<PAGE>
As filed with the Securities and Exchange Commission on December 29, 1995
File No. 33-9645
File No. 811-4881
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 33
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 35
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NORWEST ADVANTAGE FUNDS
(Formerly "Norwest Funds" and prior thereto "Prime Value Funds, Inc.")
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square
Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (207) 879-1900
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David I. Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
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It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485, paragraph (b)
---
on [ ] pursuant to Rule 485, paragraph (b)
---
X 60 days after filing pursuant to Rule 485, paragraph (a)(i)
---
on [ ] pursuant to Rule 485, paragraph (a)(i)
---
75 days after filing pursuant to Rule 485, paragraph (a)(ii)
---
on [ ] pursuant to Rule 485, paragraph (a)(ii)
---
this post-effective amendment designates a new effective date for a
--- previously filed post-effective amendment
Registrant has registered an indefinite number of shares of beneficial interest
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Accordingly, no fee is payable herewith. Registrant filed
a
<PAGE>
Rule 24f-2 notice for the most recent fiscal year of its various portfolios on
November 15, 1995 and an amendment thereto on December 8, 1995.
INTERNATIONAL FUND OF REGISTRANT IS CURRENTLY STRUCTURED AS A MASTER-FEEDER
FUND. THIS AMENDMENT INCLUDES A MANUALLY EXECUTED SIGNATURE PAGE FOR THE MASTER
FUND, INTERNATIONAL PORTFOLIO, A SERIES OF CORE TRUST (DELAWARE).
2
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(PROSPECTUS OFFERING I SHARES OF FUNDS WITH OCTOBER 31 FISCAL YEAR END)
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- --------- ---------------------- --------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Summary; Investment Objectives,
Polices and Risk Considerations;
Other Information - The Trust
and its Shares; Appendix A
Item 5. Management of the Fund Summary; Management of the Funds
Item 6. Capital Stock and Other Securities Dividends, Distributions and Tax
Matters; Other Information - The
Trust and its Shares; Purchases
and Redemptions of Shares
Item 7. Purchase of Securities Being Purchases and Redemptions of
Offered Shares; Management of the Funds
Item 8. Redemption or Repurchase Purchases and Redemptions of
Shares
Item 9. Pending Legal Proceedings Not Applicable
3
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART B
(STATEMENT OF ADDITIONAL INFORMATION ("SAI") OFFERING I SHARES OF FUNDS
WITH OCTOBER 31 FISCAL YEAR END)
Form N-1A
Item No. (Caption) Location in SAI (Caption)
- --------- ---------------------- -------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Policies Investment Policies; Investment
Limitations
Item 14. Management of the Registrant Management; Other Information
Item 15. Control Persons and Principal Other Information - Ownership of
Holders of Securities Fund Shares
Item 16. Investment Advisory and Other Management
Services
Item 17. Brokerage Allocation Other Information -Portfolio
and Other Practices Transactions
Item 18. Capital Stock and Other Securities Other Information - Additional
Information about the Trust
Item 19. Purchase, Redemption and Pricing Other information - Additional
of Securities Being Offered Purchase and Redemption
Information
Item 20. Tax Status Other Information - Taxation
Item 21. Underwriters Management - Administration and
Distribution
Item 22. Calculation of Performance Data Performance Data
Item 23 Financial Statements Other Information - Financial
Statements
4
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(PROSPECTUSES OFFERING A SHARES AND B SHARES OF DIVERSIFIED EQUITY FUND,
GROWTH EQUITY FUND AND INCOME EQUITY FUND)
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- --------- ---------------------- --------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights; Other
Information - Performance
Information
Item 4. General Description of Prospectus Summary; Investment
Registrant Objectives and Policies; and
Other Information - The Trust
and its Shares
Item 5. Management of the Fund Prospectus Summary; Management
Item 5A. Management's Discussion of Not Applicable
Fund Performance
Item 6. Capital Stock and Other Securities Cover; Dividends and Tax
Matters; Other Information - The
Trust and its Shares
Item 7. Purchase of Securities Being How To Buy Shares; Other
Offered Shareholder Services -
Exchanges; Other Shareholder
Services; and Management -
Management and Distribution
Services.
Item 8. Redemption or Repurchase How to Sell Shares
Item 9. Pending Legal Proceedings Not Applicable
5
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART B
(STATEMENT OF ADDITIONAL INFORMATION ("SAI") OFFERING A SHARES AND B SHARES OF
DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND AND INCOME EQUITY FUND)
Form N-1A
Item No. (Caption) Location in SAI (Caption)
- --------- ---------------------- -------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Prospectus
Item 13. Investment Objectives and Policies Investment Policies; Investment
Limitations
Item 14. Management of the Registrant Management; Other Information
Item 15. Control Persons and Principal Other Information - Ownership of
Holders of Securities Fund Shares
Item 16. Investment Advisory and Other Management
Services
Item 17. Brokerage Allocation Other Information -Portfolio
and Other Practices Transactions
Item 18. Capital Stock and Other Securities Other Information - Additional
Information about the Trust
Item 19. Purchase, Redemption and Pricing of Other information - Additional
Securities Being Offered Purchase and Redemption
Information
Item 20. Tax Status Other Information - Taxation
Item 21. Underwriters Management - Administration and
Distribution
Item 22. Calculation of Performance Data Performance Data
Item 23 Financial Statements Other Information - Financial
Statements
6
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(PROSPECTUSES OFFERING A SHARES, B SHARES AND I SHARES OF FUNDS WITH MAY 31
FISCAL YEAR END, INSTITUTIONAL SHARES AND INVESTOR SHARES)
Not Applicable in this Filing
PART B
(STATEMENTS OF ADDITIONAL INFORMATION ("SAIS") OFFERING A SHARES,
B SHARES AND I SHARES OF FUNDS WITH MAY 31 FISCAL YEAR END,
INSTITUTIONAL SHARES AND INVESTOR SHARES)
Not Applicable in this Filing
7
<PAGE>
Prospectus
March 1, 1996
I Shares - Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Small Company Growth Fund, International Fund, Income Equity Fund, Index
Fund, Conservative Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund,
Intermediate U.S. Government Fund, Managed Fixed Income Fund and Stable Income
Fund.
This Prospectus offers the above listed shares (the "Shares") of thirteen
separate portfolios (each a "Fund" and collectively the "Funds") of Norwest
Advantage Funds (the "Trust"), an open-end, management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
each Fund that a prospective investor should know before investing. Investors
should read this Prospectus and retain it for future reference. The Trust has
filed with the Securities and Exchange Commission ("SEC") a Statement of
Additional Information (the "SAI") with respect to each Fund dated the same date
as the prospectus for the Fund and as may be further amended from time to time,
which contains more detailed information about the Trust and the Fund and which
is incorporated into this Prospectus by reference. The SAI is available without
charge by contacting the transfer agent at 733 Marquette Avenue, Minneapolis,
Minnesota, 55479-0040, (800) 338-1348. Investors should read this Prospectus and
retain it for future reference.
International Fund currently seeks to achieve its investment objective by
investing all of its investment assets in International Portfolio, a separate
portfolio of Core Trust (Delaware) ("Core Trust"), a registered investment
company. International Fund and International Portfolio have identical
investment objectives.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER FEDERAL AGENCY.
SHARES OF THE FUNDS ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF OR ENDORSED OR
GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OF ITS BANK OR NON-BANK
AFFILIATES.
AN INVESTMENT IN A FUND IS SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT READY CASH INVESTMENT FUND (WHICH
IS A MONEY MARKET FUND) WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
8
<PAGE>
Table of Contents
Shareholder
Information
(800) 338-1348
Norwest Bank Minnesota, N.A.
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
Summary
Financial Highlights
Investment Objectives, Policies and Risk Considerations
Investment Objectives
Investments in Core Trust
Investment Policies - Equity Funds
Investment Policies - Balanced Funds
Investment Policies - Fixed Income Funds
Additional Investment Policies
Management of the Funds
Investment Advisory Services
Advisory Fees
Administrative and Other Services
Expenses of the Funds
Purchases and Redemptions of Shares
Purchase and Redemption Procedures
General Information
Dividends, Distributions and Tax Matters
Dividends and Distributions
Tax Matters
Shareholder Tax Matters
Other Information
Fund Performance
Banking Law Matters
Portfolio Transactions
The Trust and its Shares
Core Trust Structure
Appendix A: Investments, Investment Strategies
and Risk Considerations
9
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Summary
Who Should Invest?
I Shares of the Funds are offered through this Prospectus to fiduciary, agency
and custodial clients of bank trust departments, trust companies and their
affiliates, including participants in certain qualified and nonqualified
employee benefit plans ("Plans") and to related IRA and KEOGH accounts. See
"Purchases and Redemptions of Shares." Only certain Funds may be available as
investment alternatives in a Plan; participants in a Plan that invests in the
Funds should consult with their employer or plan sponsor to determine which
Funds are offered through their Plan. While no single Fund is intended to
provide a complete or balanced investment program, each can serve as a component
of an investor's long-term program to accumulate assets for retirement or other
major goals.
The Norwest
Advantage
Funds
Each Fund has distinct investment objectives and policies as described under
"Investment Objectives, Policies and Risk Considerations." There are seven
equity funds (the "Equity Funds"): Diversified Equity Fund and Growth Equity
Fund, each of which invests specified percentages of its assets using different
equity investment styles, and five equity funds, each of which uses a different
equity investment style.
There are three balanced funds (the "Balanced Funds") and three fixed income
funds. The Balanced Funds invest specified percentages of their assets in
accordance with the investment styles of Diversified Equity Fund and three to
five different fixed income investment styles.
Equity Funds
Diversified Equity Fund seeks long-term capital appreciation while moderating
annual return volatility by diversifying its investments in accordance with five
different equity investment styles.
Growth Equity Fund seeks a high level of long-term capital appreciation while
moderating annual return volatility by diversifying its investments in
accordance with three different equity investment styles. The Fund assumes a
higher level of risk than Diversified Equity Fund in order to seek increased
returns.
Small Company Growth 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. This
Fund currently is not open to new investors.
Large Company Growth Fund seeks long-term capital appreciation by investing in
large, high-quality domestic companies that the investment adviser believes have
superior growth potential.
International Fund seeks long-term capital appreciation by investing directly or
indirectly in high-quality companies based outside the United States. Currently,
the International Fund invests exclusively in the International Portfolio
("International Portfolio") of Core Trust, itself a registered open-end
management investment company. Accordingly, the investment experience of
International Fund will correspond directly with the investment experience of
International Portfolio. See "Other Information - Core Trust Structure."
International Portfolio has the same investment objective and policies as
International Fund and selects its investments on the basis of their potential
for capital appreciation without regard to current income.
Income Equity Fund seeks long-term capital appreciation in line with that of the
overall equity securities markets and to provide above average dividend income.
Index Fund seeks to duplicate the return of the Standard & Poor's 500 Composite
Stock Price Index.
10
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Balanced Funds
Conservative Balanced Fund seeks a combination of current income and capital
appreciation by diversifying investment of the Fund's assets among stocks, bonds
and other fixed income instruments. Of the Balanced Funds, the Fund most
emphasizes safety of principal through limited exposure to equity securities.
Moderate Balanced Fund seeks a combination of current income and capital
appreciation by diversifying investment of the Fund's assets among stocks, bonds
and other fixed income investments. The Fund provides a portfolio more evenly-
balanced between fixed income and equity securities than the other Balanced
Funds.
Growth Balanced Fund seeks a combination of current income and capital
appreciation by diversifying investment of the Fund's assets between stocks and
bonds. The Fund holds more equity securities than the other Balanced Funds.
Fixed Income Funds
Intermediate U.S. Government Fund seeks income and safety of principal by
investing primarily in U.S. Government Securities. The Fund seeks to moderate
its volatility by using a conservative approach to structuring the maturities of
its investment portfolio.
Managed Fixed Income Fund seeks to provide consistent fixed income returns by
investing primarily in a portfolio of intermediate maturity, investment grade
fixed income securities.
Stable Income Fund seeks to maintain safety of principal and provide low
volatility total return by investing primarily in short and intermediate
maturity, investment grade fixed income securities.
Management of the Funds
The investment adviser to each Fund (the "Adviser") is Norwest Investment
Management, a part of Norwest Bank Minnesota, N.A. ("Norwest"). Norwest is a
subsidiary of Norwest Corporation, a bank holding company with operations in 50
states and $59.3 billion in total assets. The Adviser provides investment advice
with respect to assets that totaled approximately $____ billion as of December
31, 1995. Except for International Fund, the Adviser makes investment decisions
for the Funds and continuously reviews, supervises and administers each Fund's
investment program.
Subject to the Adviser's general oversight, Schroder Capital Management
International Inc. ("Schroder") acts as investment subadviser to Diversified
Equity Fund, Growth Equity Fund and each Balanced Fund (Schroder and the
Adviser, collectively, are sometimes referred to as the "Advisers"). Schroder
also serves as International Portfolio's investment adviser.
Norwest serves as the Trust's transfer agent, dividend disbursing agent and
custodian, and provides certain administrative services to International Fund.
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"). Forum also serves as administrator of Core Trust. See
"Management of the Funds - Investment Advisory Services" and "Administrative and
Other Services."
Purchase and Redemption of Shares
Shares of beneficial interest of each Fund are offered without a sales charge
and may be redeemed without charge. Norwest offers investors in the Funds
various periodic investment and redemption services. The minimum initial
investment in each Fund is $1,000, except that the minimum initial investment in
Ready Cash Investment Fund is $100,000. See "Purchases and Redemptions of
Shares."
Dividends and Distributions
Dividends of net investment income are declared annually by each Fund. Each
Fund's net capital gain, if any, is distributed at least annually. See
"Dividends, Distributions and Tax Matters."
11
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Certain Risk Factors
There can be no assurance that any Fund will achieve its investment objective or
that Ready Cash Investment Fund will maintain a stable net asset value. Except
for Ready Cash Investment Fund, each Fund's net asset value will fluctuate based
upon changes in the value of the Fund's portfolio securities and, accordingly,
upon redemption an investment in a Fund may be worth more or less than its
original value. The Fixed Income Funds' net asset values will tend to vary
inversely with movements in interest rates and the potential for appreciation in
a Fixed Income Fund in the event of a decline in interest rates may be limited
or negated by increased principal prepayments on certain mortgage-backed
securities held by the Fund. The policy of investing in smaller companies
employed by Small Company Growth Fund and the Equity Funds that invest in small
company securities entails certain risks in addition to those normally
associated with investments in equity securities. Similarly, International
Fund's policy of investing directly or indirectly in foreign securities entails
certain risks in addition to those normally associated with investments in
equity securities.
By investing solely in International Portfolio, International Fund may achieve
certain efficiencies and economies of scale. Nonetheless, this investment could
also have potential adverse effects on International Fund. Investors in
International Fund should consider these risks, as described under "Other
Information - Core Trust Structure."
An investment in any Fund involves certain risks, depending on the types of
investments made and the types of investment techniques employed. All
investments by the Funds entail some risk. Certain investments and investment
techniques, however, entail additional risks, such as investments in foreign
issuers, issuers with limited market capitalization, mortgage or asset-backed
securities, zero-coupon bonds and options, futures contracts, forward contracts
and swap agreements. The use of leverage by certain Funds through borrowings,
margin transactions, short sales, reverse repurchase agreements and other
investment techniques involves additional risks. For more details about each
Fund, their investments and their risks see "Investment Objectives, Policies and
Risk Considerations" and "Appendix A: Investments, Investment Strategies and
Risk Considerations."
Expenses of Investing in the Funds
The purpose of the following table is to assist investors in understanding the
various expenses that an investor in the Funds will bear directly or indirectly.
There are no transaction charges in connection with purchases, redemptions or
exchanges of Shares. None of the Funds has adopted a Rule 12b-1 plan with
respect to the Shares and, accordingly, no Fund incurs distribution expenses.
Annual Fund Operating Expenses
[Expense Table]
Example of Expenses
[Example]
The above table is a hypothetical example that indicates the expenses an
investor would pay assuming a $1,000 investment in each Fund, a 5 percent annual
return, reinvestment of all dividends and distributions, and full redemption at
the end of each period. The example is based on the expenses listed in the
"Annual Fund Operating Expenses" table above. The 5 percent annual return is not
a prediction of and does not represent the Funds' projected returns; rather, it
is required by government regulation. The example should not be considered a
representation of past or future expenses or return. Actual expenses and return
may be greater or less than indicated.
