I Shares.................... 14,818 623,325
Custody (Note 3)............. 1,185 -
Accounting (Note 3).......... 39,000 37,500
Legal (Note 3)............... 639 4,979
Compliance................... 11,058 33,284
Audit........................ 7,103 5,102
Trustees..................... 92 3,202
Reporting.................... - -
Distribution fees - B Shares
(Note 3)................. - 19,501
Amortization of organization
costs (Note 2)........... 6,539 11,920
Miscellaneous................ 2,905 29,460
----------------- -----------------
TOTAL EXPENSES............... 136,685 2,046,519
FEES WAIVED AND EXPENSES
REIMBURSED (NOTE 3)......... (65,549) (18,731)
----------------- -----------------
NET EXPENSES................. 71,136 2,027,788
----------------- -----------------
NET INVESTMENT INCOME
(LOSS)................... 38,840 1,122,442
----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss)
on Securities......... 1,308,766 -
Investments in
Portfolios (Note
1).................. - 3,247,072
Foreign currency
transactions from
investments in
Portfolios.......... - 782,847
Financial futures
transactions from
investments in
Portfolios.......... - -
----------------- -----------------
Net Realized Gain (Loss)
on Investments...... 1,308,766 4,029,919
----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Securities............ (733,029) -
Investments in
Portfolios (Note
1).................. - 21,918,195
Foreign currency
transactions from
investments in
Portfolios.......... - 58,512
Financial futures
transactions from
investments in
Portfolios.......... - -
----------------- -----------------
Net Change in Unrealized
Appreciation
(Depreciation) on
Investments........... (733,029) 21,976,707
----------------- -----------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS...... 575,737 26,006,626
----------------- -----------------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $ 614,577 $ 27,129,068
----------------- -----------------
----------------- -----------------
(a) Beginning of Period...... Jun 1, 1997 Jun 1, 1997
[LOGO]
41
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LIMITED TERM INTERMEDIATE
STABLE GOVERNMENT GOVERNMENT DIVERSIFIED TOTAL RETURN
INCOME INCOME INCOME BOND INCOME BOND
FUND FUND FUND FUND FUND FUND
------------- -------------- -------------- -------------- ------------- -------------
NET ASSETS - MAY 31, 1996..... $100,526,392 $ - $ 426,568,283 $ 167,159,152 $ 279,970,781 $124,875,423
------------- -------------- -------------- -------------- ------------- -------------
OPERATIONS:
Net investment income
(loss)................... 6,382,602 - 26,936,358 10,574,998 18,230,620 8,266,646
Net realized gain (loss) on
investments sold......... (16,722) - (6,210,130) (628,563) (6,842,137) (597,996)
Net change in unrealized
appreciation
(depreciation) on
investments.............. 350,666 - 4,866,761 477,226 7,049,605 1,219,804
------------- -------------- -------------- -------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations............... 6,716,546 - 25,592,989 10,423,661 18,438,088 8,888,454
------------- -------------- -------------- -------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... (721,899) - (951,891) - (348,870) (165,157)
B Shares.................... (38,565) - (583,483) - (200,173) (126,442)
I Shares.................... (5,602,672) - (25,549,628) (11,271,882) (17,681,577) (7,975,055)
Net realized gain on
investments
A Shares.................... - - - - - (7,033)
B Shares.................... - - - - - (6,165)
I Shares.................... - - - (2,307,298) - (348,086)
------------- -------------- -------------- -------------- ------------- -------------
Total distributions to
shareholders............. (6,363,136) - (27,085,002) (13,579,180) (18,230,620) (8,627,938)
------------- -------------- -------------- -------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... 1,191,772 - 1,106,096 - 1,161,599 1,601,894
B Shares.................... 701,755 - 1,575,225 - 1,023,640 666,573
I Shares.................... 61,899,250 - 47,225,594 56,312,542 34,365,830 46,717,303
Reinvestment of distributions
A Shares.................... 260,034 - 712,814 - 296,467 175,548
B Shares.................... 26,240 - 358,502 - 158,950 110,954
I Shares.................... 4,614,509 - 3,133,761 13,557,797 242,372 446,003
Redemption of Shares
A Shares.................... (5,300,964) - (5,302,226) - (1,842,981) (705,561)
B Shares.................... (542,351) - (3,611,256) - (1,127,169) (627,550)
I Shares.................... (39,192,241) - (76,988,609) (71,564,199) (47,759,316) (42,745,129)
------------- -------------- -------------- -------------- ------------- -------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 23,658,004 - (31,790,099) (1,693,860) (13,480,608) 5,640,035
------------- -------------- -------------- -------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 24,011,414 - (33,282,112) (4,849,379) (13,273,140) 5,900,551
------------- -------------- -------------- -------------- ------------- -------------
NET ASSETS - MAY 31, 1997 -
(INCLUDING LINE (B))...... 124,537,806 - 393,286,171 162,309,773 266,697,641 130,775,974
------------- -------------- -------------- -------------- ------------- -------------
OPERATIONS:
Net investment income
(loss)................... 7,703,069 2,472,405 25,236,285 9,014,241 17,724,169 7,844,196
Net realized gain (loss) on
investments.............. 180,042 382,561 590,854 3,385,362 5,713,653 3,752,024
Net change in unrealized
appreciation
(depreciation) on
investments.............. 280,340 426,595 12,638,932 5,676,343 8,900,463 120,524
------------- -------------- -------------- -------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations............... 8,163,451 3,281,561 38,466,071 18,075,946 32,338,285 11,716,744
------------- -------------- -------------- -------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... (506,395) - (728,517) - (363,744) (192,400)
B Shares.................... (68,901) - (425,732) - (219,574) (131,933)
I Shares.................... (6,890,484) (2,472,405) (23,651,745) (10,590,089) (17,140,851) (7,519,863)
Net realized gain on
investments
A Shares.................... - - - - - (14,547)
B Shares.................... - - - - - (12,417)
I Shares.................... - (51,848) - (174,937) - (677,747)
Return of Capital
A Shares.................... - - - - - -
B Shares.................... - - - - - -
I Shares.................... - - - - - -
------------- -------------- -------------- -------------- ------------- -------------
Total distributions to
shareholders............. (7,465,780) (2,524,253) (24,805,994) (10,765,026) (17,724,169) (8,548,907)
------------- -------------- -------------- -------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... 29,800,927 - 4,221,460 - 3,728,447 1,926,421
B Shares.................... 1,235,385 - 1,494,445 - 1,708,790 577,233
I Shares.................... 81,486,735 74,575,367 309,607,835 59,376,015 193,004,368 26,212,554
Shares issued in conversion
(Note 6)
I Shares.................... - 61,995,790 - - - -
Reinvestment of distributions
A Shares.................... 210,983 - 533,971 - 296,527 202,458
B Shares.................... 58,778 - 302,863 - 181,100 122,628
I Shares.................... 5,750,754 80,008 2,504,469 10,469,707 501,723 756,511
Redemption of Shares
A Shares.................... (33,964,911) - (3,988,483) - (1,801,850) (2,266,442)
B Shares.................... (539,946) - (2,847,150) - (582,886) (360,395)
I Shares.................... (54,681,772) (71,295,912) (295,827,903) (104,635,641) (175,266,232) (46,352,971)
------------- -------------- -------------- -------------- ------------- -------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 29,356,933 65,355,253 16,001,507 (34,789,919) 21,769,987 (19,182,003)
------------- -------------- -------------- -------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 30,054,604 66,112,561 29,661,584 (27,478,999) 36,384,103 (16,014,166)
------------- -------------- -------------- -------------- ------------- -------------
NET ASSETS - MAY 31, 1998 -
(INCLUDING LINE (C))...... $154,592,410 $ 66,112,561 $ 422,947,755 $ 134,830,774 $ 303,081,744 $114,761,808
------------- -------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- -------------- ------------- -------------
(a) Beginning of Period....... Jun 1, 1997 Oct 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
(b) Undistributed
(distributions in excess
of) net investment income,
May 31, 1997.............. $ 18,567 $ - $ 10,583 $ 6,088,052 $ 17,328 $ -
------------- -------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- -------------- ------------- -------------
(c) Undistributed
(distributions in excess
of) net investment income,
May 31, 1998.............. $ 201,603 $ - $ 436,911 $ 4,468,507 $ 14,155 $ (15,111)
------------- -------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- -------------- ------------- -------------
(d) Commencement of operations
October 1, 1996
(e) Commencement of operations
August 15, 1996
See Notes to Financial Statements
[LOGO]
42
FOR THE YEARS OR PERIODS ENDED MAY 31, 1997 AND 1998 (a)
- --------------------------------------------------------------------------------
MINNESOTA
LIMITED TERM TAX-FREE COLORADO INTERMEDIATE MINNESOTA STRATEGIC
TAX-FREE INCOME TAX-FREE TAX-FREE TAX-FREE INCOME
FUND(d) FUND FUND FUND FUND FUND
------------- -------------- ------------- ------------- -------------- -------------
NET ASSETS - MAY 31, 1996..... $ - $ 315,969,971 $ 57,465,130 $ - $ 39,422,925 $ 146,949,679
------------- -------------- ------------- ------------- -------------- -------------
OPERATIONS:
Net investment income
(loss)................... 789,661 16,553,234 3,158,306 - 2,095,493 5,736,709
Net realized gain (loss) on
investments sold......... (47,761) 1,727,823 493,059 - (141,622) 3,568,401
Net change in unrealized
appreciation
(depreciation) on
investments.............. 147,244 6,758,068 1,445,137 - 1,253,339 2,524,245
------------- -------------- ------------- ------------- -------------- -------------
Net increase (decrease) in
net assets resulting from
operations............... 889,144 25,039,125 5,096,502 - 3,207,210 11,829,355
------------- -------------- ------------- ------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - (1,591,311) (1,470,771) - (1,322,564) -
B Shares.................... - (308,558) (311,583) - (443,287) -
I Shares.................... (789,661) (14,653,365) (1,375,952) - (329,642) (6,159,478)
Net realized gain on
investments
A Shares.................... - - - - - -
B Shares.................... - - - - - -
I Shares.................... - - - - - (2,495,149)
------------- -------------- ------------- ------------- -------------- -------------
Total distributions to
shareholders............. (789,661) (16,553,234) (3,158,306) - (2,095,493) (8,654,627)
------------- -------------- ------------- ------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - 6,496,836 1,722,891 - 3,538,661 -
B Shares.................... - 1,904,021 1,012,888 - 2,882,204 -
I Shares.................... 41,586,251 41,150,176 5,985,260 - 8,567,269 36,138,290
Reinvestment of distributions
A Shares.................... - 1,278,621 1,199,954 - 1,051,926 -
B Shares.................... - 224,415 217,609 - 342,375 -
I Shares.................... 40,619 274,923 17,000 - 59,840 8,655,005
Redemption of Shares
A Shares.................... - (13,367,873) (3,001,775) - (6,143,453) -
B Shares.................... - (884,326) (633,831) - (1,171,847) -
I Shares.................... (736,230) (65,125,982) (4,982,823) - (1,659,308) (66,141,197)
------------- -------------- ------------- ------------- -------------- -------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 40,890,640 (28,049,189) 1,537,173 - 7,467,667 (21,347,902)
------------- -------------- ------------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 40,990,123 (19,563,298) 3,475,369 - 8,579,384 (18,173,174)
------------- -------------- ------------- ------------- -------------- -------------
NET ASSETS - MAY 31, 1997 -
(INCLUDING LINE (B))...... 40,990,123 296,406,673 60,940,499 - 48,002,309 128,776,505
------------- -------------- ------------- ------------- -------------- -------------
OPERATIONS:
Net investment income
(loss)................... 2,169,354 15,876,439 3,267,484 7,005,118 2,779,840 8,023,294
Net realized gain (loss) on
investments.............. (40,641) 5,515,394 477,006 329,218 348,871 4,184,600
Net change in unrealized
appreciation
(depreciation) on
investments.............. 949,055 8,997,364 2,416,938 11,276,962 2,099,959 10,832,943
------------- -------------- ------------- ------------- -------------- -------------
Net increase (decrease) in
net assets resulting from
operations............... 3,077,768 30,389,197 6,161,428 18,611,298 5,228,670 23,040,837
------------- -------------- ------------- ------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - (1,575,363) (1,535,133) - (1,457,615) -
B Shares.................... - (392,899) (335,170) - (550,306) -
I Shares.................... (2,169,354) (13,908,177) (1,397,181) (7,005,118) (771,919) (6,121,616)
Net realized gain on
investments
A Shares.................... - - - - - -
B Shares.................... - - - - - -
I Shares.................... (49,319) - - (90,488) - (4,067,109)
Return of Capital
A Shares.................... - - - - - -
B Shares.................... - - - - - -
I Shares.................... - - - - - -
------------- -------------- ------------- ------------- -------------- -------------
Total distributions to
shareholders............. (2,218,673) (15,876,439) (3,267,484) (7,095,606) (2,779,840) (10,188,725)
------------- -------------- ------------- ------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - 10,396,839 7,477,552 - 8,705,064 -
B Shares.................... - 4,015,589 2,868,087 - 6,079,249 -
I Shares.................... 57,459,796 207,775,946 8,617,144 229,127,100 11,447,292 145,673,252
Shares issued in conversion
(Note 6)
I Shares.................... - - - 204,022,181 - -
Reinvestment of distributions
A Shares.................... - 1,248,714 1,197,281 - 1,064,641 -
B Shares.................... - 302,167 232,515 - 409,199 -
I Shares.................... 274,112 724,544 34,709 186,581 244,073 10,107,735
Redemption of Shares
A Shares.................... - (7,217,647) (3,579,424) - (3,166,663) -
B Shares.................... - (986,449) (1,495,848) - (1,616,019) -
I Shares.................... (44,980,718) (194,254,301) (3,434,846) (235,166,457) (2,736,119) (62,155,767)
------------- -------------- ------------- ------------- -------------- -------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 12,753,190 22,005,402 11,917,170 198,169,405 20,430,717 93,625,220
------------- -------------- ------------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 13,612,285 36,518,160 14,811,114 209,685,097 22,879,547 106,477,332
------------- -------------- ------------- ------------- -------------- -------------
NET ASSETS - MAY 31, 1998 -
(INCLUDING LINE (C))...... $ 54,602,408 $ 332,924,833 $ 75,751,613 $209,685,097 $ 70,881,856 $ 235,253,837
------------- -------------- ------------- ------------- -------------- -------------
------------- -------------- ------------- ------------- -------------- -------------
(a) Beginning of Period....... Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Oct 1, 1997 Jun 1, 1997 Jun 1, 1997
(b) Undistributed
(distributions in excess
of) net investment income,
May 31, 1997.............. $ - $ (509,881) $ - $ - $ (41,761) $ 3,648,779
------------- -------------- ------------- ------------- -------------- -------------
------------- -------------- ------------- ------------- -------------- -------------
(c) Undistributed
(distributions in excess
of) net investment income,
May 31, 1998.............. $ - $ (509,881) $ - $ - $ (41,761) $ 5,557,090
------------- -------------- ------------- ------------- -------------- -------------
------------- -------------- ------------- ------------- -------------- -------------
(d) Commencement of operations
October 1, 1996
(e) Commencement of operations
August 15, 1996
MODERATE GROWTH
BALANCED BALANCED
FUND FUND
-------------- --------------
NET ASSETS - MAY 31, 1996..... $ 398,005,320 $ 484,641,177
-------------- --------------
OPERATIONS:
Net investment income
(loss)................... 15,258,336 11,428,255
Net realized gain (loss) on
investments sold......... 12,798,650 15,551,273
Net change in unrealized
appreciation
(depreciation) on
investments.............. 18,806,708 41,497,874
-------------- --------------
Net increase (decrease) in
net assets resulting from
operations............... 46,863,694 68,477,402
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - -
B Shares.................... - -
I Shares.................... (15,207,156) (11,872,271)
Net realized gain on
investments
A Shares.................... - -
B Shares.................... - -
I Shares.................... (5,845,141) (17,285,365)
-------------- --------------
Total distributions to
shareholders............. (21,052,297) (29,157,636)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - -
B Shares.................... - -
I Shares.................... 116,845,894 143,517,666
Reinvestment of distributions
A Shares.................... - -
B Shares.................... - -
I Shares.................... 21,052,296 29,111,750
Redemption of Shares
A Shares.................... - -
B Shares.................... - -
I Shares.................... (143,034,670) (193,208,525)
-------------- --------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. (5,136,480) (20,579,109)
-------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 20,674,917 18,740,657
-------------- --------------
NET ASSETS - MAY 31, 1997 -
(INCLUDING LINE (B))...... 418,680,237 503,381,834
-------------- --------------
OPERATIONS:
Net investment income
(loss)................... 15,432,913 13,920,148
Net realized gain (loss) on
investments.............. 17,195,477 28,958,690
Net change in unrealized
appreciation
(depreciation) on
investments.............. 34,970,001 67,300,551
-------------- --------------
Net increase (decrease) in
net assets resulting from
operations............... 67,598,391 110,179,389
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - -
B Shares.................... - -
I Shares.................... (16,103,820) (13,409,934)
Net realized gain on
investments
A Shares.................... - -
B Shares.................... - -
I Shares.................... (22,560,420) (25,716,573)
Return of Capital
A Shares.................... - -
B Shares.................... - -
I Shares.................... - -
-------------- --------------
Total distributions to
shareholders............. (38,664,240) (39,126,507)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - -
B Shares.................... - -
I Shares.................... 121,048,882 173,888,398
Shares issued in conversion
(Note 6)
I Shares.................... - -
Reinvestment of distributions
A Shares.................... - -
B Shares.................... - -
I Shares.................... 38,592,648 39,022,268
Redemption of Shares
A Shares.................... - -
B Shares.................... - -
I Shares.................... (142,872,183) (121,587,427)
-------------- --------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 16,769,347 91,323,239
-------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 45,703,498 162,376,121
-------------- --------------
NET ASSETS - MAY 31, 1998 -
(INCLUDING LINE (C))...... $ 464,383,735 $ 665,757,955
-------------- --------------
-------------- --------------
(a) Beginning of Period....... Jun 1, 1997 Jun 1, 1997
(b) Undistributed
(distributions in excess
of) net investment income,
May 31, 1997.............. $ 9,730,043 $ 6,915,443
-------------- --------------
-------------- --------------
(c) Undistributed
(distributions in excess
of) net investment income,
May 31, 1998.............. $ 9,151,144 $ 7,652,666
-------------- --------------
-------------- --------------
(d) Commencement of operations
October 1, 1996
(e) Commencement of operations
August 15, 1996
[LOGO]
43
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
- --------------------------------------------------------------------------------
AGGRESSIVE
BALANCED- INCOME VALUGROWTH DIVERSIFIED GROWTH
EQUITY INDEX EQUITY STOCK EQUITY EQUITY
FUND FUND FUND FUND FUND FUND
------------ -------------- --------------- -------------- --------------- ---------------
NET ASSETS - MAY 31, 1996..... $ - $ 249,644,199 $ 279,597,845 $ 176,914,679 $ 912,368,717 $ 739,768,444
------------ -------------- --------------- -------------- --------------- ---------------
OPERATIONS
Net investment income
(loss)................... - 7,884,583 7,341,585 1,201,816 8,213,961 (792,473)
Net realized gain (loss) on
investments sold......... - 37,286,980 7,545,807 27,574,311 23,417,472 31,567,811
Net change in unrealized
appreciation
(depreciation) on
investments.............. - 59,200,263 67,108,555 10,617,449 180,774,329 83,999,395
------------ -------------- --------------- -------------- --------------- ---------------
Net increase (decrease) in
net assets resulting from
operations............... - 104,371,826 81,995,947 39,393,576 212,405,762 114,774,733
------------ -------------- --------------- -------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - - (631,328) (24,656) (71,788) (14,426)
B Shares.................... - - (248,650) (761) (37,139) -
I Shares.................... - (5,954,051) (5,409,270) (238,700) (5,048,533) (1,037,304)
Net realized gain on
investments
A Shares.................... - - - (1,711,849) (86,235) (221,686)
B Shares.................... - - - (581,032) (95,727) (95,413)
I Shares.................... - (6,050,374) - (16,880,842) (6,064,480) (15,939,879)
------------ -------------- --------------- -------------- --------------- ---------------
Total distributions to
shareholders............. - (12,004,425) (6,289,248) (19,437,840) (11,403,902) (17,308,708)
------------ -------------- --------------- -------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - - 13,631,365 3,013,903 21,946,642 13,671,892
B Shares.................... - - 14,627,119 1,120,672 28,308,236 7,397,442
I Shares.................... - 298,477,778 179,823,737 29,570,961 306,247,811 261,561,411
Reinvestment of distributions
A Shares.................... - - 604,511 1,725,002 157,020 234,009
B Shares.................... - - 240,847 557,001 128,150 95,271
I Shares.................... - 11,725,407 2,063,741 1,397,591 11,033,830 16,970,323
Redemption of Shares
A Shares.................... - - (9,134,378) (2,965,382) (2,937,661) (4,688,246)
B Shares.................... - - (3,238,148) (829,125) (898,800) (321,575)
I Shares.................... - (139,080,889) (51,392,099) (24,835,838) (205,649,293) (213,875,777)
------------ -------------- --------------- -------------- --------------- ---------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. - 171,122,296 147,226,695 8,754,785 158,335,935 81,044,750
------------ -------------- --------------- -------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... - 263,489,697 222,933,394 28,710,521 359,337,795 178,510,775
------------ -------------- --------------- -------------- --------------- ---------------
NET ASSETS - MAY 31, 1997 -
(INCLUDING LINE (B))...... - 513,133,896 502,531,239 205,625,200 1,271,706,512 918,279,219
------------ -------------- --------------- -------------- --------------- ---------------
OPERATIONS:
Net investment income
(loss)................... 38,274 9,345,367 14,251,745 2,767,779 8,475,282 (1,202,479)
Net realized gain (loss) on
investments.............. (12,436) 16,642,265 12,683,426 102,163,282 90,735,628 124,921,732
Net change in unrealized
appreciation
(depreciation) on
investments.............. 363,399 127,124,443 217,868,488 (16,652,982) 236,638,160 79,116,165
------------ -------------- --------------- -------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ 389,237 153,112,075 244,803,659 88,278,079 335,849,070 202,835,418
------------ -------------- --------------- -------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - - (804,582) (148,126) (276,764) (21,720)
B Shares.................... - - (283,201) (9,192) (113,973) -
I Shares.................... (1,203) (9,056,077) (11,749,514) (3,083,321) (9,474,703) (1,101,414)
Net realized gain on
investments
A Shares.................... - - (1,048,454) (2,872,556) (2,253,590) (1,880,012)
B Shares.................... - - (850,000) (1,010,191) (3,232,355) (1,221,598)
I Shares.................... - (48,844,415) (13,660,767) (49,504,124) (78,384,186) (95,402,591)
Return of Capital
A Shares.................... - - - - - -
B Shares.................... - - - - - -
I Shares.................... - - - - - -
------------ -------------- --------------- -------------- --------------- ---------------
Total distributions to
shareholders............. (1,203) (57,900,492) (28,396,518) (56,627,510) (93,735,571) (99,627,335)
------------ -------------- --------------- -------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - - 25,802,002 9,756,755 27,277,888 8,477,025
B Shares.................... - - 26,991,385 1,656,624 41,099,564 7,062,682
I Shares.................... 10,402,991 316,712,289 724,447,714 463,597,240 309,400,646 203,089,698
Shares issued in conversion
(Note 6)
I Shares.................... - - 477,132,068 443,623,815 - -
Reinvestment of distributions
A Shares.................... - - 1,802,610 2,917,450 2,508,624 1,889,663
B Shares.................... - - 1,100,313 1,005,500 3,272,867 1,216,596
I Shares.................... 1,203 55,520,473 11,445,588 21,586,227 86,692,121 96,307,274
Redemption of Shares
A Shares.................... - - (8,154,670) (4,932,945) (4,847,852) (4,689,355)
B Shares.................... - - (4,311,667) (674,256) (5,131,550) (1,402,259)
I Shares.................... (1,920,359) (196,372,828) (618,279,412) (530,042,316) (315,851,888) (262,005,626)
------------ -------------- --------------- -------------- --------------- ---------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 8,483,835 175,859,934 637,975,931 408,494,094 144,420,420 49,945,698
------------ -------------- --------------- -------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 8,871,869 271,071,517 854,383,072 440,144,663 386,533,919 153,153,781
------------ -------------- --------------- -------------- --------------- ---------------
NET ASSETS - MAY 31, 1998 -
(INCLUDING LINE (C))...... $ 8,871,869 $ 784,205,413 $ 1,356,914,311 $ 645,769,863 $ 1,658,240,431 $ 1,071,433,000
------------ -------------- --------------- -------------- --------------- ---------------
------------ -------------- --------------- -------------- --------------- ---------------
(a) Beginning of Period....... Dec 2, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
(b) Undistributed
(distributions in excess
of) net investment income,
May 31, 1997.............. $ - $ 4,878,091 $ 1,669,443 $ 901,111 $ 7,152,297 $ 1,234,050
------------ -------------- --------------- -------------- --------------- ---------------
------------ -------------- --------------- -------------- --------------- ---------------
(c) Undistributed
(distributions in excess
of) net investment income,
May 31, 1998.............. $ 35,981 $ 5,167,381 $ 3,083,891 $ 288,928 $ 6,542,972 $ 188,975
------------ -------------- --------------- -------------- --------------- ---------------
------------ -------------- --------------- -------------- --------------- ---------------
(d) Commencement of operations
October 1, 1996
(e) Commencement of operations
August 15, 1996
See Notes to Financial Statements
[LOGO]
44
FOR THE YEARS OR PERIODS ENDED MAY 31, 1997 AND 1998 (a)
- --------------------------------------------------------------------------------
LARGE SMALL SMALL SMALL
COMPANY DIVERSIFIED COMPANY CAP COMPANY CONTRARIAN
GROWTH SMALL CAP STOCK OPPORTUNITIES GROWTH STOCK
FUND FUND FUND FUND(e) FUND FUND
------------- ------------- -------------- ------------- -------------- -------------
NET ASSETS - MAY 31, 1996..... $ 82,113,879 $ - $ 135,536,752 $ - $ 378,546,170 $ 37,527,639
------------- ------------- -------------- ------------- -------------- -------------
OPERATIONS
Net investment income
(loss)................... (185,228) - (598,907) (42,108) (2,783,457) 161,833
Net realized gain (loss) on
investments sold......... 1,200,464 - 7,815,985 578,865 30,533,189 (1,905,305)
Net change in unrealized
appreciation
(depreciation) on
investments.............. 20,808,081 - 5,063,015 7,181,430 (4,867,156) 1,616,215
------------- ------------- -------------- ------------- -------------- -------------
Net increase (decrease) in
net assets resulting from
operations............... 21,823,317 - 12,280,093 7,718,187 22,882,576 (127,257)
------------- ------------- -------------- ------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - - - - - (2,376)
B Shares.................... - - - - - (535)
I Shares.................... - - - - - (83,280)
Net realized gain on
investments
A Shares.................... - - (403,293) (55) - (54,381)
B Shares.................... - - (282,900) (25) - (72,155)
I Shares.................... (776,305) - (9,739,168) (18,248) (41,561,778) (2,323,753)
------------- ------------- -------------- ------------- -------------- -------------
Total distributions to
shareholders............. (776,305) - (10,425,361) (18,328) (41,561,778) (2,536,480)
------------- ------------- -------------- ------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - - 2,507,754 490,051 - 268,444
B Shares.................... - - 1,214,647 145,725 - 67,343
I Shares.................... 46,499,014 - 60,448,696 75,031,266 123,744,071 4,868,878
Reinvestment of distributions
A Shares.................... - - 400,158 49 - 56,085
B Shares.................... - - 280,822 25 - 69,441
I Shares.................... 761,975 - 1,357,055 15,061 41,561,778 115,373
Redemption of Shares
A Shares.................... - - (1,071,456) (4,799) - (1,139,629)
B Shares.................... - - (500,213) - - (653,518)
I Shares.................... (18,653,787) - (27,553,043) (5,522,886) (77,592,594) (30,256,096)
------------- ------------- -------------- ------------- -------------- -------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 28,607,202 - 37,084,420 70,154,492 87,713,255 (26,603,679)
------------- ------------- -------------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 49,654,214 - 38,939,152 77,854,351 69,034,053 (29,267,416)
------------- ------------- -------------- ------------- -------------- -------------
NET ASSETS - MAY 31, 1997 -
(INCLUDING LINE (B))...... 131,768,093 - 174,475,904 77,854,351 447,580,223 8,260,223
------------- ------------- -------------- ------------- -------------- -------------
OPERATIONS:
Net investment income
(loss)................... (644,393) (5,731) (1,023,115) (791,599) (5,057,058) 38,840
Net realized gain (loss) on
investments.............. 13,678,786 (98,200) 34,416,452 4,160,372 119,313,461 1,308,766
Net change in unrealized
appreciation
(depreciation) on
investments.............. 33,488,238 (189,624) (23,455,025) 23,475,868 (11,277,547) (733,029)
------------- ------------- -------------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ 46,522,631 (293,555) 9,938,312 26,844,641 102,978,856 614,577
------------- ------------- -------------- ------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... - - - - - -
B Shares.................... - - - - - -
I Shares.................... - - - - - (115,776)
Net realized gain on
investments
A Shares.................... - - (1,666,653) (76,723) - -
B Shares.................... - - (1,144,041) (45,659) - -
I Shares.................... (12,167,899) - (38,640,779) (4,293,143) (76,030,715) -
Return of Capital
A Shares.................... - - (42,048) - - -
B Shares.................... - - (29,123) - - -
I Shares.................... - - (1,000,911) - - -
------------- ------------- -------------- ------------- -------------- -------------
Total distributions to
shareholders............. (12,167,899) - (42,523,555) (4,415,525) (76,030,715) (115,776)
------------- ------------- -------------- ------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... - - 32,666,817 6,586,891 - -
B Shares.................... - - 1,056,804 6,098,057 - -
I Shares.................... 96,865,190 14,057,810 88,835,637 222,106,855 333,748,426 2,007,595
Shares issued in conversion
(Note 6)
I Shares.................... - - 44,432,702 - 140,478,982 -
Reinvestment of distributions
A Shares.................... - - 1,700,465 76,078 - -
B Shares.................... - - 1,155,994 46,101 - -
I Shares.................... 11,421,974 - 10,996,066 3,497,844 74,728,592 22,561
Redemption of Shares
A Shares.................... - - (32,367,012) (440,970) - -
B Shares.................... - - (719,617) (167,823) - -
I Shares.................... (41,910,764) (1,213,090) (162,711,391) (40,249,596) (275,214,975) (7,148,590)
------------- ------------- -------------- ------------- -------------- -------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 66,376,400 12,844,720 (14,953,535) 197,553,437 273,741,025 (5,118,434)
------------- ------------- -------------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 100,731,132 12,551,165 (47,538,778) 219,982,553 300,689,166 (4,619,633)
------------- ------------- -------------- ------------- -------------- -------------
NET ASSETS - MAY 31, 1998 -
(INCLUDING LINE (C))...... $ 232,499,225 $ 12,551,165 $ 126,937,126 $297,836,904 $ 748,269,389 $ 3,640,590
------------- ------------- -------------- ------------- -------------- -------------
------------- ------------- -------------- ------------- -------------- -------------
(a) Beginning of Period....... Jun 1, 1997 Dec 31, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
(b) Undistributed
(distributions in excess
of) net investment income,
May 31, 1997.............. $ - $ - $ - $ - $ - $ 75,642
------------- ------------- -------------- ------------- -------------- -------------
------------- ------------- -------------- ------------- -------------- -------------
(c) Undistributed
(distributions in excess
of) net investment income,
May 31, 1998.............. $ - $ (2,549) $ - $ - $ - $ -
------------- ------------- -------------- ------------- -------------- -------------
------------- ------------- -------------- ------------- -------------- -------------
(d) Commencement of operations
October 1, 1996
(e) Commencement of operations
August 15, 1996
INTERNATIONAL
FUND
-------------
NET ASSETS - MAY 31, 1996..... $145,717,531
-------------
OPERATIONS
Net investment income
(loss)................... 588,177
Net realized gain (loss) on
investments sold......... 2,473,923
Net change in unrealized
appreciation
(depreciation) on
investments.............. 18,182,296
-------------
Net increase (decrease) in
net assets resulting from
operations............... 21,244,396
-------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... (14,230)
B Shares.................... (1,712)
I Shares.................... (1,729,720)
Net realized gain on
investments
A Shares.................... -
B Shares.................... -
I Shares.................... -
-------------
Total distributions to
shareholders............. (1,745,662)
-------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... 1,308,335
B Shares.................... 697,162
I Shares.................... 90,113,789
Reinvestment of distributions
A Shares.................... 14,232
B Shares.................... 1,700
I Shares.................... 1,332,379
Redemption of Shares
A Shares.................... (333,794)
B Shares.................... (166,748)
I Shares.................... (25,724,008)
-------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 67,243,047
-------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 86,741,781
-------------
NET ASSETS - MAY 31, 1997 -
(INCLUDING LINE (B))...... 232,459,312
-------------
OPERATIONS:
Net investment income
(loss)................... 1,122,442
Net realized gain (loss) on
investments.............. 4,029,919
Net change in unrealized
appreciation
(depreciation) on
investments.............. 21,976,707
-------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ 27,129,068
-------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income
A Shares.................... (29,002)
B Shares.................... (6,111)
I Shares.................... (2,248,551)
Net realized gain on
investments
A Shares.................... -
B Shares.................... -
I Shares.................... -
Return of Capital
A Shares.................... -
B Shares.................... -
I Shares.................... -
-------------
Total distributions to
shareholders............. (2,283,664)
-------------
CAPITAL SHARE TRANSACTIONS
Sale of Shares
A Shares.................... 1,806,507
B Shares.................... 571,189
I Shares.................... 63,830,151
Shares issued in conversion
(Note 6)
I Shares.................... -
Reinvestment of distributions
A Shares.................... 28,988
B Shares.................... 6,031
I Shares.................... 1,644,365
Redemption of Shares
A Shares.................... (1,002,906)
B Shares.................... (197,871)
I Shares.................... (38,737,239)
-------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS.............. 27,949,215
-------------
NET INCREASE (DECREASE) IN NET
ASSETS.................... 52,794,619
-------------
NET ASSETS - MAY 31, 1998 -
(INCLUDING LINE (C))...... $285,253,931
-------------
-------------
(a) Beginning of Period....... Jun 1, 1997
(b) Undistributed
(distributions in excess
of) net investment income,
May 31, 1997.............. $ 2,442,797
-------------
-------------
(c) Undistributed
(distributions in excess
of) net investment income,
May 31, 1998.............. $ 1,993,474
-------------
-------------
(d) Commencement of operations
October 1, 1996
(e) Commencement of operations
August 15, 1996
[LOGO]
45
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
NET REALIZED
BEGINNING NET AND DIVIDENDS DISTRIBUTIONS ENDING
NET ASSET INVESTMENT UNREALIZED FROM NET FROM NET NET ASSET
VALUE PER INCOME GAIN (LOSS) ON INVESTMENT REALIZED RETURN OF VALUE PER
SHARE (LOSS) INVESTMENTS INCOME GAINS CAPITAL SHARE
--------- ---------- -------------- ---------- ------------- ---------- ---------
STABLE INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... $10.24 $ 0.58 $ 0.06 $(0.57) $ - $ - $10.31
June 1, 1996 to May 31, 1997.......... 10.20 0.58 0.04 (0.58) - - 10.24
May 2, 1996(h) to May 31, 1996........ 10.22 0.02 - (0.04) - - 10.20
B SHARES
June 1, 1997 to May 31, 1998.......... 10.24 0.51 0.04 (0.49) - - 10.30
June 1, 1996 to May 31, 1997.......... 10.20 0.52 0.02 (0.50) - - 10.24
May 17, 1996(h) to May 31, 1996....... 10.23 0.02 (0.01) (0.04) - - 10.20
I SHARES
June 1, 1997 to May 31, 1998.......... 10.24 0.58 0.05 (0.57) - - 10.30
June 1, 1996 to May 31, 1997.......... 10.20 0.58 0.04 (0.58) - - 10.24
November 1, 1995 to May 31, 1996...... 10.72 0.28 0.03 (0.77) (0.06) - 10.20
November 11, 1994(h) to October 31,
1995................................ 10.00 0.50 0.22 - - - 10.72
LIMITED TERM GOVERNMENT INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
October 1, 1997(h) to May 31, 1998.... 10.00 0.38 (0.11) (0.38) (0.01) - 9.88
INTERMEDIATE GOVERNMENT INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 10.84 0.77 0.31 (0.70) - - 11.22
June 1, 1996 to May 31, 1997.......... 10.89 0.73 (0.05) (0.73) - - 10.84
May 2, 1996(h) to May 31, 1996........ 10.89 0.03 - (0.03) - - 10.89
B SHARES
June 1, 1997 to May 31, 1998.......... 10.83 0.69 0.31 (0.62) - - 11.21
June 1, 1996 to May 31, 1997.......... 10.89 0.64 (0.05) (0.65) - - 10.83
May 17, 1996(h) to May 31, 1996....... 10.97 0.03 (0.08) (0.03) - - 10.89
I SHARES
June 1, 1997 to May 31, 1998.......... 10.84 0.71 0.37 (0.70) - - 11.22
June 1, 1996 to May 31, 1997.......... 10.89 0.72 (0.04) (0.73) - - 10.84
November 1, 1995 to May 31, 1996...... 12.40 0.40 0.53 (1.32) (1.12) - 10.89
November 11, 1994(h) to October 31,
1995(f)............................. 11.11 0.93 0.36 - - - 12.40
DIVERSIFIED BOND FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 25.60 1.61 1.51 (1.66) (0.03) - 27.03
June 1, 1996 to May 31, 1997.......... 26.03 1.59 0.01 (1.69) (0.34) - 25.60
November 1, 1995 to May 31, 1996...... 27.92 1.07 (0.99) (1.67) (0.30) - 26.03
November 11, 1994(h) to October 31,
1995................................ 25.08 1.65 1.19 - - - 27.92
INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 9.27 0.61 0.52 (0.61) - - 9.79
June 1, 1996 to May 31, 1997.......... 9.27 0.62 - (0.62) - - 9.27
June 1, 1995 to May 31, 1996.......... 9.63 0.61 (0.36) (0.61) - - 9.27
June 1, 1994 to May 31, 1995.......... 9.52 0.65 0.11 (0.65) - - 9.63
June 1, 1993 to May 31, 1994.......... 10.61 0.70 (0.83) (0.70) (0.26) - 9.52
B SHARES
June 1, 1997 to May 31, 1998.......... 9.26 0.54 0.51 (0.54) - - 9.77
June 1, 1996 to May 31, 1997.......... 9.26 0.55 - (0.55) - - 9.26
June 1, 1995 to May 31, 1996.......... 9.61 0.54 (0.35) (0.54) - - 9.26
June 1, 1994 to May 31, 1995.......... 9.51 0.58 0.10 (0.58) - - 9.61
August 5, 1993(h) to May 31, 1994..... 10.67 0.50 (0.90) (0.50) (0.26) - 9.51
I SHARES
June 1, 1997 to May 31, 1998.......... 9.27 0.61 0.51 (0.61) - - 9.78
June 1, 1996 to May 31, 1997.......... 9.26 0.62 0.01 (0.62) - - 9.27
June 1, 1995 to May 31, 1996.......... 9.62 0.61 (0.36) (0.61) - - 9.26
June 1, 1994 to May 31, 1995.......... 9.51 0.65 0.11 (0.65) - - 9.62
August 2, 1993(h) to May 31, 1994..... 10.68 0.58 (0.91) (0.58) (0.26) - 9.51
[LOGO]
See Notes to Financial Highlights and Notes to Financial Statements
46
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS NET ASSETS AT
------------------------------------------- PORTFOLIO END OF PERIOD AVERAGE
NET INVESTMENT NET GROSS TOTAL TURNOVER (000'S COMMISSION
INCOME (LOSS) EXPENSES EXPENSES(a) RETURN(b) RATE OMITTED) RATE(c)
--------------- ---------- ------------ ------------ ----------- ------------- ----------
STABLE INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 5.74%(e) 0.65%(e) 0.91%(e) 6.38% 37.45%(g) $ 8,561 N/A
June 1, 1996 to May 31,
1997................. 5.69% 0.65% 0.87% 6.24% 41.30% 12,451 N/A
May 2, 1996(h) to May
31, 1996............. 5.77%(d) 0.70%(d) 2.22%(d) 0.23% 109.95% 16,256 N/A
B SHARES
June 1, 1997 to May 31,
1998................. 4.94%(e) 1.40%(e) 2.31%(e) 5.50% 37.45%(g) 1,817 N/A
June 1, 1996 to May 31,
1997................. 4.96% 1.39% 2.89% 5.43% 41.30% 1,056 N/A
May 17, 1996(h) to May
31, 1996............. 5.02%(d) 1.42%(d) 3.07%(d) 0.12% 109.95% 867 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 5.69%(e) 0.65%(e) 0.76%(e) 6.28% 37.45%(g) 144,215 N/A
June 1, 1996 to May 31,
1997................. 5.73% 0.65% 0.79% 6.24% 41.30% 111,030 N/A
November 1, 1995 to May
31, 1996............. 5.74%(d) 0.65%(d) 0.92%(d) 2.97% 109.95% 83,404 N/A
November 11, 1994(h) to
October 31, 1995..... 5.91%(d) 0.65%(d) 0.98%(d) 7.20% 115.85% 48,087 N/A
LIMITED TERM GOVERNMENT INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
October 1, 1997(h) to
May 31, 1998......... 5.78%(d) 0.40%(d) 0.89%(d) 4.42% 99.49% 66,113 N/A
INTERMEDIATE GOVERNMENT INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 6.35% 0.68% 0.86% 10.19% 96.76% 14,325 N/A
June 1, 1996 to May 31,
1997................. 6.58% 0.68% 0.80% 6.36% 183.05% 13,038 N/A
May 2, 1996(h) to May
31, 1996............. 7.32%(d) 0.75%(d) 1.74%(d) 0.26% 74.64% 16,562 N/A
B SHARES
June 1, 1997 to May 31,
1998................. 5.60% 1.43% 1.85% 9.38% 96.76% 8,277 N/A
June 1, 1996 to May 31,
1997................. 5.80% 1.42% 1.85% 5.51% 183.05% 8,970 N/A
May 17, 1996(h) to May
31, 1996............. 5.56%(d) 1.35%(d) 2.65%(d) (0.49%) 74.64% 10,682 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 6.35% 0.68% 0.72% 10.19% 96.76% 400,346 N/A
June 1, 1996 to May 31,
1997................. 6.57% 0.68% 0.72% 6.36% 183.05% 371,278 N/A
November 1, 1995 to May
31, 1996............. 6.71%(d) 0.71%(d) 1.17%(d) 0.60% 74.64% 399,324 N/A
November 11, 1994(h) to
October 31,
1995(f).............. 7.79%(d) 0.68%(d) 0.93%(d) 11.58% 240.90% 50,213 N/A
DIVERSIFIED BOND FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. 5.98%(e) 0.70%(e) 1.02%(e) 12.39% N/A 134,831 N/A
June 1, 1996 to May 31,
1997................. 6.19% 0.70% 0.77% 6.23% 57.19% 162,310 N/A
November 1, 1995 to May
31, 1996............. 6.78%(d) 0.70%(d) 0.77%(d) 0.22% 118.92% 167,159 N/A
November 11, 1994(h) to
October 31, 1995..... 5.87%(d) 0.67%(d) 0.82%(d) 11.32% 58.90% 171,453 N/A
INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 6.29% 0.75% 1.14% 12.47% 167.09% 7,661 N/A
June 1, 1996 to May 31,
1997................. 6.59% 0.75% 1.17% 6.79% 231.00% 5,142 N/A
June 1, 1995 to May 31,
1996................. 6.33% 0.75% 1.16% 2.58% 270.17% 5,521 N/A
June 1, 1994 to May 31,
1995................. 7.02% 0.75% 1.24% 8.49% 98.83% 6,231 N/A
June 1, 1993 to May 31,
1994................. 6.72% 0.60% 1.16% (1.58%) 26.67% 6,177 N/A
B SHARES
June 1, 1997 to May 31,
1998................. 5.54% 1.50% 2.19% 11.52% 167.09% 4,855 N/A
June 1, 1996 to May 31,
1997................. 5.87% 1.50% 2.25% 6.03% 231.00% 3,349 N/A
June 1, 1995 to May 31,
1996................. 5.57% 1.50% 2.27% 1.92% 270.17% 3,292 N/A
June 1, 1994 to May 31,
1995................. 6.24% 1.50% 2.21% 7.57% 98.83% 3,296 N/A
August 5, 1993(h) to
May 31, 1994......... 5.82%(d) 1.33%(d) 2.08%(d) (4.82%)(d) 26.67% 2,605 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 6.32% 0.75% 0.95% 12.35% 167.09% 290,566 N/A
June 1, 1996 to May 31,
1997................. 6.59% 0.75% 1.02% 6.90% 231.00% 258,207 N/A
June 1, 1995 to May 31,
1996................. 6.30% 0.75% 1.06% 2.58% 270.17% 271,157 N/A
June 1, 1994 to May 31,
1995................. 7.02% 0.75% 1.06% 8.49% 98.83% 109,994 N/A
August 2, 1993(h) to
May 31, 1994......... 6.75%(d) 0.61%(d) 1.09%(d) (4.04%)(d) 26.67% 93,665 N/A
[LOGO]
47
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
NET REALIZED
BEGINNING NET AND DIVIDENDS DISTRIBUTIONS ENDING
NET ASSET INVESTMENT UNREALIZED FROM NET FROM NET NET ASSET
VALUE PER INCOME GAIN (LOSS) ON INVESTMENT REALIZED RETURN OF VALUE PER
SHARE (LOSS) INVESTMENTS INCOME GAINS CAPITAL SHARE
--------- ---------- -------------- ---------- ------------- ---------- ---------
TOTAL RETURN BOND FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... $ 9.40 $ 0.59 $ 0.28 $(0.59) $(0.05) $ - $ 9.63
June 1, 1996 to May 31, 1997.......... 9.40 0.60 0.03 (0.60) (0.03) - 9.40
June 1, 1995 to May 31, 1996.......... 9.73 0.64 (0.31) (0.64) (0.02) - 9.40
June 1, 1994 to May 31, 1995.......... 9.54 0.67 0.19 (0.67) - - 9.73
December 31, 1993(h) to May 31,
1994................................ 10.00 0.27 (0.46) (0.27) - - 9.54
B SHARES
June 1, 1997 to May 31, 1998.......... 9.42 0.52 0.28 (0.52) (0.05) - 9.65
June 1, 1996 to May 31, 1997.......... 9.40 0.53 0.05 (0.53) (0.03) - 9.42
June 1, 1995 to May 31, 1996.......... 9.73 0.57 (0.31) (0.57) (0.02) - 9.40
June 1, 1994 to May 31, 1995.......... 9.54 0.59 0.19 (0.59) - - 9.73
December 31, 1993(h) to May 31,
1994................................ 10.00 0.24 (0.46) (0.24) - - 9.54
I SHARES
June 1, 1997 to May 31, 1998.......... 9.41 0.59 0.28 (0.59) (0.05) - 9.64
June 1, 1996 to May 31, 1997.......... 9.40 0.60 0.04 (0.60) (0.03) - 9.41
June 1, 1995 to May 31, 1996.......... 9.73 0.64 (0.31) (0.64) (0.02) - 9.40
June 1, 1994 to May 31, 1995.......... 9.54 0.67 0.19 (0.67) - - 9.73
December 31, 1993(h) to May 31,
1994................................ 10.00 0.27 (0.46) (0.27) - - 9.54
LIMITED TERM TAX-FREE FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 10.39 0.47 0.21 (0.47) (0.01) - 10.59
October 1, 1996(h) to May 31, 1997.... 10.00 0.31 0.39 (0.31) - - 10.39
TAX-FREE INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to November 30, 1997..... 10.05 0.53 0.49 (0.53) - - 10.54
June 1, 1996 to May 31, 1997.......... 9.78 0.54 0.27 (0.54) - - 10.05
June 1, 1995 to May 31, 1996.......... 9.82 0.55 (0.04) (0.55) - - 9.78
June 1, 1994 to May 31, 1995.......... 9.60 0.55 0.22 (0.55) - - 9.82
June 1, 1993 to May 31, 1994.......... 10.06 0.58 (0.39) (0.58) (0.07) - 9.60
B SHARES
June 1, 1997 to May 31, 1998.......... 10.05 0.46 0.48 (0.45) - - 10.54
June 1, 1996 to May 31, 1997.......... 9.78 0.46 0.27 (0.46) - - 10.05
June 1, 1995 to May 31, 1996.......... 9.82 0.48 (0.04) (0.48) - - 9.78
June 1, 1994 to May 31, 1995.......... 9.60 0.48 0.22 (0.48) - - 9.82
August 6, 1993(h) to May 31, 1994..... 10.17 0.39 (0.50) (0.39) (0.07) - 9.60
I SHARES
June 1, 1997 to May 31, 1998.......... 10.06 0.53 0.48 (0.53) - - 10.54
June 1, 1996 to May 31, 1997.......... 9.78 0.54 0.28 (0.54) - - 10.06
June 1, 1995 to May 31, 1996.......... 9.82 0.55 (0.04) (0.55) - - 9.78
June 1, 1994 to May 31, 1995.......... 9.60 0.55 0.22 (0.55) - - 9.82
August 2, 1993(h) to May 31, 1994..... 10.14 0.47 (0.47) (0.47) (0.07) - 9.60
COLORADO TAX-FREE FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 10.22 0.53 0.47 (0.53) - - 10.69
June 1, 1996 to May 31, 1997.......... 9.89 0.54 0.33 (0.54) - - 10.22
June 1, 1995 to May 31, 1996.......... 9.90 0.53 (0.01) (0.53) - - 9.89
June 1, 1994 to May 31, 1995.......... 9.69 0.48 0.21 (0.48) - - 9.90
June 1, 1993 to May 31, 1994.......... 10.00 0.51 (0.30) (0.51) (0.01) - 9.69
B SHARES
June 1, 1997 to May 31, 1998.......... 10.23 0.45 0.48 (0.45) - - 10.71
June 1, 1996 to May 31, 1997.......... 9.90 0.47 0.33 (0.47) - - 10.23
June 1, 1995 to May 31, 1996.......... 9.91 0.46 (0.01) (0.46) - - 9.90
June 1, 1994 to May 31, 1995.......... 9.70 0.41 0.21 (0.41) - - 9.91
August 2, 1993(h) to May 31, 1994..... 10.04 0.35 (0.33) (0.35) (0.01) - 9.70
I SHARES
June 1, 1997 to May 31, 1998.......... 10.22 0.53 0.47 (0.53) - - 10.69
June 1, 1996 to May 31, 1997.......... 9.89 0.54 0.33 (0.54) - - 10.22
June 1, 1995 to May 31, 1996.......... 9.90 0.53 (0.01) (0.53) - - 9.89
June 1, 1994 to May 31, 1995.......... 9.69 0.48 0.21 (0.48) - - 9.90
August 23, 1993(h) to May 31, 1994.... 10.22 0.39 (0.52) (0.39) (0.01) - 9.69
[LOGO]
See Notes to Financial Highlights and Notes to Financial Statements
48
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS NET ASSETS AT
------------------------------------------- PORTFOLIO END OF PERIOD AVERAGE
NET INVESTMENT NET GROSS TOTAL TURNOVER (000'S COMMISSION
INCOME (LOSS) EXPENSES EXPENSES(a) RETURN(b) RATE OMITTED) RATE(c)
--------------- ---------- ------------ ------------ --------------- ------------- ----------
TOTAL RETURN BOND FUND
- - ----------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 6.14%(e) 0.75%(e) 1.13%(e) 9.46% 134.56%(g) $ 3,030 N/A
June 1, 1996 to May 31,
1997................. 6.37% 0.75% 1.31% 6.84% 55.07% 3,086 N/A
June 1, 1995 to May 31,
1996................. 6.48% 0.76% 1.57% 3.41% 77.49% 2,010 N/A
June 1, 1994 to May 31,
1995................. 6.94% 0.64% 2.38% 9.42% 35.19% 599 N/A
December 31, 1993(h) to
May 31, 1994......... 6.04%(d) 0.37%(d) 13.29%(d) (4.64%) 37.50% 150 N/A
B SHARES
June 1, 1997 to May 31,
1998................. 5.37%(e) 1.50%(e) 2.22%(e) 8.64% 134.56%(g) 2,648 N/A
June 1, 1996 to May 31,
1997................. 5.61% 1.49% 2.37% 6.27% 55.07% 2,254 N/A
June 1, 1995 to May 31,
1996................. 5.75% 1.51% 2.48% 2.63% 77.49% 2,098 N/A
June 1, 1994 to May 31,
1995................. 6.17% 1.41% 3.09% 8.59% 35.19% 919 N/A
December 31, 1993(h) to
May 31, 1994......... 5.40%(d) 1.11%(d) 8.29%(d) (5.23%)(d) 37.50% 186 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 6.14%(e) 0.75%(e) 0.86%(e) 9.45% 134.56%(g) 109,084 N/A
June 1, 1996 to May 31,
1997................. 6.36% 0.75% 1.05% 6.95% 55.07% 125,437 N/A
June 1, 1995 to May 31,
1996................. 6.57% 0.75% 1.07% 3.41% 77.49% 120,767 N/A
June 1, 1994 to May 31,
1995................. 7.04% 0.71% 1.17% 9.43% 35.19% 96,199 N/A
December 31, 1993(h) to
May 31, 1994......... 6.81%(d) 0.46%(d) 2.10%(d) (4.62%)(d) 37.50% 11,694 N/A
LIMITED TERM TAX-FREE FUND
- - ----------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. 4.47% 0.65% 1.03% 6.70% 46.06% 54,602 N/A
October 1, 1996(h) to
May 31, 1997......... 4.45%(d) 0.65%(d) 1.27%(d) 6.99% 16.39% 40,990 N/A
TAX-FREE INCOME FUND
- - ----------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to
November 30, 1997.... 5.09% 0.60% 0.99% 10.33% 142.81% 35,121 N/A
June 1, 1996 to May 31,
1997................. 5.41% 0.50% 1.06% 8.43% 152.33% 29,217 N/A
June 1, 1995 to May 31,
1996................. 5.54% 0.40% 1.06% 5.29% 126.20% 33,914 N/A
June 1, 1994 to May 31,
1995................. 5.87% 0.60% 1.12% 8.42% 130.90% 30,786 N/A
June 1, 1993 to May 31,
1994................. 5.77% 0.60% 1.14% 1.74% 116.54% 34,426 N/A
B SHARES
June 1, 1997 to May 31,
1998................. 4.31% 1.35% 2.05% 9.52% 142.81% 11,070 N/A
June 1, 1996 to May 31,
1997................. 4.64% 1.26% 2.15% 7.63% 152.33% 7,329 N/A
June 1, 1995 to May 31,
1996................. 4.77% 1.14% 2.21% 4.50% 126.20% 5,897 N/A
June 1, 1994 to May 31,
1995................. 5.05% 1.35% 2.21% 7.61% 130.90% 3,729 N/A
August 6, 1993(h) to
May 31, 1994......... 4.76%(d) 1.31%(d) 2.24%(d) (0.98%)(d) 116.54% 2,674 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 5.09% 0.60% 0.92% 10.22% 142.81% 286,734 N/A
June 1, 1996 to May 31,
1997................. 5.40% 0.50% 1.03% 8.54% 152.33% 259,861 N/A
June 1, 1995 to May 31,
1996................. 5.57% 0.32% 1.06% 5.29% 126.20% 276,159 N/A
June 1, 1994 to May 31,
1995................. 5.84% 0.60% 1.05% 8.42% 130.90% 94,454 N/A
August 2, 1993(h) to
May 31, 1994......... 5.71%(d) 0.60%(d) 1.10%(d) (0.21%)(d) 116.54% 102,084 N/A
COLORADO TAX-FREE FUND
- - ----------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 5.00% 0.60% 1.04% 9.96% 69.87% 34,254 N/A
June 1, 1996 to May 31,
1997................. 5.36% 0.45% 1.14% 9.00% 129.26% 27,806 N/A
June 1, 1995 to May 31,
1996................. 5.30% 0.30% 1.13% 5.35% 171.41% 26,991 N/A
June 1, 1994 to May 31,
1995................. 5.10% 0.30% 1.15% 7.47% 47.88% 25,997 N/A
June 1, 1993 to May 31,
1994................. 4.94% 0.07% 1.23% 2.02% 40.92% 31,724 N/A
B SHARES
June 1, 1997 to May 31,
1998................. 4.24% 1.35% 2.04% 9.25% 69.87% 9,156 N/A
June 1, 1996 to May 31,
1997................. 4.60% 1.20% 2.15% 8.19% 129.26% 7,218 N/A
June 1, 1995 to May 31,
1996................. 4.64% 1.05% 2.16% 4.56% 171.41% 6,400 N/A
June 1, 1994 to May 31,
1995................. 4.32% 1.05% 2.16% 6.67% 47.88% 5,198 N/A
August 2, 1993(h) to
May 31, 1994......... 4.08%(d) 0.85%(d) 2.24%(d) 0.27%(d) 40.92% 4,494 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 5.01% 0.60% 1.01% 9.97% 69.87% 32,342 N/A
June 1, 1996 to May 31,
1997................. 5.35% 0.45% 1.13% 9.00% 129.26% 25,917 N/A
June 1, 1995 to May 31,
1996................. 5.30% 0.30% 1.13% 5.35% 171.41% 24,074 N/A
June 1, 1994 to May 31,
1995................. 5.08% 0.30% 1.16% 7.47% 47.88% 24,539 N/A
August 23, 1993(h) to
May 31, 1994......... 5.03%(d) 0.11%(d) 1.21%(d) 0.90%(d) 40.92% 15,153 N/A
[LOGO]
49
FINANCIAL HIGHLIGHTS (CONTINUED)
- - ------------------------------------------------------------------------------
NET REALIZED
BEGINNING NET AND DIVIDENDS DISTRIBUTIONS ENDING
NET ASSET INVESTMENT UNREALIZED FROM NET FROM NET NET ASSET
VALUE PER INCOME GAIN (LOSS) ON INVESTMENT REALIZED RETURN OF VALUE PER
SHARE (LOSS) INVESTMENTS INCOME GAINS CAPITAL SHARE
--------- ---------- -------------- ---------- ------------- ---------- ---------
MINNESOTA INTERMEDIATE TAX-FREE FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
October 1, 1997(h) to May 31, 1998.... $10.00 $ 0.33 $ 0.03 $(0.33) $ - $ - $10.03
MINNESOTA TAX-FREE FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 10.57 0.53 0.48 (0.53) - - 11.05
June 1, 1996 to May 31, 1997.......... 10.30 0.54 0.27 (0.54) - - 10.57
June 1, 1995 to May 31, 1996.......... 10.45 0.56 (0.15) (0.56) - - 10.30
June 1, 1994 to May 31, 1995.......... 10.15 0.53 0.30 (0.53) - - 10.45
June 1, 1993 to May 31, 1994.......... 10.65 0.53 (0.31) (0.53) (0.19) - 10.15
B SHARES
June 1, 1997 to May 31, 1998.......... 10.57 0.45 0.48 (0.45) - - 11.05
June 1, 1996 to May 31, 1997.......... 10.30 0.46 0.27 (0.46) - - 10.57
June 1, 1995 to May 31, 1996.......... 10.44 0.48 (0.14) (0.48) - - 10.30
June 1, 1994 to May 31, 1995.......... 10.15 0.45 0.29 (0.45) - - 10.44
August 6, 1993(h) to May 31, 1994..... 10.77 0.35 (0.43) (0.35) (0.19) - 10.15
I SHARES
June 1, 1997 to May 31, 1998.......... 10.57 0.53 0.48 (0.53) - - 11.05
June 1, 1996 to May 31, 1997.......... 10.30 0.54 0.27 (0.54) - - 10.57
June 1, 1995 to May 31, 1996.......... 10.45 0.56 (0.15) (0.56) - - 10.30
June 1, 1994 to May 31, 1995.......... 10.16 0.53 0.29 (0.53) - - 10.45
August 2, 1993(h) to May 31, 1994..... 10.74 0.43 (0.39) (0.43) (0.19) - 10.16
STRATEGIC INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 18.47 0.79 1.75 (0.86) (0.59) - 19.56
June 1, 1996 to May 31, 1997.......... 18.12 0.97 0.71 (0.95) (0.38) - 18.47
November 1, 1995 to May 31, 1996...... 18.21 0.48 0.42 (0.76) (0.23) - 18.12
November 11, 1994(h) to October 31,
1995................................ 16.19 0.75 1.27 - - - 18.21
MODERATE BALANCED FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 21.59 0.80 2.72 (0.86) (1.27) - 22.98
June 1, 1996 to May 31, 1997.......... 20.27 0.77 1.60 (0.76) (0.29) - 21.59
November 1, 1995 to May 31, 1996...... 19.84 0.46 0.89 (0.66) (0.26) - 20.27
November 11, 1994(h) to October 31,
1995................................ 17.25 0.65 1.94 - - - 19.84
GROWTH BALANCED FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 24.77 0.58 4.52 (0.60) (1.21) - 28.06
June 1, 1996 to May 31, 1997.......... 22.83 0.62 2.86 (0.63) (0.91) - 24.77
November 1, 1995 to May 31, 1996...... 21.25 0.31 1.95 (0.51) (0.17) - 22.83
November 11, 1994(h) to October 31,
1995................................ 17.95 0.47 2.83 - - - 21.25
AGGRESSIVE BALANCED-EQUITY FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
December 2, 1997(h) to May 31, 1998... 10.00 0.06 0.99 (0.01) - - 11.04
INDEX FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 39.49 0.58 10.74 (0.65) (3.80) - 46.36
June 1, 1996 to May 31, 1997.......... 31.49 0.49 8.50 (0.48) (0.51) - 39.49
November 1, 1995 to May 31, 1996...... 27.67 0.36 4.08 (0.43) (0.19) - 31.49
November 11, 1994(h) to October 31,
1995................................ 21.80 0.45 5.42 - - - 27.67
INCOME EQUITY FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 33.16 0.52 8.77 (0.54) (0.72) - 41.19
June 1, 1996 to May 31, 1997.......... 27.56 0.57 5.54 (0.51) - - 33.16
May 2, 1996(h) to May 31, 1996........ 26.94 0.07 0.55 - - - 27.56
B SHARES
June 1, 1997 to May 31, 1998.......... 33.09 0.24 8.75 (0.24) (0.72) - 41.12
June 1, 1996 to May 31, 1997.......... 27.54 0.36 5.52 (0.33) - - 33.09
May 2, 1996(h) to May 31, 1996........ 26.94 0.02 0.58 - - - 27.54
[LOGO]
See Notes to Financial Highlights and Notes to Financial Statements
50
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD
- - ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS NET ASSETS AT
------------------------------------------- PORTFOLIO END OF PERIOD AVERAGE
NET INVESTMENT NET GROSS TOTAL TURNOVER (000'S COMMISSION
INCOME (LOSS) EXPENSES EXPENSES(a) RETURN(b) RATE OMITTED) RATE(c)
--------------- ---------- ------------ ------------ ----------- ------------- ----------
MINNESOTA INTERMEDIATE TAX-FREE FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
October 1, 1997(h) to
May 31, 1998......... 5.02%(d) 0.60%(d) 0.72%(d) 3.61% 15.13% $209,685 N/A
MINNESOTA TAX-FREE FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 4.83% 0.60% 1.07% 9.71% 68.27% 33,597 N/A
June 1, 1996 to May 31,
1997................. 5.11% 0.60% 1.21% 7.98% 96.68% 25,739 N/A
June 1, 1995 to May 31,
1996................. 5.26% 0.48% 1.26% 3.97% 77.10% 26,610 N/A
June 1, 1994 to May 31,
1995................. 5.25% 0.49% 1.61% 8.55% 139.33% 15,559 N/A
June 1, 1993 to May 31,
1994................. 4.92% 0.61% 1.52% 1.94% 84.23% 10,008 N/A
B SHARES
June 1, 1997 to May 31,
1998................. 4.07% 1.35% 2.08% 8.89% 68.27% 16,549 N/A
June 1, 1996 to May 31,
1997................. 4.35% 1.34% 2.21% 7.18% 96.68% 11,128 N/A
June 1, 1995 to May 31,
1996................. 4.51% 1.23% 2.29% 3.28% 77.10% 8,825 N/A
June 1, 1994 to May 31,
1995................. 4.52% 1.21% 2.62% 7.63% 139.33% 5,090 N/A
August 6, 1993(h) to
May 31, 1994......... 3.99%(d) 1.31%(d) 2.45%(d) (0.58%)(d) 84.23% 2,485 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 4.84% 0.60% 1.04% 9.71% 68.27% 20,736 N/A
June 1, 1996 to May 31,
1997................. 5.12% 0.60% 1.23% 7.98% 96.68% 11,135 N/A
June 1, 1995 to May 31,
1996................. 5.24% 0.51% 1.30% 3.97% 77.10% 3,988 N/A
June 1, 1994 to May 31,
1995................. 5.29% 0.48% 1.58% 8.44% 139.33% 1,799 N/A
August 2, 1993(h) to
May 31, 1994......... 4.90%(d) 0.61%(d) 1.54%(d) 0.29%(d) 84.23% 872 N/A
STRATEGIC INCOME FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. 4.47%(e) 0.80%(e) 1.03%(e) 14.13% N/A(i) 235,254 N/A(i)
June 1, 1996 to May 31,
1997................. 4.38%(e) 0.81%(e) 0.98%(e) 9.58% 72.03% 128,777 $0.0720
November 1, 1995 to May
31, 1996............. 4.65%(d)(e) 0.82%(d)(e) 0.97%(d)(e) 5.14% 56.47% 146,950 0.0648
November 11, 1994(h) to
October 31, 1995..... 4.67%(d)(e) 0.82%(d)(e) 1.03%(d)(e) 12.48% 65.53% 136,710 N/A
MODERATE BALANCED FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. 3.57%(e) 0.88%(e) 1.05%(e) 17.04% N/A(i) 464,384 N/A(i)
June 1, 1996 to May 31,
1997................. 3.70%(e) 0.88%(e) 1.04%(e) 12.04% 45.33% 418,680 0.0684
November 1, 1995 to May
31, 1996............. 3.95%(d)(e) 0.90%(d)(e) 1.04%(d)(e) 7.03% 52.71% 398,005 0.0658
November 11, 1994(h) to
October 31, 1995..... 3.76%(d)(e) 0.92%(d)(e) 1.11%(d)(e) 15.01% 62.08% 373,998 N/A
GROWTH BALANCED FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. 2.38%(e) 0.93%(e) 1.09%(e) 21.40% N/A(i) 665,758 N/A(i)
June 1, 1996 to May 31,
1997................. 2.47%(e) 0.94%(e) 1.16%(e) 15.81% 24.33% 503,382 0.0676
November 1, 1995 to May
31, 1996............. 2.66%(d)(e) 0.98%(d)(e) 1.16%(d)(e) 10.87% 38.78% 484,641 0.0696
November 11, 1994(h) to
October 31, 1995..... 2.63%(d)(e) 0.99%(d)(e) 1.23%(d)(e) 18.38% 41.04% 374,892 N/A
AGGRESSIVE BALANCED-EQUITY FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
December 2, 1997(h) to
May 31, 1998......... 1.58%(d)(e) 1.00%(d)(e) 2.29%(d)(e) 10.55% N/A(i) 8,872 N/A(i)
INDEX FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. 1.53%(e) 0.25%(e) 0.58%(e) 30.32% 6.68%(g) 784,205 0.0339(g)
June 1, 1996 to May 31,
1997................. 2.10% 0.25% 0.56% 29.02% 24.17% 513,134 0.0417
November 1, 1995 to May
31, 1996............. 2.25%(d) 0.31%(d) 0.57%(d) 16.27% 9.12% 249,644 0.0517
November 11, 1994(h) to
October 31, 1995..... 2.12%(d) 0.50%(d) 0.64%(d) 26.93% 14.48% 186,197 N/A
INCOME EQUITY FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 1.44%(e) 0.85%(e) 0.91%(e) 28.64% 3.46%(g) 75,144 0.0585(g)
June 1, 1996 to May 31,
1997................. 1.95% 0.85% 0.93% 22.40% 4.76% 43,708 0.0792
May 2, 1996(h) to May
31, 1996............. 3.69%(d) 0.91%(d) 1.91%(d) 2.30% 0.69% 31,448 0.0942
B SHARES
June 1, 1997 to May 31,
1998................. 0.69%(e) 1.60%(e) 1.91%(e) 27.67% 3.46%(g) 67,385 0.0585(g)
June 1, 1996 to May 31,
1997................. 1.24% 1.59% 1.96% 21.48% 4.76% 33,626 0.0792
May 2, 1996(h) to May
31, 1996............. 2.92%(d) 1.72%(d) 2.63%(d) 2.23% 0.69% 17,318 0.0942
[LOGO]
51
FINANCIAL HIGHLIGHTS (CONTINUED)
- - ------------------------------------------------------------------------------
NET REALIZED
BEGINNING NET AND DIVIDENDS DISTRIBUTIONS ENDING
NET ASSET INVESTMENT UNREALIZED FROM NET FROM NET NET ASSET
VALUE PER INCOME GAIN (LOSS) ON INVESTMENT REALIZED RETURN OF VALUE PER
SHARE (LOSS) INVESTMENTS INCOME GAINS CAPITAL SHARE
--------- ---------- -------------- ---------- ------------- ---------- ---------
INCOME EQUITY FUND (CONT'D)
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to November 30, 1997..... $33.16 $ 0.52 $ 8.76 $(0.54) $(0.72) $ - $41.18
June 1, 1996 to May 31, 1997.......... 27.56 0.56 5.55 (0.51) - - 33.16
November 1, 1995 to May 31, 1996...... 24.02 0.29 4.02 (0.69) (0.08) - 27.56
November 11, 1994(h) to October 31,
1995................................ 18.90 0.46 4.66 - - - 24.02
VALUGROWTH STOCK FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 25.06 0.13 4.69 (0.16) (3.54) - 26.18
June 1, 1996 to May 31, 1997.......... 22.63 0.17 4.80 (0.13) (2.41) - 25.06
June 1, 1995 to May 31, 1996.......... 18.82 0.13 3.93 (0.13) (0.12) - 22.63
June 1, 1994 to May 31, 1995.......... 17.17 0.17 1.66 (0.18) - - 18.82
June 1, 1993 to May 31, 1994.......... 17.27 0.10 0.19 (0.17) (0.22) - 17.17
B SHARES
June 1, 1997 to May 31, 1998.......... 24.55 (0.02) 4.56 (0.03) (3.54) - 25.52
June 1, 1996 to May 31, 1997.......... 22.28 0.01 4.68 (0.01) (2.41) - 24.55
June 1, 1995 to May 31, 1996.......... 18.65 (0.02) 3.87 (0.10) (0.12) - 22.28
June 1, 1994 to May 31, 1995.......... 17.10 0.07 1.61 (0.13) - - 18.65
August 5, 1993(h) to May 31, 1994..... 17.12 0.07 0.23 (0.10) (0.22) - 17.10
I SHARES
June 1, 1997 to May 31, 1998.......... 25.03 0.06 4.76 (0.16) (3.54) - 26.15
June 1, 1996 to May 31, 1997.......... 22.61 0.16 4.80 (0.13) (2.41) - 25.03
June 1, 1995 to May 31, 1996.......... 18.80 0.14 3.91 (0.12) (0.12) - 22.61
June 1, 1994 to May 31, 1995.......... 17.16 0.18 1.64 (0.18) - - 18.80
August 2, 1993(h) to May 31, 1994..... 16.91 0.13 0.46 (0.12) (0.22) - 17.16
DIVERSIFIED EQUITY FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 36.51 0.16 8.99 (0.27) (2.33) - 43.06
June 1, 1996 to May 31, 1997.......... 30.56 0.20 6.10 (0.16) (0.19) - 36.51
May 2, 1996(h) to May 31, 1996........ 29.89 0.02 0.65 - - - 30.56
B SHARES
June 1, 1997 to May 31, 1998.......... 36.31 (0.06) 8.85 (0.08) (2.33) - 42.69
June 1, 1996 to May 31, 1997.......... 30.54 0.03 6.00 (0.07) (0.19) - 36.31
May 6, 1996(h) to May 31, 1996........ 29.41 0.02 1.11 - - - 30.54
I SHARES
June 1, 1997 to May 31, 1998.......... 36.50 0.22 8.94 (0.27) (2.33) - 43.06
June 1, 1996 to May 31, 1997.......... 30.55 0.25 6.05 (0.16) (0.19) - 36.50
November 1, 1995 to May 31, 1996...... 27.53 0.16 4.25 (0.42) (0.97) - 30.55
November 11, 1994(h) to October 31,
1995................................ 22.21 0.22 5.10 - - - 27.53
GROWTH EQUITY FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 32.49 (0.06) 6.88 (0.04) (3.54) - 35.73
June 1, 1996 to May 31, 1997.......... 29.08 (0.02) 4.06 (0.04) (0.59) - 32.49
May 2, 1996(h) to May 31, 1996........ 28.50 - 0.58 - - - 29.08
B SHARES
June 1, 1997 to May 31, 1998.......... 32.28 (0.23) 6.72 - (3.54) - 35.23
June 1, 1996 to May 31, 1997.......... 29.07 (0.13) 3.93 - (0.59) - 32.28
May 6, 1996(h) to May 31, 1996........ 28.18 - 0.89 - - - 29.07
I SHARES
June 1, 1997 to May 31, 1998.......... 32.48 (0.04) 6.86 (0.04) (3.54) - 35.72
June 1, 1996 to May 31, 1997.......... 29.08 (0.02) 4.05 (0.04) (0.59) - 32.48
November 1, 1995 to May 31, 1996...... 26.97 - 4.09 (0.12) (1.86) - 29.08
November 11, 1994(h) to October 31,
1995................................ 22.28 (0.02) 4.71 - - - 26.97
LARGE COMPANY GROWTH
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 32.63 (0.11) 10.20 - (2.78) - 39.94
June 1, 1996 to May 31, 1997.......... 26.97 (0.03) 5.91 - (0.22) - 32.63
November 1, 1995 to May 31, 1996...... 23.59 (0.04) 3.64 - (0.22) - 26.97
November 11, 1994(h) to October 31,
1995................................ 18.50 (0.05) 5.14 - - - 23.59
[LOGO]
See Notes to Financial Highlights and Notes to Financial Statements
52
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD
- - ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------
NET NET ASSETS AT
INVESTMENT PORTFOLIO END OF PERIOD AVERAGE
INCOME NET GROSS TOTAL TURNOVER (000'S COMMISSION
(LOSS) EXPENSES EXPENSES(a) RETURN(b) RATE OMITTED) RATE(c)
----------- ---------- ------------ ------------ ----------- ------------- ----------
INCOME EQUITY FUND (CONT'D)
- - -------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to
November 30, 1997.... 1.43%(e) 0.85%(e) 0.86%(e) 28.61% 3.46%(g) $1,214,385 $0.0585(g)
June 1, 1996 to May 31,
1997................. 1.97% 0.85% 0.90% 22.40% 4.76% 425,197 0.0792
November 1, 1995 to May
31, 1996............. 2.72%(d) 0.86%(d) 1.13%(d) 18.14% 0.69% 230,831 0.0942
November 11, 1994(h) to
October 31, 1995..... 2.51%(d) 0.85%(d) 1.12%(d) 27.09% 7.03% 49,000 N/A
VALUGROWTH STOCK FUND
- - -------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 0.56% 1.00% 1.26% 21.15% 74.25% 27,771 0.0588
June 1, 1996 to May 31,
1997................. 0.70% 1.01% 1.39% 23.32% 75.50% 18,830 0.0781
June 1, 1995 to May 31,
1996................. 0.63% 1.20% 1.42% 21.69% 105.43% 15,232 0.0603
June 1, 1994 to May 31,
1995................. 1.01% 1.20% 1.43% 10.72% 63.82% 12,138 N/A
June 1, 1993 to May 31,
1994................. 1.06% 1.20% 1.43% 1.68% 86.07% 12,922 N/A
B SHARES
June 1, 1997 to May 31,
1998................. (0.19%) 1.75% 2.31% 20.30% 74.25% 8,943 0.0588
June 1, 1996 to May 31,
1997................. (0.07%) 1.76% 2.48% 22.33% 75.50% 6,591 0.0781
June 1, 1995 to May 31,
1996................. (0.12%) 1.96% 2.54% 20.79% 105.43% 5,130 0.0603
June 1, 1994 to May 31,
1995................. 0.28% 1.95% 2.51% 9.88% 63.82% 3,569 N/A
August 5, 1993(h) to
May 31, 1994......... 0.25%(d) 1.95%(d) 2.55%(d) 2.36%(d) 86.07% 2,218 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 0.53% 1.00% 1.20% 21.18% 74.25% 609,056 0.0588
June 1, 1996 to May 31,
1997................. 0.67% 1.01% 1.33% 23.30% 75.50% 180,204 0.0781
June 1, 1995 to May 31,
1996................. 0.62% 1.20% 1.32% 21.72% 105.43% 156,553 0.0603
June 1, 1994 to May 31,
1995................. 1.02% 1.20% 1.33% 10.67% 63.82% 136,589 N/A
August 2, 1993(h) to
May 31, 1994......... 0.92%(d) 1.20%(d) 1.39%(d) 2.99%(d) 86.07% 113,061 N/A
DIVERSIFIED EQUITY FUND
- - -------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 0.60%(e) 1.00%(e) 1.20%(e) 26.08% (N/Ai) 56,350 N/A(i)
June 1, 1996 to May 31,
1997................. 0.81%(e) 1.02%(e) 1.40%(e) 20.75% 48.08% 25,271 0.0626
May 2, 1996(h) to May
31, 1996............. 1.88%(d)(e) 1.52%(d)(e) 4.06%(d)(e) 2.24% 5.76% 2,699 0.0671
B SHARES
June 1, 1997 to May 31,
1998................. (0.15%)(e) 1.75%(e) 2.19%(e) 25.13% (N/Ai) 81,548 N/A(i)
June 1, 1996 to May 31,
1997................. 0.09%(e) 1.76%(e) 2.41%(e) 19.86% 48.08% 33,870 0.0626
May 6, 1996(h) to May
31, 1996............. 1.24%(d)(e) 2.37%(d)(e) 4.95%(d)(e) 3.84% 5.76% 2,447 0.0671
I SHARES
June 1, 1997 to May 31,
1998................. 0.60%(e) 1.00%(e) 1.13%(e) 26.12% (N/Ai) 1,520,343 N/A(i)
June 1, 1996 to May 31,
1997................. 0.79%(e) 1.02%(e) 1.31%(e) 20.76% 48.08% 1,212,565 0.0626
November 1, 1995 to May
31, 1996............. 1.00%(d)(e) 1.06%(d)(e) 1.30%(d)(e) 16.38% 5.76% 907,223 0.0671
November 11, 1994(h) to
October 31, 1995..... 1.01%(d)(e) 1.09%(d)(e) 1.37%(d)(e) 23.95% 10.33% 711,111 N/A
GROWTH EQUITY FUND
- - -------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. (0.11%)(e) 1.25%(e) 1.42%(e) 22.55% (N/Ai) 21,567 N/A(i)
June 1, 1996 to May 31,
1997................. (0.12%)(e) 1.30%(e) 1.95%(e) 14.11% 9.06% 14,146 0.0565
May 2, 1996(h) to May
31, 1996............. 0.34%(d)(e) 2.08%(d)(e) 6.40%(d)(e) 2.04% 7.39% 3,338 0.0617
B SHARES
June 1, 1997 to May 31,
1998................. (0.85%)(e) 2.00%(e) 2.45%(e) 21.63% (N/Ai) 16,615 N/A(i)
June 1, 1996 to May 31,
1997................. (0.82%)(e) 2.04%(e) 3.02%(e) 13.28% 9.06% 8,713 0.0565
May 6, 1996(h) to May
31, 1996............. (0.40%)(d)(e) 2.92%(d)(e) 7.44%(d)(e) 3.16% 7.39% 703 0.0617
I SHARES
June 1, 1997 to May 31,
1998................. (0.11%)(e) 1.25%(e) 1.35%(e) 22.52% (N/Ai) 1,033,251 N/A(i)
June 1, 1996 to May 31,
1997................. (0.09%)(e) 1.30%(e) 1.84%(e) 14.11% 9.06% 895,420 0.0565
November 1, 1995 to May
31, 1996............. 0.01%(d)(e) 1.35%(d)(e) 1.85%(d)(e) 15.83% 7.39% 735,728 0.0617
November 11, 1994(h) to
October 31, 1995..... (0.11%)(d)(e) 1.38%(d)(e) 1.92%(d)(e) 21.10% 8.90% 564,004 N/A
LARGE COMPANY GROWTH
- - -------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. (0.36%)(e) 1.00%(e) 1.03%(e) 32.29% 13.03%(g) 232,499 0.0552(g)
June 1, 1996 to May 31,
1997................. (0.18%) 0.99% 1.09% 21.93% 24.37% 131,768 0.0564
November 1, 1995 to May
31, 1996............. (0.30%)(d) 1.00%(d) 1.13%(d) 15.40% 16.93% 82,114 0.0616
November 11, 1994(h) to
October 31, 1995..... (0.23%)(d) 1.00%(d) 1.20%(d) 27.51% 31.60% 63,567 N/A
[LOGO]
53
FINANCIAL HIGHLIGHTS (CONCLUDED)
- - ------------------------------------------------------------------------------
NET REALIZED
BEGINNING NET AND DIVIDENDS DISTRIBUTIONS ENDING
NET ASSET INVESTMENT UNREALIZED FROM NET FROM NET NET ASSET
VALUE PER INCOME GAIN (LOSS) ON INVESTMENT REALIZED RETURN OF VALUE PER
SHARE (LOSS) INVESTMENTS INCOME GAINS CAPITAL SHARE
--------- ---------- -------------- ---------- ------------- ---------- ---------
DIVERSIFIED SMALL CAP FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
December 31, 1997(h) to May 31,
1998................................ $10.00 $ - $ 0.52 $ - $ - $ - $10.52
SMALL COMPANY STOCK FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 13.95 (0.07) 1.02 - (2.90) - 12.00
June 1, 1996 to May 31, 1997.......... 14.02 (0.04) 0.88 - (0.91) - 13.95
June 1, 1995 to May 31, 1996.......... 10.64 0.01 3.93 (0.03) (0.53) - 14.02
June 1, 1994 to May 31, 1995.......... 9.84 0.12 0.87 (0.11) (0.08) - 10.64
December 31, 1993(h) to May 31,
1994................................ 10.00 0.07 (0.15) (0.08) - - 9.84
B SHARES
June 1, 1997 to May 31, 1998.......... 13.63 (0.11) 0.94 - (2.90) - 11.56
June 1, 1996 to May 31, 1997.......... 13.83 (0.11) 0.82 - (0.91) - 13.63
June 1, 1995 to May 31, 1996.......... 10.56 (0.08) 3.90 (0.02) (0.53) - 13.83
June 1, 1994 to May 31, 1995.......... 9.82 0.07 0.84 (0.09) (0.08) - 10.56
December 31, 1993(h) to May 31,
1994................................ 10.00 0.06 (0.17) (0.07) - - 9.82
I SHARES
June 1, 1997 to May 31, 1998.......... 13.88 (0.09) 1.11 - (2.90) (0.07) 11.93
June 1, 1996 to May 31, 1997.......... 13.96 (0.04) 0.87 - (0.91) - 13.88
June 1, 1995 to May 31, 1996.......... 10.59 0.01 3.93 (0.03) (0.54) - 13.96
June 1, 1994 to May 31, 1995.......... 9.80 0.12 0.87 (0.12) (0.08) - 10.59
December 31, 1993(h) to May 31,
1994................................ 10.00 0.08 (0.20) (0.08) - - 9.80
SMALL CAP OPPORTUNITY FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 19.83 (0.07) 4.37 - (0.53) - 23.60
October 9, 1996(h) to May 31, 1997.... 17.39 (0.01) 2.46 - (0.01) - 19.83
B SHARES
June 1, 1997 to May 31, 1998.......... 19.75 (0.05) 4.15 - (0.53) - 23.32
November 8, 1996(h) to May 31, 1997... 17.41 (0.05) 2.40 - (0.01) - 19.75
I SHARES
June 1, 1997 to May 31, 1998.......... 19.84 (0.06) 4.36 - (0.53) - 23.61
August 15, 1996(h) to May 31, 1997.... 16.26 (0.01) 3.60 - (0.01) - 19.84
SMALL COMPANY GROWTH FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 31.08 (0.23) 6.88 - (4.04) - 33.69
June 1, 1996 to May 31, 1997.......... 33.00 (0.18) 1.83 - (3.57) - 31.08
November 1, 1995 to May 31, 1996...... 29.99 (0.07) 5.94 - (2.86) - 33.00
November 11, 1994(h) to October 31,
1995................................ 21.88 (0.11) 8.22 - - - 29.99
CONTRARIAN STOCK FUND
- - --------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31, 1998.......... 10.25 0.14 0.77 (0.23) - - 10.93
June 1, 1996 to May 31, 1997.......... 10.82 0.09 1.03 (0.08) (1.61) - 10.25
June 1, 1995 to May 31, 1996.......... 10.90 0.10 1.01 (0.10) (1.09) - 10.82
June 1, 1994 to May 31, 1995.......... 9.71 0.11 1.19 (0.11) (0.003) - 10.90
December 31, 1993(h) to May 31,
1994................................ 10.00 0.07 (0.29) (0.07) - - 9.71
INTERNATIONAL FUND
- - --------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31, 1998.......... 21.66 0.03 2.35 (0.20) - - 23.84
June 1, 1996 to May 31, 1997.......... 19.82 0.10 1.94 (0.20) - - 21.66
November 1, 1995 to May 31, 1996...... 17.97 0.35 1.83 (0.33) - - 19.82
April 12, 1995(h) to October 31,
1995................................ 16.50 0.01 1.46 - - - 17.97
B SHARES
June 1, 1997 to May 31, 1998.......... 21.55 (0.09) 2.31 (0.07) - - 23.70
June 1, 1996 to May 31, 1997.......... 19.71 (0.06) 1.93 (0.03) - - 21.55
November 1, 1995 to May 31, 1996...... 17.91 0.25 1.83 (0.28) - - 19.71
May 12, 1995(h) to October 31, 1995... 17.20 0.01 0.70 - - - 17.91
I SHARES
June 1, 1997 to May 31, 1998.......... 21.67 0.09 2.29 (0.20) - - 23.85
June 1, 1996 to May 31, 1997.......... 19.84 0.09 1.94 (0.20) - - 21.67
November 1, 1995 to May 31, 1996...... 17.99 0.14 2.04 (0.33) - - 19.84
November 11, 1994(h) to October 31,
1995................................ 17.28 0.09 0.62 - - - 17.99
[LOGO]
See Notes to Financial Highlights and Notes to Financial Statements
54
SELECTED DATA FOR A SHARE OUTSTANDING DURING EACH PERIOD
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------- PORTFOLIO NET ASSETS AT AVERAGE
NET INVESTMENT NET GROSS TOTAL TURNOVER END OF PERIOD COMMISSION
INCOME (LOSS) EXPENSES EXPENSES(a) RETURN(b) RATE (000'S OMITTED) RATE(c)
-------------- ----------- ------------ ---------- ---------- --------------- ----------
DIVERSIFIED SMALL CAP FUND
- - -------------------------------------------------------------------------------------------------------------------------------
I SHARES
December 31, 1997(h) to
May 31, 1998......... (0.25%)(d)(e) 1.21%(d)(e) 2.65%(d)(e) 5.20% N/A(i) $ 12,551 N/A(i)
SMALL COMPANY STOCK FUND
- - -------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. (0.50%)(e) 1.20%(e) 1.42%(e) 8.07% 166.16%(g) 8,426 $0.0616(g)
June 1, 1996 to May 31,
1997................. (0.38%) 1.19% 1.67% 6.34% 210.19% 7,355 0.0774
June 1, 1995 to May 31,
1996................. 0.03% 1.21% 1.87% 38.22% 134.53% 5,426 0.0555
June 1, 1994 to May 31,
1995................. 1.14% 0.53% 2.32% 10.19% 68.09% 1,540 N/A
December 31, 1993(h) to
May 31, 1994......... 1.95%(d) 0.22%(d) 10.66%(d) (1. )(d) 14.98% 265 N/A
B SHARES
June 1, 1997 to May 31,
1998................. (1.26%)(e) 1.95%(e) 2.47%(e) 7.29% 166.16%(g) 5,799 0.0616(g)
June 1, 1996 to May 31,
1997................. (1.13%) 1.94% 2.73% 5.46% 210.19% 5,125 0.0774
June 1, 1995 to May 31,
1996................. (0.74%) 1.96% 2.96% 37.32% 134.53% 4,125 0.0555
June 1, 1994 to May 31,
1995................. 0.38% 1.27% 3.56% 9.31% 68.09% 963 N/A
December 31, 1993(h) to
May 31, 1994......... 1.27%(d) 0.98%(d) 20.87%(d) (2. )(d) 14.98% 195 N/A
I SHARES
June 1, 1997 to May 31,
1998................. (0.53%)(e) 1.20%(e) 1.32%(e) 8.12% 166.16%(g) 112,713 0.0616(g)
June 1, 1996 to May 31,
1997................. (0.38%) 1.19% 1.56% 6.30% 210.19% 161,995 0.0774
June 1, 1995 to May 31,
1996................. 0.05% 1.21% 1.60% 38.30% 134.53% 125,986 0.0555
June 1, 1994 to May 31,
1995................. 1.14% 0.52% 1.82% 10.13% 68.09% 54,240 N/A
December 31, 1993(h) to
May 31, 1994......... 2.03%(d) 0.20%(d) 4.33%(d) (2. )(d) 14.98% 9,251 N/A
SMALL CAP OPPORTUNITY FUND
- - -------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. (0.43%)(e) 1.27%(e) 1.86%(e) 21.97% 54.98%(g) 6,870 0.0582(g)
October 9, 1996(h) to
May 31, 1997......... (0.18%)(d)(e) 1.25%(d)(e) 10.51%(d)(e) 11.37% 34.45%(g) 522 0.0584(g)
B SHARES
June 1, 1997 to May 31,
1998................. (1.21%)(e) 2.02%(e) 3.05%(e) 21.03% 54.98%(g) 6,140 0.0582(g)
November 8, 1996(h) to
May 31, 1997......... (0.99%)(d)(e) 2.06%(d)(e) 27.27%(d)(e) 13.53% 34.45%(g) 158 0.0584(g)
I SHARES
June 1, 1997 to May 31,
1998................. (0.40%)(e) 1.25%(e) 1.38%(e) 21.95% 54.98%(g) 284,828 0.0582(g)
August 15, 1996(h) to
May 31, 1997......... (0.16%)(d)(e) 1.25%(d)(e) 1.89%(d)(e) 11.42% 34.45%(g) 77,174 0.0584(g)
SMALL COMPANY GROWTH FUND
- - -------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. (0.73%)(e) 1.25%(e) 1.26%(e) 22.38% 123.36%(g) 748,269 0.0567(g)
June 1, 1996 to May 31,
1997................. (0.71%) 1.24% 1.29% 5.65% 124.03% 447,580 0.0565
November 1, 1995 to May
31, 1996............. (0.41%)(d) 1.25%(d) 1.29%(d) 21.43% 62.06% 378,546 0.0583
November 11, 1994(h) to
October 31, 1995..... (0.47%)(d) 1.25%(d) 1.35%(d) 37.07% 106.55% 278,058 N/A
CONTRARIAN STOCK FUND
- - -------------------------------------------------------------------------------------------------------------------------------
I SHARES
June 1, 1997 to May 31,
1998................. 0.66% 1.20% 2.31% 8.87% 9.22% 3,641 0.0460
June 1, 1996 to May 31,
1997................. 0.81% 1.19% 1.72% 13.02% 13.36% 8,260 0.0472
June 1, 1995 to May 31,
1996................. 0.87% 1.20% 1.45% 10.90% 28.21% 36,020 0.0467
June 1, 1994 to May 31,
1995................. 0.91% 1.12% 1.57% 13.52% 30.32% 45,832 N/A
December 31, 1993(h) to
May 31, 1994......... 1.82%(d) 0.62%(d) 3.52%(d) (5. )(d) 2.67% 4,548 N/A
INTERNATIONAL FUND
- - -------------------------------------------------------------------------------------------------------------------------------
A SHARES
June 1, 1997 to May 31,
1998................. 0.44%(e) 1.47%(e) 1.72%(e) 11.20% N/A(i) 3,342 N/A(i)
June 1, 1996 to May 31,
1997................. 0.42%(e) 1.43%(e) 1.72%(e) 10.33% 48.23%(g) 2,240 0.0202(g)
November 1, 1995 to May
31, 1996............. 0.92%(d)(e) 1.50%(d)(e) 2.51%(d)(e) 12.31% 14.12%(g) 1,080 0.0325(g)
April 12, 1995(h) to
October 31, 1995..... 0.26%(d)(e) 1.32%(d)(e) 20.95%(d)(e) 8.91% 29.41%(g) 216 N/A
B SHARES
June 1, 1997 to May 31,
1998................. (0.29%)(e) 2.22%(e) 2.81%(e) 10.39% N/A(i) 2,245 N/A(i)
June 1, 1996 to May 31,
1997................. (0.34%)(e) 2.18%(e) 2.76%(e) 9.44% 48.23%(g) 1,667 0.0202(g)
November 1, 1995 to May
31, 1996............. (0.02%)(d)(e) 2.25%(d)(e) 3.11%(d)(e) 11.79% 14.12%(g) 995 0.0325(g)
May 12, 1995(h) to
October 31, 1995..... 0.17%(d)(e) 1.27%(d)(e) 14.57%(d)(e) 4.30% 29.41%(g) 395 N/A
I SHARES
June 1, 1997 to May 31,
1998................. 0.45%(e) 1.47%(e) 1.50%(e) 11.19% N/A(i) 279,667 N/A(i)
June 1, 1996 to May 31,
1997................. 0.40%(e) 1.43%(e) 1.44%(e) 10.27% 48.23%(g) 228,552 0.0202(g)
November 1, 1995 to May
31, 1996............. 0.60%(d)(e) 1.50%(d)(e) 1.52%(d)(e) 12.31% 14.12%(g) 143,643 0.0325(g)
November 11, 1994(h) to
October 31, 1995..... 0.54%(d)(e) 1.50%(d)(e) 1.66%(d)(e) 4.11% 29.41%(g) 91,401 N/A
[LOGO]
55
NOTES TO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(a) During each period, various fees and expenses were waived and reimbursed.
The ratio of gross expenses to average net assets reflects the expense ratio
in the absence of any waivers and reimbursements
(b) Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
period shown (Note 3)
(c) For fiscal years beginning after September 1, 1995, the Funds are required
to disclose average commission per share paid to brokers on the purchase and
sale of equity securities
(d) Annualized
(e) Includes expenses allocated from the Portfolio(s) in which the Fund invests
(f) Adjusted for a five to one stock split
(g) The portfolio turnover rate and the average commission rate represent the
activity from a Fund's investment in its respective Portfolio
(h) Date of commencement of operations
(i) Investment securities were not held directly due to investment in Portfolios
(Note 1). Portfolio turnover rate and average commission rate are not
applicable as the fund invested in more than one Portfolio.
[LOGO]
56
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Norwest Advantage Funds ("Trust") is organized as a Delaware business trust and
is registered as an open-end management investment company. The Trust currently
has thirty-nine separate investment portfolios. These financial statements
relate to twenty-seven of those portfolios (each a "Fund," and collectively, the
"Funds"), each of which is a diversified portfolio, with the exception of
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, and Minnesota
Tax-Free Fund. The classes of each Fund and their date of commencement of
operations are as follows:
A SHARES B SHARES I SHARES
----------------- ----------------- -----------------
Stable Income Fund...................... May 2, 1996 May 17, 1996 November 11, 1994
Limited Term Government Income Fund..... N/A N/A October 1, 1997
Intermediate Government Income Fund..... May 2, 1996 May 17, 1996 November 11, 1994
Diversified Bond Fund................... N/A N/A November 11, 1994
Income Fund............................. June 9, 1987 August 5, 1993 August 2, 1993
Total Return Bond Fund.................. December 31, 1993 December 31, 1993 December 31, 1993
Limited Term Tax-Free Fund.............. N/A N/A October 1, 1996
Tax-Free Income Fund.................... August 1, 1989 August 6, 1993 August 2, 1993
Colorado Tax-Free Fund.................. June 1, 1993 August 2, 1993 August 23, 1993
Minnesota Intermediate Tax-Free Fund.... N/A N/A October 1, 1997
Minnesota Tax-Free Fund................. January 12, 1988 August 6, 1993 August 2, 1993
Strategic Income Fund................... N/A N/A November 11, 1994
Moderate Balanced Fund.................. N/A N/A November 11, 1994
Growth Balanced Fund.................... N/A N/A November 11, 1994
Aggressive Balanced-Equity Fund......... N/A N/A December 2, 1997
Index Fund.............................. N/A N/A November 11, 1994
Income Equity Fund...................... May 2, 1996 May 2, 1996 November 11, 1994
ValuGrowth(SM) Stock Fund............... January 8, 1988 August 5, 1993 August 2, 1993
Diversified Equity Fund................. May 2, 1996 May 6, 1996 November 11, 1994
Growth Equity Fund...................... May 2, 1996 May 6, 1996 November 11, 1994
Large Company Growth Fund............... N/A N/A November 11, 1994
Diversified Small Cap Fund.............. N/A N/A December 31, 1997
Small Company Stock Fund................ December 31, 1993 December 31, 1993 December 31, 1993
Small Cap Opportunities Fund............ October 9, 1996 November 8, 1996 August 15, 1996
Small Company Growth Fund............... N/A N/A November 11, 1994
Contrarian Stock Fund................... N/A N/A December 31, 1993
International Fund...................... April 12, 1995 May 12, 1995 November 11, 1994
Each share of each class represents an undivided proportionate interest in that
respective Fund. A Shares are sold with a front-end sales charge to the general
public but do not incur distribution expenses. B Shares are sold to the general
public with a contingent deferred sales charge imposed on most redemptions made
within six years of purchase and, after a specified number of years, B Shares
automatically convert to A Shares. B Shares incur distribution expenses. I
Shares, offered primarily to fiduciary, agency and custodial clients of bank
trust departments, trust companies and their affiliates, are sold without a
sales charge and do not incur distribution expenses. Contrarian Stock Fund
ceased offering A Shares and B Shares on May 30, 1997, and discontinued
operations on July 17, 1998. On October 1, 1997, Conservative Balanced Fund was
renamed Strategic Income Fund.
MASTER-FEEDER ARRANGEMENT--Stable Income Fund, Total Return Bond Fund, Index
Fund, Income Equity Fund, Large Company Growth Fund, Small Company Stock Fund
and Small Company Growth Fund each seek to achieve its investment objective by
investing all its investable assets in a separate diversified portfolio (each a
"Portfolio" and collectively the "Portfolios") of Core Trust (Delaware) ("Core
Trust"), a registered, open-end management investment company, which has the
same investment objectives and substantially similar investment policies as the
Fund. Small Cap Opportunities Fund seeks to achieve its investment objective by
investing all its investable assets in Schroder U. S. Smaller Companies
Portfolio, a separate diversified portfolio of Schroder Capital Funds ("Schroder
Core"), a registered, open-end management investment company. Diversified Bond
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Diversified Equity Fund, Growth Equity Fund,
Diversified Small Cap Fund and International Fund each seek to achieve its
investment objective by investing all or a part of its assets in two or more
Portfolios of Core Trust and Schroder Core (collectively, the "Core
Portfolios"). Each Portfolio directly acquires portfolio securities, and a Fund
investing in the Portfolio acquires an indirect interest in those securities.
The Funds account for their investment in the Portfolios as partnership
investments and record daily their share of the Portfolio's income, expenses and
realized and unrealized gain and loss. These are commonly referred to as a
master-feeder arrangement. The financial statements of the Portfolios are in
this report and should be read in conjunction with the Funds' financial
statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets
during the fiscal period. Actual results could differ from those estimates. The
following summarizes the significant accounting policies of the Funds:
[LOGO]
57
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITY VALUATION--Short-term securities that mature in sixty days or less are
valued at amortized cost. Equity securities for which market quotations are
readily available are valued using the last reported sales price provided by
independent pricing services. If no sales are reported, the mean of the last bid
and ask price is used. If no mean price is available, the last bid price is
used. Fixed income and other securities, for which market quotations are readily
available, are valued using the mean of the last bid and ask price provided by
independent pricing services. If no mean price is available, the last bid price
is used. In the absence of readily available market quotations, securities are
valued at fair value determined in accordance with procedures adopted by the
Board of Trustees. Valuation of securities held in the Portfolios is discussed
in the Notes to Financial Statements of the Portfolios.
SECURITY TRANSACTIONS AND INTEREST AND DIVIDEND INCOME--Investment transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date. With respect to dividends on foreign securities, certain
instances may arise where a Fund is not notified of a dividend until after the
ex-dividend date has passed. In these instances a dividend is recorded as soon
as a Fund is informed of the dividend. Dividend income is recorded net of
unrecoverable withholding tax. Interest income, including amortization of
premium or accretion of discount, is recorded as earned. Identified cost of
investments sold is used to determine realized gains and losses for both
financial statement and federal income tax purposes. Foreign dividend and
interest income amounts and realized capital gains and losses are converted to
U.S. dollars using foreign exchange rates in effect at the date of the
transactions. Funds investing in Portfolios and Schroder Core record daily their
pro-rata share of the Portfolio's and Schroder Core's income, expense, and
realized and unrealized gains and losses.
DISTRIBUTIONS TO SHAREHOLDERS--Dividends to shareholders of net investment
income, if any, are declared daily and paid monthly by Limited Term Government
Income Fund, Income Fund, Total Return Bond Fund, Limited Term Tax-Free,
Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free
Fund and Minnesota Tax-Free Fund; are declared and paid monthly by Stable Income
Fund and Intermediate Government Income Fund; are declared and paid quarterly by
Income Equity Fund, ValuGrowth Stock Fund, Small Company Stock Fund and
Contrarian Stock Fund; and are declared and paid annually by Diversified Bond
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Index Fund, Diversified Equity Fund, Growth
Equity Fund, Large Company Growth Fund, Diversified Small Cap Fund, Small Cap
Opportunities Fund, Small Company Growth Fund and International Fund. Net
capital gains, if any, are distributed to shareholders at least annually.
Distributions are based on amounts calculated in accordance with applicable
federal income tax regulations, which may differ from generally accepted
accounting principles. The timing and character of distributions made during the
period from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION--Except for Stable Income Fund,
Limited Term Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund,
Minnesota Intermediate Tax-Free Fund, and Minnesota Tax-Free Fund, fixed income
investments with a maturity greater than sixty days and purchased at a premium
or discount (other than original issue discount) are not amortized or accreted.
FEDERAL TAXES--Each Fund intends to qualify, and continue to qualify, each year
as a regulated investment company and distribute all of its taxable income. In
addition, by distributing in each calendar year substantially all its net
investment income, capital gain and certain other amounts, if any, each Fund
will not be subject to a federal excise tax. Therefore, no federal income or
excise tax provision is required.
REPURCHASE AGREEMENTS--Each Fund may invest in repurchase agreements. The Funds,
through their custodian, receive delivery of the underlying collateral, whose
market value must always equal or exceed the repurchase price. The investment
adviser is responsible for determining the value of the underlying collateral at
all times. In the event of default, a Fund may have difficulties with the
disposition of such collateral.
EXPENSE ALLOCATION--The Trust accounts separately for the assets and liabilities
and operations of each Fund. Expenses that are directly attributable to more
than one Fund are allocated among the respective Funds. Expenses that are
directly attributable to a class of shares are allocated to that class. Expenses
of the Funds investing in the Portfolios and Schroder Core include their
pro-rata share of expenses from the Portfolios and Schroder Core.
ORGANIZATIONAL COSTS--The costs incurred by certain Funds in connection with
their organization and registration of shares have been capitalized and are
being amortized using the straight line method over a five year period beginning
on the commencement of the Fund's operations.
SECURITY LOANS--The Funds may receive compensation for lending securities in the
form of fees or by retaining a portion of interest on the investment securities
or cash received as collateral. A Fund also continues to receive interest or
dividends on the securities loaned. Security loans are secured at all times by
collateral equal to at least 102% of the market value of the securities loaned
plus accrued interest. Gain or loss in the market price of the securities loaned
that may occur during the term of the loan are reflected in the value of the
Fund.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISERS--The investment adviser of each Fund and each Portfolio
(other than Schroder U.S. Smaller Companies Portfolio, Schroder EM Core
Portfolio and International Portfolio of Core Trust) is Norwest Investment
Management, Inc. ("Adviser"), formerly a part of, and effective June 1, 1997, a
wholly owned subsidiary of Norwest Bank Minnesota, N.A. ("Norwest"). Norwest is
a subsidiary of Norwest Corporation. The Adviser receives an annual advisory fee
from each Fund based on a percentage of the average daily net assets of each
Fund. Refer to Exhibit A of Notes to Financial Statements for a detail listing
of the fees.
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58
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
Pursuant to the investment advisory agreements with each Fund or Norwest's
administrative services agreement with Small Cap Opportunities Fund and
International Fund, Norwest is obligated to reimburse each Fund for certain
operating expenses (exclusive of interest, taxes, brokerage fees, fees and other
expenses paid pursuant to any distribution plan and organization expenses, all
to the extent permitted by applicable state law or regulation) which in any year
exceed the limits prescribed by any state in which the Fund's shares are
qualified for sale. The Funds' annual expenses are estimated and accrued daily
and any related reimbursements are made monthly.
The investment adviser of Schroder U.S. Smaller Companies Portfolio, Schroder EM
Core Portfolio and International Portfolio of Core Trust is Schroder Capital
Management International Inc. ("Schroder").
Pursuant to separate agreements between the Adviser, the Trust and each of
Crestone Capital Management, Inc. ("Crestone"), Galliard Capital Management,
Inc. ("Galliard"), Peregrine Capital Management, Inc. ("Peregrine"), Smith Asset
Management Group ("Smith") and United Capital Management ("UCM") (collectively,
the "Subadvisers"), the Adviser has delegated certain of its advisory
responsibilities to these Subadvisers and pays each Subadviser a fee.
Each Fund investing its assets in one or more Portfolios may withdraw its
investments from its corresponding Portfolio(s) at any time if the Board
determines that it is in the best interests of the Fund to do so. Accordingly,
each Fund that invests in a Portfolio managed by the Adviser has retained the
Adviser as its investment adviser. Similarly, in the event that a Fund withdraws
its investment from a Portfolio advised by Schroder or a Subadviser, the Fund
has retained Schroder and that Subadviser as an investment subadviser (except
that Total Return Bond Fund has not retained Galliard). Under these "dormant"
investment advisory arrangements, none of Norwest, Schroder or any Subadviser
receives any advisory fees with respect to a Fund as long as the Fund remains
completely invested in Core Portfolios or any other investment companies.
ADMINISTRATION AND DISTRIBUTION--Forum Financial Services Inc. ("FFSI" or
"Forum") supervises the overall management of the Trust other than investment
advisory services. Forum Administrative Services, LLC ("FAdS") is the
administrator to the Trust. For their services, Forum and FAdS each currently
receives a fee with respect to Limited Term Government Income Fund, Intermediate
Government Income Fund, Income Fund, each Tax-Free Fixed Income Fund, ValuGrowth
Stock Fund, Contrarian Stock Fund and International Fund at an annual rate of
0.05% of the Fund's average daily net assets, and with respect to each other
Fund at an annual rate of 0.025% of the Fund's average daily net assets.
Additionally, during the period ended May 31, 1998, Forum and FAdS received
management and administrative fees, respectively, aggregating between 0.10% and
0.20% of the average daily net assets attributable to each class of each Fund.
FAdS also serves as an administrator of the Core Portfolios (except Schroder
U.S. Smaller Companies Portfolio and Schroder EM Core Portfolio ("Schroder
Portfolios")) and provides services to the Core Portfolios that are similar to
those provided to the Funds by Forum and FAdS. For its services, FAdS receives a
fee with respect to each Core Portfolio (other than Schroder Portfolios) at an
annual rate of 0.05% of the Portfolio's average daily net assets (0.15% in the
case of International Portfolio). Schroder Advisors Inc. ("Schroder Advisors")
serves as the administrator of Schroder Portfolios and FAdS serves as the
subadministrator of Schroder Portfolios. Schroder Advisors and FAdS provide
certain management and administrative services necessary for the Schroder
Portfolios' operations, other than the administrative services provided to the
Schroder Portfolios by Schroder. For their services, Schroder Advisors receives
no fee from Schroder U.S. Smaller Companies Portfolio and 0.10% from Schroder EM
Core Portfolio and FAdS receives a fee at an annual rate of 0.075% of each
Schroder Portfolio's average daily net assets with a $25,000 minimum.
In addition, pursuant to a separate agreement, Norwest receives a fee with
respect to Small Cap Opportunities Fund and International Fund at an annual rate
of 0.25% of the Funds' average daily net assets. Under this agreement, Norwest
is responsible for compiling data and preparing communications between the Fund
and its shareholders, maintaining requisite information flows between the Fund
and Schroder, monitoring and reporting to the Board on the performance of the
applicable Portfolio and reimbursing the Fund for certain excess expenses. No
fees are payable under this agreement if the Fund is not completely invested in
a Portfolio.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("Forum
Accounting"), an affiliate of the Funds' distributor, provides portfolio
accounting services to each Fund and to each Portfolio. Forum also acts as the
distributor of the Shares but receives no fees for these services.
In addition, for the period ended May 31, 1998, Forum charged the Trust legal
expenses aggregating $11,277.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT AND CUSTODIAN--Norwest serves as
the Trust's transfer agent and dividend disbursing agent. For these services,
Norwest receives a fee at an annual rate of 0.25% of the average daily net
assets attributable to each class of each Fund's shares. Norwest also serves as
the Trust's custodian and may appoint subcustodians for foreign securities and
other assets held in foreign countries. Norwest receives a fee for its custodial
services with respect to Funds that do not invest in Portfolios, and each
Portfolio, at an annual rate of 0.02% of the first $100 million of the Fund's or
Portfolio's average daily net assets; 0.15% of the next $100 million of the
Fund's or Portfolio's average daily net assets; and 0.01% of the Fund's or
Portfolio's average daily net assets in excess of $200 million. Refer to Exhibit
A of Notes to the Financial Statements for a detail listing of the fees and
related waivers and reimbursements. Norwest also receives transaction fees for
providing services in connection with the securities lending program.
DISTRIBUTION PLAN--The Trust has adopted a Distribution Plan (the "Plan") with
respect to B Shares of each Fund currently offering B Shares pursuant to Rule
12b-1 under the Investment Company Act of 1940. The Plan authorizes the payment
to FFSI of an annual distribution service fee of 0.75% of the average daily net
assets, and a maintenance fee of 0.25% of the average daily net assets, of each
Fund attributable to B Shares. No Fund incurred any maintenance fees during the
period ended May 31, 1998. The distribution payments are used to reimburse the
distributor for commissions and interest on each Fund's outstanding balance of
unreimbursed distribution charges. The Plan may be terminated by vote of a
majority of a Fund's B Shares shareholders
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59
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
or by vote of a majority of the Board of Trustees who do not have any direct or
indirect financial interest in the Plan. In the event that the Plan is
terminated or not continued, at the discretion of the Board of Trustees, the
Fund may continue to pay distribution service fees to FFSI (but only with
respect to sales that occurred prior to the termination or discontinuance of the
Plan) until the earlier of (a) four years after the date of termination or
discontinuance or (b) such time as there exists no unreimbursed distribution
charges attributable to that Fund under the Plan, as calculated pursuant to the
Plan. The respective unreimbursed distribution charges at May 31, 1998 were as
follows: Stable Income Fund, $18,875; Intermediate Government Income Fund,
$112,707; Income Fund, $90,244; Total Return Bond Fund, $38,700; Tax-Free Income
Fund, $152,328; Colorado Tax-Free Fund, $99,195; Minnesota Tax-Free Fund,
$273,966; Income Equity Fund, $1,561,075; ValuGrowth Stock Fund, $115,392;
Diversified Equity Fund $2,350,252; Growth Equity Fund, $465,310; Small Company
Stock Fund, $111,593; Small Cap Opportunities Fund, $229,014; and International
Fund, $57,510.
NOTE 4. SECURITIES TRANSACTIONS
The following table presents the cost of purchases and proceeds from sales
(including maturities) of securities (excluding short-term investments) during
the year ended May 31, 1998, as well as the federal tax cost basis of
investments, related gross unrealized appreciation and depreciation for federal
income tax purposes, and the capital loss carryovers available to offset future
capital gains, as of May 31, 1998:
COST PROCEEDS UNREALIZED
OF FROM --------------------------------------------- TAX
PURCHASES SALES APPRECIATION (DEPRECIATION) NET COST BASIS
-------------- ------------ ------------- ------------- ------------- --------------
Stable Income Fund............ $ - $ - $ 154,435 $ - $ 154,435 $ 153,173,297
Limited Term Government Income
Fund......................... 81,599,634 62,413,326 503,251 (76,656) 426,595 65,429,984
Intermediate Government Income
Fund......................... 402,692,616 377,125,777 9,407,608 (424,151) 8,983,457 409,524,376
Diversified Bond Fund......... - - 4,949,586 - 4,949,586 129,059,732
Income Fund................... 458,787,244 423,319,770 6,189,397 (222,674) 5,966,723 294,574,722
Total Return Bond Fund........ - - - (710,074) (710,074) 116,308,024
Limited Term Tax-Free Fund.... 35,970,184 21,216,801 1,080,148 (3,646) 1,076,502 52,863,780
Tax-Free Income Fund.......... 471,210,801 429,266,305 16,406,560 (12,619) 16,393,941 308,470,557
Colorado Tax-Free Fund........ 56,535,383 44,547,887 4,116,532 (4,520) 4,112,012 71,063,643
Minnesota Intermediate
Tax-Free Fund................ 30,925,997 34,322,755 11,296,285 (32,084) 11,264,201 196,606,869
Minnesota Tax-Free Fund....... 61,478,068 39,156,758 3,164,434 (20,693) 3,143,741 67,185,780
Strategic Income Fund......... - - 22,914,227 - 22,914,227 212,814,996
Moderate Balanced Fund........ - - 95,499,121 - 95,499,121 370,612,330
Growth Balanced Fund.......... - - 180,892,326 - 180,892,326 485,236,203
Aggressive Balanced Equity
Fund......................... - - 363,399 - 363,399 8,457,459
Index Fund.................... - - 242,644,714 - 242,644,714 543,775,057
Income Equity Fund............ - - 340,345,590 - 340,345,590 1,016,081,095
ValuGrowth Stock Fund......... 372,128,051 486,984,014 195,972,820 (20,861,089) 175,111,731 468,984,086
Diversified Equity Fund....... - - 626,614,760 - 626,614,760 1,036,588,753
Growth Equity Fund............ - - 297,201,851 - 297,201,851 775,275,086
Large Company Growth Fund..... - - 77,156,496 - 77,156,496 154,903,429
Diversified Small Cap Fund.... - - - (189,622) (189,622) 12,556,265
Small Company Stock Fund...... - - 1,381,337 - 1,381,337 127,103,449
Small Cap Opportunities
Fund......................... - - 30,657,298 - 30,657,298 267,193,672
Small Company Growth Fund..... - - 68,646,409 - 68,646,409 681,042,796
Contrarian Stock Fund......... 501,992 5,488,680 556,903 (302,359) 254,544 3,383,144
International Fund............ - - 55,379,523 - 55,379,523 230,045,859
CAPITAL
LOSS
CARRYOVERS (a)
------------
Stable Income Fund............ $ 7,054,248
Limited Term Government Income
Fund......................... -
Intermediate Government Income
Fund......................... 25,886,831
Diversified Bond Fund......... -
Income Fund................... 12,447,429
Total Return Bond Fund........ -
Limited Term Tax-Free Fund.... -
Tax-Free Income Fund.......... 2,054,098
Colorado Tax-Free Fund........ 329,272
Minnesota Intermediate
Tax-Free Fund................ -
Minnesota Tax-Free Fund....... 97,056
Strategic Income Fund......... -
Moderate Balanced Fund........ -
Growth Balanced Fund.......... -
Aggressive Balanced Equity
Fund......................... -
Index Fund.................... -
Income Equity Fund............ -
ValuGrowth Stock Fund......... -
Diversified Equity Fund....... -
Growth Equity Fund............ -
Large Company Growth Fund..... -
Diversified Small Cap Fund.... -
Small Company Stock Fund...... -
Small Cap Opportunities
Fund......................... -
Small Company Growth Fund..... -
Contrarian Stock Fund......... 331,840
International Fund............ -
(a) Expiring in various years through 2006.
NOTE 5. PORTFOLIO SECURITIES LOANED
As of May 31, 1998, certain Funds had loaned securities in return for securities
and cash collateral which was invested in various short-term fixed income
securities. Norwest receives transaction fees for providing services in
connection with the securities lending program. The value of the securities on
loan and the value of the related collateral were as follows:
SECURITIES COLLATERAL
------------- -------------
Limited Term Government Income
Fund............................... $ 21,683,079 $ 22,693,496
Intermediate Government Income
Fund............................... 133,812,526 137,651,937
Income Fund......................... 72,523,752 75,904,850
ValuGrowth Stock Fund............... 144,838,722 152,027,585
Contrarian Stock Fund............... 381,787 408,445
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60
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 5. PORTFOLIO SECURITIES LOANED (CONTINUED)
Limited Term Government Income Fund and Intermediate Government Income Fund had
security loans outstanding of $2,305,833 and $25,217,139, collateralized by
securities with a market value of $3,115,757 and $26,315,587, respectively. Cash
collateralized all other Funds' loans outstanding at May 31, 1998.
NOTE 6. CAPITAL SHARE TRANSACTIONS
The Trust Instrument authorizes the issuance of an unlimited number of shares of
beneficial interest without par value. Transactions of Trust shares for the past
two years or periods were as follows:
SHARES ISSUED NET
SHARES FOR DIVIDEND SHARES INCREASE
YEAR/PERIOD END SUBSCRIBED REINVESTMENT REDEEMED (DECREASE)
----------------- ----------- ------------- ------------ -----------
Stable Income Fund
A Shares.............................. May 31, 1998 2,883,671 18,447 (3,287,302) (385,184)
A Shares.............................. May 31, 1997 116,433 25,455 (519,673) (377,785)
B Shares.............................. May 31, 1998 120,284 5,242 (52,325) 73,201
B Shares.............................. May 31, 1997 68,546 2,568 (52,923) 18,191
I Shares.............................. May 31, 1998 7,944,101 505,180 (5,295,664) 3,153,617
I Shares.............................. May 31, 1997 6,043,926 451,686 (3,826,730) 2,668,882
Limited Term Government Income Fund
I Shares.............................. May 31, 1998 13,935,877 8,099 (7,254,666) 6,689,310
Intermediate Government Income Fund
A Shares.............................. May 31, 1998 383,818 47,920 (357,902) 73,836
A Shares.............................. May 31, 1997 101,046 65,443 (485,037) (318,548)
B Shares.............................. May 31, 1998 138,949 27,197 (256,081) (89,935)
B Shares.............................. May 31, 1997 143,867 32,932 (330,050) (153,251)
I Shares.............................. May 31, 1998 27,888,520 224,878 (26,688,598) 1,424,800
I Shares.............................. May 31, 1997 4,318,750 287,444 (7,035,092) (2,428,898)
Diversified Bond Fund
I Shares.............................. May 31, 1998 2,226,929 398,933 (3,978,034) (1,352,172)
I Shares.............................. May 31, 1997 2,161,872 535,458 (2,779,738) (82,408)
Income Fund
A Shares.............................. May 31, 1998 384,279 30,693 (186,546) 228,426
A Shares.............................. May 31, 1997 124,580 31,742 (197,291) (40,969)
B Shares.............................. May 31, 1998 176,755 18,772 (60,281) 135,246
B Shares.............................. May 31, 1997 110,014 17,044 (121,013) 6,045
I Shares.............................. May 31, 1998 20,150,168 51,839 (18,349,206) 1,852,801
I Shares.............................. May 31, 1997 3,688,038 25,996 (5,115,980) (1,401,946)
Total Return Bond Fund
A Shares.............................. May 31, 1998 201,230 21,103 (235,845) (13,512)
A Shares.............................. May 31, 1997 170,319 18,604 (74,659) 114,264
B Shares.............................. May 31, 1998 60,044 12,755 (37,561) 35,238
B Shares.............................. May 31, 1997 70,772 11,735 (66,379) 16,128
I Shares.............................. May 31, 1998 2,733,673 79,696 (4,823,029) (2,009,660)
I Shares.............................. May 31, 1997 4,957,128 47,176 (4,529,523) 474,781
Limited Term Tax-Free Fund
I Shares.............................. May 31, 1998 5,459,471 25,928 (4,274,931) 1,210,468
I Shares.............................. May 31, 1997 4,012,956 3,911 (70,738) 3,946,129
Tax-Free Income Fund
A Shares.............................. May 31, 1998 999,879 120,185 (693,862) 426,202
A Shares.............................. May 31, 1997 651,520 128,315 (1,341,769) (561,934)
B Shares.............................. May 31, 1998 386,728 29,057 (94,437) 321,348
B Shares.............................. May 31, 1997 192,278 22,497 (88,841) 125,934
I Shares.............................. May 31, 1998 20,205,190 69,534 (18,916,946) 1,357,778
I Shares.............................. May 31, 1997 4,135,427 19,966 (6,547,997) (2,392,604)
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61
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
SHARES ISSUED NET
SHARES FOR DIVIDEND SHARES INCREASE
YEAR/PERIOD END SUBSCRIBED REINVESTMENT REDEEMED (DECREASE)
----------------- ----------- ------------- ------------ -----------
Colorado Tax-Free Fund
A Shares.............................. May 31, 1998 709,964 113,433 (340,595) 482,802
A Shares.............................. May 31, 1997 170,726 117,975 (297,437) (8,736)
B Shares.............................. May 31, 1998 270,553 21,971 (142,636) 149,888
B Shares.............................. May 31, 1997 100,299 21,464 (62,801) 58,962
I Shares.............................. May 31, 1998 812,957 3,282 (327,437) 488,802
I Shares.............................. May 31, 1997 591,668 1,678 (492,050) 101,296
Minnesota Intermediate Tax-Free Fund
I Shares.............................. May 31, 1998 44,602,088 21,150 (23,712,518) 20,910,720
Minnesota Tax-Free Fund
A Shares.............................. May 31, 1998 798,495 97,609 (290,915) 605,189
A Shares.............................. May 31, 1997 337,553 100,177 (585,949) (148,219)
B Shares.............................. May 31, 1998 555,223 37,450 (147,723) 444,950
B Shares.............................. May 31, 1997 275,429 32,596 (111,982) 196,043
I Shares.............................. May 31, 1998 1,051,163 22,358 (250,492) 823,029
I Shares.............................. May 31, 1997 818,720 5,690 (157,930) 666,480
Strategic Income Fund
I Shares.............................. May 31, 1998 7,728,378 535,117 (3,209,926) 5,053,569
I Shares.............................. May 31, 1997 1,988,531 488,156 (3,615,308) (1,138,621)
Moderate Balanced Fund
I Shares.............................. May 31, 1998 5,365,566 1,768,475 (6,316,798) 817,243
I Shares.............................. May 31, 1997 5,665,636 1,032,988 (6,939,729) (241,105)
Growth Balanced Fund
I Shares.............................. May 31, 1998 6,418,622 1,512,613 (4,523,554) 3,407,681
I Shares.............................. May 31, 1997 6,156,683 1,275,712 (8,337,658) (905,263)
Aggressive Balanced-Equity Fund
I Shares.............................. May 31, 1998 979,220 122 (176,004) 803,338
Income Equity Fund
A Shares.............................. May 31, 1998 673,475 50,267 (217,182) 506,560
A Shares.............................. May 31, 1997 456,258 20,378 (299,650) 176,986
B Shares.............................. May 31, 1998 706,729 31,134 (115,169) 622,694
B Shares.............................. May 31, 1997 487,593 8,139 (108,511) 387,221
I Shares.............................. May 31, 1998 33,190,300 317,407 (16,842,496) 16,665,211
I Shares.............................. May 31, 1997 6,080,951 69,140 (1,703,263) 4,446,828
ValuGrowth Stock Fund
A Shares.............................. May 31, 1998 377,663 121,256 (189,738) 309,181
A Shares.............................. May 31, 1997 129,010 76,755 (127,445) 78,320
B Shares.............................. May 31, 1998 65,527 42,872 (26,363) 82,036
B Shares.............................. May 31, 1997 48,421 25,310 (35,598) 38,133
I Shares.............................. May 31, 1998 35,681,951 926,648 (20,514,350) 16,094,249
I Shares.............................. May 31, 1997 1,270,685 62,286 (1,057,238) 275,733
Index Fund
I Shares.............................. May 31, 1998 7,169,873 1,360,918 (4,609,369) 3,921,422
I Shares.............................. May 31, 1997 8,601,686 339,126 (3,875,130) 5,065,682
Diversified Equity Fund
A Shares.............................. May 31, 1998 668,348 66,201 (118,188) 616,361
A Shares.............................. May 31, 1997 688,908 4,817 (89,797) 603,928
B Shares.............................. May 31, 1998 1,015,535 87,194 (125,529) 977,200
B Shares.............................. May 31, 1997 875,773 3,939 (26,943) 852,769
I Shares.............................. May 31, 1998 7,679,211 2,287,744 (7,875,238) 2,091,717
I Shares.............................. May 31, 1997 9,526,934 338,461 (6,338,921) 3,526,474
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62
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
SHARES ISSUED NET
SHARES FOR DIVIDEND SHARES INCREASE
YEAR/PERIOD END SUBSCRIBED REINVESTMENT REDEEMED (DECREASE)
----------------- ----------- ------------- ------------ -----------
Growth Equity Fund
A Shares.............................. May 31, 1998 242,061 60,274 (134,074) 168,261
A Shares.............................. May 31, 1997 468,640 7,941 (155,931) 320,650
B Shares.............................. May 31, 1998 202,901 39,280 (40,469) 201,712
B Shares.............................. May 31, 1997 253,247 3,244 (10,702) 245,789
I Shares.............................. May 31, 1998 5,835,291 3,072,002 (7,547,813) 1,359,480
I Shares.............................. May 31, 1997 8,961,272 576,046 (7,274,990) 2,262,328
Large Company Growth Fund
I Shares.............................. May 31, 1998 2,562,358 331,263 (1,111,098) 1,782,523
I Shares.............................. May 31, 1997 1,625,992 26,366 (658,984) 993,374
Diversified Small Cap Fund
I Shares.............................. May 31, 1998 1,303,714 - (110,791) 1,192,923
Small Company Stock Fund
A Shares.............................. May 31, 1998 2,539,744 145,570 (2,510,624) 174,690
A Shares.............................. May 31, 1997 192,692 30,374 (82,668) 140,398
B Shares.............................. May 31, 1998 79,101 102,296 (55,925) 125,472
B Shares.............................. May 31, 1997 95,993 21,752 (40,086) 77,659
I Shares.............................. May 31, 1998 8,667,234 967,636 (11,868,058) (2,233,188)
I Shares.............................. May 31, 1997 4,669,144 103,596 (2,126,789) 2,645,951
Small Cap Opportunities Fund
A Shares.............................. May 31, 1998 279,457 3,533 (18,241) 264,749
A Shares.............................. May 31, 1997 26,607 3 (276) 26,334
B Shares.............................. May 31, 1998 259,433 2,132 (6,248) 255,317
B Shares.............................. May 31, 1997 7,998 1 - 7,999
I Shares.............................. May 31, 1998 9,752,210 162,388 (1,738,955) 8,175,643
I Shares.............................. May 31, 1997 4,193,736 850 (303,869) 3,890,717
Small Company Growth Fund
I Shares.............................. May 31, 1998 12,736,205 2,355,902 (7,286,493) 7,805,614
I Shares.............................. May 31, 1997 4,080,643 1,418,007 (2,568,519) 2,930,131
Contrarian Stock Fund
A Shares.............................. May 31, 1998 - - - -
A Shares.............................. May 31, 1997 26,510 6,299 (116,769) (83,960)
B Shares.............................. May 31, 1998 - - - -
B Shares.............................. May 31, 1997 6,710 7,981 (70,733) (56,042)
I Shares.............................. May 31, 1998 188,430 2,017 (662,991) (472,544)
I Shares.............................. May 31, 1997 504,786 12,989 (3,042,555) (2,524,780)
International Fund
A Shares.............................. May 31, 1998 80,906 1,436 (45,582) 36,760
A Shares.............................. May 31, 1997 65,020 731 (16,799) 48,952
B Shares.............................. May 31, 1998 25,847 300 (8,757) 17,390
B Shares.............................. May 31, 1997 35,177 87 (8,379) 26,885
I Shares.............................. May 31, 1998 2,872,843 81,404 (1,776,454) 1,177,793
I Shares.............................. May 31, 1997 4,508,576 68,362 (1,271,670) 3,305,268
NOTE 7. CONCENTRATION OF CREDIT RISK
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free and Minnesota Tax-Free
Funds invest substantially all of their assets in debt obligations of issuers
located in the states of Colorado and Minnesota, respectively. The issuers'
abilities to meet their obligations may be affected by Colorado and Minnesota
economic or political developments.