Financial Highlights
The information in the Financial Highlights section represents selected data for
a single outstanding I Share of each Fund for the period shown. Information for
the year ended October 31, 1995 has been audited by _______________,
12
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independent auditors. Further information about each of these Fund's performance
is contained in the Annual Report, which may be obtained from the Trust without
charge.
[Financial Highlights]
Investment Objectives, Policies
and Risk Considerations
The Funds offered through this Prospectus consist of thirteen Funds, each of
which has distinct investment objectives and policies. There are seven Equity
Funds - Diversified Equity Fund and Growth Equity Fund, each of which invests
specified percentages of its assets in accordance with different equity
investment styles, and five equity funds each of which uses a different equity
investment approach. The use of different 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 Funds also include
three Balanced Funds and three Fixed Income Funds. The Balanced Funds invest
specified percentages of their assets in accordance with the investment styles
of Diversified Equity Fund and three to five different fixed income investment
styles. The Balanced Funds rebalance their portfolios periodically and
Diversified Equity and Growth Equity Funds rebalance their portfolios daily to
maintain specified percentages of assets invested in particular investment
styles. The percentage of a Fund's assets invested using a specified investment
style may be changed by the Adviser in response to market or other conditions.
For a further description of each Fund's investments and investment techniques
and additional risk considerations associated with those investments and
techniques, see the discussion below, "Investment Objectives, Investment
Policies and Risk Considerations - Additional Investment Policies," "Appendix A:
Investments, Investment Strategies and Risk Considerations" and the SAI.
Investment Objectives
Each of the Funds has its own distinct investment objective which may not be
changed without approval of the Fund's shareholders. There can be no assurance
that any Fund will achieve its investment objective.
Equity Funds
Diversified Equity Fund's investment objective is to provide long-term capital
appreciation while moderating annual return volatility by diversifying its
investments in accordance with different equity investment styles.
Growth Equity Fund's investment objective is to provide a high level of long-
term capital appreciation while moderating annual return volatility by
diversifying its investments in accordance with different equity investment
styles. Because the Fund seeks increased returns, it is subject to
correspondingly greater risks than Diversified Equity Fund.
Small Company Growth Fund's investment objective is to provide long-term capital
appreciation by investing primarily in small and medium-sized domestic companies
that are either growing rapidly or completing a period of significant change.
International Fund's investment objective is to provide long-term capital
appreciation by investing directly or indirectly in high-quality companies based
outside the United States. International Portfolio, in which International Fund
invests all of its assets, has the same investment objective.
Large Company Growth Fund's investment objective is to provide long-term capital
appreciation by investing primarily in large, high-quality domestic companies
that the investment adviser believes have superior growth potential.
Income Equity Fund's investment objective is to provide both long-term capital
appreciation in line with that of the overall equity securities markets and
above average dividend income.
Index Fund's investment objective is to duplicate the return of the Standard &
Poor's 500 Composite Stock Price Index.
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Balanced Funds
Conservative Balanced Fund's investment objective is to provide a combination of
current income and capital appreciation by diversifying investment of the Fund's
assets among stocks, bonds and other fixed income investments. The Fund
emphasizes safety of principal through limited exposure to equity securities.
The Fund has the smallest equity securities position of the three Balanced
Funds.
Moderate Balanced Fund's investment objective is to provide a combination of
current income and capital appreciation by diversifying investment of the Fund's
assets among stocks, bonds and other fixed income investments. The Fund provides
a portfolio more evenly-balanced between fixed income and equity securities than
the other Balanced Funds.
Growth Balanced Fund's investment objective is to provide a combination of
current income and capital appreciation by diversifying investment of the Fund's
assets between stocks and bonds. The Fund has the largest equity securities
position of the Balanced Funds.
Fixed Income Funds
Intermediate U.S. Government Fund's investment objective is to provide income
and safety of principal by investing primarily in U.S. Government Securities.
Managed Fixed Income Fund's investment objective is to provide consistent fixed
income returns by investing primarily in a portfolio of intermediate maturity,
investment grade fixed income securities.
Stable Income Fund's investment objective is to maintain safety of principal
while providing low-volatility total return.
Investments in Core Trust
International Fund currently seeks to achieve its investment objective by
investing all of its investment assets in International Portfolio, a separate
Portfolio of Core Trust. In addition, the Trust has received an exemptive order
from the SEC under which Diversified Equity Fund, Growth Equity Fund,
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund
(collectively the "Blended Funds") currently invest the portions of their assets
that are managed in a small company, an index and an international investment
style, respectively, in Small Company Portfolio, Index Portfolio, and
International Portfolio II (the "Blended Portfolios"). These Portfolios are each
separate portfolios of Core Trust. By pooling their assets in the Blended
Portfolios, the Blended Funds may be able to achieve benefits that they could
not achieve by investing directly in securities. See "Other Information - Core
Trust Structure."
The investment objectives and policies and investment risk considerations for
International Portfolio II and Index Portfolio are identical to the investment
objectives and policies and investment risk considerations of International Fund
and Index Fund. The investment objective of Small Company Portfolio is to
provide long-term capital appreciation by investing primarily in small and
medium-sized domestic companies that are either growing rapidly or completing a
period of significant change. This Portfolio invests its assets in a small
company stock investment style ("Small Company Stock investment style"), a small
company value investment style ("Small Company Value investment style") and in
the style of Small Company Growth Fund and, in the future, may invest its assets
in accordance with additional small company investment styles.
Investment Policies
Equity Funds
To achieve their investment objectives, the Equity Funds invest primarily in
common stocks and other equity securities. International Fund currently invests
exclusively in International Portfolio which invests primarily in common stocks
and other equity securities of foreign issuers. See "Other Information - Core
Trust Structure." The domestic securities in which an Equity Fund invests are
generally listed on a securities exchange or included in the National
Association of Securities Dealers Automated Quotation (NASDAQ) National Market
System but may be traded in the over-the-
14
<PAGE>
counter securities market. Under normal circumstances, each of the Equity Funds
will invest substantially all of its assets, but not less than 65 percent of its
net assets, in equity securities.
Diversified Equity Fund is designed to minimize the volatility and risk of
investing in equity securities. The Fund's portfolio combines five different
equity investment styles, those of four of the Equity Funds - Large Company
Growth Fund, International Fund, Income Equity Fund and Index Fund - and a small
company investment style ("Small Company investment style"), which reflects a
mix of Small Company Growth Fund investment styles and the Small Company Stock
and Small Company Value investment styles. The Fund utilizes different equity
investment styles in order to reduce the risk of relying on a single investment
style. Reliance on multiple equity investment styles is intended to reduce the
price and return volatility of the Fund. 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. The Fund will generally invest the following
percentages of its total assets in accordance with the indicated investment
styles:
Diversified Equity Fund Allocation
Index Fund style 25%
Income Equity Fund style 25%
Large Company Growth Fund style 25%
Small Company investment style 10%
International Fund style 15%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of each of the foregoing Equity Funds
and Small Company investment styles below for a discussion of the objectives,
policies and risks involved in the investments and investment techniques of
those styles and, accordingly, of the portions of Diversified Equity Fund
invested in those styles. The management of the Fund's assets is divided among
the Fund's six portfolio managers, four of whom are also the portfolio manager
for a corresponding Equity Fund and two of whom jointly co-manage the assets
allocated to Small Company investment style.
Growth Equity Fund is designed to reduce the volatility and risk of investing in
equity securities. The Fund's portfolio combines three different equity
investment styles, those of two of the Equity Funds - Large Company Growth Fund
and International Fund - and a small company investment style ("Small Company
investment style"), which reflects a mix of both the Small Company Stock and
Small Company Growth Fund investment styles. The Fund utilizes different equity
investment styles in order to reduce the risk of relying on a single equity
investment style. Reliance on multiple equity investment styles is intended to
reduce the price and return volatility of the Fund. Although Growth Equity Fund
blends three equity investment styles, 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 investment styles. The Fund will generally invest
the following percentages of its total assets in accordance with the indicated
investment styles:
Growth Equity Fund Allocation
Large Company Growth Fund style 35%
Small Company investment style 35%
International Fund style 30%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of each of the foregoing Equity Funds
and Small Company investment styles for a discussion of the objectives,
policies and risks involved in the investments and investment techniques of
those styles and, accordingly, of the portions of Growth Equity Fund invested
using those styles. The management of the Fund's assets is divided among the
Fund's four portfolio managers, two of whom are also the portfolio manager for a
corresponding Equity Fund and two of whom jointly co-manage the assets allocated
to Small Company investment style.
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Small Company Growth Fund and the Small Company investment style component of
other Funds invest primarily in the common stock of small and medium size
domestic companies which have a market capitalization well below that of the
average company in the Standard & Poor's 500 Composite Stock Price Index. Small
Company Growth Fund considers small and medium companies to be those whose
market capitalizations are less than $750 million at the time of the Fund's
purchase. Market capitalization refers to the total market value of a company's
outstanding shares of common stock.
In selecting securities for Small Company Growth 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 its share price and takeover/asset value. The Fund may invest up to 10
percent of its total assets in foreign securities and in American Depository
Receipts, European Depository Receipts and other similar securities of foreign
issuers. See "Investment Policies - Equity Funds - International Fund - Foreign
Investment Risks and Considerations." The Fund may not invest more than 10% of
its total assets in the securities of a single issuer. The Fund does not
currently invest in preferred stock and securities convertible into common stock
but reserves the right to do so in the future.
In selecting securities allocated to the Small Company investment style
component of Growth Equity Fund, Diversified Equity Fund and the Balanced Funds,
the Adviser uses the investment style of Small Company Growth Fund and two other
investment styles described below: Small Company Stock investment style and the
Small Company Value investment style. Assets allocated to the Small Company
investment style are invested 1/3 in the Small Company Growth Fund style, 1/3 in
the Small Company Stock investment style an 1/3 in the Small Company Value
investment style.
Prior to December 11, 1995 the Small Company investment style did not allocate
any assets to the Small Company Value investment styles. The Small Company
investment style is expected to be allocated completely in this manner by June
1, 1996. Small Company investment style may in the future allocate its assets
to additional investment styles.
In selecting securities in accordance with the Small Company Stock investment
style, 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. In investing assets allocated to
this investment style, the Adviser may invest in preferred stock and securities
convertible into common stock and may invest up to 20 percent of total assets
allocated to this style in foreign securities and in American Depository
Receipts, European Depository Receipts and other similar securities of foreign
issuers.
In selecting portfolio investments, the Small Company Value investment style
focuses on securities that are conservatively valued in the marketplace relative
to their underlying fundamentals. Value investing provides investors with a less
aggressive way to take advantage of growth opportunities of small companies.
Under a value approach, the Fund will seek to invest in stocks priced low
relative to comparable companies, determined by price/earnings ratios, cash
flows or other measures. Value investing therefore may reduce downside risk
while offering potential for capital appreciation as a stock gains favor among
other investors and its stock price rises.
Small Company Investment Risks and Considerations. The companies in which Small
Company Growth Fund and the Small Company investment style components of the
other Funds invest may be in a relatively early stage of development or may
produce goods and services which have favorable prospects for growth due to
increasing demand or developing markets. Frequently, such companies have a small
management group and single product or product line expertise. These
characteristics may result in an enhanced entrepreneurial spirit and greater
focus which may make those companies 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. Small
companies frequently retain a large part of their earnings for research,
development and investment in capital assets, however, so that the prospects for
immediate dividend income are limited.
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Investments in smaller companies generally involve greater risks than
investments in larger companies due to the small size of the issuer and the fact
that the issuer may have limited product lines, access to financial markets and
management depth. In addition, many of the securities of smaller companies trade
less frequently and in lower volumes than securities issued by larger firms. The
result is that the short-term price volatility of small company securities is
greater than the short-term price volatility of the securities of larger, more
established companies that are widely held. The securities of small companies
may also be more sensitive to market changes generally than the securities of
large companies. In addition, securities that are traded in the over-the-counter
market or on a regional securities exchange may not be traded every day or in
the volume typical of securities traded on a national securities exchange. As a
result, disposition of a portfolio security, to meet redemptions by shareholders
or otherwise, may require a Fund to sell the security 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.
While securities issued by smaller companies historically have experienced
greater market appreciation than the securities of larger entities, there is no
assurance that they will continue to do so or that the Fund will be successful
in identifying companies whose securities will appreciate.
Large Company Growth Fund invests primarily in the common stock of large, high-
quality domestic companies that have superior growth potential. Large companies
are those whose market capitalization is at least $500 million at the time of
the Fund's purchase and whose equity trading volume would permit the sale or
purchase of a large position in the securities of the company in 2 or 3 trading
days. Market capitalization refers to the total market value of a company's
outstanding shares of common stock. 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 which
support internal earnings growth capability. The Fund's holdings may include the
securities of companies whose growth potential is, in the Adviser's opinion,
generally unrecognized or misperceived by the market. In addition, the Fund may
invest up to 20 percent of its total assets in American Depository Receipts,
European Depository Receipts and other similar securities of large foreign
issuers and may attempt to reduce the overall risk of its foreign investments by
using foreign currency forward contracts. See "Investment Policies - Equity
Funds - International Fund - Foreign Investment Risks and Considerations." Under
normal circumstances, the Fund will not invest more than 10 percent of its total
assets in the securities of a single issuer. The Fund does not currently invest
in preferred stock or securities convertible into common stock but reserves the
right to do so in the future.
International Fund is designed for investors who desire to achieve international
diversification of their investments by participating in foreign securities
markets. Because international investments generally involve risks in addition
to those risks associated with investments in the United States, the Fund should
be considered only as a vehicle for international diversification.
As the Fund has the same investment policies as International Portfolio and
currently invests all of its assets in International Portfolio, the following
investment policies are discussed with respect to International Portfolio only.
International Portfolio normally will invest substantially all of its assets in
equity securities of companies domiciled outside the United States.
International Portfolio selects its investments on the basis of their potential
for capital appreciation without regard to current income. International
Portfolio may also invest in the securities of closed-end investment companies
investing primarily in foreign securities and may invest in debt obligations of
foreign governments or their political subdivisions, agencies or
instrumentalities, of supranational organizations and of foreign corporations.
Investment will be diversified among securities of issuers in foreign countries
including, but not limited to, Japan, Germany, the United Kingdom, France, the
Netherlands, Hong Kong, Singapore and Australia. In general, International
Portfolio will invest only in securities of companies and governments in
countries that Schroder, in its judgment, considers both politically and
economically stable. International Portfolio has no limit on the amount of its
foreign assets which may be invested in any one type of foreign instrument or in
any foreign country; however, to the extent International Portfolio concentrates
its assets in a foreign country, it will incur greater risks.
International Portfolio may purchase preferred stock and securities convertible
into common stock, and may purchase American Depository Receipts, European
Depository Receipts or other similar securities of foreign issuers.
International 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
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foreign exchange rates. Although such contracts may reduce the risk of loss to
International Portfolio from adverse movements in currency values, the contracts
also limit possible gains from favorable movements.
Foreign Investment Risks and Considerations. All investments, domestic and
foreign, involve certain risks. Investments in the securities of foreign issuers
may involve risks in addition to those normally associated with investments in
the securities of U.S. issuers. All foreign investments are subject to risks of
foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, and changes in foreign
governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
International Portfolio's shareholders; commission rates payable on foreign
transactions are generally higher than in the United States; foreign accounting,
auditing and financial reporting standards differ from those in the United
States and, accordingly, less information may be available about foreign
companies than is available about issuers of comparable securities in the United
States; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by International Portfolio.
Exchange rates are influenced generally by the forces of supply and demand in
the foreign currency markets and by numerous other political and economic events
occurring outside the United States, many of which may be difficult, if not
impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, and International Portfolio is required to compute and distribute
income in U.S. dollars. Accordingly, a decline in the value of a particular
foreign currency against the U.S. dollar will reduce the dollars available to
make a distribution. Similarly, if the exchange rate declines between the time
after International Portfolio's income has been earned and computed in U.S.
dollars and the time it is paid may require International Portfolio to liquidate
portfolio securities to acquire sufficient U.S. dollars to make a distribution.
Similarly, if the exchange rate declines between the time International
Portfolio incurs expenses in U.S. dollars and the time such expenses are paid,
International Portfolio may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
Income Equity Fund invests primarily in the common stock of large, high-quality
domestic companies which have above-average return potential based on current
market valuations. Primary emphasis is placed on 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. The Fund considers large companies to be those whose
market capitalization is at least $600 million at the time of the Fund's
purchase. Market capitalization refers to the total market value of a company's
outstanding shares of common stock. The Fund may also invest in preferred stock
and securities convertible into common stock and may purchase American
Depository Receipts, European Depository Receipts and other similar securities
of foreign issuers. See "Investment Policies - Equity Funds - International
Fund - Foreign Investment Risks and Considerations." Under normal circumstances,
the Fund will not invest more than 10 percent of its total assets in the
securities of a single issuer.
Index Fund is designed to duplicate the return of the Standard & Poor's 500
Composite Stock Index (the "Index") with minimum tracking error, while also
minimizing transaction costs. Under normal circumstances, the Fund will hold
stocks representing 96 percent or more of the capitalization-weighted market
values of the Index. Portfolio transactions for the Fund generally are executed
only to duplicate the composition of the Index, to invest cash received from
portfolio security dividends or shareholder investments in the Fund, and to
raise cash to fund Share redemptions. The Fund may hold cash or cash equivalents
for the purpose of facilitating payment of the Fund's expenses or Share
redemptions. For these and other reasons, the Fund's performance can be expected
to approximate but not be equal to that of the Index.
In addition, the Fund may utilize index futures contracts to a limited extent.
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 index value at the close of trading of
the contract and the price at which
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the futures contract is originally struck. As no physical delivery of the fixed
income or equity securities comprising the index is made, a purchaser of index
futures contracts may participate in the performance of the securities contained
in the index without the required capital commitment.
Index futures contracts may be used for several reasons: to simulate full
investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading or to reduce transactions costs. For
a description of futures contracts and their risks see "Appendix A: Investments,
Investment Strategies and Risk Considerations - Futures Contracts and Options."
The Index tracks the total return performance of 500 common stocks which are
chosen for inclusion in the Index by Standard & Poor's Corporation ("S&P") on a
statistical basis. The inclusion of a stock in the Index in no way implies that
S&P believes the stock to be an attractive investment. The 500 securities, most
of which trade on the New York Stock Exchange, represent approximately 70
percent of the total market value of all U.S. common stocks. Each stock in the
Index is weighted by its market value. Because of the market-value weighting,
the 50 largest companies in the Index currently account for approximately 45
percent of its value. The Index emphasizes large-capitalizations and, typically,
companies included in the Index are the largest and most dominant firms in their
respective industries.
The Fund is not sponsored, endorsed, sold or promoted by S&P, nor does S&P make
any representation or warranty, implied or express, to the purchasers of the
Fund or any member of the public regarding the advisability of investing in
index funds or the ability of the Index to track general stock market
performance. S&P does not guarantee the accuracy and/or the completeness of the
Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund, owners of the Fund, any person or any entity from the use of the
Index or any data included therein. S&P makes no express or implied warranties
and hereby expressly disclaims all such warranties of merchantability or fitness
for a particular purpose for use with respect to the Index or any data included
therein.
Investment Policies
Balanced Funds
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund each
invest in a balanced portfolio of fixed income and equity securities.
Conservative Balanced Fund has the smallest equity securities position of the
three Funds and is the most conservative Balanced Fund. Growth Balanced Fund has
the largest equity securities position of the three Funds and is the most
aggressive Balanced Fund. The equity portion of each Balanced Fund's portfolio
uses the five different equity investment styles of Diversified Equity Fund.
Diversified Equity Fund combines the different equity investment styles of four
of the Equity Funds - Large Company Growth Fund, International Fund, Income
Equity Fund and Index Fund - and investment in a small company investment style
("Small Company investment style") in order to reduce the risk of relying on a
single equity investment style. The blending of different equity investment
styles is intended to reduce the price and return volatility of the equity
portion of the Balanced Funds.
The fixed income portion of each Balanced Fund's portfolio uses from three to
five different fixed income investment styles. Conservative Balanced Fund uses
five investment styles - the investment styles of Managed Fixed Income Fund and
Stable Income Fund, a "total return" investment style ("Total Return investment
style"), a "positive return" investment style ("Positive Return investment
style") and a short maturity investment style ("Short Maturity investment
style"). Moderate Balanced Fund uses four investment styles - the investment
styles of Managed Fixed Income Fund and Stable Income Fund and Total Return and
Positive Return investment styles. Growth Balanced Fund uses three investment
styles - the investment styles of Managed Fixed Income Fund and the Total Return
and Positive Return investment styles. The blending of different fixed income
investment styles is intended to reduce the risk associated with relying on a
single fixed income investment style.
The base allocation among investment styles for each Balanced Fund is set forth
below. As market values of the Funds' assets change, the percentage of Fund
assets invested in any style may temporarily deviate from the base allocations.
In response thereto, the Adviser will periodically effect transactions for the
Balanced Funds to reestablish their base
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allocations. In addition, as the securities markets change, the Adviser may
attempt to enhance the returns of any of the Balanced Funds by changing, within
certain limits, the percentage of Fund assets invested in fixed-income and
equity securities. The Adviser may, in its discretion, increase or decrease the
fixed income and equity percentages by up to 5 percent for Conservative Balanced
Fund, 10 percent for Moderate Balanced Fund and 15 percent for Growth Balanced
Fund. For example, the Managed Fixed Income Fund investment style, Total Return
investment style and Positive Return investment style of Growth Balanced Fund,
each of which currently is used for 11 2/3 percent of that Fund's assets (a
total of 35 percent), may each be increased to 16 2/3 percent (a total of 50
percent) or decreased to 6 2/3 percent (a total of 20 percent) of that Fund's
assets. In making these changes, each Balanced Fund is required to limit its
redemptions to no more than 1% of a Blended Portfolio's net assets during any
period of less than thirty days. Absent unstable market conditions, the Adviser
does not anticipate making a substantial number of percentage changes. When the
Adviser believes a change in the base 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 contract strategies as described
below in "Temporary Allocations."
Conservative Balanced Fund is designed for investors seeking exposure primarily
to fixed income securities with limited exposure to equity securities. The fixed
income portion of the Fund's portfolio uses the investment styles of Managed
Fixed Income Fund and Stable Income Fund, Total Return investment style,
Positive Return investment style and Short Maturity investment style, in order
to reduce the risk of relying on a single fixed income investment style.
The Fund will generally invest the following percentages of its total assets in
accordance with the indicated investment styles (as noted under "Investment
Policies - Equity Funds - Diversified Equity Fund" above, Diversified Equity
Fund generally invests its assets using five different equity investment
styles):
Conservative Balanced Fund Allocation
Diversified Equity Fund style 25%
Index Fund style 25%, Income Equity Fund style 25%,
Large Company Growth Fund style 25%,
Small Company investment style 10%, International Fund style 15%
Managed Fixed Income Fund style 16 2/3%
Total Return investment style 16 2/3%
Positive Return investment style 16 2/3%
Stable Income Fund style 15%
Short Maturity investment style 10%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of Diversified Equity Fund (and the
five investment styles used by Diversified Equity Fund), Managed Fixed Income
Fund and Stable Income Fund for a discussion of the objectives, policies and
risks involved in the investments and investment techniques of those Funds and,
accordingly, of the portions of Conservative Balanced Fund that are invested
using similar investment styles. The investment policies related to Total Return
investment style, Positive Return investment style and Short Maturity investment
style are listed below. The management of the Fund's assets is divided among the
Fund's eleven portfolio managers - the portfolio managers of Diversified Equity
Fund, the portfolio managers of Managed Fixed Income Fund and Stable Income Fund
and the portfolio managers who manage the assets allocated to the Total Return,
Positive Return and Short Maturity investment styles.
Moderate Balanced Fund is designed for investors seeking roughly equivalent
exposures to fixed income securities and equity securities. The fixed income
portion of the Fund's portfolio uses the investment styles of Managed Fixed
Income Fund, Stable Income Fund, and Total Return and Positive Return investment
styles in order to reduce the risk of relying on a single fixed income
investment style.
The Fund will generally invest the following percentages of its total assets in
accordance with the indicated investment styles (as noted under "Investment
Policies - Equity Funds - Diversified Equity Fund" above, Diversified Equity
Fund generally invests its assets using five different equity investment
styles):
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Moderate Balanced Fund Allocation
Diversified Equity Fund style 40%
Index Fund style 25%, Income Equity Fund style 25%,
Large Company Growth Fund style 25%,
Small Company investment style 10%, International Fund style 15%
Managed Fixed Income Fund style 15%
Total Return investment style 15%
Positive Return investment style 15%
Stable Income Fund style 15%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of Diversified Equity Fund (and the
five investment styles used by Diversified Equity Fund), Managed Fixed Income
Fund and Stable Income Fund for a discussion of the objectives, policies and
risks involved in the investments and investment techniques of those Funds and,
accordingly, of the portions of Moderate Balanced Fund that are invested using
similar investment styles. The investment policies related to Total Return and
Positive Return investment styles are listed below. The management of the Fund's
assets is divided among the Fund's ten portfolio managers - the portfolio
managers of Diversified Equity Fund, the portfolio managers of Managed Fixed
Income Fund, and Stable Income fund and the portfolio managers who manages the
assets allocated to the Total Return and Positive Return investment style.
Growth Balanced Fund is designed for investors seeking long-term capital
appreciation in the equity securities market in a balanced fund. The fixed
income portion of the Fund's portfolio uses the investment styles of Managed
Fixed Income Fund, and Total Return and Positive Return investment styles in
order to reduce the risk of relying on a single fixed income investment style.
The Fund will generally invest the following percentages of its total assets in
accordance with the indicated investment styles (as noted under "Investment
Policies - Equity Funds - Diversified Equity Fund" above, Diversified Equity
Fund generally invests its assets using five different equity investment
styles):
Growth Balanced Fund Allocation
Diversified Equity Fund style 65%
Index Fund style 25%, Income Equity Fund style 25%,
Large Company Growth Fund style 25%,
Small Company investment style 10%, International Fund style 15%
Managed Fixed Income Fund style 11 2/3%
Total Return investment style 11 2/3%
Positive Return investment style 11 2/3%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of Diversified Equity Fund (and the
five investment styles used by Diversified Equity Fund) and Managed Fixed Income
Fund for a discussion of the objectives, policies and risks involved in the
investments and investment techniques of those Funds and, accordingly, of the
portions of Growth Balanced Fund that are invested using similar investment
styles. The investment policies related to Total Return and Positive Return
investment styles are listed below. Management of the Fund's assets is divided
among the Fund's nine portfolio managers - the portfolio managers of Diversified
Equity Fund, the portfolio managers of Managed Fixed Income Fund and the
portfolio managers who manage the assets allocated to the Total Return and
Positive Return investment styles.
Total Return investment style seeks seeks total return by investing in a
portfolio of U.S. Government and high-quality corporate fixed income securities,
including mortgage-backed securities, and high-quality corporate fixed income
securities. The Adviser's investment decisions are based on its analysis of
major changes in the direction of interest rates rather than on attempts by the
Adviser to predict short-term interest rate fluctuations. The Adviser also
applies a contrarian perspective by looking for undervalued segments of the
fixed income market which the Adviser believes offer opportunities for increased
returns.
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In making its investment decisions assets allocated to this investment style,
the Adviser focuses on the maturity structure and quality structure of the
Fund's portfolio. When the Adviser's outlook is for rising interest rates and
falling bond values, the majority of these assets will be invested in securities
with short-term maturities in an effort to take advantage of rising interest
rates while minimizing the negative effect of falling bond prices. When the
Adviser anticipates interest rates to fall and bond prices to increase, the
Adviser will invest assets allocated to this investment style in securities with
long-term maturities in an attempt to lock in high interest rates and capitalize
on bond price appreciation. Accordingly, the average maturity of securities
managed in accordance with this investment style will vary from 1 to 30 years.
The Adviser may invest assets allocated to this investment style in an unlimited
amount of its assets in either corporate securities, including corporate bonds,
debentures and notes, or U.S. Government Securities. The Adviser will invest
assets allocated to this investment style to a greater degree in corporate
securities, however, as the spread between corporate and U.S. Government
Securities offers potential for incremental returns. In investing assets
allocated to this investment style, the Adviser limits investment in variable or
floating rate securities to 5 percent of its net assets. In investing assets in
accordance with this investment style, the Adviser does not currently invest in
mortgage-backed securities or enter "dollar roll" transactions, but reserves the
right to do so in the future.
In investing assets in accordance with this investment style, the Adviser may
invest in preferred stocks and securities convertible into common stock, but may
not own the common stock underlying a convertible security. The Adviser will
only purchase securities (including convertible securities) that are rated, at
the time of purchase, within the four highest long term or two highest short-
term rating categories assigned by a Nationally Recognized Statistical Rating
Organization, such as Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Services, Inc., or which are unrated and
determined by the Adviser to be of comparable quality.
Positive Return investment style seeks positive total return each calendar year
regardless of the bond market by investing in a portfolio of U.S. Government and
corporate fixed income investments. The Adviser's investment with respect to
assets invested in this investment style are divided into two components, short
bonds with maturities of 2 years or less and long bonds with maturities of 25
years or more. Shifts between short bonds and long bonds are made based on
movement in the prices of bonds rather than on the Adviser's forecast of
interest rates. During periods of falling prices (generally decreasing interest
rate environments) long bonds are sold to protect capital and limit losses.
Conversely, when bond prices rise, long bonds are purchased. Accordingly, the
average maturity of the portfolio of securities invested in the Positive Return
investment style will vary. It is anticipated that under normal circumstances
the portfolio of securities invested in this investment style will have an
average dollar-weighted maturity of between 1 and 30 years.
Under normal circumstances, at least 50% of the net assets allocated to this
style will be U.S. Government Securities, including Treasury securities. All
securities allocated to Positive Return investment style will be, at the time of
purchase, (i) rated in one of the two highest long-term rating categories
assigned by a Nationally Recognized Statistical Rating Organization such as
Moody's Investors Service, Inc., Standard & Poor's Corporation and Fitch
Investors Services, Inc. or (ii) unrated and determined by the Adviser to be of
comparable quality. No more than 25 percent may be in the second highest rating
category. Investments may include zero-coupon securities, securities with
variable or floating rates of interest and asset-backed securities, but only 25
percent of the net assets allocated to this investment style, in the aggregate,
may be invested in these securities. Positive Return investment style may not
invest in convertible securities, mortgage pass-through securities or private
placement securities. Within these constraints, the Adviser purchases securities
which it believes have above average yields.
Short Maturity investment style seeks to provide a higher total return than is
generally available from money market funds. The assets allocated to Short
Maturity investment style will be invested in a portfolio of high-quality fixed
and variable rate fixed income securities. This portion of Conservative Balanced
Fund's assets is managed to increase income and preserve or enhance total return
by actively managing average portfolio maturity in light of market conditions
and trends. Investments may include a broad spectrum of short-term instruments
of United States and foreign issuers, including U.S. Government Securities, and
the debt securities of financial institutions, corporations, foreign
governments, municipal governments, supranational organizations and others.
Investments are limited to instruments with a remaining maturity of 5 years or
less. With respect to assets allocated to this investment style, the Fund will
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<PAGE>
maintain a dollar-weighted average portfolio maturity of 1 year or less and,
under normal circumstances, will maintain 50 percent of the assets in
instruments with a maturity of under 1 year. Up to 25 percent of the assets may
be non-U.S. dollar denominated and, with respect to those assets, the Adviser
will attempt to hedge currency fluctuation risk. Investments may include
mortgage-backed securities and other asset-backed securities, limited to not
more than 50 percent and 25 percent, respectively, of the assets allocated to
this investment style. The Fund may enter into "dollar roll" transactions
related to these investments and may purchase stripped mortgage-backed
securities. The Fund may invest up to 10 percent of its assets allocated to the
style in guaranteed investment contracts issued by insurance companies. The
securities allocated to the style may have variable or floating rates of
interest or principal and may include participation interests and Municipal
Securities. Municipal Securities include obligations of the states, territories
or possessions of the United States and their subdivisions, authorities and
corporations.
All securities allocated to Short Maturity investment style will be, at the time
of purchase, (i) rated in one of the two highest short-term rating categories by
two Nationally Recognized Statistical Rating Organizations ("NRSROs") (or, if
only one NRSRO has issued a rating, by that NRSRO), (ii) rated in one of the
three highest long-term rating categories by two NRSROs (or, if only one NRSRO
has issued a rating, by that NRSRO), or (iii) unrated and determined by the
Adviser to be of comparable quality. Of the securities allocated to this style,
no more than 5 percent may be in any of the lowest permissible rating
categories.
In order to manage its exposure to different types of investments, Conservative
Balanced Fund may enter into interest rate, currency and mortgage swap
agreements invested in the Short Maturity investment style and may purchase and
sell interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the return on assets invested in this style and may attempt
to reduce the overall risk of those assets or limit the uncertainty in the level
of future foreign exchange rates (hedge) by using options and futures contracts
and foreign currency forward contracts. The Fund's ability to use these
strategies may be limited by market considerations, regulatory limits and tax
considerations. In pursuing its Short Maturity investment style strategies, the
Fund may write covered call and put options, buy put and call options, buy and
sell interest rate and foreign currency futures contracts and buy options and
write covered options on those futures contracts. 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 a segregated account
of liquid, high-grade debt instruments with a value at all times sufficient to
cover the Fund's obligations under the option.