[LOGO]
63
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
EXHIBIT A OF NOTES TO FINANCIAL STATEMENTS--EXPENSE INFORMATION
FEES WAIVED
FEES/RATES ------------------------------------
-------------------------------- CUSTODIAN EXPENSES
ASSET CUSTODIAN ASSET AND REIMBURSED
ALLOCATION/ AND TRANSFER ALLOCATION/ TRANSFER BY
ADVISORY AGENT ADVISER AGENT FFSI/FAdS FFSI/FAdS
---------------- ------------- ----------- --------- ---------- ----------
Stable Income Fund...................... - 0.25% $ - $ 74,482 $ 75,753 $ 21,607
Limited Term Government Income Fund..... 0.33% 0.27%(c) 119,793 53,790 35,705 -
Intermediate Government Income Fund..... 0.33% 0.25% - - 212,609 16,907
Diversified Bond Fund................... 0.25% 0.25% 376,973 52,448 59,238 -
Income Fund............................. 0.50% 0.27%(c) 90,387 234,858 175,320 19,082
Total Return Bond Fund.................. - 0.25% - 97,599 45,605 15,915
Limited Term Tax-Free Fund.............. 0.50% 0.27%(c) 89,967 94,204 2,408 -
Tax-Free Income Fund.................... 0.50% 0.27%(c) 488,601 508,410 67,069 2,580
Colorado Tax-Free Fund.................. 0.50%(a) 0.27%(c) 137,295 126,330 39,813 -
Minnesota Intermediate Tax-Free Fund.... 0.25% 0.27%(c) - 72,374 97,043 -
Minnesota Tax-Free Fund................. 0.50%(a) 0.27%(c) 163,748 92,174 55,832 -
Strategic Income Fund................... 0.25% 0.25% 281,365 42,372 82,330 -
Moderate Balanced Fund.................. 0.25% 0.25% 552,905 60,908 137,223 -
Growth Balanced Fund.................... 0.25% 0.25% 695,810 71,877 174,960 -
Aggressive Balanced Equity Fund......... 0.25% 0.25% 6,043 6,043 10,677 8,328
Index Fund.............................. - 0.25% - 1,525,921 113,627 -
Income Equity Fund...................... - 0.25% - 112,915 169,709 842
ValuGrowth Stock Fund................... 0.80%(b) 0.27%(c) 25,276 999,371 63,310 1,187
Diversified Equity Fund................. 0.25% 0.25% 1,376,706 193,857 467,176 37,049
Growth Equity Fund...................... 0.25% 0.25% 322,040 299,018 446,696 22,084
Large Company Growth Fund............... - 0.25% - 21,106 25,623 -
Diversified Small Cap Fund.............. 0.25% 0.25% 5,712 5,712 8,836 12,673
Small Company Stock Fund................ - 0.25% - 184,019 48,368 12,340
Small Cap Opportunities Fund............ - 0.25% - 206,672 47,632 36,102
Small Company Growth Fund............... - 0.25% - 81,216 - -
Contrarian Stock Fund................... 0.80%(b) 0.27%(c) 41,226 9,538 3,342 11,443
International Fund...................... 0.25% 0.25% - - 8,475 10,256
TOTAL FEES
WAIVED AND
EXPENSES
REIMBURSED
----------
Stable Income Fund...................... $ 171,842
Limited Term Government Income Fund..... 209,288
Intermediate Government Income Fund..... 229,516
Diversified Bond Fund................... 488,659
Income Fund............................. 519,647
Total Return Bond Fund.................. 159,119
Limited Term Tax-Free Fund.............. 186,579
Tax-Free Income Fund.................... 1,066,660
Colorado Tax-Free Fund.................. 303,438
Minnesota Intermediate Tax-Free Fund.... 169,417
Minnesota Tax-Free Fund................. 311,754
Strategic Income Fund................... 406,067
Moderate Balanced Fund.................. 751,036
Growth Balanced Fund.................... 942,647
Aggressive Balanced Equity Fund......... 31,091
Index Fund.............................. 1,639,548
Income Equity Fund...................... 283,466
ValuGrowth Stock Fund................... 1,089,144
Diversified Equity Fund................. 2,074,788
Growth Equity Fund...................... 1,089,838
Large Company Growth Fund............... 46,729
Diversified Small Cap Fund.............. 32,933
Small Company Stock Fund................ 244,727
Small Cap Opportunities Fund............ 290,406
Small Company Growth Fund............... 81,216
Contrarian Stock Fund................... 65,549
International Fund...................... 18,731
(a) For the first $300 million of average net assets of the Fund, declining to
0.42% for average net assets in excess of $700 million.
(b) For the first $300 million of average net assets of the Fund, declining to
0.72% for average net assets in excess of $700 million.
(c) In addition to the transfer agent fee, the custody fee is 0.02% for the
first $100 million of average net assets of the Fund, declining to 0.01% for
average net assets in excess of $200 million.
[LOGO]
64
SUPPLEMENTARY INFORMATION (UNAUDITED) MAY 31, 1998
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF DIVIDENDS DECLARED (UNAUDITED)
The amounts of 20% rate gain and 28% rate gain dividends paid during the period
are presented below. For federal income tax purposes, dividends from short-term
capital gains are classified as ordinary income. All net investment income
dividends were ordinary income, except for those Funds noted below that paid
exempt income dividends. The percentage of qualifying dividends eligible for the
corporate dividends received deduction are also listed below for the applicable
Funds.
TAX EXEMPT INCOME QUALIFYING
20% RATE GAIN 28% RATE GAIN DIVIDENDS DIVIDENDS
----------------- ----------------- ----------------- -----------------
Stable Income Fund...................... $ - $ - - -
Limited Term Government Income Fund..... - 51,848 - -
Intermediate Government Income Fund..... - - - -
Diversified Bond Fund................... - 174,931 - -
Income Fund............................. - - - -
Total Return Bond Fund.................. - 704,711 - -
Limited Term Tax-Free Fund.............. - - 99.99% -
Tax-Free Income Fund.................... - - 99.90% -
Colorado Tax-Free Fund.................. - - 99.71% -
Minnesota Intermediate Tax-Free Fund.... - - 99.99% -
Minnesota Tax-Free Fund................. - - 99.66% -
Strategic Income Fund................... 1,863,393 1,712,251 - 4.71%
Moderate Balanced Fund.................. 8,462,507 11,624,132 - 9.19%
Growth Balanced Fund.................... 14,016,165 7,004,175 - 18.08%
Aggressive Balanced Equity Fund......... - - - 56.08%
Index Fund.............................. 3,588,909 41,978,442 - 61.07%
Income Equity Fund...................... 6,681,819 6,765,484 - 100.00%
ValuGrowth Stock Fund................... 24,525,576 17,696,273 - 23.71%
Diversified Equity Fund................. 54,543,849 17,270,486 - 52.90%
Growth Equity Fund...................... 41,348,399 19,253,554 - 8.26%
Large Company Growth Fund............... 10,862,308 1,305,591 - -
Diversified Small Cap Fund.............. - - - -
Small Company Stock Fund................ - 5,140,502 - 1.68%
Small Cap Opportunities Fund............ 845,679 578,617 - -
Small Company Growth Fund............... 14,070,726 30,341,370 - 3.88%
Contrarian Stock Fund................... - - - 93.86%
International Fund...................... - - - -
SPECIAL 1998 TAX INFORMATION (UNAUDITED)
The International Fund intends to elect to pass through the credit for taxes
paid in foreign countries during its fiscal year ended May 31, 1998. In
accordance with current tax laws, the foreign income and foreign tax per share
(for a share outstanding on May 31, 1998) is as follows:
COUNTRY DIVIDENDS FOREIGN TAX
----------------- ----------------- -----------------
Argentina........ $ 0.0006 $ -
Australia........ 0.0065 0.0001
Belgium.......... 0.0004 0.0001
Botswana......... 0.0005 -
Brazil........... 0.0111 0.0012
Canada........... 0.0007 0.0001
Chile............ 0.0026 0.0007
China............ 0.0003 -
Denmark.......... 0.0006 0.0001
Finland.......... 0.0007 0.0001
France........... 0.0164 0.0017
Germany.......... 0.0092 0.0009
Greece........... 0.0002 -
Hong Kong........ 0.0034 -
Indonesia........ 0.0005 -
Israel........... 0.0002 0.0001
COUNTRY DIVIDENDS FOREIGN TAX
----------------- ----------------- -----------------
Japan............ $ 0.0119 $ 0.0016
Malaysia......... 0.0008 0.0002
Mexico........... 0.0025 -
Netherlands...... 0.0153 0.0012
Pakistan......... 0.0025 0.0002
Philippines...... 0.0007 0.0002
Portugal......... 0.0038 0.0007
Singapore........ 0.0029 0.0007
South Africa..... 0.0033 -
South Korea...... 0.0007 0.0001
Spain............ 0.0031 0.0003
Sweden........... 0.0022 0.0003
Switzerland...... 0.0070 0.0011
Thailand......... 0.0001 -
Turkey........... 0.0014 0.0001
United Kingdom... 0.0405 0.0053
Venezuela........ 0.0003 -
The pass through of foreign tax credit will affect only those shareholders of
the Fund who are holders on the dividend record date in December 1998.
Accordingly, shareholders will receive more detailed information along with
their form 1099-DIV in January 1999.
[LOGO]
65
SCHEDULES OF INVESTMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STABLE INCOME FUND
- - -----------------------------------------------------------------
N/A Stable Income Portfolio of Core Trust
(Delaware)(e) $ 153,327,732
---------------
TOTAL INVESTMENTS (100.0%) (COST $153,173,297) $ 153,327,732
---------------
---------------
- - -----------------------------------------------------------------
LIMITED TERM GOVERNMENT INCOME FUND
- - -----------------------------------------------------------------
GOVERNMENT AGENCY BONDS & NOTES (26.7%)
FHLB (10.7%)
2,000,000 5.63%, 3/19/01(d) $ 1,994,940
5,000,000 6.37%, 4/9/01 5,083,400
---------------
TOTAL FHLB (COST $6,987,572) 7,078,340
---------------
FHLMC (3.3%)
2,000,000 7.10%, 4/10/07 (cost $2,150,195) 2,162,100
---------------
FNMA (12.7%)
2,000,000 6.85%, 4/5/04 2,102,620
3,000,000 7.35%, 3/28/05 3,253,380
3,000,000 6.00%, 5/15/08(d) 3,026,730
---------------
TOTAL FNMA (COST $8,348,325) 8,382,730
---------------
TOTAL GOVERNMENT AGENCY BONDS & NOTES (COST $17,486,092)
17,623,170
---------------
MORTGAGE BACKED SECURITIES (20.8%)
FNMA (7.5%)
4,964,200 Pool 401770, 6.50%, 10/1/27 (cost
$4,827,952) 4,940,918
---------------
GNMA (13.3%)
4,188,380 Pool 22036, 8.00%, 7/20/25 4,359,853
4,277,180 Pool 455464, 7.50%, 8/15/27 4,414,863
---------------
TOTAL GNMA (COST $8,725,053) 8,774,716
---------------
TOTAL MORTGAGE BACKED SECURITIES (COST $13,553,005) 13,715,634
---------------
U.S. TREASURY OBLIGATIONS (50.1%)
U.S. TREASURY NOTES (50.1%)
4,000,000 8.88%, 2/15/99 4,091,000
3,000,000 5.88%, 11/15/99(d) 3,013,770
3,000,000 6.00%, 8/15/00 3,027,960
3,000,000 5.63%, 11/30/00(d) 3,005,820
2,000,000 6.25%, 4/30/01 2,036,520
6,000,000 6.25%, 1/31/02 6,127,080
1,000,000 6.63%, 3/31/02 1,034,820
5,000,000 6.25%, 4/30/02(d) 5,175,800
2,000,000 7.50%, 2/15/05(d) 2,207,419
3,000,000 7.00%, 7/15/06(d) 3,258,600
---------------
TOTAL U.S. TREASURY NOTES (COST $32,851,901) 32,978,789
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $32,851,901) 32,978,789
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LIMITED TERM GOVERNMENT INCOME FUND (continued)
- - -----------------------------------------------------------------
SHORT TERM HOLDINGS (2.4%)
1,538,986 Dreyfus Treasury Cash Management
A Series Fund (cost $1,538,986) $ 1,538,986
---------------
TOTAL INVESTMENTS (100.0%) (COST $65,429,984) $ 65,856,579
---------------
---------------
- - -----------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (27.0%)
FAMC (5.6%)
6,241,992 Series AS106-I, 7.49%, 1/25/12 $ 6,760,857
8,793,998 Series BA-1001 1, 7.42%, 7/25/02 9,152,626
4,387,551 Series BA-1001 1, 6.92%, 1/25/03 4,478,728
3,160,767 Series CS-1001 1, 7.19%, 7/25/01 3,237,317
---------------
TOTAL FAMC (COST $23,070,159) 23,629,528
---------------
FHLMC (7.3%)
21,749,635 Gold Pool C80461, 7.00%, 12/1/26 22,130,254
8,299,745 Gold Pool D70924, 6.50%, 5/1/26 8,289,370
---------------
TOTAL FHLMC (COST $29,399,762) 30,419,624
---------------
FNMA (9.8%)
10,138,533 Pool 73595, 7.43%, 8/1/06 10,978,815
4,942,712 Pool 73806, 7.30%, 12/1/11 5,411,926
14,934,876 Pool 412682, 6.00%, 3/1/28 14,496,239
10,000,000 Pool 429182, 6.50%, 5/1/28 9,946,900
---------------
TOTAL FNMA (COST $39,720,467) 40,833,880
---------------
GNMA (4.3%)
17,546,774 Pool 445071, 7.50%, 1/15/27 (cost
$17,552,258) 18,128,098
---------------
TOTAL ASSET BACKED SECURITIES (COST $109,742,646) 113,011,130
---------------
GOVERNMENT AGENCY BONDS & NOTES (16.5%)
FHLB (6.8%)
5,000,000 5.63%, 3/19/01(d) 4,987,350
5,000,000 7.59%, 3/10/05 5,486,100
9,000,000 6.41%, 10/11/05 9,291,690
8,000,000 6.44%, 12/12/11 8,604,000
---------------
TOTAL FHLB (COST $27,400,221) 28,369,140
---------------
FHLMC (3.6%)
4,000,000 8.07%, 1/27/05 4,491,520
10,000,000 7.10%, 4/10/07(d) 10,810,500
---------------
TOTAL FHLMC (COST $15,340,950) 15,302,020
---------------
FNMA (5.3%)
10,000,000 6.50%, 7/16/07 10,410,600
11,500,000 6.00%, 5/15/08(d) 11,602,465
---------------
TOTAL FNMA (COST $21,888,710) 22,013,065
---------------
[LOGO]
See Notes to Schedules of Investments
66
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND (continued)
- - -----------------------------------------------------------------
GOVERNMENT AGENCY BONDS & NOTES (continued)
SLMA (0.3%)
1,000,000 9.15%, 12/1/04 (cost $1,171,875) $ 1,177,500
---------------
OTHER (0.5%)
2,000,000 TVA, 8.38%, 10/1/99 (cost $2,041,140) 2,063,340
---------------
TOTAL GOVERNMENT AGENCY BONDS & NOTES (COST $67,842,896)
68,925,065
---------------
U.S. TREASURY OBLIGATIONS (54.2%)
U.S. TREASURY BONDS (4.4%)
13,000,000 12.75%, 11/15/10 (cost $17,885,156) 18,463,900
---------------
U.S. TREASURY NOTES (49.8%)
10,000,000 7.75%, 11/30/99(d) 10,311,900
8,000,000 8.50%, 11/15/00(d) 8,538,240
14,000,000 8.00%, 5/15/01 14,918,680
22,500,000 7.50%, 11/15/01(d) 23,832,450
20,000,000 6.25%, 8/31/02(d) 20,475,800
20,000,000 7.88%, 11/15/04(d) 22,412,800
10,000,000 7.50%, 2/15/05(d) 11,037,100
42,000,000 6.88%, 5/15/06 45,231,060
31,000,000 7.00%, 7/15/06(d) 33,672,200
17,000,000 6.50%, 10/15/06(d) 17,928,711
---------------
TOTAL U.S. TREASURY NOTES (COST $204,237,147) 208,358,941
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $222,122,303) 226,822,841
---------------
SHORT TERM HOLDINGS (2.3%)
9,748,797 Dreyfus Treasury Cash Management
A Series Fund (cost $9,748,797) 9,748,797
---------------
TOTAL INVESTMENTS (100.0%) (COST $409,456,642) $ 418,507,833
---------------
---------------
- - -----------------------------------------------------------------
DIVERSIFIED BOND FUND
- - -----------------------------------------------------------------
N/A Managed Fixed Income Portfolio of Core
Trust (Delaware)(e) $ 66,913,117
N/A Positive Return Portfolio of Core Trust
(Delaware)(e) 44,747,615
N/A Strategic Value Bond Portfolio of Core
Trust (Delaware)(e) 22,348,586
---------------
TOTAL INVESTMENTS (100.0%) (COST $129,059,732) $ 134,009,318
---------------
---------------
- - -----------------------------------------------------------------
INCOME FUND
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (7.6%)
4,998,518 First Plus Home Loan Trust, Series
1996-2 A5, 7.47%, 2/20/11 $ 5,105,685
5,487,695 First USA Consumer Trust, Class A,
6.50%, 9/15/02 5,500,053
7,000,000 Green Tree Financial Corp., Series
1997-6 A7, 7.14%, 1/16/29 7,262,710
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INCOME FUND (continued)
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (continued)
5,000,000 Premier Auto Trust, Series 1998-2 A3,
5.77%, 1/6/02 $ 4,993,480
---------------
TOTAL ASSET BACKED SECURITIES (COST $22,475,557) 22,861,928
---------------
CORPORATE BONDS & NOTES (43.0%)
6,000,000 AMBAC, Inc., 9.38%, 8/1/11 7,608,060
6,000,000 American Home Products Corp., 7.25%,
3/1/23 6,517,980
3,000,000 Bayerische Landesbank, New York, 6.20%,
2/9/06 2,994,210
4,550,000 Clear Channel Communications, Inc.,
7.25%, 10/15/27(d) 4,742,875
2,000,000 Dean Witter Discover, 6.75%, 1/1/16 2,032,860
4,800,000 Dillard Department Stores, Inc., 9.13%,
8/1/11 5,965,680
5,000,000 Fleet Financial Group, Inc., 6.88%,
1/15/28 5,105,000
1,500,000 Flowers Industries, Inc., 7.15%, 4/15/28 1,518,405
6,000,000 General Electric Capital Corp., 8.70%,
2/15/03 6,677,340
5,600,000 General Motors Corp., 6.75%, 5/1/28(d) 5,657,232
3,000,000 Gruma SA de CV, 7.63%, 10/15/07 2,939,850
5,000,000 Key Bank N.A., 6.50%, 4/15/08 5,053,851
1,300,000 Lehman Brothers Holdings, Inc., 6.63%,
12/27/02 1,325,220
7,000,000 Lehman Brothers Holdings, Inc., 8.50%,
8/1/15 8,217,020
6,800,000 Merck & Co., Inc., 6.40%, 3/1/28 6,899,212
5,000,000 Nabisco, Inc., 7.05%, 7/15/07(d) 5,117,400
2,000,000 Nabisco, Inc., 7.55%, 6/15/15 2,112,480
5,000,000 NationsBank Corp., 7.80%, 9/15/16 5,653,950
5,240,000 News America Holdings, 8.88%, 4/26/23 6,255,774
5,000,000 Oracle Corp., 6.72%, 2/15/04 5,108,200
5,000,000 PNC Bank Corp., 6.50%, 5/1/08 5,068,850
7,000,000 Royal Carribbean Cruises, 7.25%, 8/15/06 7,342,230
7,000,000 Tosco Corp., 7.80%, 1/1/27(d) 7,828,520
5,000,000 Wal-Mart Stores, Inc., 9.10%, 7/15/00 5,321,600
3,000,000 Worldcom, Inc., 7.75%, 4/1/07(d) 3,248,490
3,000,000 Yorkshire Power Finance, 6.15%, 2/25/03 2,989,200
---------------
TOTAL CORPORATE BONDS & NOTES (COST $126,247,209) 129,301,489
---------------
MORTGAGE BACKED SECURITIES (8.8%)
FHLMC (5.8%)
9,062,348 Gold Pool C80461, 7.00%, 12/1/26 9,220,939
8,299,745 Gold Pool D70924, 6.50%, 5/1/26 8,289,370
---------------
TOTAL FHLMC (COST $16,855,207) 17,510,309
---------------
FNMA (3.0%)
9,194,662 Pool 398325, 6.00%, 4/1/28 (cost
$8,892,962) 8,924,614
---------------
TOTAL MORTGAGE BACKED SECURITIES (COST $25,748,169) 26,434,923
---------------
[LOGO]
See Notes to Schedules of Investments
67
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INCOME FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL NOTES (1.4%)
4,000,000 Denver, CO, City and County SD #1,
Educational Facilities RV, Taxable
Pension, School Facilities Lease,
AMBAC insured, 6.49%, 12/15/02 (cost
$4,000,000) $ 4,097,320
---------------
U.S. TREASURY OBLIGATIONS (35.1%)
U.S. TREASURY BONDS (16.4%)
6,500,000 10.75%, 5/15/03(d) 7,924,605
6,000,000 10.38%, 11/15/12 7,996,920
3,000,000 11.25%, 2/15/15 4,742,580
5,000,000 9.88%, 11/15/15(d) 7,182,500
4,500,000 8.75%, 5/15/17 5,963,985
7,000,000 8.88%, 2/15/19(d) 9,479,960
5,000,000 7.50%, 11/15/24 6,072,250
---------------
TOTAL U.S. TREASURY BONDS (COST $47,938,832) 49,362,800
---------------
U.S. TREASURY NOTES (18.7%)
5,000,000 8.50%, 11/15/00(d) 5,336,400
17,500,000 7.88%, 8/15/01(d) 18,656,400
1,000,000 7.25%, 5/15/04(d) 1,082,540
5,000,000 7.25%, 8/15/04(d) 5,426,850
7,000,000 7.88%, 11/15/04(d) 7,844,480
7,000,000 6.63%, 5/15/07(d) 7,464,100
10,000,000 6.13%, 8/15/07(d) 10,329,000
---------------
TOTAL U.S. TREASURY NOTES (COST $55,815,099) 56,139,770
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $103,753,931) 105,502,570
---------------
SHORT TERM HOLDINGS (4.1%)
9,643,769 Dreyfus Cash Management Fund 9,643,769
2,699,446 Federated Treasury Obligations Fund 2,699,446
---------------
TOTAL SHORT TERM HOLDINGS (COST $12,343,215) 12,343,215
---------------
TOTAL INVESTMENTS (100.0%) (COST $294,568,081) $ 300,541,445
---------------
---------------
- - -----------------------------------------------------------------
TOTAL RETURN BOND FUND
- - -----------------------------------------------------------------
N/A Strategic Value Bond Portfolio of Core
Trust (Delaware)(e) $ 115,597,950
---------------
TOTAL INVESTMENTS (100.0%) (COST $116,308,024) $ 115,597,950
---------------
---------------
- - -----------------------------------------------------------------
LIMITED TERM TAX-FREE FUND
- - -----------------------------------------------------------------
MUNICIPAL BONDS (97.6%)
ALABAMA (1.9%)
1,000,000 Birmingham Jefferson, AL, Civic Center
Authority Special Tax Bonds, Series B,
7.10%, 1/1/01 $ 1,012,370
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LIMITED TERM TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
ALASKA (2.5%)
1,750,000 North Slope Boro, AK, GO Bonds, Capital
Appreciation, Series B, MBIA insured,
0.00% (4.80% effective yield), 6/30/04 $ 1,337,840
---------------
ARIZONA (4.4%)
1,150,000 Maricopa County, AZ, IDA, MFHR Bonds,
Advantage Point Projects, Series A,
5.75%, 7/1/01 1,178,750
1,155,000 Mesa, AZ, IDA, Healthcare Facilities RV,
Western Health Network B-1, BIG
insured, 7.50%, 1/1/04 1,202,124
---------------
2,380,874
---------------
COLORADO (12.0%)
200,000 Boulder County, CO, Hospital RV,
Longmont United Hospital Project,
4.80%, 12/1/03 203,140
385,000 Boulder County, CO, Hospital RV,
Longmont United Hospital Project,
5.00%, 12/1/05 393,820
1,000,000 Castle Rock Ranch, CO, Public Facilities
RV, 5.70%, 12/1/06(b) 1,077,070
500,000 Colorado Health Facilities Authority RV,
Steamboat Springs Health, 5.30%,
9/15/09 499,325
250,000 Colorado HFA, SFM RV, Series C, 5.00%,
5/1/05 253,640
120,000 Colorado HFA, SFM RV, Series D-I,
remarketed 7/15/94, 6.25%, 12/1/01 124,192
150,000 Colorado HFA, SFM RV, Series D-II,
remarketed 11/15/97, 6.38%, 12/1/01 155,295
220,000 Denver West Metropolitan District, CO,
GO Bonds, Series B, 4.90%, 12/1/03 222,334
205,000 Denver West Metropolitan District, CO,
GO Bonds, Series B, 5.00%, 12/1/04 207,440
290,000 Denver West Metropolitan District, CO,
GO Bonds, Series B, 5.20%, 12/1/06 295,043
355,000 Denver, CO, City & County RV, Helen G.
Bonfils Foundation Project, Series B,
9.50%, 12/1/01 415,865
1,250,000 Larimer County, CO, SD #R1, Poudre
Education Facilities COP, Colorado
Association School Board Lease,
10.00%, 12/1/01 1,488,088
1,070,000 Tellar County, CO, COP, 5.50% V/R,
12/1/09 1,128,722
---------------
6,463,974
---------------
FLORIDA (2.8%)
460,000 Broward County, FL, Resource Recovery
RV, SES Broward Co. LP South Project,
7.95%, 12/1/08 495,406
1,340,000 Plantation, FL, Water & Sewer RV,
Capital Appreciation, MBIA insured,
0.00% (5.68% effective yield), 3/1/03 1,037,415
---------------
1,532,821
---------------
[LOGO]
See Notes to Schedules of Investments
68
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LIMITED TERM TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
IDAHO (1.0%)
15,000 Boise City, ID, HFA RV, Hobbler Place
Project, 5.25%, 2/1/02 $ 15,205
500,000 Pocatello, ID, IDA, Allocation Tax
Increment Bonds, Series B, 7.25%,
12/1/08 534,115
---------------
549,320
---------------
ILLINOIS (9.6%)
1,030,000 Des Plaines, IL, Hospital Facilities RV,
Holy Family Hospital, MBIA insured,
10.63%, 1/1/03, P/R 7/1/02 @ 100 1,192,338
845,000 Illinois Health Facilities RV, Mercy
Hospital Project, 7.10%, 6/1/09 961,568
430,000 Illinois Health Facilities RV, Alexian
Brothers Medical Center Project,
7.00%, 1/1/03 460,255
500,000 Illinois State, Sales Tax RV, Series E,
7.10%, 6/15/98 500,705
1,000,000 Kane, Cook & Du Page Counties, IL, GO
Bonds, SD #46, FSA insured, 7.90%,
1/1/04 1,175,530
500,000 Metropolitan Pier & Exposition
Authority, IL, Dedicated State Tax RV,
McCormick Place Expansion Project,
Series A, AMBAC insured, 4.90%,
12/15/03 518,145
75,000 Waukegan, IL, Board Libor Trustees,
Economic Development RV, Libor
Building Notes, 9.00%, 1/1/99 77,107
80,000 Waukegan, IL, Board Libor Trustees,
Economic Development RV, Libor
Building Notes, 9.00%, 1/1/00 85,544
85,000 Waukegan, IL, Board Libor Trustees,
Economic Development RV, Libor
Building Notes, 8.00%, 1/1/01 92,037
95,000 Waukegan, IL, Board Libor Trustees,
Economic Development RV, Libor
Building Notes, 7.50%, 1/1/02 103,718
---------------
5,166,947
---------------
KANSAS (1.1%)
175,000 Lawrence, KS, Hospital RV, Lawrence
Memorial Hospital, 5.00%, 7/1/02 180,236
225,000 Lawrence, KS, Hospital RV, Lawrence
Memorial Hospital, 5.00%, 7/1/03 232,382
185,000 Lawrence, KS, Hospital RV, Lawrence
Memorial Hospital, 5.00%, 7/1/04 191,314
---------------
603,932
---------------
LOUISIANA (2.4%)
385,000 Louisiana PFA, MFHR Bonds, Edgewood
Apartments, FNMA insured, 5.70%,
6/1/05 402,891
745,000 Shreveport, LA, GO Bonds, MBIA insured,
8.00%, 6/1/03 869,415
---------------
1,272,306
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LIMITED TERM TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
MAINE (0.9%)
445,000 State Street Housing Preservation Corp.,
ME, MFHR Bonds, Project Acquisition,
100 State Street, Series A, HUD
Section 8 LOC, 7.20%, 1/1/02 $ 470,045
---------------
MICHIGAN (9.3%)
570,000 Battle Creek, MI, Economic Development
RV, Kellogg Co. Project, remarketed
8/1/97, 5.13%, 2/1/09 586,895
1,030,000 Detroit, MI, Sewer Disposal RV, 7.10%,
12/15/09 1,188,187
300,000 Lakeview, MI, Community SD, GO Bonds,
FGIC insured, 6.50%, 5/1/05 339,141
305,000 Lakeview, MI, Community SD, GO Bonds,
FGIC insured, 6.50%, 5/1/06 348,097
395,000 Merrill, MI, Community SD, GO Bonds,
FGIC insured, 6.50%, 5/1/05 446,030
1,000,000 Michigan State Hospital Finance
Authority RV, Charity Obligations,
Series D, 4.80%, 11/1/17 1,019,330
2,305,000 Romulus, MI, Community SD, GO Bonds,
Capital Appreciation, Series II, FGIC
insured, 0.00% (4.95% effective
yield), 5/1/22 562,973
450,000 Schoolcraft, MI, Community SD, GO Bonds,
FGIC insured, 6.50%, 5/1/04 503,501
---------------
4,994,154
---------------
MINNESOTA (2.0%)
750,000 Minneapolis, MN, Temporary Package Ramp,
Transportation RV, Series A, 4.75%,
6/1/00 751,095
160,000 St. Cloud, MN, COP, 5.00%, 12/1/03 162,149
170,000 St. Cloud, MN, COP, 5.10%, 12/1/04 173,106
---------------
1,086,350
---------------
MISSOURI (1.2%)
605,000 St. Louis, MO, Regional Convention &
Sports Complex Authority RV, Series C,
7.75%, 8/15/01 632,576
---------------
NEBRASKA (0.8%)
415,000 Nebraska Investment Finance Authority,
Hospital RV, Great Plains Regional
Medical Center Project, 4.80%,
11/15/04 423,188
---------------
NEVADA (3.0%)
1,000,000 Clark County, NV, Flood Control, GO
Bonds, AMBAC insured, 6.10%, 11/1/02 1,071,460
500,000 Clark County, NV, SD, GO Bonds, Series
A, MBIA insured, 7.00%, 6/1/05, P/R
6/1/01 @ 101 546,000
---------------
1,617,460
---------------
[LOGO]
See Notes to Schedules of Investments
69
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LIMITED TERM TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
NEW YORK (9.2%)
840,000 County of Westchester, NY, IDA RV, AGR
Realty Co. Project, 5.75%, 1/1/02 $ 870,181
485,000 New York State Dorm Authority RV,
Capital Appreciation, Series A, FSA
insured, 0.00% (5.29% effective
yield), 7/1/25 338,617
1,000,000 New York State Dorm Authority, Health
Care RV, Good Samaritan Hospital
Suffern, 5.25%, 7/1/05 1,044,740
1,775,000 New York State HFA, EFA RV, State
University Construction, ETM USG COLL,
6.50%, 11/1/06 1,931,431
235,000 New York, NY, GO Bonds, Series F, 5.00%,
8/1/03 241,937
500,000 Syracuse, NY, IDA, PILOT RV, 5.13%,
10/15/02 514,165
---------------
4,941,071
---------------
NORTH CAROLINA (1.4%)
700,000 North Carolina Municipal Power Agency
#1, Catawba Electric RV, 5.90%, 1/1/03 741,979
---------------
OHIO (3.5%)
1,285,000 Akron, OH, Sports Facilities COP,
Municipal Baseball Stadium Project,
0.00% (5.32% effective yield), 12/1/01 1,097,891
230,000 Akron, OH, Sports Facilities COP,
Municipal Baseball Stadium Project,
0.00%, (6.50% effective yield),
12/1/07 210,190
500,000 Ohio State Building Authority RV, Toledo
Government Office Building, 10.13%,
10/1/06 599,990
---------------
1,908,071
---------------
PENNSYLVANIA (6.6%)
1,500,000 Pennsylvania HEFA RV, Allegheny General
Hospital, Series A, 7.13%, 9/1/07 1,627,140
265,000 Philadelphia, PA, Gas Works RV,
Thirteenth Series, 7.50%, 6/15/01 288,871
470,000 Philadelphia, PA, IDA RV, Gallery II
Garage Project, 6.13%, 2/15/03 485,895
1,000,000 Windber, PA, Area Authority Hospital RV,
Windber Hospital Project, FHA insured,
6.50%, 2/1/30, P/R 8/1/05 @ 102 1,146,530
---------------
3,548,436
---------------
SOUTH CAROLINA (2.0%)
250,000 Medical University of SC, Hospital
Facilities RV, Series A, 7.00%, 7/1/02 268,015
250,000 Medical University of SC, Hospital
Facilities RV, Series A, 7.20%, 7/1/05 267,650
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LIMITED TERM TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
SOUTH CAROLINA (continued)
500,000 South Carolina Educational Television
Community COP, ETV Endowment of South
Carolina, Inc., FSA insured, 6.40%,
9/1/02 $ 545,165
---------------
1,080,830
---------------
TEXAS (14.6%)
405,000 Desoto, TX, Housing Finance Corp., MFHR
Bonds, Windsor Foundation Project,
Series A, 6.13%, 2/1/05 444,694
1,010,000 Grand Prairie, TX, Health Facilities RV,
Dallas/Fort Worth Medical Center
Project, 6.00%, 11/1/99 1,029,180
535,000 Grape Creek-Pulliam, TX, Independent SD,
EFA RV, Public Facilities Corp.,
6.20%, 5/15/02 553,859
250,000 Harlandale, TX, Independent SD, Public
Facilites Corp., Lease RV, 5.20%,
10/15/06 257,165
750,000 Houston, TX, Housing Finance Corp., SFM
RV, Series A-1, 8.00%, 6/1/14 810,120
250,000 Houston, TX, Housing Finance Corp., SFM
RV, Series B-1, 8.00%, 6/1/14 270,040
1,160,000 Lyford, TX, Consolidated Independent SD,
Educational Facilities RV, 5.00%,
8/15/07 1,166,716
3,100,000 Midland County, TX, Hospital District
RV, Capital Appreciation, AMBAC
insured, 0.00% (5.73% effective
yield), 6/1/07 1,959,851
855,000 San Antonio, TX, HEFA, Educational
Facilities RV, University of Texas at
San Antonio, Phase I, 6.50%, 11/1/01 882,770
490,000 Texas Water Resource Finance Authority
RV, AMBAC insured, 7.50%, 8/15/03 510,600
---------------
7,884,995
---------------
UTAH (0.9%)
105,000 West VY City, UT, Redevelopment Agency
Tax Increment RV, 4.55%, 3/1/00 105,848
100,000 West VY City, UT, Redevelopment Agency
Tax Increment RV, 4.70%, 3/1/01 101,295
70,000 West VY City, UT, Redevelopment Agency
Tax Increment RV, 4.80%, 3/1/02 71,185
105,000 West VY City, UT, Redevelopment Agency
Tax Increment RV, 5.00%, 3/1/03 107,829
100,000 West VY City, UT, Redevelopment Agency
Tax Increment RV, 5.10%, 3/1/04 103,287
---------------
489,444
---------------
WASHINGTON (3.6%)
850,000 Seattle, WA, MFHR Bonds, Market House
Elderly Housing, Series A, 6.20%,
2/1/04 876,656
[LOGO]
See Notes to Schedules of Investments
70
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LIMITED TERM TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
WASHINGTON (continued)
1,000,000 Washington State Public Power Supply,
System Nuclear Project #2, Power RV,
FGIC insured, 6.50%, 7/1/05, P/R
7/1/01 @ 102 $ 1,087,630
---------------
1,964,286
---------------
WISCONSIN (0.9%)
500,000 Wisconsin Housing & EDA, Housing RV,
Series A, HUD insured, 6.20%, 11/1/01 523,739
---------------
TOTAL MUNICIPAL BONDS (COST $51,530,709) 52,627,008
---------------
SHORT-TERM HOLDINGS (2.4%)
1,313,274 Municipal Money Market Fund (cost
$1,313,274) 1,313,274
---------------
TOTAL INVESTMENTS (100.0%) (COST $52,843,983) $ 53,940,282
---------------
---------------
- - -----------------------------------------------------------------
TAX-FREE INCOME FUND
- - -----------------------------------------------------------------
MUNICIPAL BONDS (98.6%)
ARIZONA (1.5%)
3,000,000 Maricopa County, AZ, Union SD #48, GO
Bonds, School Improvements, 9.00%,
7/1/05 $ 3,851,400
1,000,000 Show Low, AZ, IDA Hospital RV, Navapache
Regional Medical Center, Series A, ACA
insured, 5.50%, 12/1/17 1,011,050
---------------
4,862,450
---------------
CALIFORNIA (3.2%)
1,910,000 Los Angeles, CA, Community Redevelopment
Agency Housing RV, Monterey Hills
Redevelopment Project, Series A,
8.20%, 12/1/13 2,177,285
7,000,000 Metropolitan Water District, Southern
California, Waterworks RV, Regional
RIBS; inverse floater, 7.50% V/R,
8/10/18 8,338,750
---------------
10,516,035
---------------
COLORADO (11.4%)
5,595,000 Adams County, CO, SFM RV, Series A-2,
8.70%, 6/1/12 6,057,650
1,750,000 Arapahoe County, CO, Utilities RV, Water
& Wastewater Authority, 6.25%, 12/1/20 1,856,575
1,000,000 Colorado HFA, GO Bonds, Series A, 7.40%,
5/1/11 1,063,470
1,500,000 Colorado HFA, SFM RV, Series A-2, 7.15%,
11/1/14 1,696,080
2,620,000 Colorado HFA, SFM RV, Series B-2, 7.50%,
12/1/16 2,943,754
3,415,000 Colorado HFA, SFM RV, Series C, 7.90%,
12/1/24 3,826,644
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
TAX-FREE INCOME FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
COLORADO (continued)
3,175,000 Colorado HFA, SFM RV, Series D-1,
remarketed 7/15/94, 8.00%, 12/1/24 $ 3,587,179
2,420,000 Colorado HFA, SFM RV, Series D-2,
remarketed 11/15/94, 8.13%, 6/1/25 2,740,021
5,200,000 Denver, CO, Urban Renewal Authority, Tax
Increment RV, remarketed 6/15/94,
9.13%, 9/1/17 6,180,096
3,500,000 El Paso County, CO, SD #11, Colorado
Springs, GO Bonds, 7.10%, 12/1/17 4,439,610
645,000 Logan County, CO, SFM RV, Series A,
8.50%, 11/1/11 691,143
1,000,000 Northern Metropolitan District, CO, RV,
Adams County, 6.50%, 12/1/16 1,056,880
940,000 Vail, CO, SFM RV, Series 1992 A, 8.13%,
6/1/10 1,017,813
---------------
37,156,915
---------------
FLORIDA (1.9%)
3,000,000 Lakeland, FL, Electric & Water RV, FGIC
insured, 6.00%, 10/1/14 3,407,910
17,400,000 Miami-Dade County, FL, Special
Obligation RV, Series B, MBIA insured,
0.00% (5.66% effective yield), 10/1/32 2,737,542
---------------
6,145,452
---------------
GEORGIA (1.2%)
3,650,000 Georgia Municipal Electric Authority
Power RV, Series BB, MBIA insured,
5.25%, 1/1/25 3,745,192
---------------
HAWAII (2.4%)
7,250,000 Hawaii State Department of Budget &
Finance, Health Care RV, The Queens
Health Systems, Series A, 5.75%,
7/1/26 7,641,065
---------------
IDAHO (0.2%)
500,000 Pocatello, ID, IDA, Allocation Tax
Increment Bonds, Series B, 7.25%,
12/1/08 534,115
---------------
ILLINOIS (11.3%)
1,800,000 Illinois Development Financial Authority
RV, Community Rehabilitation
Providers, Series A, 7.88%, 7/1/20 2,204,352
1,000,000 Illinois Development Financial Authority
RV, Community Rehabilitation
Providers, Series A, 7.88%, 7/1/20 1,126,240
2,450,000 Illinois Educational Facilities
Authority RV, Capital Appreciation,
ETM, 0.00% (5.95% to 6.22% effective
yield), 7/1/14 963,904
1,120,000 Illinois Health Facilities Authority,
Health Care RV, Edgewater Medical
Center, Series A, 9.25%, 7/1/24 1,427,272
2,500,000 Illinois Housing Development Authority,
Health Care RV, Provena Health, Series
A, MBIA insured, 5.13%, 5/15/23 2,433,025
[LOGO]
See Notes to Schedules of Investments
71
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
TAX-FREE INCOME FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
ILLINOIS (continued)
2,150,000 Illinois State Sales Tax RV, Series P,
6.50%, 6/15/22 $ 2,591,374
5,000,000 Kane, Cook & Du Page Counties, IL, GO
Bonds, SD #46, FSA insured, 5.35%,
1/1/15 5,138,050
1,025,000 Lake County, IL, Community Unit SD #116,
Educational Facilities RV, Rund Lake,
7.60%, 2/1/13 1,294,708
7,350,000 Regional Transportation Authority, IL,
Sales Tax RV, Series D, FGIC insured,
7.75%, 6/1/19 9,963,366
8,000,000 Regional Transportation Authority, IL,
Transportation RV, FGIC insured,
6.00%, 6/1/23 9,159,600
350,000 Waukegan, IL, Board Libor Trustees,
Libor Building Notes, 5.90%, 1/1/17 363,381
---------------
36,665,272
---------------
INDIANA (1.0%)
2,900,000 Indiana Transportation Financial
Authority Highway RV, Series A, AMBAC
insured, 5.25%, 6/1/15 3,026,440
---------------
KANSAS (3.1%)
3,175,000 Kansas State, DOT, Highway RV, Series A,
7.25%, 9/1/08 3,898,868
1,000,000 Newton, KS, Hospital RV, Newton
Healthcare Corp., Series A, 5.70%,
11/15/18 1,006,390
500,000 Newton, KS, Hospital RV, Newton
Healthcare Corp., Series A, 5.75%,
11/15/24 503,190
4,150,000 Sedgwick & Shawnee Counties, KS, SFM RV,
Mortgage Backed Securities, Series
A-2, Step Coupon, GNMA COLL, 5.50%,
6/1/29 4,664,600
---------------
10,073,048
---------------
LOUISIANA (0.9%)
405,000 East Baton Rouge, LA, Mortgage Finance
Authority, SFM RV, Series 1988 C, GNMA
COLL, 8.38%, 2/1/17 418,349
5,000,000 Rapides Parish, LA, Housing & Mortgage
Finance Authority, Capital
Appreciation RV, Series C, 0.00%,
(7.45% effective yield), 7/10/14 1,704,600
2,900,000 St. Bernard Parish, LA, Housing Mortgage
Agency, SFM RV, Series 1992 C, 0.00%,
(7.65% effective yield), 7/10/14 884,181
---------------
3,007,130
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
TAX-FREE INCOME FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
MASSACHUSETTS (8.4%)
4,000,000 Massachusetts Bay Transportation
Authority, General Transporation,
Series A, Utilities RV, FGIC insured,
5.00%, 3/1/27 $ 3,910,160
5,325,000 Massachusetts Bay Transportation
Authority, General Transportation
System RV, Series B, 6.20%, 3/1/16 6,118,532
2,500,000 Massachusetts State College Building
Authority, Educational Facilities RV,
Series A, 7.50%, 5/1/14 3,232,200
2,500,000 Massachusetts State Industrial Finance
Agency, Nursing Home RV, FHA-
University Commons Nursing, Series A,
FHA insured, 6.65%, 8/1/38 2,784,000
8,350,000 Massachusetts State Turnpike Authority,
Metropolitan Highway System RV, Series
A, MBIA insured, 5.00%, 1/1/37 8,072,780
2,500,000 Massachusetts State, HEHFA RV,
Massachusetts Institute of Technology,
Series I-1, 5.20%, 1/1/28 2,592,475
590,000 New Bedford, MA, IDA RV, Aerovox, Inc.
Project, Series 1982, 7.42%, 7/1/02 596,962
---------------
27,307,109
---------------
MICHIGAN (1.1%)
2,760,000 Wayland, MI, Unified SD, GO Bonds, FGIC
insured, 8.00%, 5/1/10 3,618,139
---------------
MISSISSIPPI (0.2%)
2,000,000 Mississippi Home Corp., Residual Capital
Appreciation RV, Series 1992 II, 0.00%
(7.38% effective yield), 4/15/12 759,520
---------------
NEBRASKA (0.3%)
1,000,000 Nebraska Investment Finance Authority,
Hospital RV, Great Plains Regional
Medical Center Project, 5.45%,
11/15/17 1,011,880
---------------
NEW HAMPSHIRE (0.7%)
1,590,000 New Hampshire HEHFA RV, New London
Hospital Association Project, 7.00%,
6/1/00 1,648,130
500,000 New Hampshire HEHFA RV, Androscoggin
Valley Hospital, AMBAC insured, 5.38%,
11/1/27 524,255
---------------
2,172,385
---------------
NEW MEXICO (4.5%)
5,295,000 Bernalillo County, NM, Gross Receipts
Tax RV, Series B, 5.70%, 4/1/27 5,857,488
1,110,000 Hobbs, NM, SFM RV, 8.75%, 7/1/11 1,238,105
6,585,000 Santa Fe County, NM, Correctional
Systems RV, FSA insured, 6.00%, 2/1/27 7,604,029
---------------
14,699,622
---------------
[LOGO]
See Notes to Schedules of Investments
72
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
TAX-FREE INCOME FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
NEW YORK (17.2%)
4,500,000 Long Island Power Authority, NY,
Electric System RV, Series A, 5.75%,
12/1/24 $ 4,725,270
5,600,000 Long Island Power Authority, NY,
Electric System RV, Series A, 5.50%,
12/1/29 5,663,952
5,000,000 Metropolitan Transporation Authority,
NY, Commuter Facilities RV, Series A,
MBIA insured, 5.63%, 7/1/27 5,241,600
10,000,000 Metropolitan Transportation Authority,
NY, Transportation Facilities RV,
Series A, MBIA insured, 5.63%, 7/1/25 10,483,200
1,200,000 New York State Dorm Authority, Health
Care RV, Good Samaritan Hospital
Suffern, 5.50%, 7/1/10 1,270,092
7,500,000 New York State LOC Assistance Corp., RV,
Series E, 5.25%, 4/1/16 7,737,000
1,480,000 New York, NY, GO Bonds, Series B-1,
7.30%, 8/15/10, P/R 8/15/04 @ 101 1,743,855
1,340,000 New York, NY, GO Bonds, Series B-1,
7.38%, 8/15/13, P/R 8/15/04 @ 101 1,579,498
1,500,000 New York, NY, GO Bonds, Series F, 5.00%,
8/1/23 1,439,745
15,000,000 Port Authority of New York & New Jersey,
Consolidated Eighty-Fifth Series,
5.38%, 3/1/28 15,879,450
---------------
55,763,662
---------------
NORTH CAROLINA (0.7%)
2,250,000 North Carolina EFA RV, St. Augustine
College, Asset Guaranty, LOC, 5.25%,
10/1/28 2,232,945
---------------
OHIO (0.3%)
1,000,000 Scioto County, OH, Marine Terminal RV,
Norfolk Southern Corp. Project, 5.30%,
8/15/13 1,006,680
---------------
OKLAHOMA (0.4%)
1,245,000 Tulsa, OK, IDA RV, University of Tulsa,
Series A, MBIA insured, 6.00%, 10/1/16 1,399,654
---------------
PUERTO RICO (1.0%)
3,500,000 Puerto Rico Commonwealth Highway &
Transportation Authority RV, Series A,
4.75%, 7/1/38 3,291,540
---------------
SOUTH CAROLINA (4.5%)
7,500,000 Piedmont, SC, Municipal Power Agency,
Electric RV, Series A, 6.55%, 1/1/16 7,509,600
5,725,000 Piedmont, SC, Municipal Power Agency,
Electric RV, Series A, 6.60%, 1/1/21 5,732,557
1,250,000 Richland County, SC, Hospital Facilities
RV, Community Provider Pooled Loan
Program, Series A, FSA insured, ETM,
7.13%, 7/1/17 1,498,363
---------------
14,740,520
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
TAX-FREE INCOME FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
SOUTH DAKOTA (1.3%)
3,500,000 South Dakota State, HEHFA RV, Huron
Regional Medical Center, 7.30%, 4/1/16 $ 4,221,176
---------------
TEXAS (10.9%)
490,000 Baytown, TX, Housing Finance Corp., SFM
RV, Series 1992 A, 8.50%, 9/1/11 552,544
2,210,000 Beaumont, TX, Housing Finance Corp. RV,
9.20%, 3/1/12 2,478,935
2,250,000 Carroll, TX, ISD, GO Bonds, 5.38%,
2/15/35 2,284,673
1,900,000 Corpus Christi, TX, HFA, Housing RV,
Series A, MBIA insured, 7.70%, 7/1/11 2,098,588
2,395,000 Desoto, TX, Housing Finance Corp., MFHR
Bonds, Windsor Foundation Project,
Series A, 7.00%, 2/1/25 2,801,455
255,000 El Paso, TX, Housing Finance Corp., SFM
RV, Series A, 8.75%, 10/1/11 285,008
350,000 Galveston County, TX, Property Finance
Authority, Inc., SFM RV, Series A,
8.50%, 9/1/11 378,907
1,300,000 Grape Creek-Pulliam, TX, Independent SD
Public Facilities Corp., GO Bonds,
7.25%, 5/15/21 1,449,422
1,115,000 Harlandale, TX, ISD Public Facilites
Corp. Lease RV, 5.50%, 10/15/12 1,147,246
6,250,000 Houston, TX, Housing Finance Corp., SFM
RV, Series A-1, 8.00%, 6/1/14 6,751,000
2,250,000 Houston, TX, Housing Finance Corp., SFM
RV, Series B-1, 8.00%, 6/1/14 2,430,360
2,000,000 Lyford, TX, Consolidated Independent SD,
Educational Facilities RV, 5.50%,
8/15/22 1,997,160
4,000,000 Midland County, TX, Hospital District
RV, Capital Appreciation, 0.00% (5.85%
effective yield), 6/1/11 1,998,560
1,415,000 Port Arthur, TX, Housing Finance Corp.,
SFM RV, 8.70%, 3/1/12 1,557,491
4,180,000 San Antonio, TX, HEHFA RV, 7.13%,
11/1/15 4,579,274
2,200,000 Texas State Department of Housing &
Community Affairs, SFM RV, Series A,
8.10%, 9/1/15 2,504,942
---------------
35,295,565
---------------
UTAH (0.2%)
750,000 Salt Lake County, UT, EFA RV,
Westminister College Project, 5.75%,
10/1/27 768,135
---------------
VIRGINIA (1.0%)
3,000,000 Fairfax County, VA, Redevelopment &
Housing Authority, MFHR Bonds, Burke
Shire Commons, 7.60%, 10/1/36 3,231,180
---------------
WASHINGTON (5.6%)
1,748,000 Kitsap County, WA, Housing Authority,
MFHR Bonds, Low Income Housing, GNMA
COLL, 7.10%, 2/20/16 2,029,633
[LOGO]
See Notes to Schedules of Investments
73
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
TAX-FREE INCOME FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
WASHINGTON (continued)
4,000,000 Washington Public Power Supply System,
Power RV, Nuclear Project #1, Series
A, 6.00%, 7/1/07 $ 4,424,480
2,750,000 Washington Public Power Supply System,
Power RV, Nuclear Project #2, Series
A, 6.00%, 7/1/07 3,023,570
1,620,000 Washington State Housing Finance
Commission, Nonprofit Housing RV, VA
Mason Research Center Project, Series
A, U.S. Bank of Washington, LOC,
5.65%, 1/1/19 1,687,068
3,500,000 Washington State Housing Finance
Commission, Nonprofit Housing RV, VA
Mason Research Center Project, Series
A, U.S. Bank of Washington, LOC,
5.70%, 1/1/24 3,656,905
3,000,000 Yakima County, WA, SD #007, GO Bonds,
MBIA insured, 6.75%, 12/1/06 3,498,030
---------------
18,319,686
---------------
WASHINGTON, D.C. (2.2%)
4,305,000 District of Columbia, EFA RV, Howard
University, MBIA insured, 5.50%,
10/1/15 4,578,109
2,500,000 District of Columbia, EFA RV, Howard
University, MBIA insured, 5.50%,
10/1/18 2,651,650
---------------
7,229,759
---------------
TOTAL MUNICIPAL BONDS (COST $302,246,574) 320,442,271
---------------
SHORT-TERM HOLDINGS (1.4%)
3,132,227 Municipal Money Market Fund 3,132,227
490,000 Moorhead, MN, IDA RV, SuperValu Store
Project, Wachovia Bank, LOC, 3.70%
V/R, 11/1/09(c) 490,000
800,000 St. Louis Park, MN, IDA RV, Unicare
Homes, Inc. Project, Banque Paribas
LOC, 3.90% V/R, 8/1/14(c) 800,000
---------------
TOTAL SHORT-TERM HOLDINGS (COST $4,422,227) 4,422,227
---------------
TOTAL INVESTMENTS (100.0%) (COST $306,668,801) $ 324,864,498
---------------
---------------
- - -----------------------------------------------------------------
COLORADO TAX-FREE FUND
- - -----------------------------------------------------------------
MUNICIPAL BONDS (94.4%)
AIRPORT REVENUE (3.5%)
1,000,000 Denver, CO, City & County, Airport RV,
Series A, MBIA insured, 5.60%,
11/15/20 $ 1,042,470
1,500,000 Denver, CO, City & County, Airport RV,
Series A, MBIA insured, 5.50%,
11/15/25 1,550,595
---------------
2,593,065
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
COLORADO TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
CERTIFICATES OF PARTICIPATION & LEASE REVENUE (4.2%)
1,880,000 Auraria Higher Educational Center, CO,
COP, Administrative Office Facilities
Project, AMBAC insured, 5.13%, 5/1/28 $ 1,850,221
1,210,000 Montrose County, CO, COP, Series A,
6.40%, 12/1/12 1,316,165
---------------
3,166,386
---------------
ESCROWED IN TREASURIES (3.8%)
1,000,000 Colorado HFA, SFM RV, Capital
Appreciation, Prerefunded, Series A,
ETM, 0.00% (5.40% effective yield),
9/1/14 444,890
9,000,000 Dawson Ridge Metropolitan District No.1,
CO, GO Bonds, Series A, 0.00% (5.63%
effective yield), 10/1/22 2,363,400
---------------
2,808,290
---------------
GENERAL OBLIGATION (16.2%)
500,000 Centennial 25 Metropolitan District, CO,
GO Bonds, Arapahoe County, 6.38%,
12/1/16 534,460
500,000 Denver, CO, City & County SD #1, GO
Bonds, Series A, 6.50%, 6/1/10 590,190
390,000 Denver West Metropolitan District, CO,
GO Bonds, Series B, 5.60%, 12/1/12 401,673
2,500,000 El Paso County, CO, SD #11, Colorado
Springs, GO Bonds, 7.10%, 12/1/17 3,171,150
1,000,000 Highlands Ranch, CO, Metropolitan
District #2, UTGO Bonds, FSA insured,
6.50%, 6/15/11 1,181,010
1,100,000 Highlands Ranch, CO, Metropolitan
District #2, GO Bonds, FSA insured,
6.50%, 6/15/12 1,300,607
350,000 Highlands Ranch, CO, Metropolitan
District #4, UTGO Bonds, Series A,
6.10%, 12/1/11 372,985
800,000 Highlands Ranch, CO, Metropolitan
District #4, UTGO Bonds, Series A,
6.30%, 12/1/17 861,304
2,500,000 Metex Metropolitan District, CO, GO
Bonds, Series A, 5.80%, 12/1/16 2,692,250
1,000,000 Northern Metropolitan District, CO, GO
Bonds, Adams County, 6.50%, 12/1/16 1,056,880
---------------
12,162,509
---------------
HEALTH CARE REVENUE (12.8%)
1,000,000 Boulder County, CO, Hospital RV,
Longmont United Hospital Project,
5.60%, 12/1/03 1,019,550
1,000,000 Boulder County, CO, Hospital RV,
Longmont United Hospital Project,
5.60%, 12/1/17 1,019,550
1,000,000 Colorado Health Facilities Authority RV,
Catholic Health Initiatives, Series A,
5.00%, 12/1/18 989,250
1,500,000 Colorado Health Facilities Authority RV,
Steamboat Springs Health, 5.75%,
9/15/22 1,523,520
750,000 Colorado Health Facilities Authority RV,
Catholic Health Initiatives, Series A,
5.13%, 12/1/22 745,335
[LOGO]
See Notes to Schedules of Investments
74
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
COLORADO TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
HEALTH CARE REVENUE (continued)
1,000,000 Colorado Health Facilities Authority RV,
National Jewish Medical & Research
Center, 5.38%, 1/1/28 $ 974,660
1,250,000 Colorado Health Facilities Authority RV,
Sisters of Charity, Series A, AMBAC
insured, 6.25%, 5/15/11 1,445,013
2,000,000 Colorado Health Facilities Authority RV,
Sisters of Charity Leavenworth, MBIA
insured, 5%, 12/1/25 1,941,820
---------------
9,658,698
---------------
INDUSTRIAL DEVELOPMENT REVENUE (3.7%)
2,000,000 Fort Collins, CO, PCR Bonds, Anheuser
Busch Project, 6.00%, 9/1/31 2,141,980
500,000 Summit County, CO, Sports Facilities RV,
Keystone Resorts Management Project,
guaranteed by Ralston Purina Corp.,
7.38%, 9/1/10 608,400
---------------
2,750,380
---------------
JAIL FACILITIES REVENUE (2.1%)
1,525,000 Tellar County, CO, COP, 5.75%, 12/1/18 1,586,122
---------------
MULTI-FAMILY HOUSING REVENUE (3.8%)
300,000 Aurora, CO, Housing Authority Finance
Corp., MFHR Bonds, Mountainview Place,
FHA insured, 7.13%, 9/1/22 321,909
1,000,000 Denver, CO, City & County, MFHR Bonds,
FHA Insured Mortgage Loan, Garden
Court, 5.30%, 7/1/28 995,480
1,500,000 San Miguel County, CO, HFA, MFHR Bonds,
Telluride Village Apartments Project,
6.40%, 7/1/23 1,572,120
---------------
2,889,509
---------------
OTHER REVENUE (8.6%)
3,000,000 Castle Rock Ranch, CO, Public Facilities
Revenue, 6.25%, 12/1/17(b) 3,484,320
3,000,000 Denver, CO, City & County RV, Helen G.
Bonfils Foundation Project, Series B,
5.13%, 12/1/17 3,003,330
---------------
6,487,650
---------------
PARKING REVENUE (0.5%)
345,000 Pueblo, CO, COP, Public Parking-Lease,
Purchase & Sublease, 6.90%, 7/1/15 378,351
---------------
SALES TAX REVENUE (5.7%)
1,490,000 Arapahoe County, CO, Capital
Improvements & Transportation Highway
RV, Series E-470, MBIA insured,
remarketed 8/31/95, 6.15%, 8/31/26 1,658,161
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
COLORADO TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
SALES TAX REVENUE (continued)
140,000 Blackhawk, CO, Device Tax RV, 5.60%,
12/1/04 $ 148,439
145,000 Blackhawk, CO, Device Tax RV, 5.70%,
12/1/05 154,837
2,500,000 Puerto Rico Commonwealth Highway &
Transportation Authority RV, Series A,
4.75%, 7/1/38 2,351,100
---------------
4,312,537
---------------
SINGLE FAMILY HOUSING REVENUE (20.9%)
1,475,000 Adams County, CO, SFM RV, Series A-2,
8.70%, 6/1/12 1,596,968
405,000 Colorado HFA, SFM RV, Series B-2, 7.50%,
12/1/16 455,046
3,390,000 Colorado HFA, SFM RV, Series B-2, 7.45%,
11/1/27 3,891,313
1,490,000 Colorado HFA, SFM RV, Series C-2, 7.45%,
6/1/17 1,687,544
1,430,000 Colorado HFA, SFM RV, Series D-1,
remarketed 7/15/94, 8.00%, 12/1/24 1,615,642
1,650,000 Colorado HFA, SFM RV, Series D-2, 7.10%,
6/1/14 1,861,283
2,550,000 Colorado HFA, SFM RV, Series D-2,
remarketed 11/15/94, 8.13%, 6/1/25 2,887,212
3,990,000 Larimer County, CO, SFM RV, Capital
Accumulator A, Remarketed 2/15/94,
ETM, 0.00% (5.50% effective yield),
8/1/15 1,681,745
---------------
15,676,753
---------------
TOLL ROAD REVENUE (4.8%)
15,000,000 E-470 Public Highway Authority, CO,
Transportation RV, Capital
Appreciation, Series B, MBIA insured,
0.00% (5.52% effective yield), 9/1/25 3,644,400
---------------
WATER & SEWER REVENUE (3.8%)
1,250,000 Arapahoe County, CO, Utilities RV, Water
& Wastewater Authority Revenue, 6.25%,
12/1/20 1,326,125
1,500,000 Colorado Springs, CO, Utilities RV,
Series A, 5.38%, 11/15/26 1,530,615
---------------
2,856,740
---------------
TOTAL MUNICIPAL BONDS (COST $66,635,248) 70,971,390
---------------
SHORT TERM HOLDINGS (5.6%)
454,265 Municipal Money Market Fund 454,265
1,000,000 Moffat County, CO, PCR Bonds, AMBAC
insured, 3.95% V/R, 7/1/10(c) 1,000,000
[LOGO]
See Notes to Schedules of Investments
75
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
COLORADO TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
SHORT TERM HOLDINGS (continued)
2,750,000 Pitkin County, CO, MFHR Bonds,
Centennial, Series A, Credit Lyonnais,
LOC, 3.75% V/R, 12/1/24(c) $ 2,750,000
---------------
4,204,265
---------------
TOTAL SHORT TERM HOLDINGS (COST $4,204,265) 4,204,265
---------------
TOTAL INVESTMENTS (100.0%) (COST $70,839,513) $ 75,175,655
---------------
---------------
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND
- - -----------------------------------------------------------------
MUNICIPAL BONDS (98.4%)
EDUCATION FACILITIES REVENUE (7.0%)
1,000,000 Hopkins, MN, Educational Facilities RV,
Blake School Project, 5.35%, 9/1/17 $ 1,024,110
1,500,000 Minnesota State HEFA RV, Carleton
College, Series 4N, 5.00%, 11/1/18 1,490,445
430,000 Minnesota State HEFA RV, Macalester
College, Series 3J, 6.10%, 3/1/05 457,313
1,250,000 Minnesota State HEFA RV, Series 2X,
Northwestern College, 8.50%, 10/1/05 1,308,650
150,000 Minnesota State HEFA RV, St. Mary's
College, Series 3Q, 5.70%, 10/1/03 159,582
280,000 Minnesota State HEFA RV, St. Mary's
College, Series 3Q, 5.80%, 10/1/04 300,328
295,000 Minnesota State HEFA RV, St. Mary's
College, Series 3Q, 5.90%, 10/1/05 316,349
340,000 Minnesota State HEFA RV, St. Mary's
College, Series 3Q, 6.00%, 10/1/08 358,180
485,000 Minnesota State HEFA RV, University of
St. Thomas, Series 3I, 6.00%, 10/1/99 498,516
400,000 Northfield, MN, Educational Facilities
RV, St. Olaf College Project, 6.05%,
10/1/04 431,252
3,750,000 University of Minnesota Educational
Facilities RV, Series A, 5.50%, 7/1/21 4,010,250
2,000,000 University of Minnesota Educational
Facilities RV, Series A, 5.50%, 7/1/08 2,164,880
1,000,000 University of Minnesota Educational
Facilities RV, Series A, 5.75%, 7/1/11 1,107,420
1,000,000 University of Minnesota Educational
Facilities RV, Series A, 5.75%, 7/1/18 1,098,350
---------------
14,725,625
---------------
ELECTRIC REVENUE (11.8%)
500,000 Moorhead, MN, Public Utilities RV,
Series A, MBIA insured, 5.75%, 11/1/03 532,415
260,000 New Praque, MN, Electric RV, 7.00%,
10/1/05 270,327
3,000,000 Northern Minnesota Municipal Power
Agency, Electric RV, FSA insured,
5.50%, 1/1/08 3,233,850
275,000 Northern Minnesota Municipal Power
Agency, Electric System RV, Series A,
7.20%, 1/1/99 280,495
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
ELECTRIC REVENUE (continued)
2,000,000 Northern Minnesota Municipal Power
Agency, Electric System RV, Series B,
AMBAC insured, 5.50%, 1/1/18 $ 2,054,320
115,000 Puerto Rico Electric Power Authority RV,
Series N, Unrefunded Balance, 7.00%,
7/1/07 120,161
1,000,000 Puerto Rico Electric Power Authority RV,
Series S, 6.13%, 7/1/08 1,138,400
2,500,000 Puerto Rico Electric Power Authority RV,
Series X, 5.50%, 7/1/25 2,537,950
6,200,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV,
Capital Appreciation, Series A, MBIA
insured, 0.00% (6.07% effective
yield), 1/1/20 2,072,784
1,000,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV, Series
A, 5.00%, 1/1/12 1,000,790
2,155,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV, Series
A, AMBAC-TCRS insured, 5.00%, 1/1/09 2,196,075
10,000,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV, Series
A, MBIA insured, 0.00% (5.78%
effective yield), 1/1/24 2,718,101
2,830,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV, Series
B, AMBAC-TCRS insured, 5.00%, 1/1/10 2,888,977
955,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV,
Unrefunded Balance, Series A, 5.50%,
1/1/03 1,001,623
1,000,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV,
Unrefunded Balance, Series B, 5.80%,
1/1/07 1,076,100
1,430,000 Western Minnesota Municipal Power
Agency, Power RV, Series A, 6.13%,
1/1/16 1,432,560
---------------
24,554,928
---------------
ESCROWED IN TREASURIES (22.3%)
500,000 Alexandria, MN, Independent SD #206, GO
Bonds, Series A, 6.00%, 2/1/04 535,380
250,000 Alexandria, MN, Independent SD #206, GO
Bonds, Series A, 6.15%, 2/1/06 269,260
250,000 Alexandria, MN, Independent SD #206, GO
Bonds, Series A, 6.20%, 2/1/07 269,785
100,000 Anoka County, MN, GO Bonds, 7.00%,
2/1/02, crossover refunding 2/1/99 @
100 102,083
300,000 Anoka County, MN, GO Bonds, Capital
Improvements, Series B, 7.00%, 2/1/05 306,249
1,025,000 Anoka-Hennepin, MN, Independent SD #11,
GO Bonds, Series 1991 A, FSA insured,
6.75%, 2/1/09 1,071,483
[LOGO]
See Notes to Schedules of Investments
76
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
ESCROWED IN TREASURIES (continued)
1,100,000 Anoka-Hennepin, MN, Independent SD #11,
GO Bonds, Series 1991 A, FSA insured,
6.75%, 2/1/10 $ 1,149,885
1,500,000 Bemidji, MN, Hospital Facilities, First
Mortgage RV, North Country Health
Services Project, Series 1991 A,
Goldman Sachs & Co., LOC, 7.00%,
9/1/11,
P/R 9/1/01 @ 102 1,660,140
160,000 Blaine, MN, IDR Bonds, Ball Corp.
Project, ETM USG, 7.13%, 12/1/04 185,364
640,000 Centennial, MN, Independent SD #12, GO
Bonds, Series A, FSA insured, 7.15%,
2/1/10 673,222
1,250,000 Chaska, MN, Independent SD #112, GO
Bonds, Series B, 5.75%, 2/1/07 1,359,637
1,000,000 Chaska, MN, Independent SD #112, GO
Bonds, Series B, 5.75%, 2/1/09 1,087,710
750,000 Commonwealth of Puerto Rico Highway &
Transportation Authority RV, Series N,
8.00%, 7/1/03 767,677
205,000 Duluth, MN, GO Bonds, COLL by USG,
6.10%, 8/1/02, P/R 8/1/00 @ 100 214,171
210,000 Duluth, MN, GO Bonds, COLL by USG,
6.20%, 8/1/03, P/R 8/1/00 @ 100 219,828
215,000 Duluth, MN, GO Bonds, COLL by USG,
6.30%, 8/1/04, P/R 8/1/00 @ 100 225,504
1,250,000 Edina, MN, Hospital System RV, Fairview
Hospital, Series A, 7.13%, 7/1/06 1,318,350
1,100,000 Mankato, MN, Independent SD #77, GO
Bonds, Series A, FSA insured, 6.35%,
2/1/13, crossover refunding 2/1/02 @
100 1,183,501
300,000 Mankato, MN, Nursing Home RV, Mankato
Lutheran Home Project, Series A, COLL
by USG, 8.00%, 10/1/11,
P/R 10/1/01 @ 102 340,821
500,000 Metropolitan Council, MN, Go Bonds,
Minneapolis-St Paul Metropolitan Area,
7.10%, 12/1/02, crossover refunding
12/1/99 @ 100 523,920
500,000 Minneapolis, MN, GO Bonds, 7.00%, 4/1/02 513,410
155,000 Minneapolis, MN, GO Bonds, 7.10%,
12/1/01 162,450
165,000 Minneapolis, MN, GO Bonds, 7.10%,
12/1/02 172,931
375,000 Minneapolis, MN, Hospital Facilities RV,
Abbott Northwestern Hospital Inc.,
COLL by USG, ETM, 6.50%, 12/1/06 403,623
1,500,000 Minneapolis, MN, Hospital Facilities RV,
Life Span Inc., AMBAC-TCRS insured,
COLL by USG, 7.00%, 12/1/14, P/R
12/1/99 @ 102 1,597,590
200,000 Minneapolis, MN, Hospital Facilities RV,
Life Span Inc., Series B, COLL by USG,
7.50%, 8/1/00, P/R 8/1/98 @ 102 205,230
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
ESCROWED IN TREASURIES (continued)
820,000 Minneapolis, MN, Hospital Facilities RV,
Life Span Inc., Series B, COLL by USG,
8.00%, 8/1/06, P/R 8/1/98 @ 102 $ 842,132
20,000 Minneapolis, MN, Hospital Facilities RV,
Metropolitan Medical Center, COLL by
USG, ETM, 8.88%, 4/1/00 21,284
450,000 Minneapolis, MN, Hospital RV, Minnesota
Children's Medical Center Project,
Series C, COLL by USG, 7.00%, 12/1/01,
P/R 6/1/01 @ 102 495,257
575,000 Minneapolis, MN, Hospital RV, Minnesota
Children's Medical Center Project,
Series C, COLL by USG, 7.10%, 12/1/02,
P/R 6/1/01 @ 102 634,438
750,000 Minnesota Public Facilities Authority,
Water PCR Bonds, Series A, 6.25%,
3/1/15 837,923
1,960,000 Minnesota Public Facilities Authority,
Water PCR Bonds, Series A, 6.50%,
3/1/14 2,157,294
780,000 Minnesota Public Facilities Authority,
Water PCR Bonds, Series A, 7.00%,
3/1/09 814,070
525,000 Minnesota Public Facilities Authority,
Water PCR Bonds, Series A, COLL by
USG, 7.10%, 3/1/12, P/R 3/1/00 @ 102 562,895
110,000 Minnesota State HEFA RV, Hamline
University, Series 3K, COLL by USG,
ETM, 6.10%, 6/1/00 114,507
135,000 Minnesota State HEFA RV, Hamline
University, Series 3K, COLL by USG,
ETM, 6.20%, 6/1/01 143,116
130,000 Minnesota State HEFA RV, Hamline
University, Series 3K, COLL by USG,
ETM, 6.30%, 6/1/02 140,241
190,000 Minnesota State HEFA RV, Hamline
University, Series 3A, COLL by USG,
7.00%, 10/1/04, P/R 10/1/00 @ 100 202,527
205,000 Minnesota State HEFA RV, Hamline
University, Series 3A, COLL by USG,
7.00%, 10/1/05, P/R 10/1/00 @ 100 218,516
220,000 Minnesota State HEFA RV, Hamline
University, Series 3A, COLL by USG,
7.00%, 10/1/06, P/R 10/1/00 @ 100 234,505
235,000 Minnesota State HEFA RV, Hamline
University, Series 3A, COLL by USG,
7.00%, 10/1/07, P/R 10/1/00 @ 100 250,494
270,000 Minnesota State HEFA RV, Hamline
University, Series 3K, COLL by USG,
6.40%, 6/1/03, P/R 6/1/02 @ 100 291,948
240,000 Minnesota State HEFA RV, Hamline
University, Series 3K, COLL by USG,
6.50%, 6/1/04, P/R 6/1/02 @ 100 260,386
250,000 Minnesota State HEFA RV, Hamline
University, Series 3K, COLL by USG,
6.60%, 6/1/07, P/R 6/1/02 @ 100 272,150
[LOGO]
See Notes to Schedules of Investments
77
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
ESCROWED IN TREASURIES (continued)
1,000,000 Minnetonka, MN, Independent SD #276, GO
Bonds, Series A, 6.30%, 2/1/04 $ 1,074,160
1,865,000 Moorhead, MN, Residential Mortgage RV,
7.10%, 8/1/11 2,177,965
105,000 Olmstead County, MN, Housing &
Redevelopment Authority RV, COLL by
USG, 7.00%, 2/1/06, P/R 2/1/01 @ 100 112,895
290,000 Olmstead County, MN, Housing &
Redevelopment Authority RV, COLL by
USG, 7.00%, 2/1/07, P/R 2/1/01 @ 100 311,805
300,000 Olmstead County, MN, Housing &
Redevelopment Authority RV, COLL by
USG, 7.00%, 2/1/08, P/R 2/1/01 @ 100 322,557
500,000 Puerto Rico Commonwealth GO Bonds, FGIC
insured, 7.10%, 7/1/02 541,160
160,000 Puerto Rico Electric Power Authority RV,
Series N, COLL by USG, 7.00%, 7/1/07,
P/R 7/1/99 @ 101.50 167,680
500,000 Rochester, MN, GO Bonds, 7.00%, 12/1/04 508,215
500,000 Rochester, MN, GO Bonds, 7.00%, 12/1/05 508,215
2,750,000 Rochester, MN, Health Care Facilities
RV, Mayo Foundation/ Mayo Medical
Center, Series A, 8.30%, 11/15/07 2,919,758
1,295,000 Roseville, MN, Tax Increment RV, 5.90%,
2/1/04 1,299,623
1,440,000 Sartell, MN, Independent SD #748, GO
Bonds, Capital Appreciation, Series A,
0.00% (6.03% effective yield), 2/1/11 680,645
545,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV,
Refunded Balance, Series A, 5.50%,
1/1/03 575,782
1,000,000 St. Louis Park, MN, Independent SD #283,
GO Bonds, 5.90%, 2/1/03 1,047,200
250,000 St. Paul, MN, Housing & Redevelopment
Authority, Health Care RV, Children's
Hospital St. Paul, 7.15%, 12/1/05 266,810
600,000 St. Paul, MN, Independent SD #625, GO
Bonds, Series B, 6.10%, 2/1/03 631,404
625,000 St. Paul, MN, Independent SD #625, GO
Bonds, Series B, 6.20%, 2/1/04 659,281
1,000,000 St. Paul, MN, Sewer RV, Series A, 8.00%,
12/1/08 1,031,210
1,000,000 Washington County, MN, Housing &
Redevelopment Authority, Jail
Facilities RV, 7.00%, 2/1/06, P/R
2/1/02 @ 100 1,098,140
940,000 Washington County, MN, Housing &
Redevelopment Authority, Jail
Facilities RV, 7.00%, 2/1/07, P/R
2/1/02 @ 100 1,032,252
145,000 Washington County, MN, Housing &
Redevelopment Authority, Lease RV,
Independent SD #833, South Washington,
5.75%, 12/1/98 146,473
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
ESCROWED IN TREASURIES (continued)
360,000 Washington County, MN, Housing &
Redevelopment Authority, Lease RV,
Independent SD #833, South Washington,
6.60%, 12/1/02 $ 395,982
100,000 Wayzata, MN, Independent SD #284, GO
Bonds, Series A, 7.00%, 2/1/05 102,016
250,000 Wayzata, MN, Independent SD #284, GO
Bonds, Series A, 7.10%, 2/1/08 255,203
1,000,000 West St. Paul, MN, Independent SD #197,
GO Bonds, Capital Appreciation School
Building Project, MBIA insured, 0.00%
(5.60% effective yield), 2/1/06 704,090
2,395,000 Western Minnesota Municipal Power
Agency, Power RV, Series 1977 A,
6.38%, 1/1/16 2,701,703
---------------
46,285,111
---------------
GENERAL OBLIGATION (19.0%)
1,000,000 Alexandria, MN, Independent SD #206, GO
Bonds, Series A, 5.38%, 2/1/13 1,046,370
375,000 Brooklyn Park, MN, GO Bonds, 10.00%,
7/1/98 377,006
2,000,000 Commonwealth of Puerto Rico GO Bonds,
MBIA insured, 6.25%, 7/1/11 2,322,780
255,000 Coon Rapids, MN, GO Bonds, Special
Assessment, Series B, 5.80%, 2/1/04 271,572
2,325,000 Dakota County, MN, GO Bonds, Series B,
AMBAC insured, 6.00%, 2/1/02 2,397,168
400,000 Dakota County, MN, GO Bonds, Series B,
AMBAC insured, 6.20%, 2/1/04 413,696
1,020,000 Farmington, MN, Independent SD #192, GO
Bonds, Series B, FSA insured, 0.00%
(4.85% effective yield), 2/1/09 623,220
1,175,000 Farmington, MN, Independent SD #192, GO
Bonds, Series B, FSA insured, 0.00%
(4.93% effective yield), 2/1/10 677,764
1,240,000 Farmington, MN, Independent SD #192, GO
Bonds, Series B, FSA insured, 0.00%
(5.08% effective yield), 2/1/12 633,752
1,100,000 Maple Grove, MN, GO Bonds, Series A,
5.20%, 2/1/17 1,111,396
3,250,000 Metropolitan Council, MN, Go Bonds,
Minneapolis-St Paul Metropolitan Area,
Series A, 6.00%, 12/1/02 3,452,995
2,815,000 Minneapolis, MN, GO Bonds, Sales Tax
Revenue, 6.05%, 4/1/04 3,049,855
1,010,000 Minneapolis, MN, Special SD #1, UTGO
Bonds, 5.75%, 2/1/09 1,068,701
1,750,000 Minneapolis, MN, GO Bonds, Sports Arena
Project, 5.13%, 10/1/20 1,757,263
1,000,000 Minneapolis, MN, GO Bonds, Sports Arena
Project, 5.20%, 10/1/24 1,012,220
1,500,000 Minnesota State GO Bonds, 5.25%, 8/1/15 1,534,050
1,580,000 Minnetonka, MN, Independent SD #276, GO
Bonds, Series A, 6.10%, 2/1/02 1,688,277
[LOGO]
See Notes to Schedules of Investments
78
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
GENERAL OBLIGATION (continued)
1,400,000 Minnetonka, MN, Independent SD #276, GO
Bonds, Series B, 5.65%, 2/1/10 $ 1,517,502
250,000 Puerto Rico Commonwealth GO Bonds,
6.70%, 7/1/98 250,568
1,000,000 Ramsey County, MN, GO Bonds, Capital
Improvements, Series A, 6.25%, 2/1/06 1,124,830
2,000,000 Rosemount, MN, Independent SD #196, GO
Bonds, Capital Appreciation, Series A,
0.00% (5.50% effective yield), 4/1/09 1,212,620
3,000,000 Rosemount, MN, Independent SD #196, GO
Bonds, Capital Appreciation, Series A,
0.00% (5.55% effective yield), 4/1/10 1,716,900
2,000,000 Rosemount, MN, Independent SD #196, GO
Bonds, Capital Appreciation, Series A,
0.00% (5.60% effective yield), 4/1/11 1,078,300
1,490,000 Shakopee, MN, GO Bonds, Independent SD
#270, 4.63%, 2/1/17 1,413,921
2,000,000 St. Cloud, MN, GO Bonds, Inverse
Floaters, 8.60% V/R, 8/1/13 2,237,500
1,050,000 St. Paul, MN, Independent SD #625, GO
Bonds, Series B, 5.70%, 2/1/09 1,122,481
580,000 St. Paul, MN, Independent SD #625, GO
Bonds, Series B, 5.80%, 2/1/11 619,010
235,000 Waconia, MN, GO Bonds, 6.00%, 6/1/06 250,047
1,000,000 Wayzata, MN, Independent SD #284, GO
Bonds, Series B, 5.85%, 2/1/10 1,068,910
1,000,000 West St. Paul, MN, ISD #197, GO Bonds,
FSA insured, 4.75%, 2/1/12 992,890
545,000 West St. Paul, MN, ISD #197, GO Bonds,
FSA insured, 4.80%, 2/1/13 541,223
825,000 West St. Paul, MN, Independent SD #197,
GO Bonds, Capital Appreciation School
Building Project, MBIA insured, 0.00%
(5.40% effective yield), 2/1/04 647,394
225,000 Wright County, MN, GO Bonds, Series B,
5.80%, 2/1/04 239,917
---------------
39,472,098
---------------
HEALTH CARE REVENUE (13.3%)
2,195,000 Breckenridge, MN, Health Facilities RV,
Catholic Health Corp., MBIA insured,
5.00%, 11/15/05 2,289,297
1,190,000 Detroit Lakes, MN, Health Care
Facilities RV, Benedictine Health
Systems, St. Mary, Series G, Connie
Lee insured, 6.00%, 2/15/12 1,286,866
635,000 Duluth, MN, EDA, Health Care Facilities
RV, Benedictine Health System, St.
Mary, Series A, MBIA insured, 5.55%,
2/15/04 674,770
690,000 Duluth, MN, EDA, Health Care Facilities
RV, Benedictine Health System, St.
Mary, Series A, MBIA insured, 5.65%,
2/15/05 737,527
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
HEALTH CARE REVENUE (continued)
465,000 Duluth, MN, EDA, Health Care Facilities
RV, Benedictine Health System, St.
Mary, Series A, MBIA insured, 5.75%,
2/15/06 $ 497,550
425,000 Duluth, MN, EDA, Hospital Facilities RV,
St. Luke's Hospital of Duluth, Series
B, Connie Lee insured, 6.10%, 5/1/00 441,154
450,000 Duluth, MN, EDA, Hospital Facilities RV,
St. Luke's Hospital of Duluth, Series
B, Connie Lee insured, 6.20%, 5/1/01 475,376
500,000 Duluth, MN, EDA, Hospital Facilities RV,
St. Luke's Hospital of Duluth, Series
B, Connie Lee insured, 6.45%, 5/1/05 544,020
500,000 Duluth, MN, EDA, Hospital Facilities RV,
St. Luke's Hospital of Duluth, Series
B, Connie Lee insured, 6.40%, 5/1/18 543,130
315,000 Edina, MN, Hospital System RV, Fairview
Hospital, Series A, 7.00%, 7/1/99 325,452
1,000,000 Fergus Falls, MN, Health Care Facilities
RV, Lake Region Hospital Corp.
Project, Series A, 6.50%, 9/1/18 1,073,800
700,000 Glencoe, MN, Hospital RV, 6.63%, 4/1/11 738,346
1,700,000 Mankato, MN, Hospital Facilities RV, 1st
Mortgage-Immanuel St. Joseph's
Project, Series A, 6.30%, 8/1/22 1,867,570
365,000 Mankato, MN, Hospital Facilities RV, 1st
Mortgage-Immanuel St. Joseph's
Project, Series C, 6.10%, 8/1/05 392,809
450,000 Mankato, MN, Hospital Facilities RV, 1st
Mortgage-Immanuel St. Joseph's
Project, Series C, 6.15%, 8/1/06 483,525
805,000 Minneapolis & St. Paul, MN, Housing &
Redevelopment Authority Health Care
System, HealthOne Obligated Group
Project, Series A, MBIA insured,
7.40%, 8/15/11 872,572
550,000 Minneapolis & St. Paul, MN, Housing &
Redevelopment Authority Health Care
System, HealthOne Obligated Group
Project, Series A, MBIA insured,
7.38%, 8/15/02 598,021
2,500,000 Minnesota Agriculture & Economic
Development Board, Health Care RV,
Fairview Hospital, Series A, MBIA
insured, 5.50%, 11/15/17 2,605,775
2,000,000 Minnesota Agriculture & Economic
Development Board, Health Care RV,
Fairview Hospital, Series A, MBIA
insured, 5.75%, 11/15/26 2,122,440
505,000 Monticello-Big Lake, MN, Community
Hospital District, Health Care RV,
Series A, 5.20%, 12/1/09 507,868
500,000 Monticello-Big Lake, MN, Community
Hospital District, Health Care RV,
Series A, 5.30%, 12/1/10 503,855
[LOGO]
See Notes to Schedules of Investments
79
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
HEALTH CARE REVENUE (continued)
725,000 Monticello-Big Lake, MN, Community
Hospital District, Health Care RV,
Series A, 5.40%, 12/1/11 $ 730,807
1,385,000 Rochester, MN, Health Care Facilities
RV, Mayo Foundation/ Mayo Medical
Center, Series I, 5.80%, 11/15/07 1,530,329
965,000 Rochester, MN, Health Care Facilities
RV, Mayo Foundation/ Mayo Medical
Center, Series I, 5.88%, 11/15/08 1,076,863
1,650,000 Rochester, MN, Health Care Facilities
RV, Mayo Foundation/ Mayo Medical
Center, Series I, 5.90%, 11/15/09 1,852,686
2,000,000 Rochester, MN, Health Care Facilities
RV, Mayo Foundation/ Mayo Medical
Center, Series I, 5.90%, 11/15/10 2,249,540
500,000 St. Louis Park, MN, Hospital RV,
Methodist Hospital, Series A, AMBAC
insured, 7.00%, 7/1/00 529,750
---------------
27,551,698
---------------
INDUSTRIAL DEVELOPMENT REVENUE (2.4%)
110,000 Becker, MN, PCR Bonds, Northern States
Power Co. Project, 7.25%, 12/1/05 110,324
100,000 Fergus Falls, MN, PCR Bonds, Otter Tail
Power Co. Project, 5.63%, 7/1/98 100,148
1,050,000 Red Wing, MN, PCR Bonds, Northern States
Power Co., MBIA-IBC insured, 5.70%,
5/1/03 1,058,159
2,100,000 Seaway Port Authority Duluth, MN,
Industrial Development Dock & Wharf
RV, Series B, 6.80%, 5/1/12(b) 2,316,258
615,000 St. Louis Park, MN, Commercial
Development RV, G & N LP Project,
7.00%, 6/1/06 647,490
750,000 St. Paul, MN, HRA, Distribution Cooling
RV, Series J, Credit Local de France,
LOC, 5.13%, 3/1/12 757,980
---------------
4,990,359
---------------
LEASING REVENUE (4.8%)
165,000 Eden Prairie, MN, Housing &
Redevelopment Authority, Leasing RV,
Community Center Project, Series A,
6.15%, 8/1/08 174,179
2,185,000 Hennepin County, MN, COP, 5.38%,
11/15/10 2,315,008
150,000 Hennepin County, MN, COP, Series A,
5.85%, 11/15/99 154,349
260,000 Hennepin County, MN, COP, Series A,
6.15%, 5/15/02 277,680
310,000 Hennepin County, MN, COP, Series A,
6.25%, 11/15/03 332,072
300,000 Hennepin County, MN, COP, Series A,
6.45%, 11/15/05 323,280
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
LEASING REVENUE (continued)
135,000 Hennepin County, MN, COP, Series A,
6.45%, 5/15/05 $ 145,476
145,000 Hennepin County, MN, COP, Series A,
6.55%, 5/15/06 156,716
1,000,000 Minneapolis, MN, Special SD, COP, 5.60%,
2/1/02 1,021,590
400,000 Minneapolis, MN, Special SD, COP, 5.80%,
2/1/04 408,936
1,000,000 Saint Cloud, MN, Law Enforcement Center
RV, 6.20%, 2/1/05 1,056,720
185,000 Savage, MN, EDA, Lease RV, 5.30%, 2/1/12 187,945
195,000 Savage, MN, EDA, Lease RV, 5.35%, 2/1/13 197,923
170,000 St. Paul, MN, Independent SD #625, COP,
Series B, 5.70%, 2/1/02 178,524
195,000 St. Paul, MN, Independent SD #625, COP,
Series B, 5.90%, 2/1/04 207,710
215,000 St. Paul, MN, Independent SD #625, COP,
Series B, 6.10%, 2/1/06 229,147
230,000 St. Paul, MN, Independent SD #625, COP,
Series B, 6.20%, 2/1/07 246,093
245,000 St. Paul, MN, Independent SD #625, COP,
Series B, 6.25%, 2/1/08 264,580
260,000 St. Paul, MN, Independent SD #625, COP,
Series B, 6.30%, 2/1/09 280,184
380,000 Washington County, MN, Housing &
Redevelopment Authority, Lease RV,
Independent SD #833, South Washington,
6.75%, 12/1/03 420,303
410,000 Washington County, MN, Housing &
Redevelopment Authority, Lease RV,
Independent SD #833, South Washington,
6.90%, 12/1/04 455,777
435,000 Washington County, MN, Housing &
Redevelopment Authority, Lease RV,
Independent SD #833, South Washington,
7.00%, 12/1/05 485,186
465,000 Washington County, MN, Housing &
Redevelopment Authority, Lease RV,
Independent SD #833, South Washington,
7.00%, 12/1/06 518,647
---------------
10,038,025
---------------
MULTI-FAMILY HOUSING REVENUE (3.1%)
1,120,000 Edina, MN, MFHR Bonds, Edina Park Place
Project, Series A, FHA insured, 7.50%,
12/1/09 1,169,302
20,000 Minneapolis, MN, Community Development
Agency & St. Paul Housing &
Redevelopment Authority RV, Joint
Housing Program, 9.50%, 12/1/00 20,105
1,225,000 Minneapolis, MN, MFHR Bonds, Churchill
Project, FHA insured, 6.95%, 10/1/05 1,309,292
855,000 Minnesota State Housing Finance Agency,
Housing Development RV, 6.25%, 2/1/20 865,448
[LOGO]
See Notes to Schedules of Investments
80
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
MULTI-FAMILY HOUSING REVENUE (continued)
915,000 Minnesota State Housing Finance Agency,
MFHR Bonds, 6.38%, 2/1/20 $ 926,511
680,000 Minnesota State Housing Finance Agency,
Rental Housing RV, Series D, MBIA
insured, 5.90%, 8/1/15 710,899
150,000 St. Anthony, MN, MFHR Bonds, Autumn
Woods Project, Asset Guaranty
Insurance Co., LOC, 6.00%, 7/1/99 153,096
160,000 St. Anthony, MN, MFHR Bonds, Autumn
Woods Project, Asset Guaranty
Insurance Co., LOC, 6.10%, 7/1/00 166,402
170,000 St. Anthony, MN, MFHR Bonds, Autumn
Woods Project, Asset Guaranty
Insurance Co., LOC, 6.25%, 7/1/01 179,586
180,000 St. Anthony, MN, MFHR Bonds, Autumn
Woods Project, Asset Guaranty
Insurance Co., LOC, 6.40%, 7/1/02 192,773
190,000 St. Anthony, MN, MFHR Bonds, Autumn
Woods Project, Asset Guaranty
Insurance Co., LOC, 6.50%, 7/1/03 206,025
175,000 St. Anthony, MN, MFHR Bonds, Autumn
Woods Project, Asset Guaranty
Insurance Co., LOC, 6.60%, 7/1/04 190,328
250,000 St. Paul, MN, Housing & Redevelopment
Authority RV, Amherst H. Wilder
Foundation, 6.20%, 6/1/98 250,028
50,000 St. Paul, MN, Housing & Redevelopment
Authority RV, Amherst H. Wilder
Foundation, 6.50%, 6/1/01 50,618
---------------
6,390,413
---------------
NURSING HOME REVENUE (1.8%)
500,000 Minneapolis, MN, Health Care Facilities
RV, Ebenezer Society Project, Series
A, 7.20%, 7/1/23 526,245
250,000 Moorhead, MN, Economic Development
Authority, MFHR Bonds, Eventide
Project, Series A, 8.00%, 9/1/11 275,615
500,000 Pine River, MN, Health Facilities RV,
Evan Lutheran Good Samaritan Project,
6.40%, 8/1/15 550,285
95,000 Spring Park, MN, Health Care Facilities
RV, Twin Birch Health Care Center
Project, 7.50%, 8/1/98 95,499
105,000 Spring Park, MN, Health Care Facilities
RV, Twin Birch Health Care Center
Project, 7.75%, 8/1/99 108,902
115,000 Spring Park, MN, Health Care Facilities
RV, Twin Birch Health Care Center
Project, 8.00%, 8/1/00 122,836
125,000 Spring Park, MN, Health Care Facilities
RV, Twin Birch Health Care Center
Project, 8.00%, 8/1/01 136,590
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
NURSING HOME REVENUE (continued)
135,000 Spring Park, MN, Health Care Facilities
RV, Twin Birch Health Care Center
Project, 8.10%, 8/1/02 $ 149,800
145,000 Spring Park, MN, Health Care Facilities
RV, Twin Birch Health Care Center
Project, 8.10%, 8/1/03 160,580
1,500,000 White Bear Lake, MN, First Mortgage
Nursing Home RV, White Bear Lake Care
Center, 8.25%, 11/1/12 1,684,080
---------------
3,810,432
---------------
OTHER REVENUE (5.6%)
750,000 Anoka County, MN, Resource Recovery RV,
Northern State Power Co., 7.00%,
12/1/03 794,985
285,000 Duluth, MN, Gross RV, Spirit Mountain
Recreation Area, 6.00%, 2/1/00 291,760
300,000 Duluth, MN, Gross RV, Spirit Mountain
Recreation Area, 6.15%, 2/1/01 310,011
300,000 Duluth, MN, Gross RV, Spirit Mountain
Recreation Area, 6.30%, 2/1/02 310,203
400,000 Duluth, MN, Gross RV, Spirit Mountain
Recreation Area, 6.50%, 2/1/04 414,876
425,000 Duluth, MN, Gross RV, Spirit Mountain
Recreation Area, 6.60%, 2/1/05 441,703
455,000 Duluth, MN, Gross RV, Spirit Mountain
Recreation Area, 6.70%, 2/1/06 473,118
3,245,000 Minneapolis, MN, Temporary Package Ramp,
Transportation RV, Series A, 4.75%,
6/1/00 3,249,738
1,445,000 Minnesota Iron Range Resources &
Rehabilitation Gross RV, Giants Ridge
Recreational Area, 7.25%, 10/1/11 1,514,591
36,245 Minnesota Tax Exempt Mortgage Trust,
Series C, 6.78% V/R, 9/1/10 36,010
180,000 St. Cloud, MN, COP, 5.20%, 12/1/05 183,697
185,000 St. Cloud, MN, COP, 5.30%, 12/1/06 188,785
100,000 St. Cloud, MN, COP, 5.38%, 12/1/07 102,197
2,620,000 St. Paul, MN, Housing & Redevelopment
Authority, Distribution Cooling RV,
Series C, 8.00%, 3/1/12 2,872,856
400,000 St. Paul, MN, Housing & Redevelopment
Authority, Heating RV, Cogeneration
Facilities Project, 8.30%, 11/1/04 418,840
---------------
11,603,370
---------------
SINGLE FAMILY HOUSING REVENUE (2.3%)
835,000 Coon Rapids, MN, SFM RV, 6.15%, 9/1/09 878,462
140,000 Minnesota State Housing Finance Agency,
SFM RV, Series B, 6.60%, 7/1/98 140,403
90,000 Minnesota State Housing Finance Agency,
SFM RV, Series B, 6.80%, 7/1/99 90,271
70,000 Minnesota State Housing Finance Agency,
SFM RV, Series B, 7.00%, 7/1/01 70,223
645,000 Minnesota State Housing Finance Agency,
SFM RV, Series A, 5.95%, 1/1/17 681,823
[LOGO]
See Notes to Schedules of Investments
81
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
SINGLE FAMILY HOUSING REVENUE (continued)
160,000 Minnesota State Housing Finance Agency,
SFM RV, Series B, FHA/VA/Private
Mortgages, LOC, 7.05%, 1/1/02 $ 166,254
175,000 Minnesota State Housing Finance Agency,
SFM RV, Series B, FHA/VA/Private
Mortgages, LOC, 7.05%, 7/1/02 181,983
95,000 Minnesota State Housing Finance Agency,
SFM RV, Series B, FHA/VA/Private
Mortgages, LOC, 7.30%, 7/1/10 98,824
130,000 Minnesota State Housing Finance Agency,
SFM RV, Series C, 6.90%, 7/1/00 130,400
185,000 Minnesota State Housing Finance Agency,
SFM RV, Series C, 7.00%, 7/1/01 185,590
190,000 Minnesota State Housing Finance Agency,
SFM RV, Series D2, remarketed 3/24/93,
5.60%, 1/1/06 199,954
300,000 Minnesota State Housing Finance Agency,
SFM RV, Series E, FHA/VA Mortgages,
LOC, 7.30%, 8/1/99 306,945
100,000 Minnesota State Housing Finance Agency,
SFM RV, Series E, FHA/VA Mortgages,
LOC, 7.40%, 2/1/00 102,908
100,000 Minnesota State Housing Finance Agency,
SFM RV, Series E, FHA/VA Mortgages,
LOC, 7.50%, 2/1/01 103,168
300,000 Minnesota State Housing Finance Agency,
SFM RV, Series G, 6.45%, 1/1/05 314,418
675,000 St. Paul, MN, Housing & Redevelopment
Authority, SFM RV, FNMA Mortgage
Backed Securities Program, FNMA
insured, 6.25%, 9/1/14, mandatory
redemption 3/1/07 @ 100 715,993
395,000 Vadnais Heights, MN, SFM RV, 5.25%,
11/1/02 408,106
---------------
4,775,725
---------------
TAX INCREMENTAL REVENUE (5.0%)
2,000,000 Bloomington, MN, Port Authority Special
Tax RV, Mall of America Project,
Series A, FSA insured, 5.35%, 2/1/13 2,047,040
2,000,000 Bloomington, MN, Port Authority Tax RV,
Mall of America Project, Series A, FSA
insured, 5.25%, 2/1/03 2,086,400
2,000,000 Bloomington, MN, Port Authority Tax RV,
Mall of America Project, Series A, FSA
insured, 5.45%, 2/1/09 2,046,300
5,500,000 Minneapolis, MN, Community Development
Agency, Tax Increment RV, Capital
Appreciation, MBIA insured, 0.00%
(5.00% effective yield), 9/1/04 4,209,700
---------------
10,389,440
---------------
TOTAL MUNICIPAL BONDS (COST $193,310,262) 204,587,224
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA INTERMEDIATE TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
SHORT TERM HOLDINGS (1.6%)
83,846 Municipal Money Market Fund $ 83,846
800,000 Cottage Grove, MN, Environmental Control
RV, Minnesota Mining & Manufacturing,
LOC, 4.70% V/R, 8/1/12(c) 800,000
100,000 Duluth, MN, EDA, Health Care Facilities
RV, Miller Dwan Medical Center
Project, Credit Local de France, LOC,
4.00% V/R, 6/1/19(c) 100,000
1,000,000 Moorhead, MN, IDR Bonds, SuperValu Store
Project, Wachovia Bank, LOC, 3.70%
V/R, 11/1/09(c) 1,000,000
300,000 Robbinsdale, MN, IDR Bonds, Unicare
Homes, Inc. Project, Banque Paribas,
LOC, 4.05% V/R, 10/1/14(c) 300,000
1,000,000 St. Louis Park, MN, IDR Bonds, Unicare
Homes, Inc. Project, Banque Paribas
LOC, 3.90% V/R, 8/1/14(c) 1,000,000
---------------
3,283,846
---------------
TOTAL SHORT TERM HOLDINGS (COST $3,283,846) 3,283,846
---------------
TOTAL INVESTMENTS (100.0%) (COST $196,594,108) $ 207,871,070
---------------
---------------
- - -----------------------------------------------------------------
MINNESOTA TAX-FREE FUND
- - -----------------------------------------------------------------
MUNICIPAL BONDS (98.7%)
CERTIFICATES OF PARTICIPATION & LEASE REVENUE (0.9%)
205,000 Savage, MN, EDA RV, Lease Revenue,
5.40%, 2/1/14 $ 208,067
220,000 Savage, MN, EDA RV, Lease Revenue,
5.45%, 2/1/15 223,557
210,000 Savage, MN, EDA RV, Lease Revenue,
5.50%, 2/1/16 213,555
---------------
645,179
---------------
EDUCATION FACILITIES REVENUE (12.2%)
1,470,000 Hopkins, MN, Educational Facilities RV,
Blake School Project, 5.50%, 9/1/24 1,500,855
500,000 Minnesota HEFA RV, College of St.
Benedict, Series 3-W, 6.00%, 3/1/07 534,350
500,000 Minnesota HEFA RV, University of St.
Thomas, Series 4-M, 5.35%, 4/1/17 509,480
2,250,000 Minnesota State HEFA RV, St. Johns
University, Series Four L, 5.40%,
10/1/22 2,296,147
3,500,000 University of Minnesota, Educational
Facilities RV, Series A, 5.50%, 7/1/21 3,742,900
---------------
8,583,732
---------------
GENERAL OBLIGATION--POLITICAL SUBDIVISION (5.5%)
100,000 Bloomington, MN, Tax Increment GO Bonds,
9.70%, 2/1/04 127,117
210,000 Bloomington, MN, Tax Increment GO Bonds,
9.75%, 2/1/07 275,753
[LOGO]
See Notes to Schedules of Investments
82
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
GENERAL OBLIGATION--POLITICAL SUBDIVISION (continued)
2,650,000 Minneapolis, MN, GO Bonds, Sports Arena
Project, 5.20%, 10/1/24 $ 2,682,383
500,000 St. Cloud, MN, GO Bonds, Judgment
Funding, Series A, FGIC insured,
5.00%, 12/1/24 492,205
245,000 Waconia, MN, GO Bonds, 6.00%, 6/1/07 260,124
---------------
3,837,582
---------------
GENERAL OBLIGATION--SCHOOL DISTRICTS (18.9%)
500,000 Chaska, MN, Independent SD #112, GO
Bonds, SCEP, Series B, 6.00%, 2/1/13 553,295
3,500,000 Farmington, MN, Independent SD #192, GO
Bonds, Series A, FSA insured, 5.20%,
2/1/23 3,514,945
1,445,000 Farmington, MN, Independent SD #192, GO
Bonds, Series B, FSA insured, 0.00%
(5.03% effective yield), 2/1/11 785,343
1,500,000 Kenyon Wanamingo, MN, Independent SD
#2172, GO Bonds, 5.00%, 2/1/22 1,495,770
1,650,000 Minnetonka, MN, Independent SD #276, GO
Bonds, State Credit Enhancement
Program, Series B, 5.75%, 2/1/22 1,746,459
1,000,000 Shakopee, MN, GO Bonds, Independent SD
#270, 4.63%, 2/1/17 948,940
1,000,000 St. Michael, MN, Independent SD #885, GO
Bonds, 5.00%, 2/1/21 990,560
2,200,000 Wayzata, MN, Independent SD #284, GO
Bonds, Series A, 5.35%, 2/1/15 2,269,102
1,000,000 West St. Paul, MN, Independent SD #197,
GO Bonds, FSA insured, 4.80%, 2/1/13 993,070
---------------
13,297,484
---------------
GENERAL OBLIGATION--STATES, TERRITORIES (2.2%)
1,500,000 Minnesota State, GO Bonds, 5.25%, 8/1/15 1,534,050
---------------
HEALTH CARE REVENUE (27.5%)
200,000 Bemidji, MN, Hospital Facilities,
Healthcare First Mortgage RV, North
Country Health Services Project,
Series 1991 A, 7.00%, 9/1/11, P/R
9/1/01 @ 102 221,352
2,435,000 Bemidji, MN, Hospital Facilities,
Healthcare First Mortgage RV, North
Country Health Services Project,
5.63%, 9/1/21 2,494,828
1,000,000 Brainerd, MN, Health Care Facilities RV,
Benedictine Health- St. Joseph's
Health Center, Series 1993 E, Connie
Lee insured, 6.00%, 2/15/20 1,067,850
2,170,000 Burnsville, MN, Hospital System RV,
Fairview Community Hospitals, 0.00%
(5.87% effective yield), 5/1/12 1,003,495
500,000 Duluth, MN, EDA, Hospital Facilities RV,
St. Luke's Hospital of Duluth, Series
B, Connie Lee insured, 6.40%, 5/1/18 543,130
500,000 Glencoe, MN, Health Care RV, 6.40%,
12/1/15 515,545
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
HEALTH CARE REVENUE (continued)
690,000 Glencoe, MN, Hospital RV, 6.63%, 4/1/11 $ 727,798
1,000,000 Hibbing, MN, Health Care Facilities RV,
Duluth Clinic Ltd., FSA insured,
5.50%, 11/1/16 1,034,440
780,000 Mankato, MN, Hospital Facilities RV, 1st
Mortgage-Immanuel St. Joseph's
Project, Series A, 6.30%, 8/1/22 856,885
1,000,000 Minneapolis & St. Paul, MN, Housing &
Redevelopment Authority Health Care
System, Childrens Health Care RV,
Series A, FSA insured, 5.70%, 8/15/16 1,051,530
500,000 Minneapolis & St. Paul, MN, Housing &
Redevelopment Authority Health Care
System, Group Health Plan, Inc.
Project, 6.75%, 12/1/13 548,225
600,000 Minneapolis & St. Paul, MN, Housing &
Redevelopment Authority Health Care
System, HealthOne Obligated Group
Project, Series A, MBIA insured,
7.40%, 8/15/11 650,364
2,500,000 Minnesota Agriculture & Economic
Development Board, Health Care RV,
Fairview Hospital, Series A, MBIA
insured, 5.50%, 11/15/17 2,605,775
3,800,000 Minnesota Agriculture & Economic
Development Board, Health Care RV,
Fairview Hospital, Series A, MBIA
insured, 5.75%, 11/15/26 4,032,636
825,000 Monticello-Big Lake, MN, Community
Hospital District Gross Revenue,
Health Care RV, Series A, 5.45%,
12/1/12 831,872
115,000 Red Wing, MN, Health Care Facilities RV,
River Region Obligated Group, Series
1993 B, 6.35%, 9/1/07 124,000
1,000,000 Rochester, MN, Health Care Facilities
RV, Mayo Medical Center, Series F,
6.25%, 11/15/21 1,085,130
---------------
19,394,855
---------------
INDUSTRIAL DEVELOPMENT REVENUE (1.8%)
750,000 Minnesota Agriculture & Economic
Development Board, Industrial
Development RV, Evangelical Lutheran,
AMBAC insured, 5.15%, 12/1/22 743,812
500,000 St. Paul, MN, HRA, Distribution Cooling
RV, Series J, Credit Local de France,
LOC, 5.35%, 3/1/18 503,210
---------------
1,247,022
---------------
MULTI-FAMILY HOUSING REVENUE (3.8%)
585,000 Minnesota State, HFA, Housing
Development RV, 6.25%, 2/1/20 592,148
550,000 Minnesota State, HFA, Housing
Development RV, Series A, 6.85%,
2/1/07 589,182
[LOGO]
See Notes to Schedules of Investments
83
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
MULTI-FAMILY HOUSING REVENUE (continued)
545,000 Minnesota State, HFA, MFHR Bonds, 6.38%,
2/1/20 $ 551,856
490,000 Minnesota State, HFA, Rental Housing RV,
Series B, 6.25%, 8/1/22 495,870
430,000 Minnesota State, HFA, Rental Housing RV,
Series D, MBIA insured, 5.90%, 8/1/15 449,539
---------------
2,678,595
---------------
NURSING HOME REVENUE (2.7%)
500,000 Minneapolis, MN, Health Care Facilities
RV, Ebenezer Society Project, Series
A, 7.20%, 7/1/23 526,245
750,000 Moorhead, MN, Economic Develoment
Authority, MFHR Bonds, Eventide
Project, Series A, 8.00%, 9/1/11 826,845
500,000 Waconia, MN, Housing & Redevelopment
Authority RV, The Evangelical Lutheran
Project, Series A, 5.85%, 6/1/06 532,035
---------------
1,885,125
---------------
POWER REVENUE (7.9%)
1,000,000 Northern Minnesota Municipal Power
Agency, Electric System RV, FSA
insured, 5.25%, 1/1/17 1,012,960
1,135,000 Northern Minnesota Municipal Power
Agency, Electric System RV, Series B,
AMBAC insured, 5.50%, 1/1/18 1,165,827
1,000,000 Puerto Rico, Electric Power Authority
RV, Series X, 5.50%, 7/1/25 1,015,180
6,665,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV, Series
A, MBIA insured, 0.00% (5.20%
effective yield), 1/1/24 1,811,614
380,000 Southern Minnesota Municipal Power
Agency, Power Supply System RV, Series
B, AMBAC insured, 5.00%, 1/1/18 370,257
200,000 Western Minnesota Municipal Power
Agency, Power Supply RV, Series A,
5.50%, 1/1/15 200,090
---------------
5,575,928
---------------
SINGLE FAMILY HOUSING REVENUE (5.2%)
550,000 Minnesota State, HFA, SFM RV, Series A,
5.95%, 1/1/17 581,400
930,000 Minnesota State, HFA, SFM RV, Series Q,
6.25% V/R, 7/1/14 969,004
945,000 Minnesota State, HFA, SFM RV, remarketed
8/12/92, 6.25%, 1/1/15 990,587
655,000 St. Paul, MN, Housing & Redevelopment
Authority, SFM RV, FNMA Mortgage
Backed Securities Program, FNMA
insured, mandatory extraordinary
redemption @ 100, 3/1/07, 6.25%,
9/1/14 694,778
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MINNESOTA TAX-FREE FUND (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS (continued)
SINGLE FAMILY HOUSING REVENUE (continued)
395,000 Vadnais Heights, MN, SFM RV, 6.00%,
11/1/09 $ 417,056
---------------
3,652,825
---------------
SPORTS FACILITIES REVENUE (3.4%)
250,000 Duluth, MN, Gross RV, Spirit Mountain
Recreation Area, Series 1992, 6.40%,
2/1/03 258,900
460,000 Eagan, MN, Ice Arena Gross RV, Series B,
5.50%, 4/1/19 462,433
960,000 Minnesota Iron Range Resources &
Rehabilitation Gross RV, Giants Ridge
Recreational Area, 7.25%, 10/1/11 1,006,234
115,000 St. Cloud, MN, COP, 5.40%, 12/1/08 117,345
120,000 St. Cloud, MN, COP, 5.50%, 12/1/09 122,812
400,000 St. Cloud, MN, COP, 5.90%, 12/1/17 407,048
---------------
2,374,772
---------------
TRANSPORTATION REVENUE (2.0%)
1,500,000 Puerto Rico Commonwealth Highway &
Transportation Authority RV, Series A,
4.75%, 7/1/38 1,410,660
---------------
WATER & SEWER REVENUE (4.7%)
1,000,000 Minnesota Public Facilities Authority,
Water PCR Bonds, Series A, 7.00%,
3/1/05 1,157,390
1,000,000 Minnesota Public Facilities Authority,
Water PCR Bonds, Series A, 6.50%,
3/1/14 1,100,661
1,000,000 Minnesota Public Facilities Authority,
Water PCR Bonds, Series B, 5.40%,
3/1/16 1,028,741
---------------
3,286,792
---------------
TOTAL MUNICIPAL BONDS (COST $66,153,376) 69,404,601
---------------
SHORT-TERM HOLDINGS (1.3%)
224,920 Municipal Money Market Fund 224,920
300,000 Cottage Grove, MN, Environmental Control
RV, Minnesota, Mining & Manufacturing,
LOC, 4.17% V/R, 8/1/12 300,000
200,000 Golden Valley, MN, Idustrial Development
RV, Unicare Homes Project, Banque
Paribas, LOC, 4.05% V/R, 9/1/14 200,000
200,000 St. Louis Park, MN, Industrial
Development RV, Unicare Homes, Inc.
Project, Banque Paribas LOC, 3.90%
V/R, 8/1/14 200,000
---------------
TOTAL SHORT-TERM HOLDINGS (COST $924,920) 924,920
---------------
TOTAL INVESTMENTS (100.0%) (COST $67,078,296) $ 70,329,521
---------------
---------------
- - -----------------------------------------------------------------
STRATEGIC INCOME FUND
- - -----------------------------------------------------------------
N/A Stable Income Portfolio of Core Trust
(Delaware)(e) $ 35,369,123
[LOGO]
See Notes to Schedules of Investments
84
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STRATEGIC INCOME FUND (continued)
- - -----------------------------------------------------------------
N/A Managed Fixed Income Portfolio of Core
Trust (Delaware)(e) $ 61,071,873
N/A Positive Return Bond Portfolio of Core
Trust (Delaware)(e) 40,754,414
N/A Strategic Value Bond Portfolio of Core
Trust (Delaware)(e) 20,386,417
N/A Index Portfolio of Core Trust
(Delaware)(e) 13,694,309
N/A Income Equity Portfolio of Core Trust
(Delaware)(e) 13,821,634
N/A Disciplined Growth Portfolio of Core
Trust (Delaware)(e) 2,748,391
N/A Large Company Growth Portfolio of Core
Trust (Delaware)(e) 10,897,035
N/A Small Cap Index Portfolio of Core Trust
(Delaware)(e) 1,015,048
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) 799,430
N/A Small Cap Value Portfolio of Core Trust
(Delaware)(e) 814,870
N/A Small Company Value Portfolio of Core
Trust (Delaware)(e) 1,230,372
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) 1,196,677
N/A International Portfolio of Core Trust
(Delaware)(e) 8,127,358
N/A Schroder EM Core Portfolio of Schroder
Capital Funds(e) 224,991
N/A Money Market Portfolio of Core Trust
(Delaware)(e) 23,577,281
---------------
TOTAL INVESTMENTS (100.0%) (COST $212,814,996) $ 235,729,223
---------------
---------------
- - -----------------------------------------------------------------
MODERATE BALANCED FUND
- - -----------------------------------------------------------------
N/A Stable Income Portfolio of Core Trust
(Delaware)(e) $ 70,012,066
N/A Managed Fixed Income Portfolio of Core
Trust (Delaware)(e) 96,816,607
N/A Positive Return Bond Portfolio of Core
Trust (Delaware)(e) 64,618,761
N/A Strategic Value Bond Portfolio of Core
Trust (Delaware)(e) 32,312,405
N/A Index Portfolio of Core Trust
(Delaware)(e) 50,536,462
N/A Income Equity Portfolio of Core Trust
(Delaware)(e) 50,781,742
N/A Disciplined Growth Portfolio of Core
Trust (Delaware)(e) 10,123,759
N/A Large Company Growth Portfolio of Core
Trust (Delaware)(e) 40,386,322
N/A Small Cap Index Portfolio of Core Trust
(Delaware)(e) 4,012,759
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) 3,159,536
N/A Small Cap Value Portfolio of Core Trust
(Delaware)(e) 3,188,921
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MODERATE BALANCED FUND (continued)
- - -----------------------------------------------------------------
N/A Small Company Value Portfolio of Core
Trust (Delaware)(e) $ 4,812,554
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) 4,746,787
N/A International Portfolio of Core Trust
(Delaware)(e) 29,731,138
N/A Schroder EM Core Portfolio of Schroder
Capital Funds(e) 871,632
---------------
TOTAL INVESTMENTS (100.0%) (COST $370,612,330) $ 466,111,451
---------------
---------------
- - -----------------------------------------------------------------
GROWTH BALANCED FUND
- - -----------------------------------------------------------------
N/A Managed Fixed Income Portfolio of Core
Trust (Delaware)(e) $ 110,032,092
N/A Positive Return Bond Portfolio of Core
Trust (Delaware)(e) 73,435,024
N/A Strategic Value Bond Portfolio of Core
Trust (Delaware)(e) 36,785,515
N/A Index Portfolio of Core Trust
(Delaware)(e) 111,523,279
N/A Income Equity Portfolio of Core Trust
(Delaware)(e) 112,249,368
N/A Disciplined Growth Portfolio of Core
Trust (Delaware)(e) 22,268,662
N/A Large Company Growth Portfolio of Core
Trust (Delaware)(e) 88,736,257
N/A Small Cap Index Portfolio of Core Trust
(Delaware)(e) 8,767,605
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) 6,861,440
N/A Small Cap Value Portfolio of Core Trust
(Delaware)(e) 6,963,531
N/A Small Company Value Portfolio of Core
Trust (Delaware)(e) 10,500,447
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) 10,280,058
N/A International Portfolio of Core Trust
(Delaware)(e) 65,843,985
N/A Schroder EM Core Portfolio of Schroder
Capital Funds(e) 1,881,266
---------------
TOTAL INVESTMENTS (100.0%) (COST $485,236,203) $ 666,128,529
---------------
---------------
- - -----------------------------------------------------------------
AGGRESSIVE BALANCED-EQUITY FUND
- - -----------------------------------------------------------------
N/A Managed Fixed Income Portfolio of Core
Trust (Delaware)(e) $ 829,507
N/A Positive Return Bond Portfolio of Core
Trust (Delaware)(e) 553,905
N/A Strategic Value Bond Portfolio of Core
Trust (Delaware)(e) 276,477
N/A Index Portfolio of Core Trust
(Delaware)(e) 1,786,866
N/A Income Equity Portfolio of Core Trust
(Delaware)(e) 1,790,550
N/A Disciplined Growth Portfolio of Core
Trust (Delaware)(e) 358,186
[LOGO]
See Notes to Schedules of Investments
85
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
AGGRESSIVE BALANCED-EQUITY FUND (continued)
- - -----------------------------------------------------------------
N/A Large Company Growth Portfolio of Core
Trust (Delaware)(e) $ 1,430,140
N/A Small Cap Index Portfolio of Core Trust
(Delaware)(e) 143,475
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) 113,857
N/A Small Cap Value Portfolio of Core Trust
(Delaware)(e) 113,736
N/A Small Company Value Portfolio of Core
Trust (Delaware)(e) 172,272
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) 172,742
N/A International Portfolio of Core Trust
(Delaware)(e) 1,047,480
N/A Schroder EM Core Portfolio of Schroder
Capital Funds(e) 31,665
---------------
TOTAL INVESTMENTS (100.0%) (COST $8,457,459) $ 8,820,858
---------------
---------------
- - -----------------------------------------------------------------
INDEX FUND
- - -----------------------------------------------------------------
N/A Index Portfolio of Core Trust
(Delaware)(e) $ 786,419,771
---------------
TOTAL INVESTMENTS (100.0%) (COST $543,775,057) $ 786,419,771
---------------
---------------
- - -----------------------------------------------------------------
INCOME EQUITY FUND
- - -----------------------------------------------------------------
N/A Income Equity Portfolio of Core Trust
(Delaware)(e) $ 1,356,426,685
---------------
TOTAL INVESTMENTS (100.0%) (COST $1,016,081,095) $ 1,356,426,685
---------------
---------------
- - -----------------------------------------------------------------
VALUGROWTH STOCK FUND
- - -----------------------------------------------------------------
COMMON STOCKS (95.5%)
AMUSEMENT & RECREATION SERVICES (3.1%)
540,000 Patriot American Hospitality, Inc.(d) $ 12,926,251
63,873 Walt Disney Co. 7,225,633
---------------
20,151,884
---------------
BUSINESS SERVICES (8.9%)
157,000 Cerner Corp.(a) 4,023,125
234,400 Computer Associates International, Inc. 12,306,000
239,600 Ecolab, Inc.(d) 7,397,650
474,800 Electronics for Imaging, Inc.(a) 9,377,300
102,000 Gartner Group, Inc.(a)(d) 3,372,375
94,000 HNC Software, Inc.(a)(d) 3,248,875
188,000 Legato Systems, Inc. 5,381,500
72,360 Microsoft Corp.(a)(d) 6,137,033
163,500 National Data Corp. 6,131,250
---------------
57,375,108
---------------
CHEMICALS & ALLIED PRODUCTS (7.8%)
182,000 Cabot Corp.(d) 6,062,875
80,180 E.I. du Pont de Nemours & Co. 6,173,860
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
VALUGROWTH STOCK FUND (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
CHEMICALS & ALLIED PRODUCTS (continued)
99,780 Gillette Co.(d) $ 11,686,733
61,000 Merck & Co., Inc.(d) 7,140,813
100,600 Monsanto Co.(d) 5,570,726
159,000 Procter & Gamble Co.(d) 13,346,063
---------------
49,981,070
---------------
DEPOSITORY INSTITUTIONS (6.2%)
172,600 BankAmerica Corp. 14,271,862
47,000 Chase Manhattan Corp. 6,389,062
196,580 First Union Corp.(d) 10,873,331
124,450 State Street Corp.(d) 8,579,271
---------------
40,113,526
---------------
ELECTRIC, GAS, & SANITARY SERVICES (4.0%)
225,100 Consolidated Natural Gas Co.(d) 12,732,218
327,800 Texas Utilities Co. 12,948,100
---------------
25,680,318
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (9.2%)
327,670 American Power Conversion Corp.(a)(d) 9,830,100
93,400 CIENA Corp.(a)(d) 4,856,800
184,412 Emerson Electric Co. 11,203,029
131,900 General Electric Co. 10,997,162
83,400 Intel Corp. 5,957,887
107,900 Philips Electronics N.V.(d) 10,263,987
230,600 Telefonaktiebolaget LM Ericsson, Series
B ADR 6,427,975
---------------
59,536,940
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT & RELATED SERVICES (0.9%)
262,000 Billing Information Concepts(a) 6,091,500
---------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT
(2.1%)
275,701 Newell Co.(d) 13,302,525
---------------
FEDERAL AGENCIES & INSTRUMENTALITIES (1.9%)
206,600 FNMA 12,370,175
---------------
FOOD & KINDRED PRODUCTS (6.0%)
102,100 Coca-Cola Co. 8,002,087
240,000 Conagra, Inc. 7,020,000
411,000 International Home Foods, Inc.(a) 11,148,375
310,000 PepsiCo, Inc. 12,651,875
---------------
38,822,337
---------------
GENERAL MERCHANDISE STORES (2.2%)
103,900 May Department Stores Co. 6,682,068
123,700 Sears, Roebuck & Co.(d) 7,646,206
---------------
14,328,274
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (6.8%)
126,125 Cisco Systems, Inc.(a) 9,538,203
[LOGO]
See Notes to Schedules of Investments
86
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
VALUGROWTH STOCK FUND (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (continued)
330,000 Compaq Computer Corp.(d) $ 9,013,125
231,000 EMC Corp.(a)(d) 9,572,062
175,000 Jabil Circuit, Inc.(a)(d) 5,960,937
239,100 Parker-Hannifin Corp. 9,818,043
---------------
43,902,370
---------------
INSURANCE CARRIERS (5.2%)
141,000 Allstate Corp. 13,271,625
53,925 American International Group, Inc.(d) 6,676,589
169,100 Chubb Corp. 13,454,018
---------------
33,402,232
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (8.7%)
173,680 Baxter International, Inc.(d) 9,932,325
192,800 Becton, Dickinson & Co.(d) 13,640,600
127,374 Honeywell, Inc. 10,691,456
310,605 Thermo Electron Corp.(a)(d) 10,910,001
105,500 Xerox Corp.(d) 10,840,125
---------------
56,014,507
---------------
MISCELLANEOUS MANUFACTURING INDUSTRIES (2.4%)
116,500 Callaway Golf Co.(d) 2,402,813
341,900 Mattel, Inc.(d) 12,949,463
---------------
15,352,276
---------------
OIL & GAS EXTRACTION (3.1%)
153,200 Dresser Industries, Inc. 7,133,376
161,900 Schlumberger Ltd.(d) 12,638,318
---------------
19,771,694
---------------
PAPER & ALLIED PRODUCTS (2.9%)
295,000 IKON Office Solutions, Inc. 6,250,313
246,500 Kimberly-Clark Corp.(d) 12,217,156
---------------
18,467,469
---------------
PERSONAL SERVICES (1.5%)
224,200 H & R Block, Inc.(d) 9,864,800
---------------
PETROLEUM REFINING & RELATED INDUSTRIES (3.8%)
149,400 Chevron Corp. 11,933,326
163,799 Mobil Corp.(d) 12,776,400
---------------
24,709,726
---------------
PHARMACEUTICAL PREPARATIONS (2.1%)
273,400 American Home Products Corp. 13,208,638
---------------
REAL ESTATE INVESTMENT TRUST (1.8%)
412,147 Equity Office Properties Trust 11,334,042
---------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES (1.6%)
211,200 Franklin Resources, Inc. 10,322,401
---------------
STONE, CLAY, GLASS, & CONCRETE PRODUCTS (1.4%)
238,400 Gentex Corp.(a) 8,731,400
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
VALUGROWTH STOCK FUND (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
WHOLESALE TRADE-DURABLE GOODS (1.9%)
107,430 Johnson & Johnson $ 7,419,384
90,400 Motorola, Inc. 4,785,550
---------------
12,204,934
---------------
TOTAL COMMON STOCKS (COST $439,034,227) 615,040,146
---------------
SHORT TERM HOLDINGS (4.5%)
14,404,170 Dreyfus Cash Management Fund 14,404,170
14,651,500 Institutional Funds Group, TempFund Fund 14,651,500
---------------
TOTAL SHORT TERM HOLDINGS (COST $29,055,670) 29,055,670
---------------
WARRANTS (0.0%)
28 Jan Bell Marketing, Inc.(a) (cost $0) 1
---------------
TOTAL INVESTMENTS (100.0%) (COST $468,089,897) $ 644,095,817
---------------
---------------
- - -----------------------------------------------------------------
DIVERSIFIED EQUITY FUND
- - -----------------------------------------------------------------
N/A Index Portfolio of Core Trust
(Delaware)(e) $ 416,280,394
N/A Income Equity Portfolio of Core Trust
(Delaware)(e) 417,728,726
N/A Disciplined Growth Portfolio of Core
Trust (Delaware)(e) 83,002,922
N/A Large Company Growth Portfolio of Core
Trust (Delaware)(e) 331,221,266
N/A Small Cap Index Portfolio of Core Trust
(Delaware)(e) 32,730,683
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) 25,742,888
N/A Small Cap Value Portfolio of Core Trust
(Delaware)(e) 26,069,151
N/A Small Company Value Portfolio of Core
Trust (Delaware)(e) 39,384,516
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) 38,569,854
N/A International Portfolio of Core Trust
(Delaware)(e) 245,446,573
N/A Schroder EM Core Portfolio of Schroder
Capital Funds(e) 7,026,540
---------------
TOTAL INVESTMENTS (100.0%) (COST $1,036,588,753) $ 1,663,203,513
---------------
---------------
- - -----------------------------------------------------------------
GROWTH EQUITY FUND
- - -----------------------------------------------------------------
N/A Large Company Growth Portfolio of Core
Trust (Delaware)(e) $ 377,267,184
N/A Small Cap Index Portfolio of Core Trust
(Delaware)(e) 73,346,511
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) 57,735,739
N/A Small Cap Value Portfolio of Core Trust
(Delaware)(e) 58,779,743
[LOGO]
See Notes to Schedules of Investments
87
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
GROWTH EQUITY FUND (continued)
- - -----------------------------------------------------------------
N/A Small Company Value Portfolio of Core
Trust (Delaware)(e) $ 88,447,049
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) 86,436,502
N/A International Portfolio of Core Trust
(Delaware)(e) 322,024,113
N/A Schroder EM Core Portfolio of Schroder
Capital Funds(e) 8,440,096
---------------
TOTAL INVESTMENTS (100.0%) (COST $775,275,086) $ 1,072,476,937
---------------
---------------
- - -----------------------------------------------------------------
LARGE COMPANY GROWTH FUND
- - -----------------------------------------------------------------
N/A Large Company Growth Portfolio of Core
Trust (Delaware)(e) $ 232,059,925
---------------
TOTAL INVESTMENTS (100.0%) (COST $154,903,429) $ 232,059,925
---------------
---------------
- - -----------------------------------------------------------------
DIVERSIFIED SMALL CAP FUND
- - -----------------------------------------------------------------
N/A Small Cap Index Portfolio of Core Trust
(Delaware)(e) $ 2,475,377
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) 1,971,022
N/A Small Cap Value Portfolio of Core Trust
(Delaware)(e) 1,972,677
N/A Small Company Value Portfolio of Core
Trust (Delaware)(e) 2,976,276
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) 2,971,291
---------------
TOTAL INVESTMENTS (100.0%) (COST $12,556,265) $ 12,366,643
---------------
---------------
- - -----------------------------------------------------------------
SMALL COMPANY STOCK FUND
- - -----------------------------------------------------------------
N/A Small Company Stock Portfolio of Core
Trust (Delaware)(e) $ 128,484,786
---------------
TOTAL INVESTMENTS (100.0%) (COST $127,103,449) $ 128,484,786
---------------
---------------
- - -----------------------------------------------------------------
SMALL CAP OPPORTUNITIES FUND
- - -----------------------------------------------------------------
N/A Schroder U.S. Smaller Companies
Portfolio of Schroder Capital Funds(e) $ 297,850,970
---------------
TOTAL INVESTMENTS (100.0%) (COST $267,193,672) $ 297,850,970
---------------
---------------
- - -----------------------------------------------------------------
SMALL COMPANY GROWTH FUND
- - -----------------------------------------------------------------
N/A Small Company Growth Portfolio of Core
Trust (Delaware)(e) $ 749,689,205
---------------
TOTAL INVESTMENTS (100.0%) (COST $681,042,796) $ 749,689,205
---------------
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
CONTRARIAN STOCK FUND
- - -----------------------------------------------------------------
COMMON STOCKS (95.4%)
APPAREL & ACCESSORY STORES (3.9%)
4,300 Limited, Inc. $ 142,975
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(2.1%)
9,800 Hartmarx Corp.(a) 77,175
---------------
CHEMICALS & ALLIED PRODUCTS (8.2%)
600 Dow Chemical Co. 58,125
2,300 Pharmacia & Upjohn, Inc. 101,631
5,800 Wellman, Inc. 139,562
---------------
299,318
---------------
COAL MINING (0.7%)
4,000 Pittston Minerals Group 25,250
---------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT
(2.9%)
10,500 Material Sciences Corp.(a) 105,656
---------------
FOOD & KINDRED PRODUCTS (4.3%)
11,600 Chiquita Brands International, Inc. 155,875
---------------
GENERAL MERCHANDISE STORES (2.0%)
1,700 Dilliards, Inc. 71,506
---------------
HOLDING & OTHER INVESTMENT OFFICES (1.6%)
13,800 Mesabi Trust 59,512
---------------
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES (0.7%)
5,800 Bombay Co., Inc.(a) 25,375
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (7.2%)
3,000 Ampco Pittsburgh Corp. 44,250
5,600 Gerber Scientific, Inc. 141,050
2,000 McDermott International, Inc. 76,375
---------------
261,675
---------------
MEASURING, ANALYZING & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (2.9%)
3,700 Flowserve Corp. 107,300
---------------
METAL MINING (3.5%)
8,000 Cyprus Amax Minerals Co. 127,000
---------------
MINING & QUARRYING OF NONMETALLIC MINERALS, EXCEPT FUELS (2.5%)
8,000 Dravo Corp.(a) 90,000
---------------
MOTOR FREIGHT TRANSPORTATION & WAREHOUSING (1.8%)
3,500 Werner Enterprises, Inc. 66,500
---------------
PAPER & ALLIED PRODUCTS (10.4%)
8,200 Abitibi-Consolidated, Inc.(d) 111,725
2,500 Bowater, Inc.(d) 126,562
2,400 Champion International Corp. 115,200
800 Consolidated Papers, Inc. 23,150
---------------
376,637
---------------
[LOGO]
See Notes to Schedules of Investments
88
SCHEDULES OF INVESTMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
CONTRARIAN STOCK FUND (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
PRIMARY METAL INDUSTRIES (26.7%)
4,900 Alcan Aluminum Ltd. $ 139,650
3,700 Alumax, Inc.(a) 173,206
19,200 Armco, Inc.(a) 104,400
1,900 Asarco, Inc. 43,106
7,500 Bethlehem Steel Corp.(a) 91,875
6,106 Inland Steel Industries, Inc. 174,784
9,200 LTV Corp. 100,625
4,000 USX-U.S. Steel Group, Inc.(d) 143,500
---------------
971,146
---------------
TEXTILE MILL PRODUCTS (8.3%)
4,800 Albany International Corp. 139,200
3,600 Burlington Industries, Inc.(a) 63,226
10,500 Cone Mills Corp.(a) 101,063
---------------
303,489
---------------
TRANSPORTATION SERVICES (3.1%)
3,300 Ryder System, Inc. 112,407
---------------
WATER TRANSPORTATION (2.6%)
2,500 Knightsbridge Tankers Ltd. 72,188
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
CONTRARIAN STOCK FUND (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
WATER TRANSPORTATION (continued)
800 Teekay Shipping Corp. $ 20,800
---------------
92,988
---------------
TOTAL COMMON STOCKS (COST $2,939,397) 3,471,784
---------------
TIME DEPOSITS (4.6%)
165,904 PNC Bank, N.A. Nassau, 5.66%, 6/1/98
(cost $165,904) 165,904
---------------
TOTAL INVESTMENTS (100.0%) (COST $3,105,301) $ 3,637,688
---------------
---------------
- - -----------------------------------------------------------------
INTERNATIONAL FUND
- - -----------------------------------------------------------------
N/A International Portfolio of Core Trust
(Delaware)(e) $ 277,196,462
N/A Schroder EM Core Portfolio of Schroder
Capital Funds(e) 8,228,920
---------------
TOTAL INVESTMENTS (100.0%) (COST $230,045,859) $ 285,425,382
---------------
---------------
[LOGO]
See Notes to Schedules of Investments
89
NOTES TO SCHEDULE OF INVESTMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
(a) Non-income producing security
(b) Securities that may be resold to "qualified institutional buyers" under rule
144A or securities offered pursuant to 4(2) of the Securities Act of 1933,
as amended. The Board of Trustees has deemed these securities to be liquid
at May 31, 1998.
(c) Certain variable rate securities are deemed to have a maturity remaining
until the next readjustment of the interest rate or the longer of the demand
period or readjustment. The interest rate shown reflects the rate in effect
on May 31, 1998.
(d) Part or all of this investment on loan, see Note 5 of Notes to Financial
Statements.
(e) The following percentages represent each Fund's ownership interest in the
respective Portfolios as of May 31, 1998:
TOTAL AGGRESSIVE
STABLE RETURN STRATEGIC MODERATE GROWTH BALANCED
INCOME DIVERSIFIED BOND INCOME BALANCED BALANCED EQUITY INDEX
FUND BOND FUND FUND FUND FUND FUND FUND FUND
-------- ----------- -------- --------- -------- -------- -------- --------
Prime Money Market Portfolio....... N/A N/A N/A N/A N/A N/A N/A N/A
Money Market Portfolio............. N/A N/A N/A 0.99% N/A N/A N/A N/A
Stable Income Portfolio............ 59.27% N/A N/A 13.67% 27.06% N/A N/A N/A
Managed Fixed Income Portfolio..... N/A 19.93% N/A 18.19% 28.84% 32.78% 0.25% N/A
Positive Return Bond Portfolio..... N/A 19.97% N/A 18.19% 28.83% 32.77% 0.25% N/A
Strategic Value Bond Portfolio..... N/A 9.43% 48.80% 8.61% 13.64% 15.53% 0.12% N/A
Index Portfolio.................... N/A N/A N/A 0.99% 3.65% 8.05% 0.13% 56.77%
Income Equity Portfolio............ N/A N/A N/A 0.71% 2.60% 5.74% 0.09% N/A
Disciplined Growth Portfolio....... N/A N/A N/A 2.10% 7.74% 17.03% 0.27% N/A
Large Company Growth Portfolio..... N/A N/A N/A 1.01% 3.73% 8.20% 0.13% N/A
Small Cap Index Portfolio.......... N/A N/A N/A 0.83% 3.28% 7.16% 0.12% N/A
Small Company Stock Portfolio...... N/A N/A N/A 0.36% 1.41% 3.05% 0.05% N/A
Small Cap Value Portfolio.......... N/A N/A N/A 0.78% 3.06% 6.68% 0.11% N/A
Small Company Value Portfolio...... N/A N/A N/A 0.83% 3.26% 7.12% 0.12% N/A
Small Company Growth Portfolio..... N/A N/A N/A 0.13% 0.53% 1.15% 0.02% N/A
Schroder U.S. Smaller Companies
Portfolio........................ N/A N/A N/A N/A N/A N/A N/A N/A
International Portfolio............ N/A N/A N/A 0.85% 3.13% 6.92% 0.11% N/A
Schroder Global Growth Portfolio... N/A N/A N/A N/A N/A N/A N/A N/A
Schroder EM Core Portfolio......... N/A N/A N/A 0.84% 3.26% 7.04% 0.12% N/A
LARGE DIVERSIFIED SMALL SMALL
INCOME DIVERSIFIED GROWTH COMPANY SMALL COMPANY SMALL CAP COMPANY
EQUITY EQUITY EQUITY GROWTH CAP STOCK OPPORTUNITIES GROWTH
FUND FUND FUND FUND FUND FUND FUND FUND
-------- ----------- -------- --------- -------- -------- -------------- --------
Prime Money Market Portfolio....... N/A N/A N/A N/A N/A N/A N/A N/A
Money Market Portfolio............. N/A N/A N/A N/A N/A N/A N/A N/A
Stable Income Portfolio............ N/A N/A N/A N/A N/A N/A N/A N/A
Managed Fixed Income Portfolio..... N/A N/A N/A N/A N/A N/A N/A N/A
Positive Return Bond Portfolio..... N/A N/A N/A N/A N/A N/A N/A N/A
Strategic Value Bond Portfolio..... N/A N/A N/A N/A N/A N/A N/A N/A
Index Portfolio.................... N/A 30.05% N/A N/A N/A N/A N/A N/A
Income Equity Portfolio............ 69.35% 21.36% N/A N/A N/A N/A N/A N/A
Disciplined Growth Portfolio....... N/A 63.47% N/A N/A N/A N/A N/A N/A
Large Company Growth Portfolio..... N/A 30.61% 34.87% 21.45% N/A N/A N/A N/A
Small Cap Index Portfolio.......... N/A 26.72% 59.88% N/A 2.02% N/A N/A N/A
Small Company Stock Portfolio...... N/A 11.45% 25.68% N/A 0.88% 57.14% N/A N/A
Small Cap Value Portfolio.......... N/A 25.00% 56.37% N/A 1.89% N/A N/A N/A
Small Company Value Portfolio...... N/A 26.70% 59.95% N/A 2.02% N/A N/A N/A
Small Company Growth Portfolio..... N/A 4.31% 9.67% N/A 0.33% N/A N/A 83.85%
Schroder U.S. Smaller Companies
Portfolio........................ N/A N/A N/A N/A N/A N/A 83.71% N/A
International Portfolio............ N/A 25.80% 33.86% N/A N/A N/A N/A N/A
Schroder Global Growth Portfolio... N/A N/A N/A N/A N/A N/A N/A N/A
Schroder EM Core Portfolio......... N/A 26.29% 31.58% N/A N/A N/A N/A N/A
INTERNATIONAL
FUND
--------------
Prime Money Market Portfolio....... N/A
Money Market Portfolio............. N/A
Stable Income Portfolio............ N/A
Managed Fixed Income Portfolio..... N/A
Positive Return Bond Portfolio..... N/A
Strategic Value Bond Portfolio..... N/A
Index Portfolio.................... N/A
Income Equity Portfolio............ N/A
Disciplined Growth Portfolio....... N/A
Large Company Growth Portfolio..... N/A
Small Cap Index Portfolio.......... N/A
Small Company Stock Portfolio...... N/A
Small Cap Value Portfolio.......... N/A
Small Company Value Portfolio...... N/A
Small Company Growth Portfolio..... N/A
Schroder U.S. Smaller Companies
Portfolio........................ N/A
International Portfolio............ 29.14%
Schroder Global Growth Portfolio... N/A
Schroder EM Core Portfolio......... 30.79%
[LOGO]
90
NOTES TO SCHEDULES OF INVESTMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
ABBREVIATIONS
ADR American Depositary Receipts
AMBAC American Municipal Bond Assurance Corporation
BIG Bond Insurance Group
COLL Collateralized
COP Certificate of Participation
DOT Department of Transportation
EDA Economic Development Authority
EFA Education Finance Authority
ETM Escrowed to Maturity
FAMC Federal Agricultural Mortgage Corporation
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage Association
GO General Obligation
HEFA Higher Education Facilities Authority
HEHFA Higher Education & Health Facilities Authority
HFA Housing Finance Authority
HUD Department of Housing and Urban Development
IDA Industrial Development Authority
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
MFHR Multi Family Housing Revenue
P/R Prerefunded
PCR Pollution Control Revenue
PFA Public Finance Authority
RIBS Residual Interest Bond Series
RV Revenue Bonds
SD School District
SFM Single Family Mortgage
TVA Tennessee Valley Authority
USG U.S. Governments
VA Veterans' Administration
V/R Variable rate
[LOGO]
91
(This page has been left blank intentionally.)
92
NORWEST ADVANTAGE PERFORMA FUNDS
ANNUAL REPORT
MAY 31, 1998
PERFORMA STRATEGIC VALUE BOND FUND
PERFORMA DISCIPLINED GROWTH FUND
PERFORMA SMALL CAP VALUE FUND
PERFORMA GLOBAL GROWTH FUND
INDEPENDENT AUDITORS' REPORT MAY 31, 1998
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders
Norwest Advantage Funds
We have audited the accompanying statements of assets
and liabilities of Performa Strategic Value Bond Fund,
Performa Disciplined Growth Fund, Performa Small Cap Value
Fund and Performa Global Growth Fund, portfolios of
Norwest Advantage Funds (collectively the "Funds"),
including the schedules of investments, as of May 31,
1998, and the related statements of operations, statements
of changes in net assets and financial highlights for the
period from October 15, 1997 (commencement of operations)
to May 31, 1998. These financial statements and financial
highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on
these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements and financial highlights. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of the Funds as
of May 31, 1998, the results of their operations, changes
in their net assets and financial highlights for the
period from October 15, 1997 to May 31, 1998, in
conformity with generally accepted accounting principles.
[SIGNATURE]
Boston, Massachusetts
July 21, 1998
[LOGO]
94
STATEMENTS OF ASSETS AND LIABILITIES MAY 31, 1998
- --------------------------------------------------------------------------------
PERFORMA
STRATEGIC PERFORMA PERFORMA PERFORMA
VALUE DISCIPLINED SMALL CAP GLOBAL
BOND FUND GROWTH FUND VALUE FUND GROWTH FUND
----------- ------------- ----------- -------------
ASSETS:
Investments (Note 2)
Investments at cost........................... $9,131,361 $11,703,514 $6,363,400 $ 955,069
Net unrealized appreciation................... 38,464 559,781 1,883 72,349
----------- ------------- ----------- -------------
TOTAL INVESTMENTS AT VALUE........................ 9,169,825 12,263,295 6,365,283 1,027,418
Receivable for Fund shares issued............... - 59,333 52,000 34,724
Organization Costs, net of amortization (Note
2)............................................ 4,690 6,526 6,503 4,690
----------- ------------- ----------- -------------
TOTAL ASSETS...................................... 9,174,515 12,329,154 6,423,786 1,066,832
----------- ------------- ----------- -------------
LIABILITIES:
Accrued expenses and other liabilities.......... 6,161 3,558 689 881
Payable for Fund shares redeemed................ - - 346 -
Payable to affiliates........................... 755 895 495 84
----------- ------------- ----------- -------------
TOTAL LIABILITIES................................. 6,916 4,453 1,530 965
----------- ------------- ----------- -------------
NET ASSETS........................................ $9,167,599 $12,324,701 $6,422,256 $ 1,065,867
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
COMPONENTS OF NET ASSETS:
Paid in capital................................. $9,117,926 $11,848,993 $6,407,849 $ 991,060
Undistributed net investment income............. 8,348 1,649 - 3,970
Accumulated net realized gain (loss) on
investments sold.............................. 2,861 (85,722) 12,524 (1,512)
Net unrealized appreciation on investments...... 38,464 559,781 1,883 72,349
----------- ------------- ----------- -------------
NET ASSETS........................................ $9,167,599 $12,324,701 $6,422,256 $ 1,065,867
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
SHARES OF BENEFICIAL INTEREST..................... 891,731 1,180,491 632,328 100,262
NET ASSET VALUE AND OFFERING PRICE PER SHARE (Net
Assets divided by Shares of Beneficial
Interest)........................................ $ 10.28 $ 10.44 $ 10.16 $ 10.63
[LOGO]
See Notes to Financial Statements
95
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED MAY 31, 1998 (a)
- --------------------------------------------------------------------------------
PERFORMA PERFORMA PERFORMA PERFORMA
STRATEGIC DISCIPLINED SMALL CAP GLOBAL
VALUE BOND FUND GROWTH FUND VALUE FUND GROWTH FUND
--------------- --------------- --------------- ---------------
INVESTMENT INCOME
Interest income................................. $220,375 $ 6,100 $ 3,443 $ 3,930
Dividend income................................. - 38,865 8,471 4,309
Securities lending income....................... 992 826 253 -
Net expenses from Core Trust (Delaware) and/or
Schroder Capital Funds (Note 1)............... (19,131) (33,644) (17,871) (3,270)
--------------- --------------- --------------- ---------------
TOTAL INVESTMENT INCOME........................... 202,236 12,147 (5,704) 4,969
--------------- --------------- --------------- ---------------
EXPENSES
Advisory (Note 3)............................... - - - -
Management and Administration (Note 3).......... 1,660 1,646 816 1,162
Transfer Agent (Note 3)......................... 8,303 8,229 4,083 968
Accounting (Note 3)............................. 11,048 11,048 11,048 11,048
Legal........................................... 311 605 359 33
Registration.................................... 18,204 18,940 17,577 15,802
Audit........................................... 5,002 5,001 5,001 5,000
Trustees........................................ 28 25 11 3
Amortization of organization costs (Note 2)..... 675 936 936 675
Miscellaneous................................... 277 209 102 55
--------------- --------------- --------------- ---------------
TOTAL EXPENSES.................................... 45,508 46,639 39,933 34,746
FEES WAIVED AND EXPENSES REIMBURSED (Note 4).... (36,409) (39,118) (36,548) (32,405)
--------------- --------------- --------------- ---------------
NET EXPENSES...................................... 9,099 7,521 3,385 2,341
--------------- --------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS)...................... 193,137 4,626 (9,089) 2,628
--------------- --------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain (Loss) on
Investments in Portfolios (Note 1).............. 3,606 (85,722) 21,613 (1,512)
Foreign currency transactions on investments in
Portfolios.................................... - - - 1,320
--------------- --------------- --------------- ---------------
Net Realized Gain (Loss) on Investments........... 3,606 (85,722) 21,613 (192)
Net Change in Unrealized Appreciation on
Investments of Portfolios (Note 1).............. 38,464 559,781 1,883 72,675
Foreign currency transactions on investments in
Portfolios.................................... - - - (326)
--------------- --------------- --------------- ---------------
Net Change in Unrealized Appreciation on
Investments...................................... 38,464 559,781 1,883 72,349
--------------- --------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS... 42,070 474,059 23,496 72,157
--------------- --------------- --------------- ---------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $235,207 $478,685 $ 14,407 $ 74,785
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
(a) Period from October 15, 1997 (commencement of operations) to May 31, 1998
[LOGO]
See Notes to Financial Statements.
96
STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
PERFORMA PERFORMA
STRATEGIC PERFORMA PERFORMA GLOBAL
VALUE DISCIPLINED SMALL CAP GROWTH
BOND FUND GROWTH FUND VALUE FUND FUND
------------ ------------ ---------- ----------
NET ASSETS--OCTOBER 15, 1997 (COMMENCEMENT OF
OPERATIONS)...................................... $ - $ - $ - $ -
------------ ------------ ---------- ----------
OPERATIONS
Net investment income (loss).................... 193,137 4,626 (9,089) 2,628
Net realized gain (loss) on investments sold.... 3,606 (85,722) 21,613 (192)
Net change in unrealized appreciation on
investments................................... 38,464 559,781 1,883 72,349
------------ ------------ ---------- ----------
Net increase in net assets resulting from
operations.................................... 235,207 478,685 14,407 74,785
------------ ------------ ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........................... (184,789) (2,977) - -
Net realized gain on investments................ (745) - - -
------------ ------------ ---------- ----------
Total distributions to shareholders............. (185,534) (2,977) - -
------------ ------------ ---------- ----------
CAPITAL SHARE TRANSACTIONS (a)
Sale of Shares.................................. 9,463,290 13,680,823 6,801,733 1,110,737
Reinvestment of distributions................... 137,139 433 - -
Redemption of Shares............................ (482,503) (1,832,263) (393,884) (119,655)
------------ ------------ ---------- ----------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS...... 9,117,926 11,848,993 6,407,849 991,082
------------ ------------ ---------- ----------
NET INCREASE IN NET ASSETS........................ 9,167,599 12,324,701 6,422,256 1,065,867
------------ ------------ ---------- ----------
NET ASSETS--MAY 31, 1998--(INCLUDING LINE (b)).... $9,167,599 $12,324,701 6$,422,256 1$,065,867
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
(a) Shares Issued (Redeemed)
Sale of Shares................................. 926,178 1,361,533 670,920 111,769
Reinvestment of distributions.................. 12,612 47 - -
Redemption of Shares........................... (47,059) (181,089) (38,592) (11,507)
------------ ------------ ---------- ----------
Net increase from share transactions............ 891,731 1,180,491 632,328 100,262
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
(b) Accumulated undistributed (distributions in
excess of) net investment income (loss), May 31,
1998............................................. $ 8,348 $ 1,649 $ - $ 3,970
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
[LOGO]
See Notes to Financial Statements.
97
FINANCIAL HIGHLIGHTS FOR THE PERIOD ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
PERFORMA
STRATEGIC PERFORMA PERFORMA PERFORMA
VALUE DISCIPLINED SMALL CAP GLOBAL
BOND FUND GROWTH FUND VALUE FUND GROWTH FUND
------------- --------------- ------------- ---------------
Net Asset Value, Beginning Per Share (October 15,
1997) $ 10.00 $ 10.00 $ 10.00 $ 10.00
------ ------- ------ ------
Investment Operations
Net Investment Income (Loss).................... 0.34 0.01 (0.01) 0.03
Net Realized and Unrealized Gain on
Investments................................... 0.27 0.44 0.17 0.60
------ ------- ------ ------
Total from Investment Operations.................. 0.61 0.45 0.16 0.63
------ ------- ------ ------
Distributions From
Net Investment Income........................... (0.33) (0.01) - -
------ ------- ------ ------
Ending Net Asset Value............................ $ 10.28 $ 10.44 $ 10.16 $ 10.63
------ ------- ------ ------
------ ------- ------ ------
Total Return(a)................................... 6.20% 4.50% 1.60% 6.30%
Ratio/Supplementary Data
Net Assets at End of Period (000's omitted)..... $ 9,168 $ 12,325 $ 6,422 $ 1,066
Ratios to Average Net Assets
Expenses including reimbursement/waiver of
fees(b)(c).................................... 0.85% 1.25% 1.30% 1.45%
Expenses excluding reimbursement/waiver of
fees(b)(c).................................... 1.95% 2.44% 3.54% 9.82%
Net investment income (loss) including
reimbursement/waiver of fees(b)(c)............ 5.82% 0.14% (0.56)% 0.68%
(a) Total return would have been lower had certain expenses not been reimbursed
or waived during the period shown (Note 4)
(b) Annualized
(c) Includes expenses and, if applicable, income allocated from the Portfolio(s)
in which the Fund invests
[LOGO]
See Notes to Financial Statements
98
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Norwest Advantage Funds ("Trust") is organized as a Delaware business trust and
is registered as an open-end management investment company. The Trust currently
has thirty-nine separate investment portfolios. These financial statements
relate to four of those portfolios, Performa Strategic Value Bond Fund, Performa
Disciplined Growth Fund, Performa Small Cap Value Fund and Performa Global
Growth Fund (each a "Fund" and, collectively, the "Funds"), each of which is a
diversified portfolio. The Funds commenced operations on October 15, 1997. The
Trust has an unlimited number of authorized shares of beneficial interest.
MASTER-FEEDER ARRANGEMENT--Each Fund currently seeks to achieve its investment
objective by investing all its investable assets in separate diversified
portfolios of Core Trust (Delaware) ("Core Trust") and Schroder Capital Funds
("Schroder Core") (each a "Portfolio" and, collectively, the "Portfolios"),
which have the same investment objectives and substantially similar investment
policies as the Fund. Core Trust and Schroder Core are registered as open-end
management investment companies. Performa Strategic Value Bond Fund invests all
its assets in Strategic Value Bond Portfolio of Core Trust; Performa Disciplined
Growth Fund invests all its assets in Disciplined Growth Portfolio of Core
Trust; Performa Small Cap Value Fund invests all its assets in Small Cap Value
Portfolio of Core Trust; and Performa Global Growth Fund invests all its assets
in Schroder Global Growth Portfolio of Schroder Core. Each Fund may withdraw its
investment from its corresponding Portfolio at any time if the Board determines
that it is in the best interest of the Fund. Each Portfolio directly acquires
portfolio securities, and a Fund investing in the Portfolio acquires an indirect
interest in those securities. The Funds account for their investment in the
corresponding Portfolios as partnership investments and record their share of
the Portfolio's income, expenses and realized and unrealized gain and loss
daily. This is commonly referred to as a master-feeder arrangement. The
financial statements of the Portfolios are in this report and should be read in
conjunction with the Funds' financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates. The following summarizes the significant accounting policies of the
Funds:
SECURITY VALUATION--The Trust determines the net asset value per share of each
Fund as of close of the regular trading day on the New York Stock Exchange on
each Fund business day. The Trust records its investment in the Portfolios at
value. Valuation of securities held in the Portfolios are discussed in the Notes
to the Financial Statements of Core Trust and Schroder Core which are included
elsewhere in this report.
INVESTMENT INCOME AND EXPENSES--The Funds record their pro rata share of the
Portfolios' income, expenses and realized and unrealized gain and loss daily. In
addition, the Funds accrue their own expenses.
EXPENSE ALLOCATION--The Trust accounts separately for the assets and liabilities
and operations of each Fund. Expenses that are directly attributable to more
than one Fund are allocated among the respective Funds.
DISTRIBUTIONS TO SHAREHOLDERS--Dividends of net investment income are declared
and paid monthly for Performa Strategic Value Bond Fund and declared and paid
annually for all other Funds. Capital gain distributions, if any, are
distributed to shareholders at least annually. Distributions are based on
amounts calculated in accordance with applicable federal income tax regulations,
which may differ from generally accepted accounting principles. These
differences are due primarily to differing treatments of income and gain on
various investment securities held by the Portfolios, timing differences and
differing characterizations of distributions made by the Funds.
FEDERAL TAXES--The Funds intend to qualify, and continue to qualify, each year
as regulated investment companies and distribute all their taxable income. In
addition, by distributing in each calendar year substantially all their net
investment income, capital gain and certain other amounts, if any, the Funds
will not be subject to federal excise tax. Therefore, no federal income or
excise tax provisions are required.
REALIZED GAIN AND LOSS--Security transactions are recorded on trade date.
Identified cost of investments sold is used to determine realized capital gains
and losses for both financial statement and federal income tax purposes.
ORGANIZATIONAL COSTS--Costs incurred by the Funds in connection with their
organization and registration of shares have been capitalized and are being
amortized using the straight line method over a five year period beginning on
the commencement of the Funds' operations.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISERS--Each Fund currently invests all its assets in a
corresponding Portfolio. The investment adviser of each Portfolio, with the
exception of Schroder Global Growth Portfolio, is Norwest Investment Management,
Inc. (Adviser), a subsidiary of Norwest Bank Minnesota, N.A. ("Norwest").
Norwest is a subsidiary of Norwest Corporation. The investment adviser for
Schroder Global Growth Portfolio is Schroder Capital Management International
Inc. ("Schroder"). See Notes to the Financial Statements of Core Trust and
Schroder Core.
[LOGO]
99
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
MANAGEMENT AND ADMINISTRATIVE--Forum Financial Services, Inc. ("FFSI") and Forum
Administrative Services, LLC ("FAdS") serve as the manger and administrator to
the Funds, respectively. For their services, FFSI and FAdS each receive a fee at
an annual rate of 0.025% of each Fund's average daily net assets. Schroder Fund
Advisors Inc. ("Schroder Advisors") serves as administrator to Schroder Global
Growth Portfolio, and FAdS serves as its subadministrator. For their services,
Schroder Advisors receives from Schroder Global Growth Portfolio a fee of 0.15%,
and FAdS receives a fee at an annual rate of 0.075% of the Portfolio's average
daily net assets with a $25,000 minimum. Pursuant to a separate agreement,
Norwest receives a fee with respect to Performa Global Growth Fund at an annual
rate of 0.25% of each Fund's average daily net assets.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT--Norwest serves as the Trust's
transfer agent and dividend disbursing agent. For its services, Norwest receives
a fee at an annual rate of 0.25% of each Fund's average daily net assets.
OTHER SERVICE PROVIDER--Forum Accounting Services, LLC, an affiliate of FAdS,
provides portfolio accounting services to each Fund pursuant to a separate
agreement.
NOTE 4. FEES WAIVED AND EXPENSE REIMBURSED
Norwest, FFSI and FAdS have voluntarily waived a portion of their fees and have
reimbursed certain expenses of the Funds and Portfolios so that total expenses
would not exceed specific expense limitations established for each Fund and
Portfolio. Norwest, FFSI and FAdS, at their discretion, may revise or
discontinue the voluntary fee waivers and expense reimbursements at any time.
For the period ended May 31, 1998, fees waived and expenses reimbursed by the
Fund's service providers were as follows:
FEES WAIVED EXPENSES TOTAL FEES
----------------------------------------- REIMBURSED WAIVED AND
TRANSFER ----------- EXPENSES
AGENT MANAGEMENT FAdS/FFSI FFSI REIMBURSED
----------- --------------- ----------- ----------- -----------
Performa Strategic Value Bond Fund...... $ 5,612 $ - $ 12,160 $ 18,637 $ 36,409
Performa Disciplined Growth Fund........ 5,750 - 12,146 21,222 39,118
Performa Small Cap Value Fund........... 2,846 - 11,316 22,386 36,548
Performa Global Growth Fund............. 685 968 10,691 20,061 32,405
NOTE 5. SECURITIES TRANSACTIONS
The following table presents the federal tax cost basis of investments, related
gross unrealized appreciation and depreciation for federal income tax purposes,
and the capital loss carryovers available to offset future capital gains, as of
May 31, 1998:
UNREALIZED
---------------------------------------- TAX CAPITAL LOSS
APPRECIATION DEPRECIATION NET COST BASIS CARRYOVERS (a)
------------ --------------- --------- ---------- ---------------
Performa Strategic Value Bond Fund...... $ 38,464 $ - $ 38,464 $9,131,361 $ -
Performa Disciplined Growth Fund........ 559,781 - 559,781 11,703,514 15,619
Performa Small Cap Value Fund........... 1,883 - 1,883 6,363,400 -
Performa Global Growth Fund............. 72,349 - 72,349 955,069 702
(a) Expiring in various years through 2006.
[LOGO]
100
SUPPLEMENTARY INFORMATION (UNAUDITED) MAY 31, 1998
- --------------------------------------------------------------------------------
SPECIAL 1998 TAX INFORMATION (UNAUDITED)
The Performa Global Growth Fund intends to elect to pass through the credit for
taxes paid in foreign countries during its fiscal year ended May 31, 1998. In
accordance with current tax laws, the foreign income and foreign tax per share
(for a share outstanding on May 31, 1998) is as follows:
COUNTRY DIVIDENDS FOREIGN TAX
----------------- ----------------- -----------------
Chile............ 0.0002 0.0001
France........... 0.0012 0.0001
Germany.......... 0.0007 0.0001
Japan............ 0.0013 0.0002
COUNTRY DIVIDENDS FOREIGN TAX
----------------- ----------------- -----------------
Netherlands...... 0.0017 0.0003
Singapore........ 0.0002 -
Spain............ 0.0003 0.0001
Sweden........... 0.0010 0.0002
United Kingdom... 0.0044 0.0007
The pass through of foreign tax credit will affect only those shareholders of
the Fund who are holders on the dividend record date in December 1998.
Accordingly, shareholders will receive more detailed information along with
their form 1099-DIV in January 1999.
FEDERAL TAX STATUS OF DIVIDENDS DECLARED (UNAUDITED)
For federal income tax purposes, dividends from short-term capital gains are
classified as ordinary income. The percentage of qualifying dividends eligible
for the corporate dividends received deduction for Performa Disciplined Growth
Fund and Performa Small Cap Value Fund were 100% and 54.65%, respectively.
[LOGO]
101
SCHEDULES OF INVESTMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
PERFORMA STRATEGIC VALUE BOND FUND
- - -----------------------------------------------------------------
N/A Strategic Value Bond Portfolio of Core
Trust (Delaware) $ 9,169,825
---------------
TOTAL INVESTMENTS (100.0%)
(COST $9,131,361) $ 9,169,825
---------------
---------------
- - -----------------------------------------------------------------
PERFORMA DISCIPLINED GROWTH FUND
- - -----------------------------------------------------------------
N/A Disciplined Growth Portfolio $ 12,263,295
---------------
TOTAL INVESTMENTS (100.0%)
(COST $11,703,514) $ 12,263,295
---------------
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
PERFORMA SMALL CAP VALUE FUND
- - -----------------------------------------------------------------
N/A Small Cap Value Portfolio of Core Trust
(Delaware) $ 6,365,283
---------------
TOTAL INVESTMENTS (100.0%)
(COST $6,363,400) $ 6,365,283
---------------
---------------
- - -----------------------------------------------------------------
PERFORMA GLOBAL GROWTH FUND
- - -----------------------------------------------------------------
N/A Global Growth Portfolio of Schroder
Capital Funds $ 1,027,418
---------------
TOTAL INVESTMENTS (100.0%) (COST $955,069) $ 1,027,418
---------------
---------------
As of May 31, 1998, Performa Strategic Value Bond Fund's investment in Strategic
Value Bond Portfolio of Core Trust represents 7.01% of the Portfolio's
outstanding interest. Performa Disciplined Growth Fund's investment in the
Disciplined Growth Portfolio of Core Trust represents 9.38% of the portfolio's
outstanding interest. Performa Small Cap Value Fund's investment in the Small
Cap Value Portfolio of Core Trust represents 6.10% of the portfolio's
outstanding interest. Performa Global Growth Fund's investment in the Schroder
Global Growth Portfolio of Schroder Capital Funds represents 32.49% of the
portfolio's outstanding interest.
[LOGO]
See Notes to Financial Statements
102
ANNUAL REPORT
MAY 31, 1998
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
INTERNATIONAL PORTFOLIO
CORE TRUST (DELAWARE)
INDEPENDENT AUDITORS' REPORT MAY 31, 1998
- --------------------------------------------------------------------------------
To the Board of Trustees and Partners of Core Trust
(Delaware)
We have audited the accompanying statements of assets
and liabilities of nine portfolios of Core Trust
(Delaware), Stable Income Portfolio, Managed Fixed Income
Portfolio, Positive Return Bond Portfolio, Strategic Value
Bond Portfolio, Income Equity Portfolio, Disciplined
Growth Portfolio, Large Company Growth Portfolio, Small
Cap Index Portfolio, and Small Cap Value Portfolio
(collectively the "Portfolios"), including the schedules
of investments as of May 31, 1998, and the related
statements of operations, statements of changes in net
assets and financial highlights for the year ended May 31,
1998 for the Stable Income Portfolio, Managed Fixed Income
Portfolio, Positive Return Bond Portfolio, Income Equity
Portfolio and Large Company Growth Portfolio, for the
period from April 9, 1998 to May 31, 1998 for the Small
Cap Index Portfolio and for the period from October 1,
1997 to May 31, 1998 for the Strategic Value Bond
Portfolio, Disciplined Growth Portfolio and Small Cap
Value Portfolio. These financial statements and financial
highlights are the responsibility of the Portfolios'
management. Our responsibility is to express an opinion on
these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures
included confirmation of securities owned as of May 31,
1998 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as well
as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of the
Portfolios as of May 31, 1998, the results of their
operations, changes in their net assets and financial
highlights for the year or periods listed in the first
paragraph above, in conformity with generally accepted
accounting principles.
[SIGNATURE]
Boston, Massachusetts
July 21, 1998
CORE TRUST (DELAWARE)
104
REPORT OF INDEPENDENT ACCOUNTANTS MAY 31, 1998
- --------------------------------------------------------------------------------
To Trustees and Investors of Core Trust (Delaware)
In our opinion, the accompanying statements of assets
and liabilities, including the schedules of investments,
and related statements of operations and of changes in net
assets and the financial highlights present fairly, in all
material respects, the financial position of five
portfolios of Core Trust (Delaware): Index Portfolio,
Small Company Stock Portfolio, Small Company Value
Portfolio, Small Company Growth Portfolio and
International Portfolio (collectively the "Portfolios"),
at May 31, 1998, the results of their operations, the
changes in their net assets and financial highlights for
each of the periods indicated therein, in conformity with
generally accepted accounting principles. These financial
statements and the financial highlights (herein referred
to as "financial statements") are the responsibility of
the Portfolios' management; our responsibility is to
express an opinion on these financial statements based on
our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at May
31, 1998, by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 21, 1998
CORE TRUST (DELAWARE)
105
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
STRATEGIC
STABLE MANAGED FIXED POSITIVE VALUE
INCOME INCOME RETURN BOND BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- ------------- ---------------
ASSETS:
Investments (Note 2):
Investments at cost......... $ 254,715,158 $325,904,053 $151,112,420 $ 233,017,203 $ 860,776,094
Repurchase agreements at
cost.................... - - 60,000,000 - -
Net unrealized appreciation
(depreciation).......... 339,437 5,258,750 11,345,742 1,829,598 523,084,425
------------- ------------- ------------- ------------- ---------------
TOTAL INVESTMENTS AT VALUE... 255,054,595 331,162,803 222,458,162 234,846,801 1,383,860,519
Collateral for securities
loaned (Notes 2 and 7)... 49,810,558 20,574,571 63,062,607 27,843,961 366,750,637
Cash......................... - - - - -
Net receivable for forward
foreign currency
contracts................ - - - - -
Receivable for investments
sold..................... - - - - -
Receivable for dividends, and
interest and other
receivables.............. 3,726,977 4,605,783 1,722,530 2,967,330 2,174,027
Organization Costs, net of
amortization (Note 2).... 8,951 8,892 8,892 - 8,821
------------- ------------- ------------- ------------- ---------------
TOTAL ASSETS.................. 308,601,081 356,352,049 287,252,191 265,658,092 1,752,794,004
------------- ------------- ------------- ------------- ---------------
LIABILITIES:
Payable for investments
purchased................ - - - 824,682 225,069
Payable for securities loaned
(Notes 2 and 7).......... 49,810,558 20,574,571 63,062,607 27,843,961 366,750,637
Payable for daily variation
margin on financial
futures contracts (Note
2)....................... - - - - 316,225
Payable to custodian (Note
3)....................... 3,464 4,100 3,158 3,270 13,193
Payable to investment adviser
(Note 3)................. 65,706 98,905 65,931 99,790 178,791
Payable to administrator
(Note 3)................. 3,755 2,058 2,626 4,056 3,747
Accrued expenses and other
liabilities.............. 8,677 9,228 8,153 5,158 26,419
------------- ------------- ------------- ------------- ---------------
TOTAL LIABILITIES............. 49,892,160 20,688,862 63,142,475 28,780,917 367,514,081
------------- ------------- ------------- ------------- ---------------
NET ASSETS.................... $ 258,708,921 $335,663,187 $224,109,716 $ 236,877,175 $ 1,385,279,923
------------- ------------- ------------- ------------- ---------------
------------- ------------- ------------- ------------- ---------------
See Notes to Financial Statements
CORE TRUST (DELAWARE)
106
MAY 31, 1998
- --------------------------------------------------------------------------------
LARGE SMALL SMALL SMALL
INCOME DISCIPLINED COMPANY CAP COMPANY CAP
EQUITY GROWTH GROWTH INDEX STOCK VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- --------------- ------------- ------------- -------------
ASSETS:
Investments (Note
2):
Investments at
cost.......... $ 1,181,107,714 $ 119,608,219 $ 555,644,481 $ 128,934,743 $ 209,732,751 $ 97,975,312
Repurchase
agreements at
cost.......... - - - - - -
Net unrealized
appreciation
(depreciation)... 798,435,839 11,172,163 526,694,218 (6,355,843) 15,925,772 5,377,263
--------------- ------------- --------------- ------------- ------------- -------------
TOTAL INVESTMENTS
AT VALUE....... 1,979,543,553 130,780,382 1,082,338,699 122,578,900 225,658,523 103,352,575
Collateral for
securities
loaned (Notes 2
and 7)......... 325,802,261 37,358,714 268,977,623 13,829,403 37,526,093 13,878,587
Cash............... - - - - - -
Net receivable for
forward foreign
currency
contracts...... - - - - - -
Receivable for
investments
sold........... - - - - 1,947,711 1,723,884
Receivable for
dividends, and
interest and
other
receivables.... 5,739,941 95,910 277,803 61,015 23,103 33,670
Organization Costs,
net of
amortization
(Note 2)....... 11,841 - 11,681 - 3,135 -
--------------- ------------- --------------- ------------- ------------- -------------
TOTAL ASSETS........ 2,311,097,596 168,235,006 1,351,605,806 136,469,318 265,158,565 118,988,716
--------------- ------------- --------------- ------------- ------------- -------------
LIABILITIES:
Payable for
investments
purchased...... 28,624,638 - - 63,009 2,554,238 743,479
Payable for
securities
loaned (Notes 2
and 7)......... 325,802,261 37,358,714 268,977,623 13,829,403 37,526,093 13,878,587
Payable for daily
variation
margin on
financial
futures
contracts (Note
2)............. - - - 29,275 - -
Payable to
custodian (Note
3)............. 18,011 2,089 10,603 2,025 3,276 1,782
Payable to
investment
adviser (Note
3)............. 836,844 99,859 606,379 26,669 180,220 85,953
Payable to
administrator
(Note 3)....... 4,389 3,539 4,844 5,555 4,359 2,997
Accrued expenses
and other
liabilities.... 9,320 5,586 8,236 20,937 21,676 6,069
--------------- ------------- --------------- ------------- ------------- -------------
TOTAL LIABILITIES... 355,295,463 37,469,787 269,607,685 13,976,873 40,289,862 14,718,867
--------------- ------------- --------------- ------------- ------------- -------------
NET ASSETS.......... $ 1,955,802,133 $ 130,765,219 $ 1,081,998,121 $ 122,492,445 $ 224,868,703 $ 104,269,849
--------------- ------------- --------------- ------------- ------------- -------------
--------------- ------------- --------------- ------------- ------------- -------------
SMALL SMALL
COMPANY COMPANY
VALUE GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ---------------
ASSETS:
Investments (Note
2):
Investments at
cost.......... $ 132,400,943 $ 754,874,797 $ 753,906,482
Repurchase
agreements at
cost.......... - - -
Net unrealized
appreciation
(depreciation)... 15,120,905 141,601,029 202,916,655
------------- ------------- ---------------
TOTAL INVESTMENTS
AT VALUE....... 147,521,848 896,475,826 956,823,137
Collateral for
securities
loaned (Notes 2
and 7)......... 17,596,912 - 178,898,445
Cash............... - - 15,111,999
Net receivable for
forward foreign
currency
contracts...... - - 1,576,307
Receivable for
investments
sold........... - 6,880,944 1,827,558
Receivable for
dividends, and
interest and
other
receivables.... 144,631 99,793 2,794,106
Organization Costs,
net of
amortization
(Note 2)....... 2,884 2,923 8,821
------------- ------------- ---------------
TOTAL ASSETS........ 165,266,275 903,459,486 1,157,040,373
------------- ------------- ---------------
LIABILITIES:
Payable for
investments
purchased...... - 8,637,161 26,406,076
Payable for
securities
loaned (Notes 2
and 7)......... 17,596,912 - 178,898,445
Payable for daily
variation
margin on
financial
futures
contracts (Note
2)............. - - -
Payable to
custodian (Note
3)............. 2,346 9,272 42,049
Payable to
investment
adviser (Note
3)............. 115,298 719,778 347,373
Payable to
administrator
(Note 3)....... 5,167 7,014 121,755
Accrued expenses
and other
liabilities.... 21,107 23,141 39,089
------------- ------------- ---------------
TOTAL LIABILITIES... 17,740,830 9,396,366 205,854,787
------------- ------------- ---------------
NET ASSETS.......... $ 147,525,445 $ 894,063,120 $ 951,185,586
------------- ------------- ---------------
------------- ------------- ---------------
CORE TRUST (DELAWARE)
107
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
MANAGED
STABLE FIXED POSITIVE STRATEGIC
INCOME INCOME RETURN BOND VALUE BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ----------- -------------
INVESTMENT INCOME
Dividend income.............. $ - $ - $ - $ - $ 17,573,083
Interest income.............. 14,372,161 19,333,965 12,690,152 7,956,239 2,373,273
Securities lending income
(Note 2)................. 32,479 18,239 88,818 28,889 379,207
------------ ------------ ------------ ----------- -------------
TOTAL INVESTMENT INCOME....... 14,404,640 19,352,204 12,778,970 7,985,128 20,325,563
------------ ------------ ------------ ----------- -------------
EXPENSES:
Advisory (Note 3)............ 682,043 975,529 727,322 601,240 1,709,358
Administration (Note 3)...... 131,004 155,632 120,200 60,122 652,010
Custody (Note 3)............. 37,735 42,809 35,714 20,709 128,957
Accounting (Note 3).......... 94,000 88,000 60,500 49,500 142,000
Legal........................ 1,912 2,220 1,793 1,254 17,521
Audit........................ 15,968 15,968 15,968 14,500 34,023
Trustees..................... 1,594 1,647 1,626 725 3,110
Amortization of organization
costs (Note 2)........... 2,234 2,221 2,221 - 6,072
Miscellaneous................ 8,541 8,392 2,201 2,778 67,941
------------ ------------ ------------ ----------- -------------
TOTAL EXPENSES................ 975,031 1,292,418 967,545 750,828 2,760,992
FEES WAIVED (Note 4)........ (127,246) (153,576) (117,575) (56,068) (648,264)
------------ ------------ ------------ ----------- -------------
NET EXPENSES.................. 847,785 1,138,842 849,970 694,760 2,112,728
------------ ------------ ------------ ----------- -------------
NET INVESTMENT INCOME
(LOSS).................... 13,556,855 18,213,362 11,929,000 7,290,368 18,212,835
------------ ------------ ------------ ----------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) FROM
INVESTMENTS:
Net Realized Gain (Loss) from
Securities................. 423,040 2,891,576 6,562,062 67,326 30,466,020
Foreign currency
transactions........... - - - - -
Financial futures
transactions........... - - - - 10,111,823
------------ ------------ ------------ ----------- -------------
Net Realized Gain (Loss) from
investments.............. 423,040 2,891,576 6,562,062 67,326 40,577,843
Net Change in Unrealized
Appreciation
(Depreciation) from
Securities................. 333,836 5,029,200 13,771,972 1,829,598 232,903,674
Foreign currency
transactions........... - - - - -
Financial futures
transactions........... - - - - (587,949)
------------ ------------ ------------ ----------- -------------
Net Change in Unrealized
Appreciation
(Depreciation) from
Investments.............. 333,836 5,029,200 13,771,972 1,829,598 232,315,725
------------ ------------ ------------ ----------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) FROM
INVESTMENTS............... 756,876 7,920,776 20,334,034 1,896,924 272,893,568
------------ ------------ ------------ ----------- -------------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ $ 14,313,731 $26,134,138 $32,263,034 $9,187,292 $ 291,106,403
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
(a) Beginning of Period....... Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Oct 1, 1997 Jun 1, 1997
(b) Net of unrecoverable
foreign withholding taxes
of $1,559,177
See accompanying Notes to Financial Statements
CORE TRUST (DELAWARE)
108
FOR THE PERIOD ENDED MAY 31, 1998 (a)
- --------------------------------------------------------------------------------
INCOME DISCIPLINED LARGE COMPANY SMALL CAP SMALL COMPANY SMALL CAP
EQUITY GROWTH GROWTH INDEX STOCK VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- ------------- -------------- ------------- --------------
INVESTMENT INCOME
Dividend income.............. $ 33,794,578 $ 941,034 $ 5,487,382 $ 113,563 $ 1,070,726 $ 341,645
Interest income.............. 1,311,997 226,497 523,451 168,627 1,000,834 207,609
Securities lending income
(Note 2)................. 256,026 15,873 421,025 3,032 221,189 7,746
-------------- -------------- ------------- -------------- ------------- --------------
TOTAL INVESTMENT INCOME....... 35,362,601 1,183,404 6,431,858 285,222 2,292,749 557,000
-------------- -------------- ------------- -------------- ------------- --------------
EXPENSES:
Advisory (Note 3)............ 7,756,161 679,865 6,448,644 45,748 3,024,869 580,454
Administration (Note 3)...... 860,981 37,764 576,913 9,156 197,912 30,550
Custody (Note 3)............. 170,123 14,658 114,210 3,471 48,610 12,174
Accounting (Note 3).......... 77,500 49,500 79,500 24,067 75,000 47,000
Legal........................ 12,639 1,093 8,595 66 4,082 898
Audit........................ 16,285 13,500 14,968 14,500 27,859 13,500
Trustees..................... 3,564 684 2,940 300 1,843 668
Amortization of organization
costs (Note 2)........... 2,963 - 2,917 - 2,088 -
Miscellaneous................ 15,980 2,051 10,127 792 7,733 2,612
-------------- -------------- ------------- -------------- ------------- --------------
TOTAL EXPENSES................ 8,916,196 799,115 7,258,814 98,100 3,389,996 687,856
FEES WAIVED (Note 4)........ (856,592) (34,231) (572,067) (3,594) (193,557) (27,553)
-------------- -------------- ------------- -------------- ------------- --------------
NET EXPENSES.................. 8,059,604 764,884 6,686,747 94,506 3,196,439 660,303
-------------- -------------- ------------- -------------- ------------- --------------
NET INVESTMENT INCOME
(LOSS).................... 27,302,997 418,520 (254,889) 190,716 (903,690) (103,303)
-------------- -------------- ------------- -------------- ------------- --------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) FROM
INVESTMENTS:
Net Realized Gain (Loss) from
Securities................. 21,124,145 (4,466,320) 103,483,455 (887) 75,015,565 (2,328,929)
Foreign currency
transactions........... - - - - - -
Financial futures
transactions........... - - - (30,973) - -
-------------- -------------- ------------- -------------- ------------- --------------
Net Realized Gain (Loss) from
investments.............. 21,124,145 (4,466,320) 103,483,455 (31,860) 75,015,565 (2,328,929)
Net Change in Unrealized
Appreciation
(Depreciation) from
Securities................. 331,743,519 11,172,163 175,686,535 (6,355,843) (41,102,519) 5,377,263
Foreign currency
transactions........... - - - - - -
Financial futures
transactions........... - - - (374,725) - -
-------------- -------------- ------------- -------------- ------------- --------------
Net Change in Unrealized
Appreciation
(Depreciation) from
Investments.............. 331,743,519 11,172,163 175,686,535 (6,730,568) (41,102,519) 5,377,263
-------------- -------------- ------------- -------------- ------------- --------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) FROM
INVESTMENTS............... 352,867,664 6,705,843 279,169,990 (6,762,428) 33,913,046 3,048,334
-------------- -------------- ------------- -------------- ------------- --------------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ $ 380,170,661 $ 7,124,363 $278,915,101 $ (6,571,712) $ 33,009,356 $ 2,945,031
-------------- -------------- ------------- -------------- ------------- --------------
-------------- -------------- ------------- -------------- ------------- --------------
(a) Beginning of Period....... Jun 1, 1997 Oct 1, 1997 Jun 1, 1997 Apr 9, 1998 Jun 1, 1997 Oct 1, 1997
(b) Net of unrecoverable
foreign withholding taxes
of $1,559,177
SMALL
COMPANY SMALL COMPANY
VALUE GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- -------------
INVESTMENT INCOME
Dividend income.............. $ 2,589,822 $ 2,332,991 $ 11,873,542(b)
Interest income.............. 206,113 2,124,402 3,941,336
Securities lending income
(Note 2)................. 107,342 - 365,494
------------ ------------- -------------
TOTAL INVESTMENT INCOME....... 2,903,277 4,457,393 16,180,372
------------ ------------- -------------
EXPENSES:
Advisory (Note 3)............ 1,558,410 7,752,366 3,832,528
Administration (Note 3)...... 101,259 486,767 1,209,182
Custody (Note 3)............. 30,974 101,137 511,866
Accounting (Note 3).......... 74,000 78,000 121,500
Legal........................ 2,416 8,285 9,665
Audit........................ 26,542 32,359 44,573
Trustees..................... 1,515 2,611 2,676
Amortization of organization
costs (Note 2)........... 1,920 1,944 6,072
Miscellaneous................ 7,597 13,515 42,163
------------ ------------- -------------
TOTAL EXPENSES................ 1,804,633 8,476,984 5,780,225
FEES WAIVED (Note 4)........ (96,092) (479,752) (117,141)
------------ ------------- -------------
NET EXPENSES.................. 1,708,541 7,997,232 5,663,084
------------ ------------- -------------
NET INVESTMENT INCOME
(LOSS).................... 1,194,736 (3,539,839) 10,517,288
------------ ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) FROM
INVESTMENTS:
Net Realized Gain (Loss) from
Securities................. 49,410,647 157,449,385 15,722,123
Foreign currency
transactions........... - - 3,063,593
Financial futures
transactions........... - - -
------------ ------------- -------------
Net Realized Gain (Loss) from
investments.............. 49,410,647 157,449,385 18,785,716
Net Change in Unrealized
Appreciation
(Depreciation) from
Securities................. 1,904,286 (8,948,010) 76,972,797
Foreign currency
transactions........... - - 2,006,982
Financial futures
transactions........... - - -
------------ ------------- -------------
Net Change in Unrealized
Appreciation
(Depreciation) from
Investments.............. 1,904,286 (8,948,010) 78,979,779
------------ ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) FROM
INVESTMENTS............... 51,314,933 148,501,375 97,765,495
------------ ------------- -------------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ $52,509,669 $144,961,536 $108,282,783
------------ ------------- -------------
------------ ------------- -------------
(a) Beginning of Period....... Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
(b) Net of unrecoverable
foreign withholding taxes
of $1,559,177
CORE TRUST (DELAWARE)
109
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
STRATEGIC
STABLE MANAGED FIXED POSITIVE VALUE
INCOME INCOME RETURN BOND BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- ------------- ---------------
NET ASSETS, MAY 31, 1996...... $ - $ - $ - $ - $ 360,469,155
------------- ------------- ------------- ------------- ---------------
OPERATIONS
Net investment income........ - - - - 7,998,685
Net realized gain on
investments sold......... - - - - 11,395,983
Net change in unrealized
appreciation on
investments.............. - - - - 85,427,079
------------- ------------- ------------- ------------- ---------------
Net increase in net assets
resulting from
operations............... - - - - 104,821,747
------------- ------------- ------------- ------------- ---------------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS
Contributions................ - - - - 41,212,190
Withdrawals.................. - - - - (50,510,474)
------------- ------------- ------------- ------------- ---------------
Net increase (decrease) from
transactions in
investors' beneficial
interest................. - - - - (9,298,284)
------------- ------------- ------------- ------------- ---------------
NET INCREASE IN NET ASSETS.... - - - - 95,523,463
------------- ------------- ------------- ------------- ---------------
NET ASSETS, MAY 31, 1997
(a)....................... - - - - 455,992,618
------------- ------------- ------------- ------------- ---------------
OPERATIONS
Net investment income
(loss)................... 13,556,855 18,213,362 11,929,000 7,290,368 18,212,835
Net realized gain (loss) on
investments sold......... 423,040 2,891,576 6,562,062 67,326 40,577,843
Net change in unrealized
appreciation
(depreciation) on
investments.............. 333,836 5,029,200 13,771,972 1,829,598 232,315,725
------------- ------------- ------------- ------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ 14,313,731 26,134,138 32,263,034 9,187,292 291,106,403
------------- ------------- ------------- ------------- ---------------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS
Contributions (Note 9)....... 329,276,657 374,891,352 255,480,588 254,050,881 791,000,962
Withdrawals.................. (84,881,467) (65,362,303) (63,633,906) (26,360,998) (152,820,060)
------------- ------------- ------------- ------------- ---------------
Net increase from
transactions in
investors' beneficial
interest................. 244,395,190 309,529,049 191,846,682 227,689,883 638,180,902
------------- ------------- ------------- ------------- ---------------
NET INCREASE IN NET ASSETS.... 258,708,921 335,663,187 224,109,716 236,877,175 929,287,305
------------- ------------- ------------- ------------- ---------------
NET ASSETS, MAY 31, 1998...... $ 258,708,921 $335,663,187 $224,109,716 $236,877,175 $ 1,385,279,923
------------- ------------- ------------- ------------- ---------------
------------- ------------- ------------- ------------- ---------------
(a) Beginning of Period....... Jun 1, 1997 Jun 1, 1997 Jun 1, 1997 Oct 1, 1997 Jun 1, 1997
See accompanying Notes to Financial Statements
CORE TRUST (DELAWARE)
110
FOR THE YEARS OR PERIODS ENDED MAY 31, 1997 AND 1998
- --------------------------------------------------------------------------------
INCOME DISCIPLINED LARGE COMPANY SMALL CAP SMALL COMPANY
EQUITY GROWTH GROWTH INDEX STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- --------------- ------------- --------------
NET ASSETS, MAY 31, 1996...... $ - $ - $ - $ - $ -
--------------- ------------- --------------- ------------- --------------
OPERATIONS
Net investment income........ - - - - -
Net realized gain on
investments sold......... - - - - -
Net change in unrealized
appreciation on
investments.............. - - - - -
--------------- ------------- --------------- ------------- --------------
Net increase in net assets
resulting from
operations............... - - - - -
--------------- ------------- --------------- ------------- --------------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS
Contributions................ - - - - -
Withdrawals.................. - - - - -
--------------- ------------- --------------- ------------- --------------
Net increase (decrease) from
transactions in
investors' beneficial
interest................. - - - - -
--------------- ------------- --------------- ------------- --------------
NET INCREASE IN NET ASSETS.... - - - - -
--------------- ------------- --------------- ------------- --------------
NET ASSETS, MAY 31, 1997
(a)....................... - - - - -
--------------- ------------- --------------- ------------- --------------
OPERATIONS
Net investment income
(loss)................... 27,302,997 418,520 (254,889) 190,716 (903,690)
Net realized gain (loss) on
investments sold......... 21,124,145 (4,466,320) 103,483,455 (31,860) 75,015,565
Net change in unrealized
appreciation
(depreciation) on
investments.............. 331,743,519 11,172,163 175,686,535 (6,730,568) (41,102,519)
--------------- ------------- --------------- ------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ 380,170,661 7,124,363 278,915,101 (6,571,712) 33,009,356
--------------- ------------- --------------- ------------- --------------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS
Contributions (Note 9)....... 1,656,178,203 127,393,238 1,039,939,974 130,179,195 462,417,317
Withdrawals.................. (80,546,731) (3,752,382) (236,856,954) (1,115,038) (270,557,970)
--------------- ------------- --------------- ------------- --------------
Net increase from
transactions in
investors' beneficial
interest................. 1,575,631,472 123,640,856 803,083,020 129,064,157 191,859,347
--------------- ------------- --------------- ------------- --------------
NET INCREASE IN NET ASSETS.... 1,955,802,133 130,765,219 1,081,998,121 122,492,445 224,868,703
--------------- ------------- --------------- ------------- --------------
NET ASSETS, MAY 31, 1998...... $ 1,955,802,133 $130,765,219 $ 1,081,998,121 $122,492,445 $ 224,868,703
--------------- ------------- --------------- ------------- --------------
--------------- ------------- --------------- ------------- --------------
(a) Beginning of Period....... Jun 1, 1997 Oct 1, 1997 Jun 1, 1997 Apr 9, 1998 Jun 1, 1997
SMALL CAP SMALL COMPANY SMALL COMPANY
VALUE VALUE GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------- --------------
NET ASSETS, MAY 31, 1996...... $ - $ - $ - $ 439,815,157
------------- ------------- -------------- --------------
OPERATIONS
Net investment income........ - - - 7,278,121
Net realized gain on
investments sold......... - - - 11,031,767
Net change in unrealized
appreciation on
investments.............. - - - 41,949,537
------------- ------------- -------------- --------------
Net increase in net assets
resulting from
operations............... - - - 60,259,425
------------- ------------- -------------- --------------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS
Contributions................ - - - 108,485,326
Withdrawals.................. - - - (69,263,029)
------------- ------------- -------------- --------------
Net increase (decrease) from
transactions in
investors' beneficial
interest................. - - - 39,222,297
------------- ------------- -------------- --------------
NET INCREASE IN NET ASSETS.... - - - 99,481,722
------------- ------------- -------------- --------------
NET ASSETS, MAY 31, 1997
(a)....................... - - - 539,296,879
------------- ------------- -------------- --------------
OPERATIONS
Net investment income
(loss)................... (103,303) 1,194,736 (3,539,839) 10,517,288
Net realized gain (loss) on
investments sold......... (2,328,929) 49,410,647 157,449,385 18,785,716
Net change in unrealized
appreciation
(depreciation) on
investments.............. 5,377,263 1,904,286 (8,948,010) 78,979,779
------------- ------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................ 2,945,031 52,509,669 144,961,536 108,282,783
------------- ------------- -------------- --------------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS
Contributions (Note 9)....... 109,215,794 182,821,915 893,179,444 406,915,054
Withdrawals.................. (7,890,976) (87,806,139) (144,077,860) (103,309,130)
------------- ------------- -------------- --------------
Net increase from
transactions in
investors' beneficial
interest................. 101,324,818 95,015,776 749,101,584 303,605,924
------------- ------------- -------------- --------------
NET INCREASE IN NET ASSETS.... 104,269,849 147,525,445 894,063,120 411,888,707
------------- ------------- -------------- --------------
NET ASSETS, MAY 31, 1998...... $104,269,849 $147,525,445 $ 894,063,120 $ 951,185,586
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
(a) Beginning of Period....... Oct 1, 1997 Jun 1, 1997 Jun 1, 1997 Jun 1, 1997
CORE TRUST (DELAWARE)
111
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
RATIO TO
AVERAGE
NET ASSETS(a)
-------------------------------------------
NET
INVESTMENT PORTFOLIO AVERAGE
INCOME NET TURNOVER COMMISSION
(LOSS) EXPENSES GROSS EXPENSES RATE RATE(b)
---------- ----------- -------------- -------- ----------
STABLE INCOME PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... 5.96% 0.37% 0.43% 37.45% N/A
MANAGED FIXED INCOME PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... 6.53% 0.41% 0.46% 91.59% N/A
POSITIVE RETURN BOND PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... 5.74% 0.41% 0.47% 68.18% N/A
STRATEGIC VALUE BOND PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
October 1, 1997(c) to May 31, 1998.... 6.06% 0.58% 0.62% 134.56% N/A
INDEX PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997 to May 31, 1998.......... 1.60% 0.19% 0.24% 6.68% $0.0339
June 1, 1996 to May 31, 1997.......... 2.03% 0.11% 0.31% 7.29% 0.0444
November 1, 1995 to May 31, 1996...... 2.35% 0.17% 0.32% 7.21% 0.0501
November 11, 1994(c) to October 31,
1995................................ 2.42% 0.17% 0.33% 7.73% N/A
INCOME EQUITY PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... 1.76% 0.52% 0.57% 3.49% $0.0585
DISCIPLINED GROWTH PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
October 1, 1997(c) to May 31, 1998.... 0.55% 1.01% 1.06% 68.08% $0.0553
LARGE COMPANY GROWTH PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... (0.03%) 0.67% 0.73% 13.03% $0.0552
SMALL CAP INDEX PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
April 9, 1998(c) to May 31, 1998...... 1.04% 0.52% 0.54% 2.25% $0.0199
SMALL COMPANY STOCK PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... (0.27%) 0.95% 1.01% 166.16% $0.0616
SMALL CAP VALUE PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
October 1, 1997(c) to May 31, 1998.... (0.17%) 1.08% 1.13% 79.43% $0.0556
SMALL COMPANY VALUE PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... 0.69% 0.99% 1.04% 99.08% $0.0522
SMALL COMPANY GROWTH PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997(c) to May 31, 1998....... (0.41%) 0.93% 0.98% 123.36% $0.0567
INTERNATIONAL PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------
June 1, 1997 to May 31, 1998.......... 1.23% 0.66% 0.68% 36.96% $0.0194
June 1, 1996 to May 31, 1997.......... 1.53% 0.19% 0.67% 53.32% 0.0244
November 1, 1995 to May 31, 1996...... 1.75% 0.23% 0.68% 17.58% 0.0247
November 11, 1994(c) to October 31,
1995................................ 1.94% 0.25% 0.70% 28.19% N/A
- - ------------------------------
(a) Ratios for periods of less than one year are annualized
(b) For fiscal years ending after September 1, 1995, the Portfolios are required
to disclose average commissions per share paid to brokers on the purchase
and sale of equity securities
(c) Commencement of operations
CORE TRUST (DELAWARE)
112
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Core Trust (Delaware) ("Core Trust"), organized as a Delaware business trust,
was formed on September 1, 1994. Core Trust, which is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"Act"), currently has twenty-one separate investment portfolios. These financial
statements relate to the following fourteen diversified portfolios (each a
"Portfolio" and collectively the "Portfolios"), which commenced operations on
the following dates:
Stable Income Portfolio................. June 1, 1997
Managed Fixed Income Portfolio.......... June 1, 1997
Positive Return Bond Portfolio.......... June 1, 1997
Strategic Value Bond Portfolio.......... October 1, 1997
Index Portfolio......................... November 11, 1994
Income Equity Portfolio................. June 1, 1997
Disciplined Growth Portfolio............ October 1, 1997
Large Company Growth Portfolio.......... June 1, 1997
Small Cap Index Portfolio............... April 9, 1998
Small Company Stock Portfolio........... June 1, 1997
Small Cap Value Portfolio............... October 1, 1997
Small Company Value Portfolio........... June 1, 1997
Small Company Growth Portfolio.......... June 1, 1997
International Portfolio................. November 11, 1994
On June 1, 1997, the following transactions occurred (1) Small Company Portfolio
was divided into Small Company Stock Portfolio, Small Company Value Portfolio
and Small Company Growth Portfolio; its assets were divided by investment style;
and (2) International Portfolio merged into another portfolio of Core Trust,
International Portfolio II. The combined portfolio was named International
Portfolio.
Interests in the Portfolios are sold without any sales charge in private
placement transactions to qualified investors, including open-end management
investment companies.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates. The following represents significant accounting policies of the
Portfolios:
SECURITIES VALUATION--Short-term securities that mature in sixty days or less
are valued at amortized cost. Equity securities for which market quotations are
readily available are valued using the last reported sales price provided by
independent pricing services. If no sales are reported, the mean of the last bid
and ask price is used. If no mean price is available, the last bid price is
used. Fixed income and other securities, for which market quotations are readily
available, are valued using the mean of the bid and ask prices provided by
independent pricing services. If no mean price is available, the last bid price
is used. In the absence of readily available market quotations, securities are
valued at fair value determined in accordance with procedures adopted by the
Board of Trustees.
SECURITY TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date. With respect to dividends on foreign securities, certain instances may
arise where a Portfolio is not notified of a dividend until after the ex-
dividend date has passed. In these instances a dividend is recorded as soon as
the Portfolio is informed of the dividend. Dividend income is recorded net of
unrecoverable withholding tax. Interest income, including amortization of
premium or accretion of discount is recorded as earned. Identified cost of
investments sold is used to determine realized gain and loss for both financial
statement and federal income tax purposes. Foreign dividend and interest income
amounts and realized capital gains and losses are converted to U.S. dollars
using foreign exchange rates in effect at the date of the transactions.
Foreign currency amounts are translated into U.S. dollars at the mean of the bid
and asked prices of such currencies against U.S. dollars as follows: (i) assets
and liabilities at the rate of exchange at the end of the respective period; and
(ii) purchases and sales of securities and income and expenses at the rate of
exchange prevailing on the dates of such transactions. The portion of the
results of operations arising from changes in the exchange rates and the portion
due to fluctuations arising from changes in the market prices of securities are
not isolated. Such fluctuations are included with the net realized and
unrealized gain or loss on investments.
International Portfolio may enter into forward contracts to purchase or sell
foreign currencies to protect against the effect on the U.S. dollar value of the
underlying portfolio of possible adverse movements in foreign exchange rates.
Risks associated with such contracts include the movement in value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. Fluctuations in the value of such contracts are recorded as
unrealized gain or loss; realized gain or loss include net gain or loss on
contracts that have terminated by settlement or by the Portfolio entering into
offsetting commitments.
CORE TRUST (DELAWARE)
113
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURES CONTRACTS--Each Portfolio may invest in stock index futures contracts to
enhance its return and hedge against a decline in the value of securities. A
futures contract is an agreement between two parties to buy and sell a security
at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gain or loss. When the contract
is closed, the Portfolio records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. The potential risk to the Portfolio is that the change in
value of the underlying securities may not correlate to the change in value of
the contracts.
REPURCHASE AGREEMENTS--Each Portfolio may invest in repurchase agreements. Each
Portfolio, through its custodian, receives delivery of the underlying
collateral, whose market value must always equal or exceed the repurchase price.
The investment adviser is responsible for determining the value of the
underlying collateral at all times. In the event of default, the Portfolios may
have difficulty with the disposition of any securities held as collateral.
SECURITY LOANS--The Portfolios receive compensation for lending securities in
the form of fees or by retaining a portion of interest on the investment
securities or cash received as collateral. A Portfolio also continues to receive
interest or dividends on the securities loaned. Security loans are secured at
all times by collateral equal to at least 102% of the market value of the
securities loaned plus accrued interest. Gain or loss in the market price of the
securities loaned that may occur during the term of the loan are reflected in
the value of the Portfolio.
ORGANIZATIONAL COSTS--The costs incurred by Stable Income Portfolio, Managed
Fixed Income Portfolio, Positive Return Bond Portfolio, Index Portfolio, Income
Equity Portfolio, Large Company Growth Portfolio, Small Company Stock Portfolio,
Small Company Value Portfolio, Small Company Growth Portfolio and International
Portfolio in connection with their organization have been capitalized and are
being amortized using the straight line method over a five year period beginning
on the commencement of each Portfolio's operations.
EXPENSE ALLOCATION--Core Trust accounts separately for the assets and
liabilities and operations of each Portfolio. Expenses that are directly
attributable to more than one Portfolio are allocated among the respective
Portfolios in proportion to each Portfolio's net assets.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER--The investment adviser of each Portfolio, except
International Portfolio, is Norwest Investment Management, Inc. ("Adviser"), an
indirect subsidiary of Norwest Corporation. The investment adviser of
International Portfolio is Schroder Capital Management International Inc.
("Schroder"). Schroder is a wholly owned U.S. subsidiary of Schroders
Incorporated, the wholly owned U.S. holding company subsidiary of Schroders PLC.
The Adviser has retained the services of certain of its affiliates as investment
subadvisers (Galliard Capital Management, Inc., Crestone Capital Management,
Inc., Peregrine Capital Management, Inc., and Smith Asset Management, Inc.) on
selected Portfolios. The fees related to subadvisory services are borne directly
by the Adviser and do not increase the overall fees paid by the Portfolios to
the Adviser. The investment advisory fee and the associated subadviser are as
follows:
INVESTMENT
ADVISORY FEE SUBADVISER
-------------- ------------------------------
Galliard Capital Management,
Stable Income Portfolio................. 0.30% Inc.
Galliard Capital Management,
Managed Fixed Income Portfolio.......... 0.35% Inc.
Peregrine Capital Management,
Positive Return Bond Portfolio.......... 0.35% Inc.
Galliard Capital Management,
Strategic Value Bond Portfolio.......... 0.50% Inc.
Index Portfolio......................... 0.15% -
Income Equity Portfolio................. 0.50% -
Disciplined Growth Portfolio............ 0.90% Smith Asset Management, Inc.
Peregrine Capital Management,
Large Company Growth Portfolio.......... 0.65% Inc.
Small Cap Index Portfolio............... 0.25% -
Crestone Capital Management,
Small Company Stock Portfolio........... 0.90% Inc.
Small Cap Value Portfolio............... 0.95% Smith Asset Management, Inc.
Peregrine Capital Management,
Small Company Value Portfolio........... 0.90% Inc.
Peregrine Capital Management,
Small Company Growth Portfolio.......... 0.90% Inc.
International Portfolio................. 0.45% -
ADMINISTRATIVE AND OTHER SERVICES--Forum Administrative Services, LLC ("FAdS")
is the administrator to Core Trust and receives a fee with respect to each
Portfolio (other than the 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. In addition, for the year ended May 31, 1998, certain
legal expenses were charged to the Portfolios by FAdS aggregating $7,889.
CORE TRUST (DELAWARE)
114
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
Norwest Bank Minnesota, N.A. ("Norwest") serves as the custodian for each
Portfolio and may appoint certain subcustodians to custody those portfolios'
foreign securities and other assets held in foreign countries. Norwest receives
a fee with respect to each Portfolio (other than 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 remaining Portfolio's 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 also receives
transaction fees for providing services in connection with the securities
lending program.
OTHER SERVICE PROVIDER--Forum Accounting Services, LLC, an affiliate of FAdS,
provides portfolio accounting and interestholder recordkeeping services to each
Portfolio.
NOTE 4. WAIVERS
For the year ended May 31, 1998, fees waived by the Portfolios' service
providers were as follows:
FEES WAIVED
BY FADS
--------------
Stable Income Portfolio................. $ 127,246
Managed Fixed Income Portfolio.......... 153,576
Positive Return Bond Portfolio.......... 117,575
Strategic Value Bond Portfolio.......... 56,068
Index Portfolio......................... 648,264
Income Equity Portfolio................. 856,592
Disciplined Growth Portfolio............ 34,231
Large Company Growth Portfolio.......... 572,067
Small Cap Index Portfolio............... 3,594
Small Company Stock Portfolio........... 193,557
Small Cap Value Portfolio............... 27,553
Small Company Value Portfolio........... 96,092
Small Company Growth Portfolio.......... 479,752
International Portfolio................. -
Schroder waived investment advisory fees of $117,141 for International
Portfolio.
NOTE 5. FEDERAL INCOME TAXES
The Portfolios are not required to pay federal income taxes on their net
investment income and net capital gain as they are treated as partnerships for
federal income tax purposes. All interest, dividends, gain and loss of the
Portfolios are deemed to have been "passed through" to the interestholders in
proportion to their holdings of the Portfolios regardless of whether such
interest, dividends or gain have been distributed by the Portfolios.
The Portfolios use the "aggregate method" (as described in the applicable
regulation under the Internal Revenue Code) for allocation of capital gains and
losses to interestholders. On September 29, 1997, Stable Income Portfolio,
Managed Fixed Income Portfolio, Positive Return Bond Portfolio, Index Portfolio,
Income Equity Portfolio, Large Company Growth Portfolio, Small Company Stock
Portfolio, Small Company Value Portfolio, Small Company Growth Portfolio and
International Portfolio, applied to the Internal Revenue Service for permission
to use the aggregate method for the allocation of capital gains and losses from
the sale of securities contributed by their respective interestholders on June
1, 1997. On January 23, 1998, Income Equity Portfolio, Small Company Stock
Portfolio, and Small Company Growth Portfolio applied to the Internal Revenue
Service for permission to use the aggregate method for securities contributed by
the respective interestholders on September 15, 1997. The requests are pending.
Without permission to use the aggregate method an adjustment of the allocation
to interestholders of capital gains and losses, if any, from the sale of such
contributed securities may result.
CORE TRUST (DELAWARE)
115
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 6. SECURITIES TRANSACTIONS
The cost of purchases and the proceeds from sales (including maturities) of
securities (excluding short-term investments) for the year ended May 31, 1998,
were as follows:
COST OF PROCEEDS
PURCHASES FROM SALES
------------- -------------
Stable Income Portfolio........................... $ 202,155,631 $ 96,703,273
Managed Fixed Income Portfolio.................... 411,403,297 253,592,415
Positive Return Bond Portfolio.................... 125,225,799 130,641,342
Strategic Value Bond Portfolio.................... 490,325,953 252,097,983
Index Portfolio................................... 235,511,483 70,927,993
Income Equity Portfolio........................... 245,713,956 54,216,439
Disciplined Growth Portfolio...................... 196,312,110 75,672,417
Large Company Growth Portfolio.................... 128,062,599 245,902,971
Small Cap Index Portfolio......................... 123,631,405 2,652,319
Small Company Stock Portfolio..................... 520,863,741 710,864,848
Small Cap Value Portfolio......................... 165,688,041 71,025,157
Small Company Value Portfolio..................... 167,377,489 234,211,616
Small Company Growth Portfolio.................... 1,043,674,183 1,032,347,981
International Portfolio........................... 293,622,245 253,418,671
For federal income tax purposes, the tax basis of investment securities owned as
of May 31, 1998, and the aggregate gross unrealized appreciation and the
aggregate unrealized depreciation based on identified tax cost as of May 31,
1998 were as follows:
TAX UNREALIZED UNREALIZED APPRECIATION
COST BASIS APPRECIATION DEPRECIATION (DEPRECIATION)
------------- ------------- ------------- -------------
Stable Income Portfolio................. $ 254,715,158 $ 824,915 $ 485,478 $ 339,437
Managed Fixed Income Portfolio.......... 325,904,678 6,061,393 803,268 5,258,125
Positive Return Bond Portfolio.......... 211,370,154 11,309,354 221,346 11,088,008
Strategic Value Bond Portfolio.......... 233,136,332 2,070,355 359,886 1,710,469
Index Portfolio......................... 860,960,624 543,020,760 20,120,865 522,899,895
Income Equity Portfolio................. 1,181,109,593 807,396,409 8,962,449 798,433,960
Disciplined Growth Portfolio............ 119,608,219 14,415,957 3,243,794 11,172,163
Large Company Growth Portfolio.......... 555,981,911 535,736,259 9,379,471 526,356,788
Small Cap Index Portfolio............... 128,961,254 2,874,666 9,257,020 (6,382,354)
Small Company Stock Portfolio........... 210,552,408 29,673,505 14,567,390 15,106,115
Small Cap Value Portfolio............... 97,979,208 9,917,633 4,544,266 5,373,367
Small Company Value Portfolio........... 132,761,510 20,118,968 5,358,630 14,760,338
Small Company Growth Portfolio.......... 755,850,316 171,672,271 31,046,761 140,625,510
International Portfolio................. 753,907,608 271,142,246 68,226,717 202,915,529
NOTE 7. PORTFOLIO SECURITIES LOANED
As of May 31, 1998, certain Portfolios had loaned portfolio investments in
return for cash collateral which was invested in various short-term fixed income
securities. Norwest receives transaction fees for providing services in
connection with the securities lending program. The value of the securities on
loan and the value of the related collateral were as follows:
SECURITIES COLLATERAL
------------- -------------
Stable Income Portfolio................. $ 47,461,675 $ 49,810,558
Managed Fixed Income Portfolio.......... 19,606,649 20,574,571
Positive Return Bond Portfolio.......... 60,097,016 63,062,607
Strategic Value Bond Portfolio.......... 26,612,101 27,843,961
Index Portfolio......................... 349,029,995 366,750,637
Income Equity Portfolio................. 310,321,380 325,802,261
Disciplined Growth Portfolio............ 35,553,274 37,358,714
Large Company Growth Portfolio.......... 256,884,617 268,977,623
Small Cap Index Portfolio............... 13,458,322 13,829,403
Small Company Stock Portfolio........... 35,750,846 37,526,093
Small Cap Value Portfolio............... 13,222,030 13,878,587
Small Company Value Portfolio........... 16,725,751 17,596,912
International Portfolio................. 173,070,923 178,898,445
CORE TRUST (DELAWARE)
116
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 8. CONCENTRATION OF CREDIT RISK
International Portfolio invests in countries which may involve greater risks.
The consequences of political, social, or economic events in these markets my
have disruptive effects on the market prices of the Portfolio's investments.
NOTE 9. CONTRIBUTION OF SECURITIES
After the close of business on May 31, 1997, International Portfolio (prior to
June 1, 1997 named International Portfolio II) merged with a former portfolio of
Core Trust. In that transaction International Portfolio acquired the assets and
assumed the liabilities of the former portfolio in exchange for an interest in
International Portfolio equal in value to the net asset value of the former
portfolio. The former portfolio had the same investment objective and investment
policies as International Portfolio. The merger, which was not subject to
interestholder approval, was accomplished without the recognition of gain or
loss. The former portfolio contributed net assets with a value of $232,334,610
and the net assets of International Portfolio immediately after the transaction
was $771,507,344.
Also after the close of business on May 31, 1997, Small Company Portfolio (a
former Portfolio of Core Trust) divided into three portfolios-Small Company
Stock Portfolio, Small Company Growth Portfolio and Small Company Value
Portfolio. The assets of Small Company Portfolio (and the related liabilities)
were divided in accordance with the investment style to which the assets had
been allocated. The division, which was not subject to interestholder approval,
was accomplished without the recognition of gain or loss. Small Company
Portfolio's net assets were divided as follows: Small Company Stock Portfolio,
$178,533,353; Small Company Growth Portfolio, $167,525,486; and Small Company
Value Portfolio, $165,287,781.
In connection with the merger and division, and the contemporaneous commencement
of operations of certain portfolios on June 1, 1997, certain investors
contributed all or a portion of their net assets to the portfolios listed in the
following table.