Temporary Allocations. In its discretion, the Adviser may increase or decrease
the percentage of assets of each Balanced Fund that are invested in fixed income
and equity securities. When the Adviser believes that a percentage reallocation
will be of short duration (generally, up to 3 years), the Adviser may determine
to achieve the economic equivalent of a reallocation without incurring
securities transaction costs by using futures contracts rather than selling and
purchasing securities. Under this strategy, to the extent of the percentage
asset allocation change, the Fund would not be invested in nor subject to the
risks related to the types of individual securities purchased in accordance with
the various investment styles used by the Fund. Rather, the Fund would be
invested in and subject to the risks related to futures contracts. For a
description of futures contracts and their risks see "Appendix A: Investments,
Investment Strategies and Risk Considerations - Futures Contracts and Options."
Investment Policies
Fixed Income Funds
The five Fixed Income Funds invest primarily in fixed income securities pursuant
to the investment policies described below. For a general description of fixed
income securities, see "Additional Investment Policies - Fixed Income Securities
and Their Characteristics" below. Each Fixed Income Fund except Intermediate
U.S. Government Fund may invest in foreign issuers. These investments may
involve certain risks. See "Investment Policies - Equity Funds - International
Fund - Foreign Investment Risks and Considerations."
Intermediate U.S. Government Fund seeks to attain its investment objective by
investing primarily in fixed and variable rate U.S. Government Securities. Under
normal circumstances, the Fund intends to invest at least 65 percent of its
assets in U.S. Government Securities and may invest up to 35 percent of its
assets in fixed income securities that are not U.S. Government Securities. The
Fund emphasizes the use of intermediate maturity securities to lessen interest
rate
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risk, while employing low risk yield enhancement techniques to add to the Fund's
return over a complete economic or interest rate cycle.
The securities in which the Fund invests will include mortgage-backed and other
asset-backed securities, although the Fund will limit these investments to not
more than 50 percent and 25 percent, respectively, of its total assets. As part
of its mortgage-backed securities investments, the Fund may enter into "dollar
roll" transactions. Certain fixed income securities are "zero-coupon" securities
and the Fund will limit its investment in these securities, except those issued
through the U.S. Treasury's STRIPS program, to not more than 10 percent of the
Fund's total assets. The Fund may also invest in securities that are restricted
as to disposition under the Federal securities laws (sometimes referred to as
"private placements" or "restricted securities"). In addition, the Fund may not
invest more than 25 percent of its total assets in securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury. The Fund may make short sales and may purchase
securities on margin (borrow money in order to purchase securities), which are
considered speculative investment techniques. See "Appendix A: Investments,
Investment Strategies and Risk Considerations - Short Sales" and "- Purchasing
Securities on Margin."
The Fund will only purchase securities that are rated, at the time of purchase,
within the two highest rating categories assigned by a Nationally Recognized
Statistical Rating Organization, such as Moody's Investors Service, Inc.,
Standard & Poor's Corporation or Fitch Investors Services, Inc., or which are
unrated and determined by the Adviser to be of comparable quality.
The Fund primarily will invest in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from short-
term (including overnight) to 12 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 7 years. Under normal circumstances, the Fund's portfolio of securities
will have a duration of between 75 percent and 125 percent of the duration of
the Lehman Intermediate Government Bond Index, which is used as the Fund's
benchmark index as described under "Other Information - Fund Performance."
Duration is a measure of a debt securities average life that reflects the
present value of the securities cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because earlier
payments on a debt security have a higher present value, duration of a security,
except a zero-coupon security, will be less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts, and buy options and write covered options on those futures contracts.
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 a segregated account of liquid, high-grade debt instruments with a
value at all times sufficient to cover the Fund's obligations under the option.
Managed Fixed Income Fund seeks to attain its investment objective by investing
primarily in investment grade intermediate term obligations. The Fund invests
in a diversified portfolio of fixed and variable rate U.S. dollar denominated
fixed income securities of a broad spectrum of United States and foreign
issuers, including U.S. Government Securities and the debt securities of
financial institutions, corporations, and others. The Fund emphasizes the use of
intermediate maturity securities to lessen duration risk (as described below),
while employing low risk yield enhancement techniques to add to the Fund's
return over a complete economic or interest rate cycle. Intermediate term
obligations comprise securities with maturities of between 2 and 20 years.
The securities in which the Fund invests include mortgage-backed securities and
other asset-backed securities, although the Fund limits these investments to not
more than 50 percent and 25 percent, respectively, of its total assets. As part
of its asset-backed securities investments, the Fund may enter into "dollar
roll" transactions and may purchase stripped mortgage-backed securities. The
Fund may invest any amount of its assets in U.S. Government Securities, or in
the securities of financial institutions, corporations, and others. The Fund may
invest in securities that are restricted as to disposition under the Federal
securities laws (sometimes referred to as "private placement" or "restricted
securities"). In
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addition, the Fund may not invest more than 30 percent of its total assets in
the securities issued or guaranteed by any single agency or instrumentality of
the U.S. Government, except the U.S. Treasury.
The Fund may invest up to 10 percent of its total assets in participations
purchased from financial institutions in loans or securities in which the Fund
may invest directly. The Fund may also invest up to 10 percent of its total
assets in each of (i) obligations issued or guaranteed by the governments of
countries which the Adviser believes do not present undue risk or by those
countries' political subdivisions, agencies or instrumentalities, (ii)
obligations of supranational organizations and (iii) obligations of the states,
territories or possessions of the United States and their subdivisions,
authorities and corporations ("municipal securities").
The Fund 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 a Nationally Recognized Statistical Rating Organization, such as
Moody's Investors Service, Inc., Standard & Poor's Corporation or Fitch
Investors Services, Inc., or which are unrated and determined by the Adviser to
be of comparable quality.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 30 years. Under normal circumstances, the Fund's
portfolio of securities will have an average dollar-weighted portfolio maturity
of between 3 and 12 years and a duration of between 2 and 6 years. Duration is
a measure of a debt security's average life that reflects the present value of
the security's cash flow and, accordingly, is a measure of price sensitivity to
interest rate changes ("duration risk"). Because earlier payments on a debt
security have a higher present value, duration of a security, except a zero-
coupon security, is less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts and buy options and write covered options on those futures contracts.
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 a segregated account of liquid, high-grade debt instruments with a
value at all times sufficient to cover the Fund's obligations under the option.
Effective April 1, 1996 the Fund will employ two investment styles - Total
Return investment style and Positive Return investment style - in addition to
the investment style currently employed by the Fund, to the extent consistent
with the Fund's investment objective and policies. Each of the two new
investment styles, based on distinct investment criteria, tends to invest in
debt obligations with either shorter or longer maturities. For a desciption of
these investment styles, see "Investment Policies - Balanced Funds." Reliance on
multiple investment styles is intended to reduce the price and return volatility
of the Fund and provide more consistent fixed income returns. In addition, to
more appropriately reflect the utilization of three distinct investment styles
in pursuit of the the Fund's investment objective, effective April 1, 1995 the
Fund will change its name to "Diversified Bond Fund."
Stable Income Fund seeks to maintain safety of principal while providing low
volatility total return by investing primarily in investment grade short-term
obligations. The Fund invests in a diversified portfolio of fixed and variable
rate U.S. dollar denominated fixed income securities of a broad spectrum of
United States and foreign issuers, including U.S. Government Securities and the
debt securities of financial institutions, corporations, and others.
The securities in which the Fund invests include mortgage-backed and other
asset-backed securities, although the Fund limits these investments to not more
than 60 percent and 25 percent, respectively, of its total assets. In addition,
the Fund limits its holdings of mortgage-backed securities that are not U.S.
Government Securities to 25 percent of its total assets. The Fund may invest any
amount of its assets in U.S. Government Securities, but under normal
circumstances less than 50 percent of the Fund's total assets are so invested.
The Fund may invest in securities that are restricted as to disposition under
the Federal securities laws (sometimes referred to as "private placements" or
"restricted securities"). In addition, the Fund may not invest more than 25
percent of its total assets in the securities issued or guaranteed by
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any single agency or instrumentality of the U.S. Government, except the U.S.
Treasury, and may not invest more than 10 percent of its total assets in the
securities of any other issuer.
The Fund only purchases those securities that are rated, at the time of
purchase, within the three highest long-term or two highest short-term rating
categories assigned by a Nationally Recognized Statistical Rating Organization,
such as Moody's Investors Service, Inc., Standard & Poor's Corporation or Fitch
Investors Services, Inc., or which are unrated and determined by the Adviser to
be of comparable quality.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to12 years and seeks to maintain an average dollar-
weighted portfolio maturity of between 2 and 5 years.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's income and may attempt to reduce the overall risk
of its investments or limit the uncertainty in the level of future foreign
exchange rates (hedge) by using options and futures contracts and foreign
currency forward contracts. The Fund's ability to use these strategies may be
limited by market considerations, regulatory limits and tax considerations. The
Fund may write covered call and put options, buy put and call options, buy and
sell interest rate and foreign currency futures contracts and buy options and
write covered options on those futures contracts. 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 a segregated account
of liquid, high-grade debt instruments with a value at all times sufficient to
cover the Fund's obligations under the option.
Ready Cash Investment Fund invests in a broad spectrum of high-quality, short-
term money market instruments of United States and foreign issuers that are
determined by the Adviser, pursuant to procedures adopted by the Board, to be
eligible for purchase and to present minimal credit risks. These instruments may
be U.S. Government Securities or the securities of financial institutions,
corporations, foreign governments, municipal governments, supranational
organizations and others. The Fund may 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 Investment Company Act of 1940) and will
maintain a dollar-weighted average portfolio maturity of 90 days or less. The
Fund may purchase securities with ultimate maturities of greater than 397 days
only 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 may be purchased.
The securities in which the Fund invests will include mortgage-related
securities, asset-backed securities and participation interests and may have
variable or floating rates of interest or principal. Except to the limited
extent permitted by Rule 2a-7 and except for U.S. Government Securities, the
Fund will not invest more than 5 percent of its total assets in the securities
of any one issuer. In addition, to ensure adequate liquidity, the Fund may not
invest more than 10 percent of its net assets in illiquid securities. Under the
supervision of the Board, the Adviser determines and monitors the liquidity of
portfolio securities.
High-quality instruments include those that (i) 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 Nationally Recognized
Statistical Rating Organizations ("NRSROs") or, if only one NRSRO has issued a
rating, by that NRSRO or (ii) are otherwise unrated and determined by the
Adviser to be of comparable quality. The Fund will invest at least 95 percent of
its total assets in securities in the highest rating category (as determined
pursuant to Rule 2a-7).
Additional Investment Policies
All investment policies of a Fund that are designated as fundamental, and each
Fund's investment objective, may not be changed without approval of the holders
of a majority of the Fund's outstanding voting securities. A majority of a
Fund's outstanding voting securities means the lesser of 67 percent of the
shares of the Fund present or represented at a shareholders' meeting at which
the holders of more than 50 percent of the shares are present or represented, or
more than 50 percent of the outstanding shares of the Fund. Except as otherwise
indicated, investment policies of the Funds are not fundamental and may be
changed by the Board without shareholder approval.
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Investment Limitations. The Funds have adopted the investment limitations listed
below, each of which is a nonfundamental policy except as noted. These policies
relate to each Fund and, unless otherwise noted, not to a portion of a Fund
invested in a particular investment style. Other investment limitations,
including additional provisions with respect to the limitations listed below,
are described in the SAI.
Diversification. Each Fund is a "diversified" portfolio as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). As a fundamental
policy, with respect to 75 percent of its assets, no Fund may purchase a
security (other than a U.S. Government Security) if, as a result, (i) more than
5 percent of the Fund's total assets would be invested in the securities of a
single issuer or (ii) the Fund would own more than 10 percent of the outstanding
voting securities of any single issuer. International Fund may invest up to 100
percent of its investment assets in the International Portfolio and each other
Fund (except Ready Cash Investment Fund) reserves the right to invest all or a
portion of its assets in another diversified, open-end investment company with
substantially the same investment objective and policies as the Fund.
Concentration. Except as noted below, each of the Funds is prohibited from
concentrating its assets in the securities of issuers in any industry. As a
fundamental policy, no Fund may purchase securities if, immediately after the
purchase, more than 25 percent of the value of the Fund's total assets would be
invested in the securities of issuers conducting their principal business
activities in the same industry. This limit does not apply to investments in
U.S. Government Securities, foreign government securities, repurchase agreements
covering U.S. Government Securities or investment company securities. Under
normal circumstances, Ready Cash Investment Fund will invest more than 25
percent of its total assets in the obligations of domestic and foreign financial
institutions and their holding companies. This concentration may result in
increased exposure to risks pertaining to the financial institution industry.
These risks include a sustained increase in interest rates, which can adversely
affect the availability and cost of a bank's lending activities; exposure to
credit losses during times of economic decline; concentration of loan portfolios
in certain industries; regulatory developments; and competition among financial
institutions.
Illiquid Securities. Each of the Funds 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 for Ready Cash Investment Fund) of the Fund's net assets taken at
current value would be invested in securities which are not readily marketable.
Illiquid investments include securities that are illiquid by virtue of legal or
contractual restrictions on the sale of such securities and repurchase
agreements not entitling the holder to principal within 7 days. Under the
supervision of the Board, the Advisers determine and monitor the liquidity of
portfolio securities.
Borrowing and Lending. As a fundamental policy, each Fund may borrow money for
temporary or emergency purposes, including the meeting of redemption requests,
but not in excess of 33 1/3 percent of the value of the Fund's total assets as
computed immediately after the borrowing. Borrowing for other than temporary or
emergency purposes or meeting redemption requests is limited to 5 percent of the
value of each Fund's total assets except in the case of Intermediate U.S.
Government Fund, Managed Fixed Income Fund and, with respect to their assets
invested in the Managed Fixed Income Fund investment style, the Balanced Funds.
When a Fund establishes a segregated account to limit the amount of leveraging
of the Fund with respect to certain investment techniques, the Fund does not
treat those techniques as involving borrowings (although they may have
characteristics and risks similar to borrowings and result in the Fund's assets
being leveraged). See "Appendix A: Investments, Investment Strategies and Risk
Considerations - Borrowing" and "Techniques Involving Leverage." As a
fundamental policy, no Fund may make loans except for loans of portfolio
securities, through the use of repurchase agreements, and through the purchase
of debt securities that are otherwise permitted investments for the Fund.
Margin and Short Sales. Except for Intermediate U.S. Government Fund, no Fund
may purchase securities on margin or make short sales of securities, except
short sales against the box. These prohibitions do not restrict the Funds'
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. When business or financial conditions warrant,
each Fund may assume a temporary defensive position and invest all or any
portion of their assets in cash or in cash equivalents, including (i) short-term
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U.S. Government Securities, (ii) prime quality short-term instruments of
commercial banks, (iii) prime quality commercial paper, (iv) repurchase
agreements with banks and broker-dealers covering any of the securities in which
the Fund may invest directly and (v) shares of money market mutual funds. During
periods when and to the extent that a Fund has assumed a temporary defensive
position, it may not be pursuing its investment objective. The Funds may from
time to time maintain investments in cash and cash equivalents pending
investment in securities. The International Portfolio and, with respect to the
portion of their assets managed by Schroder, Diversified Equity Fund, Growth
Equity Fund and each Balanced Fund, may hold cash and bank instruments
denominated in any major foreign currency. Prime quality refers to the two
highest short-term ratings of a Nationally Recognized Statistical Rating
Organization.
Common Investment Techniques. Each of the Funds may enter into repurchase
agreements (for reasons other than temporary defensive purposes) and reverse
repurchase agreements, may lend their portfolio securities and may purchase
portfolio securities on a when-issued or forward commitment basis. It is
currently anticipated that the Equity Funds will not enter into reverse
repurchase agreements or purchase portfolio securities on a when-issued or
forward commitment basis to any material extent.
Fixed Income Securities and Their Characteristics. Although each Fund only
invests in investment grade fixed income securities, including money market
instruments, an investment in a Fund 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.
The market value of the interest-bearing debt securities held by the Funds will
be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an increase
in interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
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. To the extent otherwise
permitted, the Funds may invest in these securities if the Adviser or Schroder
believes that the securities do not present risks inconsistent with a Fund's
investment objective.