INVESTOR CONTRIBUTIONS
-----------------------------
NET UNREALIZED
PORTFOLIO ASSETS GAIN/(LOSS)
- - ---------------------------------------- ------------- -------------
Stable Income Portfolio................. $ 205,865,654 $ 5,601
Managed Fixed Income Portfolio.......... 186,226,721 229,550
Positive Return Bond Portfolio.......... 186,707,645 (2,426,230)
Index Portfolio......................... 512,437,536 115,520,269
Income Equity Portfolio................. 955,691,053 110,368,720
Large Company Growth Portfolio.......... 615,745,586 276,554,260
Small Company Stock Portfolio........... 355,894,495 50,282,300
Small Company Value Portfolio........... 165,287,781 13,216,619
Small Company Growth Portfolio.......... 756,220,600 150,549,039
International Portfolio................. 232,334,610 33,714,226
Additionally, on September 15, 1997, certain investors contributed net assets to
the portfolios listed in the following table:
INVESTOR CONTRIBUTIONS
-----------------------------
NET UNREALIZED
PORTFOLIO ASSETS GAIN/(LOSS)
- - ---------------------------------------- ------------- -------------
Income Equity Portfolio................. $ 477,132,067 $190,138,062
Small Company Stock Portfolio........... 45,144,489 6,745,993
Small Company Growth Portfolio.......... 140,475,014 40,180,322
CORE TRUST (DELAWARE)
117
SCHEDULES OF INVESTMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STABLE INCOME PORTFOLIO
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (16.4%)
1,412,875 AFC Home Equity Loan Trust Series 1995-2
A1, 7.41% V/R, 7/25/26 $ 1,421,505
3,500,000 Aesop Funding II LLC,
Series 1997-1 A1, 6.22% V/R,
10/20/01(b) 3,529,628
61,006 Bear Stearns Secured Investors Trust,
Series 1991-2 H, 7.50% V/R, 9/20/20 60,918
4,000,000 DreamWorks Film Trust, 5.88% V/R,
10/15/05 4,000,056
1,500,000 EQCC Home Equity Loan Trust, Series
1995-3 A4, 7.10%, 2/15/12 1,543,103
2,928,803 GMAC, Commercial Mortgage Securities,
Inc., Series 1996-C1 A1, 6.16% V/R,
10/15/28 2,930,927
5,105,000 Green Tree Financial Corp., Series
1993-4 A3, 6.25%, 1/15/19 5,123,097
1,075,000 Green Tree Financial Corp., Series
1994-1 A3, 6.90%, 4/15/19 1,088,712
2,274,717 Green Tree Financial Corp., Series
1995-5 A3, 6.25%, 9/15/26 2,280,529
3,500,000 HCLT, Series 1997-1 A3, 6.01% V/R,
3/15/07 3,493,350
5,000,000 HCLT, Series 1997-2 A3, 6.06% V/R,
11/15/07 5,004,120
2,400,000 Keystone Home Improvement Loan Trust,
Series 1997-P2 IA3, 6.99%, 4/25/14 2,417,954
4,500,000 Loop Funding Master Trust, Series
1997-A144 B1, 6.06% V/R, 12/26/07 4,504,343
1,231,444 MLMI, Inc., Series 1987-C A, 10.10%,
12/15/07 1,267,851
3,105,521 Sequoia Mortgage Trust, Series 2 A1,
6.49% V/R, 10/25/24 3,144,271
---------------
TOTAL ASSET BACKED SECURITIES (COST $41,696,869) 41,810,364
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS (23.0%)
2,112,955 Commercial Loan Funding Trust, Series I
A, 5.89% V/R, 8/15/05(b) 2,104,683
1,998,843 DLJ Mortgage Acceptance Corp., Series
1998-STF1 A1, 5.91% V/R, 2/8/00 1,999,109
2,958,697 FAMC, Series CS-1012 1, 7.06% V/R,
7/25/02 3,037,730
198,447 FNMA, Series 1993-39 FA, 7.09% V/R,
4/25/23 203,352
5,352,614 MLCC Mortgage Investors, Inc., Series
1994 A A2, 6.09% V/R, 7/15/19 5,341,882
3,000,000 MLCC Mortgage Investors, Inc., Series
1994 A A3, 6.49% V/R, 7/15/19 3,031,546
2,511,430 MLCC Mortgage Investors, Inc., Series
1994-B A2, 6.29% V/R, 12/15/19 2,513,050
2,945,341 MLMI, Inc., Series 1983-I A2, 6.09% V/R,
11/15/23 2,947,447
775,047 MLMI, Inc., Series 1994-I A1, 8.03% V/R,
1/25/05 790,104
1,647,427 MNB Mortgage Pass-thru Certificates,
Series 1990-1 A, 9.50%, 6/25/19 1,647,607
3,000,000 PRAT, Series 1997-1 B, 6.55%, 9/6/03 3,043,440
682,353 RFMSI ARM, Series 1989-5A, 7.58% V/R,
10/25/19 686,109
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STABLE INCOME PORTFOLIO (continued)
- - -----------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (continued)
266,499 RRMSI ARM, Series 1991 21 BA, 7.57% V/R,
8/25/21 $ 272,124
361,280 RTC, Series 1991-6 E, 11.59% V/R,
5/25/24 373,050
966,810 RTC, Series 1991-14 A1, 7.50% V/R,
1/25/22 967,076
123,258 RTC, Series 1991 M6 A3, 8.46% V/R,
6/25/21 123,066
671,823 RTC, Series 1992-4 A2, 7.60% V/R,
7/25/28 676,892
3,177,084 RTC, Series 1992-7 A2D, 8.35%, 6/25/29 3,175,527
3,000,761 RTC, Series 1992-8 B5, 6.63% V/R,
2/25/22 3,003,867
1,147,359 RTC, Series 1992-9 B4, 7.46% V/R,
4/25/27 1,143,796
2,005,411 RTC, Series 1992-18P A4, 6.64% V/R,
4/25/28(b) 2,005,683
5,510,163 RTC, Series 1992-C2 A2, 6.69% V/R,
10/25/21 5,539,230
2,614,682 RTC, Series 1992-C3 A3, 6.84% V/R,
8/25/23 2,615,323
2,202,862 RTC, Series 1994-C1 A3, 6.24% V/R,
6/25/26 2,201,001
1,393,061 RTC, Series 1995-1 A3, 7.30% V/R,
10/25/28 1,409,226
1,051,145 RTC, Series 1995-2 A1B, 7.15%, 5/25/29 1,054,903
1,273,009 RTC, Series 1995 C2 A2, 6.14% V/R,
5/25/27 1,274,918
5,375,000 Vendee Mortgage Trust, Series 1993-1 E,
7.00%, 1/15/16 5,465,746
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST
$58,838,049) 58,647,487
---------------
CORPORATE BONDS & NOTES (8.5%)
4,037,000 Chase Manhattan Corp., 10.13%, 11/1/00 4,402,793
2,150,000 Chrysler Financial Corp., 6.26%, 7/20/98 2,151,801
2,500,000 Corestates Capital Corp., 9.63%, 2/15/01 2,722,405
2,043,000 Lehman Brothers Holdings, Inc., 8.88%,
11/1/98 2,066,419
3,475,000 Newell Co., 6.18%, 7/11/00 3,496,621
2,300,000 Philip Morris Cos., Inc., 6.15%, 3/15/00 2,304,370
1,500,000 Transamerica Financial, 6.41%, 6/20/00 1,507,730
1,000,000 Transamerica Financial, 6.36%, 6/26/00 1,004,221
2,000,000 USAA Capital Corp., 5.97%, 8/4/99(b) 2,005,352
---------------
TOTAL CORPORATE BONDS & NOTES (COST $21,478,305) 21,661,712
---------------
GOVERNMENT AGENCY BONDS & NOTES (1.4%)
400,000 FHLB, 3.00% V/R, 7/15/98 398,786
2,000,000 FHLB, 7.11%, 7/8/99(d) 2,029,424
1,000,000 FNMA, 8.70%, 6/10/99 1,029,343
---------------
TOTAL GOVERNMENT AGENCY BONDS & NOTES (COST $3,454,228)
3,457,553
---------------
MORTGAGE BACKED SECURITIES (13.6%)
FHLMC (0.8%)
411,061 Pool 410220, 7.59% V/R, 10/1/25 417,741
1,070,607 Pool 845151, 7.75% V/R, 6/1/22 1,116,685
470,228 Pool 846367, 7.74% V/R, 4/1/29 490,866
---------------
TOTAL FHLMC (COST $1,992,063) 2,025,292
---------------
FNMA (6.0%)
271,119 Pool 46698, 7.01% V/R, 12/1/15 284,076
1,466,284 Pool 155506, 7.20% V/R, 4/1/22 1,523,249
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
118
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STABLE INCOME PORTFOLIO (continued)
- - -----------------------------------------------------------------
MORTGAGE BACKED SECURITIES (continued)
FNMA (continued)
6,617,537 Pool 160334, 6.93% V/R, 3/1/01 $ 6,740,762
2,706,691 Pool 190815, 5.87% V/R, 7/1/17 2,735,111
791,718 Pool 220706, 8.02% V/R, 6/1/23 825,097
1,319,113 Pool 318464, 7.47% V/R, 4/1/25 1,370,663
1,259,541 Pool 321051, 7.93% V/R, 8/1/25 1,314,419
492,472 Pool 331866, 7.55% V/R, 12/1/25 513,046
---------------
TOTAL FNMA (COST $15,153,350) 15,306,423
---------------
SBA (6.8%)
109,863 Pool 500025, 8.38% V/R, 12/25/10 115,906
64,950 Pool 500276, 10.38% V/R, 5/25/07 70,228
127,952 Pool 500299, 10.38% V/R, 6/25/07 135,629
718,568 Pool 500392, 8.38% V/R, 11/25/12 767,071
99,302 Pool 500569, 10.38% V/R, 6/25/08 107,618
563,747 Pool 500664, 8.38% V/R, 3/25/04 587,625
624,603 Pool 500806, 7.00% V/R, 2/25/14 640,999
571,998 Pool 500957, 8.75% V/R, 7/25/14 628,483
185,028 Pool 501017, 6.88% V/R, 9/25/14 191,042
567,897 Pool 501224, 7.25% V/R, 6/25/15 601,261
71,646 Pool 501973, 10.13% V/R, 12/25/01 74,153
266,036 Pool 502083, 8.38% V/R, 11/25/04 274,682
201,335 Pool 502241, 8.38% V/R, 4/25/03 204,355
425,528 Pool 502394, 10.13% V/R, 6/25/13 475,528
1,057,581 Pool 502462, 9.73% V/R, 11/25/07 1,134,256
753,296 Pool 502501, 9.73% V/R, 4/25/03 787,195
296,910 Pool 502568, 9.73% V/R, 9/25/03 310,642
293,527 Pool 502583, 9.73% V/R, 9/25/03 307,103
161,374 Pool 502966, 9.73% V/R, 5/25/15 183,810
337,083 Pool 503249, 8.38% V/R, 4/25/07 350,144
293,372 Pool 503250, 9.73% V/R, 3/25/09 321,610
457,954 Pool 503398, 8.88% V/R, 6/25/13 498,026
789,800 Pool 503405, 8.88% V/R, 5/25/16 876,676
2,176,555 Pool 503611, 8.38% V/R, 12/25/21 2,408,816
213,474 Pool 503653, 9.13% V/R, 1/25/10 233,572
1,392,202 Pool 503658, 9.63% V/R, 9/25/10 1,550,716
1,183,123 Pool 503664, 8.98% V/R, 1/25/13 1,300,714
1,909,455 Pool 503694, 8.38% V/R, 3/25/22 2,109,724
---------------
TOTAL SBA (COST $17,309,042) 17,247,584
---------------
TOTAL MORTGAGE BACKED SECURITIES (COST $34,454,455) 34,579,299
---------------
MUNICIPAL BONDS & NOTES (4.9%)
3,300,000 Connecticut State, GO Bonds, Taxable
Series A, 5.70%, 1/15/01 3,275,966
3,145,000 Denver, CO, City and County SD #1,
Educational Facilities RV, Taxable
Pension, School Facilities Lease,
AMBAC insured, 6.34%, 12/15/00 3,185,130
4,000,000 New York State, GO Bonds, Series C,
6.13%, 3/1/02 4,007,500
1,870,000 Washington State, GO Bonds, State
Housing Trust Fund, Series T, 6.60%,
1/1/01 1,905,840
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STABLE INCOME PORTFOLIO (continued)
- - -----------------------------------------------------------------
MUNICIPAL BONDS & NOTES (continued)
170,000 York County, PA, Tax-Exempt Economic
Development RV, 5.45%, 12/30/98 $ 169,739
---------------
TOTAL MUNICIPAL BONDS & NOTES (COST $12,473,063) 12,544,175
---------------
RECEIVABLES BACKED SECURITIES (1.9%)
700,453 First Merchants Auto Receivables Corp.,
Series 1996-A A2, 6.70%, 7/17/00(b) 704,645
1,228,133 First Merchants Grantor Trust,
Series 1996-2 A, 6.85%, 11/15/01(b) 1,243,490
3,000,000 Standard Credit Card Master Trust,
Series 1991-3 B, 9.25%, 9/7/99 3,045,825
---------------
TOTAL RECEIVABLES BACKED SECURITIES (COST $5,002,520) 4,993,960
---------------
REPURCHASE AGREEMENTS (2.7%)
7,000,000 BancAmerica Robertson Stephens, 5.58%,
6/1/98, to be repurchased at
$7,003,255 (cost $7,000,000)(e) 7,000,000
---------------
TIME DEPOSITS (5.0%)
12,764,705 PNC Bank, NA Nassau, 5.66%, 6/1/98 (cost
$12,764,705) 12,764,705
---------------
U.S. TREASURY NOTES (22.6%)
55,000,000 8.50%, 2/15/00(d) (cost $57,552,964) 57,595,340
---------------
TOTAL INVESTMENTS (100.0%) (COST $254,715,158) $ 255,054,595
---------------
---------------
- - -----------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (13.6%)
1,800,000 ContiMortgage Home Equity Loan Trust,
Series 1997-4 A7, 6.63% V/R, 9/15/16 $ 1,819,115
2,441,000 EQCC Home Equity Loan Trust, Series
1996-2 A4, 7.50%, 6/15/21 2,555,595
4,900,000 EQCC Home Equity Loan Trust, Series
1997-2 A9, 6.81%, 7/15/28 5,029,703
1,000,000 GE Capital Mortgage Services, Inc.,
Series 1997 HE-2 A7, 7.12%, 6/25/27 1,010,670
3,800,000 Green Tree Financial Corp., Series
1994-1 A4, 7.20%, 4/15/19 3,930,170
600,000 Green Tree Financial Corp., Series
1995-5 A5, 6.55%, 9/15/26 618,721
9,863,701 Green Tree Financial Corp., Series
1997-7 A8, 6.86%, 9/15/16 10,070,147
1,100,000 Green Tree Home Improvement Loan Trust,
Series 1995-F A4, 6.15%, 1/15/21 1,100,198
3,000,000 Keystone Home Improvement Loan Trust,
Series 1997-P2 IA3, 6.99%, 4/25/14 3,031,407
3,300,000 Loop Funding Master Trust, Series
1997-A144 B1, 6.00% V/R, 12/26/07 3,301,033
6,693,000 Oakwood Mortgage Investors Inc., Series
1995-A A3, 7.10%, 9/15/20 6,937,689
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
119
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO (continued)
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (continued)
5,518,000 Rental Car Finance Corp.,
Series 1997-1 B3, 6.70%, 9/25/07 $ 5,589,563
---------------
TOTAL ASSET BACKED SECURITIES (COST $44,159,787) 44,994,011
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS (15.1%)
1,443,517 American Housing Trust,
Series VI I-I, 9.15%, 5/25/20 1,549,571
1,500,000 Asset Securitization Corp.,
Series 1997-D4 A1C, 7.42%, 4/14/29 1,607,692
2,371,801 CMC Securities Corp. II,
Series 1993-2I A2, 6.90% V/R, 9/25/23 2,406,374
2,712,139 FAMC, Series CS-1012 1, 7.06%, 7/25/02 2,787,572
750,000 FHLMC, Series 1832 D, 6.50%, 6/15/08 761,037
410,952 FNMA, Series 1988-5 Z, 9.20%, 3/25/18 432,617
1,499,556 First Plus Home Loan Trust, Series
1996-2 A6, 7.85%, 8/20/13 1,566,564
1,635,296 L.F. Rothschild Mortgage Trust, Series 2
Z, 9.95%, 8/1/17 1,788,906
951,194 MLMI, Inc., Series 1994-I, 8.04% V/R,
1/25/05 969,707
5,000,000 MLMI, Inc., Series 1997-CI A3, 7.12%,
6/18/29 5,290,475
2,150,000 RFMSI, 7.00%, 5/25/24 2,167,018
621,521 RTC, Series 1991-14 A1, 7.50% V/R,
1/25/22 621,691
1,083,788 RTC, Series 1991-M5 A, 9.00%, 3/25/17 1,090,063
1,881,103 RTC, Series 1992-4 A2, 7.60% V/R,
7/25/28 1,895,296
2,401,609 RTC, Series 1992-8 B5, 6.63% V/R,
2/25/22 2,404,095
2,000,000 RTC, Series 1995-1 A2C, 7.50%, 10/25/28 2,038,126
1,000,000 RTC, Series 1995-1 A2D, 7.50%, 10/25/28 1,016,691
1,000,000 RTC, Series 1995-2 A1C, 7.45%, 5/25/29 1,000,000
76,510 RTC, Series 1995-C2 A1C, 6.55% V/R,
5/25/27 76,391
965,715 Vendee Mortgage Trust,
Series 1992-2 2D, 7.75%, 12/15/14 978,655
3,788,278 Vendee Mortgage Trust,
Series 1992-2 G, 7.25% V/R, 2/15/19 3,909,092
3,250,000 Vendee Mortgage Trust,
Series 1995-1C 3E, 8.00%, 7/15/18 3,413,394
5,500,000 Vendee Mortgage Trust,
Series 1996-2 1E, 6.75%, 5/15/20 5,572,980
3,000,000 Vendee Mortgage Trust,
Series 1997-1 2C, 7.50%, 9/15/17 3,088,545
1,500,000 Vendee Mortgage Trust,
Series 1997-1 2D, 7.50%, 1/15/19 1,549,012
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST
$49,542,811) 49,981,564
---------------
CORPORATE BONDS & NOTES (44.7%)
2,250,000 Allied-Signal, Inc., 9.88%, 6/1/02 2,559,207
755,000 Allied-Signal, Inc., 9.20%, 2/15/03 852,955
600,000 Applied Materials, 6.70%, 9/6/05 617,895
5,400,000 Applied Materials, 7.00%, 9/6/05 5,654,880
1,700,000 Bausch & Lomb, Inc., 6.56%, 8/12/26 1,734,791
3,600,000 Cargill, Inc., 8.35%, 2/12/11(b) 3,960,000
700,000 Charles Schwab Corp., 7.19%, 5/31/01 720,869
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO (continued)
- - -----------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
2,000,000 Charles Schwab Corp., 6.25%, 1/23/03 $ 2,005,097
2,000,000 Charles Schwab Corp., 6.88%, 9/2/03 2,055,910
3,400,000 Chase Manhattan Corp., 8.63%, 5/1/02 3,694,331
3,400,000 Citicorp, 9.50%, 2/1/02 3,779,575
1,500,000 Colonial Pipeline, 7.13%, 8/15/02(b) 1,561,530
2,300,000 Continental Airlines, 7.15%, 6/30/07 2,373,726
2,500,000 Continental Airlines, 6.80%, 7/2/07 2,529,638
2,175,000 Corestates Capital Corp., 5.88%,
10/15/03(b) 2,142,312
750,000 Corestates Capital Corp., 6.31% V/R,
1/15/27(b) 736,537
3,000,000 Dayton Hudson Co., 5.90%, 6/15/37 3,005,166
1,000,000 El Paso Natural Gas, 7.75%, 1/15/02 1,049,158
200,000 First Bank N.A., 6.00%, 10/15/03 199,561
2,500,000 First Bank Systems, Inc., 8.00%, 7/2/04 2,727,005
1,300,000 First Bank Systems, Inc., 7.63%, 5/1/05 1,403,732
3,000,000 Florida Residential Property & Casualty,
7.25%, 7/1/02(b) 3,104,138
1,700,000 Hyundai Semiconductor, 8.25%, 5/15/04(b) 1,417,701
1,500,000 LG-Caltex Oil, 7.88%, 7/1/06(b) 1,283,053
2,500,000 Lehman Brothers, Inc., 7.50%, 8/1/26 2,731,243
5,065,000 Levi Strauss & Co., 6.80%, 11/1/03(b) 5,171,876
3,700,000 Massachusetts Institute of Technology,
7.25%, 11/2/96 4,273,452
2,000,000 May Department Stores, 9.88%, 6/15/00 2,147,373
1,060,000 Nabisco, Inc., 6.00%, 2/15/11 1,060,148
5,635,000 Oracle Corp., 6.72%, 2/15/04 5,756,941
3,600,000 Paine Webber Group, Inc., 7.00%, 3/1/00 3,651,196
1,250,000 Paine Webber Group, Inc., 6.90%, 8/15/03 1,284,115
5,000,000 Pep Boys, 6.71%, 11/3/04 5,060,705
1,305,000 Petroliam Nasional Berhad, 6.63%,
10/18/01(b) 1,230,332
2,750,000 Philip Morris Cos., Inc., 7.63%, 5/15/02 2,876,736
2,500,000 Philip Morris Cos., Inc., 7.50%, 4/1/04 2,625,695
2,709,000 Philips Electronics, 6.75%, 8/15/03 2,788,561
2,000,000 Potomac Capital Investment Corp., 7.32%,
4/14/00 2,038,200
2,450,000 Prudential Insurance Co., 7.65%,
7/1/07(b) 2,642,474
3,000,000 Raytheon Co., 5.95%, 3/15/01 3,001,122
5,200,000 Reinsurance Group of America, 7.25%,
4/1/06(b) 5,474,664
4,000,000 Reliastar Financial Corp., 7.13%, 3/1/03 4,149,548
2,500,000 Reynolds & Reynolds, 7.00%, 12/15/06 2,604,653
1,750,000 Royal Carribbean Cruises, 7.13%, 9/18/02 1,805,430
3,325,000 Scholastic Corp., 7.00%, 12/15/03 3,431,796
3,000,000 Susa Partnership LP, 8.20%, 6/1/17 3,317,856
2,200,000 Terra Nova Holdings, 7.20%, 8/15/07 2,309,747
3,000,000 Texas Utilities, 6.20%, 10/1/02(b) 3,017,019
3,000,000 Tommy Hilfiger, 6.50%, 6/1/03 3,002,184
2,100,000 Transamerica Financial, 6.41%, 6/20/00 2,110,822
750,000 Tyco International Ltd., 6.50%, 11/1/01 761,725
2,500,000 Tyco International Ltd., 6.38%, 1/15/04 2,534,060
1,050,000 USA Waste Services, Inc., 7.00%, 10/1/04 1,079,391
1,000,000 US West Capital Funding, Inc., 6.95%,
1/15/37 1,059,277
885,000 United Missouri Bancshares, 7.30%,
2/24/03 931,547
1,000,000 Universal Corp., 9.25%, 2/15/01 1,074,300
6,500,000 Van Kampen, CLO-I, 5.96% V/R, 10/8/07 6,512,643
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
120
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO (continued)
- - -----------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
250,000 Vastar Resources, Inc., 6.95%, 11/8/06 $ 261,013
850,000 Whitman Corp., 7.50%, 2/1/03 893,044
1,970,000 Whitman Corp., 7.29%, 9/15/26 2,102,215
---------------
TOTAL CORPORATE BONDS & NOTES (COST $145,095,094) 147,941,870
---------------
MORTGAGE BACKED SECURITIES (14.6%)
FHLMC (1.1%)
542,082 Pool 410425, 7.87% V/R, 9/1/26 563,917
295,595 Pool 410464, 7.65% V/R, 11/1/26 307,197
1,304,425 Pool 606279, 7.22% V/R, 2/1/15 1,367,741
1,410,684 Pool 846367, 7.76% V/R, 4/1/29 1,472,598
---------------
TOTAL FHLMC (COST $3,625,143) 3,711,453
---------------
FNMA (12.3%)
3,458,543 Pool 73919, 6.80%, 1/1/04 3,554,811
253,768 Pool 342042, 7.50%, 6/1/25 263,720
791,188 Pool 344689, 7.65%, 11/1/25 824,655
564,157 Pool 344692, 7.54% V/R, 10/1/25 587,700
390,906 Pool 347712, 7.69% V/R, 6/1/26 406,062
4,960,766 Pool 375168, 7.13%, 6/1/04 5,183,916
6,330,292 Pool 402858, 6.50%, 12/1/27 6,302,945
5,465,410 Pool 408118, 6.50%, 1/1/28 5,441,799
4,784,342 Pool 415414, 6.50%, 2/1/28 4,761,712
8,802,334 Pool 415714, 6.00%, 4/1/28 8,540,993
4,909,965 Pool 417648, 6.00%, 2/1/13 4,857,134
---------------
TOTAL FNMA (COST $40,551,190) 40,725,447
---------------
GNMA (1.2%)
78 Pool 665, 7.50%, 5/15/01 80
1,046 Pool 2218, 6.50%, 12/15/02 1,055
4,000,000 Pool 473917, 7.00%, 4/15/28 4,067,680
---------------
TOTAL GNMA (COST $4,066,672) 4,068,815
---------------
TOTAL MORTGAGE BACKED SECURITIES (COST $48,243,005) 48,505,715
---------------
MUNICIPAL BONDS & NOTES (4.0%)
3,500,000 Denver, CO, City and County SD #1,
Educational Facilities RV, Taxable
Pension, School Facilities Lease,
AMBAC insured, 6.67%, 12/15/04 3,617,460
3,805,000 Hudson County, NJ, Import Authority
Facilities, Leasing RV, FSA insured,
7.40%, 12/1/25 4,127,436
5,220,000 Washington State, GO Bonds, State
Housing Trust Fund, Series T, 6.60%,
1/1/04 5,336,761
---------------
TOTAL MUNICIPAL BONDS & NOTES (COST $12,694,063) 13,081,657
---------------
RECEIVABLES BACKED SECURITIES (1.3%)
2,031,312 First Merchants Auto Receivables Corp.,
Series 1996-A A2, 6.70%, 7/17/00 2,043,471
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO (continued)
- - -----------------------------------------------------------------
RECEIVABLES BACKED SECURITIES (continued)
2,300,000 Keystone/Lehman Title I Loan Trust
1996-2, 7.45%, 11/25/10 $ 2,395,349
---------------
TOTAL RECEIVABLES BACKED SECURITIES (COST $4,328,440) 4,438,820
---------------
U.S. TREASURY OBLIGATIONS (5.9%)
17,550,000 U.S. Treasury Bonds, 6.75%, 8/15/26(d)
(cost $19,228,336) 19,606,649
---------------
TIME DEPOSITS (0.8%)
2,612,517 PNC Bank, N.A. Nassau, 5.57%, due 6/1/98
(cost $2,612,517) 2,612,517
---------------
TOTAL INVESTMENTS (100.0%) (COST $325,904,053) $ 331,162,803
---------------
---------------
- - -----------------------------------------------------------------
POSITIVE RETURN BOND PORTFOLIO
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (1.8%)
4,000,000 Citibank Credit Card Master Trust I,
Series 1998-7 A, 5.66%, 5/15/02 (cost
$4,000,000) $ 3,998,124
---------------
U.S. TREASURY BONDS (66.6%)
65,275,000 6.00%, 2/15/26(d) 66,254,190
56,575,000 6.50%, 11/15/26(d) 61,348,572
12,875,000 6.63%, 2/15/27(d) 14,202,747
6,000,000 6.38%, 8/15/27(d) 6,435,006
---------------
TOTAL U.S. TREASURY BONDS (COST $136,892,897) 148,240,515
---------------
REPURCHASE AGREEMENTS (27.0%)
60,000,000 BancAmerica Robertson Stephens, 5.58%,
6/1/98, to be repurchased at
$60,027,900 (cost $60,000,000)(e) 60,000,000
---------------
TIME DEPOSITS (4.6%)
10,219,523 PNC Bank, N.A., Nassau, 5.66%, 6/1/98
(cost $10,219,523) 10,219,523
---------------
TOTAL INVESTMENTS (100.0%) (COST $211,112,420) $ 222,458,162
---------------
---------------
- - -----------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (7.1%)
3,000,000 Aesop Funding II LLC,
Series 1998-1 A, 6.14%, 5/20/06(b) $ 2,991,564
2,000,000 Dollar Thrifty Rent A Car, 6.70%,
9/25/07 2,025,938
3,237,000 EQCC Home Equity Loan Trust, Series
1998-1 A6F, 6.25%, 12/15/07 3,217,594
2,959,110 Green Tree Financial Corp., Series
1997-7 A8, 6.86%, 9/15/16 3,021,045
2,000,000 Loop Funding Master Trust, 6.00%,
12/26/07(b) 2,000,626
2,000,000 Oakwood Mortgage Investors, Inc., Series
1995-A A3, 7.10% V/R, 9/15/20 2,073,118
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
121
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO (continued)
- - -----------------------------------------------------------------
ASSET BACKED SECURITIES (continued)
1,330,937 Sequoia Mortgage Trust, Series 2 A1,
6.49% V/R, 10/25/24 $ 1,349,166
---------------
TOTAL ASSET BACKED SECURITIES (COST $16,562,317) 16,679,051
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS (9.4%)
1,500,000 Bear Stearns Structured Securities,
Inc., Series 1997-2 1A2, 7.00%,
8/25/36 1,509,609
1,972,465 FAMC Series CS-1012 1, 7.06% V/R,
7/25/02 2,027,325
2,500,000 FHLMC Structured Pass Through
Securities, Series T-8 A4, 7.00%,
8/15/13 2,553,850
4,000,000 MLMI, Inc., Series 1997-CI A3, 7.12%,
6/18/29 4,232,380
2,000,507 RTC, Series 1992-8 B5, 6.63% V/R,
2/25/22 2,002,578
1,515,311 Vendee Mortgage Trust,
Series 1992-2 G, 7.25% V/R, 2/15/19 1,563,637
4,500,000 Vendee Mortgage Trust,
Series 1994-1 2E, 6.50%, 1/15/17 4,541,513
3,500,000 Vendee Mortgage Trust,
Series 1996-2 1E, 6.75%, 5/15/20 3,546,442
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST
$21,863,030) 21,977,334
---------------
CORPORATE BONDS & NOTES (41.2%)
750,000 AK Steel Corp., 9.13%, 12/15/06 794,063
1,250,000 American Standard Cos., Inc., 7.13%,
2/15/03 1,241,132
2,500,000 Applied Materials, 7.00%, 9/6/05 2,618,000
1,000,000 Atlas Air, Inc., 9.25%, 4/15/08(b) 1,003,750
1,000,000 Barrett Resources Corp., 7.55%, 2/1/07 1,044,134
2,000,000 Bausch & Lomb, Inc., 6.75%, 12/15/04 2,037,502
2,000,000 Bear Stearns Cos., Inc., 6.13%, 2/1/03 1,998,024
500,000 Chancellor Media Group, 9.38%, 10/1/04 525,000
3,000,000 Charles Schwab Corp., 6.88%, 9/2/03 3,083,865
3,000,000 Continental Airlines, 6.80%, 7/2/07 3,035,565
2,500,000 Corestates Capital Corp., 9.63%, 2/15/01 2,722,405
2,500,000 Dayton Hudson Co., 5.90%, 6/15/37 2,504,305
3,000,000 Equitable Life Assurance Society, 6.95%,
12/1/05(b) 3,097,074
2,500,000 First Bank Systems, Inc., 8.00%, 7/2/04 2,727,005
2,000,000 Genfinance Luxembourg SA, 6.34% V/R,
5/29/49 1,990,000
1,000,000 Kroger Company, 8.15%, 7/13/06 1,110,974
2,000,000 Levi Strauss & Co., 6.80%, 11/1/03(b) 2,042,202
2,000,000 Lincoln National Corp., 7.00%, 3/15/18 2,037,858
500,000 Long Island Lighting Co., 7.13%, 6/1/05 528,206
1,000,000 Mallinckrodt, Inc., 6.30%, 3/15/01(b) 1,002,403
2,500,000 Massachusetts Institute of Technology,
7.25%, 11/2/96 2,887,468
2,000,000 MedPartners, Inc., 6.88%, 9/1/00 1,879,196
1,000,000 Nabisco, Inc., 6.00%, 2/15/11 1,000,140
1,000,000 Northwest Airlines Corp., 8.38%, 3/15/04 1,034,427
2,225,000 Old Kent Financial Corp., 6.63%,
11/15/05 2,265,128
2,500,000 Oracle Corp., 6.72%, 2/15/04 2,554,100
2,000,000 Pep Boys, 6.71%, 11/3/04 2,024,282
2,500,000 Philip Morris, 7.50%, 4/1/04 2,625,695
1,400,000 Potomac Capital Investment, 7.05%,
10/2/01(b) 1,435,070
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO (continued)
- - -----------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
1,750,000 Prudential Insurance Co., 7.65%,
7/1/07(b) $ 1,887,482
1,000,000 R&B Falcon Corp., 6.75%, 4/15/05(b) 1,003,719
500,000 Randall's Food Markets, 9.38%, 7/1/07 530,000
2,000,000 Raytheon Co., 5.95%, 3/15/01 2,000,748
500,000 Regal Cinemas, Inc., 9.50%, 6/1/08 503,125
2,500,000 Reinsurance Group of America, 7.25%,
4/1/06(b) 2,632,050
2,500,000 Reliastar Financial Corp., 7.13%, 3/1/03 2,593,468
3,000,000 Royal Carribbean Cruises, 7.13%, 9/18/02 3,095,022
500,000 Sinclair Broadcast Group, 8.75%,
12/15/07 508,750
2,500,000 Susa Partnership LP, 8.20%, 6/1/17 2,764,880
1,000,000 Teekay Shipping Corp., 8.32%, 2/1/08 1,042,500
1,000,000 Tenet Healthcare Corp., 7.88%, 1/15/03 1,021,250
2,500,000 Tenneco, Inc., 10.08%, 2/1/01 2,738,265
2,500,000 Terra Nova (U.K.) Holdings, 7.20%,
8/15/07 2,624,713
1,875,000 Texas Utilities, 6.20%, 10/1/02(b) 1,885,637
1,400,000 Tommy Hilfiger, 6.50%, 6/1/03 1,401,019
1,250,000 Tricon Global Restaurants, 7.65%,
5/15/08 1,262,034
1,000,000 Triton Energy Ltd. Corp., 8.75%, 4/15/02 1,048,424
2,500,000 United Telecommunications, Inc., 9.50%,
4/1/03 2,861,265
3,500,000 Van Kampen, CLO-I, 5.97% V/R, 10/8/07 3,506,808
1,000,000 Western Financial Savings, 8.50%, 7/1/03 982,875
2,000,000 Whitman Corp., 7.29%, 9/15/26 2,134,228
2,000,000 Williams Cos., Inc., 6.13%, 2/15/02 1,996,840
---------------
TOTAL CORPORATE BONDS & NOTES (COST $96,079,372) 96,874,075
---------------
GOVERNMENT AGENCY BONDS & NOTES (4.1%)
2,250,000 FNMA, 6.85%, 4/5/04(d) 2,366,528
5,490,000 FNMA, 8.95%, 2/12/18(d) 7,295,024
---------------
TOTAL GOVERNMENT AGENCY BONDS & NOTES (COST $9,227,857)
9,661,552
---------------
INVESTMENT IN LIMITED PARTNERSHIP (0.2%)
362,000 PPM America CBO II, 12/18/04 (cost
$362,000) 362,000
---------------
MORTGAGE BACKED SECURITIES (18.0%)
FNMA (9.4%)
1,976,310 Pool 73919, 6.80%, 1/1/04 2,031,321
1,984,306 Pool 375168, 7.13%, 6/1/04 2,073,567
3,000,000 Pool 380268, 6.20%, 5/2/05 3,003,750
3,461,879 Pool 402858, 6.50%, 12/1/27 3,446,923
1,987,422 Pool 408118, 6.50%, 1/1/28 1,978,836
2,491,845 Pool 415414, 6.50%, 2/1/28 2,480,058
3,996,596 Pool 415714, 6.00%, 4/1/28 3,877,930
3,142,378 Pool 417648, 6.00%, 2/1/13 3,108,566
---------------
TOTAL FNMA (COST $21,956,526) 22,000,951
---------------
GNMA (8.6%)
3,156,150 Pool 345066, 6.50%, 10/15/23 3,159,243
3,123,993 Pool 346960, 6.50%, 12/15/23 3,127,055
2,925,604 Pool 354692, 6.50%, 11/15/23 2,928,471
3,511,275 Pool 361398, 6.50%, 1/15/24 3,512,504
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
122
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO (continued)
- - -----------------------------------------------------------------
MORTGAGE BACKED SECURITIES (continued)
GNMA (continued)
3,623,111 Pool 366641, 6.50%, 11/15/23 $ 3,626,662
3,800,000 Pool 473918, 7.00%, 4/15/28 3,864,296
---------------
TOTAL GNMA ($20,226,636) 20,218,231
---------------
TOTAL MORTGAGE BACKED SECURITIES (COST $42,183,162) 42,219,182
---------------
MUNICIPAL BONDS & NOTES (2.2%)
2,000,000 Hudson County, NJ, Import Authority
Facilities, Leasing RV, FSA Insured,
7.40%, 12/1/25 2,169,480
1,045,000 Washington State, GO Bonds, State
Housing Trust Fund, Series T, 6.60%,
1/1/03 1,070,186
2,010,000 Western Minnesota, Power Agency RV,
Series A, AMBAC Insured, 6.33%, 1/1/02 2,034,803
---------------
TOTAL MUNICIPAL BONDS & NOTES (COST $5,131,131) 5,274,469
---------------
U.S. TREASURY OBLIGATIONS (14.5%)
U.S. TREASURY BONDS (2.4%)
5,000,000 6.75%, 8/15/26(d) (cost $5,482,031) 5,585,940
---------------
U.S. TREASURY NOTES (9.1%)
5,000,000 8.50%, 2/15/00(d) 5,235,940
5,000,000 6.25%, 4/30/02(d) 5,179,690
5,000,000 7.88%, 11/15/04 5,600,005
5,000,000 7.00%, 7/15/06(d) 5,426,565
---------------
TOTAL U.S TREASURY NOTES (COST $21,385,547) 21,442,200
---------------
U.S. TREASURY STRIPS (3.0%)
10,350,000 0.00%, effective yield 5.67%, 2/15/05
(cost $7,097,068) 7,127,310
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $33,964,646) 34,155,450
---------------
TIME DEPOSITS (3.3%)
7,643,688 PNC Bank, N.A., Nassau, 5.57%, 6/1/98
(cost $7,643,688) 7,643,688
---------------
TOTAL INVESTMENTS (100.0%) (COST $233,017,203) $ 234,846,801
---------------
---------------
- - -----------------------------------------------------------------
INDEX PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (97.4%)
AGRICULTURAL PRODUCTION--CROPS (0.1%)
1,620 Agribrands International, Inc.(a) $ 55,485
38,400 Pioneer Hi-Bred International, Inc.(d) 1,461,600
---------------
1,517,085
---------------
AMUSEMENT & RECREATION SERVICES (0.9%)
15,900 Harrah's Entertainment, Inc.(a) 397,500
105,800 Walt Disney Co. 11,968,625
---------------
12,366,125
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
APPAREL & ACCESSORY STORES (0.6%)
27,100 CVS Corp.(d) $ 1,902,081
600 Charming Shoppes, Inc.(a) 3,037
62,100 Gap, Inc. 3,353,400
42,800 Limited, Inc. 1,423,100
12,200 Nordstrom, Inc. 879,162
25,300 TJX Cos., Inc.(d) 1,182,775
---------------
8,743,555
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(0.1%)
10,400 Liz Claiborne, Inc. 527,150
19,100 V.F. Corp. 1,015,881
---------------
1,543,031
---------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (0.1%)
23,800 Autozone, Inc.(a)(d) 791,350
10,000 Pep Boys--Manny, Moe & Jack 222,500
---------------
1,013,850
---------------
AUTOMOTIVE REPAIR, SERVICES & PARKING (0.0%)
12,100 Ryder System, Inc. 412,156
---------------
BUILDING CONSTRUCTION--GENERAL CONTRACTORS & OPERATIVE
BUILDERS (0.0%)
9,400 Centex Corp.(d) 336,050
6,000 Kaufman & Broad Home Corp.(d) 154,125
3,300 Pulte Corp.(d) 175,931
---------------
666,106
---------------
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY & MOBILE HOME
DEALERS (0.8%)
114,700 Home Depot, Inc. 9,011,118
27,500 Lowe's Cos., Inc. 2,177,656
---------------
11,188,774
---------------
BUSINESS SERVICES (4.7%)
55,600 3Com Corp.(a) 1,410,850
10,700 Adobe Systems, Inc. 427,332
7,300 Autodesk, Inc. 310,250
46,900 Automatic Data Processing, Inc. 2,984,013
24,900 Cabletron Systems, Inc.(a) 320,588
127,100 Cendant Corp.(a)(d) 2,756,482
11,400 Ceridian Corp.(a) 615,600
25,500 Cognizant Corp. 1,357,875
85,600 Computer Associates International, Inc. 4,494,000
24,500 Computer Sciences Corp. 1,272,469
23,500 Equifax, Inc. 854,813
67,100 First Data Corp. 2,231,075
33,100 HBO & Co. 1,910,492
19,700 Interpublic Group of Cos., Inc. 1,168,456
381,900 Microsoft Corp.(d) 32,389,894
55,000 Novell, Inc.(a) 577,500
25,400 Omnicom Group, Inc.(d) 1,189,037
154,400 Oracle Corp.(d) 3,647,700
40,300 Parametric Technology Co.(d) 1,235,449
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
123
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
BUSINESS SERVICES (continued)
4,200 Shared Medical Systems Corp. $ 305,550
59,200 Sun Microsystems, Inc.(a) 2,371,700
28,800 UST, Inc. 766,800
---------------
64,597,925
---------------
CHEMICALS & ALLIED PRODUCTS (13.0%)
119,900 Abbott Laboratories 8,895,084
18,400 Air Products & Chemicals, Inc.(d) 1,600,800
8,900 Alberto Culver Co. 264,775
10,200 Allergan, Inc. 428,400
480 Allergan Specialty Therapeutics, Inc.(a) 5,040
13,400 Alza Corp.(d) 648,225
20,700 Avon Products, Inc. 1,693,518
43,900 Baxter International, Inc. 2,510,532
155,800 Bristol-Myers Squibb Co.(d) 16,748,500
16,200 Clorox Co. 1,352,700
46,300 Colgate-Palmolive Co. 4,028,100
35,600 Dow Chemical Co. 3,448,750
177,400 E.I. du Pont de Nemours & Co. 13,659,800
12,300 Eastman Chemical Co. 824,100
20,300 Ecolab, Inc. 626,763
173,800 Eli Lilly & Co. 10,677,838
5,400 FMC Corp.(a) 412,762
11,300 Goodrich (B.F.) Co.(d) 579,125
9,400 Great Lakes Chemical Corp. 376,000
15,100 Hercules, Inc.(d) 665,344
17,200 International Flavors & Fragrances,
Inc.(d) 825,600
210,700 Johnson & Johnson 14,551,469
11,400 Mallinckrodt, Inc. 351,262
187,800 Merck & Co., Inc. 21,984,338
93,000 Monsanto Co.(d) 5,149,875
20,500 Morton International, Inc. 623,968
10,400 Nalco Chemical Co.(d) 390,000
27,900 PPG Industries, Inc.(d) 2,033,213
202,700 Pfizer, Inc. 21,245,494
79,600 Pharmacia & Upjohn, Inc.(d) 3,517,325
24,800 Praxair, Inc. 1,222,950
210,500 Procter & Gamble Co. 17,668,843
9,600 Rohm & Haas Co. 1,054,800
114,700 Schering-Plough Corp. 9,598,957
27,000 Sherwin-Williams Co. 897,750
19,200 Union Carbide Corp.(d) 958,800
11,600 W.R. Grace & Co.(a) 215,325
128,100 Warner-Lambert Co. 8,174,381
---------------
179,910,506
---------------
COMMUNICATIONS (7.4%)
254,500 AT&T Corp.(d) 15,492,688
88,500 Airtouch Communications, Inc.(a)(d) 4,214,813
28,800 Alltel Corp.(d) 1,135,800
169,900 Ameritech Corp. 7,210,131
121,700 Bell Atlantic Corp.(d) 11,150,762
155,400 BellSouth Corp. 10,023,300
19,200 Clear Channel Communications, Inc.(a)(d) 1,840,800
54,700 Comcast Corp., Class A(d) 1,875,188
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
COMMUNICATIONS (continued)
25,800 Frontier Corp.(d) $ 785,287
150,100 GTE Corp. 8,752,706
11,500 King World Productions, Inc.(a) 293,250
109,200 MCI Communications Corp. 5,838,793
41,300 Nextel Communications, Inc.(a)(d) 973,131
287,300 SBC Communications, Inc.(d) 11,168,787
67,300 Sprint Corp.(d) 4,828,775
79,500 Tele-Communications, Inc.(a)(d) 2,727,843
75,700 US West Communications Group(d) 3,841,775
95,100 US West Media Group(a)(d) 3,524,644
158,700 WorldCom, Inc.(a)(d) 7,220,850
---------------
102,899,323
---------------
DEPOSITORY INSTITUTIONS (8.8%)
22,400 BB&T Corp.(d) 1,482,600
101,200 Banc One Corp.(d) 5,578,650
59,000 Bank of New York Co., Inc. 3,606,375
108,700 BankAmerica Corp. 8,988,131
22,800 BankBoston Corp. 2,402,550
15,300 Bankers Trust New York Corp.(d) 1,889,550
66,100 Chase Manhattan Corp. 8,985,469
71,600 Citicorp(d) 10,677,350
24,750 Comerica, Inc. 1,627,312
36,450 Fifth Third Bancorp(d) 1,795,163
45,600 First Chicago NBD Corp. 3,987,150
151,620 First Union Corp. 8,386,481
41,900 Fleet Financial Group, Inc. 3,435,800
8,900 Golden West Financial Corp. 961,200
17,300 H. F. Ahmanson & Co. 1,319,125
30,000 Huntington Bancshares, Inc. 982,500
27,800 J.P. Morgan & Co., Inc. 3,452,413
68,800 KeyCorp(d) 2,610,100
39,900 Mellon Bank Corp. 2,690,757
20,600 Mercantile Bancorp.(d) 1,053,175
51,600 National City Corp. 3,495,900
147,400 NationsBank Corp.(d) 11,165,550
17,500 Northern Trust Corp. 1,234,298
118,400 Norwest Corp.(c)(d) 4,602,800
47,800 PNC Bank Corp. 2,760,450
8,500 Republic New York Corp.(d) 1,091,718
25,300 State Street Corp. 1,744,118
27,600 Summit Bancorp 1,383,450
33,000 Suntrust Banks, Inc.(d) 2,607,000
41,250 Synovus Financial Corp. 925,547
115,500 U.S. Bancorp 4,518,937
32,200 Wachovia Corp. 2,578,013
40,400 Washington Mutual, Inc.(d) 2,853,250
13,600 Wells Fargo & Co.(d) 4,916,400
---------------
121,789,282
---------------
EATING & DRINKING PLACES (0.7%)
23,300 Darden Restaurants, Inc. 359,694
39,900 Marriott International, Inc., Class A 1,386,525
108,100 McDonald's Corp. 7,094,062
23,700 Tricon Global Restaurants, Inc.(a) 736,182
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
124
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
EATING & DRINKING PLACES (continued)
20,800 Wendy's International, Inc.(d) $ 513,500
---------------
10,089,963
---------------
ELECTRIC, GAS & SANITARY SERVICES (3.2%)
21,500 Ameren Corp.(d) 841,188
29,700 American Electric Power Co. 1,347,638
23,100 Baltimore Gas & Electric Co. 703,106
30,500 Browning-Ferris Industries(d) 1,084,657
24,800 CINergy Corp. 801,350
23,500 Carolina Power & Light Co. 963,500
33,200 Central & Southwest Corp. 877,725
16,600 Coastal Corp.(d) 1,170,300
8,700 Columbia Energy Group 734,063
36,800 Consolidated Edison Co. 1,575,500
15,000 Consolidated Natural Gas Co.(d) 848,437
22,800 DTE Energy Co.(d) 902,025
30,400 Dominion Resources, Inc. 1,206,500
56,500 Duke Energy Corp.(d) 3,255,813
3,200 Eastern Enterprises 128,400
59,700 Edison International(d) 1,761,150
51,500 Enron Corp.(d) 2,581,437
38,300 Entergy Corp.(d) 1,007,768
28,500 FPL Group, Inc.(d) 1,750,968
36,100 FirstEnergy Corp. 1,071,719
19,900 GPU, Inc. 766,150
44,300 Houston Industries, Inc. 1,268,088
51,600 Laidlaw, Inc. 638,550
22,600 Niagara Mohawk Power Corp.(a) 279,675
7,600 Nicor, Inc. 293,550
11,800 Northern States Power Co. 671,125
4,900 Oneok, Inc. 191,407
26,000 PP&L Resources, Inc. 575,250
46,400 PacifiCorp 1,070,100
13,100 Pacific Enterprises 498,618
59,700 Pacific Gas & Electric Co.(d) 1,880,550
34,800 Peco Energy Co. 983,100
5,500 People's Energy Corp. 202,813
36,300 Public Service Enterprise Group, Inc.(d) 1,200,168
17,000 Sonat, Inc. 666,188
108,200 Southern Co.(d) 2,874,062
38,700 Texas Utilities Co. 1,528,650
71,400 Waste Management, Inc. 2,320,500
64,300 Williams Cos., Inc.(d) 2,085,731
---------------
44,607,519
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (7.6%)
34,500 AMP, Inc. 1,311,000
22,300 Advanced Micro Devices, Inc.(a)(d) 434,850
4,500 Aeroquip-Vickers, Inc.(d) 277,875
13,800 Andrew Corp.(a)(d) 303,170
18,900 Cooper Industries, Inc. 1,216,687
18,400 DSC Communications Corp.(a) 314,525
69,600 Emerson Electric Co. 4,228,200
512,900 General Electric Co. 42,763,037
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT
(continued)
23,200 General Instrument Corp.(a) $ 552,450
12,500 Harris Corp.(d) 602,343
256,400 Intel Corp. 18,316,575
22,200 LSI Logic Corp.(a) 473,138
204,000 Lucent Technologies, Inc. 14,471,250
14,900 Maytag Corp.(d) 751,518
33,200 Micron Technology, Inc.(a)(d) 782,275
93,500 Motorola, Inc. 4,949,657
25,800 National Semiconductor Corp.(a) 419,250
6,800 National Service Industries 346,800
81,700 Northern Telecom Ltd.(d) 5,228,800
13,300 Raychem Corp. 500,412
12,400 Scientific-Atlanta, Inc. 273,575
28,400 Tellabs, Inc.(a)(d) 1,951,614
61,200 Texas Instruments, Inc. 3,144,150
8,600 Thomas & Betts Corp. 459,563
11,800 Whirlpool Corp. 806,087
---------------
104,878,801
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT & RELATED SERVICES (0.1%)
26,700 Dun & Bradstreet Corp. 901,125
7,200 EG&G, Inc. 226,800
---------------
1,127,925
---------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT
(1.1%)
4,700 Ball Corp. 185,356
7,300 Crane Co. 384,618
20,200 Crown Cork & Seal Co., Inc.(d) 1,047,875
26,900 Fortune Brands, Inc. 1,033,968
87,800 Gillette Co. 10,283,575
17,400 Parker-Hannifin Corp. 714,487
9,600 Snap-On, Inc. 421,200
13,900 Stanley Works 660,250
---------------
14,731,329
---------------
FOOD STORES (0.4%)
38,500 Albertson's, Inc. 1,783,032
42,900 American Stores Co. 1,069,818
9,500 Giant Food, Inc., Class A 408,500
6,000 Great Atlantic & Pacific Tea Co. 192,000
39,900 Kroger Co.(a) 1,713,207
23,300 Winn-Dixie Stores, Inc. 948,018
---------------
6,114,575
---------------
FOOD & KINDRED PRODUCTS (6.0%)
5,800 Adolph Coors Co. 217,500
76,800 Anheuser-Busch Cos., Inc. 3,528,000
89,700 Archer Daniels Midland Co.(d) 1,693,088
45,200 Bestfoods, Inc. 2,550,975
10,800 Brown-Forman Corp. 622,350
71,600 Campbell Soup Co.(d) 3,902,200
387,600 Coca-Cola Co. 30,378,150
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
125
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
FOOD & KINDRED PRODUCTS (continued)
74,600 Conagra, Inc.(d) $ 2,182,050
24,900 General Mills, Inc.(d) 1,699,425
57,300 Heinz (H.J.) Co.(d) 3,040,482
22,400 Hershey Foods Corp. 1,551,200
64,400 Kellogg Co.(d) 2,660,525
237,700 PepsiCo, Inc. 9,701,132
21,700 Quaker Oats Co. 1,251,818
16,800 Ralston-Ralston Purina Group 1,870,050
74,200 Sara Lee Corp.(d) 4,368,525
55,900 Seagram Co. Ltd.(d) 2,456,106
100,400 Unilever N.V.(d) 7,925,325
18,200 Wrigley (Wm) Jr. Co. 1,751,750
---------------
83,350,651
---------------
FURNITURE & FIXTURES (0.1%)
25,900 Masco Corp.(d) 1,456,875
---------------
GENERAL MERCHANDISE STORES (2.7%)
16,900 Consolidated Stores Corp. 645,369
68,600 Dayton Hudson Corp. 3,181,325
17,400 Dillards, Inc.(d) 731,888
32,900 Federated Department Stores, Inc.(a)(d) 1,704,631
11,100 Harcourt General, Inc. 604,950
39,200 J.C. Penney Co., Inc. 2,815,050
76,600 KMart Corp.(a)(d) 1,484,125
36,300 May Department Stores Co. 2,334,544
5,700 Mercantile Stores Co., Inc. 448,162
61,500 Sears, Roebuck & Co. 3,801,468
352,200 Wal-Mart Stores, Inc.(d) 19,437,038
21,200 Woolworth Corp.(a)(d) 418,700
---------------
37,607,250
---------------
HEALTH SERVICES (0.5%)
101,500 Columbia/HCA Healthcare Corp.(d) 3,317,782
61,700 HEALTHSOUTH Corp.(a)(d) 1,750,738
10,000 Manor Care, Inc. 315,625
48,100 Tenet Healthcare Corp.(a) 1,683,500
---------------
7,067,645
---------------
HEAVY CONSTRUCTION OTHER THAN BUILDING CONSTRUCTION-- CONTRACTORS (0.2%)
13,100 Fluor Corp. 624,707
6,300 Foster Wheeler Corp. 159,863
41,100 Halliburton Co.(d) 1,947,112
---------------
2,731,682
---------------
HOLDING & OTHER INVESTMENT OFFICES (0.1%)
29,500 Conseco, Inc.(d) 1,375,437
---------------
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES (0.0%)
15,500 Circuit City Stores 656,813
---------------
HOTELS, ROOMING HOUSES, CAMPS & OTHER LODGING PLACES (0.1%)
39,200 Hilton Hotels Corp.(d) 1,232,350
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
HOTELS, ROOMING HOUSES, CAMPS & OTHER LODGING PLACES (continued)
28,100 Mirage Resorts, Inc.(a) $ 584,831
---------------
1,817,181
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (6.5%)
20,800 Apple Computer, Inc.(a)(d) 553,800
57,400 Applied Materials, Inc. 1,836,800
26,600 Baker Hughes, Inc. 957,600
34,400 Bay Networks, Inc.(a) 952,450
14,900 Black & Decker Corp. 869,788
3,800 Briggs & Stratton Corp. 172,425
15,700 Brunswick Corp. 493,568
11,900 Case Corp.(d) 688,713
58,400 Caterpillar, Inc.(d) 3,208,350
6,200 Cincinnati Milacron, Inc. 185,613
159,600 Cisco Systems, Inc. 12,069,750
237,300 Compaq Computer Corp.(d) 6,481,257
5,900 Cummins Engine Co., Inc. 306,800
7,600 Data General Corp.(a) 115,900
39,100 Deere & Co. 2,028,312
102,300 Dell Computer Corp.(d) 8,430,165
23,000 Digital Equipment Corp.(a) 1,262,125
34,800 Dover Corp.(d) 1,305,000
27,600 Dresser Industries, Inc. 1,285,125
77,700 EMC Corp.(a)(d) 3,219,694
23,700 Gateway 2000, Inc.(d) 1,067,981
6,800 General Signal Corp. 279,650
7,500 Harnischfeger Industries, Inc. 236,250
163,100 Hewlett-Packard Co. 10,132,588
152,400 IBM Corp.(d) 17,887,950
26,000 Ingersoll-Rand Co.(d) 1,171,625
9,400 McDermott International, Inc. 358,962
19,600 Pall Corp.(d) 388,325
45,400 Pitney Bowes, Inc. 2,133,800
38,000 Seagate Technology Inc.(a) 878,750
29,400 Silicon Graphics, Inc.(a) 352,800
16,200 Tandy Corp. 716,850
26,600 Tenneco, Inc. 1,107,225
9,900 Timken Co. 372,488
89,800 Tyco International Ltd.(d) 4,972,675
39,100 Unisys Corp.(a)(d) 957,950
---------------
89,439,104
---------------
INSURANCE AGENTS, BROKERS & SERVICES (0.4%)
26,300 Aon Corp. 1,684,844
25,700 Humana, Inc.(a) 798,307
26,600 Marsh & McLennan Cos., Inc. 2,329,162
---------------
4,812,313
---------------
INSURANCE CARRIERS (4.5%)
23,300 Aetna Life & Casualty, Inc. 1,821,768
67,200 Allstate Corp. 6,325,200
39,800 American General Corp. 2,671,575
109,901 American International Group, Inc. 13,606,994
34,800 CIGNA Corp.(d) 2,383,800
26,600 Chubb Corp. 2,116,362
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
126
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
INSURANCE CARRIERS (continued)
25,800 Cincinnati Financial Corp. $ 1,083,600
12,300 General Re Corp.(d) 2,704,463
18,500 Hartford Financial Services Group(d) 2,036,157
16,500 Jefferson-Pilot Corp. 944,625
16,000 Lincoln National Corp.(d) 1,438,000
18,000 Loews Corp. 1,633,500
15,400 MBIA, Inc. 1,148,262
17,900 MGIC Investment Corp.(d) 1,072,881
11,300 Progressive Corp.(d) 1,557,988
14,900 Providian Financial Corp. 948,012
22,200 Safeco Corp.(d) 1,032,300
36,186 St. Paul Cos., Inc.(d) 1,605,753
30,600 SunAmerica, Inc.(d) 1,487,925
21,900 Torchmark Corp.(d) 938,963
179,600 Travelers Group, Inc.(d) 10,955,600
29,500 United Healthcare Corp. 1,888,000
21,700 Unum Corp. 1,205,706
---------------
62,607,434
---------------
LUMBER & WOOD PRODUCTS, EXCEPT FURNITURE (0.0%)
17,200 Louisiana-Pacific Corp. 342,926
---------------
MEASURING, ANALYZING & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC,
MEDICAL & OPTICAL GOODS (2.0%)
8,900 Bard (C.R.), Inc. 308,719
8,600 Bausch & Lomb, Inc.(d) 428,388
19,100 Becton, Dickinson & Co. 1,351,325
17,600 Biomet, Inc.(d) 508,200
30,500 Boston Scientific Corp.(a) 1,944,375
50,900 Eastman Kodak Co. 3,632,988
23,600 Guidant Corp.(d) 1,520,725
19,900 Honeywell, Inc. 1,670,357
13,200 Johnson Controls, Inc.(d) 785,400
13,200 KLA-Tencor Corp.(a)(d) 447,150
73,500 Medtronic, Inc. 4,088,438
6,900 Millipore Corp. 230,287
7,600 Perkin-Elmer Corp.(d) 520,600
7,100 Polaroid Corp.(d) 287,994
2,100 Raytheon Co., Class A 111,956
51,100 Raytheon Co., Class B(d) 2,794,531
13,100 St. Jude Medical, Inc.(a)(d) 468,325
7,900 Tektronix, Inc. 302,175
24,900 Thermo Electron Corp.(a)(d) 874,613
11,900 U.S. Surgical Corp. 473,025
51,100 Xerox Corp.(d) 5,250,525
---------------
28,000,096
---------------
METAL MINING (0.3%)
58,400 Barrick Gold Corp.(d) 1,124,200
36,000 Battle Mountain Gold Co. 191,250
14,700 Cyprus Amax Minerals Co. 233,362
30,400 Freeport McMoran, Inc., Class B 509,200
33,100 Homestake Mining Co.(d) 359,962
24,500 Newmont Mining Corp.(d) 610,968
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
METAL MINING (continued)
38,800 Placer Dome, Inc.(d) $ 482,575
---------------
3,511,517
---------------
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.3%)
20,900 Hasbro, Inc. 799,425
18,500 ITT Industries, Inc. 682,188
6,000 Jostens, Inc. 151,500
45,600 Mattel, Inc.(d) 1,727,100
1,200 NACCO Industries, Inc. 175,800
---------------
3,536,013
---------------
MISCELLANEOUS RETAIL (0.5%)
33,600 Costco Cos., Inc.(a)(d) 1,944,600
6,000 Longs Drug Stores, Inc. 181,875
40,500 Rite Aid Corp.(d) 1,450,406
44,500 Toys "R" Us, Inc.(a)(d) 1,179,250
77,700 Walgreen Co.(d) 2,734,068
---------------
7,490,199
---------------
MOTION PICTURES (0.1%)
34,000 Unicom Corp. 1,168,750
---------------
NONDEPOSITORY CREDIT INSTITUTIONS (2.6%)
72,800 American Express Co. 7,471,100
62,998 Associates First Capital Corp.(d) 4,713,038
8,300 Beneficial Corp. 1,112,200
17,100 Countrywide Credit Industries, Inc. 790,875
108,900 FHLMC 4,954,950
166,200 FNMA 9,951,225
21,300 Green Tree Financial Corp.(d) 855,994
16,700 Household International, Inc.(d) 2,259,718
78,600 MBNA Corp.(d) 2,490,637
9,800 Transamerica Corp. 1,127,000
---------------
35,726,737
---------------
OIL & GAS EXTRACTION (0.9%)
9,400 Anadarko Petroleum Corp. 620,400
14,900 Apache Corp. 509,394
27,700 Burlington Resources, Inc. 1,166,863
7,900 Helmerich & Payne, Inc. 199,475
53,200 Occidental Petroleum Corp.(d) 1,469,650
16,600 Oryx Energy Co.(a) 386,988
13,500 Rowan Cos., Inc.(a) 345,093
78,000 Schlumberger, Ltd. 6,088,875
39,700 Union Pacific Resources Group, Inc.(d) 803,925
8,500 Western Atlas, Inc. 735,781
---------------
12,326,444
---------------
PAPER & ALLIED PRODUCTS (1.6%)
16,100 Avery Dennison Corp. 834,182
8,300 Bemis Co., Inc.(d) 350,157
8,800 Boise Cascade Corp. 293,700
15,000 Champion International Corp. 720,000
32,700 Fort James Corp.(d) 1,563,469
14,500 Georgia-Pacific Group(d) 930,718
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
127
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
PAPER & ALLIED PRODUCTS (continued)
21,100 IKON Office Solutions, Inc. $ 447,057
47,400 International Paper Co.(d) 2,180,400
87,200 Kimberly-Clark Corp.(d) 4,321,850
16,400 Mead Corp. 510,450
64,000 Minnesota Mining & Manufacturing Co. 5,928,000
15,500 Stone Container Corp.(a) 275,125
8,800 Temple-Inland, Inc. 517,000
10,900 Union Camp Corp. 596,093
16,000 Westvaco Corp. 456,000
31,300 Weyerhaeuser Co.(d) 1,590,432
17,500 Willamette Industries, Inc. 600,468
---------------
22,115,101
---------------
PERSONAL SERVICES (0.2%)
16,400 H&R Block, Inc. 721,600
39,500 Service Corp. International 1,614,563
---------------
2,336,163
---------------
PETROLEUM REFINING & RELATED INDUSTRIES (6.3%)
14,400 Amerada Hess Corp.(d) 778,500
152,400 Amoco Corp.(d) 6,372,225
11,800 Ashland, Inc. 588,525
50,200 Atlantic Richfield Co. 3,959,525
103,000 Chevron Corp. 8,227,125
386,500 Exxon Corp. 27,248,250
7,500 Kerr-McGee Corp. 474,375
123,000 Mobil Corp. 9,594,000
7,500 Pennzoil Co. 433,594
41,200 Phillips Petroleum Co. 2,062,575
336,000 Royal Dutch Petroleum Co.(d) 18,837,000
14,800 Sun Co., Inc. 629,000
85,800 Texaco, Inc. 4,954,950
45,100 USX-Marathon Group, Inc. 1,578,500
38,700 Unocal Corp. 1,378,688
---------------
87,116,832
---------------
PHARMACEUTICAL PREPARATIONS (0.9%)
203,600 American Home Products Corp. 9,836,425
41,200 Amgen, Inc.(a)(d) 2,492,600
---------------
12,329,025
---------------
PRIMARY METAL INDUSTRIES (0.6%)
35,600 Alcan Aluminum Ltd. 1,014,600
30,600 Allegheny Teledyne, Inc.(d) 711,450
27,000 Aluminum Co. of America 1,873,125
17,000 Armco, Inc.(a) 92,438
6,200 Asarco, Inc. 140,663
20,100 Bethlehem Steel Corp.(a) 246,225
22,700 Engelhard Corp. 472,443
26,200 Inco Ltd. 376,625
7,700 Inland Steel Industries, Inc. 220,413
13,700 Nucor Corp.(d) 705,550
9,300 Phelps Dodge Corp.(d) 567,300
11,600 Reynolds Metals Co. 672,800
13,500 USX-US Steel Group, Inc.(d) 484,312
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
PRIMARY METAL INDUSTRIES (continued)
15,200 Worthington Industries, Inc. $ 267,900
---------------
7,845,844
---------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (1.6%)
11,400 American Greetings Corp. 541,500
12,800 Deluxe Corp. 429,600
15,100 Dow Jones & Co., Inc. 726,688
44,400 Gannett Co., Inc. 2,927,625
13,200 Knight-Ridder, Inc. 753,225
15,500 McGraw-Hill Cos., Inc. 1,211,907
8,300 Meredith Corp. 329,925
13,900 Moore Corp. Ltd.(d) 201,550
15,000 New York Times Co. 1,057,500
22,900 R.R. Donnelley & Sons Co.(d) 1,030,500
90,700 Time Warner, Inc.(d) 7,057,593
13,800 Times Mirror Co.(d) 883,200
19,200 Tribune Co. 1,284,000
55,300 Viacom, Inc., Class B(a)(d) 3,041,500
---------------
21,476,313
---------------
RAILROAD TRANSPORTATION (0.6%)
24,500 Burlington Northern Santa Fe Corp.(d) 2,437,750
34,200 CSX Corp. 1,628,775
59,100 Norfolk Southern Corp. 1,850,568
38,800 Union Pacific Corp. 1,876,950
---------------
7,794,043
---------------
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (0.7%)
6,300 Armstrong World Industries(d) 529,988
12,400 Cooper Tire & Rubber Co. 293,725
24,500 Goodyear Tire & Rubber Co.(d) 1,760,938
39,100 Illinois Tool Works, Inc.(d) 2,580,600
45,600 Nike, Inc., Class B(d) 2,097,600
8,800 Reebok International Ltd.(a) 253,000
23,400 Rubbermaid, Inc. 763,425
13,012 Sealed Air Corp.(a)(d) 696,143
9,600 Tupperware Corp. 259,200
---------------
9,234,619
---------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES (1.2%)
41,600 Charles Schwab Corp. 1,372,800
39,600 Franklin Resources, Inc. 1,935,450
16,000 Lehman Brothers Holding, Inc. 1,135,000
52,200 Merrill Lynch & Co., Inc. 4,671,900
92,900 Morgan Stanley, Dean Witter & Co. 7,252,006
---------------
16,367,156
---------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS (0.3%)
36,200 Corning, Inc.(d) 1,427,638
25,000 Newell Co.(d) 1,206,250
8,400 Owens Corning(d) 315,000
22,100 Owens-Illinois, Inc.(a)(d) 993,118
---------------
3,942,006
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
128
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
TEXTILE MILL PRODUCTS (0.1%)
11,500 Fruit of the Loom, Inc.(a) $ 413,282
5,700 Russell Corp.(d) 155,325
3,200 Springs Industries, Inc., Class A 179,600
---------------
748,207
---------------
TOBACCO PRODUCTS (1.0%)
380,000 Philip Morris Cos., Inc. 14,202,500
---------------
TRANSPORTATION BY AIR (0.5%)
14,300 AMR Corp.(a) 2,201,307
11,800 Delta Airlines, Inc.(d) 1,357,000
23,000 FDX Corp.(a) 1,474,875
34,600 Southwest Airlines Co. 923,387
14,300 U.S. Air Group, Inc.(a) 1,001,000
---------------
6,957,569
---------------
TRANSPORTATION EQUIPMENT (3.7%)
88,400 Allied-Signal, Inc.(d) 3,779,100
156,700 Boeing Co.(d) 7,462,838
101,700 Chrysler Corp.(d) 5,657,062
16,500 Dana Corp.(d) 860,062
11,300 Eaton Corp. 1,014,881
9,900 Echlin, Inc. 470,250
5,700 Fleetwood Enterprises, Inc. 228,000
188,100 Ford Motor Co.(d) 9,757,687
19,800 General Dynamics Corp. 879,862
110,900 General Motors Corp.(d) 7,977,868
30,500 Lockheed Martin Corp.(d) 3,423,625
11,300 Navistar International Corp.(a) 341,118
10,400 Northrop Grumman Corp. 1,114,750
12,200 Paccar, Inc.(d) 673,669
31,500 Rockwell International Corp.(d) 1,732,500
19,200 TRW, Inc.(d) 1,028,400
25,800 Textron, Inc. 1,914,037
36,500 United Technologies Corp. 3,431,000
---------------
51,746,709
---------------
WHOLESALE TRADE--DURABLE GOODS (0.4%)
111,500 CBS Corp.(d) 3,540,125
28,000 Genuine Parts Co. 950,250
7,800 Grainger (W.W.), Inc. 823,387
4,600 Potlatch Corp. 201,537
---------------
5,515,299
---------------
WHOLESALE TRADE--NONDURABLE GOODS (0.3%)
17,200 Cardinal Health, Inc.(d) 1,532,950
15,800 Sigma Aldrich 576,700
9,500 Supervalu, Inc. 397,812
53,300 Sysco Corp. 1,242,556
---------------
3,750,018
---------------
TOTAL COMMON STOCKS
(COST $823,650,158) 1,346,700,301
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
CORPORATE NOTE (0.1%)
2,000,000 NationsBank Corp., 5.81% V/R, 7/1/04
(cost $1,987,556) $ 1,995,028
---------------
PREFERRED STOCK (0.0%)
5,320 Sealed Air Corp., 12/31/49 (cost
$269,502)(a) 296,257
---------------
TIME DEPOSITS (2.4%)
17,000,000 Erste Bank der Oeste, 5.69%, 6/1/98 17,000,000
1,525,381 PNC Bank N.A. Nassau, 5.66%, 6/1/98 1,525,381
15,000,000 Union Bank of Switzerland, 5.69%, 6/1/98 15,000,000
---------------
TOTAL TIME DEPOSITS
(COST $33,525,381) 33,525,381
---------------
U.S. TREASURY BILLS (0.1%)
1,410,000 U.S. Treasury Bills, 5.11% yield,
4/29/99(f) (cost $1,343,497) 1,343,552
---------------
TOTAL INVESTMENTS (100.0%) (COST $860,776,094) $ 1,383,860,519
---------------
---------------
FINANCIAL FUTURES CONTRACTS (0.0%)
UNREALIZED GAIN
POSITION CONTRACTS INDEX (LOSS)
- - ------------- --------- ----------------------------- ---------------
Long 13 S&P 500 Futures,
Expiring June 19, 1998
(notional value $3,545,100) $ 433,150
Long 106 S&P 500 Futures,
Expiring September 18, 1998
(notional value
$29,221,550) (16,125)
---------------
$ 417,025
---------------
---------------
- - ---------------------------------------------------------
INCOME EQUITY PORTFOLIO
- - ---------------------------------------------------------
COMMON STOCKS (97.7%)
BUSINESS SERVICES (1.6%)
608,900 Cognizant $ 32,423,926
Corp.
---------------
CHEMICALS & ALLIED PRODUCTS (5.2%)
845,200 E.I. du 65,080,400
Pont de
Nemours
&
Co.(d)
1,242,000 Morton 37,803,375
International,
Inc.
---------------
102,883,775
---------------
COMMUNICATIONS (5.7%)
1,113,200 AT&T 67,766,050
Corp.(d)
782,600 GTE Corp. 45,635,362
---------------
113,401,412
---------------
DEPOSITORY INSTITUTIONS (4.8%)
424,450 J.P. 52,711,384
Morgan
& Co.,
Inc.(d)
1,067,850 U.S. 41,779,631
Bancorp
---------------
94,491,015
---------------
EATING & DRINKING PLACES (2.0%)
602,750 McDonald's 39,555,468
Corp.
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
129
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INCOME EQUITY PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
ELECTRIC, GAS, & SANITARY SERVICES (6.9%)
493,000 Consolidated Natural Gas Co.(d) $ 27,885,312
740,600 Pacific Gas & Electric Co.(d) 23,328,900
604,100 Public Service Enterprise Group, Inc. 19,973,056
876,350 Texas Utilities Co.(d) 34,615,825
937,700 Waste Management, Inc.(d) 30,475,250
---------------
136,278,343
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (12.1%)
1,588,800 AMP, Inc.(d) 60,374,400
513,200 Emerson Electric Co. 31,176,900
536,600 General Electric Co. 44,739,025
567,600 Honeywell, Inc. 47,642,928
783,146 Lucent Technologies, Inc.(d) 55,554,419
---------------
239,487,672
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT, & RELATED
SERVICES (2.7%)
1,563,600 Dun & Bradstreet Corp. 52,771,501
---------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT
(3.0%)
1,536,600 Fortune Brands, Inc. 59,063,062
---------------
FOOD & KINDRED PRODUCTS (7.8%)
1,365,640 PepsiCo, Inc.(d) 55,735,182
554,800 Procter & Gamble Co.(d) 46,568,525
877,250 Sara Lee Corp.(d) 51,648,093
---------------
153,951,800
---------------
GENERAL MERCHANDISE STORES (8.0%)
965,800 Dayton Hudson Corp. 44,788,975
538,400 J.C. Penney Co., Inc. 38,663,850
729,500 May Department Stores Co. 46,915,968
473,830 Sears, Roebuck & Co.(d) 29,288,616
---------------
159,657,409
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (3.3%)
1,051,800 Hewlett-Packard Co. 65,343,075
---------------
INSURANCE CARRIERS (2.3%)
686,750 American General Corp.(d) 46,098,093
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC,
MEDICAL & OPTICAL GOODS (2.0%)
544,050 Eastman Kodak Co.(d) 38,831,568
---------------
NONDEPOSITORY CREDIT INSTITUTIONS (4.9%)
412,300 American Express Co. 42,312,287
470,900 Transamerica Corp. 54,153,500
---------------
96,465,787
---------------
OIL & GAS EXTRACTION (1.5%)
395,100 Schlumberger Ltd.(d) 30,842,493
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INCOME EQUITY PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
PAPER & ALLIED PRODUCTS (2.1%)
452,150 Minnesota Mining & Manufacturing Co.(d) $ 41,880,393
---------------
PETROLEUM REFINING & RELATED INDUSTRIES (8.3%)
538,200 Atlantic Richfield Co. 42,450,525
458,750 Chevron Corp.(d) 36,642,656
524,700 Exxon Corp.(d) 36,991,350
301,500 Mobil Corp.(d) 23,517,000
440,600 Royal Dutch Petroleum Co. ADR(d) 24,701,137
---------------
164,302,668
---------------
PHARMACEUTICAL PREPARATIONS (8.6%)
922,900 American Home Products Corp.(d) 44,587,606
520,750 Johnson & Johnson(d) 35,964,296
287,400 Merck & Co., Inc.(d) 33,643,762
530,400 Pfizer, Inc. 55,592,550
---------------
169,788,214
---------------
PRINTING, PUBLISHING, & ALLIED INDUSTRIES (1.0%)
581,800 Deluxe Corp. 19,526,662
---------------
TOBACCO PRODUCTS (2.2%)
1,144,450 Philip Morris Cos., Inc. 42,773,818
---------------
TRANSPORTATION EQUIPMENT (1.7%)
369,300 United Technologies Corp.(d) 34,714,209
---------------
TOTAL COMMON STOCKS
(COST $1,136,096,524) 1,934,532,363
---------------
TIME DEPOSITS (2.3%)
45,011,190 PNC Bank, N.A. Nassau, 5.66%, 6/1/98
(cost $45,011,190) 45,011,190
---------------
TOTAL INVESTMENTS (100.0%) (COST $1,181,107,714) $ 1,979,543,553
---------------
---------------
- - -----------------------------------------------------------------
DISCIPLINED GROWTH PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (97.4%)
APPAREL & ACCESSORY STORES (2.5%)
74,600 Ross Stores, Inc. $ 3,291,726
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(3.3%)
63,200 Tommy Hilfiger Corp.(d) 4,250,201
---------------
BUSINESS SERVICES (7.7%)
79,300 BMC Software, Inc.(a)(d) 3,652,758
92,830 Cadence Design Systems, Inc.(d) 3,272,258
60,690 Robert Half International, Inc.(a) 3,072,431
---------------
9,997,447
---------------
CHEMICALS & ALLIED PRODUCTS (2.2%)
106,530 Solutia, Inc. 2,922,916
---------------
COMMUNICATIONS (4.7%)
49,900 AT&T Corp.(d) 3,037,663
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
130
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
DISCIPLINED GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
COMMUNICATIONS (continued)
48,000 BellSouth Corp. $ 3,096,000
---------------
6,133,663
---------------
DOMESTIC DEPOSITORY INSTITUTIONS (4.5%)
45,715 Comerica, Inc. 3,005,761
100,350 Dime Bancorp, Inc. 2,928,965
---------------
5,934,726
---------------
EATING & DRINKING PLACES (2.3%)
195,750 Darden Restaurants, Inc. 3,021,890
---------------
ELECTRIC, GAS & SANITARY SERVICES (2.2%)
76,230 GPU, Inc. 2,934,855
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (3.4%)
62,000 Lucent Technologies, Inc. 4,398,125
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT & RELATED SERVICES (2.3%)
62,090 Halliburton Co.(d) 2,941,514
---------------
FOOD & KINDRED PRODUCTS (2.3%)
91,380 Interstate Bakeries Corp.(d) 2,947,006
---------------
FURNITURE & FIXTURES (2.2%)
105,600 Herman Miller, Inc. 2,923,800
---------------
GENERAL MERCHANDISE STORES (6.0%)
84,400 Dayton Hudson Corp. 3,914,064
83,100 TJX Cos., Inc.(d) 3,884,925
---------------
7,798,989
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (9.8%)
54,670 Caterpillar, Inc. 3,003,433
75,850 EMC Corp.(a)(d) 3,143,035
68,930 Lexmark International Group, Inc.(a) 3,825,615
46,420 Sundstrand Corp. 2,878,040
---------------
12,850,123
---------------
INSURANCE CARRIERS (2.4%)
65,490 SunAmerica, Inc.(d) 3,184,451
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC,
MEDICAL & OPTICAL GOODS (1.9%)
71,780 SCI Systems, Inc.(a)(d) 2,449,492
---------------
MISCELLANEOUS RETAIL (2.6%)
58,700 Costco Cos., Inc.(a) 3,397,262
---------------
NONDEPOSITORY CREDIT INSTITUTIONS (2.1%)
69,790 SLM Holding Corp.(d) 2,787,238
---------------
PAPER & ALLIED PRODUCTS (2.2%)
56,900 Bowater, Inc.(d) 2,880,562
---------------
PETROLEUM REFINING & RELATED INDUSTRIES (4.7%)
42,500 Exxon Corp. 2,996,250
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
DISCIPLINED GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
PETROLEUM REFINING & RELATED INDUSTRIES (continued)
74,790 Sun Co., Inc. $ 3,178,575
---------------
6,174,825
---------------
PHARMACEUTICAL PREPARATIONS (5.5%)
73,000 Watson Pharmaceuticals, Inc. 3,193,751
47,400 Schering-Plough Corp. 3,966,787
---------------
7,160,538
---------------
PRIMARY METAL INDUSTRIES (2.3%)
83,430 USX-U.S. Steel Group, Inc.(d) 2,993,051
---------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (4.7%)
46,530 Gannett Co., Inc. 3,068,071
48,900 Times Mirror Co. 3,129,600
---------------
6,197,671
---------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICE (2.3%)
55,950 Bear Stearns Cos., Inc. 3,035,287
---------------
TRANSPORTATION BY AIR (2.2%)
35,710 UAL Corp.(a)(d) 2,836,713
---------------
TRANSPORTATION EQUIPMENT (4.5%)
70,090 General Dynamics Corp.(d) 3,114,624
50,900 Paccar, Inc.(d) 2,810,636
---------------
5,925,260
---------------
WATER TRANSPORTATION (2.4%)
44,900 Royal Caribbean Cruises Ltd.(d) 3,128,970
---------------
WHOLESALE TRADE--NONDURABLE GOODS (2.2%)
75,800 Universal Corp. 2,847,237
---------------
TOTAL COMMON STOCKS (COST $116,173,375) 127,345,538
---------------
TIME DEPOSITS (2.6%)
3,434,844 PNC Bank, N.A. Nassau, 5.57%, 6/1/98
(cost $3,434,844) 3,434,844
---------------
TOTAL INVESTMENTS (100.0%) (COST $119,608,219) $ 130,780,382
---------------
---------------
- - -----------------------------------------------------------------
LARGE COMPANY GROWTH PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (98.8%)
AMUSEMENT & RECREATION SERVICES (1.8%)
170,730 Walt Disney Co.(d) $ 19,313,831
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(1.6%)
383,200 Cintas Corp. 17,507,450
---------------
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY & MOBILE HOME DEALERS (5.0%)
127,800 Fastenal Co.(d) 6,326,100
See Notes to Schedules of Investments and Notes to Financial Statements
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SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LARGE COMPANY GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY & MOBILE HOME DEALERS (continued)
609,389 Home Depot, Inc.(d) $ 47,875,123
---------------
54,201,223
---------------
BUSINESS SERVICES (18.7%)
252,700 Automatic Data Processing, Inc. 16,078,037
286,400 Cognizant Corp. 15,250,800
215,300 DST Systems, Inc.(a) 11,383,987
587,200 First Data Corp. 19,524,400
272,850 Fiserv, Inc.(a)(d) 16,089,639
461,300 HBO & Co.(d) 26,625,682
1,006,580 Microsoft Corp.(a)(d) 85,370,566
356,500 Sungard Data Systems, Inc.(a)(d) 12,165,563
---------------
202,488,674
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (14.3%)
812,200 Intel Corp.(d) 58,021,537
461,348 Molex, Inc., Class A 12,023,882
185,960 Motorola, Inc. 9,844,257
414,200 Solectron Corp.(a)(d) 17,137,525
2,074,000 Telefonaktiebolaget LM Ericsson, Series
B ADR(d) 57,812,750
---------------
154,839,951
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT, & RELATED SERVICES (2.4%)
290,500 Gartner Group, Inc.(a)(d) 9,604,656
467,266 Paychex, Inc. 16,821,594
---------------
26,426,250
---------------
FOOD & KINDRED PRODUCTS (3.3%)
461,200 Coca-Cola Co.(d) 36,146,550
---------------
HOLDING & OTHER INVESTMENT OFFICES (7.5%)
1,012,900 Franklin Resources, Inc.(d) 49,505,487
887,600 T. Rowe Price(d) 31,454,325
---------------
80,959,812
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (7.0%)
777,550 Cisco Systems, Inc.(a)(d) 58,802,218
267,700 Hewlett-Packard Co.(d) 16,630,862
---------------
75,433,080
---------------
INSURANCE CARRIERS (5.0%)
434,262 American International Group, Inc.(d) 53,767,064
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC,
MEDICAL & OPTICAL GOODS (5.0%)
967,600 Medtronic, Inc.(d) 53,822,750
---------------
MISCELLANEOUS RETAIL (3.0%)
191,600 MSC Industrial Direct Co., Inc.(a)(d) 5,113,326
826,850 Staples, Inc.(a)(d) 20,774,606
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
LARGE COMPANY GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
MISCELLANEOUS RETAIL (continued)
232,500 Viking Office Products, Inc.(a) $ 6,648,058
---------------
32,535,990
---------------
OIL & GAS EXTRACTION (4.2%)
589,700 Schlumberger Ltd.(d) 46,033,456
---------------
PHARMACEUTICAL PREPARATIONS (10.1%)
328,400 Merck & Co., Inc.(d) 38,443,328
675,600 Pfizer, Inc. 70,811,326
---------------
109,254,654
---------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES, & SERVICES (6.6%)
1,635,450 Charles Schwab Corp.(d) 53,969,850
390,600 Donaldson, Lufkin & Jenrette, Inc.(d) 17,210,812
---------------
71,180,662
---------------
TOBACCO PRODUCTS (1.6%)
458,200 Philip Morris Cos., Inc.(d) 17,125,225
---------------
WHOLESALE TRADE-NONDURABLE GOODS (1.7%)
210,500 Cardinal Health, Inc.(d) 18,760,812
---------------
TOTAL COMMON STOCKS
(COST $543,103,216) 1,069,797,434
---------------
TIME DEPOSITS (1.2%)
12,541,265 PNC Bank, N.A. Nassau, 5.66%, 6/1/98
(cost $12,541,265) 12,541,265
---------------
TOTAL INVESTMENTS (100.0%) (COST $555,644,481) $ 1,082,338,699
---------------
---------------
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (93.5%)
ADMINISTRATION OF ENVIRONMENTAL QUALITY & HOUSING PROGRAMS (0.1%)
5,500 Dames & Moore, Inc. $ 71,156
---------------
AGRICULTURAL PRODUCTION--CROPS (0.6%)
18,900 Chiquita Brands International, Inc. 253,969
11,500 Delta & Pine Land Co. 492,344
---------------
746,313
---------------
AMUSEMENT & RECREATION SERVICES (0.5%)
12,700 Grand Casinos, Inc.(d) 223,044
8,000 Hollywood Park, Inc.(a) 103,500
9,700 Players International, Inc. 52,744
9,700 Westwood One, Inc.(a) 259,475
---------------
638,763
---------------
APPAREL & ACCESSORY STORES (1.8%)
7,800 AnnTaylor Stores Corp.(a)(d) 170,138
4,100 Ashworth, Inc.(a) 52,019
4,200 Baker (J.), Inc. 50,925
8,500 Cato Corp. 128,563
7,000 Dress Barn, Inc. 202,782
See Notes to Schedules of Investments and Notes to Financial Statements
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SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
APPAREL & ACCESSORY STORES (continued)
6,400 Filene's Basement Corp.(a) $ 39,200
8,600 Footstar, Inc.(a) 380,013
7,500 Gymboree Corp.(d) 118,594
9,100 Just For Feet, Inc.(d) 199,631
14,500 Ross Stores, Inc. 639,813
5,100 St. John Knits, Inc. 196,031
---------------
2,177,709
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(1.0%)
6,700 Authentic Fitness Corp. 121,856
2,600 Haggar Corp. 36,400
10,300 Hartmarx Corp.(a) 81,113
6,500 Kellwood Co. 214,906
11,900 Nautica Enterprises, Inc. 348,075
3,000 Oshkosh B'Gosh, Inc. 115,500
8,200 Phillips-Van Heusen Corp. 106,600
4,000 Pillowtex Corp. 187,000
---------------
1,211,450
---------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (0.3%)
5,000 Discount Auto Parts, Inc.(a) 128,438
6,400 O'Reilly Automotive, Inc. 208,000
---------------
336,438
---------------
AUTOMOTIVE REPAIR, SERVICES & PARKING (0.6%)
9,600 Breed Technologies, Inc.(d) 183,000
8,000 Central Parking Corp.(d) 358,500
18,600 Rollins Truck Leasing Corp. 223,200
---------------
764,700
---------------
BUILDING CONSTRUCTION--GENERAL CONTRACTORS & OPERATIVE BUILDERS (0.9%)
16,025 D.R. Horton, Inc. 288,450
5,400 MDC Holdings, Inc.(d) 81,675
4,400 Ryland Group, Inc. 88,275
4,400 Southern Energy Homes, Inc. 43,450
9,000 Standard Pacific Corp. 155,813
11,200 Toll Brothers, Inc. 288,400
3,600 U.S. Home Corp.(a) 145,575
---------------
1,091,638
---------------
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY & MOBILE HOME DEALERS (0.1%)
8,800 Eagle Hardware & Garden, Inc.(d) 160,050
---------------
BUSINESS SERVICES (7.6%)
6,200 ABM Industries, Inc. 171,663
6,800 ADVO, Inc.(a) 170,425
15,900 Acxiom Corp.(d) 343,838
12,600 American Management Systems, Inc. 341,775
6,800 Analysts International Corp. 198,900
8,000 BISYS Group, Inc.(a) 297,000
8,500 Boole & Babbage, Inc. 209,313
6,300 Broderbund Software, Inc. 100,800
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
BUSINESS SERVICES (continued)
5,600 Catalina Marketing Corp. $ 253,400
10,000 Cerner Corp. 256,250
13,700 Ciber, Inc. 439,256
12,600 Cognex Corp. 239,400
6,300 Computer Task Group, Inc. 199,238
4,500 Cyrk, Inc.(a) 53,719
6,300 Envoy Corp.(a)(d) 276,413
4,100 Fair, Isaac & Co., Inc. 148,881
4,600 FileNet Corp. 253,144
6,900 Gerber Scientific, Inc. 173,794
12,600 Harbinger Corp. 293,344
5,700 Henry (Jack) & Associates 185,963
5,800 Hyperion Software Corp. 187,413
3,400 Insurance Auto Auctions(a) 45,050
14,100 Interim Services, Inc.(d) 409,781
2,500 Kronos, Inc. 89,375
11,700 Midway Games, Inc.(a) 157,950
9,300 National Computer Systems, Inc. 225,525
10,200 National Data Corp. 382,500
6,500 Network Equipment Technologies, Inc. 101,969
8,200 Norrell Corp. 185,013
14,000 PMT Services, Inc. 273,000
6,900 Platinum Software Corp. 132,394
23,600 Platinum Technology, Inc.(d) 646,051
7,900 Primark Corp.(a)(d) 264,156
3,600 Progress Software Corp. 116,550
15,300 S3, Inc. 100,406
14,400 System Software Associates, Inc.(a) 105,300
6,700 TCSI Corp. 34,338
7,900 Technology Soultions, Inc. 238,481
13,600 True North Communications, Inc. 432,650
13,100 Vanstar Corp.(a)(d) 190,769
7,600 Vantive Corp. 204,250
4,500 Volt Information Sciences, Inc. 136,969
2,800 Wall Data, Inc.(a) 36,225
---------------
9,302,631
---------------
CHEMICALS & ALLIED PRODUCTS (4.1%)
11,400 Advanced Tissue Sciences, Inc.(a)(d) 104,025
9,700 Alliance Pharmaceutical Corp.(a) 45,469
7,800 Alpharma, Inc. 169,650
3,600 Cambrex Corp. 201,375
6,100 ChemFirst, Inc. 156,694
2,700 Collagen Corp. 52,650
7,000 Geon Co. 151,375
3,200 Hauser, Inc. 24,800
6,900 Immune Response Corp.(a)(d) 79,350
8,700 Jones Pharma, Inc.(d) 267,525
7,000 Lilly Industires, Inc., Class A 136,500
11,400 Liposome Company, Inc.(a) 70,182
7,600 Macdermid, Inc.(d) 311,600
3,100 McWhorter Technologies, Inc.(a) 85,638
7,800 MedImmune, Inc.(a) 389,025
8,300 Mississippi Chemical Corp. 139,025
10,900 Mycogen Corp. 257,513
See Notes to Schedules of Investments and Notes to Financial Statements
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133
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
CHEMICALS & ALLIED PRODUCTS (continued)
17,000 NBTY, Inc. $ 296,438
5,700 Natures Sunshine Product, Inc. 131,813
9,600 North American Vaccine, Inc.(d) 187,800
6,200 Noven Pharmaceuticals, Inc.(a) 37,975
6,700 OM Group, Inc. 278,050
7,200 Parexel International Corp. 216,000
2,200 Penford Corp. 67,925
5,500 Protein Design Labs, Inc.(a) 138,188
2,600 Quaker Chemical Corp. 54,113
8,900 Roberts Pharmaceutical Corp.(a) 146,850
9,300 SEQUUS Pharmaceuticals, Inc. 105,788
5,700 Scotts Co.(a) 198,788
6,400 TheraTech, Inc. 60,400
4,200 USA Detergents, Inc.(d) 58,538
7,600 Vertex Pharmaceuticals, Inc. 218,500
6,800 W.H. Brady Co. 197,200
---------------
5,036,762
---------------
COMMUNICATIONS (0.8%)
15,200 Brightpoint, Inc. 240,350
15,000 General Communications, Inc.(a) 90,470
5,000 Metro Networks, Inc.(a) 198,750
20,300 Tel-Save Holdings, Inc.(d) 400,925
---------------
930,495
---------------
CONSTRUCTION--SPECIAL TRADE CONTRACTORS (0.2%)
8,400 Apogee Enterprises, Inc. 117,075
8,200 Insituform Technologies, Class A(a) 105,575
---------------
222,650
---------------
DEPOSITORY INSTITUTIONS (8.1%)
8,000 Astoria Financial Corp. 440,250
6,300 CCB Financial Corp. 689,850
7,800 Centura Banks, Inc. 512,850
5,100 Commerce Bancorp, Inc. 283,369
12,200 Commercial Federal Corp. 406,413
6,700 Cullen/Frost Bankers, Inc. 363,056
8,505 Downey Financial Corp. 281,728
11,300 First Commercial Corp. 781,819
6,100 First Midwest Bancorp, Inc. 280,219
4,600 FirstBank Puerto Rico 257,025
18,800 FirstMerit Corp. 527,575
8,200 Hubco, Inc.(d) 289,050
3,000 JSB Financial, Inc. 174,375
15,800 Keystone Financial, Inc. 616,200
10,000 Magna Group, Inc. 555,625
12,700 Provident Financial Group, Inc. 650,081
4,500 Queens County Bancorp, Inc. 198,000
9,300 Riggs National Corp. 254,588
40,000 Sovereign Bancorp, Inc. 707,500
10,400 St. Paul Bancorp, Inc. 262,600
5,900 U.S. Trust Corp. 441,763
9,000 UST Corp.(d) 250,313
11,800 United Bankshares, Inc. 296,475
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
DEPOSITORY INSTITUTIONS (continued)
6,300 Whitney Holding Corp. $ 347,288
---------------
9,868,012
---------------
EATING & DRINKING PLACES (1.9%)
9,600 Applebee's International, Inc. 234,000
2,700 Bertucci's, Inc. 27,675
5,900 Cheesecake Factory 119,106
14,000 CKE Restaurants, Inc. 444,500
6,300 Consolidated Products, Inc.(a) 124,819
11,900 Foodmaker, Inc.(a) 200,813
2,900 Ihop Corp.(a) 117,450
7,900 Landry's Seafood Restaurants, Inc. 178,985
7,100 Luby's Cafeterias, Inc. 131,350
10,000 Ruby Tuesday, Inc.(d) 160,625
14,300 Ryan's Family Steak Houses, Inc. 145,681
14,800 Shoney's, Inc.(a) 65,675
5,700 Showbiz Pizza Time, Inc. 202,350
5,850 Sonic Corp. 121,022
7,200 TCBY Enterprises, Inc. 69,750
4,500 Taco Cabana, Inc., Class A 28,688
---------------
2,372,489
---------------
EDUCATIONAL SERVICES (0.3%)
10,500 DeVry, Inc. 418,031
---------------
ELECTRIC, GAS & SANITARY SERVICES (4.2%)
2,200 Aquarion Co. 73,425
9,100 Atmos Energy Corp. 279,825
2,200 Bangor Hydro-Electric Co.(a) 18,975
3,300 Cascade Natural Gas Corp. 51,356
5,200 Central Hudson Gas & Electric 227,175
3,500 Central Vermont Public Service 51,188
4,100 CILCORP, Inc. 180,656
6,500 Commonwealth Energy System 247,000
3,100 Connecticut Energy Corp. 90,094
2,700 Consumers Water Co. 57,713
6,200 Eastern Utilities Associates 157,325
8,800 Energen Corp. 178,750
1,600 Green Mountain Power Corp. 25,900
8,900 KCS Energy, Inc. 105,688
12,900 K N Energy, Inc 698,213
5,400 New Jersey Resources 194,063
7,400 Northwest Natural Gas Co. 203,500
4,100 Orange & Rockland Utilities, Inc. 219,094
2,900 Pennsylvania Enterprises, Inc. 75,400
8,300 Philadelphia Suburban Corp. 163,406
9,200 Piedmont Natural Gas Co. 291,525
6,100 Public Service Co. of North Carolina,
Inc. 129,625
9,400 Sierra Pacific Resources 322,538
2,700 Southern California Water Co. 58,894
8,300 Southwest Gas Corp. 181,563
7,500 Southwestern Energy Co. 79,219
4,000 TNP Enterprises, Inc. 130,250
4,300 United Illuminating Co. 203,713
10,900 United Water Resources, Inc. 175,081
See Notes to Schedules of Investments and Notes to Financial Statements
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134
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
ELECTRIC, GAS & SANITARY SERVICES (continued)
5,600 Wicor, Inc. $ 256,200
---------------
5,127,354
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (8.1%)
8,300 Allen Group, Inc.(a) 99,600
5,100 Amtech Corp.(a) 23,588
15,100 Aspect Telecommunications Corp. 389,769
8,400 BMC Industries, Inc. 123,375
10,900 Baldor Electric Co. 284,081
3,500 Benchmark Electronics, Inc. 70,656
4,100 BroadBand Technologies, Inc.(a) 24,856
11,000 Burr-Brown Corp. 282,219
2,800 C-Cor Electronics, Inc. 44,450
11,200 C-Cube Microsystems, Inc. 219,100
4,800 CTS Corp. 150,000
8,600 Cable Design Technologies 202,638
5,000 California Microwave, Inc.(a) 107,188
2,200 Centigram Communications Corp. 27,225
10,300 Checkpoint Systems, Inc. 181,538
8,300 Dallas Semiconductor Corp. 279,606
14,100 Digital Microwave Corp. 136,154
3,500 Dionex Corp. 182,875
3,400 Electro Scientific Industries, Inc.(a) 113,900
6,600 Etec Systems, Inc.(a) 241,313
11,200 General Semiconductor, Inc.(a) 151,200
4,000 HADCO Corp.(a) 128,500
5,700 Harman International Industries, Inc. 242,606
3,100 Harmon Industries, Inc. 74,013
6,000 Helix Technology Corp. 106,875
6,000 Hutchinson Technology, Inc. 150,000
4,400 Innovex, Inc. 81,675
8,100 Inter-Tel, Inc. 152,129
4,400 InterVoice, Inc. 58,300
15,600 International Rectifier Corp. 164,775
4,400 Itron, Inc.(a)(d) 67,925
5,600 Juno Lighting, Inc. 119,000
12,200 Kemet Corp. 196,344
5,000 Kuhlman Corp. 211,250
7,100 Lattice Semiconductor Corp. 274,238
10,800 Methode Electronics, Inc. 137,700
16,100 Microchip Technology, Inc.(d) 394,450
2,200 National Presto Industries, Inc. 88,963
10,200 Novellus Systems, Inc.(d) 385,688
5,400 Oak Industries, Inc.(a) 188,325
12,700 P-COM, Inc. 190,500
3,500 Park Electrochemical Corp. 83,125
7,400 Photronics, Inc. 195,175
11,500 Picturetel Corp. 107,813
4,500 Plexus Corp. 96,750
14,700 Read-Rite Corp.(a)(d) 129,544
2,800 Rival Co. 40,425
7,000 Royal Appliance Manufacturing Co. 36,313
6,300 Sanmina Corp.(d) 490,613
4,800 Speedfam International, Inc.(a) 93,600
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT
(continued)
4,800 Standard Microsystems Corp. $ 53,100
4,800 SymmetriCom, Inc. 30,300
4,900 Technitrol, Inc. 197,838
4,800 Thomas Industries, Inc. 123,000
2,400 Three-Five Systems, Inc. 40,350
7,400 Unitrode Corp.(a) 96,663
14,200 VLSI Technology, Inc.(a) 220,100
7,200 Valence Technology, Inc.(a) 42,750
12,900 Vicor Corp. 201,563
21,800 Vitesse Semiconductor Corp. 558,625
2,500 Watkins-Johnson Co. 62,969
13,000 Xylan Corp.(a)(d) 313,625
---------------
9,962,828
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT & RELATED SERVICES (1.7%)
8,800 American Oncology Resources, Inc. 112,200
10,000 Billing Information Concepts 232,500
14,300 Bio-Technology General Corp.(a) 121,550
11,400 Blount International, Inc., Class A 321,338
6,000 CDI Corp. 220,875
7,200 COR Therapeutics, Inc.(a) 123,750
8,700 Cephalon, Inc.(a) 92,438
7,500 Franklin Covey Co.(a) 150,000
8,000 Incyte Pharmaceuticals, Inc. 293,750
6,200 NFO Worldwide, Inc. 105,400
3,700 Pharmaceuticals Marketing Services,
Inc.(a) 49,025
9,400 Regeneron Pharmaceuticals, Inc.(a) 87,832
3,900 Stone & Webster, Inc. 157,950
7,300 U.S. Bioscience, Inc. 68,438
---------------
2,137,046
---------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT
(1.1%)
4,000 Alliant Techsystems, Inc.(a) 258,000
5,500 AptarGroup, Inc. 356,469
2,400 Butler Manufacturing Co. 84,000
9,300 Griffon Corp.(a) 129,038
2,600 Insteel Industries, Inc. 18,688
4,500 Lukens, Inc. 144,281
4,700 Material Sciences Corp. 47,294
8,200 Sturm, Ruger & Co., Inc. 152,725
3,800 Zero Corp. 109,725
---------------
1,300,220
---------------
FOOD & KINDRED PRODUCTS (1.3%)
5,700 Canandaigua Brands, Inc. 262,913
2,500 Coca-Cola Bottling Co. 155,781
10,800 Corn Products International, Inc.(a) 369,900
6,500 Earthgrains Co. 343,281
2,100 Goodmark Foods, Inc. 48,038
2,700 J&J Snack Foods Corp. 52,144
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
135
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
FOOD & KINDRED PRODUCTS (continued)
11,400 Smithfield Foods, Inc. $ 307,800
---------------
1,539,857
---------------
FOOD STORES (0.4%)
3,600 Au Bon Pain Co., Inc.(a) 34,200
7,900 Whole Foods Market, Inc.(d) 434,500
---------------
468,700
---------------
FURNITURE & FIXTURES (0.7%)
4,000 Bassett Furniture Industries, Inc. 122,000
8,700 Ethan Allen Interiors, Inc. 437,719
5,400 LA-Z-BOY, Inc. 276,413
---------------
836,132
---------------
GENERAL MERCHANDISE STORES (0.7%)
15,900 Casey's General Stores, Inc. 225,581
2,300 GC Companies, Inc.(a) 114,713
3,200 Gottschalks, Inc. 26,600
7,800 Shopko Stores, Inc.(a) 272,025
14,000 Stein Mart, Inc.(d) 220,500
---------------
859,419
---------------
HEALTH SERVICES (4.1%)
5,700 Access Health, Inc. 146,063
3,100 Chemed Corp. 114,119
10,200 Coventry Health Care, Inc. 147,900
3,800 Curative Health Services, Inc.(a) 106,875
7,400 Enzo Biochem, Inc. 96,200
5,000 Express Scripts, Inc. 384,688
10,700 Genesis Health Ventures, Inc.(d) 270,844
11,600 Idexx Laboratories, Inc. 258,100
13,000 Integrated Health Services, Inc. 483,438
8,700 Lincare Holdings, Inc.(d) 652,500
9,300 Magellan Health Services, Inc.(a) 251,100
8,900 Mariner Health Group, Inc.(a) 132,388
14,100 Orthodontic Centers of America, Inc.(d) 298,744
12,500 Paragon Health Network, Inc. 192,188
4,600 Pediatrix Medical Group, Inc.(a) 166,463
19,600 Phycor, Inc.(d) 330,750
6,900 Renal Care Group, Inc. 250,125
5,500 Sierra Health Services, Inc. 204,188
3,100 Syncor International Corp.(a) 55,025
9,800 Universal Health Services, Inc.(a) 539,000
---------------
5,080,698
---------------
HEAVY CONSTRUCTION OTHER THAN BUILDING CONSTRUCTION-- CONTRACTORS (0.2%)
16,500 Morrison Knudsen Corp.(a) 195,938
---------------
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES (1.2%)
11,600 Bombay Co., Inc.(a) 50,750
5,200 Lechters, Inc. 30,550
11,800 Linens 'N Things, Inc. 379,075
5,900 MicroAge, Inc. 79,650
20,500 Pier 1 Imports, Inc.(d) 493,281
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES (continued)
15,600 Williams-Sonoma, Inc. $ 430,950
---------------
1,464,256
---------------
HOTELS, ROOMING HOUSES, CAMPS & OTHER LODGING
PLACES (0.8%)
13,700 Aztar Corp.(a) 95,900
7,500 CapStar Hotel Co.(a)(d) 219,375
9,000 Marcus Corp. 159,188
8,800 Primadonna Resorts, Inc.(a) 152,900
14,300 Prime Hospitality Corp.(a) 256,506
4,900 Showboat, Inc. 150,063
---------------
1,033,932
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (3.5%)
14,400 Anixter International, Inc. 289,800
7,300 Applied Magnetics Corp.(d) 41,063
8,400 Applied Power, Inc.(d) 287,700
2,800 Astec Industries, Inc. 92,400
7,600 Auspex Systems, Inc.(a) 42,275
6,600 BancTec, Inc. 154,275
4,900 Dialogic Corp.(a) 161,700
5,900 Electroglas, Inc. 80,388
6,800 Exabyte Corp. 66,300
12,800 Fedders Corp. 80,000
4,500 Flow International Corp.(a) 54,563
6,900 Global Industrial Technologies, Inc.(a) 116,869
7,900 Graco, Inc. 273,538
15,900 Komag, Inc. 157,013
7,100 Kulicke & Soffa Industries, Inc.(a) 121,588
2,800 Lindsay Manufacturing Co. 130,200
5,200 Manitowoc Co., Inc. 213,200
14,600 Paxar Corp. 180,675
3,300 Robbins & Myers, Inc. 97,969
3,700 SPS Technologies, Inc. 216,913
5,600 Scott Technologies, Inc., Class A(a) 82,600
9,800 Snyder Oil Corp. 189,875
4,800 Telxon Corp. 159,600
3,900 Toro Co. 136,256
6,300 Ultratech Stepper, Inc.(d) 127,575
8,400 Valmont Industries, Inc. 168,000
2,600 Walbro Corp. 26,813
4,600 Watsco, Inc. 135,125
6,900 Xircom, Inc.(a) 108,244
7,400 Zebra Technologies Corp. 283,975
---------------
4,276,492
---------------
INSURANCE AGENTS, BROKERS & SERVICE (0.2%)
5,000 Arthur J. Gallagher & Co. 215,625
3,900 Hilb Rogal Hamilton 68,250
---------------
283,875
---------------
INSURANCE CARRIERS (5.7%)
9,300 Allied Group, Inc. 391,763
12,600 American Bankers Insurance Group, Inc. 756,000
6,800 CMAC Investment Corp.(d) 411,400
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
136
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
INSURANCE CARRIERS (continued)
4,800 Capital Re Corp. $ 357,600
3,100 Compdent Corp.(a) 45,725
5,916 Delphi Financial Group, Class A 321,313
5,700 Enhance Financial Services Group,
Inc.(d) 371,213
3,300 Executive Risk, Inc. 207,694
6,700 Fidelity National Financial, Inc.(d) 223,613
5,300 First American Financial Corp. 382,263
10,000 Fremont General Corp. 571,875
10,300 Frontier Insurance Group, Inc. 252,350
5,300 Life Re Corp. 390,213
11,700 Mutual Risk Management Ltd.(d) 410,231
5,600 NAC Re Corp. 261,450
8,400 Orion Capital Corp. 473,025
18,700 Protective Life Corp. 673,200
8,900 Selective Insurance Group, Inc. 234,738
3,600 Trenwick Group, Inc. 136,800
5,400 Zenith National Insurance Corp. 154,575
---------------
7,027,041
---------------
LEATHER & LEATHER PRODUCTS (0.7%)
5,500 Brown Group, Inc. 98,656
8,000 Justin Industries 127,000
1,700 K-Swiss, Inc. 33,575
3,400 Timberland Co.(a)(d) 278,800
12,900 Wolverine World Wide, Inc 318,469
---------------
856,500
---------------
LOCAL & SUBURBAN TRANSIT & INTERURBAN HIGHWAY PASSENGER TRANSPORTATION
(0.1%)
4,100 Rural/Metro Corp.(a) 96,863
---------------
LUMBER & WOOD PRODUCTS, EXCEPT FURNITURE (0.8%)
14,200 Champion Enterprises, Inc. 382,513
14,100 Oakwood Homes Corp.(d) 383,344
2,900 Skyline Corp. 84,463
5,200 TJ International, Inc. 150,475
---------------
1,000,795
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC,
MEDICAL & OPTICAL GOODS (4.4%)
5,800 ADAC Laboratories(a) 115,275
2,800 Amcast Industrial Corp. 60,375
3,900 Analogic Corp. 177,450
8,800 Ballard Medical Products 196,900
4,000 Circon Corp.(a) 55,500
7,000 Coherent, Inc. 161,438
4,500 Cooper Companies, Inc.(a) 177,750
6,100 Cygnus, Inc.(a) 56,425
5,200 Daniel Industries 105,625
4,800 Datascope Corp. 135,000
4,100 Diagnostic Products Corp. 127,100
5,600 Fluke Corp. 179,900
4,000 Hologic, Inc. 84,000
13,300 Input/Output, Inc. 292,600
3,700 Integrated Circuit Systems, Inc.(d) 50,991
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC,
MEDICAL & OPTICAL GOODS (continued)
3,800 Intermagnetics General Corp. $ 38,475
9,000 Invacare Corp. 237,375
4,800 Ionics, Inc. 214,800
5,400 Marquette Medical Systems, Inc.(a) 151,200
7,500 Mentor Corp. 198,516
5,400 Molecular Biosystems, Inc.(a) 47,925
2,000 Nashua Corp.(a) 31,625
6,100 ReSound Corp.(a) 38,506
9,600 Respironics, Inc. 157,800
9,400 Roper Industries, Inc. 311,963
7,400 Sola International, Inc.(a) 292,763
2,900 SpaceLabs Medical, Inc.(a) 48,031
10,300 Steris Corp.(d) 643,750
9,500 Summit Technology, Inc. 51,063
5,900 Sunrise Medical, Inc. 91,450
7,600 Tracor, Inc.(a) 300,200
6,800 Trimble Navigation Ltd.(a) 133,875
4,700 VISX, Inc.(a) 230,888
3,400 Whittaker Corp.(a) 48,450
6,400 X-Rite, Inc. 86,400
1,900 Zoll Medical Corp.(a) 11,578
---------------
5,342,962
---------------
METAL MINING (1.2%)
6,600 Coeur D'Alene Mines Corp.(a)(d) 58,163
10,500 Dekalb Genetics Corp., Class B 1,006,688
9,300 Getchell Gold Corp. 176,700
9,500 Glamis Gold Ltd.(a) 39,188
16,700 Hecla Mining Co.(a) 84,544
6,200 Stillwater Mining Co.(a) 150,350
---------------
1,515,633
---------------
MINING & QUARRYING OF NONMETALLIC MINERALS, EXCEPT FUELS (0.1%)
8,600 AMCOL International Corp. 118,250
4,500 Dravo Corp.(a) 50,625
---------------
168,875
---------------
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.4%)
4,200 Bell Sports Corp.(a) 39,638
5,000 Cross (A.T.) Co. 57,813
7,900 Jan Bell Marketing, Inc. 40,488
5,000 K2, Inc. 100,000
5,000 Lydall, Inc.(a) 87,500
6,700 Russ Berrie & Co., Inc. 169,175
---------------
494,614
---------------
MISCELLANEOUS RETAIL (1.5%)
5,300 Books-A-Million, Inc. 27,163
7,400 Cash America International, Inc. 124,875
2,400 Damark International, Inc., Class A(a) 23,700
5,700 Fabri-Centers of America(a) 168,150
5,500 Galoob Toys, Inc. 60,844
6,400 Hancock Fabrics, Inc. 84,800
2,900 Lillian Vernon Corp. 50,388
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
137
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
MISCELLANEOUS RETAIL (continued)
8,800 Michaels Stores, Inc.(a) $ 263,450
19,600 Sports Authority, Inc. 144,600
14,600 Tech Data Corp. 593,125
10,900 Zale Corp.(a) 337,219
---------------
1,878,314
---------------
MOTION PICTURES (0.1%)
3,400 Carmike Cinemas, Inc.(a) 89,038
---------------
MOTOR FREIGHT TRANSPORTATION & WAREHOUSING (1.1%)
9,600 American Freightway Corp. 109,800
5,900 Arkansas Best Corp.(a) 57,525
5,100 Frozen Food Express Industries, Inc. 49,725
9,100 Heartland Express, Inc. 199,063
3,800 Landstar System, Inc.(a) 128,488
3,700 M.S. Carriers, Inc. 110,538
7,900 USFreightways Corp. 248,850
14,500 Werner Enterprises, Inc. 275,500
8,700 Yellow Corp.(a) 163,125
---------------
1,342,614
---------------
OIL & GAS EXTRACTION (2.8%)
8,900 Benton Oil & Gas Co. 92,894
7,500 Cabot Oil and Gas Corp. 151,875
14,400 Cross Timbers Oil Co. 249,300
9,800 Devon Energy Corp. 359,538
5,600 HS Resources, Inc.(a) 80,850
10,900 Newfield Exploration Co. 243,888
7,000 Oceaneering International, Inc. 150,500
5,100 Plains Resources, Inc. 97,538
11,400 Pogo Producing Co. 292,125
6,400 Pool Energy Services Co.(a) 130,400
14,300 Pride International, Inc.(a)(d) 320,856
6,200 Remington Oil & Gas Corp.(a) 38,750
31,300 Santa Fe Energy Resources, Inc.(a) 311,044
6,700 Seitel, Inc.(a) 113,900
3,300 St. Mary Land & Exploration Co. 89,925
4,100 Tetra Technologies, Inc.(a) 89,431
13,400 Tuboscope Vetco International Corp.(a) 303,175
15,700 Vintage Petroleum, Inc. 284,563
2,700 Wiser Oil Co. 28,181
---------------
3,428,733
---------------
PAPER & ALLIED PRODUCTS (0.5%)
11,200 Buckeye Technologies, Inc. 252,700
4,100 Pope & Talbot, Inc. 55,606
3,600 Republic Group, Inc. 68,625
4,900 Schweitzer-Mauduit International, Inc. 162,006
8,250 Shorewood Packaging Corp.(a) 113,953
---------------
652,890
---------------
PERSONAL SERVICES (0.5%)
2,800 Angelica Corp. 63,000
3,000 CPI Corp. 76,875
6,100 G & K Services, Inc.(d) 237,900
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
PERSONAL SERVICES (continued)
7,100 Regis Corp. $ 198,800
---------------
576,575
---------------
PETROLEUM REFINING & RELATED INDUSTRIES (0.1%)
4,700 WD-40 128,956
---------------
PRIMARY METAL INDUSTRIES (2.0%)
3,500 Acme Metals, Inc.(a) 27,563
7,900 Belden, Inc. 313,531
9,000 Birmingham Steel Corp. 126,000
15,000 CommScope, Inc.(a) 232,500
4,800 Commonwealth Industries, Inc. 70,200
4,900 IMCO Recycling, Inc. 92,794
7,700 Intermet Corp. 150,150
10,600 Mueller Industries, Inc. 328,600
7,400 Northwestern Steel & Wire Co.(a) 33,763
4,300 Quanex Corp. 133,569
3,600 Steel Technologies, Inc. 40,500
6,400 Texas Industries, Inc. 380,000
3,600 Tredegar Industries, Inc. 311,400
5,800 WHX Corp.(a)(d) 79,750
4,300 Wolverine Tube, Inc.(a) 156,950
---------------
2,477,270
---------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (1.5%)
5,500 Bowne & Co., Inc. 235,469
3,900 Consolidated Graphics, Inc. 199,631
5,000 Gibson Greetings, Inc.(a) 120,625
9,400 John H. Harland Co. 168,613
4,900 Merrill Corp. 110,863
4,200 New England Business Service, Inc. 136,763
1,100 Plenum Publishing Corp. 74,250
5,200 Thomas Nelson, Inc. 67,275
12,000 Valassis Communications, Inc.(a) 422,250
11,600 World Color Press, Inc.(a)(d) 348,725
---------------
1,884,464
---------------
RAILROAD TRANSPORTATION (0.0%)
2,800 RailTex, Inc.(a) 42,875
---------------
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (0.7%)
4,800 O'Sullivan Corp. 46,800
16,000 Safeskin Corp. 560,000
5,100 Standard Products Co. 149,813
6,600 Titan International, Inc. 128,288
---------------
884,901
---------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES (2.0%)
12,500 Amresco, Inc.(a) 421,875
3,800 Dain Rauscher Corp. 215,650
5,600 Eaton Vance Corp. 251,650
8,300 Legg Mason, Inc. 500,594
7,600 Pioneer Group, Inc. 216,125
14,600 Raymond James Financial, Inc. 441,650
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
138
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES (continued)
5,500 SEI Investments Co. $ 367,125
---------------
2,414,669
---------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS (0.9%)
10,700 Gentex Corp. 391,888
3,300 Lone Star Industries, Inc.(d) 248,119
5,100 Medusa Corp. 293,888
4,000 Standex International Corp. 120,500
---------------
1,054,395
---------------
TEXTILE MILL PRODUCTS (1.3%)
7,900 Cone Mills Corp.(a) 76,038
7,500 Delta Woodside Industries, Inc. 44,531
3,400 Dixie Group, Inc. 44,200
3,500 Galey & Lord, Inc.(a) 86,625
7,800 Guilford Mills, Inc. 210,600
7,800 Interface, Inc. 305,663
3,300 Johnston Industries, Inc.(a) 17,222
15,800 Mohawk Industries, Inc. 479,925
2,700 Oxford Industries, Inc. 94,152
9,600 Triarc Cos., Inc.(a) 234,000
9,100 Tultex Corp.(a) 27,300
---------------
1,620,256
---------------
TRANSPORTATION BY AIR (0.8%)
20,300 Comair Holdings, Inc. 540,488
8,600 Mesa Air Group, Inc. 69,875
6,600 Offshore Logistics, Inc.(a) 134,475
6,200 Pittston BAX Group 108,888
3,500 Skywest, Inc. 151,365
---------------
1,005,091
---------------
TRANSPORTATION EQUIPMENT (2.5%)
4,800 A. O. Smith Corp. 242,400
8,400 AAR Corp. 222,075
8,700 Artic Cat, Inc. 79,388
6,900 BE Aerospace, Inc.(a) 199,453
7,350 Clarcor, Inc. 169,050
8,700 Halter Marine Group, Inc. 163,125
3,900 Huffy Corp. 59,231
13,400 JLG Industries, Inc. 236,175
9,800 Orbital Sciences Corp.(a)(d) 400,575
7,900 Polaris Industries, Inc. 276,500
6,300 Regal-Beloit Corp. 205,538
3,800 SPX, Inc.(a) 262,675
5,500 Simpson Industries, Inc. 77,000
3,800 Spartan Motors, Inc. 27,788
4,000 Standard Motor Products, Inc. 88,000
3,700 Thor Industries, Inc. 102,444
6,100 Wabash National Corp. 158,219
7,200 Winnebago Industries, Inc. 80,540
---------------
3,050,176
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
TRANSPORTATION SERVICES (0.6%)
10,500 Air Express International Corp. $ 271,021
7,500 Expeditors International of Washington,
Inc. 300,000
10,800 Fritz Companies, Inc. 140,400
---------------
711,421
---------------
WATER TRANSPORTATION (0.1%)
6,500 Kirby Corp.(a) 139,750
---------------
WHOLESALE TRADE--DURABLE GOODS (2.2%)
6,700 Applied Industrial Technologies, Inc. 157,450
6,200 Barnes Group, Inc. 184,450
2,800 Bell Industries, Inc.(a) 35,350
3,700 Building Materials Holding Corp. 50,413
4,300 Castle (A.M.) & Co. 96,750
4,500 Commercial Metals Co. 138,094
4,100 Digi International, Inc. 93,275
1,500 Global Motorsport Group(a) 31,688
7,400 Ha-Lo Industries, Inc. 228,937
5,700 Hughes Supply, Inc. 192,019
7,000 Kaman Corp., Class A 128,625
8,200 Kent Electronics Corp. 172,200
3,400 Lawson Products, Inc. 92,225
5,000 Marshall Industries 154,688
9,800 Owens & Minor, Inc. Holding Co. 115,150
10,000 Patterson Dental Co. 325,000
8,000 Pioneer-Standard Electronics, Inc. 99,500
2,500 Swiss Army Brands, Inc. 28,906
7,100 TBC Corp. 57,244
5,200 Universal Forest Products, Inc. 89,375
3,900 Vital Signs, Inc. 67,753
5,800 Wynn's International, Inc. 121,800
---------------
2,660,892
---------------
WHOLESALE TRADE--NONDURABLE GOODS (1.8%)
9,500 Barrett Resources Corp. 330,719
7,700 Caraustar Industries, Inc 236,294
13,500 DIMON, Inc. 182,250
11,500 Fleming Cos., Inc. 219,219
3,900 LSB Industries, Inc. 16,819
6,700 Men's Wearhouse, Inc. 285,588
5,500 Myers Industries, Inc. 116,188
5,900 NCS HealthCare, Inc.(a) 170,363
3,400 Nash-Finch Co. 57,375
14,400 Richfood Holdings, Inc. 351,900
14,500 Stride Rite Corp. 193,021
---------------
2,159,736
---------------
TOTAL COMMON STOCKS (COST $120,978,198) 114,622,333
---------------
TIME DEPOSITS (6.3%)
3,000,000 Erste Bank der Oestereich, 5.687%,
6/1/98 3,000,000
722,351 PNC Bank, N.A. Nassau, 5.66%, 6/1/98 722,351
4,000,000 Union Bank of Switzerland, 5.687%,
6/1/98 4,000,000
---------------
TOTAL TIME DEPOSITS (COST $7,722,351) 7,722,351
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
139
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP INDEX PORTFOLIO (continued)
- - -----------------------------------------------------------------
U.S. TREASURY BILLS (0.2%)
190,000 5.03% yield, 10/8/98(g) $ 186,582
50,000 5.12% yield, 4/29/99(g) 47,634
---------------
TOTAL U.S. TREASURY BILLS (COST $234,194) 234,216
---------------
TOTAL INVESTMENTS (100.0%) (COST $128,934,743) $ 122,578,900
---------------
---------------
FINANCIAL FUTURES CONTRACTS (-0.3%)
UNREALIZED
POSITION CONTRACTS INDEX (LOSS)
- - --------- --------------- -------------------------------------- -----------
Long 33 Russell 2000 Index
Expiring June 19, 1998
(notional value $7,539,675) $(371,350)
Long 1 Russell 2000 Index
Expiring September 18, 1998
(notional value $230,755) (3,375)
-----------
$(374,725)
-----------
-----------
- - -----------------------------------------------------------------
SMALL COMPANY STOCK PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (95.0%)
AGRICULTURAL PRODUCTION--LIVESTOCK & ANIMAL SPECIALTIES (1.0%)
82,200 Michael Foods, Inc. $ 2,291,326
---------------
APPAREL & ACCESSORY STORES (2.3%)
89,500 Dress Barn, Inc.(a) 2,592,707
53,350 Stage Stores, Inc.(a) 2,487,444
---------------
5,080,151
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(1.6%)
94,210 Oshkosh B'Gosh, Inc. 3,627,085
---------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (1.1%)
170,100 Lithia Motors, Inc.(a) 2,381,400
---------------
BUSINESS SERVICES (15.0%)
392,500 Accelr8 Technology Corp.(a)(d) 5,396,875
84,400 Ciber, Inc.(d) 2,706,075
93,470 Computer Horizons Corp. 3,122,486
82,500 Computer Task Group, Inc. 2,609,064
133,600 Leasing Solutions, Inc.(a)(d) 3,740,800
76,300 Mercury Interactive Corp.(a) 2,536,975
74,800 Metro Information Services, Inc.(a) 2,440,351
108,400 QuadraMed Corp.(a)(d) 2,608,375
260,120 SEEC, Inc.(a)(d) 2,422,369
132,100 SPR, Inc.(a) 3,731,825
124,500 Sykes Enterprises, Inc.(a) 2,598,938
---------------
33,914,133
---------------
CHEMICALS & ALLIED PRODUCTS (1.8%)
38,200 Hauser, Inc.(a) 296,050
207,200 Lifecore Biomedical, Inc.(a) 3,846,149
---------------
4,142,199
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY STOCK PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
COMMUNICATIONS (1.4%)
93,800 COMSAT Corp.(d) $ 3,271,276
---------------
CONSTRUCTION--SPECIAL TRADE CONTRACTORS (1.5%)
118,000 Dycom Industries, Inc.(a) 3,377,752
---------------
CONSUMER DURABLES (3.1%)
181,000 Rayovac Corp.(a) 3,801,000
99,130 Windmere-Durable Holdings, Inc.(d) 3,141,183
---------------
6,942,183
---------------
DEPOSITORY INSTITUTIONS (3.6%)
98,794 Downey Financial Corp. 3,272,568
60,340 People's Bank 2,300,464
75,060 Webster Financial Corp. 2,533,275
---------------
8,106,307
---------------
EATING & DRINKING PLACES (3.9%)
162,900 Foodmaker, Inc.(a) 2,748,939
222,900 Schlotzsky's, Inc.(a)(d) 3,622,126
66,700 Showbiz Pizza Time, Inc.(a) 2,367,850
---------------
8,738,915
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (3.2%)
106,600 Artesyn Technologies, Inc.(a) 1,748,914
6,500 EFTC Corp.(a) 95,875
122,100 Exar Corp.(a) 2,808,300
249,200 FARO Technologies, Inc.(a) 2,694,478
---------------
7,347,567
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT & RELATED SERVICES (3.8%)
131,600 A.C. Nielson Corp.(a) 3,396,927
209,900 Barringer Technologies, Inc.(a) 2,203,950
140,287 Tetra Tech., Inc. 3,086,314
---------------
8,687,191
---------------
FOOD & KINDRED PRODUCTS (1.3%)
63,200 Celestial Seasonings, Inc.(a)(d) 2,851,901
---------------
FOOD STORES (1.0%)
80,400 Wild Oats Markets, Inc. 2,311,500
---------------
HEALTH SERVICES (3.6%)
87,000 Access Health, Inc.(a) 2,229,376
210,820 Graham-Field Health Products, Inc.(a)(d) 1,238,567
230,350 Specialty Care Network, Inc.(a)(d) 2,274,708
69,900 Trigon Healthcare, Inc.(a) 2,376,600
---------------
8,119,251
---------------
HOLDING & OTHER INVESTMENT OFFICES (2.8%)
123,400 Consolidated Capital Corp.(a) 2,722,513
242,700 Sunstone Hotel Investors, Inc. 3,488,814
---------------
6,211,327
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
140
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY STOCK PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
HOSPITAL SUPPLY (1.5%)
142,300 Maxxim Medical, Inc.(a) $ 3,326,264
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (1.3%)
150,110 Snyder Oil Corp. 2,908,383
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (2.4%)
148,200 OEA, Inc.(d) 2,537,926
280,295 Tava Technologies, Inc.(a)(d) 2,943,098
---------------
5,481,024
---------------
MISCELLANEOUS RETAIL (3.9%)
260,030 Funco, Inc.(a) 4,257,994
173,700 Guitar Center, Inc.(a)(d) 4,592,195
---------------
8,850,189
---------------
MOTOR FREIGHT TRANSPORTATION & WAREHOUSING (1.9%)
122,800 Covenant Transportation, Inc.(a) 2,010,854
174,015 Jevic Transportation, Inc.(a) 2,164,313
---------------
4,175,167
---------------
NONDEPOSITORY CREDIT INSTITUTIONS (8.4%)
153,650 American Capital Strategies Ltd. 3,620,379
150,000 First Sierra Financial, Inc.(a) 3,646,875
164,980 Franchise Mortgage Acceptance Co. LLC(a) 3,629,560
111,000 Imperial Credit Industries, Inc.(a)(d) 2,344,877
223,025 Medallion Financial Corp. 5,631,382
---------------
18,873,073
---------------
OIL & GAS EXTRACTION (6.4%)
72,220 Atwood Oceanics, Inc. 3,737,385
123,995 Basin Exploration, Inc.(a) 1,952,922
153,700 Callon Petroleum Co.(a)(d) 2,536,050
180,570 Marine Drilling Co., Inc.(a) 3,396,973
94,500 Stolt Comex Seaway, S.A. 3,000,375
---------------
14,623,705
---------------
PAPER & ALLIED PRODUCTS (1.7%)
164,000 Ivex Packaging Corp.(a) 3,802,749
---------------
PRIMARY METAL INDUSTRIES (3.0%)
100,900 Quanex Corp. 3,134,206
152,970 Titanium Metals Corp.(d) 3,719,085
---------------
6,853,291
---------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (3.8%)
60,100 Mail-Well, Inc.(d) 2,764,600
101,050 Mecklermedia Corp.(a) 2,096,788
103,800 Valassis Communications, Inc.(a) 3,652,462
---------------
8,513,850
---------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES (1.1%)
163,300 Friedman, Billings, Ramsey Group,
Inc.(a)(d) 2,561,771
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY STOCK PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
TRANSPORTATION EQUIPMENT (1.0%)
55,600 Orbital Sciences Corp.(a)(d) $ 2,272,650
---------------
WHOLESALE TRADE--DURABLE GOODS (5.6%)
75,700 CellStar Corp.(d) 2,278,101
146,000 CHS Electronics, Inc.(d) 2,901,751
159,200 Keystone Automotive Industries,
Inc.(a)(d) 4,139,152
135,050 SCP Pool Corp. 3,249,642
---------------
12,568,646
---------------
WHOLESALE TRADE--NONDURABLE GOODS (1.0%)
114,300 Fresh America Corp.(a) 2,214,563
---------------
TOTAL COMMON STOCKS (COST $198,501,017) 214,426,789
---------------
TIME DEPOSITS (5.0%)
11,231,734 PNC Bank, N.A. Nassau, 5.66%, 6/1/98
(cost $11,231,734) 11,231,734
---------------
TOTAL INVESTMENTS (100.0%) (COST $209,732,751) $ 225,658,523
---------------
---------------
- - -----------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (94.6%)
AMUSEMENT & RECREATION SERVICES (2.0%)
22,490 Anchor Gamin(a) $ 2,046,590
---------------
APPAREL & ACCESSORY STORES (3.8%)
39,050 Claire's Stores, Inc. 734,628
60,440 Intimate Brands, Inc.(d) 1,733,872
37,040 St. John Knits, Inc. 1,423,725
---------------
3,892,225
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(1.7%)
61,470 Nautica Enterprises, Inc.(a)(d) 1,797,997
---------------
AUTOMOTIVE REPAIR, SERVICES & PARKING (1.2%)
40,860 Budget Group, Inc.(a) 1,205,370
---------------
BUILDING CONSTRUCTION--GENERAL CONTRACTORS & OPERATIVE BUILDERS (3.2%)
49,200 Centex Corp.(d) 1,758,900
60,360 Toll Brothers, Inc.(a) 1,554,271
---------------
3,313,171
---------------
BUSINESS SERVICES (2.7%)
44,640 ADVO, Inc.(a) 1,118,791
66,400 Avant Corp.(a)(d) 1,705,650
---------------
2,824,441
---------------
CHEMICALS & ALLIED PRODUCTS (1.6%)
41,050 Dexter Corp. 1,693,312
---------------
COMMUNICATIONS (1.1%)
47,130 Aliant Communications, Inc. 1,092,827
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
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SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
EATING & DRINKING PLACES (3.1%)
103,400 Ruby Tuesday, Inc.(d) $ 1,660,863
73,905 Sonic Corp.(a) 1,528,910
---------------
3,189,773
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (5.0%)
28,690 Aeroquip-Vickers, Inc.(d) 1,771,607
16,310 C-Cube Microsystems, Inc. 319,064
35,900 Kuhlman Corp. 1,516,775
39,400 Teleflex, Inc. 1,593,237
---------------
5,200,683
---------------
FABRICATED METAL PRODUCTS (1.8%)
27,990 AptarGroup, Inc. 1,814,101
---------------
FOOD & KINDRED PRODUCTS (3.2%)
50,440 Adolph Coors Co. 1,891,500
29,700 Canandaigua Brands, Inc.(a) 1,369,913
---------------
3,261,413
---------------
FURNITURE & FIXTURES (3.3%)
109,590 O'Sullivan Industries Holdings, Inc.(a) 1,643,850
75,040 Winsloew Furniture, Inc.(a) 1,800,960
---------------
3,444,810
---------------
HEALTH SERVICES (4.1%)
121,900 NovaCare, Inc.(a) 1,340,900
81,300 Pediatric Services of America, Inc.(a) 1,504,050
54,300 RehabCare Group, Inc.(a) 1,408,406
---------------
4,253,356
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (10.1%)
66,750 Detroit Diesel Corp.(a) 1,635,375
48,830 Gleason Corp. 1,443,536
52,555 Graco, Inc. 1,819,717
50,320 Kaydon Corp. 1,984,495
39,050 Pentair, Inc. 1,713,319
130,230 Scitex Corp. Ltd.(a) 1,806,942
---------------
10,403,384
---------------
INSURANCE AGENTS, BROKERS & SERVICE (1.7%)
47,610 E.W. Blanch Holdings, Inc. 1,791,327
---------------
INSURANCE CARRIERS (5.2%)
46,394 Fidelity National Financial, Inc.(d) 1,548,400
43,900 LandAmerica Financial Group, Inc. 2,096,226
9,980 Markel Corp.(a) 1,724,668
---------------
5,369,294
---------------
LUMBER & WOOD PRODUCTS, EXCEPT FURNITURE (1.6%)
57,870 TJ International, Inc. 1,674,613
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (5.4%)
66,140 CONMED Corp.(a) 1,397,208
90,070 Esco Electronics Corp.(a)(d) 1,615,631
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL & OPTICAL
GOODS (continued)
75,680 Esterline Technologies Corp.(a) $ 1,627,120
74,090 Integrated Circuit Systems, Inc.(d) 1,021,056
---------------
5,661,015
---------------
MOTOR FREIGHT TRANSPORTATION & WAREHOUSING (3.1%)
55,430 M.S. Carriers, Inc.(a) 1,655,971
47,910 USFreightways Corp. 1,509,165
---------------
3,165,136
---------------
NONDEPOSITORY CREDIT INSTITUTIONS (1.6%)
51,650 AmeriCredit Corp.(a) 1,685,082
---------------
OIL & GAS EXTRACTION (4.6%)
64,980 Pool Energy Services Co.(a) 1,323,968
36,370 Veritas DGC, Inc.(a) 1,884,420
85,390 Vintage Petroleum, Inc. 1,547,693
---------------
4,756,081
---------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS (1.8%)
24,680 Lone Star Industries, Inc.(d) 1,855,628
---------------
TRANSPORTATION BY AIR (4.9%)
44,800 Airborne Freight Corp. 1,668,800
64,600 America West Airlines, Inc.(a)(d) 1,828,988
53,505 Midwest Express Holdings, Inc.(a) 1,534,925
---------------
5,032,713
---------------
TRANSPORTATION EQUIPMENT (6.9%)
34,730 Cordant Technologies, Inc. 1,732,158
73,320 Monaco Coach Corp.(a) 1,979,640
118,710 Simpson Industries, Inc. 1,661,940
51,310 Varlen Corp. 1,738,126
---------------
7,111,864
---------------
TRANSPORTATION SERVICES (1.6%)
60,040 Circle International Group, Inc. 1,624,832
---------------
WATER TRANSPORTATION (1.6%)
84,440 Trico Marine Services, Inc.(a)(d) 1,667,690
---------------
WHOLESALE TRADE--DURABLE GOODS (2.9%)
76,900 Ballantyne of Omaha, Inc.(a) 1,408,231
69,120 Pomeroy Computer Resources, Inc.(a) 1,555,200
---------------
2,963,431
---------------
WHOLESALE TRADE-NONDURABLE GOODS (3.8%)
80,690 Day Runner, Inc.(a) 1,775,180
10,010 Men's Wearhouse, Inc.(a) 426,676
28,800 United Stationers, Inc.(a) 1,717,200
---------------
3,919,056
---------------
TOTAL COMMON STOCKS
(COST $92,333,952) 97,711,215
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
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SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO (continued)
- - -----------------------------------------------------------------
REPURCHASE AGREEMENTS (1.9%)
$ 2,000,000 BancAmerica Robertson Stephens, 5.58%,
6/1/98 to be repurchased at $2,000,930
(cost $2,000,000)(e) $ 2,000,000
---------------
TIME DEPOSITS (3.5%)
3,641,360 PNC Bank, N.A. Nassau, 5.57%, 6/1/98
(cost $3,641,360) 3,641,360
---------------
TOTAL INVESTMENTS (100.0%) (COST $97,975,312) $ 103,352,575
---------------
---------------
- - -----------------------------------------------------------------
SMALL COMPANY VALUE PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (97.5%)
ADMINISTRATION OF ENVIRONMENTAL QUALITY & HOUSING PROGRAMS (1.1%)
124,800 Dames & Moore, Inc. $ 1,614,600
---------------
AMUSEMENT & RECREATION SERVICES (1.7%)
79,400 Jackpot Enterprises, Inc.(a) 972,650
106,800 Station Casinos, Inc.(a) 1,588,650
---------------
2,561,300
---------------
BUILDING CONSTRUCTION--GENERAL CONTRACTORS & OPERATIVE BUILDERS (2.3%)
17,727 M/I Schottenstein Homes, Inc. 356,755
47,800 NVR, Inc.(a) 1,535,575
156,100 Southern Energy Homes, Inc.(a) 1,541,487
---------------
3,433,817
---------------
BUSINESS SERVICES (5.2%)
4,231 Grey Advertising, Inc. 1,891,257
56,400 Learning Co.(a)(d) 1,607,400
58,900 Leasing Solutions, Inc.(a) 1,649,200
54,800 Network Equipment Technologies, Inc.(a) 859,674
56,300 Ogden Corp. 1,608,068
---------------
7,615,599
---------------
CHEMICALS & ALLIED PRODUCTS (1.6%)
42,800 Georgia Gulf Corp. 1,072,675
74,500 Mississippi Chemical Corp. 1,247,875
---------------
2,320,550
---------------
DEPOSITORY INSTITUTIONS (18.5%)
53,300 Anchor Bancorp Wisconsin, Inc. 2,258,588
16,600 First Citizens BancShares, Inc. 1,759,600
39,300 ALBANK Financial Corp. 2,043,600
60,500 Andover Bancorp, Inc. 2,072,127
43,400 BSB Bancorp, Inc. 1,361,676
59,400 Banknorth Group, Inc. 2,168,100
55,075 Commercial Federal Corp. 1,834,685
90,900 Commonwealth Bancorp, Inc. 2,147,512
37,274 Community Bank System, Inc. 1,264,987
60,100 First Republic Bank(a) 1,998,325
55,000 FirstFed Financial Corp.(a) 2,698,438
45,685 Medford Bancorp, Inc. 1,941,612
46,800 SIS Bancorp, Inc. 1,959,751
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY VALUE PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
DEPOSITORY INSTITUTIONS (continued)
75,900 Statewide Financial Corp. $ 1,745,700
---------------
27,254,701
---------------
EATING & DRINKING PLACES (2.4%)
118,900 Piccadilly Cafeterias, Inc. 1,530,837
200,100 Ryan's Family Steak Houses, Inc.(a) 2,038,518
---------------
3,569,355
---------------
ELECTRIC, GAS & SANITARY SERVICES (10.4%)
24,900 BEC Energy 1,010,006
30,600 CILCORP, Inc. 1,348,312
95,700 Central Maine Power Co. 1,830,263
91,700 Central Vermont Public Service 1,341,112
49,500 Commonwealth Energy System 1,881,000
68,600 Public Service Co. of New Mexico 1,487,763
54,300 Rochester Gas & Electric Corp. 1,669,725
55,600 TNP Enterprises, Inc. 1,810,475
92,500 UniSource Energy Corp.(a) 1,462,656
47,900 WPS Resources Corp. 1,499,868
---------------
15,341,180
---------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (4.3%)
27,100 DuPont Photomasks, Inc.(a) 1,154,292
79,400 HMT Technology Corp.(a)(d) 923,025
39,000 Harman International Industries, Inc. 1,659,938
23,100 Inacom Corp.(a)(d) 749,307
101,300 Powell Industries, Inc.(a) 1,215,600
107,600 SymmetriCom, Inc.(a) 679,225
---------------
6,381,387
---------------
FABRICATED METAL PRODUCTS (2.6%)
19,700 Alliant Techsystems, Inc.(a) 1,270,650
40,900 Nortek, Inc.(a) 1,257,675
67,600 Wyman-Gordon Co.(a)(d) 1,343,550
---------------
3,871,875
---------------
FOOD STORES (0.8%)
96,400 Ingles Markets, Inc. 1,205,000
---------------
GENERAL MERCHANDISE STORES (1.2%)
87,700 Homebase, Inc.(d) 761,894
28,200 Shopko Stores, Inc.(a) 983,475
---------------
1,745,369
---------------
HEALTH SERVICES (2.2%)
56,200 Genesis Health Ventures, Inc.(a)(d) 1,422,563
49,700 Integrated Health Services, Inc.(d) 1,848,219
---------------
3,270,782
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (3.6%)
56,500 Ampco Pittsburgh Corp. 833,375
89,300 Auspex Systems, Inc.(a) 496,731
37,700 DT Industries, Inc. 1,092,123
46,000 Data General Corp.(a)(d) 701,500
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
143
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY VALUE PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (continued)
41,760 Gleason Corp. $ 1,234,531
39,700 Tractor Supply Co.(a) 957,762
---------------
5,316,022
---------------
INSURANCE CARRIERS (8.5%)
68,600 ARM Financial Group, Inc. 1,402,012
68,400 Acceptance Insurance Cos., Inc.(a) 1,573,200
40,900 Farm Family Holdings, Inc.(a) 1,674,343
58,200 Frontier Insurance Group, Inc.(d) 1,425,900
78,700 HCC Insurance Holdings, Inc.(d) 1,682,212
61,700 Nymagic, Inc. 1,804,725
45,599 PXRE Corp. 1,436,368
81,600 Symons International Group, Inc.(a) 1,509,600
---------------
12,508,360
---------------
MACHINERY (0.8%)
69,900 Global Industrial Technologies, Inc.(a) 1,183,931
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL &
OPTICAL GOODS (3.4%)
69,900 ADAC Laboratories(a) 1,389,263
34,000 CONMED Corp.(a) 718,250
46,600 Esterline Technologies Corp.(a) 1,001,900
36,289 Invacare Corp. 957,123
31,400 Tech-Sym Corp.(a) 908,639
---------------
4,975,175
---------------
MISCELLANEOUS MANUFACTURING INDUSTRIES (1.2%)
85,900 K2, Inc. 1,718,000
---------------
MOTOR FREIGHT TRANSPORTATION & WAREHOUSING (1.6%)
132,900 Arkansas Best Corp.(a) 1,295,775
56,500 Roadway Express, Inc. 1,062,906
---------------
2,358,681
---------------
NONDEPOSITORY CREDIT INSTITUTIONS (2.2%)
120,917 Consumer Portfolio Services, Inc.(a)(d) 1,435,889
118,100 Southern Pacific Funding Corp.(a)(d) 1,815,787
---------------
3,251,676
---------------
OIL & GAS EXTRACTION (2.6%)
20,200 Devon Energy Corp. 741,088
38,900 Giant Industries, Inc. 731,806
27,900 SEACOR SMIT, Inc.(a)(d) 1,632,150
40,300 Vintage Petroleum, Inc. 730,438
---------------
3,835,482
---------------
PERSONAL SERVICES (1.0%)
68,372 Angelica Corp. 1,538,370
---------------
PETROLEUM REFINING & RELATED INDUSTRIES (0.6%)
43,000 Tesoro Petroleum Corp.(a) 830,438
---------------
PRIMARY METAL INDUSTRIES (8.5%)
76,900 AK Steel Holding Corp. 1,432,262
28,700 Carpenter Technology Corp. 1,521,100
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY VALUE PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
PRIMARY METAL INDUSTRIES (continued)
49,100 Chase Industries, Inc.(a) $ 1,519,032
39,646 Citation Corp.(a) 758,230
80,800 Intermet Corp. 1,575,600
34,100 Lone Star Technologies, Inc.(a) 647,900
77,100 National Steel Corp. 1,214,325
70,000 RMI Titanium Co.(a)(d) 1,500,625
19,600 Texas Industries, Inc. 1,163,750
51,600 Titanium Metals Corp.(d) 1,254,525
---------------
12,587,349
---------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (2.2%)
39,300 Bowne & Co., Inc. 1,682,532
35,400 Media General, Inc. 1,628,400
---------------
3,310,932
---------------
TEXTILE MILL PRODUCTS (0.6%)
23,800 Oxford Industries, Inc. 830,025
---------------
TRANSPORTATION EQUIPMENT (0.7%)
36,600 TransTechnology Corp. 988,200
---------------
WHOLESALE TRADE--DURABLE GOODS (1.5%)
60,000 Associated Materials Inc.(a) 930,000
43,500 Commercial Metals Co. 1,334,906
---------------
2,264,906
---------------
WHOLESALE TRADE--NONDURABLE GOODS (4.2%)
50,000 Burlington Coat Factory Warehouse 1,003,125
71,700 Nash-Finch Co. 1,209,937
80,800 Performance Food Group Co.(a) 1,515,000
89,000 Standard Commercial Corp.(a) 990,125
38,700 Universal Corp. 1,453,669
---------------
6,171,856
---------------
TOTAL COMMON STOCKS
(COST $128,734,013) 143,854,918
---------------
TIME DEPOSITS (2.5%)
3,666,930 PNC Bank, NA Nassau, 5.66%, 6/1/98 (cost
$3,666,930) 3,666,930
---------------
TOTAL INVESTMENTS (100.0%) (COST $132,400,943) $ 147,521,848
---------------
---------------
- - -----------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCKS (98.1%)
APPAREL & ACCESSORY STORES (3.6%)
435,000 Just For Feet, Inc.(a) $ 9,542,812
291,000 North Face, Inc.(a) 7,220,437
323,200 Stage Stores, Inc.(a) 15,069,200
---------------
31,832,449
---------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(4.3%)
478,400 Nautica Enterprises, Inc.(a) 13,993,200
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
144
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS
(continued)
164,400 Tommy Hilfiger Corp.(a) $ 11,055,900
321,100 Warnaco Group, Inc., Class A 13,245,375
---------------
38,294,475
---------------
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY & MOBILE HOME
DEALERS (1.0%)
312,500 Central Garden & Pet Co.(a) 9,238,282
---------------
BUSINESS SERVICES (10.2%)
163,100 ATL Ultrasound, Inc. 7,390,469
190,700 Autodesk, Inc. 8,104,750
211,800 Legato Systems, Inc. 6,062,776
385,700 Platinum Technology, Inc.(a) 10,558,537
278,700 Rental Service Corp.(a) 7,228,781
327,500 Select Appointments Holdings Public Ltd.
Co. 9,456,562
355,100 Snyder Communications, Inc.(a) 14,314,968
591,700 Symantec Corp.(a) 14,126,837
339,000 Synopsys, Inc.(a) 14,555,813
---------------
91,799,493
---------------
CHEMICALS & ALLIED PRODUCTS (9.8%)
245,300 Agouron Pharmaceuticals, Inc. 8,340,200
514,400 Alkermes, Inc.(a) 11,252,500
54,800 Axogen Ltd.(a) 3,178,400
215,000 Barr Laboratories, Inc.(a) 8,774,688
243,900 Biovail Corp. International(a) 8,277,356
199,444 Elan Corp. plc ADR(a) 12,203,480
541,800 Genzyme Corp. 14,831,775
40,000 North American Vaccine, Inc.(a) 782,500
238,400 Protein Design Labs, Inc.(a) 5,989,800
332,800 Sepracor, Inc.(a) 14,310,400
---------------
87,941,099
---------------
COMMUNICATIONS (2.3%)
387,200 Electric Lightwave, Inc.(a) 5,275,600
823,100 Western Wireless Corp.(a) 15,227,350
---------------
20,502,950
---------------
CONTAINERS (0.7%)
272,900 Ivex Packaging Corp.(a) 6,327,868
---------------
DOMESTIC DEPOSITORY INSTITUTIONS (3.4%)
437,000 Golden State Bancorp, Inc.(a) 16,742,563
810,700 Independence Community Bank Corp.(a) 14,085,912
---------------
30,828,475
---------------
EATING & DRINKING PLACES (3.1%)
444,300 Apple South, Inc. 5,831,438
467,000 Buffets, Inc.(a) 7,617,937
478,300 Foodmaker, Inc.(a) 8,071,312
271,300 Landry's Seafood Restaurants, Inc.(a) 6,146,655
---------------
27,667,342
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER
EQUIPMENT (5.1%)
150,200 ATMI, Inc.(a) $ 2,722,375
355,000 American Power Conversion Corp.(a) 10,650,000
439,800 Artesyn Technologies, Inc.(a) 7,215,490
90,400 Benchmark Electronics, Inc. 1,824,950
94,800 CTS Corp. 2,962,500
182,100 Micrel, Inc. 5,696,325
377,700 Xilink, Inc.(a) 14,364,423
---------------
45,436,063
---------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT & RELATED SERVICES (1.5%)
323,200 Core Laboratories N.V. 8,544,601
593,000 Medaphis Corp.(a) 4,447,500
---------------
12,992,101
---------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT
(1.3%)
205,500 Tower Automotive, Inc.(a) 9,645,657
108,600 Metals USA, Inc.(a) 2,009,100
---------------
11,654,757
---------------
HEALTH SERVICES (3.5%)
498,304 Quorum Health Group, Inc. 14,980,143
54,366 SonoSight, Inc.(a) 366,970
522,633 Total Renal Care Holdings, Inc. 16,038,301
---------------
31,385,414
---------------
HOLDING & OTHER INVESTMENT OFFICES (1.8%)
244,900 Capital Automotive 3,520,437
355,000 Chastain Capital Corp.(a) 4,925,625
349,600 Consolidation Capital Corp.(a) 7,713,050
---------------
16,159,112
---------------
HOSPITAL SUPPLY (0.7%)
286,600 Maxxim Medical, Inc.(a) 6,699,276
---------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (3.9%)
494,400 Pentair, Inc. 21,691,800
113,000 SPS Technologies, Inc. 6,624,625
414,300 Xircom, Inc.(a) 6,499,331
---------------
34,815,756
---------------
INSURANCE CARRIERS (1.5%)
340,200 Everest Reinsurance Holdings, Inc. 13,225,275
---------------
MISCELLANEOUS REPAIR SERVICES (0.6%)
174,300 World Access, Inc.(a) 5,468,663
---------------
MISCELLANEOUS RETAIL (3.3%)
312,900 CSK Auto Corp.(a) 8,409,188
378,000 Borders Group, Inc.(a) 11,718,000
236,400 Tech Data Corp.(a) 9,603,750
---------------
29,730,938
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
145
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
MOTOR FREIGHT TRANSPORTATION & WAREHOUSING (1.8%)
378,651 Swift Transportation, Inc. $ 8,424,963
247,600 USFreightways Corp. 7,799,400
---------------
16,224,363
---------------
NONDEPOSITORY CREDIT INSTITUTIONS (3.5%)
415,000 American Capital Strategies Ltd. 9,778,438
228,000 First Sierra Financial, Inc.(a) 5,543,250
329,900 Heller Financial, Inc.(a) 9,195,963
414,900 UniCapital Corp.(a) 7,208,888
---------------
31,726,539
---------------
OIL & GAS EXTRACTION (8.9%)
327,100 Apache Corp. 11,182,731
232,000 Cooper Cameron Corp. 13,804,000
199,900 Dawson Production Services, Inc.(a) 2,223,887
260,500 Global Industries Ltd. 5,551,906
496,200 Marine Drilling Co., Inc.(a) 9,334,762
346,100 Noble Drilling Corp.(a) 10,209,950
472,800 Parker Drilling Co.(a) 3,989,250
328,600 R & B Falcon Corp.(a) 9,426,712
303,600 Rowan Cos., Inc.(a) 7,760,775
176,100 Santa Fe International Corp. 6,141,488
---------------
79,625,461
---------------
PRIMARY METAL INDUSTRIES (3.0%)
247,400 Essex International, Inc.(a) 6,076,763
574,351 General Cable Corp. 15,220,276
233,200 Titanium Metals Corp. 5,669,675
---------------
26,966,714
---------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (1.4%)
350,500 Valassis Communications, Inc.(a) 12,333,218
---------------
REAL ESTATE (2.0%)
378,700 Intrawest Corp. 7,502,994
377,100 Newhall Land & Farming Co. 10,794,487
---------------
18,297,481
---------------
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (2.2%)
209,800 EVI Weatherford, Inc. 10,608,012
304,700 Standard Products Co. 8,950,562
---------------
19,558,574
---------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES (1.2%)
305,400 Amresco, Inc.(a) 10,307,250
---------------
TRANSPORTATION EQUIPMENT (4.8%)
382,350 AAR Corp. 10,108,378
352,900 Gulfstream Aerospace Corp.(a) 14,998,250
200,200 Hayes Lemmerz International, Inc.(a) 7,845,337
375,300 Wabash National Corp. 9,734,343
---------------
42,686,308
---------------
TRANSPORTATION SERVICES (0.8%)
176,300 Coach USA, Inc.(a) 7,591,919
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCKS (continued)
WATER TRANSPORTATION (0.9%)
196,900 Sea Containers, Ltd. $ 7,962,144
---------------
WHOLESALE TRADE--DURABLE GOODS (4.6%)
537,000 CHS Electronics, Inc. 10,672,875
225,700 HA-LO Industries, Inc.(a) 6,982,593
570,100 ITEQ, Inc.(a) 6,769,937
446,500 PSS World Medical, Inc.(a) 5,581,250
205,600 Reliance Steel & Aluminum Co. 7,851,351
190,500 West Marine, Inc.(a) 3,655,218
---------------
41,513,224
---------------
WHOLESALE TRADE--NONDURABLE GOODS (1.4%)
282,200 Daisytek International Corp. 7,196,100
162,700 National-Oilwell, Inc. 5,684,332
---------------
12,880,432
---------------
TOTAL COMMON STOCKS
(COST $738,072,386) 879,673,415
---------------
TIME DEPOSITS (1.9%)
16,802,411 PNC Bank, N.A. Nassau, 5.66%, 6/1/98
(cost $16,802,411) 16,802,411
---------------
TOTAL INVESTMENTS (100.0%) (COST $754,874,797) $ 896,475,826
---------------
---------------
- - -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO
- - -----------------------------------------------------------------
STOCKS & WARRANTS (91.1%)
AUSTRALIA (2.2%)
COMMON STOCKS
920,000 Australia & New Zealand Banking Group
Ltd. $ 6,534,385
326,000 Brambles Industries Ltd. 6,615,558
451,789 Broken Hill Proprietary Co. Ltd. 3,871,022
327,000 Telstra Corp. 770,086
521,000 Woodside Petroleum Ltd. 2,995,603
---------------
20,786,654
---------------
AUSTRIA (0.8%)
PREFERRED STOCK
43,250 Bank Austria AG(d) 3,885,464
42,890 Bank Austria AG(d) 3,836,027
---------------
7,721,491
---------------
BELGIUM (1.1%)
COMMON STOCKS
11,498 Grupo Bruxelles Lambert 2,528,374
119,140 IPSO-Industrial Laundry Group 8,430,215
---------------
10,958,589
---------------
DENMARK (1.8%)
COMMON STOCKS
232,650 International Service System A/S 11,989,266
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
146
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO (continued)
- - -----------------------------------------------------------------
DENMARK (continued)
COMMON STOCKS (continued)
60,560 Unidanmark A/S $ 4,895,305
---------------
16,884,571
---------------
FINLAND (0.3%)
COMMON STOCKS
129,800 Rauma Group(d) 2,683,204
---------------
FRANCE (8.8%)
COMMON STOCKS
54,580 Accor SA 14,970,545
38,990 Canal Plus 7,077,479
68,018 Compagnie Generale des Eaux 13,665,447
95,975 Elf Aquitaine 13,330,752
39,570 Groupe Danone 10,655,090
27,920 Legrand SA 7,700,074
155,000 METALEUROP, SA 1,606,272
126,107 Michelin 7,803,171
23,595 Primagaz Cie 2,015,284
1 Societe Generale 267
32,350 Suez Lyonnaise des Eaux 5,520,718
---------------
84,345,099
---------------
WARRANTS
55,391 Cie Generale Des Eaux Warrants 96,286
2,145 Primagaz Cie 25,635
---------------
121,921
---------------
84,467,020
---------------
GERMANY (11.8%)
COMMON STOCKS
45,500 Allianz AG(d) 14,394,211
301,080 Bayer AG(d) 14,405,499
187,560 Deutsche Bank AG(d) 16,159,535
107,660 Hoechst AG 5,374,546
15,760 Mannesmann AG 15,425,848
288,310 Tarkett AG(d) 11,320,227
144,100 Veba AG 9,473,031
---------------
86,552,897
---------------
PREFERRED STOCK
47,300 SAP AG(d) 26,265,987
---------------
112,818,884
---------------
ITALY (4.1%)
COMMON STOCKS
8,665,350 Banca di Roma(d) 17,880,174
1,067,100 Fiat SpA 4,780,326
2,217,742 Telecom Italia SpA(d) 16,770,665
---------------
39,431,165
---------------
JAPAN (13.4%)
COMMON STOCKS
336,000 Amada Metrecs Co. Ltd. 2,012,629
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO (continued)
- - -----------------------------------------------------------------
JAPAN (continued)
COMMON STOCKS (continued)
258,000 Arcland Sakamoto(d) $ 1,694,368
120,000 Asahi Bank Ltd.(d) 451,198
274,000 Bridgestone Corp.(d) 6,248,620
265,650 Credit Saison Co. Ltd.(d) 5,329,678
239,000 Dai-Dan Co. Ltd. 1,310,864
1,122,000 Dai-Tokyo Fire & Marine Insurance Co. 3,765,236
319,000 Daiwa House Industry Co. Ltd. 2,484,040
674,000 Daiwa Securities 2,563,404
847 East Japan Railway Co. 4,022,126
151,000 Fuji Photo Film Co. 5,110,886
90,000 Glory Ltd. 1,627,034
667,000 Hanshin Electric Railway(d) 1,978,398
768,000 Hitachi Ltd. 5,060,326
79,000 Ito-Yokado Co. Ltd. 3,933,892
314,000 Japan Airport Terminal Co. 1,778,876
2,771,000 Kobe Steel Ltd.(d) 2,119,770
33,000 Kyocera Corp. 1,609,930
32,000 Mabuchi Motor Co. 2,078,446
452,000 Matsushita Electric Industrial Co.
Ltd.(d) 7,078,555
69,100 Meiko Shokai 877,684
506,000 Mitsubishi Corp. 3,052,835
877,000 Mitsubishi Electric Corp. 2,075,966
800,000 Mitsui & Co.(d) 4,099,159
230,000 Mitsui Fudosan Co. Ltd. 1,860,715
181,000 Murata Manufacturing Co. Ltd. 5,264,173
69,600 Nagaileben Co. Ltd.(d) 1,255,726
556,000 Oji Paper Co. Ltd.(d) 2,347,346
263,000 Omron Corp. 3,966,873
31,300 SMC Corp.(d) 2,529,931
64,000 Secom Ord. 3,634,973
337,000 Showa Shell Sekiyu 1,529,772
60,000 Sony Corp. 5,066,214
1,426,000 Sumitomo Metal Industries(d) 2,212,608
231,000 Takeda Chemical Ind. 5,968,175
840,000 Teijin Ltd. 2,533,973
38,500 Toho Co. 4,306,642
324,000 Tokio Marine & Fire Insurance Co. 3,067,788
547,000 Toppan Printing Co. Ltd. 5,968,780
170,000 Toyota Motor Corp. 4,208,135
---------------
128,085,744
---------------
NETHERLANDS (12.9%)
COMMON STOCKS
111,140 Aegon NV 8,906,247
407,000 ABN Amro Holdings(d) 9,865,561
401,000 Elsevier NV 6,247,225
197,800 Gucci Group(d) 8,975,175
353,125 Heineken NV 13,586,463
674,749 ING Group NV 46,380,402
175,081 Oce NV 7,363,667
200,390 Philips Electronics NV 19,060,540
140,000 Xeikon NV(a)(d) 3,386,251
---------------
123,771,531
---------------
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
147
SCHEDULES OF INVESTMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO (continued)
- - -----------------------------------------------------------------
NETHERLANDS (continued)
PREFERRED STOCK
8,400 ING Group NV $ 38,841
---------------
123,810,372
---------------
PORTUGAL (1.9%)
COMMON STOCKS
260,360 Portugal Telecom 13,699,393
177,750 Semapa - Sociedade de Investimento e
Gestao SGPS SA 4,866,325
---------------
18,565,718
---------------
SINGAPORE (1.0%)
COMMON STOCKS
967,000 City Developments Ltd. 3,494,833
538,200 Development Bank of Singapore Ltd.(d) 3,247,205
248,698 Singapore Press Holdings Ltd. 2,035,346
261,000 United Overseas Bank Ltd. 1,021,237
---------------
9,798,621
---------------
SPAIN (2.8%)
COMMON STOCKS
66,000 Banco Popular Espanol SA 5,242,838
132,000 Centros Comerciales Pryca SA(d) 2,420,778
781,130 Endesa SA 18,739,066
---------------
26,402,682
---------------
SWEDEN (1.8%)
COMMON STOCKS
243,000 Atlas Copco AB(d) 7,183,657
368,000 Telefonaktiebolaget LM Ericsson "B"
Shares 10,503,006
---------------
17,686,663
---------------
SWITZERLAND (9.6%)
COMMON STOCKS
9,140 Asea Brown Boveri Ltd.(d) 15,515,623
4,830 Alusuisse-Lonza Holding AG(d) 6,500,541
2,840 Nestle SA 6,094,495
21,928 Novartis AG 37,194,254
860 Roche Holding AG(d) 8,861,153
19,770 Selectra Group 4,037,970
22,160 Zurich Versicherungsgesellschaft(d) 13,863,115
---------------
92,067,151
---------------
UNITED KINGDOM (16.8%)
COMMON STOCKS
1,131,900 Airtours plc 8,398,800
438,000 Allied Domecq plc 4,360,714
1,462,000 Asda Group plc 4,339,270
179,900 Barclays plc 4,793,813
811,911 Blue Circle Industries plc 5,203,542
522,200 British Airways plc 5,518,356
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO (continued)
- - -----------------------------------------------------------------
UNITED KINGDOM (continued)
COMMON STOCKS (continued)
522,000 British Energy plc $ 4,809,687
482,300 British Land Co. plc 5,273,681
400,000 British Sky Broadcasting Group plc 2,811,481
322,700 Cable & Wireless plc 3,646,952
342,609 Cadbury Schweppes plc 5,232,441
1,645,800 David S. Smith Holdings plc 6,709,883
267,000 De La Rue plc 1,280,138
360,000 EMI Group plc 3,041,095
429,600 Enterprise Oil plc 3,975,830
161,800 HSBC Holdings plc 4,221,787
185,300 Johnson Matthey plc 1,862,972
334,600 Kingfisher plc 5,920,435
1,012,300 LASMO plc 4,787,459
530,000 Lloyds TSB Group plc 7,688,111
1,139,000 LucasVarity plc 5,015,168
1,263,900 MFI Furniture plc 1,648,923
208,000 Marks & Spencer plc 1,852,055
36,220 National Westminster Bank plc 660,962
1,483,000 Pilkington Brothers plc 3,555,136
389,420 Prudential Corp. plc 5,169,405
584,243 Rank Group plc 3,401,413
199,000 Rio Tinto plc 2,484,256
1,395,730 Rolls-Royce plc 6,640,643
243,596 Standard Chartered plc 3,023,102
309,200 Tesco plc 2,712,812
371,405 Tibbett & Britten Group plc 3,591,701
443,844 United News & Media plc 6,373,199
1,065,074 Vodafone Group plc 11,689,412
580,100 Williams Holdings plc 4,162,491
99,000 Zeneca Group plc 4,018,445
---------------
159,875,570
---------------
TOTAL STOCKS, WARRANTS & RIGHTS (COST $669,127,444) 872,044,099
---------------
CASH MANAGEMENT ACCOUNTS (4.9%)
46,779,038 Treasury Fund (cost $46,779,038) 46,779,038
---------------
CERTIFICATES OF DEPOSIT (4.0%)
17,000,000 Barclays Bank, 5.48%, 7/2/98 17,000,000
6,000,000 Deutsche Bank, 5.47%, 6/22/98 6,000,000
15,000,000 Morgan Guaranty, 5.48%, 6/2/98 15,000,000
---------------
TOTAL CERTIFICATES OF DEPOSIT (COST $38,000,000) 38,000,000
---------------
TOTAL INVESTMENTS (100.0%) (COST $753,906,482) $ 956,823,137
---------------
---------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT
CONTRACT TO SELL
EXPIRATION UNDERLYING FACE UNREALIZED
DATE CURRENCY UNITS AMOUNT OF VALUE APPRECIATION
- - ---------- ------------ ------------ --------------- ------------
6/19/98 Japanese Yen 3,000,000,000 ($21,649,500) $1,769,338
See Notes to Schedules of Investments and Notes to Financial Statements
CORE TRUST (DELAWARE)
148
NOTES TO SCHEDULES OF INVESTMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
(a) Non-income producing security
(b) Securities that may be resold to "qualified institutional buyers" under rule
144A or securities offered pursuant to 4(2) of the Securities Act of 1933,
as amended. The Board of Trustees has deemed these securities to be liquid
at May 31, 1998
(c) During the year June 1, 1997 through May 31, 1998, Index Portfolio purchased
20,000 shares of Norwest Corp
(d) Part or all of this investment on loan, see Note 7 of Notes to Financial
Statements
(e) The Portfolios have invested in a joint repurchase agreement. The following
represents the collateral on the BancAmerica Robertson Stephens joint
repurchase agreement: Collateralized by $136,000,000 FNMA Discount Notes,
5.41% to 5.43%, 1998; $85,000,000 FHLMC Discount Notes, 5.43% to 5.45%,
1998; $13,960,000 FFCB Discount Notes, 5.42%, 1998; $119,000,000 FHLB
Discount Notes, 5.37% to 5.38%, 1998; $30,000,000 FNMA Agency Notes, 6.05%,
3/12/01; $9,275,000 FHLB Agency Notes, 5.51%, 2/6/01 and $20,250,000 FHLB
Agency Notes, 5.71%, 3/19/03, with a total market value of $408,309,000.
(f) At May 31, 1998, $1,410,000 of U.S. Treasury Bills, 4/29/99, with a market
value of $1,343,552, were pledged to cover margin requirements fo open
future contracts
(g) At May 31, 1998, $190,000 of U.S. Treasury Bills, 10/08/98, with a market
value of $186,582 and $50,000 of U.S. Treasury Bills, 4/29,99, with a market
value of $47,634, were pledged to cover margin requirements for open futures
contracts
ABBREVIATIONS
- --------------------------------------------------------------------------------
ADR American Depositary Receipts
AFC Allmerica Financial Corporation
AMBAC American Municipal Bond Assurance Corporation
ARM Adjustable Rate Mortgage
EQCC EquiCredit Corporation
FAMC Federal Agricultural Mortgage Corporation
FFCB Federal Farm Credit Bank
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
GMAC General Motors Acceptance Corporation
GNMA Government National Mortgage Association
HCLT Household Consumer Loan Trust
MLMI Merrill Lynch Mortgage Investors
MNB Maryland National Bank
PRAT Premier Auto Trust
RFMSI Residential Funding Mortgage Security I
RTC Resolution Trust Corporation
RV Revenue Bonds
SBA Small Business Administration
SD School District
V/R Variable rate
See Notes to Financial Statements CORE TRUST (DELAWARE)
149
(This page has been left blank intentionally.)
150
SCHRODER CAPITAL FUNDS
ANNUAL REPORT
MAY 31, 1998
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
SCHRODER GLOBAL GROWTH PORTFOLIO
SCHRODER EM CORE PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS MAY 31, 1998
- --------------------------------------------------------------------------------
To Trustees and Investors of Schroder Capital Funds
In our opinion, the accompanying statements of assets and
liabilities, including the schedules of investments, and
related statements of operations and of changes in net assets
and the financial highlights present fairly, in all material
respects, the financial position of three portfolios of
Schroder Capital Funds: Schroder U.S. Smaller Companies
Portfolio, Schroder Global Growth Portfolio and Schroder EM
Core Portfolio (collectively the "Portfolios"), at May 31,
1998, the results of their operations, the changes in their
net assets and the financial highlights for each of the
periods indicated therein, in conformity with generally
accepted accounting principles. These financial statements and
financial highlights (herein referred to as "financial
statements") are the responsibility of the Portfolios'
management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with
generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at May
31, 1998, by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 21, 1998
SCHRODER CAPITAL FUNDS
152
STATEMENTS OF ASSETS AND LIABILITIES MAY 31, 1998
- --------------------------------------------------------------------------------
SCHRODER SCHRODER
U.S. SMALLER GLOBAL SCHRODER
COMPANIES GROWTH EM CORE
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ----------- ------------
ASSETS:
Investments (Note 2):
Investments at cost........................... $292,812,680 $2,333,587 $ 26,482,507
Net unrealized appreciation (depreciation).... 39,290,499 216,577 (2,346,374)
------------- ----------- ------------
TOTAL INVESTMENTS AT VALUE........................ 332,103,179 2,550,164 24,136,133
Cash and cash equivalents (Note 2).............. 19,665,550 604,726 2,606,408
Receivable for securities sold.................. 5,128,850 - 71,010
Receivable for forward foreign currency
contracts, net (Note 2)....................... - 6,062 -
Receivable from administrator (Notes 3 and 6)... - 71,973
Receivable for dividends, tax reclaims and
interest...................................... 140,278 7,886 139,532
Organization costs, net of amortization (Note
2)............................................ 16,078 851 859
------------- ----------- ------------
TOTAL ASSETS...................................... 357,053,935 3,241,662 26,953,942
------------- ----------- ------------
LIABILITIES:
Payable for securities purchased................ 975,262 8,947 131,306
Payable to adviser (Note 3)..................... 184,522 - 13,351
Payable to other related parties (Note 3)....... 90,730 69,209 78,277
Accrued expenses and other liabilities.......... - 974 973
------------- ----------- ------------
TOTAL LIABILITIES................................. 1,250,514 79,130 223,907
------------- ----------- ------------
NET ASSETS........................................ $355,803,421 $3,162,532 $ 26,730,035
------------- ----------- ------------
------------- ----------- ------------
See Notes to Financial Statements. SCHRODER CAPITAL FUNDS
153
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
SCHRODER U.S.
SMALLER SCHRODER SCHRODER
COMPANIES GLOBAL GROWTH EM CORE
PORTFOLIO PORTFOLIO(a) PORTFOLIO(b)
------------- ------------- -------------
INVESTMENT INCOME:
Dividend income(c).................... $ 1,309,477 $ 15,815 $ 282,910
Interest income....................... 709,293 17,416 153,053
------------- ------------- -------------
TOTAL INVESTMENT INCOME................. 2,018,770 33,231 435,963
------------- ------------- -------------
EXPENSES:
Advisory (Note 3)..................... 1,419,439 8,177 155,546
Administration (Note 3)............... -- 2,453 15,555
Subadministration (Note 3)............ 177,430 15,685 14,658
Interestholder recordkeeping (Note
3).................................. 12,241 7,614 7,208
Custody............................... 30,609 17,419 105,578
Accounting (Note 3)................... 40,000 37,742 40,323
Legal................................. 31,723 342 3,435
Audit................................. 34,169 17,550 20,250
Trustees' fees........................ 6,999 60 599
Amortization of organization costs
(Note 2)............................ 5,017 123 115
Miscellaneous......................... 26,575 3,783 7,532
------------- ------------- -------------
TOTAL EXPENSES.......................... 1,784,202 110,948 370,799
Fees waived and expenses reimbursed
(Note 6)............................ - (97,061) (145,187)
------------- ------------- -------------
NET EXPENSES............................ 1,784,202 13,887 225,612
------------- ------------- -------------
NET INVESTMENT INCOME (LOSS)............ 234,568 19,344 210,351
------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
Net Realized Gain (Loss) from:
Securities............................ 6,355,034 (34,123) (490,158)
Foreign currency...................... - 3,791 (28,826)
------------- ------------- -------------
Net Realized Gain (Loss) from
Investments...................... 6,355,034 (30,332) (518,984)
Net Change in Unrealized Appreciation
(Depreciation) from:
Securities............................ 28,258,572 216,577 (2,346,374)
Foreign currency...................... - 6,630 (188)
------------- ------------- -------------
Net Change in Unrealized
Appreciation (Depreciation) from
Investments...................... 28,258,572 223,207 (2,346,562)
------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS....................... 34,613,606 192,875 (2,865,546)
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. $ 34,848,174 $ 212,219 $ (2,655,195)
------------- ------------- -------------
------------- ------------- -------------
(a) Commenced operations on October 15, 1997.
(b) Commenced operations on October 30, 1997.
(c) Net of unrecoverable foreign
withholding taxes of................... $ - $ 2,363 $ 24,069
See Notes to Financial Statements. SCHRODER CAPITAL FUNDS
154
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SCHRODER U.S. SCHRODER
SMALLER COMPANIES GLOBAL GROWTH
PORTFOLIO (a) PORTFOLIO (b)
------------------- ---------------
NET ASSETS, AUGUST 15, 1996.......................................................... $ - $ -
------------------- ---------------
------------------- ---------------
OPERATIONS:
Net investment income (loss)....................................................... 22,137 -
Net realized gain (loss) from investments sold..................................... 735,049 -
Net change in unrealized appreciation (depreciation) from investments.............. 2,952,095 -
------------------- ---------------
Net increase (decrease) in net assets resulting from operations.................... 3,709,281 -
------------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions...................................................................... 26,247,304 -
Withdrawals........................................................................ (1,027,108) -
------------------- ---------------
Net increase (decrease) from transactions in investors' beneficial interests....... 25,220,196 -
------------------- ---------------
Net increase (decrease) in net assets.............................................. 28,929,477 -
------------------- ---------------
NET ASSETS, OCTOBER 31, 1996......................................................... 28,929,477 -
------------------- ---------------
OPERATIONS:
Net investment income (loss)....................................................... 77,349 -
Net realized gain (loss) from investments sold..................................... 2,311,789 -
Net change in unrealized appreciation (depreciation) from investments.............. 8,079,833 -
------------------- ---------------
Net increase (decrease) in net assets resulting from operations.................... 10,468,971 -
------------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions...................................................................... 69,106,539 -
Withdrawals........................................................................ (5,119,729) -
------------------- ---------------
Net increase (decrease) from transactions in investors' beneficial interests....... 63,986,810 -
------------------- ---------------
Net increase (decrease) in net assets.............................................. 74,455,781 -
------------------- ---------------
NET ASSETS, MAY 31, 1997............................................................. 103,385,258 -
------------------- ---------------
OPERATIONS:
Net investment income (loss)....................................................... 234,568 19,344
Net realized gain (loss) from investments sold..................................... 6,355,034 (30,332)
Net change in unrealized appreciation (depreciation) from investments.............. 28,258,572 223,207
------------------- ---------------
Net increase (decrease) in net assets resulting from operations.................... 34,848,174 212,219
------------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions...................................................................... 228,163,060 3,070,201
Withdrawals........................................................................ (10,593,071) (119,888)
------------------- ---------------
Net increase (decrease) from transactions in investors' beneficial interests....... 217,569,989 2,950,313
------------------- ---------------
Net increase (decrease) in net assets.............................................. 252,418,163 3,162,532
------------------- ---------------
NET ASSETS, MAY 31, 1998............................................................. $ 355,803,421 $ 3,162,532
------------------- ---------------
------------------- ---------------
SCHRODER
EM CORE
PORTFOLIO(c)
-------------
NET ASSETS, AUGUST 15, 1996.......................................................... $ -
-------------
-------------
OPERATIONS:
Net investment income (loss)....................................................... -
Net realized gain (loss) from investments sold..................................... -
Net change in unrealized appreciation (depreciation) from investments.............. -
-------------
Net increase (decrease) in net assets resulting from operations.................... -
-------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions......................................................................
Withdrawals........................................................................ -
-------------
Net increase (decrease) from transactions in investors' beneficial interests....... -
-------------
Net increase (decrease) in net assets.............................................. -
-------------
NET ASSETS, OCTOBER 31, 1996......................................................... -
-------------
OPERATIONS:
Net investment income (loss)....................................................... -
Net realized gain (loss) from investments sold..................................... -
Net change in unrealized appreciation (depreciation) from investments.............. -
-------------
Net increase (decrease) in net assets resulting from operations.................... -
-------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions......................................................................
Withdrawals........................................................................
-------------
Net increase (decrease) from transactions in investors' beneficial interests....... -
-------------
Net increase (decrease) in net assets.............................................. -
-------------
NET ASSETS, MAY 31, 1997............................................................. -
-------------
OPERATIONS:
Net investment income (loss)....................................................... 210,351
Net realized gain (loss) from investments sold..................................... (518,984)
Net change in unrealized appreciation (depreciation) from investments.............. (2,346,562)
-------------
Net increase (decrease) in net assets resulting from operations.................... (2,655,195)
-------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions...................................................................... 39,419,804
Withdrawals........................................................................ (10,034,574)
-------------
Net increase (decrease) from transactions in investors' beneficial interests....... 29,385,230
-------------
Net increase (decrease) in net assets.............................................. 26,730,035
-------------
NET ASSETS, MAY 31, 1998............................................................. $26,730,035
-------------
-------------
(a) Commenced operations on August 15, 1996.
(b) For the period October 15, 1997 (commencement of operations) through May 31,
1998.
(c) For the period October 30, 1997 (commencement of operations) through May 31,
1998.
See Notes to Financial Statements. SCHRODER CAPITAL FUNDS
155
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
RATIO TO AVERAGE
NET ASSETS (a)
---------------------------------------------
NET AVERAGE
INVESTMENT GROSS PORTFOLIO COMMISSION
INCOME (LOSS) NET EXPENSES EXPENSES TURNOVER RATE RATE (b)
------------- ------------- ------------- ------------- -------------
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------
June 1, 1997 to May 31, 1998.......... 0.10% 0.75% 0.75% 54.98% $0.0582
November 1, 1996 to May 31, 1997...... 0.22% 0.85% 0.95% 34.45% 0.0584
August 15, 1996(c) to October 31,
1996................................ 0.50% 0.85% 1.31% 17.30% 0.0562
SCHRODER GLOBAL GROWTH PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------
October 15, 1997(c) to May 31, 1998... 1.18% 0.85% 6.81% 13.82% $0.0355
SCHRODER EM CORE PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------
October 30, 1997(c) to May 31, 1998... 1.35% 1.45% 2.38% 22.97% $0.0039
(a) Annualized.
(b) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities on which commissions are charged.
(c) Commencement of operations.
See Notes to Financial Statements. SCHRODER CAPITAL FUNDS
156
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Schroder Capital Funds ("Schroder Core") was organized as a Delaware business
trust on September 7, 1995. Schroder Core, which is registered as an open-end,
management investment company under the Investment Company Act of 1940 (the
"Act"), currently has eight investment portfolios. Included in this report are
Schroder U.S. Smaller Companies Portfolio, Schroder Global Growth Portfolio and
Schroder EM Core Portfolio (each a "Portfolio" and collectively the
"Portfolios"). Schroder U.S. Smaller Companies Portfolio is a diversified
portfolio that commenced operations on August 15, 1996. Schroder Global Growth
Portfolio and Schroder EM Core Portfolio are non-diversified portfolios that
commenced operations on October 15, 1997 and October 30, 1997, respectively.
Under its Trust Instrument, Schroder Core is authorized to issue an unlimited
number of interests without par value. Interests in the Portfolios are sold in
private placement transactions without any sales charges to qualified investors,
including open-end, management investment companies.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, that require management to make certain estimates and
assumptions which affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates. The following summarizes the significant accounting policies of the
Portfolios:
SECURITY VALUATION--Portfolio securities listed on recognized stock exchanges
are valued at the last reported sale price on the exchange on which the
securities are principally traded. Listed securities traded on recognized stock
exchanges where last sale prices are not available are valued at the last sale
price on the preceding trading day or at closing mid-market prices. Securities
traded in over-the-counter markets, or listed securities for which no trade is
reported on the valuation date, are valued at the most recent reported
mid-market price. Prices used for valuations generally are provided by
independent pricing services. Domestic short-term investments, having a maturity
of 60 days or less, generally are valued at amortized cost which approximates
market value. Foreign currency denominated short-term investments are valued at
local amortized cost and then translated into U.S. dollars. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith using methods approved by the Schroder Core
Board of Trustees. Fair valued securities represented approximately 1.07% of the
Schroder EM Core Portfolio's total investments at May 31, 1998.
CASH EQUIVALENTS--The Portfolios consider all balances and the related interest
income in money market sweep vehicles to be cash equivalents.
SECURITY TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
accounted for on trade date. Dividend income is recorded on ex-dividend date.
With respect to dividends on foreign securities, certain instances may arise
where a Portfolio is not notified of a dividend until after the ex-dividend date
has passed. In these instances a dividend is recorded as soon as the Portfolio
is informed of the dividend. Dividend income is recorded net of unrecoverable
withholding tax. Interest income, including amortization of discount or premium,
is recorded as earned. Identified cost of investments sold is used to determine
realized gain and loss for both financial statement and federal income tax
purposes. Foreign dividend and interest income amounts and realized capital gain
and loss are converted to U.S. dollar equivalents using foreign exchange rates
in effect at the date of the transactions.
Foreign currency amounts are translated into U.S. dollars at the mean of the bid
and asked prices of such currencies against U.S. dollars as follows: (i) assets
and liabilities at the rate of exchange at the end of the respective period; and
(ii) purchases and sales of securities and income and expenses at the rate of
exchange prevailing on the dates of such transactions. The portion of the
results of operations arising from changes in the exchange rates and the portion
due to fluctuations arising from changes in the market prices of securities are
not isolated. Such fluctuations are included with the net realized and
unrealized gain or loss on investments.
The Schroder Global Growth Portfolio and Schroder EM Core Portfolio may enter
into forward contracts to purchase or sell foreign currencies to protect the
U.S. dollar value of the underlying portfolio against the effect of possible
adverse movements in foreign exchange rates. Risks associated with such
contracts include the movement in value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform. Fluctuations in the
value of such contracts are recorded daily as unrealized gain or loss; realized
gain or loss includes net gain or loss on contracts that have terminated by
settlement or by the Portfolios entering into offsetting commitments.
REPURCHASE AGREEMENTS--The Portfolios may invest in repurchase agreements. The
Portfolios through their custodian, receive delivery of the underlying
collateral, whose market value must always equal or exceed the repurchase price.
The investment adviser is responsible for determining the value of the
underlying collateral at all times. In the event of default, the Portfolios may
have difficulties with the disposition of any securities held as collateral.
EXPENSE ALLOCATION--Schroder Core accounts separately for the assets and
liabilities and operation of each Portfolio. Expenses that are directly
attributable to more than one Portfolio are allocated among the respective
Portfolios in proportion to each Portfolio's net assets.
ORGANIZATIONAL COSTS--Costs incurred by each Portfolio in connection with its
organization are amortized on a straight line basis over a five-year period.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER--Schroder Capital Management International Inc. ("SCMI") is
the investment adviser to each of the Portfolios. Pursuant to an Investment
Advisory Agreement, SCMI is entitled to receive from Schroder U.S. Smaller
Companies Portfolio, Schroder Global Growth Portfolio and Schroder EM Core
Portfolio an annual fee, payable monthly, of 0.60%, 0.50% and 1.00%,
respectively, of each Portfolio's average daily net assets.
SCHRODER CAPITAL FUNDS
157
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES (CONCLUDED)
ADMINISTRATOR AND SUBADMINISTRATOR--On behalf of the Portfolios, Schroder Core
has entered into an Administration Agreement with Schroder Fund Advisors Inc.
("SFA") which entitles SFA to receive from Schroder Global Growth Portfolio and
Schroder EM Core Portfolio an annual fee, payable monthly, at a rate of 0.15%
and 0.10%, respectively, of each Portfolio's average daily net assets. In
addition, Schroder Core has entered into a Subadministration Agreement with
Forum Administrative Services, LLC ("FAdS") under which FAdS is entitled to
receive from Schroder U.S. Smaller Companies Portfolio, Schroder Global Growth
Portfolio and Schroder EM Core Portfolio an annual fee, payable monthly, of
0.075% of each Portfolio's average daily net assets subject to an annual minimum
of $25,000.
OTHER SERVICE PROVIDERS--Forum Accounting Services, LLC ("FAcS") performs
portfolio accounting services for the Schroder U.S. Smaller Companies Portfolio,
Schroder Global Growth Portfolio and Schroder EM Core Portfolio and is entitled
to receive compensation for those services in the amounts of $36,000, $60,000
and $60,000 per year, respectively, plus certain other charges, based upon the
number and types of portfolio transactions. FAcS also provides interestholder
recordkeeping services to the Portfolios for which it receives, from Schroder
Core, $12,000 per year per Portfolio plus certain other charges.
NOTE 4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of securities
(excluding short-term securities) for the period ended May 31, 1998 were as
follows:
COST OF PROCEEDS
PURCHASES FROM SALES
------------------ ------------------
Schroder U.S. Smaller Companies
Portfolio.............................. $ 321,269,356 $ 118,490,742
Schroder Global Growth Portfolio........ 2,816,305 448,595
Schroder EM Core Portfolio.............. 31,575,645 4,697,232
For federal income tax purposes, the tax basis of investment securities owned,
the aggregate gross unrealized appreciation and the aggregate gross unrealized
depreciation as of May 31, 1998 were as follows:
TAX UNREALIZED UNREALIZED NET APPRECIATION
BASIS APPRECIATION DEPRECIATION (DEPRECIATION)
------------------ ------------------ ------------------ ------------------
Schroder U.S. Smaller Companies
Portfolio.............................. $ 292,802,767 $ 54,156,312 $ 14,855,900 $ 39,300,412
Schroder Global Growth Portfolio........ 2,333,656 359,016 142,508 216,508
Schroder EM Core Portfolio.............. 26,526,803 1,321,048 3,711,718 (2,390,670)
NOTE 5. FEDERAL TAXES
The Portfolios are not required to pay federal income taxes on their net
investment income and net capital gain as they are treated as partnerships for
federal income tax purposes. All interest, dividends, gain and loss of the
Portfolios are deemed to have been "passed through" to the interestholders in
proportion to their holdings of the Portfolios, regardless of whether such
interest, dividends or gain have been distributed by the Portfolios.
Under the applicable foreign tax law, a withholding tax may be imposed on
interest, dividends, and capital gains at various rates.
SCHRODER CAPITAL FUNDS
158
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
NOTE 6. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
For the period ended May 31, 1998, Schroder Core's service providers voluntarily
waived and/or reimbursed the following fees or expenses:
EXPENSES
FEES WAIVED REIMBURSED
------------------------------- ------------------
SCMI SFA FAdS SFA
-------- ------ ------- ------------------
Schroder Global Growth Portfolio........ $ 8,177 $ 2,453 $ 14,458 $ 71,973
Schroder EM Core Portfolio.............. 142,195 -- 2,992 --
NOTE 7. CONCENTRATION OF RISK
Schroder Global Growth Portfolio and Schroder EM Core Portfolio may invest more
than 25% of their total assets in issuers located in any one country. To the
extent that they do so, the Portfolios are susceptible to a range of factors
that could adversely affect that country, including political and economic
developments and foreign exchange-rate fluctuations. As a result of investing
substantially in one country, the value of a Portfolio's assets may fluctuate
more widely than the value of shares of a comparable fund with a lesser degree
of geographic concentration. Schroder Global Growth Portfolio and Schroder EM
Core Portfolio invest in countries with limited or developing capital markets.
Investments in these markets may involve greater risks than investments in more
developed markets.
SCHRODER CAPITAL FUNDS
159
SCHEDULES OF INVESTMENTS MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
- - -----------------------------------------------------------------
COMMON STOCK (93.3%)
BASIC MATERIALS (3.1%)
98,250 AMCOL International Corp. $ 1,350,938
110,200 Ball Corp. 4,346,013
87,500 Ferro Corp. 2,504,688
118,300 Galey & Lord, Inc.(a) 2,927,925
---------------
11,129,564
---------------
CAPITAL GOODS/CONSTRUCTION (6.8%)
69,800 Aeroquip-Vickers, Inc. 4,310,150
159,200 Aftermarket Technology Corp.(a) 2,726,300
128,600 Donaldson Co., Inc. 2,805,088
58,800 Essex International, Inc.(a) 1,444,275
92,200 Harsco Corp. 4,022,225
97,000 Tracor, Inc.(a) 3,831,500
111,400 Triangle Pacific Corp.(a) 4,915,530
---------------
24,055,068
---------------
CONSUMER CYCLICAL (22.7%)
126,000 800-JR CIGAR, Inc.(a) 2,504,250
96,300 American Italian Pasta Co.(a) 3,454,763
140,500 Bally Total Fitness Holding Corp.(a) 4,531,125
102,900 Blyth Industries, Inc.(a) 3,157,744
39,200 Ethan Allen Interiors, Inc. 1,972,250
175,950 Fossil, Inc.(a) 3,403,540
83,300 Furniture Brands International, Inc.(a) 2,457,350
124,600 Interface, Inc. 4,882,763
121,900 Knoll, Inc.(a) 3,847,472
138,600 Media Arts Group, Inc.(a) 2,694,038
217,900 Musicland Stores Corp.(a) 3,145,931
54,000 Pier 1 Imports, Inc. 1,299,375
196,200 Pillowtex Corp. 9,172,350
51,337 Promus Hotel Corp.(a) 2,220,325
174,600 ResortQuest International, Inc.(a) 2,651,738
52,450 Robert Half International, Inc.(a) 2,655,281
84,300 Ross Stores, Inc. 3,719,738
188,475 Sonic Corp.(a) 3,899,077
92,400 Stage Stores, Inc.(a) 4,308,150
138,000 Stanley Furniture Co., Inc.(a) 2,794,500
106,200 Trans World Entertainment Corp.(a) 3,836,475
102,500 Trendwest Resorts, Inc.(a) 1,819,375
188,200 WestPoint Stevens, Inc.(a) 6,163,550
---------------
80,591,160
---------------
CONSUMER STAPLES (5.9%)
80,800 Earthgrains Co. 4,267,250
57,200 Henry Schein, Inc.(a) 2,202,200
76,900 International Home Foods, Inc.(a) 2,085,913
142,200 Keebler Foods Co.(a) 4,132,687
93,600 Landry's Seafood Restaurants, Inc.(a) 2,120,630
80,100 Richfood Holdings, Inc. 1,957,444
69,300 Suiza Foods Corp.(a) 4,049,717
---------------
20,815,841
---------------
ENERGY (6.2%)
32,600 Atwood Oceanics, Inc.(a) 1,687,050
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO (continued)
- - -----------------------------------------------------------------
COMMON STOCK (continued)
ENERGY (continued)
94,700 B.J. Service Co.(a) $ 3,095,506
50,800 Cooper Cameron Corp.(a) 3,022,600
85,000 Kuhlman Corp. 3,591,250
178,672 Ocean Energy, Inc.(a) 3,584,607
99,300 Tosco Corp. 3,152,775
148,900 Varco International, Inc.(a) 3,880,705
---------------
22,014,493
---------------
FINANCIAL (11.8%)
182,900 Allied Capital Corp. 4,435,325
116,400 AmerUs Life Holdings, Inc. 3,724,800
34,600 Annuity & Life Re Holdings(a) 789,312
73,800 Bank United Corp. 3,690,000
58,200 CMAC Investment Corp. 3,521,100
73,975 Commercial Federal Corp. 2,464,292
50,200 Cullen/Frost Bankers, Inc. 2,720,213
47,200 Duff & Phelps Credit Rating Co. 2,714,000
77,700 FBL Financial Group, Inc. 2,180,455
65,500 Fremont General Corp. 3,745,781
62,600 HealthCare Financial Partners, Inc.(a) 3,075,225
80,600 Mutual Risk Management Ltd. 2,826,038
89,150 North Fork BanCorp, Inc. 2,145,172
82,639 Patriot American Hospitality, Inc. 1,978,176
99,900 Waddell & Reed Financial, Inc. 2,310,187
---------------
42,320,076
---------------
HEALTH CARE (6.1%)
142,100 Centennial HealthCare Corp.(a) 2,966,337
112,500 Coventry Health Care, Inc.(a) 1,631,250
32,000 Express Scripts, Inc.(a) 2,462,000
156,700 Haemonetics Corp.(a) 2,389,675
69,600 Health Care & Retirement Corp.(a) 2,692,650
135,500 Invacare Corp. 3,573,813
74,500 Matria Healthcare, Inc.(a) 302,656
43,800 PSS World Medical, Inc.(a) 547,500
85,300 Protein Design Labs, Inc.(a) 2,143,163
106,400 Wesley Jessen VisionCare, Inc.(a) 2,872,800
---------------
21,581,844
---------------
TECHNOLOGY (9.6%)
171,900 Antec Corp.(a) 3,292,966
100,300 EG&G, Inc. 3,159,450
70,900 Dallas Semiconductor Corp. 2,388,443
112,700 Evans & Sutherland Computer Corp.(a) 2,831,588
151,600 INTERSOLV(a) 2,179,250
270,100 MAPICS, Inc.(a) 4,760,513
149,500 MicroTouch Systems, Inc.(a) 2,392,000
205,900 Pairgain Technologies, Inc.(a) 3,217,188
31 Structural Dynamics Research Corp.(a) 785
118,500 Symbol Technologies, Inc. 4,169,718
60,500 Thomas & Betts Corp. 3,232,969
108,400 Wang Laboratories, Inc.(a) 2,601,600
---------------
34,226,470
---------------
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
160
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -------------------------------------------------------------------------
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO (concluded)
- - -------------------------------------------------------------------------
COMMON STOCK (continued)
TRANSPORTATION/SERVICES/MISCELLANEOUS (21.1%)
99,300 Alexandria Real Estate Equities, Inc. $ 3,146,567
100,400 Atlas Air, Inc.(a) 3,551,650
102,500 C.H. Robinson Worldwide, Inc. 2,370,312
71,300 CNF Transportation, Inc. 2,927,756
7,700 CORT Business Services Corp.(a) 301,261
161,400 Career Education Corp.(a) 4,014,824
20,000 Cavanaughs Hospitality Corp.(a) 273,750
121,950 Comair Holdings, Inc. 3,246,919
128,800 Cornell Corrections, Inc.(a) 2,833,600
102,400 Eastern Environmental Services, Inc.(a) 2,918,400
177,800 Group Maintenance America Corp.(a) 3,333,750
181,100 Ha-Lo Industries, Inc.(a) 5,602,780
112,400 INSpire Insurance Solutions, Inc.(a) 3,674,075
161,800 Ivex Packaging Corp.(a) 3,751,737
80,900 Jacor Communications, Inc.(a) 4,277,588
942,600 Laidlaw Environmental Services, Inc.(a) 3,652,575
83,800 Mac-Gray Corp.(a) 1,204,625
134,700 Manufactured Home Communities, Inc. 3,359,081
161,700 Mesaba Holdings, Inc.(a) 3,516,975
168,800 RCM Technologies, Inc.(a) 3,502,600
83,900 RemedyTemp, Inc.(a) 2,443,588
161,300 Select Appointments Holdings Public Ltd.
Co. 4,657,537
107,300 StaffMark, Inc.(a) 3,943,275
93,500 Superior Services, Inc.(a) 2,863,438
---------------
75,368,663
---------------
TOTAL INVESTMENTS (93.3%)
(COST $292,812,680) 332,103,179
OTHER ASSETS LESS LIABILITIES (6.7%) 23,700,242
---------------
TOTAL NET ASSETS (100.0%) $ 355,803,421
---------------
---------------
- - -----------------------------------------------------------------
SCHRODER GLOBAL GROWTH PORTFOLIO
- - -----------------------------------------------------------------
AUSTRALIA (2.1%)
COMMON STOCK
3,000 Australia & New Zealand Banking Group
Ltd.
FINANCE $ 21,308
1,000 Brambles Industries Ltd.
SERVICES 20,293
6,000 Foster's Brewing Group Ltd.
CONSUMER NON-DURABLES 13,040
2,000 Woodside Petroleum Ltd.
MATERIALS 11,499
---------------
66,140
---------------
BELGIUM (0.3%)
COMMON STOCK
41 Grupo Bruxelles Lambert
FINANCE 9,016
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER GLOBAL GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
CANADA (4.8%)
COMMON STOCK
1,690 Amber Energy, Inc.
ENERGY $ 16,551
2,000 Inco Ltd.
MATERIALS 20,550
1,310 National Bank of Canada
FINANCE 26,740
640 Northern Telecom Ltd.
SERVICES 41,039
930 Precision Drilling Corp.
ENERGY 19,495
3,530 Stelco, Inc.
MATERIALS 28,871
---------------
153,246
---------------
CHILE, REPUBLIC OF (0.5%)
COMMON STOCK
670 Compania de Telecomunicacion de Chile SA
ADR
SERVICES 14,866
---------------
FRANCE (11.0%)
COMMON STOCK
200 Accor SA
SERVICES 54,857
125 Alcatel Alsthom
CAPITAL EQUIPMENT 26,744
320 Canal Plus
SERVICES 58,087
220 Elf Aquitaine
ENERGY 30,558
250 Groupe Danone
CONSUMER NON-DURABLES 67,318
350 Suez Lyonnaise des Eaux
MULTI-INDUSTRY 59,730
250 Vivendi
MULTI-INDUSTRY 50,228
---------------
347,522
---------------
GERMANY (8.3%)
COMMON STOCK
145 Allianz AG
FINANCE 45,872
640 Deutsche Bank AG
FINANCE 55,140
500 Fresenius Medical Care AG
MATERIALS 33,206
1,220 Hoechst AG
MATERIALS 60,904
69 Mannesmann AG
CAPITAL EQUIPMENT 67,537
---------------
262,659
---------------
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
161
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER GLOBAL GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
ITALY (3.7%)
COMMON STOCK
35,040 Banca di Roma(a)
FINANCE $ 72,302
5,920 Telecom Italia SpA
SERVICES 44,767
---------------
117,069
---------------
JAPAN (7.8%)
COMMON STOCK
1,000 Bridgestone Corp.
MATERIALS 22,805
1,000 Credit Saison Co. Ltd.
FINANCE 20,063
1,000 Fuji Photo Film Co.
CAPITAL EQUIPMENT 33,847
2,000 Matsushita Electric Industrial Co. Ltd.
CAPITAL EQUIPMENT 31,321
2,000 Mitsui Fudosan Co. Ltd.
FINANCE 16,180
2,000 Sekisui House Ltd.
SERVICES 14,795
2,000 Takeda Chemical Industries
CONSUMER DURABLES 51,673
8,000 Teijin Ltd.
MATERIALS 24,133
1,000 Yamatake-Honeywell Co. Ltd.
CAPITAL EQUIPMENT 10,104
5,000 Yasuda Fire & Marine Insurance
SERVICES 21,578
---------------
246,499
---------------
KOREA, REPUBLIC OF (1.0%)
COMMON STOCK
3,000 Daewoo Heavy Industries
CAPITAL EQUIPMENT 10,295
1,100 LG Electronics
CONSUMER DURABLES 10,317
325 Samsung Electronics Co.
CONSUMER DURABLES 12,353
---------------
32,965
---------------
MEXICO (0.8%)
COMMON STOCK
5,000 Grupo Carso SA de CV
MULTI-INDUSTRY 25,323
---------------
NETHERLANDS (7.2%)
COMMON STOCK
2,870 ABN Amro Holdings NV
SERVICES 69,568
460 Aegon NV
FINANCE 36,862
560 Baan Co. NV(a)
SERVICES 25,950
1,340 Gucci Group NV-NY Shares
CONSUMER NON-DURABLES 60,803
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER GLOBAL GROWTH PORTFOLIO (continued)
- - -----------------------------------------------------------------
NETHERLANDS (continued)
COMMON STOCK (continued)
350 Philips Electronics NV
CAPITAL EQUIPMENT $ 33,290
---------------
226,473
---------------
SINGAPORE (0.9%)
COMMON STOCK
2,600 Development Bank of Singapore Ltd.(a)
FINANCE 15,687
1,552 Singapore Press Holdings Ltd.
SERVICES 12,702
---------------
28,389
---------------
SPAIN (3.6%)
COMMON STOCK
3,110 Endesa SA
ENERGY 74,608
851 Telefonica SA
SERVICES 38,075
---------------
112,683
---------------
SWEDEN (1.5%)
COMMON STOCK
1,130 Svenska Handelsbanken
SERVICES 47,619
RIGHTS
1,130 Fastighets AB Balder(a)
SERVICES 1,097
---------------
48,716
---------------
SWITZERLAND (2.8%)
COMMON STOCK
41 Nestle SA
CONSUMER NON-DURABLES 87,984
---------------
UNITED KINGDOM (9.1%)
COMMON STOCK
4,950 British Energy plc
ENERGY 45,609
3,590 Cable & Wireless plc
SERVICES 40,572
4,140 EMI Group plc
CONSUMER NON-DURABLES 34,972
3,570 Enterprise Oil plc
ENERGY 33,039
3,140 Lloyds TSB Group plc
FINANCE 45,548
5,510 LucasVarity plc
CAPITAL EQUIPMENT 24,261
8,600 Rolls-Royce plc(a)
CAPITAL EQUIPMENT 40,917
595 Zeneca Group plc
CONSUMER DURABLES 24,151
---------------
289,069
---------------
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
162
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -------------------------------------------------------------------------
SCHRODER GLOBAL GROWTH PORTFOLIO (concluded)
- - -------------------------------------------------------------------------
UNITED STATES OF AMERICA (15.2%)
COMMON STOCK
240 Allstate Corp.
SERVICES $ 22,590
320 American Home Products Corp.
CONSUMER NON-DURABLES 15,460
275 American International Group, Inc.
FINANCE 34,048
260 BankAmerica Corp.
FINANCE 21,499
230 Bristol-Myers Squibb Co.
CONSUMER NON-DURABLES 24,725
375 Cisco Systems, Inc.
CONSUMER DURABLES 28,359
503 Federal Home Loan Mortgage Corp.
FINANCE 22,887
585 Gap, Inc.
CONSUMER DURABLES 31,590
290 General Electric Co.
CONSUMER DURABLES 24,179
420 McGraw-Hill Cos., Inc.
SERVICES 32,838
200 Merck & Co., Inc.
CONSUMER NON-DURABLES 23,413
370 Procter & Gamble Co.
CONSUMER NON-DURABLES 31,057
700 Rite Aid Corp.
CONSUMER NON-DURABLES 25,068
430 Sun Microsystems, Inc.
CONSUMER DURABLES 17,227
310 Textron, Inc.
CAPITAL EQUIPMENT 22,998
405 Travelers Group, Inc.
SERVICES 24,705
325 United Technologies Corp.
CAPITAL EQUIPMENT 30,550
420 Wal-Mart Stores, Inc.
CONSUMER NON-DURABLES 23,178
245 Xerox Corp.
CAPITAL EQUIPMENT 25,174
---------------
481,545
---------------
TOTAL INVESTMENTS (80.6%)
(COST $2,333,587) 2,550,164
OTHER ASSETS LESS LIABILITIES (19.4%) 612,368
---------------
TOTAL NET ASSETS (100.0%) $ 3,162,532
---------------
---------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
CONTRACT TO SELL
CONTRACT UNDERLYING FACE UNREALIZED
DATE CURRENCY UNITS AMOUNT OF VALUE APPRECIATION
- - --------- ------------ --------- --------------- ------------
6/19/98 Japanese Yen 11,500,000 $(82,990) $6,740
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO
- - -----------------------------------------------------------------
ARGENTINA (3.7%)
COMMON STOCK
40,100 Astra Cia Argentina de Petroleo SA
ENERGY $ 65,797
3,877 Banco de Galicia y Buenos Aires SA de CV
ADR
FINANCE 79,478
8,500 Compania Naviera Perez Companc SA
ENERGY 47,113
3,200 Cresud SA ADR(a)
CONSUMER NON-DURABLES 57,000
900 Disco SA ADR(a)
CONSUMER NON-DURABLES 31,163
17,100 IRSA Inversiones y Representaciones S.A.
FINANCE 60,905
3,500 Telecom Argentina ADR
SERVICES 108,500
5,700 Telefonica de Argentina SA ADR
SERVICES 185,607
11,100 YPF Sociedad Anonima ADR
ENERGY 344,794
---------------
980,357
---------------
BOTSWANA (0.5%)
COMMON STOCK
90,000 Sechaba Ord
CONSUMER NON-DURABLES 144,860
---------------
BRAZIL (14.5%)
COMMON STOCK
7,800 Aracruz Celulose SA ADR
SERVICES 105,300
24,300 Centrais Electricas Brasileiras SA
Electrobras
ENERGY 433,104
200,000 Cia Cimento Portland Itau
MATERIALS 36,515
10,769 Cia Ener de Minas Gerais ADR
ENERGY 352,525
11,200 Companhia Brasileira de Distribuicao
Grupo Pao de Acucar
CONSUMER NON-DURABLES 261,800
7,800 Companhia Paranaense de Energia-Copel
ENERGY 77,512
12,400 Petrol Brasileiro SA--Petrobas
ENERGY 242,570
8,400 Telecomunicacoes Brasileiras SA Telebras
ADR
SERVICES 895,650
1,040,000 Telecomunicacoes de Sao Paulp SA--Telesp
SERVICES 153,712
590,000 Telecomunicacoes do Parana SA--Telepar
SERVICES 212,875
590,000 Telepar Tel Parana(a)
SERVICES 80,021
1,040,000 Telesp Tel Sao(a)
SERVICES 62,380
8,300 Unibanco-Uniao Banco
FINANCE 259,894
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
163
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (continued)
- - -----------------------------------------------------------------
BRAZIL (continued)
PREFERRED STOCK
108,000 Banco Itau SA PN
FINANCE $ 64,789
5,540,000 Centrais Eletricas Brasileiras SA
Electrobras
ENERGY 184,474
15,000 Companhia Vale do Rio Doce
ENERGY 306,473
770,000 Petrol Brasileiro--Petrobras
ENERGY 150,626
---------------
3,880,220
---------------
CHILE, REPUBLIC OF (3.9%)
COMMON STOCK
10,200 Banco BHIF
FINANCE 154,275
10,800 Chilectra SA
ENERGY 263,026
5,500 Compania Cervecerias Unidas SA
CONSUMER NON-DURABLES 132,000
13,200 Compania de Telecomunicacion de Chile SA
ADR
SERVICES 292,875
9,900 Distribucion y Servico
SERVICES 156,544
5,100 Quinenco SA ADR
SERVICES 48,450
---------------
1,047,170
---------------
CHINA, PEOPLES REPUBLIC OF (0.7%)
COMMON STOCK
6,000 Huaneng Power International, Inc. ADR(a)
ENERGY 104,250
120,000 Qingling Motors Co.
CAPITAL EQUIPMENT 47,232
9,000 Shanghai Industrial Holdings
MULTI-INDUSTRY 25,261
---------------
176,743
---------------
CZECH REPUBLIC (1.4%)
COMMON STOCK
2,970 SPT Telekom AS
SERVICES 381,976
---------------
EGYPT (0.6%)
COMMON STOCK
11,200 Commercial International Bank GDR
FINANCE 159,040
---------------
GREECE (4.1%)
COMMON STOCK
2,250 Alfa Credit Bank
FINANCE 234,937
2,430 Delta Informatics SA
SERVICES 106,936
9,400 Hellenic Bottling Co. SA
CONSUMER NON-DURABLES 314,876
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (continued)
- - -----------------------------------------------------------------
GREECE (continued)
COMMON STOCK (continued)
10,880 Hellenic Telecommunication Organization
SA
SERVICES $ 319,790
864 National Bank of Greece
FINANCE 124,407
---------------
1,100,946
---------------
HONG KONG (3.2%)
COMMON STOCK
244,000 Anhui Expressway Co. Ltd.
SERVICES 30,543
223,000 Beijing Datang Power
MULTI-INDUSTRY 78,420
38,000 Cheung Kong Infrastructure Holdings
CAPITAL EQUIPMENT 84,346
191,000 China Resources Beijing Land
FINANCE 88,735
18,000 China Resources Enterprise Ltd.
FINANCE 21,022
43,000 China Telecom (Hong Kong)(a)
SERVICES 76,855
10,000 Citic Pacific Ltd.
FINANCE 24,325
36,000 Cosco Pacific Ltd.
FINANCE 18,699
82,400 Founder Hong Kong Ltd.
CAPITAL EQUIPMENT 51,307
57,000 Guangdong Kelon Electrical Holdings Co.
Ltd.
CONSUMER DURABLES 54,434
44,000 Guangnan Holdings
CONSUMER NON-DURABLES 22,003
62,000 Guangshen Railway
SERVICES 8,561
64,000 Legend Holdings Ltd.(a)
CAPITAL EQUIPMENT 22,505
22,000 New World Development Co. Ltd.
MULTI-INDUSTRY 51,955
44,000 New World Infrastructure(a)
CAPITAL EQUIPMENT 77,790
29,000 Ng Fung Hong Ltd.
CONSUMER NON-DURABLES 24,700
460,000 Yanzhou Coal Mining Co. Ltd.(a)
ENERGY 94,980
125,000 Zhejiang Expressway Co. Ltd.
SERVICES 28,392
---------------
859,572
---------------
HUNGARY (3.4%)
COMMON STOCK
2,600 Gedeon Richter
CONSUMER NON-DURABLES 219,830
9,260 MOL Magyar Olaj GDR
ENERGY 211,822
10,460 Matav RT ADR
SERVICES 292,880
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
164
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (continued)
- - -----------------------------------------------------------------
HUNGARY (continued)
COMMON STOCK (continued)
4,600 OTP Bank GDR
FINANCE $ 192,050
---------------
916,582
---------------
INDIA (6.7%)
COMMON STOCK
4,000 BSES Ltd. GDR(a)
ENERGY 53,500
14,000 Grasim Industries Ltd. GDR
MATERIALS 108,850
23,500 Great Eastern Shipping Co. GDR
MULTI-INDUSTRY 131,013
8,000 Indian Hotels Co. Ltd. GDR(a)
SERVICES 88,500
9,000 Indian Petrochemicals GDR
MATERIALS 38,250
7,000 Larsen & Toubro GDR
MULTI-INDUSTRY 88,375
25,700 Mahanagar Telephone GDR(a)
SERVICES 326,070
18,000 Mahindra & Mahindra Ltd. GDR
CAPITAL EQUIPMENT 90,000
5,000 Ranbaxy Laboratories Ltd. GDR
MATERIALS 81,500
27,900 Reliance Industries Ltd. GDS
MATERIALS 207,157
22,000 State Bank of India GDR
FINANCE 305,250
550 Tata Electric Co. GDR(b)
ENERGY 126,445
11,500 Videsh Sanchar Nigam Ltd. GDR(a)
SERVICES 135,125
---------------
1,780,035
---------------
INDONESIA (1.2%)
COMMON STOCK
3,500 Gulf Indonesia Resources Ltd.(a)
ENERGY 43,532
15,000 PT Gudang Garam
CONSUMER NON-DURABLES 11,018
44,000 PT HM Sampoerna
CONSUMER NON-DURABLES 14,795
94,000 PT Indofoods Sukses Makmur
CONSUMER NON-DURABLES 13,102
29,000 PT Indostat ADR
SERVICES 38,367
149,000 PT Telekomunikasi Indonesia
SERVICES 49,447
TREASURY BILLS
138,994 Bank Indonesia Treasury Bill, 5.05%, due
6/1/98 138,994
---------------
309,255
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (continued)
- - -----------------------------------------------------------------
ISRAEL (4.9%)
COMMON STOCK
14,930 Bank Hapoalim Ltd.
FINANCE $ 45,880
290,300 Bank Leumi Le-Israel
FINANCE 586,256
18,970 Blue Square-Israel Ltd.
CONSUMER NON-DURABLES 275,065
9,600 Teva Pharmaceutical Industries Ltd. ADR
MATERIALS 393,600
---------------
1,300,801
---------------
KOREA, REPUBLIC OF (4.8%)
COMMON STOCK
17,000 Daewoo Heavy Industries
CAPITAL EQUIPMENT 58,337
26,323 Kookmin Bank(a)
FINANCE 129,978
6,000 Korea Electric Power Corp.
ENERGY 60,107
19,210 LG Electronics
CONSUMER DURABLES 180,158
3,000 LG Information & Communication Ltd.
CAPITAL EQUIPMENT 70,338
1,500 Pohang Iron & Steel Co. Ltd.(b)
MATERIALS 61,725
123 SK Telecom Co. Ltd.(b)
SERVICES 56,700
7,440 Samsung Display Devices Co.
CAPITAL EQUIPMENT 263,770
7,850 Samsung Electronics Co.
CONSUMER DURABLES 298,383
8,000 Samsung Heavy Industries(a)
CAPITAL EQUIPMENT 48,085
16,000 Shinhan Bank(a)
FINANCE 62,523
---------------
1,290,104
---------------
LUXEMBOURG (0.3%)
COMMON STOCK
9,400 Quilmes Industrial SA ADR
CONSUMER NON-DURABLES 90,475
---------------
MALAYSIA (0.7%)
COMMON STOCK
7,000 Berjaya Sports Toto Berhad
SERVICES 14,672
34,000 Magnum Corp. Berhad
SERVICES 17,884
18,000 Resorts World Berhad
SERVICES 27,887
18,000 Tanjong PLC
SERVICES 29,762
11,000 Telekom Malaysia Berhad
SERVICES 25,205
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
165
SCHEDULES OF INVESTMENTS (CONTINUED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (continued)
- - -----------------------------------------------------------------
MALAYSIA (continued)
COMMON STOCK (continued)
37,000 Tenaga Nasional Berhad
ENERGY $ 61,176
---------------
176,586
---------------
MAURITIUS (0.3%)
COMMON STOCK
135,000 State Bank of Mauritius Ltd.(a)
FINANCE 90,320
---------------
MEXICO (12.4%)
COMMON STOCK
120,000 Cemex SA
de CV
MATERIALS 494,782
228,000 Cifra SA de CV
SERVICES 318,104
37,000 Consorcio ARA S.A.(a)
CAPITAL EQUIPMENT 142,275
245,000 Controladora Comercial Mexicana SA de CV
SERVICES 240,108
20,200 Desc SA de CV
MULTI-INDUSTRY 113,648
9,600 Fomento Economico Mexica SA
de CV
CONSUMER NON-DURABLES 319,056
22,500 Grupo Carso SA de CV
MULTI-INDUSTRY 113,955
17,700 Grupo Financiero Banamax Accivl SA de
CV(a)
FINANCE 44,170
243,000 Grupo Financiero Bancomer
FINANCE 121,830
94,222 Grupo Industrial Bimbo SA
CONSUMER NON-DURABLES 207,340
35,000 Grupo Industrial Saltillo SA de CV
MATERIALS 127,043
6,400 Grupo Televisa SA(a)
SERVICES 250,000
66,000 Sistema Argos SA de CV
CONSUMER NON-DURABLES 63,335
8,400 TV Azteca SA de CV
SERVICES 121,275
11,300 Telefonos de Mexico SA ADS
SERVICES 536,044
6,000 Tubos de Acero de Mexico SA ADR
MATERIALS 89,625
RIGHTS
3,600 Cemex SA de CV(a)
MATERIALS 1,232
---------------
3,303,822
---------------
PAKISTAN (0.2%)
COMMON STOCK
4,800 Hub Power Co. Ltd.
ENERGY 45,600
---------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (continued)
- - -----------------------------------------------------------------
PERU (0.9%)
COMMON STOCK
5,800 CPT Telefonica del Peru SA ADS
SERVICES $ 125,425
7,370 Credicorp Ltd.
FINANCE 116,999
---------------
242,424
---------------
PHILIPPINES (1.8%)
COMMON STOCK
322,000 Ayala Land, Inc.
SERVICES 109,538
1,155,000 Digital Telecommunications Philippines,
Inc.(a)
SERVICES 46,853
37,000 Manila Electric Company
"B" Shares
ENERGY 109,242
8,000 Philippine Long Distance Telephone Co.
SERVICES 205,391
---------------
471,024
---------------
POLAND (2.3%)
COMMON STOCK
800 Bank Przemslowo-Handlowy SA
FINANCE 59,353
35,000 Elektrim Spolka Akcyjna SA
MULTI-INDUSTRY 460,183
14,000 WBK Ord
FINANCE 100,258
---------------
619,794
---------------
RUSSIA (2.4%)
COMMON STOCK
13,210 Gazprom ADR
ENERGY 184,611
4,010 Lukoil Holding ADR
ENERGY 165,118
8,200 Pliva DD GDR
MATERIALS 134,890
8,720 Unified Energy Systems
ENERGY 153,356
---------------
637,975
---------------
SOUTH AFRICA (9.2%)
COMMON STOCK
10,900 ABSA Group Ltd.
FINANCE 85,619
4,400 Anglo American Corp. of South Africa
Ltd.
FINANCE 210,784
3,000 Anglo American Industrial Corp.
MULTI-INDUSTRY 88,441
28,463 Barlow Ltd.
MULTI-INDUSTRY 233,236
7,180 Dimension Data Holdings Ltd.(a)
FINANCE 48,043
13,000 Ellerine Holdings Ltd.
CONSUMER DURABLES 111,191
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
166
SCHEDULES OF INVESTMENTS (CONCLUDED) MAY 31, 1998
- --------------------------------------------------------------------------------
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -----------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (continued)
- - -----------------------------------------------------------------
SOUTH AFRICA (continued)
COMMON STOCK (continued)
15,000 Fedsure Holdings Ltd.
FINANCE $ 230,993
180,900 FirstRand Ltd.
FINANCE 352,608
27,000 Ingwe Coal Corp.
ENERGY 95,306
26,700 LA Retail Stores Ltd.
CONSUMER DURABLES 84,408
78,000 Malbak Ltd.
MATERIALS 70,345
39,300 Nampak Ltd.
MATERIALS 137,200
22,800 Rembrandt Group Ltd.
MULTI-INDUSTRY 187,714
24,600 Sasol Ltd.
MULTI-INDUSTRY 195,617
9,200 South African Breweries Ltd.
MULTI-INDUSTRY 259,441
15,000 South African Druggists Ltd.
MATERIALS 78,549
---------------
2,469,495
---------------
TAIWAN (3.8%)
COMMON STOCK
26,000 Acer, Inc. GDR(a)
SERVICES 188,500
6,000 Asustek Computer, Inc.(a)
CAPITAL EQUIPMENT 110,251
7,000 Fubon Insurance Co. Ltd. GDR(a)
FINANCE 127,750
13,000 ROC Taiwan Fund
FINANCE 93,438
9,520 Siliconware Precision Industries Co.(a)
ENERGY 78,064
6,500 Taiwan Fund, Inc.
FINANCE 91,406
13,300 Taiwan Semiconductor Manufacturing
Co.(a)
ENERGY 251,038
8,000 Teco Electric & Machinery GDR
MULTI-INDUSTRY 86,800
---------------
1,027,247
---------------
THAILAND (1.1%)
COMMON STOCK
7,000 Advanced Info Service
Public Co. Ltd.
SERVICES 38,129
FACE/SHARE SECURITY
AMOUNT DESCRIPTION VALUE
- - -------------------------------------------------------------------------
SCHRODER EM CORE PORTFOLIO (concluded)
- - -------------------------------------------------------------------------
THAILAND (continued)
COMMON STOCK (continued)
28,000 Bangkok Bank Public Co. Ltd.
FINANCE $ 57,192
26,000 Electricity Generating
Public Co. Ltd.
ENERGY 41,843
12,000 PTT Exploration & Production Public Co.
Ltd.
ENERGY 103,987
31,000 Thai Farmers Bank Public Co. Ltd.
FINANCE 47,202
---------------
288,353
---------------
TURKEY (0.6%)
COMMON STOCK
3,324,675 Akbank T.A.S.
FINANCE 97,814
234,000 Netas Telekomunik(a)
CAPITAL EQUIPMENT 68,844
15,200 Turkiye Is Bankasi (Isbank)
FINANCE 617
---------------
167,275
---------------
VENEZUELA (0.5%)
COMMON STOCK
4,100 Compania Anonima
SERVICES 126,332
---------------
ZIMBABWE (0.2%)
COMMON STOCK
69,000 NMBZ Holdings Ltd.
FINANCE 51,750
---------------
TOTAL INVESTMENTS (90.3%)
(COST $26,482,507) 24,136,133
OTHER ASSETS LESS LIABILITIES (9.7%) 2,593,902
---------------
TOTAL NET ASSETS (100.0%) $ 26,730,035
---------------
---------------
(a) Non-income producing security.
(b) Valued pursuant to methodology approved by the Board of Trustees.
ADR--American Depositary Receipts
GDR--Global Depositary Receipts
GDS--Global Depositary Shares
See Notes to Financial Statements SCHRODER CAPITAL FUNDS
167
(This page has been left blank intentionally.)
168
(This page has been left blank intentionally.)
169
(This page has been left blank intentionally.)
170
Norwest Advantage Funds
733 Marquette Avenue
Minneapolis, MN 55479-0040
Bulk Rate
U.S. Postage
PAID
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Minneapolis, MN
Shareholders Services
Minneapolis/St. Paul 1-612-667-8833
Elsewhere 1-800-338-1348
Norwest Investment Management, Inc.
Investment Adviser
Norwest Bank Minnesota, N.A.
Transfer Agent
Custodian
Forum Financial Services, Inc.
Manager and Distributor
- - -C- 1998 NORWEST ADVANTAGE FUNDS 7/98
THIS REPORT IS FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND MAY BE DISTRIBUTED
TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
NORWEST ADVANTAGE FUNDS.
[LOGO] NORWEST ADVANTAGE FUNDS-Registered Trademark-
- -----END PRIVACY-ENHANCED MESSAGE-----
98
ANNUAL REPORT
February 28, 1998 Asset Allocation Fund
Bond Index Fund
Growth Stock Fund
LifePath 2000 Fund/R/
LifePath 2010 Fund/R/
LifePath 2020 Fund/R/
LifePath 2030 Fund/R/
LifePath 2040 Fund/R/
Money Market Fund
S&P 500 Stock Fund
Short-Intermediate Term Fund
US Treasury Allocation Fund
MASTERWORKS/R/ Funds
Advised by Barclays Global Fund Advisors
Sponsored and distributed by Stephens Inc.,
Member NYSE/SIPC
February 29, 1998 ANNUAL Report MASTERWORKS/R/ FUNDS
TABLE OF CONTENTS
Letter to Shareholders.................................................... 1
Masterworks(R) Market Overview............................................ 2
Managers Discussion and Analysis.......................................... 6
MASTERWORKS FUNDS INC.
Money Market Fund Portfolio of Investments............................... 24
Statement of Assets and Liabilities...................................... 26
Statement of Operations.................................................. 30
Statements of Changes in Net Assets...................................... 34
Financial Highlights..................................................... 42
Notes to the Financial Statements........................................ 51
Independent Auditors' Report............................................. 57
MASTER INVESTMENT PORTFOLIO AND MANAGED SERIES INVESTMENT TRUST PORTFOLIOS
OF INVESTMENTS
Asset Allocation Master Portfolio........................................ 59
Bond Index Master Portfolio.............................................. 79
Growth Stock Master Portfolio............................................ 83
LifePath Master Portfolios............................................... 90
S&P 500 Index Master Portfolio........................................... 172
Short-Intermediate Term Master Portfolio................................. 191
U.S. Treasury Allocation Master Portfolio................................ 193
MASTER INVESTMENT PORTFOLIO AND MANAGED SERIES
INVESTMENT TRUST
Statement of Assets and Liabilities...................................... 196
Statement of Operations.................................................. 200
Statements of Changes in Net Assets...................................... 204
Master Investment Portfolio Notes to the Financial Statements............ 212
Independent Auditors' Report............................................. 218
Managed Series Investment Trust Notes to the Financial Statements........ 219
Independent Auditors' Report............................................. 223
TO OUR SHAREHOLDERS
The year ended February 28, 1998, was another banner year for the domestic
equity markets and a year of strong returns for the bond markets. The rally
that began in 1991 for the equity markets is one of the longest sustained
rallies in history, and it remains to be seen whether the markets can continue
to rally during the current year. The domestic markets as a whole experienced
several dips. The most significant was a one day decline of more than 6% in the
Standard & Poor's 500 Index in October of 1997. But by February of 1998, the
domestic markets were once again closing at record highs.
. The U.S. stock market again led the way, posting returns of historic
proportions. As measured by the Standard & Poor's 500 Index, the U.S.
stock market returned 34.99%.
. The U.S. money market, as measured by 91-day U.S. Treasury bills,
returned 5.53%.
. The U.S. bond market, as measured by the Lehman Brothers
Government/Corporate Bond Index, returned 10.71%.
. Foreign stock markets, as measured by the Morgan Stanley Capital
International Europe/Australasian/Far East Index (MSCI/EAFE), returned
15.23%.
As we close the book on a year marked by volatility, investors should
remember their long-term investment goals when making investment decisions.
While one sector may look more appealing than others due to recent performance,
it is important to remember that past performance is not a predictor of future
returns. As market conditions change, you should maintain your long-term
investment strategy if it continues to be appropriate. A hallmark of successful
investors is that they stay focused on their personal financial goals and do
not change investment strategies solely on the basis of short-term market
swings.
The MasterWorks(R) Funds were conceived and managed to be a straightforward,
cost-effective way for you, the individual investor, to meet your long-term
investment goals. We trust the Funds are fulfilling your expectations and will
continue to do so. We appreciate your confidence and look forward to continuing
to help you meet your investment goals.
MASTERWORKS(R) FAMILY OF FUNDS APRIL 1998
1
MASTERWORKS(R) MARKET OVERVIEW: 12-MONTH PERIOD ENDING FEBRUARY 1998
U.S. EQUITY MARKETS
During the 12-month period ended February 28, 1998, the domestic stock market
continued its stellar performance, with the S&P 500 Index posting a total
return of 34.99% for the period. For the year ended December 31, 1997, the S&P
500 Index returned 33.36% and the Dow Jones Industrial Average rose by 22.64%.
These 1997 returns mark the first time that both the Dow and the S&P 500
achieved 20%-plus returns for three successive years. Once again, strong
economic growth, low inflation, and solid earnings growth drove these
impressive returns. This good news was tempered by two concerns that continue
to nag investors as they face 1998: whether there will be a spillover effect
from the economic crisis engulfing many Asian markets and whether the current
bull market can keep posting returns at these historic levels.
Buried within the strong 1997 performance figures, however, is a more
complicated and volatile story. Most of 1997's strong returns occurred in the
first seven months of the year. Starting in August, the market seemingly defied
explanation with occasional moderate rallies interrupted by bouts of panic
selling. In fact, the largest one-day point drop ever occurred on October 27
(the Dow dropping 554 points) in reaction to the crisis in the Asian securities
markets. But investors reacted favorably, seeing the October trough as a buying
opportunity and drove the market up 5.12% the day following the correction.
Valuation measures, which were already setting records in 1996, set new ones
in 1997. Corporate earnings rose by an estimated 13.6%, beating not only
analysts' expectations but also inflation, which was the biggest worry among
investors last year. Merger and acquisition activity also experienced a third
consecutive record year. The financial services sector has accounted for more
than 30% of all U.S. merger activity.
Continuing the trend of the last few years, a small group of large-cap stocks
led the equity market. The S&P Growth Index, which includes many of the large
brand-name companies that dominated the overall market, outperformed the S&P
Value Index, 36.54% versus 29.70%. But for the intermediate- and small-cap
sectors, value stocks generally outperformed growth stocks. This disparity,
especially during the second half of 1997, was primarily the result of earnings
disappointments among technology companies, which dominate the intermediate-
and small-growth sectors. The favorable interest rate environment encouraged
merger activity among regional banks and securities firms on the value side,
driving value and growth stocks further apart.
2
The best-performing sectors in the S&P 500 Index were communications
services, telephone, and utilities. The worst-performing sectors were
technology and basic materials. Many investors clearly continue to expect
strong earnings growth. Stocks failing to meet earnings expectations were
severely punished, such as Oracle Corp., which posted December per share
earnings four cents less than originally estimated, and lost 29% off its
trading price in one day.
Given the market's historic gains over the last three years, it is no
surprise that many investors are uneasy about 1998. Though there are many
opinions on the probable outcome, the consensus is that volatility will
continue to be a factor for some time to come.
U.S. FIXED-INCOME MARKETS
For the 12-month period ended February 28, 1998, the U.S. bond market
continued to benefit from the economic backdrop of robust growth, low
unemployment, and low inflation. As a result, the Lehman Government/Corporate
Bond Index returned 10.71% for the period. This return is about the same as the
Index's average annual compounded return since its inception in 1976.
Long-term interest rates are now at their lowest levels since 1977, when the
U.S. began regular auctions of 30-year Treasury bonds. In addition, the yield
curve has flattened out significantly, with the three-month Treasury bill
rising from a yield of 5.22% to 5.34% and the 30-year Treasury Bond declining
from a yield of 6.80% to 5.92% over the 12-month period. This spread is at its
narrowest point since March of 1990. These lower long-term yields and a flatter
curve meant that long-term bonds outperformed bonds of shorter maturaties.
While the two-year Treasury note returned 7.01%, the 30-year Treasury bond had
a return of 18.42%.
The Federal Reserve Board adjusted monetary policy only once in 1997, raising
rates 0.25% to 5.50% in March and keeping short-term rates steady. This action
was seen as preemptive, sustaining the strongest growth rate possible while
maintaining low inflation.
Declining inflation continues to be favorable for U.S. bonds. The Consumer
Price Index (CPI) increased only 1.8%, the lowest increase since 1986. This
seeming paradox of low inflation in the midst of strong economic growth and low
unemployment can be partially attributed to higher productivity keeping unit
labor costs under control and easing pressure on employers' profit margins.
While Gross Domestic Product (GDP) growth has been robust, 1997 saw it trending
down from 4.9% in the first quarter to 3.7% in the final quarter. The deficit
has also been reduced to 1974 levels due to higher tax receipts
MASTERWORKS(R) MARKET OVERVIEW
3
resulting from the strong economy. These factors have all come together to
create the most favorable economic landscape in many years.
In the investment grade U.S. bond market, the government, corporate and
mortgage-backed sectors provided nominal returns of 10.65%, 10.88% and 9.63%
respectively. On a duration-adjusted basis, corporate bonds underperformed
government bonds and mortgage-backed securities actually had the highest
returns. Within the corporate bond market, the worst-performing bonds were
Yankee (U.S. dollar denominated) bonds from issuers in South Korea, Thailand,
and Indonesia. Heavy debt burdens and dramatic currency devaluations resulted
in downgraded credit ratings. Within the space of four weeks between November
and December, South Korean bonds fell from a rating of A3/A- to Ba1/B+. All
three countries' bonds are now rated at junk status.
Looking ahead, the bond market's consensus is that the Asian turmoil should
be beneficial to the U.S. economy in two respects. First, it may help
decelerate U.S. growth, since U.S. exports to Asian countries are expected to
decline. Second, weaker Asian currencies will cause Asian exporters to maintain
low prices on goods they sell to U.S. consumers. These two factors are expected
to heighten competition among U.S. producers and lessen inflationary pressures.
In fact, possible deflationary pressures may lead the Fed to ease rates in the
near future. The U.S. economy is in a strong economic position, but with an
unfolding Asian crisis and unease about the future of U.S. stocks, it remains
to be seen what 1998 holds for investors.
INTERNATIONAL EQUITY MARKETS
The overwhelming story in international equities for 1997 was the economic
crisis in Asia. But while the stocks and bonds of Southeast Asia suffered
significantly, many developed European stock markets actually hit record highs
in 1997 and offset the dismal performance of Asian markets. Developed non-U.S.
equity markets returned 1.78% for the year according to the MSCI/EAFE Index.
Emerging markets fared poorly, posting a decline of 14.85% for 1997 according
to the IFC Investable Composite Total Return Index. Best performers in this
group include Turkey, Russia, Hungary, Mexico, Portugal, and Greece, while
worst performers include Thailand, Indonesia, Malaysia, Korea, and the
Philippines.
Driven by plunging currencies, slowing economies, and overwhelming debt, the
Asian economic crisis was most clearly
4
manifested in the returns of these five emerging Asian countries. However,
Japan was certainly not immune to the Asian "flu" with decreased exports as
well as an anemic domestic demand resulting from April's increased sales tax,
Japan's equity market dropped 23.67% for the year. Coupled with a 12% annual
gain of the dollar against the yen at Y130.03, Japan progressed into a position
of economic weakness. Several major Japanese financial institutions closed,
including Yamaichi, Japan's fourth-largest brokerage firm.
Developed European markets posted positive returns in 1997 of 23.8%, with
strongest performances coming from Switzerland, Italy and Denmark. Many
European countries have trimmed budgets and taken other actions in order to
comply with Maastricht guidelines, in an attempt to strengthen their economies.
The UK also turned in a strong performance, reacting favorably to the newly
elected Labour government's decision to allow the Bank of England to set
monetary policy. Germany's high returns were driven by signs of economic growth
and increased export earnings due to a weaker Deutschemark. The first addition
to MSCI/EAFE, since Ireland in 1993, occurred in 1997 as Portugal was
reclassified as a developed market in anticipation of its participation in next
year's European Monetary Union. Portugal's market gained 47.77%.
The IFCI Europe/Middle East/Africa region delivered a healthy 12.43% gain on
equity for the year, with Turkey returning a phenomenal 117.08%, making it the
worlds top-performing country. Russia, included since November in the IFCI
Composite Index, gained 112.15% primarily due to economic reforms and the sale
of state-owned assets. Israel, added to the Index last year, gained 24.25%.
Strong earnings growth gave Hungary a return of 61.81%, and Greece finished at
37.73%, despite a negative final quarter.
IFCI Latin America gained 29.27% for the year, even though its markets were
down for the final quarter. Mexico led the region with an impressive gain of
51.58%, as investors reacted to an improving export picture. Columbia and
Venezuela returned 34.45% and 27.19%, respectively. Brazil started the year out
strong but lost some ground in the second half of the year due to concerns over
the strength of its currency. However, Brazil still gained 25.79% on the year.
The MSCI All-Country World Index (ACWI) Free ex-U.S., an international
benchmark integrating developed and emerging equity markets, returned 21.51% in
1997, outperforming both the EAFE and the IFCI Composite indices.
MASTERWORKS(R) MARKET OVERVIEW
5
ASSET ALLOCATION FUND
Average Annual
PERFORMANCE AS OF 2/28/98 Total Return
- - --------------------------------------------------------------
One Year 27.10%
Life of Fund (7/2/93-2/28/98) 15.13%
Average annual total return for the indicated periods represents the average
annual increase in value of an investment over the indicated periods assuming
reinvestment of dividends and capital gain distributions at net asset value.
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost.
The Fund's per share net asset value (NAV) grew from $12.12 on February 28,
1997, to $13.50 on February 28, 1998, and cumulative dividends from Net
Investment Income for the period (3/1/97-2/28/98) were approximately $0.44 per
share. Of course, past performance is no indication of future results.
While long-term bonds underperformed relative to the outstanding performance of
the equity sector during the year their absolute returns were quite strong.
Long-term bonds posted a respectable 18.70% return for the 12-month period
ended February 28, 1998. Over the same period, the U.S. stock market, as
measured by the S&P 500 Index, posted a total return of 34.99%. The Fund went
through several rebalances over the year, starting with a 40/60/0
(stocks/bonds/cash) mix through May 30, 1997, and ending the period with a
70/30/0 mix. The Fund took advantage of strong performance in both the equity
and bond markets, but as the spread between equity and bond returns increased,
the Fund's trend was to increase its weight in equities. The Fund finished the
year heavier in equities to take advantage of a record-breaking stock market.
The Fund's rebalances are driven primarily by yield spreads between the equity
and bond sectors. Both equity and bond yields continued to rise in the first
part of the fiscal year, but by the end of the year, equity yield measures
showed greater strength. In the five months from March to July, the Fund was
overweighted in bonds to varying degrees. Starting in July, the Fund started a
gradual move from an overweight position in bonds to a neutral position in
November and an overweighted position in equities starting in December. This
rebalance allowed the Fund to take advantage of a 10% return in the equity
sector.
Even with the S&P 500's performance over the past three years, investors must
remember that past performance is no indication of
6
MANAGERS DISCUSSION AND ANALYSIS
ASSET ALLOCATION FUND (CONTINUED)
future returns. The Fund provides a diversified investment vehicle across asset
classes and is designed to help investors take advantage of strong risk
adjusted performances across asset classes while preserving the fundamental
tenant of diversification. The Asset Allocation model used to manage the Fund's
assets uses extensive financial data to constantly monitor expected levels of
risk and return across asset classes in order to determine an optimal asset
mix.
[GRAPH APPEARS HERE]
ASSET ALLOCATION S&P 500 INDEX LIPPER BALANCED
- - ------------------------------------------------------------
10,000 10,000.00 10,000.00
SEP-93 10,467 10,258.00 10,366.00
DEC-93 10,543 10,494.96 10,477.95
MAR-94 10,111 10,096.15 10,158.38
JUN-94 9,953 10,138.56 10,081.17
SEP-94 10,138 10,634.33 10,376.55
DEC-94 10,264 10,632.20 10,263.45
MAR-95 11,047 11,667.78 10,883.36
JUN-95 12,055 12,782.05 11,645.19
SEP-95 12,610 13,798.23 12,270.54
DEC-95 13,258 14,628.88 12,819.03
MAR-96 13,441 15,414.45 13,106.18
JUN-96 13,726 16,106.56 13,372.23
SEP-96 13,944 16,604.25 13,722.59
DEC-96 14,828 17,989.05 14,486.94
MAR-97 14,660 18,471.15 14,550.68
JUN-97 16,206 21,696.22 16,109.06
SEP-97 17,266 23,321.26 17,143.26
DEC-97 18,136 23,990.58 17,391.83
FEB-98 19,285 26,005.79 18,209.25
This Fund is organized as a "feeder" fund in a "master-feeder" structure.
Instead of investing directly in the individual portfolio securities, the
"feeder" fund, which is offered to the public, holds interests in the net
assets of the Master Portfolio that, in turn, invests in individual securities.
References to the Fund are to the feeder fund or the Master Portfolio, as the
context requires. The Master Portfolio is advised by Barclays Global Fund
Advisors (BGFA).
7
BOND INDEX FUND
Average Annual
PERFORMANCE AS OF 2/28/98 Total Return
- - -----------------------------------------------
One Year 10.36%
Life of Fund (7/2/93-2/28/98) 6.20%
Average annual total return for the indicated periods represents the average
annual increase in value of an investment over the indicated periods assuming
reinvestment of dividends and capital gain distributions at net asset value.
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost.
The Fund's per share net asset value (NAV), grew from $9.43 on February 28,
1997, to $9.73 on February 28, 1998, and cumulative dividends from Net
Investment Income for the period (3/1/97-2/28/98) were approximately $0.64 per
share. Of course, past performance is no indication of future results.
The Fund underperformed the Lehman Brothers Government/Corporate Bond Index by
0.35%. The main factor contributing to the tracking variance is Fund operating
expenses. Other slight variances are due to portfolio sampling, in which
portfolio managers approximate the Index using different referencing factors
such as maturity, sector breakdowns, quality ratings and duration against the
benchmark and pricing differences that occur because of varying pricing
methodologies among pricing sources.
The year, starting in March 1997, began with a much-anticipated change in U.S.
monetary policy. The Federal Reserve Board, after hinting at a rate hike for
several months, finally raised the federal funds rate by 0.25% to 5.5% on March
25, 1997. This preemptive action was taken in order to slow the rate of
economic growth and relieve inflationary pressures. This move was the only rate
hike made by the Federal Reserve Board during the year ending February 28,
1998. Overall, 1997 saw a flattening of the yield curve, with increased yields
on three-month Treasury bills and decreased yields on the 30-year Treasury
bonds.
The U.S. bond market continued to benefit from low inflation, a vigilant
Federal Reserve Board, a reduced federal deficit, and a flight to quality
caused by turmoil in Asia. The performance of the bond market was one of the
best in years, with the Lehman Brothers Government/ Corporate Bond Index
returning 10.71% for the year ending February 28, 1998. As
8
MANAGERS DISCUSSION AND ANALYSIS
BOND INDEX FUND (CONTINUED)
long as the economy remains strong with low inflation, the bond market is
expected to continue to post strong performance. Any rumors of inflation,
especially after strong economic growth indicators, will cause a negative
reaction in the bond market.
If interest rates rise, the price of existing bonds in the Fund will fall.
Coupon payments of existing bonds in the Fund will not be impacted. New bonds
added to the Fund will be purchased at higher coupon rates and higher expected
yields. However, if interest rates fall, the market value of the bonds in the
Fund's portfolio, and hence the value of the Fund, will rise. Coupon payments
will again remain the same for existing bonds held by the Fund.
Looking ahead to the next year, the semi-annual report to Congress of Federal
Reserve Chairman Alan Greenspan is a good place to start. In late February
1998, the Chairman noted that the U.S. economy has considerable momentum, and
that the labor market remains tight. It is his belief that the financial tur-
moil in Asia will eventually cause the U.S. economy to slow, but that the tim-
ing and magnitude of the impact are unclear. Those expecting a rate cut were
disappointed by his wait-and-see approach. It remains to be seen just what the
next year will hold.
[GRAPH APPEARS HERE]
LEHMAN BROTHERS S&P 500 INDEX
- - ---------------------------------------------
10,000.00 10,000
SEP-93 10,332.00 10,281
DEC-93 10,302.04 10,230
MAR-94 9,977.52 9,937
JUN-94 9,853.80 9,776
SEP-94 9,903.07 9,820
DEC-94 9,939.71 9,846
MAR-95 10,434.71 10,326
JUN-95 11,110.88 10,998
SEP-95 11,323.10 11,186
DEC-95 11,850.75 11,696
MAR-96 11,573.45 11,397
JUN-96 11,627.84 11,432
SEP-96 11,832.49 11,626
DEC-96 12,194.56 11,945
MAR-97 12,095.79 11,848
JUN-97 12,515.51 12,269
SEP-97 12,934.78 12,691
DEC-97 13,364.22 13,112
FEB-98 13,527.26 13,238
This Fund is organized as a "feeder" fund in a "master-feeder" structure.
Instead of investing directly in the individual portfolio securities, the
"feeder" fund, which is offered to the public, holds interests in the net
assets of the Master Portfolio that, in turn, invests in individual securities.
References to the Fund are to the feeder fund or the Master Portfolio, as the
context requires. The Master Portfolio is advised by Barclays Global Fund
Advisors (BGFA).
9
GROWTH STOCK FUND
Average Annual
PERFORMANCE AS OF 2/28/98 Total Return
- - --------------------------------------------------
One Year 21.61%
Life of Fund (7/2/93-2/28/98) 16.20%
Average annual total return for the indicated periods represents the average
annual increase in value of an investment over the indicated periods assuming
reinvestment of dividends and capital gain distributions at net asset value.
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost.
The Fund's manager has voluntarily waived portions of its fees to the Fund,
which has reduced operating expenses for shareholders. Without this reduction,
the Fund's returns would have been lower.
The Fund's per share net asset value (NAV) grew from $14.07 at February 28,
1997, to $15.74 by February 28, 1998. Of course, past performance is no
guarantee of future results.
For the year from March 1, 1997 through February 28, 1998, the stock market had
another very strong year. As measured by the S&P 500 Index, the equity market
had a total return of 34.99% during this period. The market was fueled in part
by the performance of large cap stocks. Small cap indexes, such as the Russell
2000, which returned 22.36% for the period, did less well by comparison to
large cap indexes such as the S&P 500 Index.
In 1997 financial stocks posted the best sector return as lower interest rates
and industry consolidation buoyed prices for bank, insurance and credit card
companies. Healthcare stocks rose as investors sought their consistent
dividends. Basic materials and energy stocks underperformed expectations due to
weak commodity prices and deflation fears spawned by the Asian crisis. High
tech stocks also suffered in the face of concerns about the Asian crisis. By
early 1998, lower interest rates kept large financial services companies on the
leading edge of the market's rise, followed by health care companies. Consumer
and other "cyclical" stocks out-performed the overall S&P 500, as did
transportation stocks on falling energy costs. By contrast, high tech stocks
lagged the benchmark S&P 500 on new Asian worries, despite upbeat earnings
reports from a few key firms.
The Fund increased its investment in Bank & Finance over the past few months,
from 13% to 18% of its portfolio. The Fund also invested significantly in
capital goods and manufacturing, both with solid market shares and strong
earnings history. Increased exposure to retail issues took advantage of
increased consumer spending. In the uncertainty following the Asian
10
MANAGERS DISCUSSION AND ANALYSIS
GROWTH STOCK FUND (CONTINUED)
crisis, the Fund increased its cash holding, often in the form of repurchase
agreements.
This year, it is expected that there will be a natural slowing of the nearly
seven-year long economic expansion, and overall growth is expected to be less
than in recent years. The Fund made new investments in communications equipment
manufacturing and will de-emphasize energy because the price outlook is weak.
With the uncertainty in Asia, the Fund will look for large cap companies with
secure market positions and solid management that we expect to maintain solid
growth rates. If earnings reports in 1998 demonstrate that the Asian markets
have not overly affected U.S. corporate growth, the growth sector should
rebound.
[GRAPH APPEARS HERE]
S&P 500 INDEX NASDAQ INDEX GROWTH STOCK
- - ----------------------------------------------------------------------
10,000.00 10,000.00 10,000
SEP-93 10,258.00 10,836.00 11,050
DEC-93 10,494.96 11,035.38 11,340
MAR-94 10,096.15 10,561.96 10,814
JUN-94 10,138.56 10,029.64 10,320
SEP-94 10,634.33 10,858.09 11,329
DEC-94 10,632.20 10,683.27 11,632
MAR-95 11,667.78 11,610.58 12,560
JUN-95 12,782.05 13,261.61 14,541
SEP-95 13,798.23 14,825.15 16,470
DEC-95 14,628.88 14,946.72 16,080
MAR-96 15,414.45 15,646.22 17,194
JUN-96 16,106.56 16,833.77 18,830
SEP-96 16,604.25 17,429.69 18,725
DEC-96 17,989.05 18,341.26 18,024
MAR-97 18,471.15 17,356.33 15,130
JUN-97 21,696.22 20,487.07 17,777
SEP-97 23,321.26 23,948.12 20,530
DEC-97 23,990.58 22,309.51 18,685
FEB-98 26,005.79 25,153.13 20,130
This Fund is organized as a "feeder" fund in a "master-feeder" structure.
Instead of investing directly in the individual portfolio securities, the
"feeder" fund, which is offered to the public, holds interests in the net
assets of the Master Portfolio that, in turn, invests in individual securities.
References to the Fund are to the feeder fund or the Master Portfolio, as the
context requires. The Master Portfolio is advised by Barclays Global Fund
Advisors (BGFA) and sub-advised by Wells Fargo Bank, N.A.
11
LIFEPATH ANNUAL COMMENTARY
Average Annual
PERFORMANCE AS OF 2/28/98 Total Return
- - ------------------------------------------------------------------------------
Life of Fund Approximate
(3/1/94- Dividends
Fund One Year 2/28/98) Per Share
---- -------- ------------ -----------
LifePath 2000 12.32% 8.63% $.46
LifePath 2010 18.73% 13.30% $.40
LifePath 2020 24.25% 16.45% $.33
LifePath 2030 28.22% 18.84% $.26
LifePath 2040 30.95% 21.15% $.19
Average annual total return for the indicated periods represents the average
annual increase in value of an investment over the indicated periods assuming
reinvestment of dividends and capital gain distributions at net asset value.
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost.
The Funds are successors to the assets of the Institutional Class shares of the
Stagecoach Trust LifePath Funds (the "Predecessor Funds") which commenced oper-
ations on March 1, 1994. Performance information for periods prior to March 26,
1996, the Funds' commencement of operations, reflects the performance of the
Predecessor Funds.
The LifePath Funds employ both strategic and tactical asset allocation
techniques to manage their portfolio investments. 75% of the Fund's total asset
allocation is strategic in nature, and focuses on the Fund's long-term
investment allocation. The strategic allocation is determined by the tradeoff
between expected returns and risks for each asset class based on the time
horizon of the Fund. As each Fund nears its target date, the allocation becomes
more conservative, shifting to less risky assets such as shorter-duration fixed
income and money market instruments. Short-term volatility in the markets has
only a small effect on a Fund's long-term strategic allocation. The progression
to less risky assets is a continuous, process resulting in only minor monthly
changes to the asset allocation. Forty years from now, the strategic allocation
of LifePath 2040 Fund will look very similar to the strategic allocation of
today's LifePath 2000 Fund.
Tactical allocation techniques are used to make up the remaining 25% of each
Fund's entire investment allocation. This method attempts to take advantage of
shorter-term market conditions by shifting Fund investments into assets that
appear undervalued on a risk-adjusted basis. The Funds use two types of
tactical allocations. The more conservative tactical approach of shifting from
long duration bonds to short duration
12
MANAGERS DISCUSSION AND ANALYSIS
LIFEPATH ANNUAL COMMENTARY (CONTINUED)
bonds and cash plays a larger role in the LifePath 2000 Fund than in the other
Funds. The LifePath 2040 Fund, for example, makes more use of the second, and
more aggressive tactical allocation which shifts assets between stocks, bonds
and cash.
The allocations of the Funds at the start of the period were as follows:
U.S. International U.S. Money
Fund Equity Equity Bonds Market
---- ------ ------------- ----- ------
LifePath 2000 14% 7% 75% 4%
LifePath 2010 35% 11% 51% 3%
LifePath 2020 48% 15% 35% 2%
LifePath 2030 58% 18% 23% 1%
LifePath 2040 70% 19% 10% 1%
In a period of strong equity returns, the Funds performed as expected. The
higher-risk, equity-dominated Funds had higher returns than the Funds nearer
their target dates. Nonetheless, the bond rally of the latter half of 1997
provided the shorter-term Funds with strong positive returns. Tactically, the
Funds began the period underweighted to equities, relative to bonds, after 1996
saw stocks outperform bonds by 24%. As the bond market rallied and yields fell
in 1997, the Funds made tactical shifts to increase the equity exposure that
was becoming increasingly attractive on a relative basis. Similarly, the long
bond yields fell from 6.7% to 5.8%. As the spread between bond and cash yields
tightened, cash and short-duration fixed income instruments became more
attractive than the long-duration bonds. The net result of these conditions was
an increase in each fund's equity exposure, and a move from long-duration bonds
to short-duration bonds and money market instruments. By the end of the period,
the Funds' allocations were the following:
U.S. International U.S. Money
Fund Equity Equity Bonds Market
---- ------ ------------- ----- ------
LifePath 2000 19% 5% 51% 25%
LifePath 2010 38% 10% 42% 10%
LifePath 2020 55% 15% 25% 5%
LifePath 2030 66% 19% 12% 3%
LifePath 2040 80% 20% 0% 0%
A significant event in 1997 was the Southeast Asian currency crisis which
caused large losses in the Pan-Asian markets. However, this event had little
effect on the LifePath Funds. Though the international exposure is as much as
20% of the entire allocation in any one Fund, there are only minor investments
in SouthEast Asia. In fact, as the Pan-Asian markets tumbled in
13
LIFEPATH ANNUAL COMMENTARY (CONTINUED)
the last three months of 1997, the LifePath Funds all posted positive returns
because of high exposure to the strong U.S. equity market.
[GRAPH APPEARS HERE]
LIPPER BALANCED S&P 500 INDEX LIFEPATH 2000
- - ----------------------------------------------------------
10,000.00 10,000.00 10,000
MAR-94 9,637.00 9,564.00 9,855
JUN-94 9,563.76 9,604.17 9,765
SEP-94 9,843.98 10,073.81 9,878
DEC-94 9,736.68 10,071.80 9,825
MAR-95 10,324.77 11,052.79 10,330
JUN-95 11,047.51 12,108.33 10,881
SEP-95 11,640.76 13,070.94 11,180
DEC-95 12,161.10 13,857.82 11,533
MAR-96 12,433.51 14,601.98 11,565
JUN-96 12,685.91 15,257.61 11,674
SEP-96 13,018.28 15,729.07 11,891
DEC-96 13,743.40 17,040.87 12,263
MAR-97 13,803.87 17,497.57 12,246
JUN-97 15,282.26 20,552.65 12,925
SEP-97 16,263.38 22,092.04 13,375
DEC-97 16,499.20 22,726.08 13,577
FEB-98 17,274.67 24,635.07 13,926
[GRAPH APPEARS HERE]
LIPPER BALANCED S&P 500 INDEX LIFEPATH 2010
- - ---------------------------------------------------------
10,000.00 10,000.00 10,000
MAR-94 9,637.00 9,564.00 9,838
JUN-94 9,563.76 9,604.17 9,760
SEP-94 9,843.98 10,073.81 9,900
DEC-94 9,736.68 10,071.80 9,847
MAR-95 10,324.77 11,052.79 10.520
JUN-95 11,047.51 12,108.33 11,257
SEP-95 11,640.76 13,070.94 11,738
DEC-95 12,161.10 13,857.82 12,209
MAR-96 12,433.51 14,601.98 12,424
JUN-96 12,685.91 15,257.61 12,668
SEP-96 13,018.28 15,729.07 12,928
DEC-96 13,743.40 17,040.87 13,520
MAR-97 13,803.87 17,497.57 13,602
JUN-97 15,282.26 20,552.65 14,879
SEP-97 16,263.38 22,092.04 15,528
DEC-97 16,499.20 22,726.08 15,765
FEB-98 17,274.67 24,635.07 16,476
14
MANAGERS DISCUSSION AND ANALYSIS
LIFEPATH ANNUAL COMMENTARY (CONTINUED)
[GRAPH APPEARS HERE]
LIPPER BALANCED S&P 500 INDEX LIFEPATH 2020
- - ----------------------------------------------------------
10,000.00 10,000.00 10,000
MAR-94 9,637.00 9,564.00 9,810
JUN-94 9,563.76 9,604.17 9,752
SEP-94 9,843.98 10,073.81 9,916
DEC-94 9,736.68 10,071.80 9,874
MAR-95 10,324.77 11,052.79 10,636
JUN-95 11,047.51 12,108.33 11,472
SEP-95 11,640.76 13,070.94 12,057
DEC-95 12,161.10 13,857.82 12,590
MAR-96 12,433.51 14,601.98 12,909
JUN-96 12,685.91 15,257.61 13,234
SEP-96 13,018.28 15,729.07 13,521
DEC-96 13,743.40 17,040.87 14,298
MAR-97 13,803.87 17,497.57 14,408
JUN-97 15,282.26 20,552.65 16,167
SEP-97 16,263.38 22,092.04 17,056
DEC-97 16,499.20 22,726.08 17,331
FEB-98 17,274.67 24,635.07 18,383
[GRAPH APPEARS HERE]
LIPPER BALANCED S&P 500 INDEX LIFEPATH 2030
- - ---------------------------------------------------------
10,000.00 10,000.00 10,000
MAR-94 9,637.00 9,564.00 9,711
JUN-94 9,563.76 9,604.17 9,610
SEP-94 9,843.98 10,073.81 9,878
DEC-94 9,736.68 10,071.80 9,857
MAR-95 10,324.77 11,052.79 10,682
JUN-95 11,047.51 12,108.33 11,637
SEP-95 11,640.76 13,070.94 12,300
DEC-95 12,161.10 13,857.82 12,928
MAR-96 12,433.51 14,601.98 13,305
JUN-96 12,685.91 15,257.61 13,710
SEP-96 13,018.28 15,729.07 14,025
DEC-96 13,743.40 17,040.87 14,946
MAR-97 13,803.87 17,497.57 15,080
JUN-97 15,282.26 20,552.65 17,220
SEP-97 16,263.38 22,092.04 18,284
DEC-97 16,499.20 22,726.08 18,608
FEB-98 17,274.67 24,635.07 19,938
15
LIFEPATH ANNUAL COMMENTARY (CONTINUED)
[GRAPH APPEARS HERE]
LIPPER BALANCED S&P 500 INDEX LIFEPATH 2040
- - ----------------------------------------------------------
10,000.00 10,000.00 10,000
MAR-94 9,637.00 9,564.00 9,652
JUN-94 9,563.76 9,604.17 9,621
SEP-94 9,843.98 10,073.81 9,977
DEC-94 9,736.68 10,071.80 9,955
MAR-95 10,324.77 11,052.79 10,829
JUN-95 11,047.51 12,108.33 11,799
SEP-95 11,640.76 13,070.94 12,564
DEC-95 12,161.10 13,857.82 13,194
MAR-96 12,433.51 14,601.98 13,739
JUN-96 12,685.91 15,257.61 14,287
SEP-96 13,018.28 15,729.07 14,640
DEC-96 13,743.40 17,040.87 15,655
MAR-97 13,803.87 17,497.57 15,892
JUN-97 15,282.26 20,552.65 18,472
SEP-97 16,263.38 22,092.04 19,645
DEC-97 16,499.20 22,726.08 19,859
FEB-98 17,274.67 24,635.07 21,534
This Fund is organized as a "feeder" fund in a "master-feeder" structure.
Instead of investing directly in the individual portfolio securities, the
"feeder" fund, which is offered to the public, holds interests in the net
assets of the Master Portfolio that, in turn, invests in individual securities.
References to the Fund are to the feeder fund or the Master Portfolio, as the
context requires. The Master Portfolio is advised by Barclays Global Fund
Advisors (BGFA).
16
MANAGERS DISCUSSION AND ANALYSIS
S&P 500 STOCK FUND
Average Annual
PERFORMANCE AS OF 2/28/98 Total Return
- - ---------------------------------------------------------------
One Year 34.62%
Life of Fund (7/2/93-2/28/98) 22.56%
Average annual total return for the indicated periods represents the average
annual increase in value of an investment over the indicated periods assuming
reinvestment of dividends and capital gain distributions at net asset value.
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost.
The total return for the S&P 500 Index was 34.99% over the period of 3/1/97-
2/28/98. The Fund's per share net asset value (NAV) grew from $17.03 at
February 28, 1997, to $22.08 by February 28, 1998, and the Fund paid a
cumulative dividend from Net Investment Income of approximately $0.33 per share
in dividends for the period (3/1/97--2/28/98). Of course, past performance is
no guarantee of future results.
The S&P 500 Stock Fund underperformed its benchmark, the S&P 500 Index, by
0.37%. The primary cause of this tracking variance is Fund operating expenses.
Other slight variances are due to excess cash held in the Fund in order to meet
redemptions.
The current rally in the U.S. stock market, which started in 1991, is one of
the longest rallies ever recorded. While volatility was a factor during the
last year, with the market losing about 10% during the month of October 1997,
the market continued to close at record highs through the month of February
1998. This strong performance was driven by large cap stocks, continuing last
year's trend. The 1997 stock market was driven mostly by unexpectedly high
increases in corporate earnings, which rose an estimated 13.6%, beating both
inflation and analysts' expectations.
The five-year annualized total return of the S&P 500 Index for the period
ending February 28, 1997 was 21.77%. The consensus in the market is that 1998
will be a year of continued but slower growth. Based on Alan Greenspan's semi-
annual economic report to Congress in late February 1998, the economy is
expected to experience an eventual slowdown due to the ongoing economic turmoil
in Asia.
17
S&P 500 STOCK FUND (CONTINUED)
[GRAPH APPEARS HERE]
S&P 500 INDEX S&P 500 STOCK
- - ---------------------------------------------
10,000.00 10,000
SEP-93 10,258.00 10,347
DEC-93 10,494.96 10,569
MAR-94 10,096.15 10,179
JUN-94 10,138.56 10,180
SEP-94 10,634.33 10,652
DEC-94 10,632.20 10,652
MAR-95 11,667.78 11,676
JUN-95 12,782.05 12,782
SEP-95 13,798.23 13,794
DEC-95 14,628.88 14,609
MAR-96 15,414.45 15,398
JUN-96 16,106.56 16,076
SEP-96 16,604.25 16,553
DEC-96 17,989.05 17,914
MAR-97 18,471.15 18,384
JUN-97 21,696.22 21,576
SEP-97 23,321.26 23,177
DEC-97 23,990.58 23,838
FEB-98 26,005.79 25,814
This Fund is organized as a "feeder" fund in a "master-feeder" structure.
Instead of investing directly in the individual portfolio securities, the
"feeder" fund, which is offered to the public, holds interests in the net
assets of the Master Portfolio that, in turn, invests in individual securities.
References to the Fund are to the feeder fund or the Master Portfolio, as the
context requires. The Master Portfolio is advised by Barclays Global Fund
Advisors (BGFA).
18
MANAGERS DISCUSSION AND ANALYSIS
SHORT-INTERMEDIATE TERM FUND
Average Annual
PERFORMANCE AS OF 2/28/98 Total Return
- - -------------------------------------------------------------
One Year 8.51%
Life of Fund (7/2/93-2/28/98) 5.34%
Average annual total return for the indicated periods represents the average
annual increase in value of an investment over the indicated periods assuming
reinvestment of dividends and capital gain distributions at net asset value.
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost.
The Fund's per share net asset value (NAV), grew from $9.19 on February 28,
1997, to $9.35 on February 28, 1998, and cumulative dividends from Net
Investment Income for the same period were approximately $0.60 per share. Of
course, past performance is no indication of future results.
There was considerable uncertainty regarding interest rates early in the
period. The bond market slumped in the first quarter of 1997 on inflation
fears, prompting the Federal Reserve to tighten monetary policy with a 0.25%
increase in the federal funds target rate. The markets absorbed this news at
the beginning of the reporting period and gradually yields began to fall for
the benchmark 30-year Treasury bond and the yield curve, which measures the
spread in yields between short-term and long-term instruments, began to
flatten.
The Fund decreased its allocations to Treasury securities and cash, and
increased its allocations to corporate and U.S. Government agency obligations.
The year ended with a corporate allocation of about 46% and an investment in
Treasury notes of about 31%, with the balance in agencies and mortgage-backed
securities. The Fund's exposure to corporate bonds is expected to range from
about 35% to 50%.
The difference in yields between government and corporate bonds is very narrow
by historical standards and narrowed gradually from April 1997 through the end
of February 1998. The Fund emphasized high-quality corporate debt in an effort
to gain better yield. With the spread between government and corporate bonds so
narrow and the interest rate outlook so stable, we believe there is currently
no particular advantage to remaining in Treasury securities.
Attractive U.S. interest rates and continued uncertainty in Asia could attract
foreign investors in search of stability. In addition, Asian uncertainty has
encouraged U.S. investors to invest domestically. Treasury securities, however,
have not enjoyed as much benefit from
19
SHORT-INTERMEDIATE TERM FUND (CONTINUED)
Asian flight as had been hoped. Net foreign investments into Treasury
securities were lower in the fourth quarter of 1997 than in the third. As the
Asian crisis deepens, there may be increased demand for Treasury issues.
Looking forward, we expect interest rates to move lower as inflation fears
recede, and we may even see the Federal Reserve easing policy later in the
year. Import- and producer-price deflation continues to point toward lower
Consumer Price Index inflation in coming months. Declines of 0.3% in February
import prices and 0.1% in producer prices left them 3.3% and 1.6%,
respectively, below their levels of one year ago. Consumer-price inflation
still is expected to dip to or below 1% later this year.
[GRAPH APPEARS HERE]
LEHMAN BROTHERS INTERMEDIATE SHORT-INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX TERM FUND
- - ------------------------------------------------------------------------
10,000.00 10,000
SEP-93 10,331.00 10,224
DEC-93 10,301.04 10,197
MAR-94 9,978.62 9,946
JUN-94 9,854.88 9,861
SEP-94 9,903.17 9,923
DEC-94 9,939.81 9,908
MAR-95 10,434.82 10,295
JUN-95 11,112.04 10,806
SEP-95 11,324.28 10,972
DEC-95 11,851.99 11,349
MAR-96 11,574.65 11,180
JUN-96 11,629.05 11,218
SEP-96 11,833.72 11,404
DEC-96 12,195.83 11,680
MAR-97 12,182.42 11,682
JUN-97 12,541.80 12,022
SEP-97 12,880.43 12,331
DEC-97 13,156.07 12,618
FEB-98 13,317.89 12,746
This Fund is organized as a "feeder" fund in a "master-feeder" structure.
Instead of investing directly in the individual portfolio securities, the
"feeder" fund, which is offered to the public, holds interests in the net
assets of the Master Portfolio that, in turn, invests in individual securities.
References to the Fund are to the feeder fund or the Master Portfolio, as the
context requires. The Master Portfolio is advised by Barclays Global Fund
Advisors (BGFA) and sub-advised by Wells Fargo Bank, N.A.
20
MANAGERS DISCUSSION AND ANALYSIS
U.S. TREASURY ALLOCATION FUND
Average Annual
PERFORMANCE AS OF 2/28/98 Total Return
- - ---------------------------------------------------------------
One Year 8.18%
Life of Fund (7/2/93-2/28/98) 5.43%
Average annual total return for the indicated periods represents the average
annual increase in value of an investment over the indicated periods assuming
reinvestment of dividends and capital gain distributions at net asset value.
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost.
The Fund's per share net asset value (NAV) grew from $9.24 on February 28,
1997, to $9.40 on February 28, 1998, and cumulative dividends from Net
Investment Income for the period (3/1/97-2/28/98) was approximately $0.55 per
share. Of course, past performance is no indication of future results.
Recently, the yield curve flattened significantly, with long-term interest
rates now at their lowest levels since 1977. The interest rate decreases have
helped increase the price and the market value of the Fund's portfolio
investments. These factors contributed to the Fund's strong return for the
year.
The Fund alters its holdings in long-term Treasury bonds, intermediate-term
Treasury notes, and Treasury bills based on relative yield differences between
the securities. In the past 12 months, the Fund has reallocated rather steadily
out of the intermediate note sector and into the short-term money-market
sector, with a 10% bond allocation being purchased this year.
The composition of the Fund's portfolio changed from a 0/80/20
(bonds/notes/bills) allocation at the beginning of the period to 17/14/69 as a
result of the general flattening of the yield curve. We will continue to
evaluate economic conditions and market opportunities on a daily basis, and
will make changes to the Fund's allocation accordingly.
While 1997 saw a flattening of the yield curve, a downward movement was seen
across all maturities in early 1998, with more movement in intermediate-term
interest rates, which lost close to 14 basis points (0.14%). In February of
1998, Federal Reserve Chairman Alan Greenspan delivered his semi-annual report
to Congress, and noted that the U.S. economy had considerable momentum and that
the labor market remained tight. Significant economic fallout from the
financial turmoil in Asia has yet to be seen in U.S. domestic markets.
Investors
21
U.S. TREASURY ALLOCATION FUND (CONTINUED)
hoping for an interest rate cut were disappointed by the Chairman's wait and
see approach. The Fed's last move was a short-term rate hike of 0.25% in March
1997, raising the rate to the current target of 5.50%.
[GRAPH APPEARS HERE]
LEHMAN BROTHERS U.S. TREASURY ALLOCATION
- - ----------------------------------------------------------------
10,000.00 10,000
SEP-93 10,332.00 10,601
DEC-93 10,302.04 10,507
MAR-94 9,977.52 10,020
JUN-94 9,853.80 9,843
SEP-94 9,903.07 9,867
DEC-94 9,939.71 9,841
MAR-95 10,434.71 10,338
JUN-95 11,110.88 10,866
SEP-95 11,323.10 11,038
DEC-95 11,850.75 11,359
MAR-96 11,573.45 11,248
JUN-96 11,627.84 11,266
SEP-96 11,832.49 11,479
DEC-96 12,194.56 11,792
MAR-97 12,095.79 11,678
JUN-97 12,515.51 12,088
SEP-97 12,934.78 12,415
DEC-97 13,364.22 12,670
FEB-98 13,527.26 12,798
This Fund is organized as a "feeder" fund in a "master-feeder" structure.
Instead of investing directly in the individual portfolio securities, the
"feeder" fund, which is offered to the public, holds interests in the net
assets of the Master Portfolio that, in turn, invests in individual securities.
References to the Fund are to the feeder fund or the Master Portfolio, as the
context requires. The Master Portfolio is advised by Barclays Global Fund
Advisors (BGFA).
22
MANAGERS DISCUSSION AND ANALYSIS
MONEY MARKET FUND
PERFORMANCE AS OF 2/28/98 7-Day Yield
- - ---------------------------------------------------------------
5.24%
The 7-Day Yield is an annualized yield for the seven day period ended February
28, 1998. Yield reflects fluctuations in interest rates on portfolio invest-
ments and Fund expenses.
Early in the period, there was considerable uncertainty regarding interest
rates. The bond market slumped in the first quarter of 1997 on inflation fears.
This prompted the Federal Reserve to tighten monetary policy with a 0.25%
increase in the federal funds target rate. Money market yields enjoyed a boost
from this increase. The general fixed income market absorbed the federal funds
rate increase at the beginning of the reporting period. Yields began to fall
gradually for the benchmark 30-year Treasury bond and the yield curve, which
measures the spread in yields between short-term and long-term instruments,
began to flatten.
Looking forward, import- and producer-price deflation continues to point toward
lower Consumer Price Index inflation in coming months. Declines of 0.3% in
February import prices and 0.1% in producer prices left them 3.3% and 1.6%,
respectively, below their levels of one year ago. Consumer-price inflation
still is expected to dip to, or below 1% later this year, even though
disinflation stalled in February. Interest rates are expected to move lower as
inflation fears recede, and the Federal Reserve may ease policy later in the
year. If the Fed does lower rates, money market yields should decline.
There are a number of economic influences on interest rates. If the economy is
expected to grow rapidly, interest rates usually move higher in anticipation of
a Fed rate hike. Cash flows into money market mutual funds are another
important factor. The dynamics of supply and demand as managers invest
shareholders' cash can drive yields higher or drag them lower, particularly for
variable rate securities.
Weighted average maturity, which is one of the measures of a fund's sensitivity
to interest rate changes, is a measure of the average length of time before
securities in a portfolio mature on a dollar for dollar basis. Funds with
longer maturities generally are more sensitive to interest-rate fluctuations
than shorter maturity funds. For the most part, the weighted average maturity
for the Fund has been fairly steady and in the short-to-intermediate range of
45 to 55 days. Typically, for a money market mutual fund, managers will
increase maturity to lock in higher rates or shorten maturity if they
anticipate higher rates being available soon. Market forces may also make one
maturity range relatively more attractive than another.
23
MONEY MARKET FUND--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
YIELD TO MATURITY
PRINCIPAL SECURITY NAME MATURITY DATE VALUE
CERTIFICATES OF DEPOSIT-13.86%
$6,000,000 Abbey National PLC 5.55% 01/26/99 $ 5,997,385
4,000,000 Morgan Guaranty Trust Co of NY 5.80 07/28/98 3,999,371
7,000,000 Rabobank Nederland Utrecht 6.05 03/27/98 6,999,807
8,000,000 Societe Generale NA Inc 5.60 01/13/99 7,997,988
------------
TOTAL CERTIFICATES OF DEPOSIT $ 24,994,551
COMMERCIAL PAPER-67.81%
$3,000,000 American Express Co 5.57% 07/28/98 $ 2,930,375
5,000,000 American Express Co 5.47 03/27/98 4,979,487
7,000,000 Bankers Trust New York Corp 5.37 08/17/98 6,822,492
6,000,000 CC (USA) Inc 5.44 04/14/98 5,959,200
5,000,000 Commercial Bank Detroit 6.00 03/27/98 4,999,595
3,000,000 Delaware Funding Corp 5.50 03/02/98 2,999,083
3,000,000 General Electric Co 5.62 08/03/98 2,926,940
4,000,000 General Electric Co 5.51 03/05/98 3,996,939
3,000,000 Goldman Sachs Group LP 5.54 04/06/98 2,982,919
7,000,000 Greenwich Funding Corp 5.50 03/12/98 6,987,166
5,000,000 Household Finance Corp 5.48 03/26/98 4,980,211
7,000,000 Merrill Lynch & Co Inc 5.49 04/15/98 6,950,895
6,000,000 Monte Rosa Capital Corp 5.48 04/02/98 5,969,860
2,000,000 Morgan Guaranty Trust Co of NY 5.96 06/22/98 1,999,789
7,000,000 Morgan Stanley Group Inc 5.72 03/03/98 6,996,663
6,000,000 National Rural Utilities Coop Fin
Group 5.67 03/05/98 5,995,275
2,000,000 PHH Corp 5.70 03/17/98 1,994,617
5,000,000 Prudential Funding Corp 5.50 04/07/98 4,970,972
5,000,000 Sheffield Receivables Corp 5.52 03/10/98 4,992,333
7,000,000 Sigma Finance Inc 5.50 03/17/98 6,981,819
4,000,000 Transamerica Corp 5.48 03/20/98 3,987,822
8,000,000 Unifunding Inc 5.43 04/20/98 7,938,460
5,000,000 USAA Capital Corp 6.34 09/18/98 5,018,000
8,000,000 WCP Funding Inc 5.48 04/07/98 7,953,724
------------
TOTAL COMMERCIAL PAPER $122,314,636
24
MONEY MARKET FUND--FEBRUARY 28, 1998
MONEY MARKET FUND--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
YIELD TO MATURITY
PRINCIPAL SECURITY NAME MATURITY DATE VALUE
VARIABLE & FLOATING RATE NOTES-17.18%
$7,000,000 Australia & New Zealand Bank 5.61% 07/28/98 $ 6,998,382
7,000,000 Bank of America 5.65 04/16/98 6,999,563
3,000,000 Comerica Bank Detroit 5.86 12/14/98 2,999,553
6,000,000 Huntington National Bank 5.86 12/09/98 5,999,323
8,000,000 Key Bank NA 5.55 02/24/99 7,994,620
------------
TOTAL VARIABLE &
FLOATING RATE NOTES $ 30,991,441
TOTAL INVESTMENT
IN SECURITIES
(Cost
$178,300,628)**
(Notes 1 and 3) 98.85% $178,300,628
Other Assets and
Liabilities, Net 1.15% 2,074,220
------ ------------
TOTAL NET ASSETS 100.00% $180,374,848
====== ============
- --------------------------------------------------------------------------------
** Cost for income tax purposes is the same as for financial statement
purposes.
The accompanying notes are an integral part of these financial statements.
25
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
Asset Bond
Allocation Index
Fund Fund
- - -----------------------------------------------------------------------------
ASSETS
INVESTMENTS:
In corresponding Master Portfolio, at market value
(Note 1) $535,136,731 $93,234,121
Cash 0 0
RECEIVABLES:
Dividends and interest 0 0
Fund shares sold 584,565 1,025,614
TOTAL ASSETS 535,721,296 94,259,735
LIABILITIES
PAYABLES:
Capital shares redeemed 872,190 469,568
Distribution to shareholders 0 0
Due to BGI and Stephens (Note 2) 102,964 13,745
TOTAL LIABILITIES 975,154 483,313
TOTAL NET ASSETS $534,746,142 $93,776,422
NET ASSETS CONSIST OF:
Paid-in capital 415,451,237 93,769,238
Undistributed net investment income 11,633 27,854
Undistributed net realized gain (loss) on
investments 8,277,532 (157,705)
Net unrealized appreciation (depreciation) on
investments 111,005,740 137,035
TOTAL NET ASSETS $534,746,142 $93,776,422
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
PER SHARE
Net Assets $534,746,142 $93,776,422
Shares outstanding 39,600,736 9,639,098
Net asset value and offering price per share $13.50 $9.73
- - -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
26
STATEMENTS OF ASSETS AND LIABILITIES--FEBRUARY 28, 1998
Growth LifePath LifePath LifePath LifePath
Stock 2000 2010 2020 2030
Fund Fund Fund Fund Fund
- - ----------------------------------------------------------
$237,048,752 $48,709,287 $112,281,705 $147,986,131 $95,139,685
0 0 0 0 0
0 0 0 0 0
638,211 89,489 289,453 562,119 482,692
237,686,963 48,798,776 112,571,158 148,548,250 95,622,377
649,905 65,247 110,910 317,664 291,484
0 0 0 0 0
23,069 2,063 24,638 33,383 21,687
672,974 67,310 135,548 351,047 313,171
$237,013,989 $48,731,466 $112,435,610 $148,197,203 $95,309,206
187,823,025 45,218,341 96,176,540 118,898,519 74,635,575
0 296,411 493,415 432,225 182,142
3,616,237 579,855 1,426,925 2,026,456 942,666
45,574,727 2,636,859 14,338,730 26,840,003 19,548,823
$237,013,989 $48,731,466 $112,435,610 $148,197,203 $95,309,206
$237,013,989 $48,731,466 $112,435,610 $148,197,203 $95,309,206
15,060,830 4,216,121 8,086,328 9,424,216 5,480,661
$15.74 $11.56 $13.90 $15.73 $17.39
- - ------------------------------------------------------------------------------------
27
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
LifePath
2040
Fund
- - -----------------------------------------------------------------------
ASSETS
INVESTMENTS:
In corresponding Master Portfolio, at market value
(Note 1) $126,022,880
Cash 0
RECEIVABLES:
Dividends and interest 0
Fund shares sold 844,240
TOTAL ASSETS 126,867,120
LIABILITIES
PAYABLES:
Capital shares redeemed 242,184
Distribution to shareholders 0
Due to BGI and Stephens (Note 2) 23,595
TOTAL LIABILITIES 265,779
TOTAL NET ASSETS $126,601,341
NET ASSETS CONSIST OF:
Paid-in capital 100,227,073
Undistributed net investment income 112,871
Undistributed net realized gain (loss) on investments 1,242,392
Net unrealized appreciation (depreciation) on investments 25,019,005
TOTAL NET ASSETS $126,601,341
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE PER SHARE
Net Assets $126,601,341
Shares outstanding 6,743,840
Net asset value and offering price per share $18.77
- - -----------------------------------------------------------------------
* The Money Market Fund does not invest in a corresponding Master Portfolio.
The cost of securities held at February 28, 1998 is the same as the market
value.
The accompanying notes are an integral part of these financial statements.
28
STATEMENTS OF ASSETS AND LIABILITIES--FEBRUARY 28, 1998
Short-
Money S&P Intermediate U.S. Treasury
Market 500 Stock Term Allocation
Fund* Fund Fund Fund
- - ---------------------------------------------------
$178,300,628 $2,289,098,351 $10,864,726 $47,205,989
1,184,202 0 0 0
1,328,048 0 0 0
728,567 5,077,463 11,865 70,130
181,541,445 2,294,175,814 10,876,591 47,276,119
1,074,827 1,518,324 40,777 27,005
14,999 0 0 0
128,615 224,789 6,656 8,196
1,218,441 1,743,113 47,433 35,201
$180,323,004 $2,292,432,701 $10,829,158 $47,240,918
180,385,270 1,400,588,958 11,031,560 51,263,115
0 5,418,488 5,331 10,984
(62,266) 39,740,087 (337,657) (4,156,223)
0 846,685,168 129,924 123,042
$180,323,004 $2,292,432,701 $10,829,158 $47,240,918
$180,323,004 $2,292,432,701 $10,829,158 $47,240,918
180,384,775 103,804,455 1,158,793 5,025,964
$1.00 $22.08 $9.35 $9.40
- - ---------------------------------------------------------------------------------------
29
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998
Asset Bond
Allocation Index
Fund Fund
- - -----------------------------------------------------------------------------
NET INVESTMENT INCOME
ALLOCATED FROM MASTER PORTFOLIO
Dividends $ 4,137,500 $ 0
Interest 14,861,341 7,263,140
Expenses (1,616,380) (85,259)
NET INVESTMENT INCOME (LOSS) ALLOCATED FROM
MASTER PORTFOLIO 17,382,461 7,177,881
EXPENSES (NOTE 2)
Administration fees 1,844,243 158,187
Advisory fees 0 0
TOTAL EXPENSES 1,844,243 158,187
Less:
Waived fees 0 0
Net expenses 1,844,243 158,187
NET INVESTMENT INCOME (LOSS) 15,538,218 7,019,694
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
ALLOCATED FROM MASTER PORTFOLIOS
Net realized gain (loss) on sale of investments 43,346,185 835,418
Net change in unrealized appreciation (depreciation)
of investments 54,041,438 1,840,981
NET GAIN (LOSS) ON INVESTMENTS 97,387,623 2,676,399
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $112,925,841 $9,696,093
- - -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
30
STATEMENT OF OPERATIONS--FOR THE YEAR ENDED FEBRUARY 28, 1998
Growth LifePath LifePath LifePath LifePath
Stock 2000 2010 2020 2030
Fund Fund Fund Fund Fund
- - ----------------------------------------------------
$ 334,093 $ 180,123 $ 812,021 $ 1,472,279 $ 1,032,790
754,929 2,120,407 3,114,732 2,593,988 929,053
(1,354,587) (252,821) (535,368) (692,337) (403,587)
(265,565) 2,047,709 3,391,385 3,373,930 1,558,256
405,996 183,550 388,764 502,717 293,010
0 0 0 0 0
405,996 183,550 388,764 502,717 293,010
45,153 0 0 0 0
360,843 183,550 388,764 502,717 293,010
(626,408) 1,864,159 3,002,621 2,871,213 1,265,246
9,338,409 1,498,004 4,019,123 5,546,369 2,589,572
35,007,522 1,944,125 9,867,032 19,345,820 14,546,285
44,345,931 3,442,129 13,886,155 24,892,189 17,135,857
$43,719,523 $5,306,288 $16,888,776 $27,763,402 $18,401,103
- - ---------------------------------------------------------------------------------------
31
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998
LifePath
2040
Fund
- - ------------------------------------------------------------------------------
NET INVESTMENT INCOME
ALLOCATED FROM MASTER PORTFOLIO
Dividends $ 1,485,113
Interest 372,092
Expenses (513,622)
NET INVESTMENT INCOME (LOSS) ALLOCATED FROM
MASTER PORTFOLIO 1,343,583
EXPENSES (NOTE 2)
Administration fees 372,862
Advisory fees 0
TOTAL EXPENSES 372,862
Less:
Waived fees 0
Net expenses 372,862
NET INVESTMENT INCOME (LOSS) 970,721
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM
MASTER PORTFOLIOS
Net realized gain (loss) on sale of investments 5,450,601
Net change in unrealized appreciation (depreciation) of
investments 18,871,946
NET GAIN (LOSS) ON INVESTMENTS 24,322,547
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $25,293,268
- - ------------------------------------------------------------------------------
* The Money Market Fund does not have a corresponding Master Portfolio. All
interest is derived from securities held by the Fund.