Rating Matters. The Fixed Income Funds and, with respect to their assets
invested in fixed income investment styles, the Balanced Funds, will invest in
securities rated in the categories described in "Investment Objectives, Policies
and Risk Considerations - Investment Policies - Fixed Income Funds." The Funds
also may purchase unrated securities if the Adviser determines the security to
be of comparable quality to a rated security that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. Each Fund
may retain a security whose rating has been lowered below the Fund's 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 Fund's lowest permissible rating category) if the Adviser or Schroder
determines that retaining the security is in the best interests of the Fund.
The Fund's investments are subject to "credit risk" relating to the financial
condition of the issuers of the securities that the Funds hold. To limit credit
risks, the Funds (other than Ready Cash Investment Fund) may only invest in
securities that are investment grade - rated in the top four long-term
investment grades by a Nationally Recognized Statistical Rating Organization
("NRSRO") or in the top two short-term investment grades by an NRSRO.
Accordingly, the lowest permissible long-term investment grades for corporate
bonds, including convertible bonds, are Baa in the case of Moody's Investor
Services, Inc. ("Moody's") and BBB in the case of Standard & Poor's Corporation
("S&P") and Fitch Investors Service, Inc. ("Fitch"); the lowest permissible
long-term investment grades for preferred stock are Baa in the case of Moody's
and BBB in the case of S&P and Fitch; and the lowest permissible short-term
investment grades for short-term debt, including commercial paper, are Prime-2
(P-2) in the case of Moody's, A-2 in the case of S&P and F-2 in the case of
Fitch. A further description of the rating categories of certain NRSROs is
contained in the SAI. All
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<PAGE>
these ratings are generally considered to be investment grade ratings, although
Moody's indicates that securities with long-term ratings of Baa have speculative
characteristics.
Variable and Floating Rate Securities. The securities in which the Funds invest
may have variable or floating rates of interest and, under certain limited
circumstances, may have varying principal amounts. These securities pay interest
at rates that are adjusted periodically 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. Similarly 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-backed
securities) pay interest at a rate that varies inversely to prevailing short-
term interest rates (sometimes referred to as inverse floaters). For example,
upon reset the interest rate payable on a security may go down when the
underlying index has risen. During periods 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. While this form of leverage may increase the security's,
and thus the Fund's, yield, it may also increase the volatility of the
security's market value.
There may not be an active secondary market for any particular floating or
variable rate instrument; this could make it difficult for a Fund to dispose of
the instrument during periods of market volatility or economic uncertainty or if
the issuer's credit became impaired at a time when the Fund was not entitled to
exercise any demand rights it might have. A Fund could, for this or other
reasons, suffer a loss with respect to the instrument. The Advisers monitor the
liquidity of the Funds' investments in variable and floating rate instruments,
but there can be no guarantee that an active secondary market will exist at any
time. Ready Cash Investment Fund also may purchase variable and floating rate
demand notes 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. The Funds intend to 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.
Management of the Funds
The business of the Trust is managed under the direction of the Board of
Trustees. The Board formulates the general policies of the Funds and generally
meets quarterly to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. In order to minimize potential conflicts of interest, only one trustee of
Core Trust, John Y. Keffer, is also a trustee of the Trust. The SAI contains
general background information about the trustees and officers of the Trust and
Core Trust. The Board currently consists of seven members.
Investment Advisory Services
Norwest Investment Management. The Adviser serves as investment adviser of each
Fund pursuant to investment advisory agreements between Norwest and the Trust.
Subject to the general supervision of the Board, the Adviser makes
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investment decisions for each Fund and continuously reviews, supervises and
administers each Fund's investment program or oversees the investment decisions
of the investment subadviser, as applicable. The Adviser is a part of Norwest,
which is a subsidiary of Norwest Corporation, a multi-bank holding company
incorporated under the laws of Delaware in 1929. As of December 31, 1995,
Norwest Corporation was the __th largest bank holding company in the United
States in terms of assets. Norwest became a subsidiary of Norwest Corporation in
1929 and, as of December 31, 1995, the Adviser managed or provided investment
advice with respect to assets totaling approximately $____ billion. Except for
the fees paid to Norwest, each investment advisory agreement is the same in all
material respects.
Schroder Capital Management International Inc. Subject to the Adviser's general
oversight, Schroder, through its London, England branch, acts as investment
subadviser to International Fund, Diversified Equity Fund, Growth Equity Fund,
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund
pursuant to investment subadvisory agreements among the Trust, Norwest and
Schroder. Under these agreements, Schroder makes investment decisions for each
Fund and continuously reviews, supervises and administers each Fund's investment
program with respect to that portion, if any, of the respective Fund's portfolio
that the Adviser believes should be invested using International Fund's
investment philosophy. Each investment subadvisory agreement is the same in all
material respects. Through its management of International Portfolio, Schroder
manages the entire portfolio of International Fund.
Schroder, whose principal business address is 787 Seventh Avenue, New York, New
York 10019, is registered with the SEC as an investment adviser and is a wholly-
owned U.S. subsidiary of Schroders Incorporated, the wholly-owned U.S. holding
company subsidiary of Schroders plc. Schroders plc is the holding company parent
of a large worldwide group of banks and financial services companies (referred
to as the "Schroder Group") and has associated companies and branch and
representative offices located in seventeen countries worldwide. The Schroder
Group specializes in providing investment management services and has assets
under management currently in excess of $90 billion.
International Fund. International Fund may withdraw its investment from
International Portfolio, for which Schroder serves as investment adviser, at any
time if the Board determines that it is in the best interests of International
Fund and its shareholders to do so. See "Other Information - Core Trust
Structure." Accordingly, International Fund has retained the Adviser as its
investment adviser and Schroder as its investment subadviser to manage the
Fund's assets in the event International Fund so withdraws its investment.
Neither the Adviser or Schroder will receive any advisory or subadvisory fees
with respect to International Fund as long as International Fund remains
completely invested in International Portfolio or any other investment company.
Schroder acts as investment adviser to International Portfolio pursuant to an
advisory agreement with Core Trust. Subject to the general supervision of Core
Trust's board of trustees, Schroder makes investment decisions for International
Portfolio and continuously reviews, supervises and administers International
Portfolio's investment program. The investment advisory agreement between
Schroder and Core Trust with respect to International Portfolio is the same in
all material respects as the Funds' investment subadvisory agreements except as
to the parties, the circumstances under which fees will be paid and the
jurisdiction whose laws govern the agreement.
Core Trust Blended Portfolios. As noted under "Investment Policies - Investment
in Core Trust," the five Blended Funds invest their assets which are managed in
a small company, index and international investment style in three Blended
Portfolios of Core Trust - Small Company Portfolio, Index Portfolio and
International Portfolio II. Each Blended Fund may withdraw its investment from a
Blended Portfolio at any time that the Board determines it is in the best
interests of the Blended Fund and its shareholders to do so. See "Other
Information - Core Trust Structure." Norwest serves as investment adviser to
Small Company Portfolio and Index Portfolio and Schroder serves as investment
adviser to International Portfolio II pursuant to separate advisory agreements
with Core Trust. Subject to the general supervision of Core Trust's board of
trustees, Norwest and Schroder perform services for the Blended Portfolios
similar to those performed for the Trust under its investment advisory
agreements.
Portfolio Managers. Many persons on the advisory staff of each of the Adviser
and Schroder contribute to the investment advisory services provided to the
Funds, International Portfolio and the three Blended Portfolios of Core Trust,
as applicable. The following persons, however, are primarily responsible for the
day-to-day management of the Funds' investment portfolios and, unless otherwise
noted, have been since inception of the Funds:
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Small Company Growth Fund - Robert B. Mersky, Senior Portfolio Manager and an
Officer of Norwest and President of Peregrine Capital Management, Inc. Mr.
Mersky has held various investment management positions with Norwest or its
affiliates, including Peregrine, since 1977. From 1980 to 1984 he was head of
investments for Norwest.
Large Company Growth Fund - John S. Dale, Senior Portfolio Manager and an
Officer of Norwest and Senior Vice President of Peregrine Capital Management,
Inc. Mr. Dale has held various investment management positions with Norwest or
its affiliates, including Peregrine, since 1968. From 1984 to 1987 he was a
Senior Vice President and Manager of Equity Advisors for Norwest.
International Fund - International Fund invests all of its assets in the
International Portfolio and, accordingly, there is currently no portfolio
manager for this Fund. Mr. Mark J. Smith, First Vice President and Director of
Schroder since April 1993, however, is responsible for the day-to-day management
of the International Portfolio's investment portfolio. Mr. Smith has been
associated with Schroder or its affiliates since 1983 in various positions,
including portfolio manager of other mutual funds and pooled investment vehicles
that invest in international securities. Mr. Smith also serves as portfolio
manager of International Portfolio II.
Income Equity Fund - David L. Roberts, Senior Vice President of Norwest since
1991. Mr. Roberts has been associated with Norwest for 20 years in various
investment related capacities.
Index Fund - No single person at the Adviser acts as portfolio manager of the
Fund.
Intermediate U.S. Government Fund - Marjorie H. Grace, Vice President of Norwest
since 1992. Ms. Grace was a portfolio manager of Norwest Bank from 1992-1993; an
Institutional Salesperson with Norwest Investment Services, Inc. from 1991-1992;
a portfolio manager with United Banks of Colorado from 1989-1991; and Vice
President and portfolio manager with Colombia Savings and Loan from 1987-1989.
Managed Fixed Income Fund - William D. Giese, Senior Portfolio Manager and an
officer of Norwest and Senior Vice President of Peregrine Capital Management,
Inc. Mr. Giese has been a portfolio manager with Peregrine for 10 years and has
approximately 20 years experience in the fixed income securities management
business.
Stable Income Fund - Karl P. Tourville, Vice President of Norwest since 1989.
Mr. Tourville has been associated with Norwest since 1986. As of December 31,
1994, Mr. Tourville was responsible for the management of over $1.3 billion in
pooled fixed income assets.
Short Maturity investment style - David D. Sylvester and Laurie R. White. For a
description of Mr. Sylvester and Ms. White, see "Ready Cash Investment Fund"
above.
Small Company investment style and Small Company Portfolio - Robert B. Mersky,
Kirk McCown and Thomas H. Forester. For a description of Mr. Mersky, see "Small
Company Growth Fund" above. Mr. McCown is founder, President and a Director of
Crestone Capital Management, Inc., a subsidiary of Norwest which is investment
subadviser to Small Company Stock Fund, another fund of the Trust. Prior
thereto, Mr. McCown was Senior Vice President of Reich & Tang, L.P. Mr. Forester
is an officer of Norwest and Senior Vice President of Peregrine Capital
Management, Inc. Mr. Forester joined Peregrine in 1995. From 1992 to 1995 he
was Vice President of Lord Asset Management, an investment adviser. Mr. McCown
commenced serving as a portfolio manager of each Blended Fund on June 1, 1995.
Mr. Forester commenced serving as a portfolio manager of each Blended Fund on
_______, 199_.
Total Return investment style - Mr. David B. Kinney, Vice President and Senior
Portfolio Manager of Norwest, has been associated with Norwest since 1981. Mr.
Kinney has been portfolio manager of the Total Return Bond Fund, another fund of
the Trust that invests exclusively in this investment style since its inception
and commenced serving as a portfolio manager of each Blended Fund on June 1,
1995.
Positive Return investment style - William D. Giese, Senior Portfolio Manager
and an officer of Norwest and Senior Vice President of Peregrine Capital
Management, Inc. For a description of Mr. Giese see "Managed Fixed Income Fund"
above. Mr. Giese commenced serving as a portfolio manager of each Blended Fund
on June 1, 1995.
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The day-to-day management of the portfolios of Diversified Equity Fund, Growth
Equity Fund, Conservative Balanced Fund, Moderate Balanced Fund and Growth
Balanced Fund is performed by the portfolio managers listed above with respect
to the portion of the Fund's portfolio that is invested using the investment
style of another Fund. In addition, the portfolio managers responsible for the
management of a Blended Funds' assets allocated to the Small Company investment
style, Positive Return investment style and Short Maturity investment style are
listed above:
As an example, there are five portfolio managers of Growth Equity Fund: Mr.
Mersky. Mr. McCown and Mr. Forester are responsible for the Fund's assets
invested in accordance with Small Company investment style, Mr. Dale is
responsible for the Fund's assets invested in accordance with Large Company
Growth Fund investment style and Mr. Smith of Schroder is responsible for the
Fund's assets invested in accordance with International Fund's investment style.
Cash balances of each Fund, are managed by Mr. Sylvester and Ms. White, the
portfolio managers for Ready Cash Investment Fund, a separate series of the
Trust which is offered by a separate prospectus.
Advisory Fees
The investment advisory fees payable to Norwest by the Trust with respect to
each Fund (and payable to Schroder by Core Trust with respect to International
Portfolio) are based on the average daily net assets of the respective Fund (or
International Portfolio) at the following annual rates:
Advisory Fee Rate
Diversified Equity Fund 0.65%
Growth Equity Fund 0.90%
Large Company Growth Fund 0.65%
Small Company Growth Fund 0.90%
International Fund 0.45%
Income Equity Fund 0.50%
Index Fund 0.15%
Conservative Balanced Fund 0.45%
Moderate Balanced Fund 0.53%
Growth Balanced Fund 0.58%
Intermediate U.S. Government Fund 0.33%
Managed Fixed Income Fund 0.35%
Stable Income Fund 0.30%
The advisory agreement for International Fund provides for an advisory fee
payable to the Adviser of 0.85 percent of the average annual daily net assets of
the Fund in the event that the Fund is not completely invested in International
Portfolio or another investment company. As International Fund currently invests
all of its assets in International Portfolio, no fees are payable under that
agreement. Pursuant to the investment subadvisory agreements, the Adviser (and
not the Trust) pays Schroder a fee for their investment subadvisory services;
however, that compensation does not increase the amount paid by the Trust to the
Adviser pursuant to the Adviser's investment advisory agreements.
With respect to International Portfolio, for services under its advisory
agreement, Schroder receives from Core Trust an advisory fee of 0.45 percent of
International Portfolio's average annual daily net assets.
With respect to Small Company Portfolio and Index Portfolio of Core Trust, for
services under its investment advisory agreements, Norwest receives from Core
Trust advisory fees of 0.90 percent and 0.15 percent of the respective
Portfolio's average annual daily net assets. For its services under its
investment advisory agreement, with respect to International Portfolio II of
Core Trust, Schroder receives from Core Trust an advisory fee of 0.45 percent of
International Portfolio II's average annual daily net assets. Norwest waives all
of the advisory fees payable by Small Company Portfolio and Index Portfolio.
Schroder does not receive a subadvisory fee from any Blended Fund to the extent
that such Fund's assets are invested in International Portfolio II, and Norwest
reimburses International Portfolio II the amount of the advisory fee the
Portfolio pays to Schroder. Accordingly, duplicative investment advisory fees
are not incurred by any Fund.
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Advisory fees are accrued daily and paid monthly. The advisory fees for Growth
Equity Fund and Small Company Growth Fund and the combined advisory and
administrative services fees for International Fund are higher than those paid
by most investment companies of all types to their advisers, but the Trust
believes that the fees are appropriate for these Funds considering their
investment objectives and policies.
Administrative and Other Services
Administration and Distribution Services. Subject to the supervision of the
Board, Forum Financial Services, Inc. ("Forum") supervises the overall
management of the Trust (other than portfolio management), including the Trust's
receipt of services for which the Trust is obligated to pay, and provides the
Trust with general office facilities pursuant to a management agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. As of the date of this Prospectus, Forum acted as manager and
distributor of registered investment companies and collective trust funds with
assets of approximately $9.0 billion. Forum, whose principal business address is
61 Broadway, New York, New York 10006, is a registered broker-dealer and
investment adviser and is a member of the National Association of Securities
Dealers, Inc. As of the date hereof, Forum is controlled by John Y. Keffer,
Chairman and President of the Trust.
For its management services and facilities, Forum receives a fee at an annual
rate of 0.10 percent of the average daily net assets of each Fund. Forum also
serves as administrator of Core Trust and provides administrative services for
the International Portfolio and each Blended Portfolio that are similar in
nature to those provided to the Funds. For its administrative services, Forum is
compensated by Core Trust at an annual rate of 0.15 percent of the average daily
net assets of International Portfolio and at an annual rate of 0.10 percent of
the average daily net assets of each Blended Portfolio. Forum will waive the
amount of its management fee that it would otherwise be entitled to receive from
a Blended Fund for that portion of the assets of the Blended Fund invested in a
Blended Portfolio. Forum's management and administration fees are accrued daily
and paid monthly.