The accompanying notes are an integral part of these financial statements.
32
STATEMENT OF OPERATIONS--FOR THE YEAR ENDED FEBRUARY 28, 1998
Money S&P Short-Intermediate U.S. Treasury
Market 500 Stock Term Allocation
Fund* Fund Fund Fund
- - -----------------------------------------------
$ 0 $ 28,793,187 $ 0 $ 0
10,264,768 6,042,629 782,050 2,998,572
0 (897,051) (50,170) (136,672)
10,264,768 33,938,765 731,880 2,861,900
179,427 2,698,151 20,045 182,037
630,279 0 0 0
809,706 2,698,151 20,045 182,037
0 0 0 0
809,706 2,698,151 20,045 182,037
9,455,062 31,240,614 711,835 2,679,863
(4,762) 67,662,285 (82,340) 497,222
0 444,494,109 250,239 384,199
(4,762) 512,156,394 167,899 881,421
$ 9,450,300 $543,397,008 $879,734 $3,561,284
- - --------------------------------------------------------------------------------------
33
STATEMENTS OF CHANGES IN NET ASSETS
Asset Allocation Fund
------------------------------------
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 15,538,218 $ 17,275,336
Net realized gain (loss) on sale of
investments 43,346,185 38,140,198
Net change in unrealized appreciation
(depreciation) of investments 54,041,438 (1,289,056)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 112,925,841 54,126,478
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (15,569,560) (17,247,080)
From net realized gain (loss) on sale of
investments (45,241,548) (26,664,455)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 142,241,923 154,834,083
Net asset value of shares issued in
reinvestment of dividends and
distributions 60,810,816 44,837,891
Cost of shares redeemed (152,006,433) (176,232,020)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS 51,046,306 23,439,954
INCREASE (DECREASE) IN NET ASSETS 103,161,039 33,654,897
NET ASSETS:
Beginning net assets 431,585,103 397,930,206
ENDING NET ASSETS $534,746,142 $ 431,585,103
SHARES ISSUED AND REDEEMED:
Shares sold 11,061,652 12,906,366
Shares issued in reinvestment of
dividends and distributions 4,795,265 3,754,997
Shares redeemed (11,869,232) (14,682,595)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING 3,987,685 1,978,768
- - -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
STATEMENTS OF CHANGES IN NET ASSETS
Bond Index Fund Growth Stock Fund
- - ------------------------------------ ------------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
February 28, 1998 February 28, 1997 February 28, 1998 February 28, 1997
- - -------------------------------------------------------
$ 7,019,694 $ 6,188,613 $ (626,408) $ (920,167)
835,418 (257,556) 9,338,409 15,318,009
1,840,981 (1,931,019) 35,007,522 (25,141,390)
9,696,093 4,000,038 43,719,523 (10,743,548)
(7,045,500) (6,134,953) 0 0
0 0 (17,881,314) (3,202,048)
45,025,402 115,659,105 135,070,663 170,007,270
7,037,685 6,438,762 17,881,293 3,202,048
(90,406,487) (48,583,524) (154,994,318) (124,629,401)
(38,343,400) 73,514,343 (2,042,362) 48,579,917
(35,692,807) 71,379,428 23,795,847 34,634,321
129,469,229 58,089,801 213,218,142 178,583,821
$ 93,776,422 $129,469,229 $ 237,013,989 $ 213,218,142
4,679,516 12,158,949 8,923,264 10,851,913
738,294 680,187 1,247,823 208,331
(9,514,575) (5,119,468) (10,266,097) (7,988,397)
(4,096,765) 7,719,668 (95,010) 3,071,847
- - ---------------------------------------------------------------------------
35
STATEMENTS OF CHANGES IN NET ASSETS
LifePath 2000 Fund LifePath 2010 Fund
------------------------------- -------------------------------
Period from Period from
March 26, 1996 March 26, 1996
For the (Commencement For the (Commencement
Year Ended of Operations) to Year Ended of Operations) to
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
- - -------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
OPERATIONS:
Net investment income
(loss) $ 1,864,159 $ 1,403,756 $ 3,002,621 $ 2,005,706
Net realized gain
(loss) on sale of
investments 1,498,004 162,746 4,019,123 656,791
Net change in
unrealized
appreciation
(depreciation) of
investments 1,944,125 692,734 9,867,032 4,471,698
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS 5,306,288 2,259,236 16,888,776 7,134,195
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (1,873,768) (1,097,736) (2,934,746) (1,580,166)
From net realized gain
(loss) on sale of
investments (1,080,895) 0 (3,244,853) 0
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares
sold 29,570,107 64,429,732 50,184,554 113,729,167
Net asset value of
shares issued in
reinvestment of
dividends and
distributions 2,954,663 1,095,909 6,179,586 1,576,451
Cost of shares redeemed (32,722,692) (20,109,378) (41,841,291) (33,656,063)
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (197,922) 45,416,263 14,522,849 81,649,555
INCREASE (DECREASE) IN
NET ASSETS 2,153,703 46,577,763 25,232,026 87,203,584
NET ASSETS:
Beginning net assets 46,577,763 0 87,203,584 0
ENDING NET ASSETS $ 48,731,466 $ 46,577,763 $112,435,610 $ 87,203,584
SHARES ISSUED AND
REDEEMED:
Shares sold 2,609,621 6,021,502 3,799,100 9,702,222
Shares issued in
reinvestment of
dividends 263,425 102,561 470,053 133,390
Shares redeemed (2,902,215) (1,878,773) (3,183,053) (2,835,384)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING (29,169) 4,245,290 1,086,100 7,000,228
- - -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
STATEMENTS OF CHANGES IN NET ASSETS
LifePath 2020 Fund LifePath 2030 Fund LifePath 2040 Fund
- - -------------------------------- -------------------------------- -------------------------------
Period from Period from Period from
For the March 26, 1996 For the March 26, 1996 For the March 26, 1996
Year Ended (Commencement Year Ended (Commencement Year Ended (Commencement
February 28, of Operations) to February 28, of Operations) to February 28, of Operations) to
1998 February 28, 1997 1998 February 28, 1997 1998 February 28, 1997
- - ----------------------------------------------------------------------------------------------------
$ 2,871,213 $ 1,938,192 $ 1,265,246 $ 814,543 $ 970,721 $ 686,259
5,546,369 1,202,749 2,589,572 645,645 5,450,601 847,438
19,345,820 7,494,183 14,546,285 5,002,538 18,871,946 6,147,059
27,763,402 10,635,124 18,401,103 6,462,726 25,293,268 7,680,756
(2,828,349) (1,548,831) (1,235,853) (661,794) (981,497) (562,612)
(4,577,018) (145,644) (2,146,403) (146,148) (5,040,363) (15,284)
62,320,047 147,132,963 48,861,763 70,729,578 85,516,198 87,726,379
7,405,367 1,545,026 3,382,255 804,134 6,021,811 561,376
(47,300,299) (52,204,585) (30,529,151) (18,613,004) (53,683,581) (25,915,110)
22,425,115 96,473,404 21,714,867 52,920,708 37,854,428 62,372,645
42,783,150 105,414,053 36,733,714 58,575,492 57,125,836 69,475,505
105,414,053 0 58,575,492 0 69,475,505 0
$148,197,203 $105,414,053 $ 95,309,206 $ 58,575,492 $126,601,341 $ 69,475,505
4,313,443 11,957,914 3,096,468 5,498,688 4,987,356 6,394,187
509,421 123,825 214,342 61,161 355,815 40,724
(3,266,331) (4,214,056) (1,965,323) (1,424,675) (3,168,342) (1,865,900)
1,556,533 7,867,683 1,345,487 4,135,174 2,174,829 4,569,011
- - ----------------------------------------------------------------------------------------------------
37
STATEMENTS OF CHANGES IN NET ASSETS
Money Market Fund
------------------------------------
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - ----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 9,455,062 $ 8,103,742
Net realized gain (loss) on sale of
investments (4,762) 1,533
Net change in unrealized appreciation
(depreciation) of investments 0 0
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 9,450,300 8,105,275
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (9,455,062) (8,103,742)
From net realized gain (loss) on sale
of investments 0 0
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 219,618,386 176,002,509
Net asset value of shares issued in
reinvestment of dividends and
distributions 9,251,485 7,951,900
Cost of shares redeemed (225,588,287) (163,761,261)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARES
TRANSACTIONS 3,281,584 20,193,148
INCREASE (DECREASE) IN NET ASSETS 3,276,822 20,194,681
NET ASSETS:
Beginning net assets 177,046,182 156,851,501
ENDING NET ASSETS $ 180,323,004 $ 177,046,182
SHARES ISSUED AND REDEEMED:
Shares sold 219,618,386 176,002,509
Shares issued in reinvestment of
dividends and distributions 9,251,485 7,951,876
Shares redeemed (225,588,287) (163,761,261)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING 3,281,584 20,193,124
- - ----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
38
STATEMENTS OF CHANGES IN NET ASSETS
S&P 500 Stock Fund Short-Intermediate Term Fund
- - ------------------------------------- -----------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
February 28, 1998 February 28, 1997 February 28 1998 February 28, 1997
- - -------------------------------------------------------
$ 31,240,614 $ 23,815,692 $ 711,835 $ 846,293
67,662,285 21,513,935 (82,340) (86,579)
444,494,109 219,020,476 250,239 (214,500)
543,397,008 264,350,103 879,734 545,214
(30,121,261) (22,785,673) (715,413) (840,943)
(39,697,846) (16,780,931) 0 0
859,737,151 539,066,703 2,637,312 4,322,741
69,792,808 25,515,514 715,374 909,344
(533,699,383) (249,037,913) (5,741,426) (5,586,461)
395,830,576 315,544,304 (2,388,740) (354,376)
869,408,477 540,327,803 (2,224,419) (650,105)
1,423,024,224 882,696,421 13,053,577 13,703,682
$2,292,432,701 $1,423,024,224 $10,829,158 $13,053,577
44,359,193 35,425,415 283,682 468,606
3,561,316 1,696,159 77,304 98,728
(27,667,316) (16,520,854) (621,841) (606,156)
20,253,193 20,600,720 (260,855) (38,822)
- - ---------------------------------------------------------------------------
39
STATEMENTS OF CHANGES IN NET ASSETS
U.S. Treasury Allocation Fund
------------------------------------
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - ----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 2,679,863 $ 3,002,841
Net realized gain (loss) on sale of
investments 497,222 (142,717)
Net change in unrealized appreciation
(depreciation) of investments 384,199 (507,060)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 3,561,284 2,353,064
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2,677,544) (2,994,176)
From net realized gain (loss) on sale
of investments (122,957) 0
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 13,761,242 12,235,270
Net asset value of shares issued in
reinvestment of dividends and
distributions 2,800,446 3,193,414
Cost of shares redeemed (17,623,970) (18,877,292)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARES
TRANSACTIONS (1,062,282) (3,448,608)
INCREASE (DECREASE) IN NET ASSETS (301,499) (4,089,720)
NET ASSETS:
Beginning net assets 47,542,417 51,632,137
ENDING NET ASSETS $ 47,240,918 $ 47,542,417
SHARES ISSUED AND REDEEMED:
Shares sold 1,474,632 1,321,414
Shares issued in reinvestment of
dividends and distributions 301,293 346,020
Shares redeemed (1,897,079) (2,042,217)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING (121,154) (374,783)
- - ----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
40
(THIS PAGE INTENTIONALLY LEFT BLANK)
41
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
Asset Allocation Fund
-----------------------------------------------------------------------
Period From
July 2,
1993
(Commence-
ment of
Year Ended Year Ended Year Ended Year Ended Operations) to
February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
- - --------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $12.12 $11.83 $9.93 $10.19 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.44 0.47 0.40 0.44 0.23
Net realized and
unrealized gain (loss)
on investments 2.68 1.02 1.90 (0.14) 0.28
TOTAL FROM INVESTMENT
OPERATIONS 3.12 1.49 2.30 0.30 0.51
LESS DISTRIBUTIONS:
From net investment
income (0.44) (0.47) (0.40) (0.44) (0.23)
From net realized gains (1.30) (0.73) 0.00 (0.12) (0.09)
TOTAL DISTRIBUTIONS (1.74) (1.20) (0.40) (0.56) (0.32)
NET ASSET VALUE, END OF
PERIOD $13.50 $12.12 $11.83 $9.93 $10.19
TOTAL RETURN (NOT
ANNUALIZED) 27.10% 13.09% 23.54% 3.28% 5.14%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000) $534,746 $431,585 $397,930 $293,696 $217,140
Number of shares out-
standing, end of pe-
riod (000) 39,601 35,613 33,634 29,585 21,303
RATIOS TO AVERAGE NET
ASSETS+:
Ratio of expenses to
average net
assets(/1/) 0.75% 0.75% 0.75% 0.75% 0.79%
Ratio of net investment
income (loss) to
average net
assets(/2/) 3.37% 3.95% 3.62% 4.62% 3.47%
Portfolio turnover -- -- -- 24%* 33%
- - --------------------------------------------------------------------------------------------------
(1) Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses N/A N/A N/A 0.76% 0.80%
(2) Ratio of net
investment income
(loss) to average
net assets prior to
waived fees and
reimbursed expenses N/A N/A N/A 4.61% 3.46%
- - --------------------------------------------------------------------------------------------------
* This rate is for the period from March 1, 1994 to May 25, 1994. As of May
26, 1994 the Funds (except for the Money Market Fund) invest all of their
assets in the corresponding Master Portfolio. Portfolio turnover after May
26, 1994 is reported by the Master Portfolio.
+ Annualized for periods of less than one year. These ratios include expenses
charged to the corresponding Master Portfolio.
42
FINANCIAL HIGHLIGHTS
Bond Index Fund
- - ---------------------------------------------------------------------------
Period From
July 2,
1993
(Commence-
ment of
Year Ended Year Ended Year Ended Year Ended Operations) to
February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
- - ----------------------------------------------
$9.43 $9.66 $9.20 $9.76 $10.00
0.64 0.63 0.64 0.64 0.38
0.30 (0.23) 0.46 (0.56) (0.24)
0.94 0.40 1.10 0.08 0.14
(0.64) (0.63) (0.64) (0.64) (0.38)
0.00 0.00 0.00 0.00 0.00
(0.64) (0.63) (0.64) (0.64) (0.38)
$9.73 $9.43 $9.66 $9.20 $9.76
10.36% 4.32% 12.17% 1.12% 1.38%
$93,776 $129,469 $58,090 $18,593 $14,899
9,639 13,736 6,016 2,020 1,526
0.23% 0.23% 0.23% 0.23% 0.31%
6.66% 6.69% 6.67% 7.08% 5.88%
-- -- -- 14%* 20%
- - -----------------------------------------------------------------------------
N/A 0.32% 0.53% 0.71% 0.32%
N/A 6.60% 6.37% 6.61% 5.87%
- - -----------------------------------------------------------------------------
43
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
Growth Stock Fund
--------------------------------------------------------------------------
Period From
July 2,
1993
(Commence-
ment of
Year Ended Year Ended Year Ended Year Ended Operations) to
February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $14.07 $14.78 $11.64 $11.52 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) (0.04) (0.06) (0.01) 0.00 (0.01)
Net realized and
unrealized gain (loss)
on investments 2.96 (0.43) 4.82 0.19 1.86
TOTAL FROM INVESTMENT
OPERATIONS 2.92 (0.49) 4.81 0.19 1.85
LESS DISTRIBUTIONS:
From net investment
income 0.00 0.00 (0.01) 0.00 0.00
From net realized gains (1.25) (0.22) (1.66) (0.07) (0.33)
TOTAL DISTRIBUTIONS (1.25) (0.22) (1.67) (0.07) (0.33)
NET ASSET VALUE, END OF
PERIOD $15.74 $14.07 $14.78 $11.64 $11.52
TOTAL RETURN (NOT
ANNUALIZED) 21.61% (3.46)% 42.10% 1.70% 18.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000) $237,014 $213,218 $178,584 $96,925 $45,443
Number of shares
outstanding, end of
period (000) 15,061 15,156 12,084 8,330 3,945
RATIOS TO AVERAGE NET
ASSETS+:
Ratio of expenses to
average net assets(/1/) 0.78% 0.76% 0.76% 0.76% 0.80%
Ratio of net investment
income (loss) to
average net assets(/2/) (0.28)% (0.41)% (0.12)% (0.02)% (0.18)%
Portfolio turnover -- -- -- 27%* 104%
- - -------------------------------------------------------------------------------------------------------
(1) Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses 0.80% 0.81% 0.86% 0.87% 0.80%
(2) Ratio of net
investment income
(loss) to average net
assets prior to
waived fees and
reimbursed expenses (0.30)% (0.46)% (0.22)% (0.12)% (0.18)%
- - -------------------------------------------------------------------------------------------------------
* This rate is for the period from March 1, 1994 to May 25, 1994. As of May
26, 1994 the Funds (except for the Money Market Fund) invest all of their
assets in the corresponding Master Portfolio. Portfolio turnover after May
26, 1994 is reported by the Master Portfolio.
+ Annualized for periods of less than one year. These ratios include ex-
penses charged to the corresponding Master Portfolio.
44
FINANCIAL HIGHLIGHTS
LifePath 2000 Fund LifePath 2010 Fund LifePath 2020 Fund LifePath 2030 Fund
- - ---------------------------- ---------------------------- ---------------------------- ----------------------------
Period From Period From Period From Period From
March 26, 1996 March 26, 1996 March 26, 1996 March 26, 1996
(Commence- (Commence- (Commence- (Commence-
ment of ment of ment of ment of
Year Ended Operations) to Year Ended Operations) to Year Ended Operations) to Year Ended Operations) to
February 28, February 28, February 28, February 28, February 28, February 28, February 28, February 28
1998 1997 1998 1997 1998 1997 1998 1997
- - ---------------------------------------------------------------
$10.97 $10.55 $12.46 $11.44 $13.40 $11.97 $14.17 $12.39
0.46 0.39 0.40 0.33 0.33 0.29 0.26 0.23
0.85 0.35 1.87 0.96 2.84 1.40 3.65 1.79
1.31 0.74 2.27 1.29 3.17 1.69 3.91 2.02
(0.46) (0.32) (0.40) (0.27) (0.33) (0.24) (0.26) (0.20)
(0.26) 0.00 (0.43) 0.00 (0.51) (0.02) (0.43) (0.04)
(0.72) (0.32) (0.83) (0.27) (0.84) (0.26) (0.69) (0.24)
$11.56 $10.97 $13.90 $12.46 $15.73 $13.40 $17.39 $14.17
12.32% 7.00% 18.73% 11.98% 24.25% 15.06% 28.22% 17.37%
$48,731 $46,578 $112,436 $87,204 $148,197 $105,414 $95,309 $58,575
4,216 4,245 8,086 7,000 9,424 7,868 5,481 4,135
0.95% 0.95% 0.95% 0.95% 0.95% 0.95% 0.95% 0.95%
4.06% 4.21% 3.09% 3.26% 2.28% 2.57% 1.72% 2.05%
-- -- -- -- -- -- -- --
- - -----------------------------------------------------------------------------------------------------------------------
N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A
- - -----------------------------------------------------------------------------------------------------------------------
45
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
LifePath 2040 Fund
-------------------------------
Period From
March 26, 1996
(Commencement
Year Ended of Operations) to
February 28, February 28,
1998 1997
- - -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.21 $12.91
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.18 0.18
Net realized and unrealized gain (loss) on
investments 4.41 2.27
TOTAL FROM INVESTMENT OPERATIONS 4.59 2.45
LESS DISTRIBUTIONS:
From net investment income (0.19) (0.15)
From net realized gains (0.84) 0.00
TOTAL DISTRIBUTIONS (1.03) (0.15)
NET ASSET VALUE, END OF PERIOD $18.77 $15.21
TOTAL RETURN (NOT ANNUALIZED) 30.95% 20.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $126,601 $69,476
Number of shares outstanding, end of period
(000) 6,744 4,569
RATIOS TO AVERAGE NET ASSETS+:
Ratio of expenses to average net assets(/1/) 0.95% 0.95%
Ratio of net investment income to average net
assets(/2/) 1.04% 1.46%
Portfolio turnover -- --
- - -------------------------------------------------------------------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses N/A N/A
(2) Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses N/A N/A
- - -------------------------------------------------------------------------------
+ Annualized for periods of less than one year. These ratios include
expenses charged to the Master Portfolio (except for the Money Market
Fund).
46
FINANCIAL HIGHLIGHTS
Money Market Fund
- - ---------------------------------------------------------------------------
Period From
July 2, 1993
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
- - -------------------------------------------------------
$1.00 $1.00 $1.00 $1.00 $1.00
0.05 0.05 0.05 0.04 0.02
0.00 0.00 0.00 0.00 0.00
0.05 0.05 0.05 0.04 0.02
(0.05) (0.05) (0.05) (0.04) (0.02)
0.00 0.00 0.00 0.00 0.00
(0.05) (0.05) (0.05) (0.04) (0.02)
$1.00 $1.00 $1.00 $1.00 $1.00
5.35% 5.10% 5.60% 4.40% 1.81%
$180,375 $177,046 $156,852 $147,269 $81,649
180,437 177,103 156,910 147,280 81,648
0.45% 0.45% 0.45% 0.45% 0.49%
5.23% 4.96% 5.44% 4.44% 2.77%
N/A N/A N/A N/A N/A
- - ----------------------------------------------------------------------------
N/A 0.48% 0.49% 0.57% 0.50%
N/A 4.93% 5.40% 4.32% 2.76%
- - ----------------------------------------------------------------------------
47
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
S&P 500 Stock Fund
---------------------------------------------------------------------------
Period From
July 2, 1993
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $17.03 $14.02 $10.83 $10.50 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.33 0.32 0.31 0.27 0.16
Net realized and
unrealized gain (loss)
on investments 5.46 3.23 3.36 0.41 0.47
TOTAL FROM INVESTMENT
OPERATIONS 5.79 3.55 3.67 0.68 0.63
LESS DISTRIBUTIONS:
From net investment
income (0.33) (0.32) (0.30) (0.27) (0.12)
From net realized gains (0.41) (0.22) (0.18) (0.08) (0.01)
In excess of net
realized gains 0.00 0.00 0.00 0.00 0.00
TOTAL DISTRIBUTIONS (0.74) (0.54) (0.48) (0.35) (0.13)
NET ASSET VALUE, END OF
PERIOD $22.08 $17.03 $14.02 $10.83 $10.50
TOTAL RETURN (NOT
ANNUALIZED) 34.62% 25.82% 34.35% 6.71% 6.30%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000) $2,292,433 $1,423,024 $882,696 $448,776 $122,391
Number of shares out-
standing, end of pe-
riod (000) 103,804 83,551 62,951 41,427 11,653
RATIOS TO AVERAGE NET
ASSETS+:
Ratio of expenses to
average net
assets(/1/) 0.20% 0.20% 0.20% 0.21% 0.27%
Ratio of net investment
income to average net
assets(/2/) 1.73% 2.15% 2.52% 2.93% 2.46%
Portfolio turnover -- -- -- 8%* 4%
- - ------------------------------------------------------------------------------------------------------
(1) Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses N/A 0.22% 0.26% 0.25% 0.28%
(2) Ratio of net
investment income to
average net assets
prior to waived fees
and reimbursed
expenses N/A 2.13% 2.46% 2.88% 2.45%
- - ------------------------------------------------------------------------------------------------------
* This rate is for the period from March 1, 1994 to May 25, 1994. As of May
26, 1994 the Funds (except for the Money Market Fund) invest all of their
assets in the corresponding Master Portfolio, and portfolio turnover is re-
ported by the Master Portfolio.
+ Annualized for periods of less than one year. These ratios include expenses
charged to the corresponding Master Portfolio.
48
FINANCIAL HIGHLIGHTS
Short-Intermediate Term Fund
- - --------------------------------------------------------------------------
Period From
July 2, 1993
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
- - ---------------------------------------------------
$9.19 $9.40 $9.15 $9.72 $10.00
0.60 0.60 0.65 0.64 0.42
0.16 (0.21) 0.25 (0.57) (0.28)
0.76 0.39 0.90 0.07 0.14
(0.60) (0.60) (0.65) (0.64) (0.42)
0.00 0.00 0.00 0.00 0.00
0,00 0.00 0.00 0.00 0.00
(0.60) (0.60) (0.65) (0.64) (0.42)
$9.35 $9.19 $9.40 $9.15 $9.72
8.51% 4.29% 10.07% 0.89% 1.42%
$10,829 $13,054 $13,704 $14,298 $5,258
1,159 1,420 1,458 1,562 541
0.63% 0.65% 0.65% 0.65% 0.65%
6.40% 6.48% 6.82% 7.07% 6.02%
-- -- -- 29% 277%
- - ---------------------------------------------------------------------------
N/A 1.29% 1.44% 1.41% 0.65%
N/A 5.84% 6.03% 6.32% 6.02%
- - ---------------------------------------------------------------------------
49
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
U.S. Treasury Allocation Fund
--------------------------------------------------------------------------
Period From
July 2, 1993
(Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING
OF PERIOD $9.24 $9.35 $8.99 $9.67 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.55 0.56 0.51 0.59 0.39
Net realized and
unrealized gain (loss)
on investments 0.19 (0.11) 0.36 (0.68) (0.05)
TOTAL FROM INVESTMENT
OPERATIONS 0.74 0.45 0.87 (0.09) 0.34
LESS DISTRIBUTIONS:
From net investment
income (0.55) (0.56) (0.51) (0.59) (0.39)
From net realized gains (0.03) 0.00 0.00 0.00 (0.20)
In excess of net
realized gains 0.00 0.00 0.00 (0.08)
TOTAL DISTRIBUTIONS (0.58) (0.56) (0.51) (0.59) (0.67)
NET ASSET VALUE, END OF
PERIOD $9.40 $9.24 $9.35 $8.99 $9.67
TOTAL RETURN (NOT
ANNUALIZED) 8.18% 4.99% 9.89% (0.76)% 3.33%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000) $47,241 $47,542 $51,632 $56,852 $58,216
Number of shares
outstanding, end of
period (000) 5,026 5,147 5,522 6,324 6,019
RATIOS TO AVERAGE NET
ASSETS:+
Ratio of expenses to
average net
assets(/1/) 0.70% 0.70% 0.70% 0.70% 0.78%
Ratio of net investment
income to average net
assets(/2/) 5.89% 6.03% 5.47% 6.52% 5.79%
Portfolio turnover -- -- -- 43%* 210%
- - -----------------------------------------------------------------------------------------------------
(1) Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses N/A 0.71% N/A 0.72% 0.80%
(2) Ratio of net
investment income to
average net assets
prior to waived fees
and reimbursed
expenses N/A 6.02% N/A 6.50% 5.77%
- - -----------------------------------------------------------------------------------------------------
* This rate is for the period from March 1, 1994 to May 25, 1994. As of May
26, 1994 the Funds (except for the Money Market Fund) invest all of their
assets in the corresponding Master Portfolio, and portfolio turnover is re-
ported by the Master Portfolio.
+ Annualized for periods of less than one year. These ratios include expenses
charged to the corresponding Master Portfolio.
50
MASTERWORKS FUNDS INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
MasterWorks Funds Inc. (the "Company"), is registered under the Investment
Company Act of 1940, as amended, as an open-end series investment company. The
Company commenced operations on July 2, 1993, and currently issues the
following Funds: the Asset Allocation, Bond Index, Growth Stock, LifePath 2000,
LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, Money Market, S&P
500 Stock, Short-Intermediate Term and U.S. Treasury Allocation Funds (each, a
"Fund", collectively, the "Funds").
The following significant accounting policies are consistently followed by
the Company in the preparation of its financial statements, and such policies
are in conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENT POLICY AND SECURITY VALUATION
Each Fund, with the exception of the Growth Stock, Money Market and Short-
Intermediate Term Funds, invests all of its assets in a separate series (each a
"Master Portfolio") of Master Investment Portfolio. Each of the Growth Stock
and Short-Intermediate Term Funds invests all of its assets in a separate
series (also a "Master Portfolio") of Managed Series Investment Trust. Each
Master Portfolio has the same investment objective as the Fund bearing the
corresponding name. The value of each Fund's investment in its corresponding
Master Portfolio reflects that Fund's interest in the net assets of that Master
Portfolio (99.99%, 99.99%, 99.99%, 41.92%, 53.93%, 45.36%, 40.73%, 31.14%,
97.24%, 99.99% and 99.99% for the Asset Allocation, Bond Index, Growth Stock,
LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, S&P
500 Stock, Short-Intermediate Term and U.S. Treasury Allocation Funds,
respectively, as of February 28, 1998). The Money Market Fund does not invest
in a corresponding Master Portfolio. Investments of each Master Portfolio are
valued at the last reported sale price on the primary securities exchange or
national securities market on which such securities are traded. Securities not
51
MASTERWORKS FUNDS INC.
NOTES TO THE FINANCIAL STATEMENTS
listed on an exchange or national securities market, or securities in which
there was no last reported sales price, are valued at the most recent bid
prices. Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in those securities or by an independent pricing source. U.S.
Government obligations are valued at the last reported bid price. Debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Any securities, restricted securities or other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith in accordance with policies approved by the
Master Portfolios' Board of Trustees.
The Money Market Fund uses the amortized cost method to value its portfolio
securities and seeks to maintain a constant net asset value of $1.00 per share.
There is no assurance that the Fund will meet this objective. The amortized
cost method, which involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, approximates market value.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for by each Master Portfolio and the
Money Market Fund on the date the securities are purchased or sold (trade
date). Revenue is recognized by each Master Portfolio as follows: dividend
income is recognized on the ex-dividend date and interest income is recognized
on a daily accrual basis. The Money Market Fund recognizes interest income on a
daily accrual basis. Realized gains and losses are reported on the basis of
identified cost of securities delivered. Bond discounts and premiums are
amortized as required by the Internal Revenue Code of 1986, as amended (the
"Code"). All net investment income and realized and unrealized capital gains
and losses of each Master Portfolio are allocated as required by the Code.
The performance of each Fund, with the exception of the Money Market Fund, is
directly affected by the performance of its corresponding Master Portfolio. The
financial statements of each Master Portfolio, including the Portfolio of
Investments, are included elsewhere in this report and should be read in
conjunction with the corresponding Fund's financial statements.
52
MASTERWORKS FUNDS INC.
NOTES TO THE FINANCIAL STATEMENTS
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment income of the Asset Allocation,
Bond Index, Short-Intermediate Term and U.S. Treasury Allocation Funds are
declared and distributed monthly. Dividends to shareholders from net investment
income of the Growth Stock, LifePath 2000, LifePath 2010, LifePath 2020,
LifePath 2030, LifePath 2040 and S&P 500 Stock Funds are declared and
distributed quarterly. Dividends to shareholders from net investment income of
the Money Market Fund are declared daily and distributed monthly. Distributions
to shareholders from any net realized capital gains are declared and
distributed annually, generally in December.
Due to the timing of dividend distributions and the differences in accounting
for income and realized gains (losses) for financial statement and federal
income tax purposes, the fiscal year in which amounts are distributed may
differ from the year in which the income and realized gains (losses) were
recorded by the Fund.
FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for federal income tax purposes. It
is the policy of each Fund to continue to qualify as a regulated investment
company by complying with the provisions applicable to regulated investment
companies, as defined in the Code, and to make distributions of substantially
all of its investment company taxable income and any net realized capital gains
(after reduction for capital loss carryforwards) sufficient to relieve it from
all, or substantially all, federal income and excise taxes. Accordingly, no
provision for federal taxes was required at February 28, 1998. The following
Funds had net capital loss carryforwards at December 31, 1997, the tax year end
of the funds:
Year Net Capital
Fund Expires Loss Carryforward
- - --------------------------------------------------------
Bond Index Fund 2002 $ 144,965
Bond Index Fund 2003 316,656
Bond Index Fund 2004 404,767
Bond Index Fund 2005 487,385
Money Market Fund 2003 57,505
Money Market Fund 2005 4,762
Short-Intermediate Term Fund 2002 247,724
Short-Intermediate Term Fund 2005 77,556
U.S. Treasury Allocation Fund 2002 4,475,313
53
MASTERWORKS FUNDS INC.
NOTES TO THE FINANCIAL STATEMENTS
No capital gain distribution shall be made in any of the Funds until the
respective capital loss carryforward has been fully utilized or expires.
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Contract with the Money Market Fund,
Barclays Global Fund Advisers ("BGFA") is entitled to receive a monthly fee at
an annual rate of 0.35% of the average daily net assets of the Fund as
compensation for its advisory services. BGFA is an indirect subsidiary of
Barclays Bank PLC.
Pursuant to a Sub-Advisory Contract with the Money Market Fund and BGFA,
Wells Fargo Bank, N.A. ("WFB") is responsible for the day-to-day portfolio
management of the Money Market Fund. WFB is entitled to receive from BGFA an
amount equal to 0.05% of the average daily net assets of the Money Market Fund
as compensation for its sub-advisory services.
Investors Bank & Trust Company ("IBT") serves as the Custodian and Sub-
Administrator of the Funds. IBT will not be entitled to receive fees for its
custodial services so long as it is entitled to receive a separate fee from BGI
for its services as Sub-Administrator of the Funds.
Stephens Inc. ("Stephens"), is the Funds' co-administrator and distributor.
The Company has entered into administration services arrangements with BGI
and Stephens, as co-administrators, who have agreed jointly to provide general
administration services to the Funds, such as managing and coordinating third-
party service relationships. This fee is an "all-in" or "semi-unified" fee and
BGI and Stephens, in consideration thereof, have agreed to bear all of the
Funds' ordinary operating expenses, excluding, generally, advisory fees and
costs related to securities transactions. BGI and Stephens may delegate certain
of their administration duties to sub-administrators.
54
MASTERWORKS FUNDS INC.
NOTES TO THE FINANCIAL STATEMENTS
Under these arrangements, BGI and Stephens are entitled to receive for these
administration services a combined fee (expressed as a percentage of average
daily net assets) from each Fund as follows:
Asset Allocation Fund 0.40%
Bond Index Fund 0.15%
Growth Stock Fund 0.18%
LifePath 2000 Fund 0.40%
LifePath 2010 Fund 0.40%
LifePath 2020 Fund 0.40%
LifePath 2030 Fund 0.40%
LifePath 2040 Fund 0.40%
Money Market Fund 0.10%
S&P 500 Stock Fund 0.15%
Short-Intermediate Term Fund 0.18%
U.S. Treasury Allocation Fund 0.40%
The Company has entered into separate contracts on behalf of the Funds with
WFB, whereby WFB has agreed to provide transfer and dividend disbursing agency
services and shareholder services to the Funds. WFB is compensated for transfer
and dividend disbursing agency services at an annual rate of 0.03% of the
average daily net assets for the Bond Index, Growth Stock, S&P 500 Stock and
Short-Intermediate Term Funds, 0.10% of the average daily net assets of the
Asset Allocation, LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030,
LifePath 2040 and U.S. Treasury Allocation Funds and 0.05% of the average daily
net assets of the Money Market Fund. WFB is compensated for shareholder
servicing based on an annual rate of 0.20% for the Asset Allocation, LifePath
2000, LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040 and U.S.
Treasury Allocation Funds, 0.10% for the Growth Stock, Money Market and Short-
Intermediate Term Funds and 0.07% for the Bond Index and S&P 500 Stock Funds,
based on the average daily net assets of each of these Funds. Under the
administrative services arrangements, BGI and Stephens will compensate WFB for
expenses related to transfer and dividend disbursing agency services and
shareholder servicing.
Certain fees have been waived by BGI for the Growth Stock Fund for the year
ended February 28, 1998. Waived fees continue at the discretion of BGI.
55
MASTERWORKS FUNDS INC.
NOTES TO THE FINANCIAL STATEMENTS
Certain officers and directors of the Company are also officers of Stephens.
As of February 28, 1998, Stephens owned less than 1% of the outstanding shares
of each Fund.
3. CAPITAL SHARES TRANSACTIONS
As of February 28, 1998, there were 12.1 billion shares of $.001 par value
capital stock authorized by the Company. As of February 28, 1998, each Fund,
except the Money Market, S&P 500 Stock, Short-Intermediate Term and U.S.
Treasury Allocation Funds, was authorized to issue 100 million shares of $.001
par value capital stock. The Money Market Fund was authorized to issue 3
billion shares. The S&P 500 Stock, Short-Intermediate Term and U.S. Treasury
Allocation Funds were each authorized to issue 300 million shares. Transactions
in capital shares for each Fund are disclosed in detail in the Statements of
Changes in Net Assets.
4. PORTFOLIO SECURITIES LOANED
As of February 28, 1998, certain Master Portfolios had loaned securities
which were collateralized by cash, money market mutual funds and repurchase
agreements. Each Master Portfolio receives transaction fees for providing
services in connection with the securities lending program. The value of the
securities on loan and the value of the related collateral are disclosed in the
corresponding Master Portfolio financial statements.
56
To the Shareholders and Board of Directors
MasterWorks Funds Inc.:
We have audited the accompanying statements of assets and liabilities, includ-
ing the portfolio of investments of the Money Market Fund, of MasterWorks Funds
Inc. (comprising respectively, Asset Allocation Fund, Bond Index Fund, Growth
Stock Fund, LifePath 2000 Fund, LifePath 2010 Fund, LifePath 2020 Fund,
LifePath 2030 Fund, LifePath 2040 Fund, Money Market Fund, S&P 500 Stock Fund,
Short- Intermediate Term Fund and U.S. Treasury Allocation Fund) as of February
28, 1998, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year pe-
riod then ended, except for LifePath 2000 Fund, LifePath 2010 Fund, LifePath
2020 Fund, LifePath 2030 Fund, LifePath 2040 Fund, which are for the year then
ended and for the period from March 26, 1996 to February 28, 1997 and the fi-
nancial highlights for the periods indicated herein. These financial statements
and financial highlights are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Feb-
ruary 28, 1998 by correspondence with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds of MasterWorks Funds Inc. as of February 28, 1998,
the results of their operations, the changes in their net assets and their fi-
nancial highlights for the periods indicated herein in conformity with gener-
ally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
April 3, 1998
57
(THIS PAGE INTENTIONALLY LEFT BLANK)
58
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS-71.91%
ADVERTISING-0.06%
Omnicom Group 7,525 $ 344,269
------------
TOTAL ADVERTISING
- VALUE $ 344,269
- COST $ 295,747
AEROSPACE & DEFENSE-1.42%
Allied Signal Inc 26,429 $ 1,124,884
Boeing Co 46,940 2,546,495
Briggs & Stratton Corp 1,156 51,225
General Dynamics Corp 2,917 253,050
Lockheed Martin Corp 9,114 1,063,490
Northrop Grumman Corp 3,110 432,290
Rockwell International Corp 9,826 594,473
Textron Inc 7,751 580,841
United Technologies Corp 10,955 978,418
------------
TOTAL AEROSPACE & DEFENSE
- VALUE $ 7,625,166
- COST $ 5,706,098
AIRLINES-0.36%
AMR Corp+ 4,278 $ 541,434
Delta Air Lines Inc 3,442 389,161
FDX Corp+ 6,826 434,731
Southwest Airlines Co 10,281 294,936
USAirways Group Inc+ 4,243 268,635
------------
TOTAL AIRLINES
- VALUE $ 1,928,897
- COST $ 1,423,077
APPAREL-0.35%
CVS Corp 8,052 $ 596,351
Fruit of the Loom Inc Class A+ 3,435 110,349
Liz Claiborne Inc 3,130 156,500
Nike Inc Class B 13,672 599,859
Reebok International Ltd+ 2,629 81,992
Russell Corp 1,703 46,194
VF Corp 5,705 272,057
------------
TOTAL APPAREL
- VALUE $ 1,863,302
- COST $ 1,518,646
59
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
AUTO PARTS & EQUIPMENT-0.64%
Cooper Tire & Rubber Co 3,674 $ 84,732
Dana Corp 4,887 266,647
Deluxe Corp 3,820 130,119
Eaton Corp 3,633 348,995
Echlin Inc 2,998 151,586
Genuine Parts Co 8,432 311,966
Goodyear Tire & Rubber Co 7,309 505,235
Illinois Tool Works Inc 11,689 700,609
ITT Industries Inc 5,599 191,766
Navistar International Corp+ 3,511 106,647
PACCAR Inc 3,693 233,813
Pep Boys-Manny Moe & Jack 2,952 75,645
TRW Inc 5,769 316,213
------------
TOTAL AUTO PARTS & EQUIPMENT
- VALUE $ 3,423,973
- COST $ 2,627,258
AUTOMOBILES-1.25%
Chrysler Corp 31,059 $ 1,209,360
Ford Motor Co 56,312 3,185,148
General Motors Corp Class A 33,173 2,286,864
------------
TOTAL AUTOMOBILES
- VALUE $ 6,681,372
- COST $ 4,983,439
BANK & FINANCE-8.90%
Ahmanson (H F) & Co 5,129 $ 320,242
American Express Corp 21,836 1,966,605
Banc One Corp 30,285 1,711,114
Bank of New York Inc 17,675 1,035,092
BankAmerica Corp 32,497 2,518,518
BankBoston Corp 6,774 675,283
Bankers Trust Corp 4,550 538,038
BB&T Corp 6,374 395,586
Beneficial Corp 2,539 299,602
Chase Manhattan 19,791 2,455,321
Citicorp 21,414 2,837,355
Comerica Inc 4,883 492,267
CoreStates Financial Corp 9,324 787,295
Countrywide Credit Industries Inc 5,112 227,165
Equifax Inc 7,075 254,258
60
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Federal Home Loan Mortgage Corp 32,653 $ 1,542,854
Federal National Mortgage Assoc 49,736 3,173,779
Fifth Third Bancorp 7,256 573,224
First Chicago NBD Corp 13,614 1,118,901
First Union Corp 29,491 1,553,807
Fleet Financial Group Inc 12,766 1,006,120
Golden West Financial 2,666 237,941
Green Tree Financial Inc 6,404 146,892
Household International Inc 5,042 654,830
Huntington Bancshares Inc 8,946 320,938
Keycorp 10,260 718,841
Lehman Brothers Holdings 4,773 300,997
MBNA Corp 23,498 841,522
Mellon Bank Corp 11,986 746,878
Mercantile Bancorp 6,108 339,758
Merrill Lynch & Co Inc 15,616 1,117,520
MGIC Investment Corp 5,383 396,660
Morgan (J P) & Co Inc 8,362 999,259
Morgan Stanley Dean Witter 27,837 1,939,887
National City Corp 10,038 654,980
NationsBank Corp 44,071 3,018,864
Northern Trust Corp 5,253 399,556
Norwest Corp 35,437 1,450,702
PNC Bank Corp 14,295 793,373
Republic New York Corp 2,598 314,358
Ryder System Inc 3,609 132,405
Schwab (Charles) Corp 12,484 471,271
State Street Boston Corp 7,564 467,550
Summit Bancorp 8,220 408,431
SunTrust Banks Inc 9,876 728,355
Synovus Financial Corp 7,560 267,373
U.S. Bancorp 11,496 1,322,759
Wachovia Corp 9,549 759,146
Washington Mutual Inc 12,102 812,347
Wells Fargo & Co 4,077 1,312,794
------------
TOTAL BANK & FINANCE
- VALUE $ 47,558,613
- COST $ 33,975,287
61
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
BASIC INDUSTRIES-1.12%
ASARCO Inc 1,933 $ 42,768
Avery-Dennison Corp 4,791 241,946
Baker Hughes Inc 7,904 323,570
Bemis Co 2,461 110,899
Boise Cascade Corp 2,667 88,844
Champion International Corp 4,471 228,300
Cyprus Amax Minerals 4,397 72,001
Dover Corp 10,403 401,816
Fort James Corp 9,843 446,626
Georgia-Pacific Corp 4,305 252,650
Harnischfeger Industries Inc 2,301 81,398
Homestake Mining Co 6,776 67,760
Ikon Office Solutions Inc 6,183 202,107
Inco Ltd 7,811 138,157
Louisiana-Pacific Corp 5,158 113,154
Mead Corp 4,930 168,544
Minnesota Mining & Manufacturing Co 19,160 1,634,588
NACCO Industries Inc Class A 410 53,326
Newmont Mining Corp 7,332 212,170
Potlatch Corp 1,352 58,559
Stone Container Corp+ 4,612 51,885
Union Camp Corp 3,271 195,442
Westvaco Corp 4,792 155,740
Weyerhauser Co 9,391 468,963
Willamette Industries Inc 5,214 192,592
------------
TOTAL BASIC INDUSTRIES
- VALUE $ 6,003,805
- COST $ 5,639,566
BEVERAGES-2.31%
Anheuser-Busch Inc 22,999 $ 1,078,078
Coca-Cola Co 116,097 7,974,413
Coors (Adolph) Co Class B 1,694 52,938
Pepsico Inc 71,202 2,603,323
Seagrams Co Ltd 16,749 636,462
------------
TOTAL BEVERAGES
- VALUE $ 12,345,214
- COST $ 9,650,487
62
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
BROADCASTING-0.44%
Clear Channel Communications Inc+ 4,568 $ 413,975
Kingworld Productions 3,344 89,243
Tele-Communications Inc Class A+ 23,846 693,024
Tribune Co 5,813 375,302
Viacom Inc Class B+ 16,565 795,120
------------
TOTAL BROADCASTING
- VALUE $ 2,366,664
- COST $ 1,731,380
BUILDING MATERIALS & SERVICES-0.36%
Cooper Industries Inc 5,642 $ 316,657
Corning Inc 10,843 440,497
Owens Corning Fiberglass Corp 2,490 76,879
Owens Illinois Inc+ 6,551 251,395
PPG Industries Inc 8,372 542,610
Snap-On Inc 2,812 119,510
Stanley Works 4,189 200,287
------------
TOTAL BUILDING MATERIALS & SERVICE
- VALUE $ 1,947,835
- COST $ 1,675,213
BUSINESS SERVICES-0.39%
Cendant Corp+ 37,096 $ 1,391,100
Ecolab Inc 6,078 175,122
Waste Management Inc 21,298 532,450
------------
TOTAL BUSINESS SERVICES
- VALUE $ 2,098,672
- COST $ 1,730,728
CHEMICALS-1.80%
Air Products & Chemicals Inc 5,127 $ 430,348
Clorox Co 4,865 426,904
Dow Chemical Co 10,674 976,671
Du Pont (E I) De Nemours 53,051 3,252,689
Eastman Chemical Co 3,664 239,992
FMC Corp+ 1,733 125,426
Goodrich (B F) Co 3,398 168,413
Grace (W R) Co 3,450 289,584
Great Lakes Chemical Corp 2,784 135,372
Hercules Inc 4,503 217,551
63
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
International Flavor & Fragrances 5,134 $ 236,164
Monsanto Co 27,799 1,414,274
Morton International Inc 6,248 206,575
Nalco Chemical Co 3,103 124,896
Praxair Inc 7,445 355,964
Rohm & Haas Co 2,897 295,313
Rubbermaid Inc 7,050 204,450
Sigma-Aldrich Corp 4,727 186,717
Union Carbide Corp 5,744 266,737
------------
TOTAL CHEMICALS
- VALUE $ 9,554,040
- COST $ 7,770,326
COMPUTER SOFTWARE-3.17%
3Com Corp+ 16,276 $ 581,867
Adobe Systems Inc 3,474 153,507
Autodesk Inc 2,285 108,252
Automatic Data Processing 13,721 837,839
Bay Networks Inc+ 9,920 336,040
Computer Associates International Inc 25,608 1,206,777
Computer Sciences Corp+ 3,597 376,561
First Data Corp 20,124 684,216
HBO & Co 9,941 538,057
Microsoft Corp 113,204 9,594,039
Novell Inc+ 16,249 170,868
Oracle Systems Corp 46,055 1,134,104
Parametric Technology Corp+ 5,964 361,195
Siebel Systems Inc+ 8 492
Sun Microsystems Inc+ 17,547 835,676
------------
TOTAL COMPUTER SOFTWARE
- VALUE $ 16,919,490
- COST $ 11,692,681
COMPUTER SYSTEMS-3.47%
Apple Computer Inc+ 5,910 $ 139,624
Cabletron Systems Inc+ 7,378 114,359
Ceridian Corp+ 3,607 167,951
Cisco Systems Inc 47,170 3,107,324
Cognizant Corp 7,601 379,575
Compaq Computer Corp 71,026 2,277,271
Data General Corp+ 2,200 45,375
64
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Dell Computer Corp 15,348 $ 2,146,802
Digital Equipment Corp+ 6,939 395,089
EMC Corp 23,260 889,695
Harris Corp 3,752 190,180
Hewlett-Packard Co 48,777 3,268,059
International Business Machine Corp 45,590 4,761,306
Seagate Technology Inc+ 11,439 278,111
Shared Medical System Corp 1,155 88,285
Silicon Graphics Inc+ 8,701 131,059
Unisys Corp+ 8,176 146,146
Unova Inc+ 67 1,281
------------
TOTAL COMPUTER SYSTEMS
- VALUE $ 18,527,492
- COST $ 12,615,590
CONTAINER & PACKAGING-0.30%
Ball Corp 1,407 $ 45,903
Crown Cork & Seal Co 6,025 325,350
International Paper Co 14,200 662,075
Temple-Inland Inc 2,658 158,483
Tenneco Inc 7,992 328,671
Tupperware Corp 2,838 76,271
------------
TOTAL CONTAINER & PACKAGING
- VALUE $ 1,596,753
- COST $ 1,564,580
ELECTRICAL EQUIPMENT-2.74%
Aeroquip-Vickers Inc 1,305 $ 75,772
General Electric Co 153,559 11,939,212
Grainger (W W) Inc 2,320 224,605
Masco Corp 7,732 420,428
Motorola Inc 27,993 1,560,610
National Service Industries Inc 2,039 113,037
Raychem Corp 4,046 175,748
Thomas & Betts Corp 2,599 147,331
------------
TOTAL ELECTRICAL EQUIPMENT
- VALUE $ 14,656,743
- COST $ 10,771,715
65
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
ELECTRONICS-3.09%
Advanced Micro Devices+ 6,612 $ 154,969
AMP Inc 10,364 457,959
Applied Materials Inc 17,133 630,709
CBS Corp 33,038 1,022,113
Commscope Inc+ 1 13
EG&G Inc 2,083 56,111
Emerson Electric Co 20,773 1,325,577
General Instrument Corp+ 6,933 115,694
General Signal Corp 2,367 96,159
Honeywell Inc 6,012 476,451
Intel Corp 76,792 6,887,283
Johnson Controls Inc 3,905 216,972
KLA Instruments Corp+ 3,938 181,763
LSI Logic Corp+ 6,632 157,096
Micron Technology Inc+ 9,896 328,424
National Semiconductor+ 7,684 183,456
Perkin-Elmer Corp 2,289 167,526
Pitney Bowes Inc 13,608 637,875
Raytheon Co Class B 15,955 938,353
Tektronix Inc 2,412 107,636
Texas Instruments Inc 18,291 1,058,592
Xerox Corp 15,336 1,360,112
------------
TOTAL ELECTRONICS
- VALUE $ 16,560,843
- COST $ 11,855,761
ENERGY & RELATED-6.00%
Amerada Hess Corp 4,296 $ 254,807
Amoco Corp 22,836 1,941,060
Anadarko Petroleum Corp 2,825 182,213
Apache Corp 4,521 153,714
Ashland Inc 3,485 194,071
Atlantic Richfield Corp 15,053 1,170,371
Burlington Resources Inc 8,323 372,454
Chevron Corp 30,774 2,496,541
Coastal Corp 4,955 315,262
Columbia Gas System Inc 2,598 198,260
Consolidated Natural Gas Co 4,468 256,910
Dresser Industries Inc 8,267 369,432
Eastern Enterprises 984 43,604
Enron Corp 14,932 701,804
66
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Exxon Corp 115,667 $ 7,388,230
Halliburton Co 12,274 570,741
Helmerich & Payne Inc 2,302 66,614
Kerr-McGee Corp 2,253 152,359
Mobil Corp 36,804 2,665,990
NICOR Inc 2,301 94,629
Occidental Petroleum Corp 15,882 405,984
ONEOK Inc 1,473 51,555
Oryx Energy Co+ 4,930 125,407
Pacific Enterprises Co 3,888 141,183
Pennzoil Co 2,211 147,999
Peoples Energy Corp 1,677 60,582
Phillips Petroleum Co 12,372 606,228
Rowan Co Inc+ 4,068 114,667
Royal Dutch Petroleum Corp 100,607 5,464,218
Schlumberger Ltd 23,260 1,753,223
Sonat Offshore Drilling Co 5,120 220,800
Sun Co Inc 3,321 132,632
Texaco Inc 25,761 1,437,786
Union Pacific Resources Group 11,891 266,061
Unocal Corp 11,579 436,384
USX-Marathon Group 13,528 467,561
Western Atlas Inc 2,595 197,058
Williams Co Inc 14,999 490,280
------------
TOTAL ENERGY & RELATED
- VALUE $ 32,108,674
- COST $ 26,326,970
ENGINEERING & CONSTRUCTION-0.12%
Armstrong World Industries Inc 1,896 $ 148,836
Centex Corp 1,373 100,315
Fleetwood Enterprises Inc 1,665 78,047
Fluor Corp 3,924 184,673
Foster Wheeler Corp 1,953 52,243
Kaufman & Broad Home Corp 1,861 48,153
Pulte Corp 1,024 46,592
------------
TOTAL ENGINEERING & CONSTRUCTION
- VALUE $ 658,859
- COST $ 575,422
67
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
ENTERTAINMENT & LEISURE-1.41%
Brunswick Corp 4,631 $ 147,034
Disney (Walt) Co 31,686 3,546,852
Harrah's Entertainment Inc+ 4,680 98,573
Hasbro Inc 5,918 214,897
Mattel Inc 13,646 577,396
Mirage Resorts Inc+ 8,369 191,441
Polaroid Corp 2,140 98,039
Time Warner Inc 26,249 1,771,808
U.S. West Media Group+ 28,521 918,020
------------
TOTAL ENTERTAINMENT & LEISURE
- VALUE $ 7,564,060
- COST $ 5,456,721
ENVIRONMENTAL CONTROL-0.07%
Browning-Ferris Industries Inc 9,306 $ 310,006
Safety-Kleen Corp 2,719 72,903
------------
TOTAL ENVIRONMENTAL CONTROL
- VALUE $ 382,909
- COST $ 364,750
FOOD & RELATED-3.00%
Albertson's Inc 11,541 $ 540,263
American Stores Co 12,840 323,408
Archer-Daniels-Midland Co 26,156 586,875
Bestfoods 6,795 716,023
Brown-Forman Corp Class B 3,262 181,041
Campbell Soup Co 21,446 1,245,208
ConAgra Inc 22,112 663,360
Darden Restaurants Inc 7,128 96,228
General Mills Inc 7,409 532,985
Giant Food Inc Class A 2,806 101,893
Great Atlantic & Pacific Tea Co 1,811 55,122
Harcourt General Inc 3,362 181,548
Heinz (H J) Co 17,224 969,927
Hershey Foods Corp 6,676 445,206
Kellogg Co 19,287 822,108
Kroger Co 11,924 503,789
McDonald's Corp 32,288 1,767,768
Pioneer Hi Bred International Inc 3,089 320,484
Quaker Oats Co 6,544 352,558
68
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Ralston-Purina Group 5,031 $ 510,332
Sara Lee Corp 22,520 1,272,380
Super Value Inc 2,871 136,731
Sysco Corp 8,024 377,630
Tricon Global Restaurants+ 7,171 203,477
Unilever NV (Netherlands) 30,082 1,934,649
UST Inc 8,675 307,420
Wendy's International Inc 6,164 133,682
Winn-Dixie Stores Inc 7,026 378,965
Wrigley (W M) Jr Co 5,482 418,688
------------
TOTAL FOOD & RELATED
- VALUE $ 16,079,748
- COST $ 12,481,743
FURNITURE & APPLIANCES-0.08%
Maytag Corp 4,468 $ 201,060
Whirlpool Corp 3,523 235,380
------------
TOTAL FURNITURE & APPLIANCES
- VALUE $ 436,440
- COST $ 304,761
HEALTHCARE-0.30%
Cardinal Health Inc 5,167 $ 423,048
Healthsouth Corp 18,479 498,933
St Jude Medical Inc 4,331 158,082
United Healthcare Corp 8,883 539,087
------------
TOTAL HEALTHCARE
- VALUE $ 1,619,150
- COST $ 1,398,121
HOSPITAL & MEDICAL SUPPLIES-1.90%
Bard (C R) Inc 2,673 $ 93,221
Bausch & Lomb Inc 2,561 114,765
Baxter International Inc 13,122 743,033
Becton Dickinson & Co 5,685 361,708
Biomet Inc 5,267 157,022
Boston Scientific Corp+ 9,164 547,549
Columbia/HCA Healthcare Corp 30,368 823,732
Guidant Corp 6,927 505,238
Johnson & Johnson 63,097 4,763,824
Mallinckrodt Group Inc 3,378 131,109
69
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Manor Care Inc 2,987 $ 112,199
Medtronic Inc 21,993 1,168,378
Tenet Healthcare Corp+ 14,281 532,860
United States Surgical 3,588 109,883
------------
TOTAL HOSPITAL & MEDICAL SUPPLIES
- VALUE $ 10,164,521
- COST $ 7,696,382
HOUSEHOLD PRODUCTS-2.10%
Alberto-Culver Co Class B 2,676 $ 81,451
Avon Products Inc 6,156 433,613
Colgate-Palmolive Co 13,865 1,125,665
Gillette Co 26,249 2,831,611
Kimberly-Clark Corp 25,721 1,432,338
Procter & Gamble Co 63,050 5,355,309
------------
TOTAL HOUSEHOLD PRODUCTS
- VALUE $ 11,259,987
- COST $ 8,037,663
INSURANCE-3.60%
Aetna Inc 6,959 $ 608,043
Allstate Corp 20,111 1,875,351
American General Corp 11,424 664,020
American International Group Inc 32,901 3,954,289
Aon Corp 7,918 473,595
Chubb Corp 7,979 636,824
CIGNA Corp 3,486 665,826
Cincinnati Financial Corp 2,616 353,160
Conseco Inc 8,874 416,523
General Re Corp 3,657 778,941
Hartford Financial Services Group 5,515 541,849
Humana Inc+ 7,658 194,800
Jefferson-Pilot Corp 3,311 277,710
Lincoln National Corp 4,812 403,005
Loews Corp 5,414 543,092
Marsh & McLennan Companies Inc 8,020 695,234
MBIA Inc 4,207 307,900
Progressive Corp Ohio 3,426 396,988
Providian Financial Corp 4,452 252,651
SAFECO Corp 6,580 345,039
St Paul Co 3,898 345,460
70
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Sunamerica Inc 9,173 $ 415,652
Torchmark Corp 6,597 307,173
Transamerica Corp 2,922 340,230
Travelers Inc 53,840 3,001,580
UNUM Corp 6,494 334,035
USF & G Corp 5,262 128,590
------------
TOTAL INSURANCE
- VALUE $ 19,257,560
- COST $ 14,131,316
LODGING-0.15%
Hilton Hotels Corp 11,719 $ 349,373
Marriott International 6,013 455,485
------------
TOTAL LODGING
- VALUE $ 804,858
- COST $ 619,051
MACHINERY-0.63%
Black & Decker Corp 4,412 $ 222,255
Case Corp 3,532 229,801
Caterpillar Inc 17,485 955,118
Cincinnati Milacron Inc 1,908 58,910
Cummins Engine Co Inc 1,791 103,654
Deere & Co 11,854 665,306
Ingersoll-Rand Co 7,781 370,570
McDermott International Inc 2,637 103,832
Pall Corp 5,926 124,076
Parker Hannifin Corp 5,194 242,170
Thermo Electron Corp+ 7,102 291,182
------------
TOTAL MACHINERY
- VALUE $ 3,366,874
- COST $ 2,689,039
MANUFACTURING-0.24%
Tyco International Ltd 25,052 $ 1,271,389
------------
TOTAL MANUFACTURING
- VALUE $ 1,271,389
- COST $ 975,436
71
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
METAL FABRICATORS-0.58%
Alcan Aluminum Ltd 10,617 $ 329,791
Allegheny Teledyne Inc 8,126 220,418
Aluminum Co of America 8,134 596,832
Armco Inc+ 5,008 26,605
Barrick Gold Corp 17,443 336,868
Battle Mountain Gold Co 10,609 63,654
Bethlehem Steel Corp+ 5,257 55,856
Crane Co 2,104 103,096
Engelhard Corp 6,773 122,761
Freeport McMoRan Inc 9,052 136,346
Inland Steel Industries Inc 2,268 46,778
Nucor Corp 4,160 214,240
Phelps Dodge Corp 2,737 173,800
Placer Dome Inc 11,172 143,840
Reynolds Metals Co 3,461 215,664
Timken Co 2,990 96,428
USX-U.S. Steel Group 4,076 143,170
Worthington Industries Inc 4,538 77,713
------------
TOTAL METAL FABRICATORS
- VALUE $ 3,103,860
- COST $ 3,262,347
PHARMACEUTICALS-6.09%
Abbott Laboratories 35,904 $ 2,686,068
Allergan Inc 3,081 107,835
ALZA Corp 4,023 150,360
American Home Products Corp 30,534 2,862,563
Amgen Inc 12,358 656,519
Bristol-Myers Squibb Co 46,702 4,678,957
Lilly (Eli) & Co 52,080 3,427,515
Merck & Co Inc 56,228 7,172,584
Millipore Corp 2,073 78,385
Pfizer Inc 60,677 5,369,915
Pharmacia and Upjohn Inc 23,762 940,084
Schering-Plough Corp 34,359 2,613,431
Warner Lambert Co 12,751 1,864,834
------------
TOTAL PHARMACEUTICALS
- VALUE $ 32,609,050
- COST $ 21,285,741
72
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
PUBLISHING-0.70%
American Greetings Corp Class A 3,491 $ 159,277
Comcast Corp Class A 16,417 574,595
Donnelley (R R) & Sons Co 6,880 272,620
Dow Jones & Co Inc 4,520 232,215
Gannett Co Inc 13,347 861,716
Harland (John H) Co 1,390 21,111
Interpublic Group Co Inc 5,896 321,332
Knight-Ridder Inc 4,012 225,675
McGraw-Hill Inc 4,648 351,505
Meredith Corp 2,460 105,626
Moore Corp Ltd 4,147 65,056
New York Times Co Class A 4,503 294,665
Times Mirror Co Class A 4,441 273,399
------------
TOTAL PUBLISHING
- VALUE $ 3,758,792
- COST $ 2,697,414
RETAIL & RELATED-3.43%
AutoZone Inc+ 7,134 $ 215,804
Charming Shoppes Inc+ 4,915 21,964
Circuit City Stores Inc 4,641 179,259
Consolidated Stores Corp 5,053 207,805
Costco Co Inc+ 9,960 486,795
Dayton-Hudson Corp 10,235 791,293
Dillards Inc Class A 5,178 184,466
Eastman Kodak Co 15,213 998,353
Federated Department Stores Inc+ 9,811 459,891
Gap Inc 18,878 843,611
Home Depot Inc 34,279 2,187,429
Jostens Inc 1,846 43,381
K Mart Corp+ 22,856 305,699
Limited Inc 12,805 371,345
Longs Drug Stores Corp 1,843 58,400
Lowe's Co Inc 8,149 476,207
May Department Stores Co 10,809 656,647
Mercantile Stores Co Inc 1,752 115,304
Newell Co 7,419 340,347
Nordstrom Inc 3,574 204,946
Penney (J C) Co Inc 11,698 826,902
73
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Rite Aid Corp 11,720 $ 379,435
Sears Roebuck & Co 18,386 975,607
Sherwin Williams Co 8,088 270,443
Tandy Corp 4,802 213,689
TJX Companies Inc 7,700 297,413
Toys R Us Inc+ 13,417 352,196
Walgreen Co 23,123 848,325
WalMart Stores Inc 105,784 4,899,122
Woolworth (F W) Co+ 6,336 150,480
------------
TOTAL RETAIL & RELATED
- VALUE $ 18,362,558
- COST $ 13,113,498
SERVICES-0.24%
Block (H R) Inc 4,845 $ 228,018
Dun & Bradstreet Corp 7,993 267,766
Public Service Enterprise Group 10,860 350,235
Service Corp International 11,813 447,417
------------
TOTAL SERVICES
- VALUE $ 1,293,436
- COST $ 1,030,140
TELECOMMUNICATIONS-5.89%
Airtouch Communications+ 23,657 $ 1,063,086
Alltel Corp 8,709 397,892
Ameritech Corp 51,378 2,141,820
Andrew Corp 4,204 116,122
AT & T Corp 76,226 4,640,258
Bell Atlantic Corp 36,468 3,272,985
BellSouth Corp 46,555 2,839,855
DSC Communications Corp+ 5,560 109,115
Frontier Corp 7,711 213,498
GTE Corp 44,977 2,434,380
Lucent Technologies Inc 30,121 3,264,363
MCI Communications Corp 32,728 1,564,808
Northern Telecom Ltd 24,598 1,311,381
SBC Communication Inc 42,997 3,251,648
Scientific-Atlanta Inc 3,661 64,068
Sprint Corp 20,191 1,332,606
Tellabs Inc+ 8,549 516,146
74
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
U.S. West Inc 22,697 $ 1,181,663
WorldCom Inc+ 47,549 1,815,777
------------
TOTAL TELECOMMUNICATIONS
- VALUE $ 31,531,471
- COST $ 23,054,661
TEXTILES-0.01%
Springs Industries Inc Class A 991 $ 55,434
------------
TOTAL TEXTILES
- VALUE $ 55,434
- COST $ 46,225
TOBACCO-0.98%
Fortune Brands Inc 8,017 $ 318,175
Philip Morris Co Inc 113,716 4,939,539
------------
TOTAL TOBACCO
- VALUE $ 5,257,714
- COST $ 4,375,559
TRANSPORTATION-0.51%
Burlington Northern Santa Fe 7,292 $ 726,466
CSX Corp 10,241 572,856
Laidlaw Inc Class B 15,383 225,938
Norfolk Southern Corp 17,666 608,373
Union Pacific Corp 11,639 593,589
------------
TOTAL TRANSPORTATION
- VALUE $ 2,727,222
- COST $ 2,587,483
UTILITIES-1.71%
Ameren Corp+ 6,399 $ 245,962
American Electric Power Inc 8,893 426,864
Baltimore Gas & Electric Co 6,903 217,876
Carolina Power & Light Co 7,079 295,548
Central & South West Corp 9,935 266,382
Cinergy Corp 7,394 257,404
Consolidated Edison Inc 11,052 469,710
Dominion Resources Inc 8,755 349,106
DTE Energy Co 6,824 250,782
Duke Power Co 16,878 937,784
Edison International 17,893 494,294
75
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Entergy Corp 11,481 $ 332,231
FirstEnergy Corp 10,823 313,191
FPL Group Inc 8,557 496,841
GPU Inc 5,707 229,350
Houston Industries Inc 13,404 346,829
Niagara Mohawk Power Corp+ 6,720 86,100
Northern States Power Co 3,499 192,226
Pacificorp 13,946 337,319
PECO Energy Co 10,432 206,032
PG & E Corp 20,615 622,315
PP & L Resources Inc 7,724 172,825
Southern Co 32,359 798,863
Texas Utilities Co 11,525 466,042
Unicom Corp 10,135 324,953
------------
TOTAL UTILITIES
- VALUE $ 9,136,829
- COST $ 7,984,518
------------
TOTAL COMMON STOCKS
- VALUE $384,814,538
- COST $287,722,540
76
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY
28, 1998
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY INTEREST MATURITY PRINCIPAL/
NAME RATE DATE SHARES VALUE
U.S. TREASURY SECURITIES-27.27%
U.S. TREASURY BONDS-27.27%
U.S. Treasury Bonds 9.13% 05/15/18 $2,650,000 $ 3,617,250
U.S. Treasury Bonds 9.00 11/15/18 2,900,000 3,926,780
U.S. Treasury Bonds 8.88 02/15/19 7,600,000 10,191,121
U.S. Treasury Bonds 8.75 05/15/20 3,200,000 4,270,000
U.S. Treasury Bonds 8.75 08/15/20 8,475,000 11,324,719
U.S. Treasury Bonds 8.50 02/15/20 3,050,000 3,972,625
U.S. Treasury Bonds 8.13 08/15/19 8,100,000 10,157,902
U.S. Treasury Bonds 8.13 05/15/21 4,700,000 5,935,216
U.S. Treasury Bonds 8.13 08/15/21 4,650,000 5,877,888
U.S. Treasury Bonds 8.00 11/15/21 11,750,000 14,683,822
U.S. Treasury Bonds 7.88 02/15/21 3,400,000 4,184,125
U.S. Treasury Bonds 7.63 11/15/22 2,775,000 3,349,078
U.S. Treasury Bonds 7.63 02/15/25 3,800,000 4,624,125
U.S. Treasury Bonds 7.50 11/15/24 4,600,000 5,515,685
U.S. Treasury Bonds 7.25 08/15/22 3,400,000 3,937,625
U.S. Treasury Bonds 7.13 02/15/23 6,300,000 7,209,563
U.S. Treasury Bonds 6.88 08/15/25 5,050,000 5,644,951
U.S. Treasury Bonds 6.75 08/15/26 4,150,000 4,581,857
U.S. Treasury Bonds 6.63 02/15/27 3,650,000 3,975,076
U.S. Treasury Bonds 6.50 11/15/26 3,600,000 3,855,373
U.S. Treasury Bonds 6.38 08/15/27 4,750,000 5,033,513
U.S. Treasury Bonds 6.25 08/15/23 8,225,000 8,500,019
U.S. Treasury Bonds 6.13 11/15/27 4,150,000 4,266,719
U.S. Treasury Bonds 6.00 02/15/26 7,275,000 7,286,364
------------
$145,921,396
TOTAL U.S. TREASURY SECURITIES
- VALUE $145,921,396
- COST $132,008,538
SHORT-TERM INSTRUMENTS-7.24%
CASH EQUIVALENTS-2.77%
Dreyfus Institutional Money Market
Fund++ -- -- 1,109,841 $ 1,109,841
Janus Institutional Money Market
Fund++ -- -- 4,000,000 4,000,000
Merrimac Cash Fund--Premium Class++ -- -- 9,700,000 9,700,000
------------
$ 14,809,841
77
MASTER INVESTMENT PORTFOLIO--ASSET ALLOCATION MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY INTEREST MATURITY
NAME RATE DATE PRINCIPAL VALUE
SHORT-TERM INSTRUMENTS (CONTINUED)
REPURCHASE AGREEMENTS-3.92%
Goldman Sachs Repurchase
Agreement++, dated 2/27/98, due
3/2/98, with a maturity value
of $21,009,918 and an effective
yield of 5.67%, collateralized
by Federal Home Loan Mortgage
Corporation obligations with
rates ranging from 5.50% to
8.50%, with maturity dates
ranging from 1/1/01 to 10/1/26
and with an aggregate market
value of $21,420,000. $21,000,000 $ 21,000,000
U.S. TREASURY BILLS-0.55%
U.S. Treasury Bills 5.38%* 04/16/98 $ 324,000 $ 321,894
U.S. Treasury Bills 5.37%* 04/23/98 2,272,000 2,255,010
U.S. Treasury Bills 5.34%* 04/30/98 19,000 18,837
U.S. Treasury Bills 5.15%* 04/02/98 175,000 174,187
U.S. Treasury Bills 4.48%* 03/12/98 182,000 181,691
------------
$ 2,951,619
------------
TOTAL SHORT-TERM INSTRUMENTS
- VALUE $ 38,761,460
- COST $ 38,760,596
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $458,491,674)** (Notes 1 and 3) 106.42% $569,497,394
Other Assets and Liabilities, Net (6.42)% (34,360,656)
------ ------------
TOTAL NET ASSETS 100.00% $535,136,738
====== ============
- --------------------------------------------------------------------------------
+ Non-income earning securities.
++ Represents investment of collateral received from securities lending trans-
actions. See Note 4.
* Yield to maturity.
** Cost for federal income tax purposes is $458,847,329 and net unrealized ap-
preciation consists of:
Gross Unrealized
Appreciation $113,117,669
Gross Unrealized
Depreciation $ (2,467,604)
------------
NET UNREALIZED
APPRECIATION $110,650,065
============
The accompanying notes are an integral part of these financial statements.
78
MASTER INVESTMENT PORTFOLIO--BOND INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--BOND INDEX MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
CORPORATE BONDS & NOTES-24.33%
AEROSPACE & DEFENSE-1.10%
$1,000,000 Lockheed Martin Corp 6.85% 05/15/01 $ 1,021,707
AUTO PARTS & EQUIPMENT-1.09%
$1,000,000 Goodyear Tire & Rubber Co 6.63% 12/01/06 $ 1,016,193
AUTOMOBILES-0.63%
$ 500,000 Ford Motor Co 8.88% 04/01/06 $ 576,943
BANK & FINANCE-11.22%
$ 500,000 ABN Amro Bank NV 7.30% 12/01/26 $ 502,283
500,000 African Development Bank 7.75 12/15/01 531,738
1,000,000 American General Finance 5.88 07/01/00 995,191
1,000,000 CIT Group Holdings 6.63 06/15/05 1,015,021
1,000,000 Commercial Credit Corp 8.70 06/15/10 1,175,599
1,000,000 Dresdner Bank AG 6.63 09/15/05 1,008,626
500,000 First Union Corp 6.63 07/15/05 509,209
1,000,000 General Motors Acceptance Corp 7.12 05/01/03 1,039,903
1,000,000 Household Finance Corp 6.70 06/15/02 1,013,522
1,000,000 KFW International Finance 7.63 02/15/04 1,076,611
500,000 Lehman Brothers Inc 9.88 10/15/00 539,406
1,000,000 Mellon Capital II 7.99 01/15/27 1,055,517
------------
$ 10,462,626
BEVERAGES-1.24%
$1,000,000 Coca-Cola Enterprises 8.00% 09/15/22 $ 1,149,805
CHEMICALS-1.15%
$ 500,000 Dow Chemical Co 8.62% 04/01/06 $ 567,437
500,000 Dupont Corp 6.00 12/01/01 500,989
------------
$ 1,068,426
ELECTRONICS-1.11%
$1,000,000 Raytheon Co 7.38% 07/15/25 $ 1,032,767
ENERGY & RELATED-1.12%
$1,000,000 Phillips 66 Capital Trust II 8.00% 01/15/37 $ 1,040,566
ENTERTAINMENT & LEISURE-0.56%
$ 500,000 Disney (Walt) Co 6.75% 03/30/06 $ 518,732
FOOD & RELATED-1.17%
$ 500,000 Archer-Daniels-Midland Co 8.38% 04/15/17 $ 587,786
500,000 McDonald's Corp 6.75% 02/15/03 506,888
------------
$ 1,094,674
INSURANCE-1.10%
$1,000,000 Aetna Services Inc 7.12% 08/15/06 $ 1,028,984
79
MASTER INVESTMENT PORTFOLIO--BOND INDEX MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
CORPORATE BONDS & NOTES (CONTINUED)
INVESTMENT BANKING & BROKERAGE-1.08%
$1,000,000 Salomon Inc 7.00% 05/15/99 $ 1,010,214
TRANSPORTATION-1.20%
$1,000,000 Norfolk Southern Corp 7.80% 05/15/27 $ 1,122,163
UTILITIES-0.56%
$ 500,000 Virginia Electric & Power Co 7.38% 07/01/02 $ 523,618
------------
TOTAL CORPORATE BONDS & NOTES $ 22,667,418
(Cost $21,941,430)
FOREIGN GOVERNMENT BONDS & NOTES++-2.53%
$1,000,000 British Columbia (province Of) 6.50% 01/15/26 $ 1,009,830
750,000 Ontario (Province Of) 7.63 06/22/04 809,722
500,000 Victoria (Province Of) 8.45 10/01/01 543,367
------------
TOTAL FOREIGN GOVERNMENT BONDS & NOTES $ 2,362,919
(Cost $2,181,921)
U.S. GOVERNMENT AGENCY SECURITIES-11.71%
FEDERAL AGENCY-OTHER-3.59%
1,285,000 Financing Corp 9.80 04/06/18 1,808,826
$1,000,000 Tennessee Valley Authority 8.38% 10/01/99 $ 1,039,756
500,000 Tennessee Valley Authority 6.13 07/15/03 500,275
------------
$ 3,348,857
FEDERAL HOME LOAN MORTGAGE CORPORATION-
0.77%
Federal Home Loan Mortgage
$ 700,000 Corp 7.22% 05/17/05 $ 718,945
FEDERAL NATIONAL MORTGAGE ASSOCIATION-
6.82%
Federal National Mortgage
$ 500,000 Assoc 7.55% 04/22/02 531,160
Federal National Mortgage
1,000,000 Assoc 6.77 01/19/06 990,787
Federal National Mortgage
500,000 Assoc 6.70 08/10/01 505,203
Federal National Mortgage
1,000,000 Assoc 6.33 09/09/03 981,951
Federal National Mortgage
1,000,000 Assoc 5.91 02/25/00 1,003,293
Federal National Mortgage
2,000,000 Assoc 5.75 02/15/08 1,979,956
Federal National Mortgage
1,000,000 Assoc 0.00 07/05/14 365,576
------------
$ 6,357,926
STUDENT LOAN MARKETING ASSOCIATION-0.53%
$ 500,000 Student Loan Marketing Assoc 5.88% 02/06/01 $ 496,642
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 10,922,370
(Cost $10,650,875)
80
MASTER INVESTMENT PORTFOLIO--BOND INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--BOND INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
U.S. TREASURY SECURITIES-58.98%
U.S. TREASURY BONDS-16.34%
$1,100,000 U.S. Treasury Bonds 12.00% 08/15/13 $ 1,623,875
1,150,000 U.S. Treasury Bonds 11.25 02/15/15 1,803,344
500,000 U.S. Treasury Bonds 9.13 05/15/09 586,406
2,450,000 U.S. Treasury Bonds 8.13 08/15/19 3,072,452
1,700,000 U.S. Treasury Bonds 7.88 02/15/21 2,092,063
1,400,000 U.S. Treasury Bonds 7.63 02/15/25 1,703,625
500,000 U.S. Treasury Bonds 7.25 05/15/16 570,625
1,000,000 U.S. Treasury Bonds 7.12 02/15/23 1,144,375
1,500,000 U.S. Treasury Bonds 6.50 11/15/26 1,606,406
1,000,000 U.S. Treasury Bonds 6.13 11/15/27 1,028,125
------------
$ 15,231,296
U.S. TREASURY NOTES-42.64%
$3,400,000 U.S. Treasury Notes 9.13% 05/15/99 $ 3,539,186
2,300,000 U.S. Treasury Notes 7.88 08/15/01 2,463,155
2,700,000 U.S. Treasury Notes 7.50 11/15/01 2,869,592
800,000 U.S. Treasury Notes 7.25 08/15/04 868,500
400,000 U.S. Treasury Notes 7.12 09/30/99 409,250
1,000,000 U.S. Treasury Notes 7.12 02/29/00 1,029,062
1,500,000 U.S. Treasury Notes 7.00 07/15/06 1,625,625
1,200,000 U.S. Treasury Notes 6.88 08/31/99 1,222,500
2,250,000 U.S. Treasury Notes 6.50 05/31/01 2,310,469
2,000,000 U.S. Treasury Notes 6.50 05/15/05 2,095,000
700,000 U.S. Treasury Notes 6.50 10/15/06 736,531
1,000,000 U.S. Treasury Notes 6.38 01/15/00 1,013,750
1,600,000 U.S. Treasury Notes 6.25 03/31/99 1,612,499
1,800,000 U.S. Treasury Notes 6.25 05/31/00 1,825,312
1,000,000 U.S. Treasury Notes 6.25 01/31/02 1,021,562
700,000 U.S. Treasury Notes 6.25 02/15/03 718,813
1,000,000 U.S. Treasury Notes 6.13 08/15/07 1,030,937
3,000,000 U.S. Treasury Notes 6.00 08/15/99 3,018,750
1,000,000 U.S. Treasury Notes 6.00 10/15/99 1,006,562
1,000,000 U.S. Treasury Notes 5.88 11/15/99 1,004,687
1,000,000 U.S. Treasury Notes 5.88 02/15/04 1,014,062
2,500,000 U.S. Treasury Notes 5.88 11/15/05 2,526,563
600,000 U.S. Treasury Notes 5.75 08/15/03 603,187
600,000 U.S. Treasury Notes 5.63 11/30/00 600,937
1,000,000 U.S. Treasury Notes 5.63 02/28/01 1,001,250
700,000 U.S. Treasury Notes 5.50 01/31/03 697,845
1,900,000 U.S. Treasury Notes 5.38 01/31/00 1,893,468
------------
$ 39,759,054
81
MASTER INVESTMENT PORTFOLIO--BOND INDEX MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
PRINCIPAL/ INTEREST MATURITY
SHARES SECURITY NAME RATE DATE VALUE
U.S. TREASURY SECURITIES (CONTINUED)
TOTAL U.S. TREASURY SECURITIES $ 54,990,350
(Cost $53,448,281)
SHORT TERM INSTRUMENTS-8.38%
U.S. TREASURY BILLS-1.79%
990,000 U.S. Treasury Bills 5.37%* 04/23/98 982,597
593,000 U.S. Treasury Bills 5.34* 04/30/98 587,906
100,000 U.S. Treasury Bills 4.85* 03/26/98 99,629
------------
$ 1,670,132
CASH EQUIVALENTS-3.37%
1,145,500 Dreyfus Institutional Money Market
Fund+ $ 1,145,500
500,000 Janus Institutional Money Market Fund+ 500,000
1,500,000 Merrimac Cash Fund--Premium Class+ 1,500,000
------------
$ 3,145,500
REPURCHASE AGREEMENTS-3.22%
$3,000,000 Goldman Sachs Repurchase
Agreement +, dated 2/27/98,
due 3/2/98, with a maturity
value of $3,001,417 and an
effective yield of 5.67%,
collateralized by a Federal
Home Loan Mortgage
Corporation obligation with a
Rate of 7.50%, with a
maturity date of 1/1/28 and
with a market value of
$3,060,000. $ 3,000,000
------------
TOTAL SHORT TERM INSTRUMENTS $ 7,815,632
(Cost $7,815,221)
TOTAL
INVESTMENT IN
SECURITIES
(Cost
$96,037,728)**
(Notes 1 and 3) 105.93% $ 98,758,689
Other Assets (5.93)% (5,524,558)
and
Liabilities,
Net
------ ------------
TOTAL NET 100.00% $ 93,234,131
ASSETS
====== ============
- - -----------------------------------------------------
+ Represents investment of collateral received from securities lending transac-
tions. See Note 4.
++ Investment is denominated in U.S. Dollars.
* Yield to maturity.
** Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized appreciation consists of:
Gross Unrealized Appreciation $3,160,717
Gross Unrealized Depreciation (439,756)
----------
NET UNREALIZED APPRECIATION $2,720,961
==========
The accompanying notes are an integral part of these financial statements.
82
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY
28, 1998
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS-89.46%
ADVERTISING-1.77%
Ha-Lo Industries Inc+ 98,000 $ 2,897,125
Snyder Communications Inc+ 32,000 1,314,000
------------
TOTAL ADVERTISING
- VALUE $ 4,211,125
- COST $ 1,949,051
AEROSPACE & DEFENSE-0.45%
BE Aerospace Inc+ 36,000 $ 1,059,750
------------
TOTAL AEROSPACE & DEFENSE
- VALUE $ 1,059,750
- COST $ 983,861
AIRLINES-0.90%
Atlas Air Inc+ 71,500 $ 2,127,125
------------
TOTAL AIRLINES
- VALUE $ 2,127,125
- COST $ 2,668,046
APPAREL-1.15%
Tommy Hilfiger Corp+ 51,000 $ 2,731,688
------------
TOTAL APPAREL
- VALUE $ 2,731,688
- COST $ 2,342,044
BANK & FINANCE-3.52%
Ahmanson (H F) & Co 36,000 $ 2,247,750
C.I.T. Group Inc Class A+ 28,200 930,600
ContiFinancial Corp+ 44,000 1,193,500
MGIC Investment Corp 9,000 663,188
Security Capital Group Class B+ 20,000 618,750
SLM Holding Corp 65,000 2,685,313
------------
TOTAL BANK & FINANCE
- VALUE $ 8,339,101
- COST $ 8,094,144
BASIC INDUSTRIES-0.52%
Fort James Corp 27,000 $ 1,225,125
------------
TOTAL BASIC INDUSTRIES
- VALUE $ 1,225,125
- COST $ 1,171,673
83
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
BIOTECHNOLOGY-0.33%
Medimmune Inc+ 15,000 $ 778,125
------------
TOTAL BIOTECHNOLOGY
- VALUE $ 778,125
- COST $ 666,648
BROADCASTING-2.82%
Chancellor Media Corp Class A 37,000 $ 1,655,750
Clear Channel Communications Inc+ 21,000 1,903,125
Jacor Communications Inc+ 54,000 3,125,250
------------
TOTAL BROADCASTING
- VALUE $ 6,684,125
- COST $ 5,053,562
BUSINESS SERVICES-7.60%
Accustaff Inc+ 184,500 $ 5,212,125
Cendant Corp+ 103,333 3,874,988
Concord EFS Inc+ 148,500 4,622,063
Quintiles Transnational Corp 88,000 4,301,000
------------
TOTAL BUSINESS SERVICES
- VALUE $ 18,010,176
- COST $ 13,444,242
COMPUTER SOFTWARE-17.40%
Altera Corp+ 15,000 $ 646,875
America Online Inc+ 45,500 5,511,188
Bay Networks Inc+ 57,000 1,930,875
Cambridge Technology Partners Inc+ 37,000 1,683,500
Checkfree Holdings Corp+ 84,000 1,806,000
Envoy Corp+ 83,000 3,371,875
Gartner Group Inc Class A+ 22,000 877,250
HBO & Co 138,000 7,469,250
Manugistics Group Inc 25,000 996,875
Microsoft Corp 33,000 2,796,750
Networks Associates Inc+ 76,708 4,957,255
Sterling Commerce Inc+ 128,000 5,840,000
Veritas Software Corp 59,000 3,355,625
------------
TOTAL COMPUTER SOFTWARE
- VALUE $ 41,243,318
- COST $ 25,697,648
84
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY
28, 1998
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
COMPUTER SYSTEMS-2.30%
Cisco Systems Inc 63,750 $ 4,199,531
Comverse Technology Inc+ 27,000 1,262,250
------------
TOTAL COMPUTER SYSTEMS
- VALUE $ 5,461,781
- COST $ 3,542,891
ELECTRONICS-2.03%
Analog Devices Inc+ 53,001 $ 1,709,282
KLA Instruments Corp+ 18,000 $ 830,812
Novellus System Inc 18,000 862,875
Teradyne Inc+ 30,000 1,415,625
------------
TOTAL ELECTRONICS
- VALUE $ 4,818,594
- COST $ 4,519,967
ENERGY & RELATED-3.85%
Diamond Offshore Drilling Inc 32,000 $ 1,450,000
Ensco International Inc 81,000 2,359,125
Reading & Bates Falcon Corp+ 44,000 1,166,000
Santa Fe International Corp 67,000 2,374,313
Tosco Corp 48,000 1,782,000
------------
TOTAL ENERGY & RELATED
- VALUE $ 9,131,438
- COST $ 8,488,869
ENGINEERING & CONSTRUCTION-0.83%
Centex Corp 27,000 $ 1,972,688
------------
TOTAL ENGINEERING & CONSTRUCTION
- VALUE $ 1,972,688
- COST $ 1,668,510
ENTERTAINMENT & LEISURE-1.04%
Family Golf Centers Inc+ 73,000 $ 2,454,625
------------
TOTAL ENTERTAINMENT & LEISURE
- VALUE $ 2,454,625
- COST $ 1,487,940
85
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
ENVIRONMENTAL CONTROL-2.27%
Philip Services Corp + 221,000 $ 2,113,313
U.S. Filter Corp + 31,000 1,052,063
U.S.A. Waste Services Inc + 53,500 2,226,938
------------
TOTAL ENVIRONMENTAL CONTROL
- VALUE $ 5,392,314
- COST $ 6,180,373
FOOD & RELATED-1.36%
Flowers Industries Inc 19,000 $ 483,313
Keebler Foods Co + 25,000 784,375
Suiza Foods Corp + 30,000 1,944,375
------------
TOTAL FOOD & RELATED
- VALUE $ 3,212,063
- COST $ 3,013,294
FURNITURE & APPLIANCES-0.17%
Steelcase Inc + 11,500 $ 414,719
------------
TOTAL FURNITURE & APPLIANCES
- VALUE $ 414,719
- COST $ 322,000
HEALTHCARE-7.34%
Cardinal Health Inc 14,000 $ 1,146,250
Genesis Health Ventures Inc + 185,000 5,365,000
Healthsouth Corp 212,000 5,724,000
Total Renal Care Holdings 160,200 5,156,426
------------
TOTAL HEALTHCARE
- VALUE $ 17,391,676
- COST $ 10,937,933
HOSPITAL & MEDICAL SUPPLIES-2.99%
Guidant Corp 42,500 $ 3,099,844
Tenet Healthcare Corp + 107,000 3,992,438
------------
TOTAL HOSPITAL & MEDICAL SUPPLIES
- VALUE $ 7,092,282
- COST $ 5,827,374
INSURANCE-3.89%
Conseco Inc 63,000 $ 2,957,063
Humana Inc+ 51,000 1,297,313
86
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY
28, 1998
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
PMI Group Inc 23,000 $ 1,673,250
Providian Financial Corp 58,000 3,291,500
------------
TOTAL INSURANCE
- VALUE $ 9,219,126
- COST $ 7,881,482
LODGING-0.53%
CapStar Hotel Co+ 37,000 $ 1,248,750
------------
TOTAL LODGING
- VALUE $ 1,248,750
- COST $ 1,285,073
MANUFACTURING-0.44%
Hexcel Corp+ 40,000 $ 1,052,500
------------
TOTAL MANUFACTURING
- VALUE $ 1,052,500
- COST $ 983,603
METAL FABRICATORS-0.69%
Steel Dynamics Inc+ 86,000 $ 1,634,000
------------
TOTAL METAL FABRICATORS
- VALUE $ 1,634,000
- COST $ 2,177,125
PHARMACEUTICALS-5.15%
BioChem Pharma Inc 89,000 $ 1,996,938
Elan Corp PLC ADR (Ireland)+ 25,000 1,551,563
Forest Labs Inc Class A+ 21,000 1,313,813
Henry Schein Inc+ 39,000 1,589,250
McKesson Corp 34,000 1,772,250
Omnicare Inc 33,000 1,221,000
PharMerica Inc+ 82,000 1,066,000
Watson Pharmaceutical Inc 47,000 1,686,125
------------
TOTAL PHARMACEUTICALS
- VALUE $ 12,196,939
- COST $ 10,871,910
PUBLISHING-0.27%
Peterson Companies Inc Class A+ 25,000 $ 640,625
------------
TOTAL PUBLISHING
- VALUE $ 640,625
- COST $ 449,980
87
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY 28,
1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
REAL ESTATE-0.96%
FelCor Suite Hotels Inc REIT 40,000 $ 1,435,000
Mack-Cali Realty Corp REIT 22,000 830,500
------------
TOTAL REAL ESTATE
- VALUE $ 2,265,500
- COST $ 2,320,248
RETAIL & RELATED-8.27%
CompUSA Inc+ 54,000 $ 1,890,000
Consolidated Stores Corp 15,000 616,875
Corporate Express Inc+ 195,000 1,974,375
Dollar Tree Stores Inc 15,000 650,625
Eagle Hardware & Garden Inc+ 108,000 2,045,250
Gymboree Co+ 64,000 1,720,000
Office Depot Inc+ 158,500 4,358,750
Proffitt's Inc 77,500 2,625,313
Rite Aid Corp 115,000 3,723,125
------------
TOTAL RETAIL & RELATED
- VALUE $ 19,604,313
- COST $ 18,830,127
SERVICES-0.83%
Corrections Corp of America+ 51,500 $ 1,969,875
------------
TOTAL SERVICES
- VALUE $ 1,969,875
- COST $ 2,054,964
TELECOMMUNICATIONS-6.92%
360 Communications Co+ 66,000 $ 1,749,000
Advanced Fibre Communication 36,000 1,077,750
Ciena Corp+ 20,000 838,750
Cincinnati Bell Inc 25,000 800,000
LCI International Inc+ 188,000 6,204,000
NEXTEL Communications Class A+ 40,500 1,197,281
Pairgain Technologies Inc+ 105,000 2,113,125
Tellabs Inc+ 40,000 2,415,000
------------
TOTAL TELECOMMUNICATIONS
- VALUE $ 16,394,906
- COST $ 12,266,878
88
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK MASTER PORTFOLIO--FEBRUARY
28, 1998
MANAGED SERIES INVESTMENT TRUST--GROWTH STOCK
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
UTILITIES-0.87%
AES Corp 47,000 $ 2,068,000
------------
TOTAL UTILITIES
- VALUE $ 2,068,000
- COST $ 2,053,639
TOTAL COMMON STOCKS
- VALUE $212,046,372
- COST $169,235,099
WARRANTS-1.44%
Intel Corp expires 03/14/98 50,000 $ 3,425,000
Checkers Drive In Restaurants
expires 12/22/2000+ 5,095 955
------------
TOTAL WARRANTS
- VALUE $ 3,425,955
- COST $ 662,500
TOTAL INVESTMENTS IN
SECURITIES (Cost
$169,897,599)*
(Notes 1 and 3) 90.90% $215,472,327
Other Assets 9.10% 21,576,450
and Liabilities,
Net
------ ------------
TOTAL NET ASSETS 100.00% $237,048,777
====== ============
- --------------------------------------------------------------------------------
+ Non-Income earning securities.
* Cost for federal income tax purposes is $170,068,503 and net unrealized ap-
preciation consists of:
Gross Unrealized
Appreciation $50,026,168
Gross Unrealized
Depreciation $(4,622,344)
-----------
NET UNREALIZED APPRECIATION $45,403,824
===========
The accompanying notes are an integral part of these financial statements.
89
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS
PERCENT OF NET ASSETS 23.63% 48.34%
ADVERTISING
PERCENT OF NET ASSETS 0.03% 0.04%
Omnicom Group 776 $ 35,502 1,340 $ 61,305
Outdoor Systems Inc 0 -- 600 17,888
------------ ------------
TOTAL ADVERTISING
- VALUE $ 35,502 $ 79,193
- COST $ 15,003 $ 37,316
AEROSPACE & DEFENSE
PERCENT OF NET ASSETS 0.28% 0.71%
Allied Signal Inc 922 $ 39,243 4,665 $ 198,554
Boeing Co 1,742 94,504 8,317 451,197
Briggs & Stratton Corp 52 2,304 268 11,876
Coltec Industries+ 200 5,213 500 13,031
Gencorp Inc 0 -- 0 --
General Dynamics Corp 63 5,465 602 52,224
Gulfstream Aerospace Corp+ 0 -- 400 16,200
Lockheed Martin Corp 360 42,008 1,699 198,252
Newport News Shipbuilding 64 1,749 293 7,979
Northrop Grumman Corp 139 19,321 554 77,006
Primex Technologies Inc 47 2,033 56 2,422
Rockwell International Corp 320 19,360 1,879 113,680
Sequa Corp Class A+ 110 8,271 0 --
Stewart & Stevenson Services 364 8,895 380 9,286
Sundstrand Corp 326 19,723 560 33,880
Textron Inc 267 20,008 1,469 110,083
United Technologies Corp 406 36,261 2,001 178,714
------------ ------------
TOTAL AEROSPACE & DEFENSE
- VALUE $ 324,358 $ 1,474,384
- COST $ 251,064 $ 1,062,982
AIRLINES
PERCENT OF NET ASSETS 0.24% 0.48%
Airtran Holdings Inc+ 300 $ 1,744 200 $ 1,163
Amr Corp+ 137 17,339 796 100,744
British Airways PLC ADR (UK) 760 72,200 2,400 228,000
Comair Holdings Inc 0 -- 600 15,975
Continental Airlines Class
B+ 0 -- 500 25,125
Delta Air Lines Inc 141 15,942 664 75,074
Fdx Corp+ 232 14,776 1,287 81,966
Japan Air Lines Co ADR
(Japan) 9,808 78,464 31,600 252,800
KLM Royal Dutch Airlines ADR
(NetherLands) 313 11,464 1,024 37,493
Northwest Airlines Corp
Class A+ 400 23,550 700 41,213
90
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
69.76% 85.55% 99.42%
0.05% 0.06% 0.09%
3,040 $ 139,080 2,520 $ 115,290 6,116 $ 279,807
1,350 40,247 1,050 31,303 2,350 70,059
------------ ------------ ------------
$ 179,327 $ 146,593 $ 349,866
$ 78,337 $ 79,178 $ 203,852
1.05% 1.26% 1.22%
11,296 $ 480,786 9,737 $ 414,431 16,337 $ 695,344
19,888 1,078,924 17,157 930,767 28,885 1,567,011
557 24,682 459 20,339 829 36,735
700 18,244 900 23,456 1,800 46,913
485 13,216 0 -- 0 --
1,301 112,862 1,112 96,466 1,846 160,140
900 36,450 700 28,350 1,600 64,800
3,890 453,914 3,368 393,004 5,597 653,100
616 16,775 465 12,677 846 23,065
1,368 190,152 1,184 164,576 1,973 274,247
108 4,662 86 3,711 126 5,450
4,164 251,922 3,548 214,654 6,051 366,085
137 10,301 102 7,669 0 --
495 12,097 365 8,920 845 20,650
1,090 65,945 930 56,265 2,090 126,445
3,286 246,245 2,844 213,122 4,768 357,302
4,657 415,928 4,040 360,823 6,710 599,287
------------ ------------ ------------
$ 3,433,105 $ 2,949,230 $ 4,996,574
$ 2,331,805 $ 2,008,448 $ 4,079,521
0.69% 0.89% 0.94%
400 $ 2,325 200 $ 1,163 700 $ 4,069
1,842 233,128 1,596 201,994 2,602 329,316
5,425 515,375 4,900 465,500 9,050 859,750
1,200 31,950 1,000 26,625 2,100 55,913
900 45,225 900 45,225 1,900 95,475
1,443 163,149 1,275 144,155 2,175 245,911
2,958 188,388 2,489 158,518 4,458 283,919
72,475 579,800 73,774 590,192 118,787 950,296
2,358 86,362 2,198 80,502 3,980 145,767
1,500 88,313 1,300 76,538 2,800 164,850
91
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Southwest Airlines Co 346 $ 9,926 1,869 $ 53,617
Ual Corp+ 300 25,538 600 51,075
USAir Group Inc+ 133 8,421 663 41,976
------------ ------------
TOTAL AIRLINES
- VALUE $ 279,364 $ 1,006,221
- COST $ 268,600 $ 962,134
APPAREL
PERCENT OF NET ASSETS 0.09% 0.18%
CVS Corp 647 $ 47,918 1,408 $ 104,280
Fruit of the Loom Inc Class
A+ 117 3,759 655 21,042
Hartmarx Corp+ 81 658 230 1,869
Land's End Inc+ 0 -- 0 --
Liz Claiborne Inc 91 4,550 585 29,250
Nike Inc Class B 383 16,804 2,411 105,783
Nine West Group Inc+ 200 5,500 300 8,250
Oshkosh B'Gosh Class A 26 1,021 49 1,923
Phillips Van Heusen Corp 0 -- 0 --
Reebok International Ltd+ 97 3,025 429 13,379
Russell Corp 75 2,034 298 8,083
Stride Rite Corp 63 772 375 4,594
VF Corp 130 6,199 1,211 57,750
Warnaco Group Inc Class A 300 11,138 500 18,563
------------ ------------
TOTAL APPAREL
- VALUE $ 103,378 $ 374,766
- COST $ 66,123 $ 279,742
AUTO PARTS & EQUIPMENT
PERCENT OF NET ASSETS 0.13% 0.34%
Bandag Inc 0 $ -- 100 $ 5,606
Bandag Inc Class A 100 5,163 100 5,163
Breed Technologies Inc 0 -- 0 --
Cooper Tire & Rubber Co 125 2,883 649 14,968
Dana Corp 152 8,294 891 48,615
Deluxe Corp 174 5,927 749 25,513
Eaton Corp 86 8,261 684 65,707
Echlin Inc 105 5,309 596 30,135
Genuine Parts Co 359 13,283 1,644 60,828
Goodyear Tire & Rubber Co 247 17,074 1,345 92,973
Illinois Tool Works Inc 359 21,518 2,013 120,654
ITT Industries Inc 236 8,083 1,081 37,024
Lear Corp+ 200 10,575 500 26,438
Mascotech Inc 0 -- 300 6,225
Meritor Automotive Inc 70 1,750 730 18,250
Modine Manufacturing Co 309 10,815 250 8,750
92
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
4,134 $ 118,594 3,688 $ 105,800 8,366 $ 240,000
1,200 102,150 1,100 93,638 2,300 195,788
1,493 94,526 1,470 93,069 3,462 219,188
------------ ------------ ------------
$ 2,249,285 $ 2,082,919 $ 3,790,242
$ 2,046,107 $ 1,921,042 $ 3,594,674
0.27% 0.31% 0.35%
3,219 $ 238,407 2,749 $ 203,598 6,670 $ 493,997
1,442 46,324 1,151 36,976 2,093 67,238
389 3,161 354 2,876 618 5,021
547 21,538 0 -- 0 --
1,399 69,950 1,114 55,700 2,028 101,400
5,819 255,309 4,986 218,761 8,402 368,638
300 8,250 400 11,000 1,000 27,500
228 8,949 85 3,336 222 8,714
410 5,330 290 3,770 0 --
1,041 32,466 923 28,786 2,094 65,307
752 20,398 721 19,557 1,106 30,000
893 10,939 707 8,661 1,450 17,763
2,454 117,025 2,031 96,853 3,491 166,477
1,000 37,125 800 29,700 2,100 77,963
------------ ------------ ------------
$ 875,171 $ 719,574 $ 1,430,018
$ 639,350 $ 537,857 $ 1,249,550
0.48% 0.57% 0.63%
200 $ 11,213 100 $ 5,606 300 $ 16,819
200 10,325 200 10,325 400 20,650
0 -- 0 -- 100 2,175
1,631 37,615 1,228 28,321 2,207 50,899
2,102 114,690 1,794 97,885 3,057 166,798
1,621 55,215 1,377 46,904 2,299 78,310
1,574 151,202 1,294 124,305 2,219 213,163
1,252 63,304 1,080 54,608 1,781 90,052
3,574 132,238 3,049 112,795 5,151 190,587
3,108 214,840 2,687 185,739 4,471 309,058
4,572 274,034 3,904 233,996 9,687 580,614
2,416 82,748 1,944 66,582 3,542 121,313
1,000 52,875 800 42,300 1,800 95,175
0 -- 400 8,300 800 16,600
1,418 35,450 1,232 30,800 4,310 107,750
465 16,275 335 11,725 500 17,500
93
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Navistar International Corp+ 134 $ 4,070 681 $ 20,685
PACCAR Inc 103 6,521 687 43,496
Pep Boys-Manny Moe & Jack 59 1,512 599 15,349
Strattec Security Corp+ 10 263 28 737
Superior Industries
International Inc 322 10,002 260 8,076
TRW Inc 231 12,662 1,060 58,101
------------ ------------
TOTAL AUTO PARTS & EQUIPMENT
- VALUE $ 153,965 $ 713,293
- COST $ 116,710 $ 513,307
AUTOMOBILES
PERCENT OF NET ASSETS 0.78% 1.61%
Chrysler Corp 1,119 $ 43,571 5,550 $ 216,103
Daimler-Benz
Aktiengesellschaft ADR
(Germany) 4,451 361,087 14,860 1,205,518
Fiat SpA ADR (UK) 4,288 76,112 14,030 249,033
Ford Motor Co 2,081 117,707 9,992 565,172
General Motors Corp Class A 1,211 83,483 5,827 401,699
General Motors Class H 500 20,719 1,000 41,438
Harley-Davidson Inc 736 21,344 1,500 43,500
Hertz Corp. Class A 0 -- 200 7,925
Honda Motor Co Ltd ADR
(Japan) 533 37,510 1,895 133,361
Nissan Motor Co Ltd ADR
(Japan) 3,635 32,261 11,246 99,808
Toyota Motor Corp ADR
(Japan) 2,178 119,518 6,951 381,436
------------ ------------
TOTAL AUTOMOBILES
- VALUE $ 913,312 $ 3,344,993
- COST $ 714,549 $ 2,588,596
BANK & FINANCE
PERCENT OF NET ASSETS 2.85% 5.64%
Advanta Corp Class B 163 $ 3,586 163 $ 3,586
Ahmanson (H F) & Co 134 8,367 872 54,446
Allied Irish Banks PLC ADR
(Ireland) 1,816 140,967 6,002 465,905
American Express Corp 761 68,538 3,759 338,545
Amsouth Bancorp 400 22,475 750 42,141
Associates First Capital
Corp 300 24,000 600 48,000
Banc One Corp 1,142 64,512 5,407 305,484
Banco Bilbao Vizcaya ADR
(Spain) 1,440 66,780 4,936 228,907
Banco Central
Hispanoamericano SA ADR
(Spain) 2,016 62,496 6,739 208,909
Banco Santander SA ADR
(Spain) 1,085 50,588 3,500 163,188
Bank of New York Inc 694 40,642 3,102 181,661
BankAmerica Corp 1,171 90,753 5,713 442,758
BankBoston Corp 256 25,520 1,302 129,793
Bankers Trust Corp 194 22,941 869 102,759
94
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,512 $ 45,927 1,259 $ 38,242 2,284 $ 69,377
1,563 98,957 1,328 84,079 2,218 140,427
1,272 32,595 1,009 25,856 1,960 50,225
72 1,895 49 1,289 0 --
454 14,102 331 10,282 510 15,842
2,460 134,839 2,140 117,299 3,503 192,008
------------ ------------ ------------
$ 1,580,339 $ 1,337,238 $ 2,545,342
$ 1,130,611 $ 943,377 $ 1,953,881
2.38% 3.02% 3.02%
13,230 $ 515,143 11,346 $ 441,785 19,164 $ 746,198
33,458 2,714,280 30,441 2,469,526 55,953 4,539,187
31,770 563,918 28,775 510,756 52,980 940,395
23,967 1,355,633 20,643 1,167,620 34,675 1,961,305
14,137 974,569 12,129 836,143 20,415 1,407,359
2,100 87,019 1,800 74,588 3,900 161,606
3,018 87,522 2,788 80,852 5,980 173,420
400 15,850 400 15,850 800 31,700
4,187 294,660 4,292 302,050 6,944 488,684
26,944 239,128 27,449 243,610 44,207 392,337
16,271 892,871 16,569 909,224 26,644 1,462,089
------------ ------------ ------------
$ 7,740,593 $ 7,052,004 $ 12,304,280
$ 5,887,555 $ 5,604,964 $ 10,092,709
8.17% 9.98% 11.24%
272 $ 5,984 217 $ 4,774 380 $ 8,360
1,905 118,943 1,584 98,901 3,115 194,493
13,553 1,052,052 12,241 950,208 22,591 1,753,626
8,502 765,711 7,343 661,329 18,051 1,625,718
1,500 84,281 1,350 75,853 2,950 165,753
1,400 112,000 1,200 96,000 2,600 208,000
12,864 726,794 11,105 627,404 18,689 1,055,917
11,135 516,386 10,083 467,599 18,490 857,474
15,217 471,727 13,792 427,552 25,532 791,492
7,900 368,337 7,150 333,369 13,250 617,781
7,545 441,854 6,423 376,147 10,868 636,457
13,834 1,072,135 11,961 926,978 20,064 1,554,960
2,944 293,480 2,509 250,116 4,177 416,395
1,999 236,382 1,927 227,868 2,875 339,969
95
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BB&T Corp 500 $ 31,031 1,127 $ 69,944
Bear Stearns Co Inc 500 23,313 1,055 49,189
Beneficial Corp 44 5,192 452 53,336
California Federal Bank 0 -- 0 --
Campstead Mortgage Corp 0 -- 400 7,600
Capital One Financial Corp 0 -- 100 6,719
CCB Financial Corp 0 -- 200 21,725
Centura Banks Inc 0 -- 300 21,263
Charter One Financial Inc 350 21,178 651 39,447
Chase Manhattan Bank 729 90,442 3,334 413,624
Citicorp 797 105,603 3,816 505,620
Comdisco Inc 324 13,507 568 23,658
Comerica Inc 143 14,416 888 89,522
Commerce Bancshares Inc 157 11,226 357 25,526
Compass Bancshares Inc 400 18,400 600 27,600
ContiFinancial Corp+ 0 -- 100 2,713
CoreStates Financial Corp 313 26,429 1,768 149,286
Countrywide Credit
Industries Inc 1,304 57,947 945 41,993
Credit Acceptance Corp+ 200 1,638 200 1,638
Crescent Operating Inc+ 0 -- 80 1,590
Crescent Real Estate Co 0 -- 1,000 34,063
Crestar Financial Corp 504 27,846 1,140 62,985
Deposit Guaranty Corp 0 -- 400 22,175
Dime Bancorp Inc 500 15,250 1,200 36,600
Donaldson Lufkin & Jenrette
Inc 0 -- 100 8,188
Duke Realty Investments 0 -- 700 16,056
Edwards A G & Sons Inc 382 16,068 830 34,912
Equifax Inc 1,416 50,888 1,265 45,461
Federal Home Loan Mortgage
Corp 1,193 56,369 5,834 275,657
Federal National Mortgage
Assoc 1,861 118,755 8,434 538,195
Fifth Third Bancorp 273 21,567 1,282 101,278
Finova Group Inc 200 11,000 500 27,500
First American Corp 400 19,150 600 28,725
First Chicago NBD Corp 547 44,957 2,446 201,031
First Commerce Corp 200 15,800 300 23,700
First Commercial Corp 0 -- 310 20,479
First Empire State Corp 0 -- 0 --
First Hawaiian Inc 200 7,925 200 7,925
First of America Bank Corp 421 32,668 915 71,045
First Security Corp 842 19,512 1,655 38,375
First Tennessee National
Corp 616 19,635 1,280 40,800
First Union Corp 1,500 79,031 5,195 273,712
First Virginia Banks Inc 338 17,111 570 28,856
Firstar Corp 600 25,088 1,200 50,175
96
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
2,752 $ 170,796 2,331 $ 144,668 3,962 $ 245,892
2,209 102,995 1,969 91,805 4,283 199,695
1,084 127,912 937 110,566 1,558 183,844
0 -- 0 -- 120 3,030
800 15,200 700 13,300 1,500 28,500
100 6,719 100 6,719 300 20,156
300 32,588 300 32,588 600 65,175
500 35,438 500 35,438 1,000 70,875
1,402 84,952 1,171 70,955 2,438 147,727
7,665 950,939 6,695 830,598 16,436 2,039,091
9,130 1,209,725 7,850 1,040,125 13,167 1,744,628
1,162 48,420 1,054 43,939 2,263 94,339
2,078 209,488 1,820 183,479 3,046 307,075
909 64,994 683 48,835 1,551 110,897
1,350 62,100 1,150 52,900 2,550 117,300
0 -- 200 5,425 300 8,138
3,988 336,737 3,412 288,101 5,715 482,560
2,207 98,074 1,876 83,365 3,064 136,156
0 -- 200 1,638 500 4,094
0 -- 0 -- 200 3,975
2,200 74,938 1,800 61,313 4,000 136,250
2,170 119,893 2,030 112,158 4,370 241,443
700 38,806 700 38,806 1,500 83,156
2,400 73,200 2,300 70,150 4,700 143,350
200 16,375 200 16,375 500 40,938
1,300 29,819 1,300 29,819 2,700 61,931
1,825 76,764 1,565 65,828 3,337 140,363
2,894 104,003 2,381 85,567 5,671 203,802
13,847 654,271 11,928 563,598 20,116 950,481
19,326 1,233,240 16,693 1,065,222 41,421 2,643,178
2,878 227,362 2,413 190,627 5,977 472,183
1,200 66,000 1,000 55,000 2,100 115,500
1,400 67,025 1,100 52,663 2,500 119,688
5,844 480,304 4,953 407,075 8,377 688,485
700 55,300 600 47,400 1,300 102,700
525 34,683 525 34,683 1,140 75,311
100 47,200 100 47,200 200 94,400
300 11,888 400 15,850 900 35,663
1,813 140,848 1,603 124,533 3,587 278,665
3,292 76,339 2,930 67,928 6,488 150,429
2,640 84,150 2,400 76,500 5,360 170,850
12,489 658,014 10,787 568,340 18,101 953,696
1,186 60,041 941 47,638 2,117 107,173
2,700 112,894 2,300 96,169 5,000 209,063
97
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Firstmerit Corp 300 $ 8,831 600 $ 17,663
Firstplus Financial Group+ 0 -- 300 9,900
Fleet Financial Group Inc 466 36,727 2,171 171,102
Franklin Resources Inc 788 40,188 1,600 81,600
GATX Corp 123 9,533 270 20,925
Golden State Bancorp+ 0 -- 400 14,250
Golden West Financial 64 5,712 500 44,625
Green Tree Financial Inc 256 5,872 1,199 27,502
Greenpoint Financial Corp 200 14,850 400 29,700
Hibernia Corp Class A 600 12,000 1,400 28,000
Highwood Properties Inc 0 -- 500 17,406
Household International Inc 145 18,832 960 124,680
Huntington Bancshares Inc 1,454 52,162 1,736 62,279
Ing Groep NV Sponsored ADR
(Netherlands) 57 3,032 86 4,574
John Nuveen & Co Inc Class A 0 -- 100 3,531
Keycorp 382 26,764 1,894 132,698
Keystone Financial Inc 0 -- 500 20,938
Lehman Brothers Holdings 500 31,531 800 50,450
MBNA Corp 644 23,063 4,040 144,683
Medaphis Corp+ 800 8,300 900 9,338
Mellon Bank Corp 437 27,231 2,273 141,636
Mercantile Bancorp 654 36,379 1,405 78,153
Mercantile Bankshares 454 15,904 735 25,748
Mercury Financial Corp+ 1,800 1,013 1,800 1,013
Merrill Lynch & Co Inc 530 37,928 2,774 198,514
MGIC Investment Corp 205 15,106 884 65,140
Money Store Inc 400 9,975 400 9,975
Morgan (J P) & Co Inc 346 41,347 1,584 189,288
Morgan Stanley Dean Witter 984 68,590 4,717 328,681
National Australia Bank Ltd
ADR (Australia) 1,213 84,910 3,931 275,170
National City Corp 332 21,663 1,900 123,975
NationsBank Corp 1,662 113,847 7,797 534,095
Northern Trust Corp 534 40,617 920 69,978
Northfork Bancorp 0 -- 600 20,513
Norwest Corp 1,247 51,049 6,618 270,924
Old Kent Financial Corp 402 15,502 934 36,017
Old National Bancorp 346 16,176 231 10,799
Pacific Century Financial
Corp 748 16,129 1,820 39,244
Paine Webber Group Inc 500 21,000 1,000 42,000
Peoples Bank Bridgeport 0 -- 200 7,513
PNC Bank Corp 519 28,805 2,725 151,237
Price (T Rowe) & Associates 200 13,275 500 33,188
98
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,000 $ 29,438 1,100 $ 32,381 2,400 $ 70,650
500 16,500 500 16,500 1,200 39,600
5,078 400,210 4,255 335,347 7,844 618,205
3,188 162,588 2,939 149,889 6,395 326,145
502 38,905 417 32,318 1,010 78,275
800 28,500 800 28,500 1,700 60,563
1,102 98,354 997 88,982 1,601 142,889
2,715 62,275 2,337 53,605 3,864 88,631
800 59,400 700 51,975 1,500 111,375
2,900 58,000 2,400 48,000 5,600 112,000
1,000 34,813 800 27,850 1,800 62,663
2,172 282,089 1,878 243,905 3,055 396,768
3,826 137,258 3,273 117,419 5,444 195,304
115 6,117 115 6,117 202 10,744
0 -- 0 -- 0 --
4,337 303,861 3,806 266,658 6,337 443,986
900 37,688 900 37,688 2,000 83,750
2,000 126,125 2,100 132,431 2,900 182,881
9,145 327,505 7,858 281,415 19,491 698,021
1,100 11,413 1,200 12,450 2,000 20,750
5,056 315,052 4,332 269,938 7,361 458,682
2,703 150,354 2,196 122,153 10,010 556,806
1,219 42,703 1,262 44,209 2,720 95,285
2,600 1,462 2,400 1,350 4,400 2,475
6,638 475,032 5,694 407,477 9,612 687,859
2,091 154,081 1,813 133,595 4,494 331,152
700 17,456 700 17,456 1,400 34,913
3,572 426,854 3,030 362,085 5,097 609,091
10,792 752,033 9,329 650,094 23,052 1,606,436
8,922 624,540 8,074 565,180 14,848 1,039,360
4,274 278,878 3,683 240,316 6,145 400,961
18,748 1,284,238 16,166 1,107,371 27,102 1,856,487
2,256 171,597 1,976 150,299 3,630 276,107
1,400 47,863 1,200 41,025 2,500 85,469
15,085 617,542 12,908 528,421 21,786 891,864
1,818 70,107 1,686 65,016 3,820 147,309
463 21,645 347 16,222 810 37,868
3,314 71,458 2,854 61,539 3,070 66,197
2,050 86,100 2,000 84,000 4,150 174,300
500 18,781 400 15,025 900 33,806
6,122 339,771 5,191 288,100 8,770 486,735
1,000 66,375 900 59,738 1,900 126,112
99
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Provident Financial Group 0 $ -- 200 $ 10,250
Regions Financial Corp 670 26,633 1,400 55,650
Republic New York Corp 102 12,342 491 59,411
Ryder System Inc 139 5,100 687 25,204
Sabre Group Holding Inc+ 0 -- 200 6,600
Schwab (Charles) Corp 278 10,495 2,147 81,049
SLM Holding Corp 750 30,984 1,700 70,231
Star Banc Corp 400 23,550 900 52,988
State Street Corp 1,445 89,319 1,267 78,316
Summit Bancorp 704 34,980 1,655 82,233
SunTrust Banks Inc 339 25,001 1,872 138,060
Synovus Financial Corp 925 32,491 1,410 49,526
TCF Financial Corp 400 13,225 900 29,756
The Fund American Co 0 -- 0 --
U.S. Bancorp 447 51,433 2,006 230,815
Union Planters Corp 400 24,725 800 49,450
UnionBanCal Corp 100 9,313 100 9,313
United Asset Management Corp 500 13,281 700 18,594
Wachovia Corp 612 48,654 1,744 138,648
Washington Federal Inc 312 8,630 553 15,288
Washington Mutual Inc 407 27,320 2,089 140,224
Wells Fargo & Co 156 50,232 674 217,028
Wesco Financial Corp 0 -- 0 --
Westpac Banking Corp ADR
(Australia) 1,796 61,962 5,858 202,101
Wilmington Trust Corp 192 11,880 310 19,181
Zions Bancorp 400 17,200 700 30,100
------------ ------------
TOTAL BANK & FINANCE
- VALUE $ 3,313,700 $ 11,734,629
- COST $ 2,090,123 $ 6,930,444
BASIC INDUSTRIES
PERCENT OF NET ASSETS 0.38% 0.75%
ASARCO Inc 25 $ 553 402 $ 8,894
Avery-Dennison Corp 100 5,050 866 43,733
Baker Hughes Inc 328 13,428 1,504 61,570
Bemis Co 142 6,399 448 20,188
Boise Cascade Corp 69 2,299 503 16,756
Boise Cascade Office
Products+ 0 -- 100 1,806
Bowater Inc 195 9,653 410 20,295
Broken Hill Propriety Co Ltd
ADR (Australia) 790 15,553 2,578 50,754
Champion International Corp 142 7,251 801 40,901
Chesapeake Corp 256 8,688 200 6,788
100
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
400 $ 20,500 300 $ 15,375 700 $ 35,875
2,838 112,811 2,428 96,513 5,380 213,855
1,090 131,890 902 109,142 1,599 193,479
1,567 57,489 1,303 47,804 2,160 79,245
400 13,200 300 9,900 500 16,500
4,857 183,352 4,245 160,249 10,409 392,940
3,450 142,528 3,500 144,594 7,000 289,188
1,700 100,088 1,600 94,200 3,500 206,062
3,032 187,416 2,515 155,458 6,126 378,663
3,058 151,920 2,971 147,622 5,018 249,307
4,154 306,357 3,576 263,730 6,043 445,671
3,091 108,571 2,815 98,877 6,679 234,600
2,000 66,125 1,700 56,206 3,700 122,331
0 -- 0 -- 100 13,075
4,493 516,976 3,855 443,566 9,591 1,103,564
1,600 98,900 1,300 80,356 3,300 203,981
200 18,625 200 18,625 400 37,250
1,400 37,188 1,200 31,875 2,600 69,063
4,095 325,552 3,538 281,271 5,928 471,276
1,129 31,178 996 27,501 2,037 56,278
4,648 311,997 4,045 271,521 10,003 671,451
1,775 571,550 1,624 522,391 2,473 796,306
0 -- 0 -- 100 36,400
13,159 453,986 11,924 411,378 21,965 757,793
649 40,157 604 37,373 1,375 85,078
1,200 51,600 1,100 47,300 2,700 116,100
------------ ------------ ------------
$ 26,661,417 $ 23,315,850 $ 45,482,045
$ 15,240,587 $ 13,348,240 $ 30,421,589
1.11% 1.36% 1.50%
875 $ 19,359 621 $ 13,740 1,370 $ 30,311
1,922 97,061 1,659 83,779 3,873 195,587
3,398 139,106 2,818 115,362 4,860 198,956
1,075 48,442 892 40,196 1,634 73,632
1,147 38,209 996 33,179 1,723 57,397
800 14,450 200 3,613 400 7,225
852 42,174 707 34,997 1,675 82,913
5,741 113,026 5,193 102,237 9,571 188,429
1,932 98,653 1,643 83,896 2,714 138,584
361 12,251 266 9,027 650 22,059
101
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Consolidated Papers Inc 86 $ 4,993 280 $ 16,258
Crown Vantage Inc+ 21 144 48 330
Cyprus Amax Minerals 140 2,293 800 13,100
Deltic Timber Corp 141 3,964 166 4,661
Dover Corp 310 11,974 1,748 67,517
Fort James Corp 576 26,136 1,546 70,150
Georgia-Pacific Corp 137 8,040 793 46,539
Glatfelter (P H) Co 486 8,535 280 4,918
Harnischfeger Industries Inc 110 3,891 405 14,327
Homestake Mining Co 222 2,220 1,287 12,870
Ikon Office Solutions Inc 194 6,341 1,228 40,140
Inco Ltd 236 4,174 1,469 25,983
Longview Fibre Co 554 8,552 540 8,336
Louisiana-Pacific Corp 123 2,698 942 20,665
LTB Corp 900 10,856 1,100 13,269
Mark IV Industries Inc 247 5,743 432 10,044
Mead Corp 112 3,829 975 33,333
Minnesota Mining &
Manufacturing Co 685 58,439 3,265 278,545
Mitsubishi Corp ADR (Japan) 3,294 50,115 14,325 217,941
NACCO Industries Inc Class A 18 2,341 48 6,243
Newmont Gold Co 100 2,925 100 2,925
Newmont Mining Corp 164 4,746 1,336 38,661
Potlatch Corp 102 4,418 245 10,612
Rayonier Inc 156 6,611 250 10,594
Sealed Air Corp+ 200 13,463 400 26,925
Smith International Inc+ 214 11,395 400 21,300
St Joe Paper Corp 300 10,238 300 10,238
Stone Container Corp+ 87 979 850 9,562
U.S. Industries Inc 292 8,140 757 21,101
Union Camp Corp 75 4,481 644 38,479
Unisource Worldwide Inc 94 1,281 665 9,061
Varco International Inc 584 14,527 0 --
Varian Associates Inc 177 10,266 290 16,820
Watts Industries Inc Class A 308 9,259 0 --
Wausau-Mosinee Paper Corp 392 8,477 316 6,834
Westvaco Corp 206 6,695 932 30,290
Weyerhauser Co 369 18,427 1,719 85,843
Whitman Corp 64 1,140 877 15,622
Willamette Industries Inc 219 8,089 1,020 37,676
------------ ------------
TOTAL BASIC INDUSTRIES
- VALUE $ 439,709 $ 1,569,397
- COST $ 384,202 $ 1,492,604
102
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
570 $ 33,096 490 $ 28,451 1,070 $ 62,127
104 715 81 557 132 907
1,856 30,392 1,445 23,662 2,934 48,044
308 8,654 199 5,601 334 9,399
4,052 156,508 3,718 143,608 8,494 328,081
4,164 188,942 3,619 164,212 5,963 270,571
1,889 110,861 1,536 90,144 2,697 158,280
769 13,506 489 8,588 770 13,523
998 35,304 854 30,210 1,380 48,818
2,961 29,610 2,296 22,960 4,626 46,260
2,671 87,308 2,225 72,730 3,816 124,735
3,405 60,226 2,750 48,641 5,033 89,021
890 13,739 575 8,877 1,330 20,532
2,221 48,723 1,774 38,917 3,116 68,357
1,900 22,919 2,000 24,125 4,000 48,250
870 20,228 762 17,717 1,675 38,944
2,111 72,170 1,940 66,324 3,012 102,973
7,472 637,455 6,429 548,474 15,846 1,351,862
33,788 514,051 34,400 523,362 55,390 842,703
152 19,770 149 19,379 269 34,987
200 5,850 200 5,850 300 8,775
3,105 89,851 2,693 77,929 4,461 129,090
540 23,389 432 18,711 865 37,465
462 19,577 526 22,289 1,119 47,418
906 60,985 736 49,542 1,600 107,700
797 42,440 627 33,388 1,400 74,550
600 20,475 600 20,475 1,100 37,538
2,014 22,657 1,479 16,639 3,054 34,358
1,425 39,722 1,340 37,353 2,001 119,560
1,374 82,097 1,151 68,772 2,674 36,433
1,174 15,996 1,092 14,878 2,852 79,500
1,048 26,069 748 18,607 0 --
735 42,630 590 34,220 1,265 73,370
464 13,949 334 10,041 0 --
572 12,370 407 8,801 371 8,023
2,103 68,348 1,707 55,477 2,874 93,405
3,999 199,700 3,441 171,835 5,792 289,238
2,051 36,533 1,594 28,393 4,065 72,408
2,262 83,553 1,858 68,630 3,176 117,314
------------ ------------ ------------
$ 3,633,099 $ 3,168,395 $ 6,069,612
$ 3,411,265 $ 2,963,119 $ 5,947,578
103
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BEVERAGES
PERCENT OF NET ASSETS 0.84% 1.79%
Anheuser-Busch Inc 852 $ 39,938 3,900 $ 182,813
Cadbury Schweppes PLC ADR
(UK) 1,457 74,307 4,962 253,062
Coca-Cola Co 4,437 304,766 19,699 1,353,075
Coca-Cola Enterprises Co 1,036 34,253 2,130 70,423
Coors (Adolph) Co Class B 69 2,156 343 10,719
Diageo PLC ADR (UK) 3,657 152,007 12,095 502,698
Energy Group PLC ADR (UK) 0 -- 0 --
Hanson PLC ADR (UK) 2,529 64,015 8,356 211,511
Kirin Brewery Co ADR (Japan) 1,597 141,534 5,002 443,302
Louis Vuitton Moet Hennessey
ADR (France) 1,037 41,221 3,421 135,985
Pepsico Inc 2,762 100,986 12,152 444,307
Seagrams Co Ltd 644 24,472 3,275 124,450
------------ ------------
TOTAL BEVERAGES
- VALUE $ 979,655 $ 3,732,345
- COST $ 816,351 $ 2,954,926
BIOTECHNOLOGY
PERCENT OF NET ASSETS 0.03% 0.03%
Agouron Pharmaceuticals Inc 0 $ -- 300 $ 11,063
Biogen Inc+ 418 18,444 660 29,123
Chiron Corp+ 496 9,517 892 17,115
Genzyme Corp - General
Division 326 9,637 320 9,460
Genzyme Corp - Tissue
Repair+ 44 319 12 87
Quest Diagnostics Inc+ 46 713 240 3,720
------------ ------------
TOTAL BIOTECHNOLOGY
- VALUE $ 38,630 $ 70,568
- COST $ 29,269 $ 64,348
BROADCASTING
PERCENT OF NET ASSETS 0.16% 0.30%
British Sky Broadcasting ADR
(UK) 817 $ 31,608 2,585 $ 100,007
Chancellor Media Corp Class
A 0 -- 800 35,800
Clear Channel Communications
Inc+ 404 36,613 842 76,306
Hearst-Argyle Television+ 0 -- 500 17,563
Jacor Communications Inc+ 0 -- 100 5,788
Kingworld Productions 204 5,444 580 15,479
LIN Television Corp+ 200 11,025 100 5,513
TCA Cable TV Inc 266 13,101 0 --
TCI Satellite Entertainment
Class A+ 107 716 543 3,631
Tele-Communications Inc
Class A+ 776 22,553 4,151 120,638
Tele-Communications
International Inc Class A+ 300 5,325 200 3,550
104
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
2.59% 3.24% 3.99%
8,938 $ 418,969 7,766 $ 364,031 19,012 $ 891,188
11,081 565,131 10,027 511,377 18,562 946,662
45,057 3,094,853 39,007 2,679,293 96,460 6,625,596
4,264 140,979 3,844 127,092 8,465 279,874
738 23,063 556 17,375 1,159 36,219
27,143 1,128,113 24,682 1,025,846 44,721 1,858,717
0 -- 0 -- 0 --
18,888 478,099 17,086 432,489 31,595 799,748
11,386 1,009,084 11,580 1,026,278 18,702 1,657,465
7,722 306,950 6,983 277,574 12,913 513,292
27,649 1,010,917 24,065 879,877 58,969 2,156,054
7,186 273,068 6,140 233,320 10,329 392,502
------------ ------------ ------------
$ 8,449,226 $ 7,574,552 $ 16,157,317
$ 6,666,172 $ 5,974,797 $ 13,050,240
0.04% 0.05% 0.06%
500 $ 18,438 500 $ 18,438 1,100 $ 40,563
1,282 56,568 1,222 53,921 2,590 114,284
1,624 31,160 1,600 30,700 3,252 62,398
734 21,699 544 16,082 1,100 32,519
71 515 52 377 54 392
515 7,983 389 6,030 825 12,788
------------ ------------ ------------
$ 136,363 $ 125,548 $ 262,944
$ 124,665 $ 100,328 $ 234,725
0.42% 0.54% 0.61%
5,817 $ 225,045 5,240 $ 202,723 9,702 $ 375,346
1,400 62,650 1,400 62,650 3,800 170,050
1,998 181,069 2,169 196,566 2,849 258,191
0 -- 900 31,613 1,900 66,738
0 -- 200 11,575 400 23,150
1,398 37,309 1,168 31,171 2,224 59,353
300 16,538 200 11,025 400 22,050
371 18,272 276 13,593 0 --
1,150 7,691 883 5,905 1,866 12,479
9,284 269,816 7,934 230,582 600 10,650
400 7,100 400 7,100 19,822 576,077
105
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -----------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Tribune Co 241 $ 15,560 967 $ 62,432
USA Networks Inc+ 261 13,454 365 18,772
Viacom Inc Class B+ 587 28,176 3,110 149,280
------------ ------------
TOTAL BROADCASTING
- VALUE $ 183,575 $ 614,759
- COST $ 124,818 $ 460,424
BUILDING MATERIALS &
SERVICES
PERCENT OF NET ASSETS 0.18% 0.28%
American Standard Co Inc+ 200 $ 8,900 500 $ 22,250
Cooper Industries Inc 233 13,077 1,084 60,840
Corning Inc 320 13,000 1,943 78,934
Cytec Industries Inc+ 100 4,888 300 14,663
Dal Tile International Inc 0 -- 0 --
Danaher Corp 200 14,388 280 20,143
Diebold Inc 366 18,803 635 32,623
Fastenal Co 100 4,388 300 13,163
Georgia-Pacific (Timber
Group) 137 3,125 893 20,372
Kennametal Inc 300 15,788 300 15,788
Lafarge Corp 300 10,069 300 10,069
Lawson Products Inc 0 -- 0 --
Martin Marietta Inc 0 -- 100 3,806
Owens Corning Fiberglass
Corp 28 865 411 12,690
Owens Illinois Inc+ 706 27,093 1,158 44,438
PPG Industries Inc 305 19,768 1,564 101,367
Snap-On Inc 138 5,865 577 24,523
Southdown Inc 175 11,200 0 --
Stanley Works 112 5,355 766 36,624
USG Corp+ 200 10,925 300 16,388
Valspar Corp 200 7,013 400 14,025
Vulcan Materials Co 200 20,125 300 30,188
------------ ------------
TOTAL BUILDING MATERIALS &
SERVICES
- VALUE $ 214,635 $ 572,894
- COST $ 127,145 $ 402,329
BUSINESS SERVICES
PERCENT OF NET ASSETS 0.16% 0.37%
Accustaff Inc+ 0 $ -- 900 $ 25,425
APAC Teleservices Inc+ 100 1,475 200 2,950
Apollo Group Inc+ 0 -- 300 12,713
Cendant Corp+ 772 28,950 6,377 239,137
Concord EFS Inc+ 0 -- 600 18,675
Ecolab Inc 124 3,573 1,006 28,985
106
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
2,299 148,429 1,995 128,802 4,699 303,379
950 48,915 772 39,761 1,606 82,709
7,102 340,896 6,039 289,872 10,180 488,640
------------ ------------ ------------
$ 1,363,730 $ 1,262,938 $ 2,448,812
$ 1,044,466 $ 961,746 $ 1,856,010
0.38% 0.49% 0.56%
900 $ 40,050 900 $ 40,050 1,800 $ 80,100
2,438 136,833 2,050 115,056 3,437 192,902
4,238 172,169 3,678 149,419 8,791 357,134
600 29,325 600 29,325 1,300 63,538
0 -- 0 -- 200 2,263
662 47,623 622 44,745 1,280 92,080
1,509 77,525 1,191 61,188 2,655 136,401
600 26,325 500 21,938 1,100 48,263
1,889 43,093 3,236 73,821 5,697 129,963
411 21,629 300 15,788 600 31,575
500 16,781 500 16,781 1,100 36,919
197 5,467 0 -- 0 --
0 -- 200 7,613 300 11,419
1,017 31,400 946 29,208 1,995 61,596
2,641 101,348 2,201 84,463 5,315 203,963
3,543 229,631 3,091 200,335 5,121 331,905
1,261 53,593 1,087 46,198 1,708 72,590
253 16,192 178 11,392 0 --
1,759 84,102 1,487 71,097 3,370 161,128
700 38,238 600 32,775 1,300 71,012
600 21,038 700 24,544 1,500 52,594
600 60,375 600 60,375 1,200 120,750
------------ ------------ ------------
$ 1,252,737 $ 1,136,111 $ 2,258,095
$ 891,337 $ 836,713 $ 1,814,509
0.52% 0.63% 0.89%
1,600 $ 45,200 1,600 $ 45,200 3,400 $ 96,050
400 5,900 400 5,900 600 8,850
600 25,425 500 21,188 1,000 42,375
14,452 541,950 12,482 468,075 42,288 1,585,800
1,100 34,238 1,000 31,125 2,200 68,475
2,478 71,397 1,958 56,415 4,878 140,547
107
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Intl Technology Corp+ 0 $ -- 0 $ --
Kelly Services Inc Class A 106 3,776 120 4,275
Laidlaw Environmental
Services+ 131 630 353 1,699
Manpower Inc 400 16,875 800 33,750
Nielson (A C) Corp+ 73 1,825 453 11,325
Ogden Corp 101 2,778 525 14,438
Olsten Corp 291 4,692 525 8,466
Paychex Inc 485 25,038 927 47,856
Paymentech Inc+ 0 -- 100 1,650
Quintiles Transnational Corp 200 9,775 500 24,438
Reuters Group PLC ADR (UK) 755 45,198 2,614 156,505
Robert Half International
Inc 300 13,575 650 29,413
Rollins Inc 388 8,003 210 4,331
Security Dynamics Technology
I+ 0 -- 300 10,688
Teletech Holdings Inc+ 0 -- 100 956
Waste Management Inc 741 18,525 3,993 99,825
------------ ------------
TOTAL BUSINESS SERVICES
- VALUE $ 184,688 $ 777,500
- COST $ 164,504 $ 671,110
CHEMICALS
PERCENT OF NET ASSETS 0.75% 1.53%
Air Products & Chemicals Inc 130 $ 10,912 948 $ 79,573
Airgas Inc+ 400 7,175 500 8,969
Albemarle corp 313 7,629 260 6,338
Arco Chemical Co 100 4,731 200 9,463
Autoliv Inc 44 1,359 999 30,844
Betz Labs Inc 96 6,162 240 15,405
Cabot Corp 310 10,928 740 26,085
ChemFirst Inc 35 925 84 2,221
Clorox Co 94 8,249 808 70,902
Courtaulds PLC ADR (UK) 14,458 84,941 48,019 282,112
Crompton & Knowles Corp 450 13,556 740 22,293
Dow Chemical Co 441 40,352 1,989 181,993
Du Pont (E I) De Nemours 2,040 125,078 9,023 553,223
Eastman Chemical Co 124 8,122 646 42,313
Ethyl Corp 1,031 8,506 1,010 8,333
Ferro Corp 457 12,310 375 10,102
FMC Corp+ 102 7,382 338 24,463
Fuller (H B) Co 0 -- 0 --
Geon Co 0 -- 0 --
Georgia Gulf Corp 237 7,806 360 11,858
Goodrich (B F) Co 92 4,560 526 26,070
Grace (W R) Co 42 3,525 636 53,384
108
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
137 $ 1,361 0 $ -- 0 $ --
289 10,296 219 7,802 885 31,528
769 3,701 623 2,998 822 3,956
1,700 71,719 1,400 59,063 3,100 130,781
918 22,950 707 17,675 1,530 38,250
884 24,310 806 22,165 1,744 47,960
1,117 18,012 988 15,932 2,216 35,733
1,804 93,132 1,640 84,665 3,512 181,307
0 -- 200 3,300 400 6,600
1,000 48,875 900 43,988 2,000 97,750
5,545 332,003 5,031 301,231 9,354 560,067
1,500 67,875 1,250 56,563 2,700 122,175
645 13,303 400 8,250 675 13,922
600 21,375 600 21,375 1,300 46,313
0 -- 0 -- 300 2,869
9,156 228,900 7,864 196,600 13,148 328,700
------------ ------------ ------------
$ 1,681,922 $ 1,469,510 $ 3,590,008
$ 1,417,756 $ 1,351,754 $ 3,141,725
2.20% 2.68% 3.13%
2,185 $ 183,403 1,876 $ 157,467 3,168 $ 265,914
600 10,763 900 16,144 2,100 37,669
412 10,043 432 10,530 986 24,034
200 9,463 300 14,194 600 28,388
2,269 70,055 1,833 56,594 4,010 123,809
527 33,827 507 32,543 1,105 70,927
1,372 48,363 1,332 46,953 2,790 98,348
314 8,301 224 5,922 347 9,183
1,910 167,602 1,597 140,137 4,005 351,439
108,246 635,945 98,153 576,649 177,445 1,042,489
1,585 47,748 1,270 38,259 2,830 85,254
4,511 412,757 3,878 354,837 6,497 594,475
20,601 1,263,099 17,808 1,091,853 44,140 2,706,334
1,615 105,783 1,375 90,062 2,285 149,668
2,029 16,739 1,308 10,791 2,530 20,872
654 17,617 496 13,361 1,222 32,918
728 52,689 581 42,050 1,098 79,468
225 12,797 0 -- 0 --
0 -- 0 -- 300 6,000
745 24,538 465 15,316 640 21,080
1,413 70,032 1,211 60,020 2,053 101,752
1,336 112,141 1,126 94,514 2,798 234,857
109
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Great Lakes Chemical Corp 77 $ 3,744 538 $ 26,160
Hanna (M A) Co 280 6,493 550 12,753
Hercules Inc 92 4,445 778 37,587
IMC Global Inc 436 16,650 926 35,362
Imperial Chemical Industries
PLC ADR (UK) 1,259 92,064 4,041 295,498
International Flavor &
Fragrances 176 8,096 943 43,378
Johns Manville Corp 0 -- 400 4,825
Lawter International Inc 0 -- 0 --
Lubrizol Corp 329 12,687 560 21,595
Lyondell Petrochemical 176 4,796 380 10,355
Millennium Chemicals Inc 311 8,015 736 18,986
Mississippi Chemical Corp 11 204 28 519
Monsanto Co 1,040 52,910 4,781 243,233
Montedison Spa ADR (Italy) 5,054 51,172 17,007 172,196
Morton International Inc 238 7,869 1,272 42,056
Nalco Chemical Co 74 2,979 639 25,720
OEA Inc 0 -- 0 --
Olin Corp 270 12,369 460 21,074
Praxair Inc 218 10,423 1,291 61,726
Premark International Inc 461 14,349 606 18,862
Rhone Poulenc Rorer Class A 2,434 112,420 7,955 367,422
Rohm & Haas Co 71 7,238 535 54,537
RPM Inc 472 8,024 858 14,586
Rubbermaid Inc 162 4,698 1,229 35,641
Schulman (A) Inc 403 10,277 420 10,710
Sigma-Aldrich Corp 228 9,006 898 35,471
Solutia Inc 143 3,906 1,146 31,300
Terra Industries Inc 500 5,938 400 4,750
Thiokol Inc 116 11,093 200 19,125
Union Carbide Corp 245 11,377 1,071 49,735
Valhi Inc 0 -- 0 --
Wellman Inc 363 7,804 280 6,020
------------ ------------
TOTAL CHEMICALS
- VALUE $ 875,254 $ 3,187,126
- COST $ 706,451 $ 2,482,784
COMPUTER SOFTWARE
PERCENT OF NET ASSETS 1.13% 2.07%
3Com Corp+ 1,890 $ 67,568 2,775 $ 99,206
Adobe Systems Inc 122 5,391 563 24,878
Altera Corp+ 420 18,113 820 35,363
America Online Inc+ 400 48,450 900 109,013
Anixter International Inc+ 500 8,625 500 8,625
At Home Corp Series A+ 0 -- 200 6,825
110
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,200 $ 58,350 1,045 $ 50,813 1,712 $ 83,246
967 22,422 900 20,869 1,762 40,856
1,916 92,567 1,661 80,247 2,723 131,555
2,145 81,912 1,793 68,470 3,910 149,313
9,153 669,313 8,260 604,012 15,280 1,117,350
2,074 95,404 1,798 82,708 4,089 188,094
600 7,238 600 7,238 1,000 12,063
677 7,912 0 -- 0 --
1,217 46,931 1,042 40,182 2,300 88,694
817 22,263 692 18,857 1,545 42,101
1,512 39,038 1,346 34,752 2,946 76,051
106 1,961 74 1,369 116 2,146
10,779 548,382 9,224 469,271 23,000 1,170,125
38,429 389,094 34,830 352,654 64,117 649,185
2,676 88,475 2,344 77,499 3,814 126,100
1,388 55,867 1,152 46,368 1,899 76,435
308 6,526 223 4,725 0 --
1,078 49,386 858 39,307 1,860 85,211
3,140 150,131 2,692 128,711 4,500 215,156
1,133 35,265 996 31,001 2,150 66,919
17,936 828,419 16,306 753,133 29,975 1,384,470
1,260 128,441 1,033 105,301 1,772 180,633
1,497 25,449 1,607 27,319 3,485 59,245
3,051 88,479 2,510 72,790 4,226 122,554
686 17,493 616 15,708 1,185 30,218
2,049 80,936 1,719 67,901 2,869 113,325
2,097 57,274 2,120 57,903 4,539 123,971
700 8,313 500 5,938 1,100 13,063
295 28,209 310 29,644 700 66,938
2,504 116,279 2,179 101,187 3,554 165,039
0 -- 0 -- 300 2,888
495 10,643 365 7,847 845 18,168
------------ ------------ ------------
$ 7,172,077 $ 6,271,920 $ 12,685,990
$ 5,559,323 $ 4,854,289 $ 10,293,905
2.92% 3.63% 4.75%
6,387 $ 228,335 5,378 $ 192,264 13,526 $ 483,555
1,423 62,879 1,247 55,102 2,204 97,389
1,836 79,178 1,596 68,828 3,380 145,762
1,900 230,138 1,700 205,913 3,800 460,275
500 8,625 700 12,075 1,200 20,700
0 -- 300 10,238 600 20,475
111
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Autodesk Inc 86 $ 4,074 416 $ 19,708
Automatic Data Processing 409 24,975 2,388 145,817
Bay Networks Inc+ 302 10,230 1,680 56,910
BMC Software Inc+ 512 39,168 980 74,970
Broderbund Software Inc+ 200 4,950 200 4,950
Cadence Design Systems Inc 964 33,680 1,924 67,220
Cambridge Technology
Partners+ 0 -- 400 18,200
Choicepoint Inc+ 141 6,750 140 6,703
Citrix Systems Inc 0 -- 350 14,722
Computer Associates
International Inc 964 45,429 4,367 205,795
Computer Sciences Corp+ 141 14,761 666 69,722
Compuware Corp 600 25,275 1,500 63,188
CSK Corp ADR (Japan) 1,916 45,745 6,100 145,638
DST Systems Inc+ 200 10,575 300 15,863
Electronic Arts Inc+ 300 13,238 600 26,475
Electronic Data Systems Corp 1,488 65,193 3,330 145,896
First Data Corp 563 19,142 3,700 125,800
Fiserv Inc+ 217 11,881 430 23,542
Gartner Group Inc Class A+ 200 7,975 500 19,938
HBO & Co 1,409 76,262 1,683 91,092
I2 Technologies Inc+ 0 -- 100 5,656
Information Resources Inc+ 0 -- 0 --
Informix Corp+ 1,390 10,859 1,320 10,313
Intuit Inc+ 200 9,300 400 18,600
J.D. Edwards 0 -- 0 --
Keane Inc 0 -- 700 32,550
Mentor Graphics Corp+ 600 6,263 700 7,306
Microsoft Corp 4,238 359,171 19,222 1,629,065
MobileMedia Corp+ 300 150 200 100
NEC Corp ADR (Japan) 1,183 66,987 3,663 207,417
Netscape Communications
Corp+ 201 3,894 505 9,784
Networks Associates Inc+ 350 22,619 650 42,006
Novell Inc+ 535 5,626 3,146 33,082
Objective Systems Integrator
C+ 0 -- 100 1,313
Oracle Systems Corp 1,706 42,010 7,818 192,518
Parametric Technology Corp+ 125 7,570 1,053 63,772
Peoplesoft Inc 600 26,813 1,500 67,031
Platinum Technology Inc+ 0 -- 600 15,225
Reynolds & Reynolds Co Class
A 346 7,353 620 13,175
Shiva Corp+ 300 4,088 300 4,088
Siebel Systems Inc+ 0 -- 1 62
SPS Transaction Services
Inc+ 0 -- 100 2,919
Sterling Commerce Inc+ 377 17,201 737 33,626
Sterling Software Inc+ 100 5,269 300 15,806
112
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
971 $ 46,001 759 $ 35,958 1,817 $ 86,080
5,379 328,455 4,554 278,079 11,348 692,937
4,271 144,680 3,564 120,731 6,010 203,589
2,132 163,098 1,852 141,678 4,080 312,120
200 4,950 200 4,950 500 12,375
3,850 134,509 3,490 121,932 7,730 270,067
700 31,850 600 27,300 1,400 63,700
364 17,427 267 12,792 484 23,172
750 31,547 750 31,547 1,500 63,094
9,986 470,591 8,603 405,417 21,260 1,001,878
1,576 164,987 1,298 135,884 2,216 231,988
2,900 122,163 2,700 113,738 6,700 282,238
14,200 339,025 14,411 344,063 23,202 553,948
400 21,150 500 26,438 1,200 63,450
1,000 44,125 1,000 44,125 2,200 97,075
6,691 293,149 6,476 283,730 13,400 587,088
8,548 290,632 7,309 248,506 12,349 419,866
999 54,695 829 45,388 1,895 103,751
1,000 39,875 800 31,900 1,800 71,775
3,799 205,621 3,141 170,007 8,103 438,575
0 -- 100 5,656 200 11,313
403 5,642 0 -- 0 --
3,118 24,359 2,138 16,703 5,180 40,469
800 37,200 700 32,550 1,500 69,750
0 -- 0 -- 900 29,700
1,200 55,800 1,200 55,800 2,700 125,550
852 8,893 1,000 10,438 1,600 16,700
44,040 3,732,390 38,128 3,231,348 94,116 7,976,331
400 200 300 150 700 350
8,710 493,204 8,814 499,093 14,199 804,018
1,516 29,373 920 17,825 2,045 39,622
900 58,163 1,275 82,397 2,750 177,719
7,045 74,082 5,717 60,118 9,883 103,926
0 -- 0 -- 200 2,625
17,917 441,206 15,616 384,544 38,117 938,631
2,349 142,261 2,012 121,852 5,004 303,055
2,900 129,594 2,700 120,656 5,800 259,188
1,000 25,375 1,000 25,375 2,100 53,288
1,212 25,755 1,152 24,480 2,400 51,000
600 8,175 400 5,450 600 8,175
4 246 3 185 8 492
0 -- 0 -- 200 5,838
1,654 75,464 1,296 59,130 2,874 131,126
600 31,613 600 31,613 1,200 63,225
113
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -----------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Storage Technology Corp+ 259 $ 17,677 535 $ 36,514
Stratus Computer Inc+ 161 8,080 310 15,558
Structural Dynamics
Research+ 303 8,711 0 --
Sun Microsystems Inc+ 522 24,860 3,050 145,256
Sungard Data Systems Inc 400 13,675 800 27,350
Symantec Corp+ 378 9,521 600 15,113
Synopsys Inc+ 400 13,975 600 20,963
Total System Services Inc 300 7,875 300 7,875
Yahoo! Inc 0 -- 100 7,319
------------ ------------
TOTAL COMPUTER SOFTWARE
- VALUE $ 1,306,997 $ 4,307,421
- COST $ 942,394 $ 2,771,750
COMPUTER SYSTEMS
PERCENT OF NET ASSETS 0.67% 1.66%
Adaptec Inc+ 500 $ 13,219 1,100 $ 29,081
Apple Computer Inc+ 235 5,552 1,090 25,751
Cabletron Systems Inc+ 257 3,984 1,334 20,677
Ceridian Corp+ 131 6,100 632 29,428
Cisco Systems Inc 1,764 116,204 7,991 526,407
Cognex Corp+ 0 -- 300 7,219
Cognizant Corp 180 8,989 1,332 66,517
Compaq Computer Corp 2,756 88,364 12,144 389,367
Data General Corp+ 64 1,320 444 9,158
Dell Computer Corp 554 77,491 2,588 361,997
Digital Equipment Corp+ 224 12,754 1,347 76,695
EMC Corp 638 24,404 4,000 153,000
Exabyte Corp+ 0 -- 0 --
Gateway 2000 Inc 400 17,600 700 30,800
GTECH Holdings Corp+ 100 3,531 300 10,594
Harris Corp 104 5,272 692 35,076
Hewlett-Packard Co 1,774 118,858 8,303 556,301
Intergraph Corp+ 54 527 367 3,578
International Business
Machine Corp 1,680 175,455 8,102 846,153
Iomega Corp 1,200 10,950 2,400 21,900
Komag Inc+ 400 5,750 600 8,625
NCR Corp+ 171 5,365 1,059 33,226
Quantum Corp 500 12,563 1,100 27,638
Rational Software Corp+ 0 -- 900 12,150
Seagate Technology Inc+ 397 9,652 2,179 52,977
Sequent Computer Systems+ 340 7,204 0 --
Shared Medical System Corp 42 3,210 155 11,848
Silicon Graphics Inc+ 284 4,278 1,549 23,332
Sybase Inc+ 700 7,350 700 7,350
Unisys Corp+ 280 5,005 1,592 28,457
114
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,084 $ 73,983 1,067 $ 72,823 2,125 $ 145,031
366 18,369 471 23,638 1,050 52,697
434 12,478 319 9,171 0 --
6,829 325,231 5,842 278,225 14,527 691,848
1,800 61,538 1,400 47,863 3,600 123,075
1,236 31,132 1,061 26,724 2,100 52,894
900 31,444 1,100 38,431 2,300 80,356
400 10,500 400 10,500 1,000 26,250
200 14,638 200 14,638 400 29,275
------------ ------------ ------------
$ 9,535,993 $ 8,475,959 $ 19,220,439
$ 5,988,902 $ 5,431,393 $ 13,160,541
2.43% 2.92% 3.67%
2,400 $ 63,450 2,000 $ 52,875 4,300 $ 113,681
2,547 60,173 2,128 50,274 3,644 86,090
3,094 47,957 2,697 41,804 4,826 74,803
1,516 70,589 1,169 54,432 2,833 131,912
18,353 1,209,004 15,847 1,043,922 39,301 2,588,955
700 16,844 600 14,438 1,300 31,281
3,070 153,308 2,665 133,083 6,160 307,615
27,565 883,803 24,044 770,911 58,795 1,885,115
1,001 20,646 772 15,923 1,522 31,391
6,002 839,530 5,111 714,901 12,694 1,775,573
2,928 166,713 2,487 141,604 4,300 244,831
9,088 347,616 7,794 298,121 19,346 739,984
340 2,720 0 -- 0 --
1,400 61,600 1,200 52,800 2,600 114,400
500 17,656 600 21,188 1,300 45,906
1,570 79,579 1,333 67,566 2,327 117,950
18,920 1,267,640 16,401 1,098,867 40,599 2,720,133
861 8,395 586 5,714 992 9,672
19,410 2,027,132 16,748 1,749,119 28,083 2,932,918
4,400 40,150 4,100 37,413 8,800 80,300
1,100 15,813 800 11,500 1,100 15,813
2,181 68,429 1,864 58,483 3,925 123,147
2,380 59,797 2,070 52,009 4,300 108,038
1,800 24,300 1,600 21,600 3,200 43,200
4,913 119,447 4,238 103,036 6,966 169,361
471 9,979 341 7,225 0 --
461 35,238 364 27,823 904 69,100
3,639 54,812 3,078 46,362 5,561 83,763
1,400 14,700 1,200 12,600 2,500 26,250
3,511 62,759 3,000 53,625 4,991 89,214
115
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Unova Inc+ 34 $ 650 434 $ 8,300
Wallace Computer Services
Inc 90 3,274 100 3,638
Western Digital Corp 700 12,775 900 16,425
Xylan Corp+ 100 2,413 100 2,413
------------ ------------
TOTAL COMPUTER SYSTEMS
- VALUE $ 770,063 $ 3,436,078
- COST $ 580,493 $ 2,105,603
CONTAINER & PACKAGING
PERCENT OF NET ASSETS 0.10% 0.22%
Ball Corp 54 $ 1,762 296 $ 9,657
Crown Cork & Seal Co 185 9,990 1,169 63,126
First Brands Corp 486 12,515 480 12,360
International Paper Co 522 24,338 2,716 126,634
Jefferson Smurfit Corp+ 700 10,456 600 8,963
Jefferson Smurfit Group ADR
(Ireland) 785 20,508 2,760 72,105
Sonoco Products 388 15,011 877 33,929
Temple-Inland Inc 149 8,884 485 28,918
Tenneco Inc 278 11,433 1,540 63,333
Tupperware Corp 63 1,693 500 13,438
U.S. Office Products Co 0 -- 1,200 22,200
------------ ------------
TOTAL CONTAINER & PACKAGING
- VALUE $ 116,590 $ 454,663
- COST $ 110,277 $ 445,708
ELECTRICAL EQUIPMENT
PERCENT OF NET ASSETS 0.59% 1.38%
Aeroquip-Vickers Inc 52 $ 3,019 244 $ 14,167
Alliance Semiconductor Corp 0 -- 0 --
Arrow Electronics Inc 386 12,859 792 26,384
Avnet Inc 230 14,663 350 22,313
FORE Systems Inc+ 400 6,425 900 14,456
General Electric Co 5,883 457,403 26,082 2,027,876
Grainger ( W W) Inc 41 3,969 447 43,275
Handleman Co+ 59 398 132 891
Hitachi Ltd ADR (Japan) 732 55,449 2,384 180,588
Hubbell Inc Class B 332 16,725 566 28,512
Masco Corp 256 13,920 1,484 80,692
Maxim Integrated Products
Inc 600 24,225 1,200 48,450
Motorola Inc 1,026 57,200 5,001 278,806
National Service Industries
Inc 39 2,162 442 24,503
Raychem Corp 54 2,346 709 30,797
116
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,058 $ 20,234 818 $ 15,644 1,661 $ 31,767
200 7,275 210 7,639 400 14,550
1,800 32,850 1,600 29,200 3,500 63,875
0 -- 100 2,413 200 4,825
------------ ------------ ------------
$ 7,910,138 $ 6,814,114 $ 14,875,413
$ 4,688,431 $ 3,985,595 $ 9,579,170
0.31% 0.37% 0.39%
642 $ 20,945 538 $ 17,552 904 $ 29,493
2,529 136,566 2,155 116,370 3,737 201,798
694 17,871 704 18,128 1,060 27,295
6,088 283,853 5,233 243,989 8,764 408,622
1,400 20,913 1,100 16,431 2,300 34,356
6,290 164,326 5,637 147,267 10,335 270,002
1,800 69,638 1,622 62,751 3,655 141,403
1,141 68,032 959 57,180 1,635 97,487
3,453 142,005 2,847 117,083 4,842 199,127
1,136 30,530 909 24,429 2,302 61,866
2,500 46,250 2,100 38,850 4,750 87,875
------------ ------------ ------------
$ 1,000,929 $ 860,030 $ 1,559,324
$ 992,406 $ 850,243 $ 1,620,993
2.00% 2.45% 3.21%
552 $ 32,051 433 $ 25,141 996 $ 57,830
0 -- 0 -- 250 1,641
1,698 56,565 1,520 50,635 3,250 108,266
714 45,518 659 42,011 1,515 96,581
1,800 28,913 1,500 24,094 3,200 51,400
59,704 4,644,303 51,593 4,011,356 127,637 9,923,777
956 92,553 885 85,679 1,443 139,700
467 3,152 307 2,072 521 3,517
5,658 428,594 5,714 432,836 9,276 702,657
1,008 50,778 1,034 52,088 2,202 110,926
3,264 177,480 2,817 153,174 4,721 256,704
2,400 96,900 2,200 88,825 4,800 193,800
11,857 661,028 10,208 569,096 17,199 958,844
871 48,286 774 42,909 1,319 73,122
1,623 70,499 1,366 59,336 3,262 141,693
117
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Symbol Technologies Inc 190 $ 9,702 315 $ 16,085
Thomas & Betts Corp 68 3,855 454 25,736
------------ ------------
TOTAL ELECTRICAL EQUIPMENT
- VALUE $ 684,320 $ 2,863,531
- COST $ 526,924 $ 1,906,203
ELECTRONICS
PERCENT OF NET ASSETS 1.08% 2.18%
Advanced Micro Devices+ 200 $ 4,688 1,286 $ 30,141
American Power Conversion+ 300 8,700 780 22,620
AMP Inc 389 17,189 1,920 84,840
Analog Devices Inc+ 801 25,832 1,526 49,214
Applied Materials Inc 515 18,958 2,946 108,450
Atmel Corp+ 662 10,758 1,060 17,225
Beckman Instruments Inc 94 4,547 250 12,094
C-Cube Microsystems Inc+ 100 2,075 300 6,225
Canon Inc ADR (Japan) 278 31,796 1,006 115,061
CBS Corp 1,410 43,622 6,277 194,195
Cirrus Logic Inc+ 634 7,014 780 8,629
Commscope Inc+ 50 669 346 4,628
Cypress Semiconductor Corp+ 800 7,550 840 7,928
EG&G Inc 25 673 453 12,203
Electronics for Imaging Inc+ 400 8,825 500 11,031
Emerson Electric Co 755 48,178 3,678 234,702
Etec Systems Inc+ 0 -- 200 10,488
Fuji Photo Film Co Ltd ADR
(Japan) 975 38,513 3,270 129,165
General Instrument Corp+ 156 2,603 204 3,404
General Semiconductor Inc 37 516 260 3,624
General Signal Corp 135 5,484 441 17,916
Honeywell Inc 184 14,582 1,039 82,341
Imation Corp+ 276 4,640 516 8,675
Input/Output Inc+ 500 10,781 500 10,781
Integrated Device Technology
Inc+ 700 10,544 800 12,050
Intel Corp 2,901 260,183 13,101 1,174,996
International Rectifier
Corp+ 500 7,281 500 7,281
International Specialty
Products Corp+ 0 -- 200 3,188
Jabil Circuit 0 -- 100 5,263
Johnson Controls Inc 196 10,890 700 38,894
KLA Instruments Corp+ 404 18,647 736 33,971
Kyocera Corp ADR (Japan) 430 45,903 1,219 130,128
Lam Research Corp+ 300 8,512 300 8,475
Lattice Semiconductor+ 0 -- 200 10,713
Lexmark International Group
Cl+ 0 -- 500 21,375
118
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
585 $ 29,872 555 $ 28,340 1,325 $ 67,658
1,110 62,923 973 55,157 1,554 88,092
------------ ------------ ------------
$ 6,529,415 $ 5,722,749 $ 12,976,208
$ 4,336,648 $ 3,881,404 $ 9,205,070
3.18% 3.97% 4.68%
2,877 $ 67,430 2,422 $ 56,766 3,984 $ 93,375
1,494 43,326 1,409 40,861 3,060 88,740
4,369 193,055 3,770 166,587 6,363 281,165
3,138 101,201 2,861 92,267 6,229 200,885
6,712 247,086 5,719 210,531 14,220 523,474
1,866 30,323 1,888 30,680 3,926 63,798
450 21,769 505 24,429 1,080 52,245
300 6,225 400 8,300 700 14,525
2,209 252,654 2,241 256,314 3,644 416,783
14,074 435,414 12,022 371,931 20,306 628,217
1,496 16,549 1,066 11,593 1,510 16,704
792 10,593 612 8,186 1,552 20,758
1,364 12,873 1,424 13,439 3,170 29,917
972 26,183 723 19,476 1,467 39,517
1,000 22,063 1,000 22,063 2,000 44,125
8,795 561,231 7,666 489,187 12,823 818,268
400 20,975 300 15,731 700 36,706
7,234 285,743 7,336 289,772 11,900 470,050
2,625 43,805 2,343 39,099 5,783 96,504
594 8,279 459 6,397 1,164 16,223
1,061 43,103 799 32,459 1,398 56,794
2,489 197,253 2,152 170,546 3,672 291,006
702 11,802 731 12,290 1,617 27,186
1,000 21,563 700 15,094 1,100 23,719
1,700 25,606 800 12,050 2,100 31,631
29,806 2,673,226 25,825 2,316,180 63,812 5,723,139
1,000 14,563 700 10,194 1,100 16,019
300 4,781 300 4,781 500 7,969
300 15,788 200 10,525 500 26,313
1,681 93,401 1,535 85,288 2,450 136,128
1,684 77,727 1,660 76,619 2,528 116,683
2,931 312,884 3,005 320,784 4,802 512,614
500 14,188 500 14,125 1,200 34,050
500 26,781 400 21,425 900 48,206
1,000 42,750 1,000 42,750 2,100 89,775
119
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Linear Technology Corp 386 $ 29,240 720 $ 54,540
Litton Industries Inc+ 101 6,287 390 24,278
LSI Logic Corp+ 128 3,032 1,164 27,572
Macromedia Inc+ 400 5,000 400 5,000
Matsushita Electric
Industries Co 257 37,554 833 121,722
MEMC Electronic Materials
Inc+ 300 5,063 300 5,063
Microchip Technology Inc+ 400 9,675 500 12,094
Micron Electronics Inc+ 0 -- 200 2,575
Micron Technology Inc+ 335 11,118 1,912 63,455
Molex Inc 316 9,559 396 11,979
Molex Inc Class A 312 8,853 678 19,238
National Semiconductor+ 266 6,351 1,312 31,324
Novellus System Inc 200 9,588 300 14,381
Perkin-Elmer Corp 29 2,122 406 29,714
Philips Electronics NV ADR
(Netherlands) 543 42,286 1,947 151,623
Pioneer Electronics Corp 2,192 38,086 6,817 118,445
Pitney Bowes Inc 516 24,188 2,346 109,969
Pixar Inc+ 0 -- 100 3,700
Policy Management Systems
Corp+ 248 17,949 170 12,304
Premier Farnell PLC ADR (UK) 2,749 37,283 9,119 123,676
Rambus Inc+ 0 -- 100 4,475
Raytheon Co Class A 358 20,776 971 56,341
Raytheon Co Class B 384 22,584 2,073 121,918
Read-Rite Corp+ 400 5,700 500 7,125
Sanmina Corp+ 0 -- 100 7,969
SCI Systems Inc 200 9,000 500 22,500
Sensormatic Electronics 535 9,964 870 16,204
Solectron Corp 500 24,188 1,000 48,375
SONY Corp ADR (Japan) 468 42,325 1,522 137,646
Tektronix Inc 3 134 376 16,779
Teradyne Inc+ 376 17,743 820 38,694
Texas Instruments Inc 660 38,198 3,097 179,239
Thermo Instrument Systems
Inc 250 8,781 156 5,488
Vishay Intertechnology Inc 441 8,985 446 9,087
Vitesse Semiconductor Corp 0 -- 300 15,234
VLSI Technology Inc+ 200 3,863 400 7,725
Xerox Corp 485 43,013 2,641 234,224
Xilinx Inc+ 247 10,837 700 30,713
Zenith Electronics Corp+ 44 292 89 590
------------ ------------
TOTAL ELECTRONICS
- VALUE $ 1,249,770 $ 4,534,892
- COST $ 1,056,277 $ 3,196,428
120
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,500 $ 113,625 1,410 $ 106,808 3,050 $ 231,038
808 50,298 603 37,537 1,379 85,843
2,742 64,951 2,341 55,452 4,060 96,171
700 8,750 500 6,250 900 11,250
1,961 286,551 2,071 302,625 3,316 484,550
400 6,750 400 6,750 800 13,500
1,100 26,606 950 22,978 2,000 48,375
400 5,150 300 3,863 500 6,438
4,211 139,753 3,635 120,637 6,077 201,680
840 25,410 718 21,720 1,583 47,886
1,445 41,002 1,288 36,547 2,676 75,932
3,284 78,406 2,844 67,900 4,646 110,923
800 38,350 600 28,763 1,300 62,319
789 57,745 643 47,060 1,887 138,105
4,281 333,383 3,897 303,479 7,166 558,052
16,304 283,282 16,637 289,068 26,756 464,886
5,388 252,563 4,564 213,938 11,274 528,469
0 -- 0 -- 200 7,400
303 21,930 258 18,673 440 31,845
20,599 279,374 18,684 253,402 34,410 466,686
300 13,425 200 8,950 500 22,375
2,120 122,960 1,785 103,549 3,141 182,178
6,800 399,925 5,823 342,465 9,751 573,481
600 8,550 800 11,400 1,700 24,225
300 23,906 300 23,906 600 47,813
1,000 45,000 1,000 45,000 2,200 99,000
1,723 32,091 1,048 19,519 1,885 35,108
2,300 111,263 1,900 91,913 4,200 203,175
3,440 311,105 3,483 314,994 5,516 498,853
924 41,234 808 36,057 1,874 83,627
1,790 84,466 1,500 70,781 3,250 153,359
7,081 409,813 6,045 349,854 15,157 877,211
250 8,781 313 10,977 621 21,821
882 17,971 771 15,709 1,649 33,598
700 35,547 500 25,391 1,200 60,937
1,000 19,313 800 15,450 1,700 32,831
5,910 524,143 5,227 463,570 12,625 1,119,680
1,459 64,014 1,174 51,509 2,620 114,952
279 1,848 230 1,524 367 2,431
------------ ------------ ------------
$ 10,371,427 $ 9,264,687 $ 18,951,214
$ 7,429,296 $ 6,736,462 $ 14,710,355
121
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ENERGY & RELATED
PERCENT OF NET ASSETS 1.68% 3.55%
AGL Resources Inc 538 $ 10,928 440 $ 8,938
Amerada Hess Corp 142 8,422 850 50,416
Amoco Corp 814 69,190 4,000 340,000
Anadarko Petroleum Corp 441 28,445 525 33,863
Apache Corp 166 5,644 758 25,772
Ashland Inc 109 6,070 706 39,315
Atlantic Richfield Corp 523 40,663 2,675 207,981
British Petroleum Co PLC ADR
(UK) 1,259 104,102 4,232 349,906
Burlington Resources Inc 284 12,709 1,526 68,289
Chesapeake Energy Corp 0 -- 400 2,825
Chevron Corp 1,120 90,860 5,455 442,537
Coastal Corp 212 13,489 904 57,517
Columbia Gas System Inc 141 10,760 451 34,417
Consolidated Natural Gas Co 142 8,165 851 48,933
Cooper Cameron Corp 0 -- 500 26,813
Devon Energy Corp 0 -- 200 6,813
Diamond Offshore Drilling
Inc 400 18,125 600 27,188
Dresser Industries Inc 314 14,032 1,599 71,455
Eastern Enterprises 39 1,728 200 8,863
EEX Corp+ 137 1,173 1,213 10,386
El Paso Natural Gas Co 427 28,342 456 30,267
ELF Aquitaine ADR (France) 1,606 91,843 5,412 309,499
Enron Corp 528 24,837 2,723 127,981
Enron Oil & Gas Co 300 6,413 600 12,825
Ensco International Inc 700 20,388 1,300 37,863
Exxon Corp 4,257 271,916 20,508 1,309,949
Fina Inc Class A 0 -- 0 --
Freeport-McMoRan Sulphur
Inc+ 74 1,036 76 1,064
Global Marine Inc+ 700 16,231 1,400 32,463
Halliburton Co 461 21,437 2,121 98,626
Helmerich & Payne Inc 90 2,604 520 15,048
Indiana Energy Inc 0 -- 0 --
Kerr - McGee Corp 43 2,908 448 30,296
MAPCO Inc 374 20,126 620 33,364
MCN Corp 616 22,677 500 18,406
Mobil Corp 1,329 96,269 6,520 472,293
Murphy Oil Corp 293 14,632 380 18,976
Nabors Industries Inc+ 600 13,725 900 20,588
National Fuel Gas Co 400 18,650 320 14,920
Natural Gas Clearinghouse
Inc 0 -- 100 1,550
NICOR Inc 44 1,810 450 18,506
Noble Affiliates Inc 338 13,182 530 20,670
122
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
5.22% 6.34% 6.62%
798 $ 16,209 558 $ 11,334 520 $ 10,563
1,824 108,186 1,546 91,697 2,678 158,839
9,696 824,160 8,342 709,070 14,048 1,194,080
1,161 74,885 889 57,341 2,306 148,737
1,841 62,594 1,548 52,632 2,674 90,916
1,505 83,810 1,295 72,115 2,104 117,167
6,392 496,978 5,552 431,668 9,220 716,855
9,639 797,035 8,746 723,221 16,036 1,326,018
3,518 157,431 3,054 136,667 5,082 227,419
1,000 7,063 500 3,531 1,000 7,063
13,133 1,065,415 11,261 913,549 18,989 1,540,483
2,076 132,086 1,810 115,161 3,095 196,919
1,066 81,349 990 75,549 1,624 123,932
1,925 110,688 1,741 100,108 2,713 155,997
800 42,900 800 42,900 1,800 96,525
500 17,031 400 13,625 900 30,656
1,400 63,438 1,200 54,375 2,500 113,281
3,538 158,104 2,927 130,800 5,074 226,744
426 18,877 282 12,496 686 30,398
1,934 16,560 2,344 20,071 4,867 41,674
842 55,888 627 41,617 778 51,640
12,229 699,346 11,149 637,583 20,503 1,172,515
6,385 300,095 5,496 258,312 9,135 429,345
1,200 25,650 1,200 25,650 2,400 51,300
2,900 84,463 2,400 69,900 5,200 151,450
49,166 3,140,478 42,426 2,709,961 71,242 4,550,583
100 6,325 100 6,325 200 12,650
144 2,016 75 1,050 143 2,002
3,115 72,229 2,600 60,288 5,800 134,488
4,776 222,084 4,114 191,301 10,250 476,625
920 26,623 840 24,308 1,620 46,879
352 10,516 0 -- 0 --
962 65,055 784 53,018 1,374 92,917
1,236 66,512 976 52,521 2,200 118,388
930 34,236 670 24,664 600 22,088
15,626 1,131,908 13,473 975,950 22,665 1,641,796
777 38,801 697 34,806 1,570 78,402
1,885 43,119 1,629 37,263 3,400 77,775
582 27,136 412 19,210 385 17,951
1,600 24,800 0 -- 3,200 49,600
1,009 41,495 801 32,941 1,509 62,058
873 34,047 858 33,462 1,920 74,880
123
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -----------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Noble Drilling Corp+ 0 $ -- 1,200 $ 34,050
Occidental Petroleum Corp 600 15,338 2,960 75,665
ONEOK Inc 49 1,715 240 8,400
Oryx Energy Co+ 199 5,062 842 21,418
Pacific Enterprises Co 152 5,520 704 25,564
Parker Drilling Co+ 0 -- 0 --
Pennzoil Co 132 8,836 438 29,319
Peoples Energy Corp 63 2,276 360 13,005
Phillips Petroleum Co 419 20,531 2,379 116,571
Pioneer Natural Resources
L.C. 376 8,907 697 16,510
Pogo Producing Co 300 8,419 300 8,419
Pride International Inc+ 0 -- 400 9,125
Quaker State Corp 0 -- 0 --
Questar Corp 227 9,648 340 14,450
R&B Falcon Corp+ 472 12,508 1,026 27,189
Ranger Oil Ltd 0 -- 0 --
Repsol SA 837 37,247 2,800 124,600
Rowan Co Inc+ 126 3,552 804 22,663
Royal Dutch Petroleum Corp 4,056 220,292 13,468 731,481
Santa Fe Energy Resources
Inc 83 929 809 9,051
Schlumberger Ltd 875 65,953 3,980 299,993
Seagull Energy Corp+ 391 6,598 610 10,294
Services (B J) Co 0 -- 700 24,063
Sonat Offshore Drilling Co 132 5,693 736 31,740
Sun Co Inc 115 4,593 658 26,279
Texaco Inc 942 52,575 4,786 267,119
Tosco Corp 671 24,911 1,340 49,748
Total Compagnie Francaise
des Petroles SA ADR
(France) 2,228 123,245 7,175 396,884
Transocean Offshore Inc 400 17,200 800 34,400
Trans Texas Gas Corp 0 -- 0 --
Ultramar Diamond Shamrock
Corp 410 14,635 855 30,513
Union Pacific Resources
Group 332 7,429 2,058 46,048
Union Texas Petroleum
Holdings Corp 200 4,038 500 10,094
United Meridian Corp+ 0 -- 400 10,925
Unocal Corp 384 14,472 2,091 78,805
USX - Marathon Group 515 17,800 2,520 87,098
Utilicorp United Inc 491 17,676 380 13,680
Valero Energy Corp 180 6,390 470 16,685
Vastar Resources Inc 200 7,438 200 7,438
Washington Gas & Light 464 12,499 360 9,698
Weatherford Enterra Inc+ 400 13,850 500 17,313
Western Atlas Inc 134 10,176 445 33,792
124
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
2,700 $ 76,613 2,200 $ 62,425 4,800 $ 136,200
6,727 171,959 5,779 147,726 9,785 250,129
603 21,105 507 17,745 920 32,200
1,889 48,051 1,613 41,031 4,063 103,353
1,695 61,550 1,436 52,145 2,370 86,061
844 9,284 619 6,809 0 --
932 62,386 887 59,374 1,384 92,642
674 24,348 582 21,025 1,141 41,219
5,246 257,054 4,475 219,275 7,604 372,596
1,134 26,862 1,186 28,093 3,462 82,006
600 16,838 500 14,031 1,100 30,869
800 18,250 800 18,250 1,700 38,781
419 6,337 299 4,522 0 --
710 30,175 640 27,200 1,430 60,775
2,016 53,424 1,698 44,997 4,042 107,113
1,508 9,708 1,103 7,101 0 --
6,225 277,013 5,650 251,425 10,350 460,575
1,764 49,723 1,472 41,492 3,279 92,427
30,452 1,653,924 27,687 1,503,750 50,874 2,763,094
1,875 20,977 1,239 13,861 2,826 31,616
8,994 677,923 7,846 591,392 19,246 1,450,667
1,248 21,060 1,103 18,613 2,275 38,391
1,400 48,125 1,200 41,250 2,800 96,250
1,760 75,900 1,474 63,566 3,126 134,809
1,413 56,432 1,226 48,963 1,987 79,356
10,972 612,375 9,433 526,479 15,803 882,005
2,867 106,437 2,377 88,246 5,235 194,349
16,304 901,823 14,778 817,415 27,219 1,505,566
0 -- 1,500 64,500 3,200 137,600
1,700 73,100 0 -- 300 4,950
1,944 69,366 1,537 54,837 3,425 122,240
5,133 114,851 4,322 96,705 7,193 160,943
800 16,150 1,000 20,188 2,100 42,394
700 19,119 600 16,388 1,300 35,506
4,985 187,872 4,166 157,006 7,044 265,471
5,839 201,810 5,066 175,094 8,357 288,839
675 24,300 494 17,784 472 16,992
1,164 41,322 984 34,932 1,960 69,580
300 11,156 300 11,156 700 26,031
624 16,809 454 12,230 440 11,852
1,057 36,599 900 31,163 1,900 65,788
1,078 81,861 931 70,698 1,593 120,968
125
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Williams Co Inc 588 $ 19,220 2,896 $ 94,663
Witco Corp 316 12,581 580 23,091
------------ ------------
TOTAL ENERGY & RELATED
- VALUE $ 1,953,283 $ 7,395,224
- COST $ 1,529,318 $ 5,522,631
ENGINEERING & CONSTRUCTION
PERCENT OF NET ASSETS 0.04% 0.08%
Armstrong World Industries
Inc 102 $ 8,007 394 $ 30,929
Centex Corp 57 4,165 249 18,193
Clayton Homes Inc 626 12,447 884 17,565
Fleetwood Enterprises Inc 32 1,500 328 15,375
Fluor Corp 123 5,789 749 35,250
Foster Wheeler Corp 102 2,729 341 9,122
Granite Construction Inc 0 -- 0 --
Kaufman & Broad Home Corp 59 1,527 308 7,970
Pulte Corp 50 2,275 237 10,784
Rouse Co 400 13,300 600 19,950
------------ ------------
TOTAL ENGINEERING &
CONSTRUCTION
- VALUE $ 51,739 $ 165,138
- COST $ 35,965 $ 140,215
ENTERTAINMENT & LEISURE
PERCENT OF NET ASSETS 0.31% 0.72%
AMF Bowling Inc 0 $ -- 0 $ --
Ascent Entertainment Group+ 249 2,677 293 3,150
Bally Total Fitness Holding
Corp+ 26 712 76 2,081
Boyd Gaming Corp+ 0 -- 200 1,588
Brunswick Corp 196 6,223 835 26,511
Callaway Golf Co 296 9,546 680 21,930
Circus Circus Entertainment
Inc+ 629 13,838 930 20,460
Coleman Co Inc+ 0 -- 200 4,125
Disney (Walt) Co 1,123 125,706 5,572 623,716
Galileo International Inc 0 -- 400 15,800
Gaylord Entertainment Co
Class A 105 3,570 105 3,570
Grand Casinos Inc+ 400 6,100 400 6,100
Harrah's Entertainment Inc+ 108 2,275 897 18,893
Hasbro Inc 198 7,190 1,105 40,125
International Game
Technology Inc 497 12,052 1,100 26,675
Mattel Inc 371 15,698 2,414 102,142
Metro-Goldwyn-Mayer Inc+ 0 -- 100 1,956
MGM Grand Inc+ 200 7,225 200 7,225
Mirage Resorts Inc+ 1,597 36,531 1,576 36,051
Polaroid Corp 34 1,558 437 20,020
126
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
6,392 $ 208,939 5,504 $ 179,912 9,184 $ 300,202
1,352 53,827 1,022 40,688 2,195 87,388
------------ ------------ ------------
$ 17,040,358 $ 14,819,522 $ 26,789,391
$ 12,562,522 $ 11,058,036 $ 21,871,886
0.11% 0.13% 0.14%
838 $ 65,783 789 $ 61,937 1,203 $ 94,435
545 39,819 552 40,331 856 62,542
1,945 38,657 1,620 32,198 3,408 67,724
713 33,422 570 26,719 1,065 49,922
1,739 81,842 1,386 65,229 2,428 114,268
732 19,581 583 15,595 1,254 33,545
270 7,155 0 -- 0 --
734 18,992 647 16,741 1,189 30,765
393 17,882 321 14,606 633 28,802
1,300 43,225 1,100 36,575 2,400 79,800
------------ ------------ ------------
$ 366,358 $ 309,931 $ 561,803
$ 311,243 $ 254,185 $ 509,168
1.05% 1.27% 1.30%
0 $ -- 0 $ -- 500 $ 12,000
400 4,300 397 4,268 679 7,299
185 5,064 116 3,175 223 6,105
0 -- 300 2,381 700 5,556
1,962 62,293 1,660 52,705 2,840 90,170
1,458 47,021 1,256 40,506 2,616 84,366
2,122 46,684 1,562 34,364 3,295 72,490
0 -- 0 -- 200 4,125
13,466 1,507,350 11,568 1,294,893 19,461 2,178,416
800 31,600 600 23,700 1,400 55,300
140 4,760 171 5,814 250 8,500
700 10,675 500 7,625 900 13,725
2,032 42,799 1,602 33,742 2,818 59,354
2,523 91,616 2,112 76,692 3,561 129,309
2,172 52,671 2,017 48,912 4,345 105,366
5,313 224,806 4,565 193,157 11,363 480,797
0 -- 200 3,913 400 7,825
400 14,450 400 14,450 800 28,900
3,580 81,893 3,029 69,288 5,074 116,068
906 41,506 747 34,222 1,402 64,229
127
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Spelling Entertainment Group 0 $ -- 0 $ --
Stanhome Inc 220 6,353 170 4,909
Tiffany & Co 126 5,922 300 14,100
Time Warner Inc 987 66,623 4,698 317,115
Topp Inc+ 512 1,408 0 --
U.S. West Media Group+ 1,020 32,831 5,340 171,881
------------ ------------
TOTAL ENTERTAINMENT
& LEISURE
- VALUE $ 364,038 $ 1,490,123
- COST $ 290,782 $ 1,020,657
ENVIRONMENTAL CONTROL
PERCENT OF NET ASSETS 0.08% 0.12%
Browning-Ferris Industries
Inc 347 $ 11,559 1,723 $ 57,397
Mid American Waste Systems
Inc+ 0 -- 0 --
Republic Industries Inc+ 1,500 35,438 3,200 75,600
Safety-Kleen Corp 78 2,091 491 13,165
U.S. Filter Corp+ 0 -- 800 27,150
U.S.A. Waste Services Inc+ 800 33,300 1,730 72,011
Wheelabrator Technologies
Inc 700 11,419 700 11,419
------------ ------------
TOTAL ENVIRONMENTAL
CONTROL
- VALUE $ 93,807 $ 256,742
- COST $ 82,856 $ 237,452
FOOD & RELATED
PERCENT OF NET ASSETS 1.04% 2.05%
Albertson's Inc 405 $ 18,959 2,180 $ 102,051
American Stores Co 461 11,611 2,387 60,123
Archer-Daniels-Midland Co 1,000 22,438 5,009 112,389
Bestfoods 243 25,606 1,182 124,553
Bob Evans Farms Inc 468 9,623 360 7,403
Boston Chicken Inc+ 600 4,163 500 3,469
Brinker International Inc+ 1,056 22,044 990 20,666
Brown-Forman Corp Class B 74 4,107 643 35,687
Campbell Soup Co 800 46,450 3,629 210,709
ConAgra Inc 888 26,640 3,727 111,810
Corn Product International
Inc+ 60 1,995 295 9,809
Cracker Barrel Old Country
Store Inc 249 10,069 610 24,667
Darden Restaurants Inc 160 2,160 1,329 17,941
Dave & Buster's Inc 0 -- 0 --
Dean Foods Co 224 12,320 440 24,200
Dole Food Inc 246 13,361 410 22,268
Earthgrains Co 28 1,213 146 6,324
Fleming Co Inc 2 36 291 5,183
128
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
0 $ -- 0 $ -- 400 $ 3,600
299 8,634 214 6,179 210 6,064
480 22,560 560 26,320 1,200 56,400
11,119 750,533 9,587 647,123 16,146 1,089,855
722 1,986 527 1,449 0 --
12,084 388,954 10,397 334,653 17,485 562,798
------------ ------------ ------------
$ 3,442,155 $ 2,959,531 $ 5,248,617
$ 2,322,449 $ 1,942,826 $ 3,597,026
0.16% 0.19% 0.24%
3,988 $ 132,850 3,351 $ 111,630 5,669 $ 188,849
372 163 0 -- 0 --
6,500 153,563 5,200 122,850 12,700 300,038
1,136 30,459 1,016 27,242 1,831 49,094
1,600 54,300 1,300 44,119 3,400 115,388
3,300 137,363 2,800 116,550 6,767 281,676
1,300 21,206 1,200 19,575 2,600 42,413
------------ ------------ ------------
$ 529,904 $ 441,966 $ 977,458
$ 517,459 $ 441,314 $ 942,877
2.94% 3.58% 4.31%
4,930 $ 230,786 4,238 $ 198,391 7,084 $ 331,620
5,544 139,640 4,645 116,996 7,830 197,218
11,107 249,213 9,536 213,964 16,107 361,401
2,585 272,394 2,283 240,571 5,572 587,149
752 15,463 472 9,706 1,250 25,703
700 4,856 700 4,856 1,100 7,631
1,871 39,057 1,171 24,445 2,130 44,464
1,355 75,203 1,145 63,548 1,995 110,723
8,322 483,196 7,171 416,366 17,729 1,029,390
8,572 257,160 7,453 223,590 18,371 551,130
696 23,142 545 18,121 1,318 43,824
1,411 57,057 1,071 43,309 2,325 94,017
3,179 42,917 2,566 34,641 4,753 64,166
103 2,524 0 -- 0 --
707 38,885 737 40,535 1,605 88,275
1,008 54,747 868 47,143 1,825 99,120
334 14,466 268 11,608 612 26,507
801 14,268 589 10,492 1,206 21,482
129
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Flowers Industries Inc 509 $ 12,948 720 $ 18,315
Food Lion Inc Class A 1,100 11,103 1,700 17,159
Food Lion Inc Class B 1,400 13,825 1,800 17,775
General Mills Inc 210 15,107 1,232 88,627
General Nutrition Co Inc+ 400 15,900 800 31,800
Giant Food Inc Class A 156 5,665 494 17,938
Great Atlantic & Pacific Tea
Co 69 2,100 293 8,918
Hannaford Brothers Co 236 9,956 260 10,969
Harcourt General Inc 89 4,806 582 31,428
Heinz (H J) Co 690 38,856 2,938 165,446
Hershey Foods Corp 214 14,271 1,155 77,024
Hormel Foods Corp 200 7,425 500 18,563
Host Marriott Services Corp+ 240 3,210 240 3,210
IBP Inc 432 9,639 920 20,527
Imperial Holly Inc 0 -- 0 --
International Multifoods
Corp 0 -- 0 --
Interstate Bakeries Corp 0 -- 400 13,400
Kellogg Co 756 32,225 3,259 138,915
Koninklijke Ahold NV ADR
(Netherlands) 3,015 92,900 10,138 312,377
Kroger Co 341 14,407 2,101 88,767
Lancaster Colony Corp 207 9,108 290 12,760
Lance Inc 0 -- 0 --
Lone Star Steakhouse &
Saloon+ 300 6,319 400 8,425
Luby's Cafeteria Inc 45 782 219 3,805
McCormick & Co Inc 288 8,262 600 17,213
McDonald's Corp 1,269 69,478 5,690 311,527
Michael Foods Inc 0 -- 0 --
Morrison Restaurants Inc 96 270 50 141
Nabisco Holdings Corp Class
A 200 9,438 100 4,719
NPC International Inc+ 0 -- 0 --
Outback Steakhouse Inc+ 200 7,150 400 14,300
Pioneer Hi Bred
International Inc 135 14,006 479 49,696
Planet Hollywood
International+ 0 -- 200 2,013
Quaker Oats Co 142 7,650 1,173 63,195
Ralston-Purina Group 155 15,723 896 90,888
Richfood Holdings Inc 0 -- 500 14,219
RJR Nabisco Holdings Corp 1,170 40,438 2,643 91,349
Ruby Tuesday Inc 192 5,016 100 2,613
Ryans Family Steak House+ 119 985 516 4,273
Safeway Inc 998 34,805 2,054 71,633
Sara Lee Corp 833 47,065 3,853 217,694
Sbarro Inc 0 -- 0 --
Shoney's Inc+ 97 473 370 1,804
Sizzler International Inc+ 254 841 0 --
130
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,318 $ 33,527 1,336 $ 33,985 2,815 $ 71,607
3,100 31,290 2,900 29,272 6,900 68,137
4,300 42,463 3,400 33,575 6,400 64,600
2,930 210,777 2,597 186,822 6,222 447,595
1,600 63,600 1,500 59,625 3,200 127,200
1,186 43,067 946 34,352 1,700 61,731
732 22,280 612 18,628 1,177 35,825
745 31,430 565 23,836 1,240 52,313
1,419 76,626 1,211 65,394 2,053 110,862
6,720 378,420 5,902 332,356 14,266 803,354
2,653 176,922 2,319 154,648 5,598 373,317
1,000 37,125 800 29,700 1,700 63,113
380 5,082 320 4,280 680 9,095
2,152 48,017 1,642 36,637 3,500 78,094
134 1,173 94 823 0 --
274 7,655 0 -- 0 --
800 26,800 700 23,450 1,600 53,600
7,501 319,730 6,470 275,784 16,003 682,128
22,905 705,760 20,762 639,729 38,157 1,175,713
4,630 195,618 4,069 171,915 9,729 411,050
705 31,020 660 29,040 1,292 56,848
478 11,114 0 -- 0 --
700 14,744 500 10,531 900 18,956
480 8,340 369 6,411 621 10,790
1,355 38,872 1,005 28,831 2,155 61,822
13,681 749,035 11,787 645,338 19,844 1,086,459
229 5,811 0 -- 0 --
160 450 99 278 193 543
200 9,438 200 9,438 400 18,875
374 4,301 284 3,266 0 --
500 17,875 700 25,025 1,400 50,050
1,235 128,131 1,033 107,174 2,756 285,935
500 5,031 400 4,025 600 6,038
2,605 140,344 2,195 118,256 5,309 286,022
1,957 198,513 1,625 164,836 4,138 419,748
0 -- 600 17,063 1,000 28,438
5,305 183,354 4,851 167,663 10,618 366,985
321 8,386 199 5,199 387 10,110
1,012 8,381 679 5,623 1,039 8,604
3,976 138,663 3,378 117,808 8,452 294,764
8,737 493,640 7,573 427,874 18,602 1,051,013
319 9,411 219 6,461 0 --
751 3,661 596 2,905 1,304 6,357
434 1,438 319 1,057 0 --
131
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Smucker (J M) Co Class A 305 $ 8,121 0 $ --
Southland Corp+ 1,800 3,488 1,400 2,713
Starbucks Corp+ 400 15,825 800 31,650
Super Value Inc 78 3,715 543 25,860
Sysco Corp 205 9,648 1,387 65,276
Tootsie Roll Industries 212 15,821 212 15,834
Tricon Global Restaurants+ 226 6,413 1,275 36,178
Tyson Food Inc Class A 591 11,525 890 17,355
Unilever NV (Netherlands) 3,972 255,449 13,212 849,697
Universal Corp 181 8,598 400 19,000
Universal Foods Corp 279 12,555 320 14,400
UST Inc 292 10,348 1,528 54,149
Weis Markets Inc 200 7,038 100 3,519
Wendy's International Inc 211 4,576 1,170 25,374
Winn-Dixie Stores Inc 166 8,954 1,209 65,210
Wrigley (W M) Jr Co 184 14,053 979 74,771
------------ ------------
TOTAL FOOD & RELATED
- VALUE $ 1,211,074 $ 4,263,663
- COST $ 888,160 $ 2,966,990
FURNITURE & APPLIANCES
PERCENT OF NET ASSETS 0.07% 0.10%
Bassett Furniture Industries 25 $ 775 50 $ 1,550
HON Industries Inc 153 10,060 270 17,753
Hussmann International Inc+ 32 486 439 6,660
Knoll Inc+ 0 -- 100 3,563
Leggett & Platt Inc 458 22,986 900 45,169
Maytag Corp 216 9,720 879 39,555
Miller (Herman) Inc 238 14,578 420 25,725
National Presto Industries
Inc 0 -- 0 --
Skyline Corp 20 639 44 1,405
Sunbeam Oster Co Inc 300 12,413 600 24,825
Whirlpool Corp 83 5,545 705 47,103
------------ ------------
TOTAL FURNITURE & APPLIANCES
- VALUE $ 77,202 $ 213,308
- COST $ 34,333 $ 129,645
HEALTHCARE
PERCENT OF NET ASSETS 0.11% 0.18%
Apria Healthcare Group Inc+ 500 $ 6,813 600 $ 8,175
Beverly Enterprises Inc+ 75 1,139 1,146 17,405
Cardinal Health Inc 116 9,498 889 72,787
First Health Group Corp+ 284 14,147 290 14,446
Healthsouth Corp 1,010 27,270 3,190 86,130
Idexx Laboratories Inc+ 400 6,275 500 7,844
132
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
436 $ 11,608 331 $ 8,813 0 $ --
2,600 5,038 1,800 3,488 4,200 8,138
1,700 67,256 1,400 55,388 3,400 134,513
1,194 56,864 1,044 49,721 1,718 81,820
3,085 145,188 2,699 127,022 6,737 317,060
318 23,751 212 15,834 537 40,046
3,075 87,253 2,587 73,406 4,267 121,076
1,411 27,515 1,473 28,724 3,545 69,128
29,720 1,911,368 26,964 1,734,122 49,692 3,195,817
639 30,353 694 32,965 1,365 64,838
409 18,405 489 22,005 770 34,650
3,453 122,366 3,035 107,553 7,026 248,984
200 7,038 200 7,038 400 14,075
2,634 57,125 2,263 49,079 3,751 81,350
2,958 159,547 2,505 135,113 4,266 230,097
2,164 165,276 1,864 142,363 4,489 342,847
------------ ------------ ------------
$ 9,578,240 $ 8,369,829 $ 17,425,950
$ 6,662,975 $ 5,861,569 $ 13,242,622
0.14% 0.17% 0.19%
200 $ 6,200 120 $ 3,720 206 $ 6,386
484 31,823 454 29,850 935 61,476
1,026 15,575 796 12,089 1,533 23,275
0 -- 200 7,125 400 14,250
1,874 94,051 1,584 79,497 3,430 172,143
1,899 85,455 1,639 73,755 2,664 119,880
848 51,940 858 52,553 1,820 111,475
116 4,517 81 3,154 0 --
222 7,090 78 2,491 133 4,248
1,300 53,788 1,100 45,513 2,300 95,162
1,460 97,546 1,298 86,723 2,149 143,580
------------ ------------ ------------
$ 447,985 $ 396,470 $ 751,875
$ 261,638 $ 240,464 $ 519,431
0.28% 0.32% 0.38%
800 $ 10,900 800 $ 10,900 1,300 $ 17,712
2,100 31,894 2,042 31,013 4,300 65,306
2,040 167,025 1,675 137,141 4,163 340,846
816 40,647 596 29,688 1,265 63,013
7,277 196,479 6,119 165,213 15,005 405,135
800 12,550 600 9,413 1,000 15,688
133
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Lincare Holdings Inc+ 0 $ -- 100 $ 6,491
Mid Atlantic Medical
Services+ 400 4,700 500 5,875
Morrison Health Care Inc 128 2,560 66 1,320
Novacare Inc+ 0 -- 0 --
Oakley Inc+ 600 7,238 600 7,238
Oxford Health Plans Inc+ 500 8,594 700 12,031
PacifiCare Health Systems
Inc Class A+ 112 6,855 70 4,285
PacifiCare Health Systems
Inc Class B+ 174 10,875 195 12,188
St Jude Medical Inc 152 5,548 796 29,054
United Healthcare Corp 297 18,024 1,639 99,467
------------ ------------
TOTAL HEALTHCARE
- VALUE $ 129,536 $ 384,736
- COST $ 145,300 $ 368,304
HOSPITAL & MEDICAL SUPPLIES
PERCENT OF NET ASSETS 0.42% 0.98%
Allegiance Corp 81 $ 2,825 628 $ 21,902
American Oncology Resources+ 0 -- 200 3,050
Arrow International Inc 0 -- 100 3,913
Arterial Vascular
Engineering+ 0 -- 100 4,094
Bard (C R) Inc 143 4,987 555 19,356
Bausch & Lomb Inc 56 2,509 491 22,003
Baxter International Inc 470 26,614 2,297 130,068
Becton Dickinson & Co 159 10,116 987 62,798
Biomet Inc 132 3,935 926 27,606
Boston Scientific Corp+ 301 17,985 1,568 93,688
Columbia/HCA Healthcare Corp 1,140 30,923 5,759 156,213
Dentsply International Inc 400 12,400 400 12,400
Depuy Inc 0 -- 200 5,388
Guidant Corp 306 22,319 1,209 88,181
Health Care & Retirement
Corp+ 150 6,581 400 17,550
Health Management Associates
Inc Class A 575 15,992 1,375 38,242
Hillenbrand Industries Inc 300 16,856 500 28,094
Johnson & Johnson 2,333 176,142 10,695 807,473
Mallinckrodt Group Inc 87 3,377 684 26,548
Manor Care Inc 161 6,048 601 22,575
Medpartners Inc+ 710 8,520 1,489 17,868
Medtronic Inc 720 38,250 3,714 197,306
Phycor Inc+ 300 7,716 600 15,431
Quorum Health Group Inc 150 4,158 350 9,702
Stryker Corp 348 14,246 720 29,475
Sybron International Corp 600 16,388 900 24,581
Tenet Healthcare Corp+ 524 19,552 2,682 100,072
Thermo Cardiosystems Inc+ 150 3,750 250 6,250
134
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
300 $ 19,472 300 $ 19,472 600 $ 38,944
700 8,225 500 5,875 1,300 15,275
214 4,280 132 2,640 258 5,160
975 13,650 710 9,940 0 --
1,200 14,475 800 9,650 1,200 14,475
1,400 24,063 1,300 22,344 2,600 44,688
459 28,021 136 8,273 242 14,768
526 32,887 411 25,688 795 49,699
1,835 66,977 1,534 55,991 2,735 99,827
3,729 226,304 3,247 197,052 5,462 331,475
------------ ------------ ------------
$ 897,849 $ 740,293 $ 1,522,011
$ 769,806 $ 640,982 $ 1,349,970
1.39% 1.68% 2.20%
1,230 $ 42,896 1,098 $ 38,293 2,307 $ 80,457
0 -- 200 3,050 400 6,100
0 -- 0 -- 200 7,825
0 -- 0 -- 0 --
1,208 42,129 897 31,283 1,796 62,636
1,150 51,534 975 43,692 1,555 69,683
5,115 289,637 4,426 250,622 10,868 615,401
2,471 157,217 2,130 135,521 3,570 227,141
2,246 66,959 1,742 51,933 4,260 127,001
3,506 209,483 3,067 183,253 7,629 455,833
13,036 353,612 11,167 302,905 18,654 505,990
600 18,600 800 24,800 1,600 49,600
300 8,081 300 8,081 600 16,163
2,717 198,171 2,367 172,643 5,673 413,774
750 32,906 700 30,713 1,550 68,006
3,075 85,523 2,600 72,313 5,587 155,389
1,000 56,188 900 50,569 2,000 112,375
24,511 1,850,580 21,249 1,604,300 52,505 3,964,128
1,443 56,006 1,205 46,769 2,092 81,196
1,299 48,794 1,012 38,013 1,837 69,002
3,020 36,240 2,552 30,624 5,362 64,344
8,514 452,306 7,298 387,706 18,213 967,566
1,050 27,005 1,050 27,005 2,250 57,867
600 16,631 650 18,017 1,400 38,806
1,668 68,284 1,388 56,821 2,900 118,719
1,600 43,700 1,600 43,700 3,600 98,325
6,083 226,972 5,254 196,040 8,820 329,096
300 7,500 300 7,500 450 11,250
135
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
United States Surgical 152 $ 4,655 699 $ 21,407
Vencor Inc+ 500 14,344 700 20,081
------------ ------------
TOTAL HOSPITAL & MEDICAL
SUPPLIES
- VALUE $ 491,188 $ 2,033,315
- COST $ 384,539 $ 1,447,346
HOUSEHOLD PRODUCTS
PERCENT OF NET ASSETS 0.37% 0.93%
Alberto-Culver Co Class B 102 $ 3,105 485 $ 14,762
Avon Products Inc 160 11,270 1,087 76,566
Colgate-Palmolive Co 479 38,889 2,358 191,440
Estee Lauder Co Class A 200 11,700 200 11,700
Gillette Co 1,021 110,140 4,471 482,309
Kimberly-Clark Corp 986 54,908 4,354 242,463
NCH Corp 0 -- 0 --
Procter & Gamble Co 2,403 204,105 10,684 907,472
------------ ------------
TOTAL HOUSEHOLD PRODUCTS
- VALUE $ 434,117 $ 1,926,712
- COST $ 307,975 $ 1,126,833
INSURANCE
PERCENT OF NET ASSETS 1.15% 2.56%
Aegon NV ADR (Netherlands) 22 $ 2,475 325 $ 36,563
Aetna Inc 274 23,941 1,300 113,588
AFLAC Corp 696 42,761 1,370 84,169
Alleghany Corp 2 696 2 682
Allmerica Financial Corp 124 7,626 230 14,145
Allstate Corp 722 67,327 3,601 335,793
AMBAC Inc 300 15,975 600 31,950
American Bankers Insurance
Gro 0 -- 400 22,500
American Financial Group Inc 304 12,293 390 15,771
American General Corp 694 40,311 2,416 140,402
American International Group
Inc 1,293 155,402 5,648 678,819
American National Insurance
Co 100 9,700 100 9,700
Aon Corp 267 15,970 1,510 90,317
Argonaut Group Inc 0 -- 100 3,600
Axa-UAP ADR (France) 2,275 110,053 7,408 358,362
Chubb Corp 315 25,141 1,524 121,634
CIGNA Corp 79 15,089 651 124,341
Cincinnati Financial Corp 230 31,050 546 73,710
CNA Financial Corp+ 0 -- 100 14,394
Conseco Inc 358 16,804 1,704 79,982
Equitable Co Inc 400 20,925 800 41,850
Everest Reinsurance Holdings
Inc 300 11,063 400 14,750
136
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,465 $ 44,866 1,276 $ 39,078 2,342 $ 71,724
1,500 43,031 1,180 33,851 2,474 70,973
------------ ------------ ------------
$ 4,534,851 $ 3,929,095 $ 8,916,370
$ 3,112,631 $ 2,695,367 $ 6,611,260
1.35% 1.63% 2.32%
1,110 $ 33,786 882 $ 26,846 1,769 $ 53,844
2,443 172,079 2,120 149,327 5,022 353,737
5,419 439,955 4,646 377,197 11,523 935,524
400 23,400 400 23,400 800 46,800
10,224 1,102,914 8,804 949,732 21,861 2,358,255
10,013 557,599 8,677 483,201 21,241 1,182,858
124 7,556 89 5,423 0 --
24,458 2,077,401 21,227 1,802,968 52,416 4,452,084
------------ ------------ ------------
$ 4,414,690 $ 3,818,094 $ 9,383,102
$ 2,625,441 $ 2,304,576 $ 6,133,380
3.57% 4.42% 4.71%
747 $ 84,038 580 $ 65,250 898 $ 101,025
2,968 259,329 2,516 219,836 4,254 371,693
2,817 173,069 2,537 155,867 5,627 345,709
104 35,478 104 35,478 204 69,578
379 23,309 372 22,878 803 49,385
8,573 799,432 7,333 683,802 12,357 1,152,290
1,300 69,225 1,100 58,575 2,400 127,800
700 39,375 600 33,750 1,300 73,125
813 32,876 608 24,586 1,380 55,804
5,158 299,796 4,588 266,672 7,751 450,516
12,783 1,536,357 11,049 1,327,952 27,363 3,288,691
200 19,400 200 19,400 400 38,800
3,319 198,518 2,854 170,705 4,834 289,134
0 -- 200 7,200 300 10,800
16,697 807,717 15,104 730,656 27,832 1,346,373
3,368 268,809 2,935 234,250 4,867 388,447
1,432 273,512 1,272 242,952 2,160 412,560
1,045 141,075 1,040 140,400 1,595 215,325
200 28,788 200 28,788 400 57,575
3,773 177,095 3,254 152,735 5,441 255,387
1,700 88,931 1,400 73,238 3,100 162,169
900 33,188 800 29,500 1,700 62,688
137
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Foundation Health Systems+ 491 $ 13,595 926 $ 25,639
General Re Corp 101 21,513 651 138,663
Hartford Financial Services
Group 236 23,187 1,081 106,208
Highlands Insurance Group+ 37 909 76 1,867
HSB Group Inc 230 14,519 280 17,675
Humana Inc+ 257 6,537 1,470 37,393
Jefferson-Pilot Corp 107 8,975 639 53,596
John Alden Financial Corp 0 -- 0 --
Leucadia National Corp 200 7,550 400 15,100
Lincoln National Corp 144 12,060 936 78,390
Loews Corp 155 15,548 983 98,607
Marsh & McLennan Co Inc 267 23,146 1,318 114,254
MBIA Inc 204 14,930 764 55,915
Mercury General Corp 200 11,350 300 17,025
Ohio Casualty Corp 100 4,675 300 14,025
Old Republic International
Corp 350 14,766 750 31,641
PMI Group Inc 100 7,275 200 14,550
Progressive Corp Ohio 85 9,849 650 75,319
Protective Life Corp 100 6,913 300 20,738
Provident Co Inc 294 10,584 632 22,752
Providian Financial Corp 156 8,847 788 44,719
Reliance Group Holdings 0 -- 700 11,900
Reliastar Financial Corp 400 19,025 900 42,806
Safeco Corp 276 14,473 1,208 63,345
St Paul Co 127 11,255 755 66,912
Sunamerica Inc 909 41,189 1,633 73,995
TIG Holdings Inc 200 5,313 500 13,281
Tokio Marine & Fire
Insurance Co ADR (Japan) 3,718 211,926 15,400 877,800
Torchmark Corp 262 12,199 1,197 55,735
Transamerica Corp 76 8,849 542 63,109
Transatlantic Holdings Inc 126 9,529 150 11,344
Travelers Inc 1,873 104,420 9,565 533,249
Travelers Property Casualty 100 4,100 100 4,100
Uici+ 0 -- 400 12,850
Unitrin Inc 100 6,913 300 20,738
UNUM Corp 272 13,991 1,256 64,606
USF & G Corp 179 4,374 1,002 24,486
Wellpoint Health Networks+ 0 -- 100 5,844
------------ ------------
TOTAL INSURANCE
- VALUE $ 1,328,886 $ 5,337,198
- COST $ 961,881 $ 3,651,478
138
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
1,954 $ 54,101 1,713 $ 47,429 3,541 $ 98,041
1,613 343,569 1,329 283,077 2,274 484,362
2,315 227,449 2,043 200,725 3,450 338,962
172 4,225 136 3,340 216 5,306
309 19,506 424 26,765 820 51,763
3,272 83,232 2,822 71,785 4,615 117,394
1,417 118,851 1,168 97,966 2,013 168,840
0 -- 0 -- 300 6,731
900 33,975 700 26,425 1,600 60,400
2,079 174,116 1,770 148,238 2,951 247,146
2,282 228,913 2,012 201,829 3,313 332,335
3,110 269,598 2,689 233,103 6,617 573,611
1,767 129,322 1,510 110,513 2,805 205,291
400 22,700 500 28,375 1,100 62,425
700 32,725 500 23,375 1,100 51,425
1,500 63,281 1,250 52,734 3,100 130,781
500 36,375 400 29,100 900 65,475
1,469 170,220 1,348 156,200 2,061 238,818
600 41,475 500 34,563 1,100 76,038
1,312 47,232 1,202 43,272 2,566 92,376
1,902 107,938 1,696 96,248 2,697 153,055
1,400 23,800 1,200 20,400 2,400 40,800
1,900 90,369 1,600 76,100 3,600 171,225
2,807 147,192 2,498 130,989 4,023 210,956
1,627 144,193 1,456 129,038 2,409 213,498
3,897 176,583 3,290 149,078 5,599 253,705
900 23,906 800 21,250 1,700 45,156
26,976 1,537,632 27,469 1,565,733 44,208 2,519,856
2,806 130,654 2,418 112,588 4,044 188,299
1,299 151,252 1,044 121,561 1,787 208,074
332 25,108 290 21,931 660 49,913
22,913 1,277,400 19,704 1,098,506 33,141 1,847,611
200 8,200 200 8,200 300 12,300
800 25,700 600 19,275 1,400 44,975
600 41,475 500 34,563 1,100 76,038
2,774 142,688 2,391 122,987 3,959 203,641
2,206 53,909 1,858 45,405 3,192 78,005
300 17,531 200 11,688 500 29,219
------------ ----------- ------------ ----------- ------------
$ 11,615,712 $ 10,328,824 $ 19,078,720
$ 7,606,427 $ 6,858,868 $ 14,010,932
139
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
LODGING
PERCENT OF NET ASSETS 0.06% 0.12%
Choice Hotels International
Inc+ 59 $ 885 505 $ 7,575
Extended Stay America Inc+ 0 -- 600 8,400
Hilton Hotels Corp 304 9,063 2,111 62,934
Homestead Village Property
Inc 75 1,064 87 1,234
Host Marriott Corp+ 800 15,850 1,700 33,681
La Quinta Inns Inc 400 8,500 650 13,813
Marriott International 178 13,484 1,006 76,205
Primadonna Resorts Inc 0 -- 0 --
Promus Hotel Corp+ 441 21,278 818 39,469
Sunburst Hospitality Corp 20 172 168 1,470
------------ ------------
TOTAL LODGING
- VALUE $ 70,296 $ 244,781
- COST $ 48,954 $ 179,753
MACHINERY
PERCENT OF NET ASSETS 0.28% 0.44%
AGCO Corp 300 $ 8,438 600 $ 16,875
AVX Corp 300 6,769 200 4,513
Black & Decker Corp 126 6,347 861 43,373
Camco International Inc 0 -- 300 17,550
Case Corp 103 6,701 704 45,804
Caterpillar Inc 630 34,414 3,259 178,023
Cincinnati Milacron Inc 61 1,883 362 11,177
Cummins Engine Co Inc 25 1,447 298 17,247
Deere & Co 439 24,639 2,249 126,225
Federal Mogul Corp 396 19,429 300 14,719
Flowserve Corp 0 -- 400 12,675
Harsco Corp 338 14,154 520 21,775
Ingersoll-Rand Co 272 12,954 1,450 69,056
Jacobs Engineering Group+ 0 -- 0 --
Kubota Corp ADR (Japan) 1,434 83,531 1,203 70,075
MagneTek Inc+ 0 -- 0 --
Makita Corp ADR (Japan) 1,420 16,330 4,803 55,235
McDermott International Inc 146 5,749 456 17,955
Nordson Corp 214 10,406 160 7,780
Pall Corp 183 3,832 1,087 22,759
Parker Hannifin Corp 158 7,367 987 46,019
Pentair Co 0 -- 0 --
Presstek Inc 200 5,075 400 10,150
SPX Corp 22 1,643 46 3,436
Tecumseh Products Co Class A 241 12,080 190 9,524
Teleflex Inc 350 14,197 0 --
140
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
0.17% 0.19% 0.26%
1,105 $ 16,575 807 $ 12,105 1,217 $ 18,255
1,400 19,600 1,200 16,800 2,500 35,000
4,772 142,265 3,893 116,060 9,473 282,414
100 1,419 113 1,603 188 2,667
3,400 67,363 3,100 61,419 6,600 130,763
1,500 31,875 1,100 23,375 2,400 51,000
2,355 178,391 1,978 149,834 4,951 375,038
0 -- 0 -- 400 6,000
1,685 81,301 1,289 62,194 3,245 156,571
368 3,220 269 2,354 405 3,544
------------ ----------- ------------ ----------- ------------
$ 542,009 $ 445,744 $ 1,061,252
$ 369,433 $ 317,385 $ 829,157
0.78% 0.98% 0.93%
1,300 $ 36,563 1,100 $ 30,938 2,300 $ 64,688
400 9,025 400 9,025 900 20,306
1,857 93,546 1,659 83,572 2,734 137,725
600 35,100 600 35,100 1,300 76,050
1,493 97,138 1,311 85,297 2,208 143,658
7,410 404,771 6,408 350,037 10,759 587,710
802 24,762 767 23,681 1,215 37,513
746 43,175 624 36,114 1,156 66,904
5,040 282,870 4,282 240,327 7,305 409,993
553 27,132 398 19,527 380 18,644
900 28,519 800 25,350 1,600 50,700
1,148 48,073 858 35,929 1,920 80,400
3,307 157,496 2,962 141,065 4,717 224,647
373 11,167 0 -- 0 --
10,786 628,285 10,935 636,964 16,660 970,445
367 6,514 0 -- 0 --
10,209 117,404 10,347 118,990 16,783 193,005
1,093 43,037 947 37,288 1,593 62,724
293 14,247 208 10,114 385 18,721
2,550 53,391 2,123 44,450 3,843 80,463
2,208 102,948 1,938 90,359 3,209 149,620
576 23,724 406 16,722 0 --
400 10,150 400 10,150 600 15,225
226 16,879 83 6,199 248 18,523
345 17,293 249 12,481 431 21,604
508 20,606 388 15,738 0 --
141
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Thermo Electron Corp+ 239 $ 9,799 1,336 $ 54,776
UCAR International Inc+ 200 6,888 400 13,775
York International Corp 202 8,875 420 18,454
Zurn Industries Inc 22 965 46 2,018
------------ ------------
TOTAL MACHINERY
- VALUE $ 323,912 $ 910,968
- COST $ 310,131 $ 792,704
MANUFACTURING
PERCENT OF NET ASSETS 0.05% 0.11%
EVI Inc 0 $ -- 300 $ 14,719
Tyco International Ltd 1,224 62,118 4,220 214,165
West Teleservices 0 -- 0 --
------------ ------------
TOTAL MANUFACTURING
- VALUE $ 62,118 $ 228,884
- COST $ 39,512 $ 174,375
METAL FABRICATORS
PERCENT OF NET ASSETS 0.22% 0.50%
Alcan Aluminum Ltd 427 $ 13,264 1,995 $ 61,970
Allegheny Teledyne Inc 263 7,134 1,438 39,006
Alumax Inc+ 189 7,005 480 17,790
Aluminum Co of America 317 23,260 1,525 111,897
Armco Inc+ 111 590 953 5,063
Barrick Gold Corp 623 12,032 3,338 64,465
Battle Mountain Gold Co 337 2,022 1,957 11,742
Bethlehem Steel Corp+ 67 712 938 9,966
British Steel PLC ADR (UK) 678 16,738 2,172 53,621
Crane Co 80 3,920 395 19,355
Engelhard Corp 270 4,894 1,271 23,037
Freeport McMoRan Copper &
Gold Inc Class B 38 546 28 403
Freeport McMoRan Inc 231 3,479 1,682 25,335
Getchell Gold Corp+ 24 447 259 4,824
Inland Steel Industries Inc 102 2,104 432 8,910
Kaydon Corp 0 -- 0 --
Laboratory Corp of America
Holdings 660 1,279 418 810
Lukens Inc 0 -- 0 --
Mitsui & Co Ltd ADR (Japan) 660 83,408 2,015 254,646
Nucor Corp 131 6,747 734 37,801
Oregon Steel Mills Inc 0 -- 0 --
Phelps Dodge Corp 76 4,826 540 34,290
Placer Dome Inc 353 4,545 2,124 27,347
Precision Castparts Corp 0 -- 200 11,088
Reynolds Metals Co 159 9,908 606 37,761
142
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
3,066 $ 125,706 2,546 $ 104,386 4,371 $ 179,211
800 27,550 600 20,663 1,400 48,213
959 42,136 814 35,765 1,685 74,035
224 9,828 180 7,898 241 10,574
------------ ------------ ------------
$ 2,559,035 $ 2,284,129 $ 3,761,301
$ 2,336,391 $ 2,140,563 $ 3,802,021
0.16% 0.20% 0.28%
600 $ 29,438 600 $ 29,438 1,300 $ 63,781
9,749 494,762 8,442 428,432 20,724 1,051,743
0 -- 0 -- 200 2,900
------------ ------------ ------------
$ 524,200 $ 457,870 $ 1,118,424
$ 409,829 $ 363,876 $ 861,600
0.73% 0.90% 0.90%
4,535 $ 140,868 3,904 $ 121,268 6,607 $ 205,230
3,498 94,883 2,898 78,608 4,998 135,571
773 28,649 793 29,391 1,770 65,601
3,427 251,456 2,938 215,576 4,971 364,747
1,943 10,322 1,647 8,750 3,846 20,432
7,557 145,945 6,282 121,321 10,574 204,210
4,566 27,396 3,560 21,360 7,316 43,896
2,310 24,544 1,752 18,615 3,489 37,071
4,862 120,031 4,465 110,230 8,166 201,598
915 44,835 862 42,214 1,398 68,502
2,901 52,581 2,322 42,086 4,126 74,784
52 747 38 546 236 3,393
3,743 56,379 3,247 48,908 7,341 110,574
222 4,135 458 8,530 646 12,032
996 20,543 751 15,489 1,488 30,690
500 18,594 0 -- 0 --
1,043 2,021 684 1,325 1,337 2,590
230 6,900 0 -- 0 --
4,622 584,105 4,684 591,941 7,495 947,181
1,781 91,721 1,460 75,190 2,537 130,656
299 6,017 199 4,005 0 --
1,195 75,883 1,038 65,913 1,712 108,712
4,869 62,688 4,118 53,019 6,778 87,267
400 22,175 413 22,896 800 44,350
1,504 93,718 1,306 81,380 2,154 134,221
143
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SKF AB ADR (Sweden) 781 $ 15,815 2,531 $ 51,253
Steel Dynamics Inc+ 0 -- 300 5,700
Timken Co 102 3,290 600 19,350
USX--U.S. Steel Group 136 4,777 790 27,749
WMC Ltd ADR (Japan) 1,140 15,390 3,837 51,800
Worthington Industries Inc 137 2,346 897 15,361
------------ ------------
TOTAL METAL FABRICATORS
- VALUE $ 250,478 $ 1,032,340
- COST $ 294,925 $ 1,229,500
OFFICE EQUIPMENT & SUPPLIES
PERCENT OF NET ASSETS 0.04% 0.05%
Ricoh Co Ltd ADR (Japan) 677 $ 36,173 2,079 $ 111,084
Standard Register Co 301 10,272 0 --
------------ ------------
TOTAL OFFICE EQUIPMENT & SUPPLIES
- VALUE $ 46,445 $ 111,084
- COST $ 53,924 $ 156,965
PHARMACEUTICALS
PERCENT OF NET ASSETS 1.83% 4.00%
Abbott Laboratories 1,344 $ 100,548 6,062 $ 453,513
Allergan Inc 165 5,775 604 21,140
ALZA Corp 122 4,560 699 26,125
American Home Products Corp 1,065 99,844 5,159 483,656
Amgen Inc 377 20,028 2,089 110,978
Astra AB ADR Series B (Sweden) 4,738 93,279 15,704 309,173
Bergen Brunswig Corp Class A 225 10,125 545 24,525
Bristol-Myers Squibb Co 1,784 178,734 7,894 790,880
Centocor Inc+ 346 12,478 640 23,080
Covance Inc+ 90 1,940 581 12,497
Crescendo Pharmaceuticals Corp+ 5 59 33 392
Dura Pharmaceuticals Inc+ 0 -- 500 12,563
Forest Labs Inc Class A+ 182 11,386 370 23,148
Glaxo Holdings PLC ADR (UK) 3,700 200,956 12,392 673,040
ICN Pharmaceuticals Inc 200 11,550 404 23,331
Immunex Corp+ 0 -- 200 11,825
Interneuron Pharmaceuticals Co+ 0 -- 400 3,175
IVAX Corp+ 1,230 10,378 1,240 10,463
Lilly (Eli) & Co 1,999 131,559 8,871 583,823
Marshall & Ilsley Corp 558 32,713 1,040 60,970
McKesson Corp 400 20,850 700 36,488
Merck & Co Inc 2,173 277,193 9,536 1,216,436
Millipore Corp 52 1,966 376 14,218
Mylan Laboratories 603 12,286 1,270 25,876
144
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
5,817 $ 117,794 5,246 $ 106,232 9,748 $ 197,397
600 11,400 400 7,600 1,000 19,000
1,240 39,990 1,078 34,766 1,784 57,534
1,764 61,961 1,494 52,477 2,492 87,532
8,659 116,897 7,868 106,218 14,498 195,723
1,935 33,137 1,489 25,499 2,792 47,813
------------ ------------ ------------
$ 2,368,315 $ 2,111,353 $ 3,638,307
$ 2,768,087 $ 2,457,218 $ 4,490,841
0.09% 0.12% 0.11%
4,949 $ 264,432 5,025 $ 268,492 8,133 $ 434,557
432 14,742 312 10,647 0 --
------------ ------------ ------------
$ 279,174 $ 279,139 $ 434,557
$ 371,584 $ 367,165 $ 604,542
5.79% 7.10% 9.23%
13,983 $ 1,046,103 12,072 $ 903,137 29,796 $ 2,229,113
1,289 45,115 1,098 38,430 2,008 70,280
1,713 64,023 1,436 53,670 2,386 89,177
11,809 1,107,094 10,240 960,000 25,343 2,375,906
4,915 261,109 4,171 221,584 10,248 544,425
35,550 699,891 32,160 633,150 59,334 1,168,138
1,086 48,870 875 39,375 1,950 87,750
18,157 1,819,104 15,630 1,565,931 38,771 3,884,370
1,381 49,802 1,266 45,655 2,620 94,484
1,030 22,140 878 18,866 1,546 33,239
71 843 53 629 137 1,627
1,000 25,125 800 20,100 1,700 42,713
766 47,923 686 42,918 1,460 91,341
27,901 1,515,373 25,313 1,374,812 46,634 2,532,809
708 40,887 707 40,829 1,640 94,710
400 23,650 300 17,738 700 41,388
0 -- 600 4,763 900 7,144
2,323 19,600 1,963 16,563 3,995 33,708
20,223 1,330,926 17,522 1,153,167 43,315 2,850,669
2,103 123,288 1,883 110,391 4,120 241,535
1,600 83,400 1,400 72,975 2,900 151,163
21,815 2,782,776 18,950 2,428,951 46,796 5,969,415
788 29,796 686 25,939 1,628 61,559
2,765 56,337 2,227 45,375 4,652 94,785
145
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Novo Nordisk A/S ADR
(Denmark) 2,632 $ 196,249 8,661 $ 645,786
Omnicare Inc 300 11,100 800 29,600
Perrigo Co+ 812 8,729 550 5,913
Pfizer Inc 2,295 203,108 10,309 912,347
Pharmacia and Upjohn Inc 837 33,114 4,470 176,844
Pharmerica Inc+ 35 455 338 4,394
Scherer (R P) Corp+ 200 12,163 200 12,163
Schering-plough Corp 1,283 97,588 5,829 443,368
Schweitzer-Mauduit
International Inc 20 665 92 3,059
Smithkline Beecham PLC ADR
(UK) 2,355 145,716 7,695 476,128
Southtrust Corp 707 28,878 1,395 57,021
Thermolase Corp+ 0 -- 100 813
Warner Lambert Co 479 70,054 2,197 321,311
Watson Pharmaceutical Inc 300 10,763 800 28,700
Xoma Corp+ 188 934 0 --
Zeneca Group PLC ADR (UK) 558 74,179 1,977 262,817
------------ ------------
TOTAL PHARMACEUTICALS
- VALUE $ 2,131,902 $ 8,331,579
- COST $ 1,338,862 $ 4,715,385
PUBLISHING
PERCENT OF NET ASSETS 0.39% 0.73%
American Greetings Corp
Class A 133 $ 6,068 705 $ 32,166
Barnes & Noble 400 14,050 500 17,563
Belo (A H) Corp 256 14,016 340 18,615
Central Newspapers Class A 0 -- 200 14,288
Chris-craft Industries Inc 116 6,496 262 14,602
Comcast Corp Class A 455 15,925 2,744 96,040
Donnelley (R R) & Sons Co 259 10,263 1,300 51,513
Dow Jones & Co Inc 204 10,481 888 45,621
E.W. Scripps Co 100 5,306 200 10,613
Elsevier NV ADR
(Netherlands) 3,987 150,260 13,261 499,774
Ennis Business Forms Inc 0 -- 0 --
Gannett Co Inc 478 30,861 2,245 144,943
Gibson Greetings Inc+ 0 -- 0 --
Golden Books Family
Entertainment Inc+ 234 2,750 0 --
Harland (John H) Co 55 835 248 3,767
Houghton Mifflin Co 304 9,652 240 7,620
Interpublic Group Co Inc 128 6,976 1,029 56,081
Knight-Ridder Inc 144 8,100 797 44,831
Lee Enterprises Inc 498 15,438 0 --
Liberty Media Group Class A 1,279 35,093 2,908 79,775
Marvel Entertainment Group
Inc+ 0 -- 200 175
Mcgraw-Hill Inc 176 13,310 840 63,525
146
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
19,506 $ 1,454,416 17,679 $ 1,318,190 32,597 $ 2,430,514
1,600 59,200 1,400 51,800 3,000 111,000
1,252 13,459 842 9,052 1,680 18,060
23,565 2,085,502 20,453 1,810,090 50,505 4,469,693
10,084 398,948 8,754 346,330 14,658 579,907
955 12,415 792 10,296 1,547 20,111
400 24,325 400 24,325 900 54,731
13,388 1,018,325 11,569 879,967 28,528 2,169,911
214 7,115 176 5,852 351 11,671
17,391 1,076,068 15,763 975,336 29,089 1,799,882
2,906 118,762 2,681 109,565 5,903 241,265
0 -- 0 -- 300 2,438
4,920 719,550 4,275 625,219 10,561 1,544,546
1,700 60,988 1,400 50,225 3,000 107,625
193 959 193 959 0 --
4,539 603,403 4,106 545,841 7,461 991,847
------------ ------------ ------------
$ 18,896,610 $ 16,597,995 $ 37,344,649
$ 10,563,466 $ 9,453,253 $ 22,825,459
1.01% 1.26% 1.41%
1,536 $ 70,080 1,192 $ 54,385 2,080 $ 94,900
1,000 35,125 800 28,100 1,800 63,225
714 39,091 644 35,259 1,340 73,365
400 28,575 300 21,431 700 50,006
492 27,479 335 18,683 227 12,647
6,525 228,375 5,437 190,295 13,600 476,000
2,928 116,022 2,433 96,408 4,205 166,623
1,930 99,154 1,604 82,406 2,715 139,483
500 26,531 400 21,225 50,059 1,886,599
29,926 1,127,836 27,163 1,023,706 0 --
247 2,624 0 -- 900 47,756
5,151 332,561 4,436 286,399 11,014 711,091
244 5,368 0 -- 0 --
313 3,678 233 2,738 0 --
620 9,416 616 9,356 1,015 15,415
460 14,605 310 9,843 890 28,258
2,325 126,713 2,058 112,161 4,760 259,420
1,724 96,975 1,481 83,306 2,403 135,169
708 21,948 510 15,810 0 --
4,181 114,702 5,489 150,591 11,838 324,805
1,400 1,225 200 175 600 525
1,965 148,603 1,737 131,361 2,890 218,556
147
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Media General Inc Class A 280 $ 13,160 220 $ 10,340
Meredith Corp 102 4,380 434 18,635
Moore Corp Ltd 104 1,632 783 12,283
New York Times Co Class A 216 14,135 899 58,828
News Corporation Ltd 954 24,267 3,180 80,891
Primedia Inc+ 0 -- 200 2,763
Readers Digest Association
Class A 300 7,969 800 21,250
Readers Digest Association
Class B 200 5,500 300 8,250
Scholastic Inc+ 200 7,925 200 7,925
Times Mirror Co Class A 152 9,358 859 52,882
Washington Post Co Class B 27 13,325 100 49,350
------------ ------------
TOTAL PUBLISHING
- VALUE $ 457,531 $ 1,524,909
- COST $ 355,215 $ 1,133,672
REAL ESTATE
PERCENT OF NET ASSETS 0.12% 0.24%
AMB Property Corp REIT 0 $ -- 100 $ 2,350
Boston Properties Inc REIT 0 -- 400 13,600
CarrAmercia Realty Corp REIT 0 -- 400 11,900
Castle & Cooke Inc+ 215 3,359 136 2,125
Catellus Development Corp+ 0 -- 700 12,688
Echelon International Corp+ 68 1,476 53 1,156
Equity Office Properties
Trust REIT 0 -- 1,962 57,879
Equity Residential
Properties Trust REIT 400 19,175 800 38,350
Federal Realty Investment
Trust 0 -- 0 --
FelCor Suite Hotels Inc REIT 0 -- 300 10,763
Franchise Finance Corp REIT 0 -- 100 2,675
Health & Retirement Property
Trust REIT 600 12,000 1,000 20,000
Health Care Property
Investors Inc REIT 300 11,138 300 11,138
Kimco Realty Corp REIT 300 10,538 350 12,294
Mack-Cali Realty Corp REIT 0 -- 500 18,875
MAXXAM Inc+ 0 -- 0 --
Meditrust Corp REIT 481 14,791 721 22,171
New Plan Realty Trust REIT 400 9,975 600 14,963
Patriot American Hospitality
Inc REIT 0 -- 700 17,500
Public Storage Inc REIT 0 -- 700 21,569
Security Capital Pacific
Trust REIT 200 4,588 500 11,469
Simon Debartolo Group Inc
REIT 300 9,263 700 21,613
Spieker Properties Inc 0 -- 400 15,875
Starwood Lodging Trust REIT 364 20,597 2,166 122,539
United Dominion Realty Trust
Inc REIT 0 -- 900 12,600
Vornado Realty Trust REIT 200 8,488 500 21,219
148
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
410 $ 19,270 290 $ 13,630 570 $ 26,790
1,126 48,348 908 38,987 1,646 70,675
1,808 28,363 1,336 20,959 2,824 44,302
1,876 122,761 1,727 113,011 2,733 178,841
7,284 185,287 6,549 166,590 12,113 308,124
300 4,144 300 4,144 400 5,525
1,800 47,813 1,300 34,531 2,800 74,375
300 8,250 300 8,250 600 16,500
200 7,925 200 7,925 400 15,850
1,774 109,212 1,639 100,901 2,521 155,199
80 39,480 133 65,636 225 111,038
------------ ------------ ------------
$ 3,297,539 $ 2,948,202 $ 5,711,062
$ 2,391,886 $ 2,153,748 $ 4,263,347
0.31% 0.37% 0.49%
0 $ -- 200 $ 4,700 400 $ 9,400
700 23,800 600 20,400 1,500 51,000
900 26,775 800 23,800 1,700 50,575
336 5,250 222 3,469 341 5,328
1,400 25,375 1,300 23,563 2,800 50,750
96 2,084 69 1,511 65 1,418
4,065 119,918 3,384 99,828 7,668 226,206
1,400 67,113 1,200 57,525 3,100 148,606
0 -- 0 -- 400 9,900
700 25,113 500 17,938 1,200 43,050
0 -- 0 -- 200 5,350
2,200 44,000 1,800 36,000 700 25,988
400 14,850 500 18,563 3,800 76,000
450 15,806 600 21,075 1,300 45,663
1,000 37,750 800 30,200 2,000 75,500
128 6,816 0 -- 0 --
1,621 49,846 1,201 36,931 3,440 105,780
1,400 34,913 1,100 27,431 2,200 54,862
1,200 30,000 1,200 30,000 3,700 92,500
1,400 43,138 1,200 36,975 2,900 89,356
800 18,350 900 20,644 2,300 52,756
1,600 49,400 1,300 40,138 2,800 86,450
700 27,781 700 27,781 1,900 75,406
4,569 258,416 3,793 214,565 7,456 421,733
1,900 26,600 1,600 22,400 3,300 46,200
1,000 42,438 800 33,950 2,300 97,606
149
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Weingarten Realty Investors
REIT 200 $ 8,925 200 $ 8,925
Westfield America Inc REIT 0 -- 100 1,788
------------ ------------
TOTAL REAL ESTATE
- VALUE $ 134,313 $ 508,024
- COST $ 103,592 $ 428,490
RETAIL & RELATED
PERCENT OF NET ASSETS 0.97% 2.17%
Ann Taylor Stores Inc+ 247 $ 3,504 195 $ 2,767
Autozone Inc+ 256 7,744 1,311 39,658
Bed Bath & Beyond Inc+ 200 8,638 400 17,275
Benetton SpA ADR (Italy) 2,417 88,825 7,862 288,928
Best Buy Co Inc+ 0 -- 100 5,963
BJ's Wholesale Club Inc+ 365 12,364 0 --
Borders Group Inc 0 -- 700 23,319
CDW Computer Centers Inc+ 0 -- 100 6,850
Charming Shoppes Inc+ 59 264 951 4,250
Circuit City Stores Inc 147 5,678 884 34,145
Coles Myer Ltd ADR
(Australia) 1,124 47,138 3,832 160,704
CompUSA Inc+ 0 -- 900 31,500
Consolidated Stores Corp 418 17,190 968 39,809
Corporate Express Inc+ 650 6,581 1,050 10,631
Costco Co Inc+ 415 20,283 1,716 83,870
Dayton-Hudson Corp 284 21,957 1,744 134,833
Department 56 Inc+ 200 6,588 200 6,588
Dillards Inc Class A 228 8,123 948 33,773
Dollar General Corp 412 19,004 993 45,802
Dollar Tree Stores Inc 0 -- 200 8,675
Eastman Kodak Co 593 38,916 2,672 175,350
Family Dollar Stores Inc 280 9,975 620 22,088
Federated Department Stores
Inc+ 359 16,828 1,903 89,203
Fingerhut Co 505 12,530 400 9,925
Footstar Inc+ 46 1,380 245 7,350
Fred Myer Inc 0 -- 600 26,663
Gap Inc 778 34,767 3,255 145,458
Global Directmail Corp+ 200 4,325 200 4,325
Hancock Fabrics Inc 0 -- 0 --
Heilig Meyers Co 524 8,122 410 6,355
Home Depot Inc 1,183 75,490 5,871 374,644
Homebase Inc 365 2,555 0 --
Intelligent Electronics+ 0 -- 0 --
Ito Yokado Co Ltd ADR
(Japan) 430 93,310 1,290 279,930
Jones Apparel Group Inc+ 200 11,000 300 16,500
Jostens Inc 107 2,515 280 6,580
150
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
400 $ 17,850 400 $ 17,850 900 $ 40,163
0 -- 300 5,363 400 7,150
------------ ------------ ------------
$ 1,013,382 $ 872,600 $ 1,994,696
$ 919,873 $ 805,194 $ 1,797,177
3.11% 3.83% 4.54%
351 $ 4,980 253 $ 3,589 237 $ 3,362
3,021 91,385 2,633 79,648 4,308 130,317
800 34,550 800 34,550 1,700 73,419
17,662 649,079 16,072 590,646 29,581 1,087,102
0 -- 300 17,888 600 35,775
497 16,836 367 12,432 0 --
1,200 39,975 1,200 39,975 2,600 86,613
0 -- 100 6,850 300 20,550
2,288 10,224 1,620 7,239 3,364 15,033
1,983 76,593 1,673 64,620 2,770 106,991
8,675 363,808 7,932 332,648 14,440 605,578
1,900 66,500 1,600 56,000 3,400 119,000
2,129 87,555 1,475 60,659 4,087 168,078
1,950 19,744 1,850 18,731 3,900 39,488
3,963 193,692 3,434 167,837 8,296 405,467
3,928 303,684 3,463 267,733 8,485 655,997
300 9,881 200 6,588 600 19,763
2,275 81,047 1,878 66,904 3,180 113,288
2,165 99,861 1,856 85,608 3,957 182,517
500 21,688 400 17,350 900 39,038
6,516 427,613 5,591 366,909 9,331 612,347
1,285 45,778 1,140 40,613 2,442 86,987
4,166 195,281 3,622 169,781 6,011 281,766
714 17,716 509 12,630 180 4,466
521 15,630 382 11,460 654 19,620
1,200 53,325 1,100 48,881 2,500 111,094
7,383 329,928 6,316 282,247 15,620 698,019
300 6,488 200 4,325 400 8,650
342 5,579 0 -- 0 --
834 12,927 544 8,432 1,300 20,150
13,306 849,090 11,586 739,332 28,423 1,813,743
497 3,479 367 2,569 0 --
540 3,628 0 -- 0 --
2,975 645,575 3,003 651,651 4,826 1,047,242
600 33,000 600 33,000 1,400 77,000
690 16,215 567 13,325 1,398 32,853
151
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
K Mart Corp+ 804 $ 10,754 4,367 $ 58,409
Kohls Corp+ 286 22,934 620 49,716
Limited Inc 477 13,833 2,409 69,861
Longs Drug Stores Corp 76 2,408 349 11,059
Lowe's Co Inc 257 15,018 1,590 92,916
May Department Stores Co 394 23,936 2,018 122,594
Mercantile Stores Co Inc 102 6,713 340 22,376
Michaels Stores 0 -- 0 --
Micro Warehouse Inc+ 300 4,125 300 4,125
Midas Inc+ 11 187 146 2,567
Neiman Marcus Group Inc+ 0 -- 200 7,438
Newell Co 259 11,882 1,330 61,014
Nordstrom Inc 122 6,996 645 36,987
Office Depot Inc+ 538 14,795 1,350 37,068
Officemax Inc+ 500 8,344 1,250 20,859
Payless Shoesource Inc+ 217 14,593 411 27,640
Penney (J C) Co Inc 456 32,234 2,163 152,897
Petsmart Inc+ 1,200 9,150 1,300 9,913
Proffitts Inc 0 -- 500 16,938
Rite Aid Corp 218 7,058 1,978 64,038
Ross Stores Inc 0 -- 500 19,688
Ruddick Corp 0 -- 0 --
Saks Holdings Inc+ 200 5,225 200 5,225
Sears Roebuck & Co 708 37,568 3,505 185,984
Service Merchandise Co+ 771 1,783 0 --
Sherwin Williams Co 261 8,727 1,519 50,792
Staples Inc 894 18,886 1,696 35,817
Sunglass Hut International
Inc+ 600 4,275 500 3,563
Talbots Inc 200 3,563 200 3,563
Tandy Corp 226 10,057 895 39,828
Tech Data Corp+ 0 -- 400 18,600
TJX Companies Inc 163 6,296 1,318 50,908
Toys R Us Inc+ 471 12,364 2,521 66,176
Viking Office Products Inc+ 400 8,800 900 19,800
Walgreen Co 680 24,948 3,884 142,494
Walmart Stores Inc 4,048 187,473 17,993 833,301
Williams-sonoma Inc 0 -- 0 --
Woolworth (F W) Co+ 187 4,441 1,247 29,616
------------ ------------
TOTAL RETAIL & RELATED
- VALUE $ 1,124,960 $ 4,517,481
- COST $ 858,233 $ 3,074,761
152
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
9,817 $ 131,302 8,137 $ 108,832 13,826 $ 184,923
1,304 104,565 1,208 96,867 2,558 205,120
5,517 159,993 4,667 135,343 7,826 226,954
794 25,160 671 21,262 1,256 39,800
3,499 204,473 2,992 174,845 5,009 292,713
4,585 278,539 3,934 238,991 6,697 406,843
730 48,043 585 38,500 1,100 72,394
0 -- 0 -- 200 6,800
600 8,250 400 5,500 700 9,625
342 6,003 266 4,666 511 8,972
400 14,875 400 14,875 800 29,750
3,004 137,809 2,586 118,633 6,030 276,626
1,503 86,188 1,263 72,425 2,176 124,780
2,442 67,155 2,367 65,240 5,080 139,700
2,700 45,056 2,150 35,878 4,650 77,597
743 49,967 715 48,084 1,504 101,144
4,961 350,681 4,357 307,985 7,225 510,717
2,200 16,775 1,600 12,200 3,000 22,875
1,000 33,875 900 30,488 1,500 50,813
5,032 162,911 4,204 136,105 7,206 233,294
900 35,438 900 35,438 1,900 74,813
714 12,941 524 9,498 0 --
500 13,063 400 10,450 900 23,513
7,787 413,198 6,726 356,898 11,275 598,280
1,516 3,506 1,111 2,569 0 --
3,462 115,761 2,918 97,571 4,970 166,184
3,245 68,540 3,060 64,643 6,686 141,231
1,000 7,125 700 4,988 1,300 9,263
0 -- 200 3,563 400 7,125
2,122 94,429 1,717 76,406 2,958 131,631
700 32,550 700 32,550 1,600 74,400
2,929 113,133 2,607 100,695 6,191 239,127
5,770 151,463 4,917 129,071 8,113 212,966
2,000 44,000 1,600 35,200 3,300 72,600
8,962 328,793 7,856 288,217 19,170 703,299
41,060 1,901,591 35,580 1,647,799 87,954 4,073,370
0 -- 0 -- 200 10,300
2,678 63,602 2,311 54,886 3,809 90,464
------------ ------------ ------------
$ 10,163,087 $ 8,939,811 $ 18,371,319
$ 6,849,987 $ 6,104,225 $ 13,044,296
153
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SERVICES
PERCENT OF NET ASSETS 0.10% 0.15%
Block (H R) Inc 115 $ 5,412 828 $ 38,968
Cms Energy Corp 921 40,754 740 32,745
Corrections Corp of America+ 400 15,300 700 26,775
Dun & Bradstreet Corp 180 6,030 1,435 48,073
Public Service Enterprise
Group 388 12,513 2,035 65,629
Service Corp International 409 15,491 2,218 84,007
Sotheby's Holdings Inc 611 12,411 0 --
Stewart Enterprises Inc
Class A 250 11,781 450 21,206
------------ ------------
TOTAL SERVICES
- VALUE $ 119,692 $ 317,403
- COST $ 84,660 $ 233,555
SHIPPING
PERCENT OF NET ASSETS 0.01% 0.00%
Halter Marine Group Inc 273 $ 5,358 282 $ 5,534
------------ ------------
TOTAL SHIPPING
- VALUE $ 5,358 $ 5,534
- COST $ 3,161 $ 3,332
TELECOMMUNICATIONS
PERCENT OF NET ASSETS 2.29% 4.71%
360 Communications Co+ 1,525 $ 40,413 1,519 $ 40,254
ADC Telecommunications+ 672 17,346 1,260 32,524
Adtran Inc+ 100 2,988 200 5,975
Advanced Fibre Communication 0 -- 500 14,969
Airtouch Communications+ 910 40,893 4,068 182,806
Alcatel Alsthom Compagnie
Generale d'electricite ADR
(France) 3,965 103,833 13,120 343,580
Aliant Communications Inc 0 -- 0 --
Alltel Corp 329 15,031 1,637 74,790
Ameritech Corp 1,914 79,790 8,702 362,765
Andrew Corp 160 4,420 763 21,064
Ascend Communications Inc+ 750 28,078 1,800 67,388
Aspect Telecommunication
Corp+ 0 -- 500 13,188
AT & T Corp 2,814 171,302 13,487 821,021
Bell Atlantic Corp 1,292 115,957 6,245 560,489
Bellsouth Corp 1,680 102,480 8,252 503,372
British Telecommunications
PLC ADR (UK) 2,374 239,774 7,723 780,023
Century Telephone Enterprise 567 34,587 460 28,060
Ciena Corp+ 0 -- 500 20,969
Comsat Corp 510 17,053 600 20,063
Cox Communications Inc Class
A+ 313 12,070 674 25,991
Deutsche Telekom Ag ADR
(Germany) 4,976 99,520 16,458 329,160
154
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
0.22% 0.27% 0.27%
2,084 $ 98,078 1,743 $ 82,030 2,990 $ 140,717
1,314 58,144 954 42,214 885 39,161
1,400 53,550 1,300 49,725 2,900 110,925
3,141 105,224 2,643 88,541 6,506 217,951
4,644 149,769 4,016 129,516 6,664 214,914
5,112 193,617 4,446 168,392 7,309 276,828
848 17,225 623 12,655 0 --
750 35,344 800 37,700 1,700 80,113
------------ ------------ ------------
$ 710,951 $ 610,773 $ 1,080,609
$ 508,885 $ 450,321 $ 848,626
0.00% 0.01% 0.00%
369 7,242 330 6,476 630 12,297
------------ ------------ ------------
$ 7,242 $ 6,476 $ 12,297
$ 4,327 $ 3,853 $ 7,435
6.80% 8.37% 9.66%
2,624 $ 69,536 2,128 $ 56,392 3,954 $ 104,781
2,896 74,753 2,316 59,782 5,020 129,579
200 5,975 300 8,963 700 20,912
900 26,944 900 26,944 1,900 56,881
9,166 411,897 7,997 359,365 19,655 883,247
29,451 771,248 26,715 699,599 49,311 1,291,332
490 12,863 0 -- 0 --
3,705 169,272 3,140 143,459 5,339 243,926
19,938 831,165 17,296 721,027 42,504 1,771,886
1,659 45,830 1,416 39,103 3,374 93,193
3,500 131,031 3,210 120,174 7,060 264,309
0 -- 0 -- 1,100 29,013
32,351 1,969,367 27,869 1,696,525 46,849 2,851,933
14,201 1,274,540 12,294 1,103,386 30,347 2,723,643
19,813 1,208,593 17,090 1,042,490 28,649 1,747,589
17,343 1,751,643 15,812 1,587,545 29,069 2,935,969
828 50,508 588 35,868 565 34,465
1,000 41,938 900 37,744 1,900 79,681
819 27,385 814 27,218 1,290 43,134
1,294 49,900 1,127 43,460 2,449 94,440
37,015 740,300 33,544 670,880 61,801 1,236,020
155
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DSC Communications Corp+ 226 $ 4,435 1,048 $ 20,567
DSP Communications Inc+ 0 -- 500 8,844
Ericsson L M Telephone ADR
(Sweden) 1,341 60,764 4,463 202,230
Excel Communications Inc+ 400 8,425 600 12,638
Federal Signal Corp 498 11,703 490 11,515
Frontier Corp 290 8,029 1,500 41,531
Glenayre Technologies Inc 650 7,516 650 7,516
GTE Corp 1,666 90,172 7,643 413,677
Hong Kong Telecommunications
Ltd ADR (Hong Kong) 12,262 257,502 40,145 843,037
LCI International Inc+ 300 9,900 300 9,900
Loral Space &
Communications+ 842 21,524 1,782 45,552
Lucent Technologies Inc 1,169 126,690 5,154 558,565
MCI Communications Corp 1,194 57,088 5,797 277,169
McLeod Inc Class A+ 0 -- 300 11,691
Mobile Telecommunications
Tech+ 0 -- 400 8,200
NEXTEL Communications Class
A+ 1,068 31,573 880 26,015
Nippon Telegraph & Telegraph
ADR (Japan) 1,824 80,256 5,739 252,516
Nokia Corp 253 25,490 944 95,108
Northern Telecom Ltd 1,002 53,419 4,174 222,526
Omnipoint Corp+ 200 5,600 300 8,400
Paging Network Inc+ 500 7,250 600 8,700
Pairgain Technologies Inc+ 0 -- 500 10,063
Picturetel Corp+ 400 2,875 400 2,875
Qualcom Inc+ 300 15,300 600 30,600
Qwest Communications
International Inc 0 -- 300 10,538
SBC Communication Inc 1,653 125,008 7,336 554,785
Scientific-Atlanta Inc 85 1,488 684 11,970
Southern New England
Telecommunications Co 687 43,367 550 34,719
Sprint Corp 695 45,870 3,523 232,518
Tele Danmark A/S ADR
(Denmark) 1,709 55,756 5,678 185,245
Tele-Communications-TCI
Ventures Group Class A 516 7,966 3,690 56,964
Telecommunications of New
Zealand Corp ADR (New
Zealand) 1,169 44,860 3,958 151,888
Telefonica De Espana SA ADR
(Spain) 578 59,823 2,025 209,588
Telephone & Data System Inc 566 24,656 450 19,603
Teleport Communications
Group Inc Class A+ 300 16,388 600 32,775
Tellabs Inc+ 257 15,516 1,481 89,415
U.S. West Inc 864 44,982 4,241 220,797
Vanguard Cellular Systems
Class A+ 411 5,343 330 4,290
Vodafone Group PLC ADR (UK) 1,108 98,058 3,582 317,007
156
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
2,339 $ 45,903 1,976 $ 38,779 3,337 $ 65,489
0 -- 600 10,613 1,000 17,688
10,037 454,802 9,078 411,347 16,755 759,211
1,300 27,381 1,100 23,169 2,300 48,444
807 18,965 802 18,847 1,780 41,830
3,337 92,393 2,754 76,251 4,622 127,972
1,175 13,586 800 9,250 1,425 16,477
17,462 945,131 15,129 818,857 37,197 2,013,288
90,275 1,895,780 81,824 1,718,314 146,485 3,076,183
600 19,800 500 16,500 900 29,700
3,812 97,444 3,174 81,135 7,066 180,625
11,699 1,267,879 10,166 1,101,740 24,952 2,704,173
13,902 664,689 11,959 571,790 20,099 960,983
600 23,381 500 19,484 1,300 50,659
0 -- 0 -- 0 --
1,588 46,945 1,101 32,548 1,025 30,302
13,060 574,640 13,258 583,352 21,374 940,456
2,183 219,937 1,976 199,082 3,651 367,838
9,560 509,668 8,248 439,722 20,372 1,086,082
400 11,200 400 11,200 600 16,800
1,500 21,750 800 11,600 1,500 21,750
1,100 22,138 900 18,113 1,800 36,225
700 5,031 500 3,594 800 5,750
1,200 61,200 1,000 51,000 2,300 117,300
600 21,075 600 21,075 1,200 42,150
16,665 1,260,291 14,426 1,090,966 35,725 2,701,703
1,559 27,283 1,265 22,138 2,454 42,945
975 61,547 710 44,819 680 42,925
8,530 562,980 7,339 484,374 12,381 817,146
12,791 417,306 11,616 378,972 21,428 699,089
7,502 115,812 6,768 104,481 23,096 356,544
8,783 337,048 8,048 308,842 14,738 565,571
4,543 470,201 4,129 427,352 7,600 786,600
827 36,026 587 25,571 565 24,613
1,200 65,550 1,000 54,625 3,300 180,263
3,317 200,264 2,856 172,431 7,088 427,938
9,630 501,362 8,302 432,223 13,923 724,866
595 7,735 427 5,551 390 5,070
7,996 707,646 7,309 646,847 13,402 1,186,077
157
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Western Wireless Corp Class
A+ 0 $ -- 100 $ 1,888
Worldcom Inc+ 1,544 58,962 8,091 308,975
------------ ------------
TOTAL TELECOMMUNICATIONS
- VALUE $ 2,659,089 $ 9,820,851
- COST $ 2,066,161 $ 7,066,297
TEXTILES
PERCENT OF NET ASSETS 0.05% 0.04%
Brown Group Inc 31 $ 461 180 $ 2,678
Burlington Industries Inc+ 729 12,074 477 7,900
Cintas Corp 420 17,850 600 25,500
Collins & Aikman Corp 0 -- 0 --
Shaw Industries Inc 1,260 14,963 1,330 15,794
Springs Industries Inc Class
A 33 1,846 195 10,908
Unifi Inc 268 9,849 600 22,050
------------ ------------
TOTAL TEXTILES
- VALUE $ 57,043 $ 84,830
- COST $ 44,958 $ 67,922
TOBACCO
PERCENT OF NET ASSETS 0.29% 0.66%
BAT Industries PLC ADR (UK) 5,303 $ 106,391 17,454 $ 350,171
Fortune Brands Inc 260 10,319 1,516 60,166
Gallaher Group PLC ADR (UK) 153 3,538 1,391 32,167
Philip Morris Co Inc 4,281 185,956 19,397 842,557
Swedish Match AB ADR
(Sweden) 814 26,252 2,602 83,915
------------ ------------
TOTAL TOBACCO
- VALUE $ 332,456 $ 1,368,976
- COST $ 282,203 $ 1,046,002
TRANSPORTATION
PERCENT OF NET ASSETS 0.21% 0.41%
Alexander & Baldwin Inc 204 $ 5,763 390 $ 11,018
Burlington Northern Santa Fe 296 29,489 1,413 140,770
Carnival Corp Class A 0 -- 1,400 82,425
CNF Transportation Inc 62 2,426 461 18,037
Consolidated Freightways
Corp+ 31 465 181 2,708
CSX Corp 377 21,088 1,913 107,008
Dial Corp 136 3,222 1,080 25,583
Fritz Companies Inc+ 200 2,775 200 2,775
Hunt (J B) Transport
Services 0 -- 0 --
Illinois Central Corp 411 15,952 590 22,899
Kansas City Southern
Industries 543 20,193 1,110 41,278
Laidlaw Inc Class B 495 7,270 2,979 43,754
Norfolk Southern Corp 692 23,831 3,300 113,644
158
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
0 $ -- 0 $ -- 300 $ 5,663
18,375 701,695 15,480 591,143 29,421 1,123,514
------------ ------------ ------------
$ 22,198,152 $ 19,557,621 $ 39,083,835
$ 15,779,497 $ 14,138,553 $ 29,354,989
0.05% 0.06% 0.08%
338 $ 5,028 221 $ 3,287 253 $ 3,763
1,136 18,815 749 12,405 1,902 31,502
1,140 48,450 1,030 43,775 2,380 101,150
0 -- 0 -- 400 3,150
2,415 28,678 2,305 27,372 4,700 55,813
403 22,543 319 17,844 650 36,359
1,182 43,438 982 36,089 2,240 82,320
------------ ------------ ------------
$ 166,952 $ 140,772 $ 314,057
$ 126,777 $ 108,685 $ 267,037
0.95% 1.16% 1.47%
39,508 $ 792,629 35,781 $ 717,856 66,006 $ 1,324,245
3,494 138,668 2,894 114,856 4,892 194,151
3,016 69,745 2,266 52,401 0 --
44,159 1,918,157 38,208 1,659,660 94,562 4,107,537
5,962 192,275 5,367 173,086 9,959 321,178
------------ ------------ ------------
$ 3,111,474 $ 2,717,859 $ 5,947,111
$ 2,379,617 $ 2,079,019 $ 4,812,072
0.55% 0.68% 0.72%
814 $ 22,996 809 $ 22,854 1,580 $ 44,635
3,129 311,727 2,685 267,493 4,534 451,700
2,400 141,300 2,500 147,188 5,400 317,925
810 31,691 873 34,156 1,838 71,912
405 6,075 286 4,290 569 8,535
4,343 242,937 3,783 211,612 6,277 351,120
1,641 38,871 1,828 43,301 3,908 92,571
300 4,163 0 -- 400 5,550
596 15,943 0 -- 0 --
1,135 44,052 1,015 39,395 2,202 85,465
2,295 85,345 1,955 72,702 4,280 159,163
6,633 97,422 5,452 80,076 9,312 136,770
7,546 259,865 6,643 228,768 10,857 373,888
159
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Overseas Shipholding Group 393 $ 8,155 310 $ 6,433
Pittston Brink's Group 323 12,476 420 16,223
Pittston Burlington Group 61 1,346 160 3,530
Roadway Express Inc 46 1,058 158 3,634
Tidewater Inc 365 16,243 550 24,475
Trinity Industries Inc 322 16,181 440 22,110
Union Pacific Corp 468 23,868 2,239 114,189
Viad Corp 136 3,290 880 21,285
Wisconsin Central Transport+ 400 10,850 500 13,563
Xtra Corp 200 12,300 200 12,300
Yellow Corp+ 49 1,032 223 4,697
------------ ------------
TOTAL TRANSPORTATION
- VALUE $ 239,273 $ 854,338
- COST $ 190,923 $ 679,939
UTILITIES
PERCENT OF NET ASSETS 0.98% 1.18%
AES Corp 1,568 $ 68,928 1,280 $ 56,320
Allegheny Energy Inc 1,284 39,242 1,010 30,868
Ameren Corp+ 208 7,995 897 34,478
American Electric Power Inc 306 14,688 1,650 79,200
American Water Works Co Inc 300 9,000 700 21,000
Atlantic Energy Inc 569 11,575 460 9,368
Baltimore Gas & Electric Co 237 7,480 1,279 40,368
Calenergy Inc+ 200 5,363 500 13,406
Carolina Power & Light Co 263 10,980 1,383 57,740
Central & South West Corp 340 9,116 1,898 50,890
Cinergy Corp 327 11,384 1,427 49,677
Consolidated Edison Inc 445 18,913 2,044 86,870
Delmarva Power & Light Co 640 13,800 510 10,997
Dominion Resources Inc 278 11,085 1,645 65,594
DTE Energy Co 238 8,747 1,330 48,877
Duke Power Co 651 36,171 3,190 177,244
Edison International 727 20,083 3,533 97,599
Entergy Corp 440 12,733 2,136 61,810
FirstEnergy Corp 350 10,128 2,010 58,164
Florida Progress Corp 1,015 39,268 800 30,950
FPL Group Inc 341 19,799 1,628 94,526
GPU Inc 242 9,725 1,073 43,121
Hawaiian Electric Industries
Inc 192 7,776 340 13,770
Houston Industries Inc 434 11,230 2,518 65,153
Idaho Power Co 402 14,045 320 11,180
IES Industries 0 -- 0 --
Illinova Corp 813 22,561 650 18,038
160
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
550 $ 11,413 405 $ 8,404 375 $ 7,781
657 25,377 743 28,698 1,604 61,955
328 7,237 221 4,876 402 8,869
270 6,210 243 5,589 359 8,257
1,225 54,513 1,085 48,283 2,265 100,792
705 35,426 735 36,934 1,605 80,651
4,905 250,155 4,258 217,158 7,135 363,885
1,641 39,692 1,528 36,958 3,308 80,012
1,200 32,550 900 24,413 1,900 51,538
300 18,450 200 12,300 500 30,750
585 12,322 299 6,298 437 9,204
------------ ------------ ------------
$ 1,795,732 $ 1,581,746 $ 2,902,928
$ 1,386,657 $ 1,252,900 $ 2,533,040
1.64% 1.90% 1.73%
2,296 $ 101,024 1,596 $ 70,224 1,500 $ 66,000
1,809 55,288 1,319 40,312 1,230 37,592
2,736 105,165 2,310 88,791 3,905 150,098
3,801 182,448 3,250 156,000 5,420 260,160
1,400 42,000 1,200 36,000 2,500 75,000
830 16,911 590 12,021 550 11,206
2,968 93,678 2,489 78,559 4,187 132,152
900 24,131 800 21,450 2,400 64,350
3,024 126,252 2,584 107,882 4,354 181,779
4,320 115,830 3,677 98,590 6,078 162,966
3,186 110,913 2,646 92,114 4,514 157,144
4,733 201,152 3,967 168,597 6,753 287,003
903 19,471 648 13,932 615 13,261
3,704 147,697 3,149 125,566 5,311 211,776
2,943 108,155 2,447 89,927 4,121 151,447
7,226 398,910 6,149 340,100 10,401 577,906
7,587 209,591 6,515 179,977 10,982 303,378
4,875 141,070 4,234 122,521 7,009 202,823
4,650 134,559 3,915 113,290 6,620 191,566
1,434 55,478 1,039 40,196 980 37,914
3,644 211,580 3,130 181,736 5,289 307,093
2,442 98,138 2,081 83,630 3,667 147,368
723 29,281 603 24,422 1,180 47,790
5,764 149,144 4,880 126,270 8,122 210,157
585 20,438 415 14,499 385 13,451
0 -- 0 -- 300 10,856
1,153 31,996 843 23,393 780 21,645
161
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
IPALCO Enterprises Inc 607 $ 25,911 480 $ 20,490
Kansas City Power & Light Co 667 20,093 530 15,966
Keyspan Energy Corp 510 18,137 400 14,225
LG & E Energy Corp 728 17,427 560 13,405
Midamerican Energy Co 451 9,358 367 7,615
Minnesota Power & Light Co 349 14,113 270 10,918
Montana Power Co 563 18,016 460 14,720
National Power ADR (UK) 1,028 42,534 3,200 132,400
Nevada Power Co 444 11,017 360 8,933
New Century Energies Inc 1,072 49,982 862 40,191
New England Electric System 695 29,277 560 23,590
New York State Electric &
Gas Corp 772 28,998 610 22,913
Niagara Mohawk Power Corp+ 131 1,678 1,197 15,337
NIPSCO Industries Inc 1,404 36,065 1,120 28,770
Northeast Utilities 1,340 16,750 1,070 13,375
Northern States Power Co 170 9,339 640 35,160
OGE Energy Corp 429 23,166 340 18,360
Pacificorp 507 12,263 2,593 62,718
PECO Energy Co 322 6,360 1,988 39,263
PG & E Corp 1,056 31,878 3,920 118,335
Pinnacle West Capital Corp 941 38,405 750 30,609
Potomac Electric Power Co 1,282 32,210 1,010 25,376
PP & L Resources Inc 257 5,750 1,470 32,891
Public Service Company Of
New Mexico 0 -- 0 --
Puget Sound Power & Light Co 683 18,526 540 14,648
SCANA Corp 1,026 29,498 820 23,575
Southern Co 1,215 29,995 6,070 149,853
TECO Energy Inc 1,265 33,285 990 26,049
Texas Utilities Co 451 18,237 2,164 87,507
Unicom Corp 408 13,082 1,944 62,330
Wisconsin Energy Corp 1,148 31,283 920 25,070
Wisconsin Power & Light
Holdings Co 341 10,869 260 8,288
------------ ------------
TOTAL UTILITIES
- VALUE $ 1,135,317 $ 2,470,088
- COST $ 860,011 $ 2,050,370
162
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
882 $ 37,650 627 $ 26,765 577 $ 24,631
955 28,769 690 20,786 645 19,431
719 25,569 514 18,279 490 17,426
992 23,746 732 17,522 690 16,517
680 14,110 489 10,147 0 --
480 19,410 350 14,153 335 13,547
824 26,368 584 18,688 540 17,280
7,311 302,493 6,656 275,392 12,258 507,175
652 16,178 472 11,712 450 11,166
1,535 71,569 1,122 52,313 1,029 47,977
1,008 42,462 718 30,246 690 29,066
1,087 40,830 787 29,562 740 27,796
3,027 38,783 2,486 31,852 4,509 57,772
2,030 52,146 1,480 38,017 1,350 34,678
1,916 23,950 1,386 17,325 1,290 16,125
1,547 84,988 1,243 68,287 2,174 119,434
612 33,048 442 23,868 415 22,410
6,005 145,246 5,016 121,324 8,574 207,384
4,507 89,013 3,730 73,668 6,287 124,168
8,784 265,167 7,826 236,247 12,672 382,536
1,334 54,444 974 39,751 905 36,935
1,806 45,376 1,316 33,064 1,230 30,904
3,282 73,435 2,923 65,402 4,727 105,767
650 15,153 470 10,957 0 --
971 26,338 706 19,150 655 17,767
1,446 41,573 1,036 29,785 980 28,175
13,855 342,045 11,851 292,572 19,965 492,886
1,789 47,073 1,284 33,785 1,220 32,101
4,958 200,489 4,236 171,293 7,086 286,540
4,387 140,658 3,684 118,118 6,157 197,409
1,645 44,826 1,175 32,019 1,105 30,111
473 15,077 343 10,933 325 10,359
------------ ----------- ------------ ----------- ------------
$ 5,358,282 $ 4,442,981 $ 6,999,354
$ 4,368,224 $ 3,656,574 $ 5,947,913
163
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Shares Value Shares Value
- - -------------------------------------------------------------------------
WARRANTS
PERCENT OF NET ASSETS 0.00% 0.00%
Edison Brothers Stores
expires 09/26/2005+ 0 $ -- 0 --
Morrison Knudsen Corp
expires 03/11/2003+ 4 24 17 $ 100
Security Capital Group
Purchase Inc expires
09/18/1998 0 0 0 $ 1
------------ ------------
TOTAL WARRANTS
- VALUE $ 24 $ 101
- COST $ 18 $ 76
TOTAL COMMON STOCKS
- VALUE $ 27,452,542 $100,646,983
- COST $ 20,687,829 $ 70,973,387
164
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
0.00% 0.00% 0.00%
16 $ 50 0 $ -- 0 $ --
27 159 25 147 42 247
0 0 0 0 0 0
------------ ------------ ------------
$ 209 $ 147 $ 247
$ 5,050 $ 109 $ 184
$227,616,740 $199,858,694 $402,385,045
$158,197,180 $140,521,777 $301,288,885
165
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Principal Value Principal Value
- - -------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
PERCENT OF NET ASSETS 50.88% 41.70%
U.S. TREASURY BONDS
PERCENT OF NET ASSETS 3.10% 3.59%
U.S. Treasury Bonds, 6.00% -
13.875%, 11/15/02 -08/15/27 $ 2,850,000 $ 3,603,094 $ 5,900,000 $ 7,463,578
------------ ------------
TOTAL U.S. TREASURY BONDS
- VALUE $ 3,603,093 $ 7,463,578
- COST $ 3,597,911 $ 7,226,745
U.S. TREASURY NOTES
PERCENT OF NET ASSETS 47.78% 38.11%
U.S. Treasury Notes, 5.00% -
9.125%, 02/15/99 -08/15/07 $54,000,000 $ 55,521,717 $77,000,000 $ 79,360,739
------------ ------------
TOTAL U.S. TREASURY NOTES
- VALUE $ 55,521,717 $ 79,360,739
- COST $ 54,747,124 $ 78,063,513
TOTAL U.S. TREASURY
SECURITIES
- VALUE $ 59,124,810 $ 86,824,317
- COST $ 58,345,035 $ 85,290,258
166
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Principal Value Principal Value Principal Value
- - -------------------------------------------------------
24.45% 12.03% 0.00%
5.34% 11.49% 0.00%
$14,150,000 $ 17,412,904 $25,139,792 $ 26,831,305 $ 0 $ 0
------------ ------------ ------------
$ 17,412,904 $ 26,831,305 --
$ 16,414,576 $ 25,139,792 --
19.11% 0.54% 0.00%
$60,445,000 $ 62,343,617 $ 1,216,612 $ 1,265,844 $ 0 $ 0
------------ ------------ ------------
$ 62,343,617 $ 1,265,843 --
$ 61,322,505 $ 1,216,612 --
$ 79,756,521 $ 28,097,148 --
$ 77,737,081 $ 26,356,404 --
167
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Principal/ Principal/
Shares Value Shares Value
- - ------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS
PERCENT OF NET ASSETS 34.52% 18.58%
U.S. TREASURY BILLS
PERCENT OF NET ASSETS 24.33% 8.42%
U.S. Treasury Bills, 4.48%-
5.38%*, 03/05/98-04/30/98 $28,484,000 $ 28,266,919 $17,638,000 $ 17,533,750
------------ ------------
TOTAL U.S. TREASURY BILLS
- VALUE $ 28,266,919 $ 17,533,750
- COST $ 28,267,423 $ 17,532,180
CASH EQUIVALENTS
PERCENT OF NET ASSETS 5.89% 5.84%
Dreyfus Institutional Money
Market Fund++ 1,643,608 $ 1,643,608 2,156,344 $ 2,156,344
Janus Institutional Money
Market Fund++ 3,000,000 3,000,000 7,000,000 7,000,000
Merrimac Cash Fund-Premium
Class++ 2,200,000 2,200,000 3,000,000 3,000,000
------------ ------------
TOTAL CASH EQUIVALENTS
- VALUE $ 6,843,608 $ 12,156,344
- COST $ 6,843,608 $ 12,156,344
168
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ ------------------------
Principal/ Principal/ Principal/
Shares Value Shares Value Shares Value
- - -------------------------------------------------------
14.76% 11.81% 10.58%
5.46% 2.71% 1.03%
$17,926,000 $ 17,806,745 $ 6,319,259 $ 6,319,984 $ 4,208,000 $ 4,180,230
------------ ------------ ------------
$ 17,806,745 $ 6,319,984 $ 4,180,230
$ 17,806,700 $ 6,319,279 $ 4,179,249
5.01% 5.25% 5.84%
2,365,516 $ 2,365,516 3,263,638 $ 3,263,638 2,849,215 $ 2,849,215
8,000,000 8,000,000 5,000,000 5,000,000 13,000,000 13,000,000
6,000,000 6,000,000 4,000,000 4,000,000 7,800,000 7,800,000
------------ ------------ ------------
$ 16,365,516 $ 12,263,638 $ 23,649,215
$ 16,365,516 $ 12,263,638 $ 23,649,215
169
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
LifePath 2000 LifePath 2010
------------------------ ------------------------
Principal Value Principal Value
- - --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
PERCENT OF NET ASSETS 4.30% 4.32%
Goldman Sachs Repurchase
Agreements++, dated
2/27/98, due 3/2/98,
with a maturity value
of $52,024,559 and an
effective yield of
5.67%, collateralized
by Federal Home Loan
Mortgage Corporation
obligations with rates
ranging from 6.00% to
8.50%, with maturity
dates ranging from
4/1/03 to 11/1/26 and
with an aggregate
market value of
$53,040,000. $ 5,000,000 $ 5,000,000 $ 9,000,000 $ 9,000,000
------------ ------------
TOTAL SHORT-TERM
INSTRUMENTS
- VALUE $ 40,110,527 $ 38,690,094
- COST $ 40,111,031 $ 38,688,524
------------ ------------
TOTAL INVESTMENT IN
SECURITIES
(NOTES 1 AND 3) - VALUE $126,687,879 $226,161,394
- COST** $119,143,895 $194,952,169
------------ ------------
TOTAL INVESTMENT IN
SECURITIES 109.03% $126,687,879 108.62% $226,161,394
Other Assets and
Liabilities, Net (9.03)% (10,488,878) (8.62)% $(17,943,695)
----------- ------------ ----------- ------------
TOTAL NET ASSETS 100.00% $116,199,001 100.00% $208,217,699
=========== ============ =========== ============
** Cost for federal in-
come tax purposes is: $119,174,138 $194,988,660
Net Unrealized
Appreciation consists
of:
Gross Unrealized
Appreciation $ 8,505,024 $ 33,474,443
Gross Unrealized
Depreciation (991,283) (2,301,709)
------------ ------------
GROSS UNREALIZED
APPRECIATION $ 7,513,741 $ 31,172,734
============ ============
+ Non-income earning securities.