In addition, pursuant to a separate services agreement, Norwest receives a fee
at an annual rate of 0.25 percent of the average annual daily net assets of
International Fund. Under this agreement, Norwest is responsible for compiling
data for and preparing communications between the Fund and its shareholders,
maintaining requisite information flows between the Fund and the investment
adviser to International Portfolio, monitoring and reporting to the Board on the
performance of International Portfolio and reimbursing the Fund for certain
excess expenses. No fees are payable under this service agreement in the event
that the International Fund is not completely invested in International
Portfolio or another investment company. International Fund incurs total
management and administrative fees at a higher rate than the other Funds due in
part to the nature of the Fund's structure and the Fund's investment policies.
Pursuant to a separate distribution agreement with the Trust, Forum acts as the
agent of the Trust in connection with the offering of the shares of the Funds.
Forum receives no payments for its services as distributor of the Shares. In
addition, no Fund and no Portfolio of Core Trust has adopted a Rule 12b-1 Plan
applicable to the Shares and, accordingly, no Fund incurs any distribution
expenses. Forum also provides accounting services to the Funds and to Core
Trust.
Shareholder Servicing and Custody. Norwest 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 and shareholder servicing functions for the
Trust, 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 its or Forum's affiliates, who agree
to comply with the terms of the Transfer Agent's agreement with the Trust. The
Transfer Agent is permitted to compensate those agents for their services;
however, no such compensation may increase the aggregate amount of payments by
the Trust to the Transfer Agent. For its services, Norwest is compensated at the
annual rate of 0.25 percent of each Fund's average annual daily net assets
attributable to the Shares.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. Except as
noted below, Norwest currently receives no additional compensation for its
custodial services, but the Funds will incur the expenses and costs of any
subcustodian. International Fund and, to the extent they invest in the
International Fund investment style, each Blended Fund indirectly incurs its pro
rata portion of
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the custodial fees of Core Trust. The Chase Manhattan Bank, N.A. serves as
custodian of International Portfolio and International Portfolio II and is paid
a fee by Core Trust for its services. Norwest serves as custodian of Small
Company Portfolio and Index Portfolio and currently receives no additional
compensation for its custodial services with respect to those Portfolios.
Expenses of the Funds
Each Fund, as well as each Portfolio of Core Trust, is obligated to pay for all
of its expenses, although Norwest has agreed to reimburse the Trust for certain
of each Fund's operating expenses which in any year exceed the limits prescribed
by any state in which the Fund's shares are qualified for sale. For an estimate
of each Fund's expenses for the current fiscal year, see "Summary - Expenses of
Investing in the Funds." These expenses include: interest charges; taxes;
brokerage fees and commissions; certain insurance premiums; applicable fees and
expenses under the Trust's or Core Trust's contracts with the Advisers, Forum,
the Transfer Agent and any custodian; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
auditing, legal and compliance expenses; costs of preparing and printing the
Trust's prospectuses, statements of additional information and shareholder
reports and delivering them to existing shareholders; compensation of certain of
the Trust's or Core Trust's trustees, officers and employees and other personnel
performing services for the Trust or Core Trust; and registration fees and
related expenses.
Each Fund's expenses comprise Trust expenses attributable to the Fund and
expenses not attributable to any particular portfolio of the Trust, which are
allocated among the Funds and all other portfolios of the Trust in proportion to
their average net assets. International Fund's expenses include the Fund's pro
rata share of the operating expenses of International Portfolio, which are borne
indirectly by International Fund's shareholders. Although the Blended
Portfolio's do not incur investment advisory fees, they do incur other
administrative and operating expenses. While the Blended Portfolios expenses are
not borne directly by the Blended Funds, those expenses have the effect of
reducing the net investment income of the Blended Portfolios.
The Advisers, Forum, the Transfer Agent and any other service provider to the
Funds, International Portfolio or a Blended Portfolio may elect to waive all or
a portion of their fees. Any such waivers will have the effect of increasing a
Fund's performance for the period during which the waiver was in effect. No fee
waivers may be recouped at a later date. Other than investment advisory fees,
any fee paid by the Trust or Core Trust may be increased by the Board or the
board of trustees of Core Trust without shareholder approval.
Each service provider to the Trust or their agents or affiliates may also act in
various capacities for, and receive compensation from, their customers who are
shareholders in 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 the Funds.
Purchases and
Redemptions of Shares
Shares of each Fund are continuously sold and redeemed at a price equal to their
net asset value on each Fund Business Day (as defined below) without charge. All
transactions in Fund Shares are effected through the Transfer Agent, which
accepts orders for purchases and redemptions only from shareholders of record
and new investors. Shareholders of record receive periodic statements from the
Trust listing all account activity during the statement period. I Shares of a
Fund are offered to fiduciary, agency and custodial clients of bank trust
departments, trust companies and their affiliates.
Purchase and Redemption Procedures
Purchases and Redemptions Through Financial Institutions. Shares may be
purchased and redeemed (and in the case of Plans, generally will be purchased
and redeemed) through certain banks, trust companies and their affiliates,
including Norwest and its affiliates ("Processing Organizations"). 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.
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Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their Processing
Organization procedures and should read this Prospectus in conjunction with any
materials and information provided by their Processing Organization. Customers
who purchase a Fund's shares through a Processing Organization may or may not be
the shareholder of record and, subject to their Processing Organization's and
the Funds' procedures, may have Fund shares transferred into their name. Under
their arrangements with the Trust, broker-dealer Processing Organizations are
not generally required to deliver payment for purchase orders until several
business days after a purchase order has been received by a Fund. Certain other
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Funds
to be purchased and redeemed only through registered broker-dealers, including
the Funds' distributor.
Initial Purchases of Shares. Investors may obtain the account application form
necessary to open an account by writing the Trust at the address listed on page
2 of the Prospectus.
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
By Mail. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed below.
Checks 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.
By Bank Wire. To make an initial investment in a Fund using the wire system for
transmittal of money among banks, an investor should first telephone the Trust
Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an account number. The
investor should then instruct a bank to wire the investor's money immediately
to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Funds 0844-131
Re: [Name of Fund], [I Shares]
Account Number:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
Subsequent Purchases of Shares. Subsequent purchases may be made by mailing a
check, by sending a bank wire or through the shareholder's Processing
Organization as indicated above. All payments should clearly indicate the
shareholder's name and account number.
Redemptions of Shares. Shareholders that wish to redeem shares by telephone or
receive redemption proceeds by bank wire must elect these options by properly
completing the appropriate sections of their account application form. These
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privileges may not be available until several weeks after a shareholder's
application is received. Shares for which certificates have been issued may not
be redeemed by telephone.
By Mail. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. See "Purchases and Redemptions of Shares - General
Information."
By Telephone. A shareholder who has elected telephone redemption privileges may
make a telephone redemption request by calling the Transfer Agent at 800-338-
1348 or 612-667-8833 and providing the shareholder's account number, the exact
name in which the shares are registered and the shareholder's social security or
taxpayer identification number. In response to the telephone redemption
instruction, the Trust will mail a check to the shareholder's record address or,
if the shareholder has elected wire redemption privileges, wire the proceeds.
See "Purchases and Redemptions of Shares - General Information."
By Bank Wire. For redemptions of more than $5,000, a shareholder who has elected
wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Trust Transfer Agent.
Exchanges. Shareholders of I Shares may exchange their Shares for I Shares of
the other Funds or certain other portfolios of the Trust, Institutional Shares
of certain other portfolios of the Trust, and for shares of U.S. Government Fund
and Treasury Fund of the Trust. The Trust may in the future offer I Shares,
Institutional Shares, or other shares which will be exchangeable with the Shares
of the Funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make; the Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees charged by, and the limitations (including minimum investment
restrictions) of, the Fund into which a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence. For Federal tax
purposes, an exchange is treated as a redemption and a simultaneous new
purchase. Exchange procedures may be materially amended or terminated by the
Trust at any time upon 60 days' notice to shareholders. See "Additional Purchase
and Redemption Information" in the SAI.
By Mail. Exchanges may be made by sending a written request to the Transfer
Agent accompanied by any share certificates for the shares to be exchanged. All
written requests for exchanges must be signed by the shareholder, and all
certificates submitted for exchange must be endorsed by the shareholder with
signature guaranteed. See "Purchases and Redemptions of Shares - General
Redemption Information."
By Telephone. A shareholder who has elected telephone exchange privileges may
make a telephone exchange by calling the Transfer Agent at 800-338-1348 or 612-
667-8833 and providing the shareholder's account number, the exact name in which
the shareholder's shares are registered and the shareholder's social security or
taxpayer identification number. See "Purchases and Redemptions of Shares -
General Information."
General Information
Purchasing Shares. Investments in the Funds may be made either through certain
financial institutions or by an investor directly. An investor who invests in a
Fund directly will be the shareholder of record. Fund Shares are issued
immediately following the next determination of net asset value made after
acceptance of an investor's subscription and
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funds. An investor's funds will not be accepted or invested during the period
before the Fund's receipt of funds on deposit at a Federal Reserve Bank
("Federal Funds"). The Fund reserves the right to reject any subscription for
the purchase of its shares. Share certificates are issued only to shareholders
of record upon their written request and are not issued for fractional shares.
With approval of the Trust and the Adviser, shares may be purchased with
portfolio securities in lieu of cash.
Redeeming Shares. There is no minimum period of investment and no restriction on
the frequency of redemptions. Fund Shares are redeemed 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
which the Transfer Agent may require). Normally, redemption proceeds are paid
immediately, but in no event later than 7 days, following acceptance of a
redemption order. Proceeds of a redemption request, however, will not be paid
unless any check used for investment has been cleared by the shareholder's bank,
which may take up to 15 days. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to the shareholder's record address. The right
of redemption may not be suspended nor the payment dates postponed for more than
7 days except when the New York Stock Exchange is closed (or when trading
thereon is restricted) for any reason other than its customary weekend or
holiday closings or under any emergency or other circumstances as determined by
the SEC.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust, the Transfer Agent and Forum are not
responsible for the authenticity of telephone instructions or losses, if any,
resulting from unauthorized telephone redemption or exchange requests which
reasonably are believed to be genuine. The Trust employs reasonable procedures
(including the recording of certain telephone transactions) to insure that
telephone orders are genuine. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
Investment Minimums. Shares of each Fund are offered without a sales charge and
may be redeemed without charge. The minimum investment in I Shares is $1,000.
The minimum subsequent investment is $100. Shareholders who elect to purchase I
Shares through electronic share purchase privileges such as the Automatic
Investment Plan or the Directed Dividend Option are not subject to the initial
investment minimums. See "Purchases and Redemptions of Shares - General
Information - Automatic Investment Plan" and "Dividends, Distributions and Tax
Matters."
IRAs and KEOGHs. Shares may be a suitable investment vehicle for part or all of
the assets held in certain IRAs or KEOGH accounts. An appropriate account
application form may be obtained by contacting the Trust or, for accounts
rolling over from a Plan, the shareholder's employer. Under current IRA rules,
by directly rolling over a distribution from a Plan, investors can avoid the 20
percent withholding tax imposed on distributions from a Plan. Rollover IRA
assets must be held separately from other IRA assets if the investor wishes to
invest his Rollover IRA in another employer's plan in the future. The amount of
the deductible contribution to an IRA will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
Currently, individuals may make tax-deductible IRA contributions of up to a
maximum of $2,000 annually. However, the deduction will be reduced if the
individual or, in the case of a married individual filing jointly, either the
individual or the individual's spouse is an active participant in an employer-
sponsored retirement plan and has adjusted gross income above certain levels.
Signature Guarantees. A signature guarantee is required for any endorsement on a
share certificate and for instructions to change a shareholder's record name or
address, designated bank account for wire redemptions, Automatic Investment or
Withdrawal Plan, dividend election, telephone redemption or any other option
election in connection with the shareholder's account. Signature guarantees may
be provided by any eligible institution acceptable to the Transfer Agent,
including a bank, a broker, a dealer, a national securities exchange, a credit
union, or a savings association that is authorized to guarantee signatures.
Whenever a signature guarantee is required, each person required to sign for the
account must have that person's signature guaranteed.
Other Redemption Information. 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. The Company will only effect a redemption in portfolio securities
if the particular shareholder is redeeming more than $250,000 or 1 percent of
the Fund's total net assets, whichever is less, during any 90-day period.
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Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days written notice, all shares in
any Fund account with an aggregate net asset value of less than $1,000. The
Trust will not redeem accounts that fall below that amount solely as a result of
a reduction in net asset value.
Automatic Investment Plan. Under the Automatic Investment Plan which is
available to shareholders of I Shares of a Fund, shareholders may authorize
monthly amounts of $50 or more to be withdrawn automatically from the
shareholder's designated bank account (other than passbook savings) and sent to
the Transfer Agent for investment in a Fund. Shareholders wishing to use this
plan must complete an application which may be obtained by writing or calling
the Transfer Agent. The Trust may modify or terminate the Automatic Investment
Plan with respect to any shareholder in the event that the Trust is unable to
settle any transaction with the shareholder's bank. If the Automatic Investment
Plan is terminated before the shareholder's account totals $1,000, the Trust
reserves the right to close the account in accordance with the procedures
described under "Other Redemption Information" above.
Automatic Withdrawal Plan. A shareholder of I Shares of a Fund whose shares in a
single account total $1,000 or more may establish a withdrawal plan to provide
for the preauthorized payment from the shareholder's account of $250 or more on
a monthly, quarterly, semi-annual or annual basis. Under the withdrawal plan,
sufficient shares in the shareholder's account are redeemed to provide the
amount of the periodic payment and any taxable gain or loss is recognized by the
shareholder upon redemption of the shares.
Shareholders wishing to utilize the withdrawal plan may do so by completing an
application which may be obtained by writing or calling the Transfer Agent. The
Trust may suspend a shareholder's 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 amount at any time.
Reopening Accounts. Provided that the information on the account application
form on file with the Trust is still applicable, a shareholder may reopen an
account, without filing a new account application form, at any time within one
year after the shareholder's account is closed.
Determination of Net Asset Value. The Trust determines the net asset value per
share of each Fund as of 4:00 P.M., Eastern time, on all weekdays, except New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas ("Fund Business Day") by dividing the value of the Fund's 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.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. Securities for which market quotations are not
readily available are valued at fair value as determined by the Board in
accordance with procedures adopted by the Board.
Trading in securities on European, Far Eastern and other international
securities exchanges and over-the-counter markets is normally completed well
before the close of business of each Fund Business Day. In addition, trading in
foreign securities generally or in a particular country or countries may not
take place on all Fund Business Days. Trading does take place in various foreign
markets, however, on days on which the Funds' net asset value is not calculated.
Calculation of the net asset value per share of a Fund may not occur
contemporaneously with the determination of the prices of the foreign securities
used in the calculation. Events affecting the values of foreign securities that
occur after the time their prices are determined and before the Fund's
determination of net asset value will not be reflected in the Fund's calculation
of net asset value unless the Adviser or Schroder determines that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
All assets and liabilities of a Fund denominated in foreign currencies are
valued in 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 the valuation.
Dividends, Distributions
and Tax Matters
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Dividends and Distributions
Except with respect to Ready Cash Investment Fund, Shares become entitled to
receive dividends on the next Fund Business Day after acceptance of an order and
are not entitled to receive dividends declared after the day on which their
redemption becomes effective. Ready Cash Investment Fund Shares become entitled
to receive dividends on the day of the acceptance of an order and are not
entitled to receive dividends declared on or after the day on which their
redemption becomes effective.
Dividends of net investment income currently are declared and paid annually by
each Fund. Each Fund's net capital gain, if any, is distributed at least
annually, typically in December.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). Plan, IRA and KEOGH accounts are automatically
assigned the Reinvestment 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.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional Shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
Tax Matters
Taxation of the Funds. Each Fund is treated as a separate corporation for
Federal tax purposes and intends to qualify for each fiscal year as a regulated
investment company under the Internal Revenue Code of 1986, as amended. In
addition, each Fund intends to distribute all of its net investment income and
capital gain each year. Accordingly, it is anticipated that the Funds will not
be liable for Federal income or excise taxes on their net investment income and
capital gain.
International Fund-International Portfolio. International Portfolio is not
required to pay Federal income taxes on its net investment income and capital
gain, as it is treated as a partnership for Federal tax purposes. All interest,
dividends and gains and losses of International Portfolio are deemed to have
been "passed through" to International Fund in proportion to its holdings of
International Portfolio, regardless of whether such interest, dividends or gains
have been distributed by International Portfolio or losses have been realized by
the International Portfolio. Investment income received by International Fund
from sources within foreign countries may be subject to foreign income or other
taxes. International Fund intends to elect, 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. Shareholders of International Fund will
be notified of their share of those taxes and will be required to include that
amount as income. In that event, the shareholder may be entitled to claim a
credit or deduction for those taxes.