++ Represents investment of collateral received from securities lending trans-
actions. See Note 4.
* Yield to Maturity.
The accompanying notes are an integral part of these financial statements.
170
MASTER INVESTMENT PORTFOLIO--LIFEPATH MASTER PORTFOLIOS--FEBRUARY 28,
1998
LifePath 2020 LifePath 2030 LifePath 2040
- - ------------------------- ------------------------ -------------------------
Principal Value Principal Value Principal Value
- - -------------------------------------------------------
4.29% 3.85% 3.71%
$14,000,000 $ 14,000,000 $ 9,000,000 $ 9,000,000 $15,000,000 $ 15,000,000
------------ ------------ -------------
$ 48,172,261 $ 27,583,622 $ 42,829,445
$ 48,172,216 $ 27,582,917 $ 42,828,464
------------ ------------ -------------
$355,545,522 $255,539,464 $ 445,214,490
$284,106,477 $194,461,098 $ 344,117,349
------------ ------------ -------------
108.97% $355,545,522 109.39% $255,539,464 110.00% $ 445,214,490
(8.97)% (29,274,760) (9.39)% $(21,929,091) (10.00)% (40,485,383)
- - ----------- ------------ ----------- ------------ ----------- -------------
100.00% $326,270,762 100.00% $233,610,373 100.00% $ 404,729,107
=========== ============ =========== ============ =========== =============
$284,239,484 $194,522,434 $ 344,499,671
$ 75,842,886 $ 64,847,992 $ 108,275,336
(4,536,848) (3,830,962) (7,560,517)
------------ ------------ -------------
$ 71,306,038 $ 61,017,030 $ 100,714,819
============ ============ =============
171
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS-91.51%
ADVERTISING-0.08%
Omnicom Group 42,337 $ 1,936,918
--------------
TOTAL ADVERTISING
- VALUE $ 1,936,918
- COST $ 1,660,895
AEROSPACE & DEFENSE-1.81%
Allied Signal Inc 147,957 $ 6,297,420
Boeing Co 262,536 14,242,578
Briggs & Stratton Corp 7,221 319,981
General Dynamics Corp 16,508 1,432,069
Lockheed Martin Corp 51,027 5,954,213
Northrop Grumman Corp 17,541 2,438,199
Rockwell International Corp 55,155 3,336,878
Textron Inc 43,126 3,231,755
United Technologies Corp 61,252 5,470,569
--------------
TOTAL AEROSPACE & DEFENSE
- VALUE $ 42,723,662
- COST $ 24,707,149
AIRLINES-0.46%
AMR Corp+ 23,982 $ 3,035,222
Delta Air Lines Inc 19,361 2,189,003
FDX Corp+ 38,273 2,437,512
Southwest Airlines Co 57,437 1,647,724
USAirways Group Inc+ 23,940 1,515,701
--------------
TOTAL AIRLINES
- VALUE $ 10,825,162
- COST $ 6,640,734
APPAREL-0.45%
CVS Corp 45,197 $ 3,347,403
Fruit of the Loom Inc Class A+ 19,372 622,326
Liz Claiborne Inc 18,288 914,400
Nike Inc Class B 76,344 3,349,593
Reebok International Ltd+ 14,464 451,096
Russell Corp 9,611 260,698
VF Corp 32,903 1,569,062
--------------
TOTAL APPAREL
- VALUE $ 10,514,578
- COST $ 7,144,238
172
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
AUTO PARTS & EQUIPMENT-0.81%
Cooper Tire & Rubber Co 20,488 $ 472,505
Dana Corp 27,566 1,504,070
Deluxe Corp 21,446 730,504
Eaton Corp 20,145 1,935,179
Echlin Inc 16,440 831,248
Genuine Parts Co 46,867 1,734,079
Goodyear Tire & Rubber Co 41,056 2,837,996
Illinois Tool Works Inc 65,461 3,923,569
ITT Industries Inc 30,875 1,057,469
Navistar International Corp+ 19,735 599,451
PACCAR Inc 20,382 1,290,435
Pep Boys-Manny Moe & Jack 16,448 421,480
TRW Inc 32,352 1,773,294
TOTAL AUTO PARTS & EQUIPMENT
- VALUE $ 19,111,279
- COST $ 12,238,777
AUTOMOBILES-1.59%
Chrysler Corp 175,615 $ 6,838,009
Ford Motor Co 315,212 17,829,179
General Motors Corp Class A 185,766 12,806,231
--------------
TOTAL AUTOMOBILES
- VALUE $ 37,473,419
- COST $ 24,917,951
BANK & FINANCE-11.32%
Ahmanson (H F) & Co 28,689 $ 1,791,269
American Express Corp 122,370 11,020,948
Banc One Corp 169,602 9,582,519
Bank of New York Inc 98,769 5,784,160
BankAmerica Corp 182,142 14,116,005
BankBoston Corp 38,167 3,804,773
Bankers Trust Corp 25,925 3,065,631
BB&T Corp 35,905 2,228,354
Beneficial Corp 13,897 1,639,846
Chase Manhattan Bank 110,663 13,729,128
Citicorp 120,011 15,901,458
Comerica Inc 27,559 2,778,292
CoreStates Financial Corp 52,715 4,451,123
Countrywide Credit Industries Inc 28,287 1,257,004
Equifax Inc 39,294 1,412,128
Federal Home Loan Mortgage Corp 182,554 8,625,677
173
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Federal National Mortgage Assoc 278,723 $ 17,786,011
Fifth Third Bancorp 40,417 3,192,943
First Chicago NBD Corp 77,024 6,330,410
First Union Corp 164,900 8,688,169
Fleet Financial Group Inc 71,567 5,640,374
Golden West Financial 14,938 1,333,217
Green Tree Financial Inc 35,324 810,244
Household International Inc 28,100 3,649,488
Huntington Bancshares Inc 50,158 1,799,418
Keycorp 57,666 4,040,224
Lehman Brothers Holdings 27,966 1,763,606
MBNA Corp 131,438 4,707,123
Mellon Bank Corp 66,830 4,164,344
Mercantile Bancorp 34,164 1,900,373
Merrill Lynch & Co Inc 87,400 6,254,563
MGIC Investment Corp 30,000 2,210,625
Morgan (J P) & Co Inc 46,573 5,565,474
Morgan Stanley Dean Witter 155,569 10,841,222
National City Corp 55,976 3,652,434
NationsBank Corp 247,536 16,956,233
Northern Trust Corp 29,266 2,226,045
Norwest Corp 198,137 8,111,234
PNC Bank Corp 79,941 4,436,726
Republic New York Corp 14,338 1,734,898
Ryder System Inc 20,373 747,434
Schwab (Charles) Corp 69,699 2,631,137
State Street Boston Corp 42,163 2,606,200
Summit Bancorp 46,114 2,291,289
SunTrust Banks Inc 55,686 4,106,843
Synovus Financial Corp 41,911 1,472,092
U.S. Bancorp 64,392 7,409,105
Wachovia Corp 53,557 4,257,782
Washington Mutual Inc 67,525 4,532,616
Wells Fargo & Co 22,867 7,363,174
--------------
TOTAL BANK & FINANCE
- VALUE $ 266,401,385
- COST $ 145,452,785
BASIC INDUSTRIES-1.42%
ASARCO Inc 11,078 $ 245,101
Avery-Dennison Corp 26,793 1,353,047
174
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Baker Hughes Inc 44,381 $ 1,816,847
Bemis Co 13,843 623,800
Boise Cascade Corp 14,753 491,459
Champion International Corp 25,239 1,288,766
Cyprus Amax Minerals 24,346 398,666
Dover Corp 58,447 2,257,515
Fort James Corp 54,624 2,478,564
Georgia-Pacific Corp 24,225 1,421,705
Harnischfeger Industries Inc 12,754 451,173
Homestake Mining Co 38,005 380,050
Ikon Office Solutions Inc 34,635 1,132,132
Inco Ltd 43,500 769,406
Louisiana-Pacific Corp 28,496 625,131
Mead Corp 27,221 930,618
Minnesota Mining & Manufacturing Co 107,344 9,157,785
NACCO Industries Inc Class A 2,128 276,773
Newmont Mining Corp 40,743 1,179,001
Potlatch Corp 7,498 324,757
Stone Container Corp+ 25,703 289,159
Union Camp Corp 18,244 1,090,079
Westvaco Corp 26,575 863,688
Weyerhauser Co 52,402 2,616,825
Willamette Industries Inc 28,899 1,067,457
--------------
TOTAL BASIC INDUSTRIES
- VALUE $ 33,529,504
- COST $ 28,122,863
BEVERAGES-2.94%
Anheuser-Busch Inc 128,676 $ 6,031,688
Coca-Cola Co 649,617 44,620,568
Coors (Adolph) Co Class B 9,512 297,250
Pepsico Inc 398,515 14,570,705
Seagrams Co Ltd 96,397 3,663,086
--------------
TOTAL BEVERAGES
- VALUE $ 69,183,297
- COST $ 40,155,182
BROADCASTING-0.56%
Clear Channel Communications Inc+ 25,730 $ 2,331,781
Kingworld Productions 19,410 518,004
Tele-Communications Inc Class A+ 133,232 3,872,055
175
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Tribune Co 32,265 $ 2,083,109
Viacom Inc Class B+ 92,674 4,448,352
--------------
TOTAL BROADCASTING
- VALUE $ 13,253,301
- COST $ 9,038,898
BUILDING MATERIALS & SERVICES-0.46%
Cooper Industries Inc 31,846 $ 1,787,357
Corning Inc 60,683 2,465,247
Owens Corning Fiberglass Corp 13,949 430,675
Owens Illinois Inc+ 36,870 1,414,886
PPG Industries Inc 46,621 3,021,624
Snap-On Inc 15,913 676,303
Stanley Works 23,332 1,115,561
--------------
TOTAL BUILDING MATERIALS & SERVICES
- VALUE $ 10,911,653
- COST $ 8,363,337
BUSINESS SERVICES-0.50%
Cendant Corp+ 207,751 $ 7,790,663
Ecolab Inc 33,614 968,503
Waste Management Inc 119,636 2,990,900
--------------
TOTAL BUSINESS SERVICES
- VALUE $ 11,750,066
- COST $ 9,118,841
CHEMICALS-2.27%
Air Products & Chemicals Inc 28,782 $ 2,415,889
Clorox Co 27,169 2,384,080
Dow Chemical Co 59,483 5,442,695
Du Pont (E I) De Nemours 297,243 18,224,711
Eastman Chemical Co 20,458 1,339,999
FMC Corp+ 9,677 700,373
Goodrich (B F) Co 18,792 931,379
Grace (W R) Co 19,454 1,632,920
Great Lakes Chemical Corp 15,593 758,210
Hercules Inc 25,794 1,246,173
International Flavor & Fragrances 28,466 1,309,436
Monsanto Co 155,720 7,922,255
Morton International Inc 34,697 1,147,170
Nalco Chemical Co 17,318 697,050
Praxair Inc 41,305 1,974,895
Rohm & Haas Co 16,182 1,649,553
176
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Rubbermaid Inc 39,017 $ 1,131,493
Sigma-Aldrich Corp 26,117 1,031,622
Solutia Inc 40 1,093
Union Carbide Corp 32,337 1,501,649
--------------
TOTAL CHEMICALS
- VALUE $ 53,442,645
- COST $ 35,619,976
COMPUTER SOFTWARE-4.02%
3Com Corp+ 90,895 $ 3,249,496
Adobe Systems Inc 19,112 844,512
Autodesk Inc 12,462 590,387
Automatic Data Processing 76,719 4,684,654
Bay Networks Inc+ 55,499 1,880,029
Computer Associates International Inc 143,388 6,757,160
Computer Sciences Corp+ 20,361 2,131,542
First Data Corp 112,291 3,817,894
HBO & Co 55,444 3,000,907
Microsoft Corp 633,838 53,717,771
Novell Inc+ 90,911 955,984
Oracle Systems Corp 257,321 6,336,530
Parametric Technology Corp+ 33,420 2,023,999
Siebel Systems Inc+ 63 3,875
Sun Microsystems Inc+ 98,328 4,682,871
--------------
TOTAL COMPUTER SOFTWARE
- VALUE $ 94,677,611
- COST $ 48,884,164
COMPUTER SYSTEMS-4.41%
Apple Computer Inc+ 33,211 $ 784,610
Cabletron Systems Inc+ 40,984 635,252
Ceridian Corp+ 19,887 925,988
Cisco Systems Inc 264,291 17,410,170
Cognizant Corp 43,295 2,162,044
Compaq Computer Corp 397,644 12,749,461
Data General Corp+ 12,086 249,274
Dell Computer Corp 85,701 11,987,427
Digital Equipment Corp+ 39,767 2,264,234
EMC Corp 130,191 4,979,806
Harris Corp 20,770 1,052,779
Hewlett-Packard Co 273,248 18,307,616
International Business Machine Corp 255,395 26,672,815
177
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Seagate Technology Inc+ 64,163 $ 1,559,963
Shared Medical System Corp 6,473 494,780
Silicon Graphics Inc+ 49,004 738,123
Unisys Corp+ 46,158 825,074
--------------
TOTAL COMPUTER SYSTEMS
- VALUE $ 103,799,416
- COST $ 50,361,066
CONTAINER & PACKAGING-0.38%
Ball Corp 7,728 $ 252,126
Crown Cork & Seal Co 33,676 1,818,504
International Paper Co 79,322 3,698,388
Temple-Inland Inc 14,831 884,298
Tenneco Inc 44,683 1,837,588
Tupperware Corp 15,976 429,355
--------------
TOTAL CONTAINER & PACKAGING
- VALUE $ 8,920,259
- COST $ 8,116,244
ELECTRICAL EQUIPMENT-3.49%
Aeroquip-Vickers Inc 7,398 $ 429,546
General Electric Co 859,585 66,832,734
Grainger (W W) Inc 13,299 1,287,509
Masco Corp 43,365 2,357,972
Motorola Inc 156,768 8,739,816
National Service Industries Inc 11,858 657,378
Raychem Corp 22,638 983,338
Thomas & Betts Corp 14,272 809,044
--------------
TOTAL ELECTRICAL EQUIPMENT
- VALUE $ 82,097,337
- COST $ 44,322,769
ELECTRONICS-3.93%
Advanced Micro Devices+ 36,698 $ 860,109
AMP Inc 57,688 2,549,089
Applied Materials Inc 95,671 3,521,889
CBS Corp 184,643 5,712,393
Commscope Inc+ 1 13
EG&G Inc 11,885 320,152
Emerson Electric Co 116,324 7,422,925
General Instrument Corp+ 38,429 641,284
General Signal Corp 13,133 533,528
Honeywell Inc 33,372 2,644,731
178
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Intel Corp 429,675 $ 38,536,477
Johnson Controls Inc 21,802 1,211,374
KLA Instruments Corp+ 22,193 1,024,345
LSI Logic Corp+ 36,948 875,206
Micron Technology Inc+ 55,504 1,842,039
National Semiconductor+ 42,842 1,022,853
Perkin-Elmer Corp 12,600 922,163
Pitney Bowes Inc 76,078 3,566,156
Raytheon Co Class B 88,987 5,233,548
Tektronix Inc 13,312 594,026
Texas Instruments Inc 102,420 5,927,558
Xerox Corp 85,633 7,594,577
--------------
TOTAL ELECTRONICS
- VALUE $ 92,556,435
- COST $ 51,371,987
ENERGY & RELATED-7.63%
Amerada Hess Corp 24,041 $ 1,425,932
Amoco Corp 127,810 10,863,850
Anadarko Petroleum Corp 15,583 1,005,104
Apache Corp 25,075 852,550
Ashland Inc 19,675 1,095,652
Atlantic Richfield Corp 84,157 6,543,207
Burlington Resources Inc 46,294 2,071,657
Chevron Corp 172,547 13,997,875
Coastal Corp 27,791 1,768,202
Columbia Gas System Inc 14,426 1,100,884
Consolidated Natural Gas Co 25,005 1,437,788
Dresser Industries Inc 45,995 2,055,402
Eastern Enterprises 5,145 227,988
Enron Corp 83,480 3,923,560
Exxon Corp 647,734 41,374,009
Halliburton Co 68,566 3,188,319
Helmerich & Payne Inc 12,938 374,393
Kerr-McGee Corp 12,407 839,023
Mobil Corp 205,997 14,921,908
NICOR Inc 12,498 513,980
Occidental Petroleum Corp 88,595 2,264,710
ONEOK Inc 8,162 285,670
Oryx Energy Co+ 27,427 697,674
Pacific Enterprises Co 21,738 789,361
Pennzoil Co 12,445 833,037
179
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Peoples Energy Corp 9,090 $ 328,376
Phillips Petroleum Co 69,051 3,383,499
Rowan Co Inc+ 22,529 635,036
Royal Dutch Petroleum Corp 563,184 30,587,931
Schlumberger Ltd 130,065 9,803,649
Sonat Offshore Drilling Co 28,879 1,245,407
Sun Co Inc 18,879 753,980
Texaco Inc 143,934 8,033,316
Union Pacific Resources Group 66,581 1,489,750
Unocal Corp 64,530 2,431,974
USX--Marathon Group 75,641 2,614,342
Western Atlas Inc 14,345 1,089,323
Williams Co Inc 83,988 2,745,358
--------------
TOTAL ENERGY & RELATED
- VALUE $ 179,593,676
- COST $ 121,008,495
ENGINEERING & CONSTRUCTION-0.16%
Armstrong World Industries Inc 10,534 $ 826,919
Centex Corp 7,811 570,691
Fleetwood Enterprises Inc 9,367 439,078
Fluor Corp 21,847 1,028,174
Foster Wheeler Corp 10,443 279,350
Kaufman & Broad Home Corp 10,087 261,001
Pulte Corp 5,772 262,626
--------------
TOTAL ENGINEERING & CONSTRUCTION
- VALUE $ 3,667,839
- COST $ 3,016,295
ENTERTAINMENT & LEISURE-1.80%
Brunswick Corp 25,876 $ 821,563
Disney (Walt) Co 177,301 19,846,631
Harrah's Entertainment Inc+ 26,552 559,252
Hasbro Inc 33,158 1,204,050
Mattel Inc 76,274 3,227,344
Mirage Resorts Inc+ 47,100 1,077,413
Polaroid Corp 11,845 542,649
Time Warner Inc 146,874 9,913,995
U.S. West Media Group+ 159,360 5,129,400
--------------
TOTAL ENTERTAINMENT & LEISURE
- VALUE $ 42,322,297
- COST $ 25,541,039
180
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
ENVIRONMENTAL CONTROL-0.09%
Browning-Ferris Industries Inc 51,936 $ 1,730,118
Safety-Kleen Corp 15,096 404,762
--------------
TOTAL ENVIRONMENTAL CONTROL
- VALUE $ 2,134,880
- COST $ 1,882,353
FOOD & RELATED-3.82%
Albertson's Inc 64,876 $ 3,037,008
American Stores Co 71,596 1,803,324
Archer-Daniels-Midland Co 146,284 3,282,247
Bestfoods 37,723 3,975,061
Brown-Forman Corp Class B 17,999 998,945
Campbell Soup Co 120,243 6,981,609
ConAgra Inc 123,966 3,718,980
Darden Restaurants Inc 40,045 540,608
General Mills Inc 41,722 3,001,376
Giant Food Inc Class A 15,508 563,134
Great Atlantic & Pacific Tea Co 10,001 304,405
Harcourt General Inc 18,454 996,516
Heinz (H J) Co 96,413 5,429,257
Hershey Foods Corp 37,525 2,502,448
Kellogg Co 107,719 4,591,522
Kroger Co 66,920 2,827,370
McDonald's Corp 180,756 9,896,391
Pioneer Hi Bred International Inc 17,240 1,788,650
Quaker Oats Co 36,235 1,952,161
Ralston-Purina Group 27,935 2,833,657
Sara Lee Corp 125,893 7,112,955
Super Value Inc 16,647 792,813
Sysco Corp 45,436 2,138,332
Tricon Global Restaurants+ 39,836 1,130,347
Unilever NV (Netherlands) 168,125 10,812,539
UST Inc 48,324 1,712,482
Wendy's International Inc 34,356 745,096
Winn-Dixie Stores Inc 39,108 2,109,388
Wrigley (W M) Jr Co 30,450 2,325,619
--------------
TOTAL FOOD & RELATED
- VALUE $ 89,904,240
- COST $ 54,996,781
181
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
FURNITURE & APPLIANCES-0.10%
Maytag Corp 25,627 $ 1,153,215
Whirlpool Corp 19,727 1,318,010
--------------
TOTAL FURNITURE & APPLIANCES
- VALUE $ 2,471,225
- COST $ 1,582,602
HEALTHCARE-0.38%
Cardinal Health Inc 28,657 $ 2,346,292
Healthsouth Corp 102,984 2,780,568
St Jude Medical Inc 23,924 873,226
United Healthcare Corp 49,298 2,991,772
--------------
TOTAL HEALTHCARE
- VALUE $ 8,991,858
- COST $ 7,142,916
HOSPITAL & MEDICAL SUPPLIES-2.42%
Bard (C R) Inc 14,767 $ 514,999
Bausch & Lomb Inc 14,327 642,029
Baxter International Inc 73,607 4,167,996
Becton Dickinson & Co 32,100 2,042,363
Biomet Inc 29,288 873,149
Boston Scientific Corp+ 51,053 3,050,417
Columbia/HCA Healthcare Corp 170,255 4,618,156
Guidant Corp 38,821 2,831,507
Johnson & Johnson 353,200 26,666,600
Mallinckrodt Group Inc 18,984 736,817
Manor Care Inc 16,592 623,237
Medtronic Inc 123,031 6,536,022
Tenet Healthcare Corp+ 80,233 2,993,694
United States Surgical 19,892 609,193
--------------
TOTAL HOSPITAL & MEDICAL SUPPLIES
- VALUE $ 56,906,179
- COST $ 33,056,681
HOUSEHOLD PRODUCTS-2.68%
Alberto-Culver Co Class B 14,662 $ 446,275
Avon Products Inc 34,698 2,444,040
Colgate-Palmolive Co 77,571 6,297,796
Gillette Co 147,079 15,866,147
182
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Kimberly-Clark Corp 144,401 $ 8,041,331
Procter & Gamble Co 353,017 29,984,381
--------------
TOTAL HOUSEHOLD PRODUCTS
- VALUE $ 63,079,970
- COST $ 31,989,395
INSURANCE-4.59%
Aetna Inc 39,016 $ 3,409,023
Allstate Corp 112,685 10,507,876
American General Corp 64,587 3,754,119
American International Group Inc 184,269 22,146,831
Aon Corp 43,876 2,624,333
Chubb Corp 45,245 3,611,117
CIGNA Corp 19,441 3,713,231
Cincinnati Financial Corp 14,388 1,942,380
Conseco Inc 49,401 2,318,759
General Re Corp 20,788 4,427,844
Hartford Financial Services Group 30,996 3,045,357
Humana Inc+ 43,069 1,095,568
Jefferson-Pilot Corp 18,548 1,555,714
Lincoln National Corp 26,850 2,248,688
Loews Corp 30,132 3,022,616
Marsh & McLennan Companies Inc 44,599 3,866,176
MBIA Inc 25,738 1,883,700
Progressive Corp Ohio 19,004 2,202,089
Providian Financial Corp 24,970 1,417,048
SAFECO Corp 36,970 1,938,614
St Paul Co 21,980 1,947,978
Sunamerica Inc 51,210 2,320,453
Torchmark Corp 36,760 1,711,638
Transamerica Corp 16,467 1,917,376
Travelers Inc 301,238 16,793,995
UNUM Corp 36,917 1,898,918
USF & G Corp 29,547 722,055
--------------
TOTAL INSURANCE
- VALUE $ 108,043,496
- COST $ 61,096,280
183
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
LODGING-0.19%
Hilton Hotels Corp 65,639 $ 1,956,863
Marriott International 33,437 2,532,853
--------------
TOTAL LODGING
- VALUE $ 4,489,716
- COST $ 2,610,030
MACHINERY-0.80%
Black & Decker Corp 24,925 $ 1,255,597
Case Corp 19,696 1,281,471
Caterpillar Inc 98,064 5,356,746
Cincinnati Milacron Inc 10,134 312,887
Cummins Engine Co Inc 9,921 574,178
Deere & Co 66,206 3,715,812
Ingersoll-Rand Co 43,512 2,072,259
McDermott International Inc 14,610 575,269
Pall Corp 33,139 693,848
Parker Hannifin Corp 29,088 1,356,228
Thermo Electron Corp+ 39,675 1,626,675
--------------
TOTAL MACHINERY
- VALUE $ 18,820,970
- COST $ 12,378,066
MANUFACTURING-0.30%
Tyco International Ltd 139,755 $ 7,092,566
--------------
TOTAL MANUFACTURING
- VALUE $ 7,092,566
- COST $ 5,245,389
METAL FABRICATORS-0.74%
Alcan Aluminum Ltd 59,595 $ 1,851,170
Allegheny Teledyne Inc 45,864 1,244,061
Aluminum Co of America 45,242 3,319,632
Armco Inc+ 28,242 150,036
Barrick Gold Corp 97,902 1,890,732
Battle Mountain Gold Co 59,027 354,162
Bethlehem Steel Corp+ 28,582 303,684
Crane Co 11,886 582,390
Engelhard Corp 37,602 681,536
Freeport McMoRan Inc 51,811 780,403
Inland Steel Industries Inc 12,330 254,306
Nucor Corp 23,052 1,187,178
Phelps Dodge Corp 16,366 1,039,241
184
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Placer Dome Inc 62,389 $ 803,258
Reynolds Metals Co 19,385 1,207,928
Timken Co 16,384 528,384
USX--U.S. Steel Group 22,390 786,449
Worthington Industries Inc 24,983 427,834
--------------
TOTAL METAL FABRICATORS
- VALUE $ 17,392,384
- COST $ 17,690,811
PHARMACEUTICALS-7.75%
Abbott Laboratories 200,946 $ 15,033,273
Allergan Inc 16,964 593,740
ALZA Corp 22,458 839,368
American Home Products Corp 170,621 15,995,719
Amgen Inc 68,960 3,663,500
Bristol-Myers Squibb Co 261,158 26,164,767
Lilly (Eli) & Co 291,414 19,178,684
Merck & Co Inc 314,738 40,148,766
Millipore Corp 11,199 423,462
Pfizer Inc 339,698 30,063,273
Pharmacia and Upjohn Inc 133,081 5,265,017
Schering-Plough Corp 192,304 14,627,123
Warner Lambert Co 71,499 10,456,729
--------------
TOTAL PHARMACEUTICALS
- VALUE $ 182,453,421
- COST $ 79,680,841
PUBLISHING-0.90%
American Greetings Corp Class A 20,181 $ 920,758
Comcast Corp Class A 91,564 3,204,740
Donnelley (R R) & Sons Co 38,117 1,510,386
Dow Jones & Co Inc 25,306 1,300,096
Gannett Co Inc 74,407 4,803,902
Harland (John H) Co 8,028 121,925
Interpublic Group Co Inc 32,965 1,796,565
Knight-Ridder Inc 23,576 1,326,150
McGraw-Hill Inc 25,874 1,956,721
Meredith Corp 13,772 591,335
Moore Corp Ltd 25,004 392,250
185
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
New York Times Co Class A 25,228 $ 1,650,857
Times Mirror Co Class A 24,933 1,534,938
--------------
TOTAL PUBLISHING
- VALUE $ 21,110,623
- COST $ 12,168,588
RETAIL & RELATED-4.37%
AutoZone Inc+ 39,755 $ 1,202,589
Charming Shoppes Inc+ 27,559 123,153
Circuit City Stores Inc 25,972 1,003,169
Consolidated Stores Corp 28,130 1,156,846
Costco Co Inc+ 55,768 2,725,661
Dayton-Hudson Corp 57,171 4,420,033
Dillards Inc Class A 29,182 1,039,609
Eastman Kodak Co 85,254 5,594,794
Federated Department Stores Inc+ 55,014 2,578,781
Gap Inc 105,525 4,715,649
Home Depot Inc 192,163 12,262,402
Jostens Inc 10,241 240,664
K Mart Corp+ 127,938 1,711,171
Limited Inc 71,363 2,069,527
Longs Drug Stores Corp 10,198 323,149
Lowe's Co Inc 45,663 2,668,432
May Department Stores Co 61,249 3,720,877
Mercantile Stores Co Inc 9,529 627,127
Newell Co 41,753 1,915,419
Nordstrom Inc 20,625 1,182,714
Penney (J C) Co Inc 65,544 4,633,142
Rite Aid Corp 65,328 2,114,994
Sears Roebuck & Co 102,865 5,458,274
Sherwin Williams Co 45,424 1,518,865
Tandy Corp 27,564 1,226,598
TJX Companies Inc 42,864 1,655,622
Toys R Us Inc+ 74,935 1,967,044
Walgreen Co 129,115 4,736,907
WalMart Stores Inc 591,950 27,414,684
Woolworth (F W) Co+ 35,159 835,026
--------------
TOTAL RETAIL & RELATED
- VALUE $ 102,842,922
- COST $ 63,631,937
186
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
SERVICES-0.31%
Block (H R) Inc 27,119 $ 1,276,288
Dun & Bradstreet Corp 44,697 1,497,350
Public Service Enterprise Group 60,856 1,962,606
Service Corp International 66,070 2,502,401
--------------
TOTAL SERVICES
- VALUE $ 7,238,645
- COST $ 5,233,433
TELECOMMUNICATIONS-7.49%
Airtouch Communications+ 132,391 $ 5,949,321
Alltel Corp 48,569 2,218,996
Ameritech Corp 287,544 11,986,991
Andrew Corp 23,422 647,019
AT & T Corp 426,607 25,969,701
Bell Atlantic Corp 204,039 18,312,500
BellSouth Corp 260,510 15,891,110
DSC Communications Corp+ 30,628 601,075
Frontier Corp 42,733 1,183,170
GTE Corp 251,527 13,613,899
Lucent Technologies Inc 168,549 18,266,498
MCI Communications Corp 182,971 8,748,301
Northern Telecom Ltd 137,618 7,336,760
SBC Communication Inc 240,788 18,209,593
Scientific-Atlanta Inc 20,762 363,335
Sprint Corp 112,789 7,444,074
Tellabs Inc+ 47,606 2,874,212
U.S. West Inc 126,720 6,597,360
WorldCom Inc+ 265,884 10,153,445
--------------
TOTAL TELECOMMUNICATIONS
- VALUE $ 176,367,360
- COST $ 108,367,544
TEXTILES-0.01%
Springs Industries Inc Class A 5,196 $ 290,651
--------------
TOTAL TEXTILES
- VALUE $ 290,651
- COST $ 206,327
187
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
TOBACCO-1.25%
Fortune Brands Inc 45,033 $ 1,787,247
Philip Morris Co Inc 636,812 27,661,521
--------------
TOTAL TOBACCO
- VALUE $ 29,448,768
- COST $ 18,370,348
TRANSPORTATION-0.65%
Burlington Northern Santa Fe 40,980 $ 4,082,633
CSX Corp 57,240 3,201,863
Laidlaw Inc Class B 85,585 1,257,030
Norfolk Southern Corp 98,957 3,407,832
Union Pacific Corp 64,883 3,309,033
--------------
TOTAL TRANSPORTATION
- VALUE $ 15,258,391
- COST $ 11,803,273
UTILITIES-2.18%
Ameren Corp+ 35,889 $ 1,379,483
American Electric Power Inc 49,769 2,388,912
Baltimore Gas & Electric Co 38,427 1,212,852
Carolina Power & Light Co 39,392 1,644,616
Central & South West Corp 55,816 1,496,567
Cinergy Corp 41,340 1,439,149
Consolidated Edison Inc 61,693 2,621,953
Dominion Resources Inc 48,932 1,951,164
DTE Energy Co 38,058 1,398,632
Duke Power Co 94,389 5,244,489
Edison International 103,249 2,852,254
Entergy Corp 63,842 1,847,428
FirstEnergy Corp 60,461 1,749,590
FPL Group Inc 47,714 2,770,394
GPU Inc 33,330 1,339,449
Houston Industries Inc 74,799 1,935,424
Niagara Mohawk Power Corp+ 37,361 478,688
Northern States Power Co 19,497 1,071,117
Pacificorp 77,802 1,881,836
PECO Energy Co 57,994 1,145,382
PG & E Corp 115,071 3,473,706
PP & L Resources Inc 43,728 978,414
Southern Co 181,091 4,470,684
188
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX MASTER PORTFOLIO--FEBRUARY 28,
1998
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
SECURITY NAME SHARES VALUE
COMMON STOCKS (CONTINUED)
Texas Utilities Co 64,525 $ 2,609,227
Unicom Corp 56,841 1,822,465
--------------
TOTAL UTILITIES
- VALUE $ 51,203,875
- COST $ 41,994,418
TOTAL COMMON STOCKS
- VALUE $2,154,233,879
- COST $1,276,931,698
189
MASTER INVESTMENT PORTFOLIO--S&P 500 INDEX
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
INTEREST MATURITY PRINCIPAL/
SECURITY NAME RATE VALUE SHARES VALUE
SHORT TERM INSTRUMENTS-12.59%
CASH EQUIVALENTS-3.43%
Dreyfus Institutional Money
Market Fund++ 22,301,077 $ 22,301,077
Janus Institutional Money Market
Fund++ 42,700,000 42,700,000
Merrimac Cash Fund--Premium
Class++ 15,800,000 15,800,000
--------------
$ 80,801,077
REPURCHASE AGREEMENTS-0.81%
Goldman Sachs Repurchase
Agreements, dated 2/27/98, due
3/2/98, with a maturity value
of $19,008,974 and an effective
yield of 5.6675%,
collateralized by Federal Home
Loan Mortgage Corporation
obligations with rates ranging
from 7.00% to 8.00%, with
maturity dates ranging from
7/1/10 to 6/1/17 and with an
aggregate market value of
$19,380,000.++ $19,000,000 $ 19,000,000
--------------
U.S. TREASURY BILLS-8.35%
U.S. Treasury Bills 4.48%* 03/12/98 3,566,000 3,559,938
U.S. Treasury Bills 4.85%* 03/26/98 9,445,000 9,409,940
U.S. Treasury Bills 5.13%* 03/05/98 19,218,000 19,204,509
U.S. Treasury Bills 5.13%* 04/09/98 3,600,000 3,579,840
U.S. Treasury Bills 5.15%* 04/02/98 12,835,000 12,775,356
U.S. Treasury Bills 5.34%* 04/30/98 50,398,000 49,965,081
U.S. Treasury Bills 5.37%* 04/23/98 78,733,000 78,144,235
U.S. Treasury Bills 5.38%* 04/16/98 20,174,000 20,042,869
--------------
$ 196,681,768
TOTAL SHORT TERM INSTRUMENTS
- VALUE $ 296,482,845
- COST $ 296,464,052
TOTAL INVESTMENTS IN SECURITIES
(Cost $1,573,395,750)** (Notes 1
and 3) 104.11% $2,450,716,724
Other Assets and Liabilites, Net (4.11)% (96,653,510)
------- --------------
TOTAL NET ASSETS 100.00% $2,354,063,214
====== ==============
- - --------------------------------------------------------------------------------
+ Non-income earning securities.
++ Represents investment of collateral received from securities lending trans-
actions. See Note 4.
* Yield to Maturity.
** Cost for federal income tax purposes is $1,573,923,035 and net unrealized
appreciation consists of:
Gross Unrealized
Appreciation $891,354,790
Gross Unrealized
Depreciation (14,561,101)
------------
NET UNREALIZED APPRECIATION $876,793,689
============
The accompanying notes are an integral part of these financial statements.
190
MANAGED SERIES INVESTMENT TRUST--SHORT INTERMEDIATE TERM MASTER
PORTFOLIO--FEBRUARY 28, 1998
MANAGED SERIES INVESTMENT TRUST--SHORT-INTERMEDIATE TERM MASTER PORTFOLIO--
FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
CORPORATE BONDS & NOTES-45.72%
AEROSPACE & DEFENSE-4.73%
$ 500,000 Mcdonnell Douglas Corp 6.77% 09/11/02 $ 513,653
BANK & FINANCE-25.59%
$ 500,000 A T & T Corp 6.41% 08/13/99 $ 500,400
500,000 Associates Corp of North America 6.01% 02/07/03 494,550
250,000 BankAmerica Corp 8.38% 03/15/02 269,023
500,000 National Australia Bank 6.40% 12/10/07 500,749
500,000 Norwest Corp 6.63% 07/15/04 511,497
500,000 EW Scripps Co 6.38% 10/15/02 504,403
-----------
$ 2,780,622
RAILROADS-4.74%
$ 500,000 Norfolk Southern Corp 6.95% 05/01/02 $ 515,057
SHIPPING-5.35%
$ 500,000 CSX Corp 9.00% 08/15/06 $ 581,517
UTILITIES-5.31%
$ 500,000 Public Service Electric & Gas Co 9.13% 07/01/05 $ 576,287
-----------
TOTAL CORPORATE BONDS & NOTES $ 4,967,136
(Cost $4,885,694)
U.S. GOVERNMENT AGENCY SECURITIES-9.35%
FEDERAL NATIONAL MORTGAGE ASSOCIATION-9.35%
$ 595,990 Federal National Mortgage Assoc 7.00% 06/01/09 $ 606,616
407,284 Federal National Mortgage Assoc 6.50% 05/01/11 408,722
-----------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 1,015,338
(Cost $979,117)
191
MANAGED SERIES INVESTMENT TRUST--SHORT-INTERMEDIATE
TERM MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
U.S. TREASURY SECURITIES-40.25%
U.S. TREASURY BONDS-8.99%
$ 750,000 U.S. Treasury Bonds 10.75% 08/15/05 $ 976,640
U.S. TREASURY NOTES-31.26%
$ 500,000 U.S. Treasury Notes 6.63% 05/15/07 $ 532,500
2,800,000 U.S. Treasury Notes 5.75% 11/15/00 2,813,124
50,000 U.S. Treasury Notes 6.38% 03/31/01 51,109
-----------
$ 3,396,733
TOTAL U.S. TREASURY SECURITIES $ 4,373,373
(Cost $4,361,112)
TOTAL
INVESTMENT IN
SECURITIES
(Cost
$10,225,923)*
(Notes 1 and
3) 95.32% $10,355,847
Other Assets
and
Liabilities,
Net 4.68% 508,889
------ -----------
TOTAL NET 100.00%
ASSETS $10,864,736
====== ===========
- --------------------------------------------------------------------------------
* Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized appreciation consists of:
Gross Unrealized Apprecia-
tion $177,101
Gross Unrealized Deprecia-
tion (47,177)
--------
NET UNREALIZED APPRECIATION $129,924
========
The accompanying notes are an integral part of these financial statements.
192
MASTER INVESTMENT PORTFOLIO--U.S. TREASURY ALLOCATION MASTER PORTFOLIO--
FEBRUARY 28, 1998
MASTER INVESTMENT PORTFOLIO--U.S. TREASURY ALLOCATION
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
PRINCIPAL/ INTEREST MATURITY
SHARES SECURITY NAME RATE DATE VALUE
U.S. TREASURY SECURITIES-30.96%
U.S. TREASURY BONDS-17.10%
$ 250,000 U.S. Treasury Bonds 12.38% 05/15/04 $ 336,719
850,000 U.S. Treasury Bonds 11.88% 11/15/03 1,103,671
450,000 U.S. Treasury Bonds 10.75% 02/15/03 548,438
1,400,000 U.S. Treasury Bonds 9.00% 11/15/18 1,895,687
300,000 U.S. Treasury Bonds 8.88% 08/15/17 398,813
1,150,000 U.S. Treasury Bonds 7.88% 11/15/04 1,289,438
1,250,000 U.S. Treasury Bonds 7.25% 08/15/22 1,447,656
1,050,000 U.S. Treasury Bonds 6.00% 02/15/26 1,051,640
-----------
$ 8,072,062
U.S. TREASURY NOTES-13.86%
$ 1,450,000 U.S. Treasury Notes 7.25% 08/15/04 $ 1,574,156
1,400,000 U.S. Treasury Notes 6.25% 02/15/03 1,437,625
1,550,000 U.S. Treasury Notes 5.88% 02/15/04 1,571,796
1,950,000 U.S. Treasury Notes 5.75% 08/15/03 1,960,358
-----------
$ 6,543,935
TOTAL U.S. TREASURY SECURITIES $14,615,997
(Cost $14,496,333)
SHORT TERM INSTRUMENTS-74.48%
U.S. TREASURY BILLS-68.81%
$ 38,000 U.S. Treasury Bills 5.38%* 04/16/98 $ 37,753
28,556,000 U.S. Treasury Bills 5.37%* 04/23/98 28,342,458
313,000 U.S. Treasury Bills 5.34%* 04/30/98 310,311
3,210,000 U.S. Treasury Bills 5.15%* 04/02/98 3,195,083
483,000 U.S. Treasury Bills 5.13%* 03/05/98 482,661
114,000 U.S. Treasury Bills 4.48%* 03/12/98 113,806
-----------
$32,482,072
193
MASTER INVESTMENT PORTFOLIO--U.S. TREASURY ALLOCATION
MASTER PORTFOLIO--FEBRUARY 28, 1998
PORTFOLIO OF INVESTMENTS
PRINCIPAL/ INTEREST MATURITY
SHARES SECURITY NAME RATE DATE VALUE
CASH EQUIVALENTS-1.43%
677,189 Dreyfus Institutional Money
Market Fund+ $ 677,189
REPURCHASE AGREEMENTS-4.24%
2,000,000 Goldman Sachs Repurchase Agreement,
dated 2/27/98, due 3/2/98, with a
maturity value of $2,000,945 and an
effective yield of 5.6675%,
collateralized by a Federal Home
Loan Mortgage Corporation
obligation with a rate of 7.50%,
with a maturity date of 1/1/28 and
with a market value of $2,040,000.+ $2,000,000
-----------
TOTAL SHORT TERM INSTRUMENTS $35,159,261
(Cost $35,155,883)
TOTAL INVESTMENT IN SECURITIES
(cost $49,652,216) ** (Notes 1 and 3) 105.44% $49,775,258
Other Assets and Liabilities, Net (5.44)% (2,569,260)
------ --- -----------
TOTAL NET ASSETS 100.00% $47,205,998
====== === ===========
- --------------------------------------------------------------------------------
+ Represents investment of collateral received from securities lending transac-
tions. See Note 4.
* Yield to Maturity.
** Cost for federal income tax purposes is $49,655,024 and net unrealized ap-
preciation consists of:
Gross Unrealized
Appreciation $ 266,631
Gross Unrealized
Depreciation (146,397)
---------
NET UNREALIZED
APPRECIATION $ 120,234
=========
The accompanying notes are an integral part of these financial statements.
194
MASTER INVESTMENT PORTFOLIO--U.S. TREASURY ALLOCATION MASTER PORTFOLIO--
FEBRUARY 28, 1998
(THIS PAGE INTENTIONALLY LEFT BLANK)
195
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
Master Master
Investment Portfolio Investment Portfolio
Asset Allocation Bond Index
Master Portfolio Master Portfolio
- - ------------------------------------------------------------------------------
ASSETS
INVESTMENTS:
In securities, at market value (see
cost below) (Note 1) $569,497,394 $98,758,689
Cash 891 500
RECEIVABLES:
Investment sold 0 3,033,370
Dividends and interest 1,775,050 1,244,228
TOTAL ASSETS 571,273,335 103,036,787
LIABILITIES
PAYABLES:
Variation margin on futures
contracts 0 0
Investment securities purchased 5,308 3,631,955
Collateral for securities loaned
(Note 4) 35,809,841 6,145,500
Due to BGI (Note 2) 321,448 25,201
TOTAL LIABILITIES 36,136,597 9,802,656
TOTAL NET ASSETS $535,136,738 $93,234,131
INVESTMENTS AT COST $458,491,674 $96,037,728
- - ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
196
STATEMENT OF ASSETS AND LIABILITIES--FEBRUARY 28, 1998
Master Master Master
Investment Investment Investment
Managed Series Portfolio Portfolio Portfolio
Investment Trust LifePath LifePath LifePath
Growth Stock 2000 2010 2020
Master Portfolio Master Portfolio Master Portfolio Master Portfolio
- - ----------------------------------------------------
$215,472,327 $126,687,879 $226,161,394 $355,545,522
20,082,413 595 405 0
4,915,442 5,621,666 5,515,149 4,510,212
110,703 892,217 1,453,657 1,463,402
240,580,885 133,202,357 233,130,605 361,519,136
0 0 0 0
3,249,657 5,062,626 3,543,357 4,558,381
0 11,843,608 21,156,344 30,365,516
282,451 97,122 213,205 324,477
3,532,108 17,003,356 24,912,906 35,248,374
$237,048,777 $116,199,001 $208,217,699 $326,270,762
$169,897,599 $119,143,895 $194,952,169 $284,106,477
- - -----------------------------------------------------------------------------------
197
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
Master Master
Investment Portfolio Investment Portfolio
LifePath LifePath
2030 2040
Master Portfolio Master Portfolio
- - ---------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS:
In securities, at market value (see cost below) (Note 1) $255,539,464 $445,214,490
Cash 63 4,698
RECEIVABLES:
Investments sold 7,320 12,800
Dividends and interest 574,976 551,701
TOTAL ASSETS 256,121,823 445,783,689
LIABILITIES
PAYABLES:
Variation margin on futures contracts 0 0
Investment securities purchased 1,012,287 2,000,588
Collateral for securities loaned (Note 4) 21,263,638 38,649,215
Due to BGI (Note 2) 235,525 404,779
TOTAL LIABILITIES 22,511,450 41,054,582
TOTAL NET ASSETS $233,610,373 $404,729,107
INVESTMENTS AT COST $194,461,098 $344,117,349
- - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
198
STATEMENT OF ASSETS AND LIABILITIES--FEBRUARY 28, 1998
Master Managed Series Master
Investment Portfolio Investment Trust Investment Portfolio
S&P 500 Index Short-Intermediate Term U.S. Treasury Allocation
Master Portfolio Master Portfolio Master Portfolio
- - --------------------------------------------------
$2,450,716,724 $10,355,847 $49,775,258
142,954 419,832 808
0 0 0
3,572,330 145,379 124,026
2,454,432,008 10,921,058 49,900,092
287,325 0 0
35,342 0 0
99,801,077 0 2,677,188
245,050 56,322 16,906
100,368,794 56,322 2,694,094
$2,354,063,214 $10,864,736 $47,205,998
$1,573,395,750 $10,225,923 $49,652,216
- - ----------------------------------------------------------------------------------
199
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998
Master Master
Investment Portfolio Investment Portfolio
Asset Allocation Bond Index
Master Portfolio Master Portfolio
- - ------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 4,137,500 $ 0
Interest+ 14,861,341 12,573,939
TOTAL INVESTMENT INCOME 18,998,841 12,573,939
EXPENSES (NOTE 2)
Advisory fees 1,616,380 147,755
TOTAL EXPENSES 1,616,380 147,755
LESS:
Waived fees by BGI (Note 2) 0 0
NET EXPENSES 1,616,380 147,755
NET INVESTMENT INCOME (LOSS) 17,382,461 12,426,184
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on sale of
investments 43,346,192 3,123,379
Net realized gain (loss) on sale of
futures contracts 0 0
Net change in unrealized
appreciation (depreciation) of
investments 54,041,425 3,034,137
Net change in unrealized
appreciation (depreciation) of
futures contracts 0 0
NET GAIN (LOSS) ON INVESTMENTS 97,387,617 6,157,516
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $114,770,078 $18,583,700
- - ------------------------------------------------------------------------------
+ Interest income includes security
lending income of: $ 43,882 $ 12,975
The accompanying notes are an integral part of these financial statements.
200
STATEMENT OF OPERATIONS--FOR THE YEAR ENDED FEBRUARY 28, 1998
Master Master Master
Investment Investment Investment
Managed Series Portfolio Portfolio Portfolio
Investment Trust LifePath LifePath LifePath
Growth Stock 2000 2010 2020
Master Portfolio Master Portfolio Master Portfolio Master Portfolio
- - ----------------------------------------------------
$ 334,093 $ 470,531 $ 1,547,164 $ 3,350,517
754,929 5,511,578 5,932,067 5,902,764
1,089,023 5,982,109 7,479,231 9,253,281
1,354,588 656,142 1,018,984 1,572,634
1,354,588 656,142 1,018,984 1,572,634
(45,153) 0 0 0
1,309,435 656,142 1,018,984 1,572,634
(220,412) 5,325,967 6,460,247 7,680,647
9,338,412 5,800,419 9,734,287 16,445,704
0 0 0 0
35,007,529 3,089,773 16,696,571 39,706,672
0 0 0 0
44,345,941 8,890,192 26,430,858 56,152,376
$44,125,529 $14,216,159 $32,891,105 $63,833,023
- - -----------------------------------------------------------------------------------
$ 0 $ 23,958 $ 48,999 $ 79,526
201
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998
Master Master
Investment Investment
Portfolio Portfolio
LifePath LifePath
2030 2040
Master Portfolio Master Portfolio
- - --------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 2,688,191 $ 5,125,909
Interest+ 2,426,345 1,316,791
TOTAL INVESTMENT INCOME 5,114,536 6,442,700
EXPENSES (NOTE 2)
Advisory fees 1,048,151 1,767,632
TOTAL EXPENSES 1,048,151 1,767,632
LESS:
Waived fees by BGI (Note 2) 0 0
NET EXPENSES 1,048,151 1,767,632
NET INVESTMENT INCOME (LOSS) 4,066,385 4,675,068
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sale of
investments 9,255,193 26,380,392
Net realized gain (loss) on sale of
futures contracts 0 14,539
Net change in unrealized appreciation
(depreciation) of investments 35,383,133 58,037,494
Net change in unrealized appreciation
(depreciation) of futures contracts 0 (52,500)
NET GAIN (LOSS) ON INVESTMENTS 44,638,326 84,379,925
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $48,704,711 $89,054,993
- - --------------------------------------------------------------------------
+ Interest income includes security
lending income of: $ 61,182 $ 114,518
The accompanying notes are an integral part of these financial statements.
202
STATEMENT OF OPERATIONS-- FOR THE YEAR ENDED FEBRUARY 28, 1998
Managed Series Master
Master Investment Trust Investment Portfolio
Investment Portfolio Short-Intermediate U.S. Treasury
S&P 500 Index Term Allocation
Master Portfolio Master Portfolio Master Portfolio
- - ---------------------------------------------
$ 30,149,685 $ 0 $ 0
6,319,513 782,051 2,998,572
36,469,198 782,051 2,998,572
939,051 50,170 136,672
939,051 50,170 136,672
0 0 0
939,051 50,170 136,672
35,530,147 731,881 2,861,900
52,551,777 (82,340) 497,222
18,816,662 0 0
452,651,075 250,239 384,200
10,434,575 0 0
534,454,089 167,899 881,422
$569,984,236 $899,780 $3,743,322
- - -------------------------------------------------------------------------------------
$ 52,216 $ 0 $ 4,633
203
STATEMENTS OF CHANGES IN NET ASSETS
Master Investment Portfolio
Asset Allocation Master Portfolio
-----------------------------------
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - ---------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 17,382,461 $ 19,019,098
Net realized gain (loss) on sale of
investments 43,346,192 38,140,198
Net realized gain on sale of futures
contracts 0 0
Net change in unrealized appreciation
(depreciation) of investments 54,041,425 (1,289,497)
Net change in unrealized appreciation
(depreciation) of futures contracts 0 0
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 114,770,078 55,869,799
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM BENEFICIAL INTEREST
TRANSACTIONS (11,593,179) (22,004,190)
INCREASE (DECREASE) IN NET ASSETS 103,176,899 33,865,609
NET ASSETS:
Beginning net assets $431,959,839 $398,094,230
ENDING NET ASSETS $535,136,738 $431,959,839
- - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
204
STATEMENTS OF CHANGES IN NET ASSETS
Master Investment Portfolio Managed Series Investment Trust
Bond Index Master Portfolio Growth Stock Master Portfolio
------------------------------------ ------------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
February 28, 1998 February 28, 1997 February 28, 1998 February 28, 1997
- - -------------------------------------------------------
$ 12,426,184 $ 12,576,460 $ (220,412) $ (556,250)
3,123,379 152,739 9,338,412 15,318,008
0 0 0 0
3,034,137 (3,966,118) 35,007,529 (25,141,741)
0 0 0 0
18,583,700 8,763,081 44,125,529 (10,379,983)
(146,679,073) 60,741,955 (20,069,241) 44,671,564
(128,095,373) 69,505,036 24,056,288 34,291,581
$ 221,329,504 $151,824,468 $212,992,489 $178,700,908
$ 93,234,131 $221,329,504 $237,048,777 $212,992,489
- - ----------------------------------------------------------------------------
205
STATEMENTS OF CHANGES IN NET ASSETS
Master Investment Portfolio
LifePath 2000 Master Portfolio
-----------------------------------
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - -------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 5,325,967 $ 5,769,457
Net realized gain (loss) on sale of investments 5,800,419 2,894,777
Net realized gain (loss) on sale of futures contracts 0 0
Net change in unrealized appreciation (depreciation)
of investments 3,089,773 (273,099)
Net change in unrealized appreciation (depreciation)
of futures contracts 0 0
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 14,216,159 8,391,135
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
BENEFICIAL INTEREST TRANSACTIONS (29,290,156) 6,204,037
INCREASE (DECREASE) IN NET ASSETS (15,073,997) 14,595,172
NET ASSETS:
Beginning net assets $131,272,998 $116,677,826
ENDING NET ASSETS $116,199,001 $131,272,998
- - -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
206
STATEMENTS OF CHANGES IN NET ASSETS
Master Investment Portfolio Master Investment Portfolio
LifePath 2010 Master Portfolio LifePath 2020 Master Portfolio
----------------------------------- -----------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
February 28, 1998 February 28, 1997 February 28, 1998 February 28, 1997
- - -------------------------------------------------------
$ 6,460,247 $ 5,182,306 $ 7,680,647 $ 6,271,633
9,734,287 3,439,818 16,445,704 9,487,619
0 0 0 0
16,696,571 5,149,907 39,706,672 11,374,656
0 0 0 0
32,891,105 13,772,031 63,833,023 27,133,908
5,815,674 54,517,689 10,995,106 61,750,732
38,706,779 68,289,720 74,828,129 88,884,640
$169,510,920 $101,221,200 $251,442,633 $162,557,993
$208,217,699 $169,510,920 $326,270,762 $251,442,633
- - -------------------------------------------------------------------------
207
STATEMENTS OF CHANGES IN NET ASSETS
Master Investment Portfolio
LifePath 2030 Master Portfolio
-----------------------------------
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 4,066,385 $ 3,210,760
Net realized gain (loss) on sale of investments 9,255,193 5,108,662
Net realized gain (loss) on sale of futures contracts 0 0
Net change in unrealized appreciation (depreciation)
of investments 35,383,133 10,036,726
Net change in unrealized appreciation (depreciation)
of futures contracts 0 0
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 48,704,711 18,356,148
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
BENEFICIAL INTEREST TRANSACTIONS 26,100,829 32,210,346
INCREASE (DECREASE) IN NET ASSETS 74,805,540 50,566,494
NET ASSETS:
Beginning net assets $158,804,833 $108,238,339
ENDING NET ASSETS $233,610,373 $158,804,833
- - ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
208
STATEMENTS OF CHANGES IN NET ASSETS
Master Investment Portfolio
LifePath 2040 Master Portfolio
- - ------------------------------------
For the For the
Year Ended Year Ended
ebruary 28, 1998F February 28, 1997
- - -------------------------
$ 4,675,068 $ 3,953,444
26,380,392 14,697,190
14,539 35,620
58,037,494 17,501,172
(52,500) 92,625
89,054,993 36,280,051
57,589,386 45,783,771
146,644,379 82,063,822
$258,084,728 $176,020,906
$404,729,107 $258,084,728
- - ------------------------------------
209
STATEMENTS OF CHANGES IN NET ASSETS
Master Investment Portfolio
S&P 500 Index Master Portfolio
-----------------------------------
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - --------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 35,530,147 $ 26,709,655
Net realized gain (loss) on sale of
investments 52,551,777 10,656,049
Net realized gain on sale of futures
contracts 18,816,662 12,210,399
Net change in unrealized appreciation
(depreciation) of investments 452,651,075 229,538,430
Net change in unrealized appreciation
(depreciation) of futures contracts 10,434,575 160,200
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 569,984,236 279,274,733
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM BENEFICIAL INTEREST
TRANSACTIONS 299,742,532 274,728,651
INCREASE (DECREASE) IN NET ASSETS 869,726,768 554,003,384
NET ASSETS:
Beginning net assets $1,484,336,446 $ 930,333,062
ENDING NET ASSETS $2,354,063,214 $1,484,336,446
- - --------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
210
STATEMENTS OF CHANGES IN NET ASSETS
Managed Series Investment Trust Master Investment Portfolio
Short-Intermediate Term U.S. Treasury Allocation
Master Portfolio Master Portfolio
- - ------------------------------------ ------------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
ebruary 28, 1998F February 28, 1997 February 28, 1998 February 28, 1997
- - ----------------------------------------------------
$ 731,881 $ 861,159 $ 2,861,900 $ 3,195,952
(82,340) (86,579) 497,222 (142,718)
0 0 0 0
250,239 (214,524) 384,200 (507,610)
0 0 0 0
899,780 560,056 3,743,322 2,545,624
(3,100,757) (1,245,402) (4,069,601) (6,668,994)
(2,200,977) (685,346) (326,279) (4,123,370)
$13,065,713 $13,751,059 $47,532,277 $51,655,647
$10,864,736 $13,065,713 $47,205,998 $47,532,277
- - ---------------------------------------------------------------------------
211
MASTER INVESTMENT PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Master Investment Portfolio ("MIP") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. MIP was organized on October 20, 1993 as a Delaware
business trust pursuant to an Agreement and Declaration of Trust dated May 14,
1993, and had no operations prior to May 26, 1994. MIP currently issues, the
following separate portfolios (the "Master Portfolios"), the Asset Allocation,
Bond Index, LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030,
LifePath 2040, S&P 500 Index and U.S. Treasury Allocation Master Portfolios.
The following significant accounting policies are consistently followed by
MIP in the preparation of its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITY VALUATION
The equity securities of each Master Portfolio are valued at the last
reported sale price on the primary securities exchange or national securities
market on which such securities are traded. Securities not listed on an
exchange or national securities market, or securities in which there was no
last reported sales price, are valued at the most recent bid prices. Debt
securities are generally traded in the over-the-counter market and are valued
at a price deemed best to reflect fair value as quoted by dealers who make
markets in those securities or by an independent pricing source. U.S.
Government obligations are valued at the last reported bid price. Debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Any securities, restricted securities or other
assets for which market quotations are not readily available, are valued at
fair value as determined in good faith in accordance with policies approved by
MIP's Board of Trustees.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Dividend income is recognized on the
212
MASTER INVESTMENT PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
ex-dividend date, and interest income is recognized on a daily accrual basis.
Realized gains or losses are reported on the basis of identified cost of
securities delivered. Bond discounts and premiums are amortized under
provisions of the Internal Revenue Code of 1986, as amended (the "Code").
FEDERAL INCOME TAXES
Each Master Portfolio intends to qualify as a partnership for federal income
tax purposes. Each Master Portfolio therefore believes that it will not be
subject to any federal income tax on its income and net realized capital gains
(if any). However, each investor in a Master Portfolio will be taxed on its
allocable share of the partnership's income and capital gains for purposes of
determining its federal income tax liability. The determination of such share
will be made in accordance with the applicable sections of the Code.
It is intended that each Master Portfolio's assets, income and allocations
will be managed in such a way that a regulated investment company investing in
a Master Portfolio will be able to satisfy the requirements of Subchapter M of
the Code, assuming that the investment company invested all of its assets in
the corresponding Master Portfolio.
FUTURES CONTRACTS
The Asset Allocation, LifePath 2000, LifePath 2010, LifePath 2020, LifePath
2030, LifePath 2040 and S&P 500 Index Master Portfolios may purchase futures
contracts to gain exposure to market changes as this may be more efficient or
cost effective than actually buying the securities. A futures contract is an
agreement between two parties to buy and sell a security at a set price on a
future date and is exchange traded. Upon entering into a futures contract, the
Asset Allocation, LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030,
LifePath 2040 and S&P 500 Index Master Portfolios are required to pledge to the
broker an amount of cash, U.S. Government securities or other high-quality debt
securities equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the Master Portfolios agree to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin" and are
recorded by the Master Portfolios as unrealized gains or losses. When the
contract is closed, the Master Portfolios record a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Pursuant to regulations and/or
213
MASTER INVESTMENT PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
published positions of the Securities and Exchange Commission, the Master
Portfolios are required to segregate cash, U.S. Government obligations or high
quality, liquid debt instruments in connection with futures transactions in an
amount generally equal to the entire futures contract amount. Risks of entering
into futures contracts include the possibility that there may be an illiquid
market and that a change in the value of the contracts may not correlate with
changes in the value of the underlying securities. As of February 28, 1998, the
following Master Portfolio had open long futures contracts outstanding:
S&P 500 INDEX MASTER PORTFOLIO
Expiration Notional Net Unrealized
Number of Contracts Type Date Contract Value Depreciation
- - ---------------------------------------------------------------------------
747 S&P 500 Index March 1998 $196,180,875 $11,248,975
The S&P 500 Index Master Portfolio has pledged to brokers U.S. Treasury Bills
for initial margin requirements with a par value of $7,507,350.
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell
such securities at a specified price and time ("repurchase agreements") are
treated as collateralized financing transactions and are recorded at their
contracted resale amounts. These repurchase agreements, if any, are detailed in
each Master Portfolio's Portfolio of Investments. The adviser to the Master
Portfolios may pool each Master Portfolio's cash and invest in repurchase
agreements entered into by the other Master Portfolios. Each Master Portfolio's
prospectus requires that the cash investments be fully collateralized based on
values that are marked to market daily. The collateral is generally held by an
agent bank under a tri-party agreement. It is the adviser's responsibility to
value collateral daily and to obtain additional collateral as necessary to
maintain the value at equal to or greater than 102% of market value. The
repurchase agreements entered into on February 28, 1998 by the Master
Portfolios are collateralized by U.S. Government Securities.
214
MASTER INVESTMENT PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Contract with each Master Portfolio,
Barclays Global Fund Advisors ("BGFA") provides investment guidance and policy
direction in connection with the management of each Master Portfolio's assets.
BGFA is entitled to receive 0.35%, 0.08%, 0.05% and 0.30% of the average daily
net assets of the Asset Allocation, Bond Index, S&P 500 Index and U.S. Treasury
Allocation Master Portfolios, respectively, as compensation for advisory
services. BGFA is entitled to receive 0.55% of the average daily net assets of
each of the LifePath Master Portfolios as compensation for its advisory
services. BGFA is an indirect subsidiary of Barclays Bank PLC.
Investors Bank & Trust Company ("IBT") serves as the custodian to each Master
Portfolio. IBT will not be entitled to receive fees for its custodial services
so long as it is entitled to receive a separate fee from Barclays Global
Investors, N.A. ("BGI") for its services as Sub-Administrator of each Master
Portfolio.
Stephens Inc. ("Stephens") is the Funds' co-administrator, sponsor and
placement agent for the Master Portfolios. Certain officers and directors of
MIP are also officers of Stephens. As of February 28, 1998, these officers of
Stephens indirectly collectively owned less than 1% of the Master Portfolios'
outstanding beneficial interest.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities, for
each Master Portfolio for the year ended February 28, 1998 are as follows:
Aggregate Purchases Asset Allocation Bond Index LifePath 2000
and Sales of: Master Portfolio Master Portfolio Master Portfolio
- - --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
Purchases at cost $ 74,545,474 $ 90,656,433 $33,291,178
Sales Proceeds 194,046,652 181,649,210 73,454,422
OTHER SECURITIES:
Purchases at cost $192,688,691 $ 16,222,024 $ 8,626,001
Sales proceeds 67,031,035 47,310,677 15,515,149
215
MASTER INVESTMENT PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
Aggregate Purchases LifePath 2010 LifePath 2020 LifePath 2030
and Sales of: Master Portfolio Master Portfolio Master Portfolio
- - --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
Purchases at cost $59,036,500 $65,715,647 $20,937,159
Sales proceeds 60,420,339 77,806,490 31,317,960
OTHER SECURITIES:
Purchases at cost 20,691,293 54,233,382 57,725,629
Sales proceeds 21,511,480 35,040,932 19,494,251
U.S. Treasury
Aggregate Purchases LifePath 2040 S&P 500 Index Allocation
and Sales of: Master Portfolio Master Portfolio Master Portfolio
- - --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
Purchases at cost $11,739,298 $ 0 $22,057,875
Sales proceeds 38,650,344 0 45,709,953
OTHER SECURITIES:
Purchases at cost 162,678,573 363,453,227 0
Sales proceeds 69,544,105 100,644,795 0
4. PORTFOLIO SECURITIES LOANED
As of February 28, 1998, certain Master Portfolios had loaned securities
which were collateralized by cash. Each Master Portfolio receives transaction
fees for providing services in connection with the securities lending program.
The value of the securities on loan and the value of the related collateral
were as follows:
Securities Collateral
- - ------------------------------------------------------------------
Asset Allocation Master Portfolio $35,026,216 $35,809,841
Bond Index Master Portfolio $ 6,040,908 $ 6,145,500
LifePath 2000 Master Portfolio $11,562,364 $11,843,608
LifePath 2010 Master Portfolio $20,634,239 $21,156,344
LifePath 2020 Master Portfolio $29,448,469 $30,365,516
LifePath 2030 Master Portfolio $20,581,637 $21,263,638
LifePath 2040 Master Portfolio $37,418,496 $38,649,215
S&P 500 Index Master Portfolio $97,218,674 $99,801,077
U.S. Treasury Allocation Master Portfolio $ 2,623,461 $ 2,677,188
216
MASTER INVESTMENT PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
5. FINANCIAL HIGHLIGHTS
The portfolio turnover rates, excluding short-term securities, for the Master
Portfolios are as follows:
For the
Period from
For the For the May 26, 1994
For the Year Ended Year Ended (commencement
Year Ended February 28, February 29, of operations) to
February 28, 1998 1997 1996 February 28, 1995
- - -------------------------------------------------------------------------------------------
Asset Allocation Master
Portfolio 57% 43% 40% 23%
Bond Index Master
Portfolio 59% 39% 21% 37%
LifePath 2000 Master
Portfolio 39% 108% 84% 17%
LifePath 2010 Master
Portfolio 46% 73% 39% 24%
LifePath 2020 Master
Portfolio 41% 61% 49% 28%
LifePath 2030 Master
Portfolio 27% 42% 39% 40%
LifePath 2040 Master
Portfolio 34% 48% 29% 5%
S&P 500 Index Master
Portfolio 6% 4% 2% 5%
U.S. Treasury Allocation
Master Portfolio 76% 196% 325% 87%
The average commission rates paid by the Master Portfolios are as follows:
For the For the
Year Ended Year Ended
February 28, 1998 February 28, 1997
- - ----------------------------------------------------------------------
Asset Allocation Master Portfolio $0.0260 $0.0335
LifePath 2000 Master Portfolio $0.0300 $0.0401
LifePath 2010 Master Portfolio $0.0304 $0.0404
LifePath 2020 Master Portfolio $0.0300 $0.0451
LifePath 2030 Master Portfolio $0.0302 $0.0364
LifePath 2040 Master Portfolio $0.0248 $0.0351
S&P 500 Index Master Portfolio $0.0319 $0.0625
217
To the Shareholders and Board of Trustees
Master Investment Portfolio:
We have audited the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments, of Master Investment Portfolio (comprising
respectively, Asset Allocation Master Portfolio, Bond Index Master Portfolio,
LifePath 2000 Master Portfolio, LifePath 2010 Master Portfolio, LifePath 2020
Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2040 Master Portfo-
lio, S&P 500 Index Master Portfolio, and U.S. Treasury Allocation Master Port-
folio) as of February 28, 1998, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the three-year period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and fi-
nancial highlights based on our audits. All periods indicated in Note 5 ending
prior to March 1, 1995, were audited by other auditors whose report dated April
20, 1995, expressed an unqualified opinion on this information.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Feb-
ruary 28, 1998 by correspondence with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned master portfolios of Master Investment Portfolio as of
February 28, 1998, the results of their operations, the changes in their net
assets and their financial highlights for the periods indicated herein, except
as noted above, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
April 3, 1998
218
MANAGED SERIES INVESTMENT TRUST
NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Managed Series Investment Trust ("MSIT") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
MSIT was organized as a Delaware business trust pursuant to an Agreement and
Declaration of Trust dated October 26, 1993. MSIT currently offers the
following separate portfolios (the "Master Portfolios"): the Growth Stock and
Short-Intermediate Term Master Portfolios.
These Master Portfolios invest in a range of securities, generally including
money market instruments, equities and U.S. government securities. The
following significant accounting policies are consistently followed by MSIT in
the preparation of its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITY VALUATION
The equity securities of each Master Portfolio are valued at the last
reported sale price on the primary securities exchange or national securities
market on which such securities are traded. Securities not listed on an
exchange or national securities market, or securities in which there was no
last reported sales price, are valued at the most recent bid prices. Debt
securities are generally traded in the over-the-counter market and are valued
at a price deemed best to reflect fair value as quoted by dealers who make
markets in those securities or by an independent pricing source. U.S.
Government obligations are valued at the last reported bid price. Debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Any securities, restricted securities or other
assets for which market quotations are not readily available, are valued at
fair value as determined in good faith in accordance with policies approved by
MSIT's Board of Trustees.
219
MANAGED SERIES INVESTMENT TRUST
NOTES TO THE FINANCIAL STATEMENTS
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Dividend income is recognized on the ex-
dividend date, and interest income is recognized on a daily
accrual basis. Realized gains or losses are reported on the basis of identified
cost of securities delivered. Bond discounts and premiums are amortized under
provisions of the Internal Revenue Code of 1986, as amended (the "Code"').
FEDERAL INCOME TAXES
Each Master Portfolio intends to qualify as a partnership for federal income
tax purposes. Each Master Portfolio therefore believes that it will not be
subject to any federal income tax on its income and net realized capital gains
(if any). However, each investor in a Master Portfolio will be taxable on its
allocable share of the partnership's income and capital gains for purposes of
determining its federal income tax liability. The determination of such share
will be made in accordance with the applicable sections of the Code.
It is intended that each Master Portfolio's assets, income and allocations
will be managed in such a way that a regulated investment company investing in
a Master Portfolio will be able to satisfy the requirements of Subchapter M of
the Code, assuming that the investment company invested all of its assets in
the corresponding Master Portfolio.
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell
such securities at a specified price and time ("repurchase agreements") are
treated as collateralized financing transactions and are recorded at their
contracted resale amounts. These repurchase agreements, if any, are detailed in
each Master Portfolio's Portfolio of Investments. The adviser to the Master
Portfolios may pool each Master Portfolio's cash and invest in repurchase
agreements entered into by the other Master Portfolios. Each Master Portfolio's
prospectus requires that the cash investments be fully collateralized based on
values that are marked to market daily. The collateral is generally held by an
agent bank under a tri-party agreement. It is the adviser's responsibility to
value collateral daily and to obtain additional collateral as necessary to
maintain the value at equal to or greater than 102% of market value. The
repurchase agreements entered into on February 28, 1998 by the Master
Portfolios are collateralized by U.S. Government Securities.
220
MANAGED SERIES INVESTMENT TRUST
NOTES TO THE FINANCIAL STATEMENTS
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Contract with each Master Portfolio,
Barclays Global Fund Advisors ("BGFA") provides investment guidance and policy
direction in connection with the management of each Master Portfolio's assets.
BGFA is entitled to receive 0.60% and 0.45% of the average daily net assets of
the Growth Stock and Short-Intermediate Term Master Portfolios, respectively,
as compensation for advisory services. BGFA is an indirect subsidiary of
Barclays Bank PLC.
Wells Fargo Bank ("WFB") serves as sub-adviser to each Master Portfolio. As
sub-adviser, WFB is responsible for the day-to-day portfolio management of each
Master Portfolio. WFB is entitled to receive from BGFA an amount equal to 0.15%
and 0.10% of the average daily net assets of the Growth Stock and Short-
Intermediate Term Master Portfolios, respectively, as compensation for its sub-
advisory services.
Investors Bank & Trust Company ("IBT") serves as the custodian to each Master
Portfolio. IBT will not be entitled to receive fees for its custodial services
so long as it is entitled to receive a separate fee from Barclays Global
Investors, N.A. ("BGI") for its services as Sub-Administrator of the each
Master Portfolio.
Stephens Inc. ("Stephens") is the co-administrator, sponsor and placement
agent for the Master Portfolios. Certain fees have been waived by BGI for the
Growth Stock Master Portfolio for the year ended February 28, 1998. Waived fees
continue at the discretion of BGI.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities, for
each Master Portfolio for the year ended February 28, 1998, were as follows:
Short-
Intermediate
Aggregate Purchases Growth Stock Term
and Sales of: Master Portfolio Master Portfolio
- - ---------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
Purchases at cost $ 0 $4,310,492
Sales proceeds 0 4,626,477
OTHER SECURITIES:
Purchases at cost 273,188,365 4,045,110
Sales proceeds 315,246,723 4,798,854
221
MANAGED SERIES INVESTMENT TRUST
NOTES TO THE FINANCIAL STATEMENTS
4. FINANCIAL HIGHLIGHTS
The portfolio turnover rates, excluding short-term securities, for the Master
Portfolios are as follows:
For the
Period from
May 26, 1994
For the For the For the (Commencement
Year Ended Year Ended Year Ended of Operations) to
February 28, February 28, February 29, February 28,
Master Portfolios 1998 1997 1996 1995
- - ---------------------------------------------------------------------------------
Growth Stock Master
Portfolio 129% 129% 145% 93%
Short-Intermediate Term
Master Portfolio 77% 62% 105% 96%
The average commission rate paid by the Growth Stock Master Portfolio was
$0.0604 for the year ended February 28, 1998, and $0.0777 for the year ended
February 28, 1997.
222
To the Shareholders and Board of Trustees
Managed Series Investment Trust:
We have audited the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments, of Managed Series Investment Trust (compris-
ing respectively, Growth Stock Master Portfolio and Short-Intermediate Term
Master Portfolio) as of February 28, 1998, and the related statements of opera-
tions for the year then ended, the statements of changes in net assets for each
of the years in the two-year period then ended, and the financial highlights
for each of the years in the three-year period then ended. These financial
statements and financial highlights are the responsibility of the Trust's man-
agement. Our responsibility is to express an opinion on these financial state-
ments and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Feb-
ruary 28, 1998 by correspondence with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned master portfolios of Managed Series Investment Trust as
of February 28, 1998, the results of their operations, the changes in their net
assets and their financial highlights for the periods indicated herein in con-
formity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
April 3, 1998
223
NOTES
-----
MasterWorks/R/ Funds
c/o Investors Bank and Trust Co.
200 Clarendon Street
Boston, MA 02111
MWAR.3/98
- -----END PRIVACY-ENHANCED MESSAGE-----
Pro Forma Combined Financial
Information for the year ended May 31, 1998
-------------------------------------------
The following unaudited pro forma combined financial
information relates to the acquisition of all the assets and liabilities of
Growth Stock Fund, a series of MasterWorks Funds, Inc. by and in exchange for
shares of Large Company Growth Fund, a series of Norwest Advantage Funds (the
"Consolidation"). The information gives effect to the Consolidation as if it had
occurred on December 11, 1997 and consists of a statement of the pro forma
combined portfolio of investments, a statement of assets and liabilities and a
statement of operations. The pro forma combined results of operations are not
intended as representations of the level of expenses of Large Company Growth
Fund following consummation of the Consolidation and are not indicative of
future operations or actual results had the Consolidation been consummated on
December 11, 1997. This unaudited information should be read in conjunction with
the separate financial statements of Large Company Growth Fund and Growth Stock
Fund.
SCHEDULE OF INVESTMENTS May 31, 1998
% OF
FACE/SHARE SECURITY NET ASSETS
AMOUNT DESCRIPTION VALUE
COMMON STOCKS (99.4%)
AMUSEMENT & RECREATION SERVICES (1.4%)
73,500 Family Golf Centers, Inc. 1,929,375
36,617 Walt Disney Co. 4,142,305 0.86%
-------------------------
6,071,680
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILIAR MATERIALS (1.6%)
82,186 Cintas Corp. 3,754,884
20,000 Nautica Enterprises, Inc. 585,000
42,900 Tommy Hilfiger Corp. 2,885,025 0.26%
-------------------------
7,224,909
BUILDING CONSTRUCTION - GENERAL CONTRACTORS & OPERATIVE BUILDERS (.4%)
54,003 Centex Corp. 1,930,607
-------------------------
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY & MOBILE DEALERS (2.6%)
27,410 Fastenal Co. 1,356,781 0.86%
130,698 Home Depot, Inc. 10,267,945
-------------------------
11,624,726
BUSINESS SERVICES (21.5)
78,500 Accustaff Inc 2,585,594
43,000 Administaff Inc 1,763,000
43,000 America Online Inc 3,582,438
54,197 Automatic Data Processing, Inc. 3,448,313
44,000 Cambridge Technology Partners Inc 2,206,873
59,000 Ceridian Corp 3,186,000
81,406 Cognizant Corp 4,335,892
20,000 Computer Sciences Corp 1,038,750
48,000 Compuware Corp 2,205,000
105,100 Concord EFS Inc 3,350,063
46,176 DST Systems, Inc. 2,441,564
59,500 Envoy Corporation 2,610,563
29,000 Equity Corporation International 688,750
125,939 First Data Corp. 4,187,466
58,159 Fiserv, Inc. 3,450,801
63,700 Ha-Lo Industries Inc 1,970,719
200,905 HBO & Co 11,597,810
22,800 Mack-Cali Realty Corporation REIT 820,800
15,600 MedImmune Inc 778,050
236,817 Microsoft Corp 20,090,787
77,708 Network Associates Inc 4,759,615
20,800 Security Capital Group Incorporated Class B 582,400 0.47%
123,000 Sterling Commerce Inc 4,881,563
32,000 Stewart Enterprises Inc 864,000
20,000 Storage Technology Corp 1,677,500
76,460 Sungard Data Systems, Inc. 2,609,191 2.61%
46,000 Valassis Communications Inc 1,618,625 0.79%
61,800 Veritas Software Corp 2,493,241
-------------------------
95,825,368 3.87%
CHEMICALS & ALLIED PRODUCTS (2.4%)
27,000 ALZA Corp 1,306,125
33,000 Dial Corp 818,813
29,100 Guidant Corp 1,875,131
65,600 Ocular Sciences Inc 1,927,000
102,000 Quorum Health Group Inc 3,066,375
27,500 Revlon Inc Class A 1,455,781
-------------------------
10,449,225
COMMUNICATIONS (5.2%)
39,500 360 Communications Co 1,128,219
56,000 Advanced Fibre Communications 2,075,500
63,000 Bay Networks Inc 1,744,313
28,000 Capstar Broadcasting Corporation Class A 532,000
49,000 Chancellor Media Corporation Class A 2,048,813
62,900 Cincinnati Bell Inc 2,001,006
15,800 Clear Channel Communications Inc 1,514,825
45,000 Harte-Hanks Communications Inc 1,018,125
30,000 Jacor Communications Inc 1,586,250
144,100 LCI International Inc 5,394,744
42,000 NEXTEL Communications Class A 989,625
14,000 RELTEC Corporation 514,500
35,500 Tellabs Inc 2,439,514
-------------------------
22,987,434
DEPOSITORY INSTITUTIONS (1.0%)
100,000 Sovereign Bancorp Inc 1,768,750
85,000 TCF Financial Corp 2,767,813
-------------------------
4,536,563
EATING & DRINKING PLACES (0.0%)
5,095 Checkers Drive In Restaurants expires (12/22/2000) 1,751
-------------------------
ELECTRIC, GAS & SANITARY SERVICES (1.1%)
35,800 AES Corp 1,702,738
216,000 Philip Services Corp 837,000
45,500 USA Waste Services Inc 2,147,031
-------------------------
4,686,769
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPTMENT (8.6%)
43,000 Altera Corp 1,445,875
1 Analog Devices Inc 25
195,141 Intel Corp 13,944,270
33,000 KLA Instruments Corp 1,117,875
28,500 Teradyne Inc 876,375
98,916 Molex, Inc., Class A 2,578,804
39,883 Motorola, Inc. 2,111,332
88,835 Solectron Corp. 3,675,545
444,818 Telefonaktiebolaget LM Ericsson, Series B ADR 12,399,303
-------------------------
38,149,404 0.00%
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT, & RELATED SERVICES (1.3%)
62,305 Gartner Group, Inc. 2,059,944
100,216 Paychex, Inc. 3,607,786
-------------------------
5,667,730
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY & TRANSPORTATION EQUIPMENT (.3%)
41,500 Hexcel Corporation 1,136,063
-------------------------
FOOD & KINDRED PRODUCTS (3.0%)
51,000 American Italian Pasta Company Class A 1,829,625
98,915 Coca-Cola Co. 7,752,477
55,000 Flowers Industries Inc 1,134,375
26,000 Keebler Foods Company 755,625
78,000 Whitman Corp 1,691,625 0.81%
-------------------------
13,163,727
HEALTH SERVICES (1.8%)
79,000 Healthsouth Corp 2,241,625
44,000 Integrated Health Services Inc 1,636,250
137,200 Total Renal Care Holdings Inc 4,210,325
-------------------------
8,088,200
HOLDING & OTHER INVESTMENT OFFICES (3.9%)
217,240 Franklin Resources, Inc. 10,617,615 1.00%
190,367 T. Rowe Price 6,746,119 0.73%
-------------------------
17,363,734 1.73%
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT (5.3%)
211,461 Cisco Systems Inc 15,995,737
45,000 Comverse Technology Inc 2,248,592
57,415 Hewlett-Packard Co. 3,566,879
55,200 U.S. Filter Corp 1,680,150 1.00%
-------------------------
23,491,358 1.00%
INSURANCE CARRIERS (3.9%)
93,138 American International Group, Inc. 11,531,610
38,400 Conseco Inc 1,790,400
25,000 Mercury General Corp 1,595,313
26,000 Nationwide Financial Services Inc Class A 1,129,375
14,900 PMI Group Inc 1,120,294 0.80%
-------------------------
17,166,992
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (2.6%)
207,525 Medtronic, Inc. 11,543,554
-------------------------
MISCELLANEOUS RETAIL (6.4%)
76,300 99 Cents Only Stores 2,908,938
11,000 AutoZone Inc 365,750
41,000 Barnes & Noble 1,388,875
29,000 Dollar Tree Stores Inc 1,500,750
41,093 MSC Industrial Direct Co., Inc. 1,096,673
108,400 Office Depot Inc 3,197,800
99,500 Proffitt's Inc 3,905,375
115,000 Rite Aid Corp 4,118,438
46,500 Ross Stores Inc 2,051,813
177,337 Staples, Inc. 4,455,602 0.91%
39,000 TJX Companies Inc 1,823,250 0.81%
49,865 Viking Office Products, Inc. 1,425,832
-------------------------
28,239,096 1.72%
NONDEPOSITORY CREDIT INSTITUTIONS (2.4%)
29,300 CIT Group Inc Class A 922,950
45,700 ContiFinancial Corp 1,288,169
23,000 Green Tree Financial Corp 924,313
52,500 Providian Financial Corp 3,340,313
65,000 SLM Holding Corp 2,595,938
86,000 UniCapital Corporation 1,494,250
-------------------------
10,565,933
OIL & GAS EXTRACTION (5.5%)
32,000 BJ Services Co 1,046,000
11,000 Cooper Cameron Corp 654,500
36,200 Diamond Offshore Drilling Inc 1,730,813
48,000 Ensco International Incorporated 1,215,000
43,000 K N Energy Inc 2,327,375
28,000 Noble Affiliates Inc 1,093,750
61,700 R&B Falcon Corporation 1,770,019
69,500 Santa Fe International Corp 2,423,813
126,475 Schlumberger Ltd. 9,872,956
68,200 Tosco Corp 2,165,350 0.46%
-------------------------
24,299,576
PAPER & ALLIED PRODUCTS (.5%)
20,000 Bowater Inc 1,012,500
28,000 Fort James Corp 1,338,750
-------------------------
2,351,250
PHARMCEUTICAL PREPARATIONS (10.0%)
77,300 BioChem Pharma Inc 2,029,125
37,000 Elan Corporation PLC ADR (Ireland) 2,263,938
62,000 Henry Schein Inc 2,387,000
49,300 McKesson Corp 3,851,563
70,433 Merck & Co., Inc. 8,245,075
25,200 Omnicare Inc 883,575
144,898 Pfizer, Inc. 15,187,153
138,100 PharMerica Inc 1,683,094
72,300 Quintiles Transnational Corp 3,515,588
42,000 Teva Pharmaceutical Industries Ltd ADR (Israel) 1,722,000 0.76%
62,500 Watson Pharmaceutical Inc 2,734,375 1.21%
-------------------------
44,502,486 1.97%
PRIMARY METAL INDUSTRIES (.4%)
89,200 Steel Dynamics Inc 1,728,250
-------------------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES, & SERVICES (3.4%)
350,761 Charles Schwab Corp. 11,575,103 0.98%
83,773 Donaldson, Lufkin & Jenrette, Inc. 3,691,263 0.50%
-------------------------
15,266,366 1.48%
TOBACCO PRODUCTS (.8%)
98,272 Philip Morris Cos., Inc. 3,672,907 0.98%
-------------------------
TRANSPORTATION EQUIPMENT (.3%)
42,400 BE Aerospace Inc 1,225,623
-------------------------
TRANSPORTATION BY AIR (.7%)
62,200 Atlas Air Inc 2,200,325
42,000 Comair Holdings Inc 1,118,250
-------------------------
3,318,575
WHOLESALE TRADE-DURABLE GOODS (.2%)
78,000 PSS World Medical Inc 975,000
-------------------------
WHOLESALE TRADE-NONDURABLE GOODS (.9%)
45,147 Cardinal Health, Inc. 4,023,697 0.43%
-------------------------
TOTAL COMMON STOCKS 441,278,553
(cost $334,653,656)
TOTAL DEPOSITS (.6%)
2,689,755 PNC Bank, N.A. Nassau, 5.66%, 6/1/98 2,689,755
-------------------------
(cost $2,689,755)
TOTAL INVESTMENTS (100.0%)
(COST $337,343,411) 443,968,308.00 94.07%
887,936,616
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
MAY 31, 1998
LARGE MASTERWORKS
COMPANY GROWTH
GROWTH STOCK PRO FORMA
FUND FUND ADJUSTMENTS
---- ---- -----------
ASSETS
Investments in Portfolio (Notes 1 and 2)
Investments at cost $ 154,976,471 $ 182,366,940 $ -
Net unrealized appreciation 77,156,496 29,468,401 -
--------------------------------------------------------------
Total investments at value 232,132,967 211,835,341 -
Investment in other net assets of Portfolio - 13,347,053 -
--------------------------------------------------------------
Total investments in Portfolios 232,132,967 225,182,394 -
Receivable for Fund shares issued 566,013 - -
Organization costs, net of amortization (Note 2) 17,317 - -
--------------------------------------------------------------
TOTAL ASSETS 232,716,297 225,182,394 -
--------------------------------------------------------------
LIABILITIES
Payable for Fund shares redeemed 57,663 - -
Payable to Norwest and affiliates 47,438 - -
Payable to BGI and Stephens 59,892 -
Payable to other related parties 12,745 - -
Due to Portfolio 73,042 - -
Accrued expenses and other liabilities 26,184 - -
--------------------------------------------------------------
TOTAL LIABILITIES 217,072 59,892 -
--------------------------------------------------------------
NET ASSETS $ 232,499,225 $ 225,122,502 $ -
==============================================================
COMPONENTS OF NET ASSETS
Paid in capital $ 152,928,762 $ 174,047,116 $ -
Undistributed net investment income - - -
Accumulated net realized gain from investments sold 2,413,967 21,606,985 -
Net unrealized appreciation from investments 77,156,496 29,468,401 -
==============================================================
NET ASSETS $ 232,499,225 $ 225,122,502 $ -
==============================================================
SHARES OF BENEFICIAL INTEREST 5,820,560 14,238,105 (8,600,935)
NET ASSET VALUE AND OFFERING PRICE PER SHARE (NET
ASSETS DIVIDED BY SHARES OF BENEFICIAL INTEREST) $ 39.94 $ 15.81
PRO FORMA
COMBINED
---------
$ 337,343,411
106,624,897
- ---------------
443,968,308
13,347,053
- ---------------
457,315,361
566,013
17,317
- ---------------
457,898,691
- ---------------
57,663
47,438
12,745
73,042
26,184
- ---------------
276,964
- ---------------
$ 457,621,727
===============
$ -
$ 326,975,878
-
24,020,952
106,624,897
===============
$ 457,621,727
===============
11,457,730
$ 39.94
See Pro Forma Footnotes of Merger
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED MAY 31, 1998
LARGE MASTERWORKS
COMPANY GROWTH
GROWTH STOCK PRO FORMA
FUND FUND ADJUSTMENTS
---- ---- -----------
INVESTMENT INCOME
Interest income $ 93,163 $ 875,562
Dividend income 964,931 359,643
Securities lending income (NOTE 2) 72,741 -
Net expenses from Portfolios (Note 1) (1,196,438) (1,403,199)
------------------------------------------------------
TOTAL INVESTMENT INCOME (65,603) (167,994) -
------------------------------------------------------
EXPENSES
Advisory - -
Management and AdministratioN 100,812 420,588
Transfer agent 443,701 -
Custody - -
Accounting 13,500 -
Legal 3,276 -
Compliance 34,377 -
Audit 5,572 -
Trustees 2,103 -
Amortization of organization COSTS 11,920 -
Miscellaneous 10,258 -
------------------------------------------------------
TOTAL EXPENSES 625,519 420,588 -
Fees waived and expenses reimbursed (46,729) (46,773)
------------------------------------------------------
NET EXPENSES 578,790 373,815 -
------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (644,393) (541,809) -
------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on InvesTMENTS ALLOCATED FROM PORTFOLIOS 13,678,786 33,862,504
Net Change in Unrealized APPRECIATION (DEPRECIATION) ON
Investments Allocated from Portfolios 33,488,238 (2,002,783)
------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 47,167,024 31,859,721 -
------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 46,522,631 $ 31,317,912 $ -
======================================================
PRO FORMA
COMBINED
---------
$ 968,725
1,324,574
72,741
(2,599,637)
- -------------
(233,597)
- -------------
-
521,400
443,701
-
13,500
3,276
34,377
5,572
2,103
11,920
10,258
- -------------
1,046,107
(93,502)
- -------------
952,605
- -------------
(1,186,202)
- -------------
47,541,290
31,485,455
- -------------
79,026,745
- -------------
$ 77,840,543
=============
See Pro Forma Footnotes of Merger
PRO FORMA FOOTNOTES OF MERGER BETWEEN LARGE COMPANY GROWTH FUND AND GROWTH
STOCK FUND (UNAUDITED)
MAY 31, 1998
NOTE 1. GENERAL
The accompanying pro forma financial statements are presented to show the effect
of the proposed merger of Growth Stock Fund of Masterworks Funds, Inc., with
Large Company Growth Fund (the "Fund") of Norwest Advantage Funds, as if such
merger had taken place as of December 11, 1997.
Under the terms of the Agreement and Plan of Consolidation, the combination of
Growth Stock Fund and the Fund should be taxed as a tax free business
combination and accordingly will be accounted for by a method of accounting for
tax free mergers of investment companies (sometimes referred to as the pooling
without restatement method). The acquisition would be accomplished by an
acquisition of the net assets of Growth Stock Fund in exchange for shares of the
Fund at net asset value. The statements of assets and liabilities and the
related statements of operations of the Fund and Growth Stock Fund have been
combined as of, and for the year ended, May 31, 1998.
The Fund seeks to achieve its investment objective by investing all its
investable assets in the Large Company Growth Portfolio (the "Portfolio") of
Core Trust (Delaware) ("Core Trust"), a registered, open-end management
investment company, which has the same investment objectives and substantially
similar investment policies as the Fund. The Portfolio directly acquires
portfolio securities, and the Fund acquires an indirect interest in those
securities. The Fund accounts for its investment in the Portfolio as a
partnership investment and records daily its share of the Portfolio's income,
expenses and realized and unrealized gain and loss. This is commonly referred to
as a master-feeder arrangement.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of Growth Stock Fund
and the Fund which are included in their annual reports dated February 28, 1998,
and May 31, 1998, respectively.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned merger of the Fund and Growth Stock Fund had taken place
as of December 11, 1997.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a diversified portfolio of the Norwest Advantage Funds (the
"Trust"). The Trust is organized as a Delaware business trust and is registered
as an open-end management investment company.
The significant accounting policies consistently followed by the Fund are as
follows:
SECURITY VALUATION - The Fund invests all its assets in the Portfolio, which has
the same investment objective as the Fund. Investments of the Portfolio are
valued as follows: Short-term securities that mature in sixty days or less are
valued at amortized cost. Equity securities for which market quotations are
readily available are valued using the last reported sales price provided by
independent pricing services. If no sales are reported, the mean of the last bid
and ask price is used. If no mean price is available, the last bid price is
used. Fixed income and other securities, for which market quotations are readily
available, are valued using the mean of the bid and ask prices provided by
independent pricing services. If no mean price is available the last bid price
is used. In the absence of readily available market quotations, securities are
valued at fair value determined in accordance with procedures adopted by the
Board of Trustees of Core Trust.
SECURITY TRANSACTIONS AND INTEREST AND DIVIDEND INCOME - The Fund invests all
its assets in the Portfolio and records daily its pro-rata share of the
Portfolio's income, expense, and realized and unrealized gains and losses.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders of net investment
income, if any, are declared and paid annually by the Fund. Net capital gains,
if any, are distributed to shareholders at least annually. Distributions are
based on amounts calculated in accordance with applicable federal income tax
regulations, which may differ from generally accepted accounting principles. The
timing and character of distributions made during the period from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes.
FEDERAL TAXES - The Fund intends to qualify, and continue to qualify, each year
as a regulated investment company and distribute all its taxable income. In
addition, by distributing in each calendar year substantially all its net
investment income, capital gain and certain other amounts, if any, the Fund will
not be subject to a federal excise tax. Therefore, no federal income or excise
tax provision is required.
EXPENSE ALLOCATION - The Trust accounts separately for the assets and
liabilities and operations of the Fund. Expenses of the Fund investing in the
Portfolio include its pro-rata share of expenses from the Portfolio.
ORGANIZATION COSTS - The costs incurred by the Fund in connection with its
organization and registration of shares have been capitalized and are being
amortized using the straight line method over a five year period beginning on
the commencement of the Fund's operations.
PRO FORMA FOOTNOTES OF MERGER BETWEEN LARGE COMPANY GROWTH FUND AND GROWTH
STOCK FUND (UNAUDITED) (CONCLUDED)
MAY 31, 1998
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
Security Loans - The Fund may receive compensation for lending securities in the
form of fees or by retaining a portion of interest on the investment securities
or cash received as collateral. The Fund also continues to receive interest or
dividends on the securities loaned. Security loans are secured at all times by
collateral equal to at least 102% of the market value of the securities loaned
plus accrued interest. Gain or loss in the market price of the securities loaned
that may occur during the term of the loan are reflected in the value of the
Fund.
NOTE 3. PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements reflect changes in fund shares
as if the merger had taken place on December 11, 1997. Adjustments were made to
the number of shares to reflect the same net asset value per share for the
combination as for the Fund.
PART C
Item 15. Indemnification.
- --------------------------
Incorporated by reference to Item 27 of Post Effective
Amendment No. 55 to Registrant's Registration Statement on Form N-1A (File Nos.
811-4881, 33-9645), filed July 31, 1998 (accession number 0001004402-98-000418).
Item 16. Exhibits.
- -------------------
(1)(a) Copy of Trust Incorporated by reference to
Instrument of Registrant's Registration
the Registrant Statement on Form N-1A, File
as now in effect. Nos. 811-4881, 33-9645 (the "Registrant's
Form N-1A"), Exhibit
1 to Post-Effective
Amendment ("PEA")
No. 46, filed
September 30, 1997
(accession number
0000912057-97-032214).
(2) By-Laws. Incorporated by reference to Exhibit 2 to
PEA No. 35 to the Registrant's Form N-1A,
filed May 8, 1996 (accession number
0000912057-96-004243).
(3) Not applicable.
(4) Agreement and Plan of Filed herewith as Exhibit A to
Consolidation Part A.
(the "Plan").
(5) Specimen of Share Incorporated by reference to
certificate for Exhibit No. 5 to PEA No. 35 to
shares of the Registrant's Form N-1A,
beneficial interest filed May 8, 1996 (accession
of Large Company number 0000912057-96-004243).
Growth Fund
(the "Fund").
(6) Form of Investment Incorporated by reference to
Advisory Agreement Exhibit 5(a) to PEA No. 43 to
between Registrant the Registrant's Form N-1A,
and Norwest Invest- filed July 16, 1997 (accession.
ment Management, Inc. number 0000912057-97-024361).
relating to the Fund.
(7)(a) Distribution Services Incorporated by reference to
Agreement between the Exhibit 6 to PEA No. 35 to
Registrant and the Registrant's Form N-1A,
Forum Financial filed March 8, 1996 (accession
Services, Inc. number 0000912057-96-004243).
("Forum") relating to
the Fund
(7)(b) Distribution Agree- To be filed as Exhibit 6
ment between to PEA No. 56 to
Registrant and Forum the Registrant's Form N-1A,
relating to the to be filed on October 1, 1998.
Fund
(8) Not applicable.
(9)(a) Custodian Agreement Incorporated by reference to
between the Exhibit 8(a) to PEA No. 35 to
Registrant and the Registrant's Form N-1A,
Norwest Bank filed March 8, 1996 (accession
Minnesota, N.A. number 0000912057-96-004243).
("Norwest Bank")
relating to the Fund
(9)(b) Transfer Agency Incorporated by reference to
Agreement Exhibit 8(b) to PEA No. 35 to
between Registrant the Registrant's Form N-1A,
and Norwest Bank. filed March 8, 1996 (accession
number 0000912057-96-004243).
(10)(a) Rule 12b-1 Plan To be filed as Exhibit 15
relating to the Fund to PEA No. 56 to the Registrant's Form N-1A,
to be filed on October 1, 1998.
10(b) Rule 18f-3 Plan Incorporated by reference to
relating to the Fund Exhibit 18 to PEA No. 55 to
the Registrant's
Form N-1A, filed
July 31, 1998
(accession number
0001004402-98-000418).
(11) Form of Opinion of Filed herewith. Final version to be
Seward & Kissel filed by Pre-Effective Amendment.
as to the legality of
the securities being
registered.
(12) Opinion of Seward & To be filed by Post-Effective
Kissel as to tax Amendment.
consequences of the
Plan.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Powers of Attorney. Filed herewith.
(17) Not applicable.
Item 17. Undertakings.
- -----------------------
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) under
the Securities Act of 1933 (17 CFR 230.145c), the reoffering
prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability
under the Securities Act of 1933, each post-effective amendment shall
be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file a copy of the tax opinion
required to be filed as an exhibit to the Registration Statement by
Item 16(12) of Form N-14 under the Securities Act of 1933, as amended,
by means of a Post-Effective Amendment to the Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant in the City of Portland and State of Maine on
the 21st day of September, 1998.
NORWEST ADVANTAGE FUNDS
By: /s/ John Y. Keffer
-----------------------
John Y. Keffer
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons on the 21st day of September,
1998.
SIGNATURES TITLE
1) Principal
Executive Officer
/s/ John Y. Keffer Chairman and President
--------------------------------
John Y. Keffer
2) Principal Financial
and Accounting Officer
/s/ Sara M. Morris Treasurer
--------------------------------
Sara M. Morris
3) A Majority of the Trustees
/s/ John Y. Keffer Chairman
--------------------------
John Y. Keffer
Robert C. Brown Trustee
Donald H. Burkhardt Trustee
James C. Harris Trustee
Richard M. Leach Trustee
John S. McCune Trustee
Timothy J. Penny Trustee
Donald C. Willeke Trustee
By: /s/ John Y. Keffer
-------------------------
John Y. Keffer
(Attorney-in-fact)
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement of
Norwest Advantage Funds has been signed on behalf of Core Trust (Delaware) in
the City of Portland and State of Maine on the 21st day of September, 1998.
NORWEST ADVANTAGE FUNDS
By: /s/ John Y. Keffer
------------------------
John Y. Keffer
President
This Registration Statement has been signed by the following persons on the 21st
day of September, 1998.
SIGNATURES TITLE
1) Principal
Executive Officer
/s/ John Y. Keffer Chairman and President
------------------------------
John Y. Keffer
2) Principal Financial
and Accounting Officer
/s/ Sara M. Morris Treasurer
------------------------------
Sara M. Morris
3) A Majority of the Trustees
/s/ John Y. Keffer Chairman
------------------------
John Y. Keffer
J. Michael Parish Trustee
James C. Cheng Trustee
Costas Azariadis Trustee
By: /s/ John Y. Keffer
------------------------
John Y. Keffer
(Attorney-in-fact)
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(11) Form of Opinion of
Seward & Kissel as
to the legality of
the securities
being registered.
(16) Powers of Attorney.