Shareholder Tax Matters
General. Dividends paid by a Fund out of its net investment income (including
any realized net short-term capital gain) are taxable to shareholders as
ordinary income. Distributions by a Fund of realized net long-term capital gain,
if any, are taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If Fund shares are sold at a loss after being held for 6 months or
less, the loss will be treated as long-term capital loss to the extent of any
long-term capital gain distribution received on those shares.
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All capital gain distributions paid by a Fund and all dividends paid by a Fund
and received by a shareholder reduce the net asset value of the shareholder's
shares by the amount of the distribution or dividend. Furthermore, a dividend or
distribution made shortly after the purchase of shares by a shareholder,
although in effect a return of capital to that particular shareholder, would be
taxable to the shareholder as described above.
It is expected that a substantial portion of each Equity Fund's dividends to
shareholders and a portion of each Balanced Fund's dividends to shareholders
will qualify for the dividends received deduction for corporations.
The Funds may be required by Federal law to withhold 31 percent of reportable
payments (which may include taxable dividends, capital gain distributions and
redemption proceeds) paid to individuals and certain other non-corporate
shareholders. Withholding is not required if a shareholder certifies that the
shareholder's social security or tax identification number provided to the Trust
is correct and that the shareholder is not subject to backup withholding for
prior under-reporting to the Internal Revenue Service.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by the Funds will
be mailed to shareholders shortly after the close of each year.
Tax-Deferred Accounts. Dividends or distributions of net long-term capital gain,
if any, paid with respect to the shares of a Fund held by a tax-deferred
account will not be taxable to that account. Currently, distributions from such
accounts will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the account.
Other Information
Fund Performance
Each Fund's performance may be quoted in advertising in terms of yield or total
return. Both types are based on historical results and are not intended to
indicate future performance. The Funds' advertisements may reference ratings and
rankings among similar funds by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the
performance of a Fund may be compared to recognized indices of market
performance. The comparative material found in the Funds' advertisements, sales
literature or reports to shareholders may contain performance ratings. This
material is not to be considered representative or indicative of future
performance.
Yield. A Fund's yield is a way of showing the rate of income earned by the Fund
as a percentage of the Fund's share price. Yield is calculated by dividing the
net investment income of the Fund for the stated period by the average number of
shares entitled to receive dividends and expressing the result as an annualized
percentage rate based on the Fund's share price at the end of the period. A Fund
may also quote a compounded annualized yield which assumes the reinvestment of
dividends paid by the Fund and therefore will be somewhat higher than the
annualized yield for the same period.
Total Return. Total Return refers to the average annual compounded rates of
return over some representative period that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, after giving effect to the reinvestment of all dividends and
distributions and deductions of expenses during the period. Because average
annual returns tend to smooth out variations in a Fund's returns, shareholders
should recognize that they are not the same as actual year-by-year results.
Performance Benchmarks. Each of the Funds uses a benchmark securities index as a
measure of the Fund's performance. These indices may be comprised of a composite
of various recognized securities indices to reflect the investment policies of
Diversified Equity Fund, Growth Equity Fund and each Balanced Fund, which invest
their assets using different investment styles. These indices are not used in
the management of the Fund but rather are standards by which the Advisers and
shareholders may compare the performance of a Fund to an unmanaged composite of
securities with similar, but not identical, characteristics as the Fund. For
instance, Index Fund's investment objective is to duplicate the return of the
Standard & Poor's 500 Composite Stock Price Index. Accordingly, the Adviser
generally
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uses that index as a comparison to measure the performance of Index Fund. The
Funds may from time to time advertise a comparison of their performance against
any of these or other indices.
Banking Law Matters
Federal banking laws and regulations 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. Forum believes that Norwest and any other bank or bank
affiliate that may perform sub-transfer agent or similar services or purchase
shares as agent for its customers may perform the services described in this
Prospectus for the Trust and its shareholders without violating applicable
Federal banking laws or regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If
Norwest or another bank or bank affiliate were prohibited from so acting, its
shareholder customers would be permitted to remain shareholders of the Trust and
alternative means for continuing the servicing of such shareholders would be
sought. In this event, changes in the operation of the Trust might occur and
shareholders serviced by the bank or bank affiliate might no longer be able to
avail themselves of its services. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
Portfolio Transactions
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 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,
research and other services provided by the broker effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to
International Fund and each other Fund that invests in foreign securities than
would be the case for comparable transactions effected on United States
securities exchanges.
Subject to the Funds' policy of obtaining the best price consistent with quality
of execution of transactions, each Adviser may employ Norwest Investment
Services, Inc., Wertheim Schroder & Company and other broker-dealer affiliates
of an Adviser (collectively "Affiliated Brokers") to effect brokerage
transactions for the Funds. The Fund's payment of commissions to Affiliated
Brokers is subject to procedures adopted by the Board and, with respect to the
Portfolios of Core Trust, Core Trust's board of trustees, to provide that the
commissions will not exceed the usual and customary broker's commissions charged
by unaffiliated brokers. No specific portion of a Fund's brokerage will be
directed to Affiliated Brokers and in no event will a broker affiliated with an
Adviser directing the transaction receive brokerage transactions in recognition
of research or other services provided to the Adviser.
The Adviser anticipates that the annual turnover rate in each Fund except Small
Company Growth Fund will be less than 100 percent and that the annual turnover
rate in Small Company Growth Fund will be less than 125 percent. Schroder
anticipates that the annual turnover rate in International Portfolio will be
less than 100 percent. An annual turnover rate of 100 percent would occur if all
of the securities in a Fund were replaced once in a period of 1 year. With
respect to Funds that invest in equity securities, higher portfolio turnover
rates may result in increased brokerage costs to the Fund.
The Trust and its Shares
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986 and on July 30, 1993 was reorganized as
a Delaware business trust. 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 Funds) and may divide portfolios or series into classes of
shares (such as I Shares), and the costs of doing so will be borne by the Trust.
Currently the authorized shares of the Trust are divided into 30 series.
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The Trust and its Shares
Other Classes of Shares. Each Fund may issue shares of other classes. Funds of
the Trust (except money market funds) currently may issue three classes of
shares, I Shares, A Shares and B Shares, and may in the future create additional
class types. I Shares are offered to fiduciary, agency and custodial clients of
bank trust departments, trust companies and their affiliates without any sales
charges. A Shares are sold with front-end sales charge or, in some cases, a
contingent deferred sales charge. B Shares are sold with a contingent deferred
sales charge and pay distribution fees. Each class of a Fund will have a
different expense ratio and may have different sales charges (including
distribution fees). Each class' performance is affected by its expenses and
sales charges. For more information on any other class of shares of the Funds
investors may contact the Transfer Agent at 612-667-8833 or 800-338-1348.
Investors may also contact their Norwest sales representative to obtain
information on the other classes. Sales personnel of broker-dealers and other
financial institutions selling the Fund's shares may receive differing
compensation for selling I Shares, A Shares and B Shares of the Funds.
Shareholder Voting and Other Rights. Each share of each portfolio of the 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 plan which pertain 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
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio 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 portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
As an investor in International Portfolio, International Fund will be entitled
to vote in proportion to its relative beneficial interest in International
Portfolio. On most issues subject to a vote of investors, as required by the
1940 Act and other applicable law, the Fund will solicit proxies from
shareholders of the Fund and will vote its interest in International Portfolio
in proportion to the votes cast by its shareholders. If there are other
investors in International Portfolio, there can be no assurance that any issue
that receives a majority of the votes cast by Fund shareholders will receive a
majority of votes cast by all investors in International Portfolio; indeed, if
other investors hold a majority interest in International Portfolio, they could
hold have voting control of International Portfolio.
From time to time, that shareholder or other shareholders may own a large
percentage of a Fund. Accordingly, that shareholder or other shareholders may be
able to greatly affect (if not determine) the outcome of a shareholder vote.
Core Trust Structure
International Fund invests all of its assets in International Portfolio, a
separate series of Core Trust, a business trust organized under the laws of the
State of Delaware in September 1994. Core Trust is registered under the 1940 Act
as an open-end management investment company. Pursuant to an exemptive order
issued by the SEC, the Blended Funds invest portions of their assets in Small
Company Portfolio, International Portfolio II and Index Portfolio of Core Trust.
Core Trust currently consists of only these four diversified portfolios. The
assets of each Portfolio of Core Trust belong only to, and the liabilities of
each Portfolio are borne solely by, the respective Portfolio and no other
Portfolio of Core Trust.
International Portfolio. International Fund seeks to achieve its investment
objective by investing all of its investable assets in International Portfolio,
which has the same investment objective and policies as the Fund. Accordingly,
International Portfolio directly acquires its own securities and the Fund
acquires an indirect interest in those securities.
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The investment objective and fundamental investment policies of International
Fund and International Portfolio can be changed only with shareholder approval.
See "Summary," "Investment Objectives, Policies and Risk Considerations,"
"Management of the Funds" and "Appendix A: Investments, Investment Strategies
and Risk Considerations" for a complete description of International Portfolio's
investment objective, policies, restrictions, management, and expenses.
International Fund's investment in International Portfolio is in the form of a
non-transferable beneficial interest. As of the date of this Prospectus, the
Fund is the only institutional investor that has invested all of its assets in
International Portfolio. International Portfolio may permit other investment
companies or institutional investors to invest in International Portfolio. All
investors in International Portfolio will invest on the same terms and
conditions as International Fund and will pay a proportionate share of
International Portfolio's expenses.
International Portfolio will not sell its shares directly to members of the
general public. Another institutional investor in International Portfolio that
might sell its shares to members of the general public would not be required to
sell its shares at the same public offering price as International Fund, could
have different advisory and other fees and expenses than International Fund, and
might charge a sales commission. Therefore, International Fund shareholders may
have different returns than shareholders in another investment company that
invests exclusively in International Portfolio. There is currently no such other
investment company that offers its shares to members of the general public.
Information regarding any such funds in the future will be available from Core
Trust by calling 212-363-3300.
Certain Risks of Investing in International Portfolio. International Fund's
investment in International Portfolio may be affected by the actions of other
large investors in International Portfolio, if any. For example, if
International Portfolio had a large investor other than International Fund that
redeemed its interest in International Portfolio, International Portfolio's
remaining investors (including the Fund) might, as a result, experience higher
pro rata operating expenses, thereby producing lower returns.
International Fund may withdraw its entire investment from International
Portfolio at any time, if the Board determines that it is in the best interests
of International Fund and its shareholders to do so. International Fund might
withdraw, for example, if there were other investors in International Portfolio
with power to, and who did by a vote of the shareholders of all investors
(including the Fund), change the investment objective or policies of
International 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 International 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 International Fund decided
to convert those securities to cash, it usually would incur brokerage fees or
other transaction costs. If International Fund withdrew its investment from
International Portfolio, the Board would consider what action might be taken,
including the management of the Fund's assets in accordance with its investment
objective and policies by the Adviser and Schroder, the Fund's investment
adviser and subadviser, respectively, or the investment of all of the Fund's
investable assets in another pooled investment entity having substantially the
same investment objective as the Fund. The inability of International Fund to
find a suitable replacement investment, in the event the Board decided not to
permit the Adviser and Schroder to manage the Fund's assets, could have a
significant impact on shareholders of the Fund.
Each investor in International Portfolio, including International Fund, will be
liable for all obligations of International Portfolio but not for those of any
other portfolio of Core Trust. The risk to an investor in International
Portfolio of incurring financial loss on account of such liability, however,
would be limited to circumstances in which International Portfolio was unable
to meet its obligations. Upon liquidation of International Portfolio, investors
would be entitled to share pro rata in the net assets of International Portfolio
available for distribution to investors.
Core Trust Blended Portfolios. The Blended Funds are permitted to invest a
portion of their assets which are managed by using the small company, index and
international investment styles in Small Company Portfolio, Index Portfolio, and
International Portfolio II pursuant to an exemptive order obtained from the SEC.
The conditions of the Trust's exemptive order do not permit a Fund to invest all
of its assets in a Blended Portfolio. Accordingly, Index Fund does not invest in
Index Portfolio and International Fund does not invest in International
Portfolio II.
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The Trust's exemptive order imposes several substantive conditions. On behalf of
each Blended Fund, the Board is required to review at least annually reports
identifying all instances in which a Portfolio in which the Fund invests buys a
security at approximately the same time that another Portfolio in which the Fund
invests sells the same security. The Board will consider whether the duplication
of brokerage costs resulting from these transactions is significant. If the
duplication of brokerage costs becomes significant, the Board will adopt
procedures designed to limit duplication. Conservative Balanced Fund, Moderate
Balanced Fund, and Growth Balanced Fund will limit any redemptions resulting
from a reallocation in their respective equity and fixed income security
positions to no more than 1percent of a Portfolio during any period of less than
30 days. The Board will determine, at least annually, that investment in the
Portfolios is in the best interests of the shareholders of each Blended Fund.
Appendix A
Investments, Investment Strategies
and Risk Considerations
Common Stock and Preferred Stock
Equity Funds, Balanced Funds. Common stockholders are the owners of the company
issuing the stock and, accordingly, vote on various corporate governance matters
such as mergers. They are not creditors of the company, but rather, upon
liquidation of the company are entitled to their pro rata share of the company's
assets after creditors (including fixed income security holders) and, if
applicable, preferred stockholders are paid. Preferred stock is a class of stock
having a preference over common stock as to dividends and, in the alternative,
as to the recovery of investment. A preferred stockholder is a shareholder in
the company and not a creditor of the company as is a holder of the company's
fixed income securities. Dividends paid to common and preferred stockholders are
distributions of the earnings of the company and not interest payments, which
are expenses of the company. Equity securities owned by a Fund may be traded on
national securities exchanges, in the over-the-counter market or on a regional
securities exchange and may not be traded every day or in the volume typical of
securities traded on a 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.
Convertible Securities
Equity Funds, Balanced 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.
A Fund may invest in equity-linked securities, including Preferred Equity
Redemption Cumulative Stock ("PERCS"), Equity-Linked Securities ("ELKS"), and
Liquid Yield Option Notes ("LYONS"). Equity-Linked Securities are securities
that are convertible into or based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
these securities is not fixed but is based on the price of the underlying
common stock which may rise or fall. In addition, it is not possible to predict
how equity-linked securities will trade in the secondary market or whether the
market for them will be liquid or illiquid.
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Warrants
Equity Funds, Balanced Funds. 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).
ADRs and EDRs
All Equity Funds (except Index Fund and Small Company Growth Fund), Balanced
Funds. A Fund may invest in sponsored and unsponsored American Depository
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depository of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. A Fund may also invest in European
Depository Receipts ("EDRs"), receipts issued by a European financial
institution evidencing an arrangement similar to that of ADRs, and in other
similar instruments representing securities of foreign companies. EDRs, in
bearer form, are designed for use in European securities markets.
U.S. Government Securities
All Funds. As used in this Prospectus, the term U.S. Government Securities means
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. The U.S. Government Securities in
which a Fund may invest include U.S. Treasury Securities and obligations issued
or guaranteed by U.S. Government agencies and instrumentalities and backed by
the full faith and credit of the U.S. Government, such as those guaranteed by
the Small Business Administration or issued by the Government National Mortgage
Association. In addition, the U.S. Government Securities in which the Funds may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities of the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority.
There is no guarantee that the U.S. Government will support securities not
backed by its full faith and credit. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
Zero Coupon Securities
Fixed Income Funds, Balanced Funds. A Fund may invest in separately traded
principal and interest components of securities issued or guaranteed by the U.S.
Treasury. These 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"). 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
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to distribute imputed income, which may occur at a time when the Adviser or
Schroder would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Corporate Debt Securities
Commercial Paper
Corporate Debt Securities - Balanced Funds, Fixed Income Funds. Commercial Paper
- - All Funds. 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 affiliates' 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 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.
Financial Institution Obligations
All Funds. 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. Short Maturity investment style
of Conservative Balanced Fund limits these purchases to institutions which at
the time of investment have total assets in excess of 1 billion dollars, or the
equivalent in other currencies.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce the Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than 7 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.
Participation Interests
Balanced Funds, Managed Fixed Income Fund. A Fund may purchase participation
interests in loans or securities in which the Fund may invest directly that are
owned by banks or other financial institutions. A participation interest gives
the Fund an undivided interest in a loan or security in the proportion that the
Fund's interest bears to the total principal amount of the security.
Participation interests, which may have fixed, floating or variable rates, may
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. For certain participation interests the Fund will have the right to
demand payment, on not more than 7 days' notice, for all or a part of the Fund's
participation interest. A Fund will only purchase participation interests from
banks or other financial institutions that the Adviser deems to be creditworthy.
A Fund will not invest more than 10 percent of its total assets in participation
interests in which the Fund does not have demand rights.
Illiquid Securities
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Restricted Securities
Illiquid Securities - All Funds. Restricted Securities - International Fund,
Balanced Funds, Fixed Income Funds. Each Fund may invest up to 15 percent of
its net assets in securities that at the time of purchase are illiquid.
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 securities 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. 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.
Borrowing
All Funds. 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. No Fund, other than
Managed Fixed Income Fund, Intermediate U.S. Government Fund and, to the extent
they invest in Managed Fixed Income Fund's investment style or Short Maturity
investment style, the Balanced Funds may purchase securities for investment
while any borrowing equal to 5 percent or more of the Fund's total assets is
outstanding or borrow for purposes other than meeting redemptions in an amount
exceeding 5 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; the use of these
techniques in connection with a segregated account may result in a Fund's assets
being 100 percent leveraged. See "Appendix A - Techniques Involving Leverage."
Purchasing Securities on Margin
Intermediate U.S. Government Fund. When the Fund purchases securities on margin,
it only pays part of the purchase price and borrows the remainder, typically
from the Fund's broker. 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.
Techniques Involving Leverage
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All Funds. Utilization 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 U.S. Government 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 the Adviser 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.
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.
Segregated Account. 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, U.S. Government Securities and other liquid, high-grade
debt securities in accordance with SEC guidelines. The accounts 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 (i) 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 "Appendix A - Swap Agreements") and (ii) 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. The use of a segregated account
in connection with leveraged transactions may result in a Fund's portfolio being
100 percent leveraged.
Repurchase Agreements
Securities Lending
Reverse Repurchase Agreements
When-Issued Securities and Forward Commitments
Dollar Roll Transactions
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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. See "Appendix A - Techniques Involving Leverage."
Repurchase Agreements - All Funds. A Fund may enter into repurchase agreements,
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 1 to 7 days later. The resale price of a repurchase
agreement reflects a market rate of interest that is not related to the coupon
rate or maturity of the purchased security. The 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 investment 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. No Fund will lend portfolio securities in excess of 33 1/3
percent of the value of the Fund's total assets.
Reverse Repurchase Agreements - Balanced Funds, Fixed Income 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 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.
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.
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The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
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 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 Fund's net asset value per share.
Dollar Roll Transactions - Balanced Funds, Fixed Income 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 Fund's use of the proceeds of the
transaction may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's 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.
Swap Agreements
Balanced Funds, Intermediate U.S. Government Fund, Managed Fixed Income Fund,
Stable Income Fund. 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 Fund's
performance. See "Appendix A - Techniques Involving Leverage." Swap agreements
involve risks depending upon the counterparties creditworthiness and ability to
perform as well as the Fund's ability to terminate its swap agreements or reduce
its exposure through offsetting transactions. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income expected to be earned from the transaction
justifies the attendant risks.
Short Sales
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Intermediate U.S. Government Fund. The Fund is authorized to make short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (referred to as short sales
"against the box") and to make short sales of securities which it does not own
or have the right to acquire. A short sale that is not made "against the box" is
a transaction in which a Fund sells a security it does not own 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,
the 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 that are not made "against the box" create opportunities to increase
the Fund's return but, at the same time, involve special risk considerations and
may be considered a speculative technique. Since the 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. See "Appendix
A - Techniques Involving Leverage."
If the Fund makes a short sale "against the box", the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Adviser believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund or a security convertible into or exchangeable for such security. In
such case, any future losses in the Fund's long position would be reduced by an
offsetting future gain in the short position. The Fund's ability to enter into
short sales transactions is limited by certain tax requirements. See "Dividends,
Distributions and Taxes" in the SAI.
Mortgage-Backed Securities
Fixed Income Funds, Balanced 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.
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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.
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 Association ("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 FHLMC's
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.
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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 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 the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
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<PAGE>
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.
Asset-Backed Securities
Balanced Funds, Intermediate U.S. Government Fund, Managed Fixed Income Fund.
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.
Foreign Exchange Contracts and Foreign Currency Forward Contracts
Small Company Growth Fund, Large Company Growth Fund, International Fund,
Balanced Funds, Managed Fixed Income Fund. 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. 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. The Funds do not intend 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.
Futures Contracts and Options
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<PAGE>
Balanced Funds, Intermediate U.S. Government Fund, Managed Fixed Income Fund,
Stable Income Fund, Index 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. 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, high-grade 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 the Adviser'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 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, the Adviser 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. No 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
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<PAGE>
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 Indexes. 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
contracts are closed out prior to the expiration date of the contract.
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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF FUND SHARES,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. 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.
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<PAGE>
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
INCOME EQUITY FUND
A SHARES
B SHARES
Account Information and
Shareholder Servicing:
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
612-667-8833 or 800-338-1348
PROSPECTUS
March 1, 1996
This prospectus offers A Shares and B Shares of Diversified Equity Fund, Growth
Equity Fund and Income Equity Fund (each a "Fund" and collectively the "Funds").
The Funds are separate diversified equity portfolios of Norwest Advantage Funds
(the "Trust"), which is a registered open-end management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated March 1, 1995, as amended from time to
time, which contains more detailed information about the Trust and each of the
Funds and is incorporated into this Prospectus by reference. An investor may
obtain a copy of the SAI without charge by contacting the Trust's distributor,
Forum Financial Services, Inc., at 61 Broadway, New York, New York 10006 or by
calling 212-363-3300. Investors should read this Prospectus and retain it for
future reference.
NORWEST ADVANTAGE FUNDS IS A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER
GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF,
OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OTHER BANK OR
BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
DIVERSIFIED EQUITY FUND seeks long-term capital appreciation while moderating
annual return volatility by diversifying its investments in accordance with five
different equity investment styles.
GROWTH EQUITY FUND seeks a high level of long-term capital appreciation while
moderating annual return volatility by diversifying its investments in
accordance with three different investment styles. The Fund assumes a higher
level of risk than Diversified Equity Fund in order to seek increased returns.
INCOME EQUITY FUND seeks long-term capital appreciation in line with that of the
overall equity securities markets and to provide above average dividend income.
INVESTMENT ADVISERS
The Funds' investment adviser (the "Adviser") is Norwest Investment Management,
a part of Norwest Bank Minnesota, N.A. ("Norwest"). Norwest is a subsidiary of
Norwest Corporation, a bank holding company with operations in 50 states and
$___ billion in total assets. The Adviser provides investment advice to various
institutions, pension plans and other accounts and, as of _________.___, 1995,
managed assets totaling approximately $___ billion. See "Management -
Investment Advisory Services." The Adviser makes investment decisions for the
Funds and continuously reviews, supervises and administers each Fund's
investment program.
The Adviser may, in the process of providing investment advise to the Funds,
utilize different equity investment styles employed by other funds of the Trust
(Index Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund and International Fund). These Funds are offered by separate
prospectus to fiduciary, agency and custodial clients of bank trust departments,
trust companies and their affiliates (See "Shares of the Funds"). The use of
different 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 percentage of a Fund's assets invested using a
specified investment style may be changed by the Adviser in response to market
or other conditions. For a further description of each Fund's investments and
investment techniques and additional risk considerations associated with those
investments, see the discussion below, "Investment Objectives and Policies -
Investment Styles", "Additional Investment Policies and Risk Considerations" and
the SAI.
Subject to the Adviser's general oversight, Crestone Capital Management, Inc.
("Crestone"), a subsidiary of Norwest, acts as investment subadviser to Small
Company Stock Fund. Subject to the Adviser's general oversight, Schroder Capital
Management International, Inc. ("Schroder")
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<PAGE>
acts as investment subadviser to Diversified Equity Fund and Growth Equity Fund
(Crestone, Schroder and the Adviser, collectively, are sometimes referred to as
the "Advisers").
Norwest serves as the Trust's transfer agent, dividend disbursing agent and
custodian. See "Management - Shareholder Servicing and Custody."
FUND MANAGEMENT
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"), a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. Norwest provides certain administrative
services to International Fund. See "Management - Management and Distribution
Services."
SHARES OF THE FUNDS
Each Fund currently offers three separate classes of shares: A class ("A
Shares"), B class ("B Shares") and I class ("I Shares"). A Shares and B Shares
are sold through this Prospectus and are collectively referred to as the
"Shares."
A SHARES. A Shares are offered at a price equal to their net asset value
plus a sales charge imposed at the time of purchase or, in some cases, a
contingent deferred sales charge imposed on redemptions made within two years of
purchase.
B SHARES. B Shares are offered at a price equal to their net asset value
plus a contingent deferred sales charge imposed on most redemptions made within
six years of purchase. B Shares pay a distribution services fee at an annual
rate of up to 0.75%, and a maintenance fee in an amount equal to 0.25%, of the B
Shares' average daily net assets. B Shares automatically convert to A Shares of
the same Fund seven years after the end of the calendar month in which the B
Shares were originally purchased.
The choice of A Shares or B Shares permits each investor to purchase those
shares that the investor believes to be most beneficial given the amount
purchased, the length of time the investor expects to hold the shares and other
circumstances. A Shares will normally be more beneficial to the investor who
qualifies for reduced initial sales charges as described below. See "How to Buy
Shares - Alternative Distribution Arrangements."
I Shares are offered by a separate prospectus to fiduciary, agency and custodial
clients of bank trust departments, trust companies and their affiliates. Shares
of each class of a Fund have identical interests in the investment portfolio of
the Fund and, with certain exceptions, have the same rights. See "Other
Information - The Trust and Its Shares."
HOW TO BUY AND SELL SHARES
Shares may be purchased or redeemed by mail, by bank wire and through an
investor's broker-dealer or other financial institution. The minimum initial
investment in Shares is $1,000. The minimum subsequent investment is $100. See
"How to Buy Shares" and "How to Sell Shares."
EXCHANGES
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Shareholders may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of certain other funds of the Trust. In addition, A Shares may be
exchanged for investor class shares of certain money market funds of the Trust
and B Shares may be exchanged for exchange class shares of Ready Cash Investment
Fund of the Trust. See "Other Shareholder Services - Exchanges."
SHAREHOLDER FEATURES
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. Purchases of A Shares may be subject to Rights of
Accumulation, Cumulative Quantity Discounts or a Reinstatement Privilege. See
"Other Shareholder Services" and "How to Buy Shares - Alternative Distribution
Arrangements."
DIVIDENDS
Dividends of net investment income are declared and paid annually. Each Fund's
net capital gain, if any, is distributed annually. All dividends and
distributions are reinvested in additional Fund shares unless the shareholder
elects to have them paid in cash. See "Dividends and Tax Matters."
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Upon redemption, an investment in a
Fund may be worth more or less than its original value. The policy of investing
in smaller companies employed by the Funds that invest in small company
securities entails certain risks in addition to those normally associated with
investments in equity securities.
An investment in any Fund involves certain risks, depending on the types of
investments made and the types of investment techniques employed. All
investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as investments in
issuers with limited market capitalization. The use of leverage by certain Funds
through borrowings, securities lending and other investment techniques involves
additional risks. See "Investment Objectives and Policies - Additional
Investment Policies and Risk Considerations."
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<PAGE>
EXPENSE INFORMATION
The purpose of the following table is to assist investors in understanding the
expenses that an investor in Shares of a Fund will bear directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES(1)
(applicable to each Fund)
A Shares B Shares
-------- --------
Maximum sales charge imposed on purchases 4.5% Zero
(as a percentage of public offering price)
Maximum deferred sales charge (as a Zero(2) 4.0%
percentage of the lesser of original
purchase price or redemption proceeds)
Exchange Fee Zero Zero
ANNUAL OPERATING EXPENSES(3)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<TABLE>
<CAPTION>
Diversified Equity Growth Equity Income Equity
Fund Fund Fund
A B A B A B
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees ____% ____% ____% ____% ____% ____%
Rule 12b-1 Fees(5) None ____% None ____% None ____%
Other Expenses ____% ____% ____% ____% ____% ____%
Total Operating Expenses ____% ____% ____% ____% ____% ____%
</TABLE>
(1) Sales charge waivers and reduced sales charge plans are available for A
Shares. The maximum 4.0% contingent deferred sales charge on B Shares applies
to redemptions during the first year after purchase; the charge declines
thereafter, becoming 3.0% during the second and third years, 2.0% during the
fourth and fifth years, 1.0% during the sixth year and reaches zero the
following year. See "How to Buy Shares - Alternative Distribution
Arrangements."
(2) If A Shares 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 1.0% will be applied to the redemption. See "How
to Buy Shares - Alternative Distribution Arrangements."
(3) For a further description of the various expenses associated with Shares,
see "Management." Expenses associated with the I Shares of a Fund differ from
those of Shares listed in the table shown above. The amounts of expenses for
Diversified Equity Fund, Growth Equity Fund and Income Equity Fund are based on
amounts incurred during the Funds' most recent fiscal year ended October 31,
1995. Absent waivers, the Investment Advisory Fee for A Shares and B Shares of
Diversified Equity Fund, Growth Equity Fund and Income Equity Fund would be
____%.
With respect to A Shares, absent expense reimbursements and fee waivers the
expenses of Diversified Equity Fund, Growth Equity Fund and Income Equity Fund
would be: Other Expenses, ____%, ____%, and ____%, respectively; and Total
Operating Expenses, ____%, ____%, and ____%, respectively. With respect to B
Shares, absent expense reimbursements and fee waivers the expenses of
Diversified Equity Fund, Growth Equity Fund, and Income Equity Fund would be:
Other Expenses, ____%, ____%, and ____%, respectively; and Total Operating
Expenses, ____%, ____%, and ____%, respectively. Other Expenses include
transfer agency and custodial fees payable to Norwest at a combined annual rate
of up to 0.30% of each Fund's average daily net assets attributable to A Shares
and B Shares.
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<PAGE>
(5) Absent waivers, the Rule 12b-1 Fees would be 1.00% for B Shares of each
Fund. Long-term shareholders of B Shares may pay aggregate sales charges
totaling more than the economic equivalent of the maximum front-end sales
charges permitted by the Rules of Fair Practice of National Association of
Securities Dealers, Inc.
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<PAGE>
EXAMPLE
Following is a hypothetical example that 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
------ ------- ------- --------
Diversified Equity Fund
A Shares
B 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
Income Equity Fund
A Shares
B Shares
Assuming redemption at the end of the period
Assuming no redemption
The example is based on the expenses listed in the expense table. The 5% annual
return is not predictive of and does not represent the Funds' projected returns;
rather, it is required by government regulation. The example assumes deduction
of the maximum initial sales charge for A Shares, deduction of the contingent
deferred sales charge for B 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 SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.
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<PAGE>
2. FINANCIAL HIGHLIGHTS
The following table provides financial highlights for each Fund. This
information represents selected data for a single outstanding A and B Share of
each Fund for the periods shown. Information for the years ended October 31,
1995 was audited by _______________, independent auditors. The Funds' financial
statements for the fiscal year ended October 31, 1995 and independent auditors'
report thereon are contained in the Annual Report of the Funds and are
incorporated by reference into the SAI. Further information about each Fund's
performance is contained in the Annual Report, which may be obtained from the
Trust without charge.
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY GROWTH EQUITY INCOME EQUITY
FUND FUND FUND
Period Ended October 31, Period Ended October 31, Period Ended October 31,
1995 1994 1995 1994 1995 1994
A Shares B Shares A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C> <C> <C>
Beginning Net Asset
Value per Share
Net Investment
Income (Deficit)
Net Realized and Unrealized
Gain (Loss) on Investments,
Foreign Currency
Transactions and Futures
Transactions
Dividends from Net
Investment Income
Distributions from Net
Realized gains
Ending Net Asset Value per
Share
Ratios to Average Net Assets
Expenses (b)
Net Investment
Income (Deficit)
Total Return
Portfolio Turnover Rate
Net Assets at the End of $ $ $ $ $ $
Period (000's omitted)
</TABLE>
(a) Each Fund commenced operations on November 11, 1994 and commenced the
offering of A and B Shares on or about _______ __, 1996.
(b) During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the ratio of
expenses to average net assets would have been:
Expenses
(d) Annualized.
3. INVESTMENT OBJECTIVES AND POLICIES
To achieve their investment objectives, the funds invest primarily in common
stocks and other equity securities. The domestic securities in which a Fund
invests are generally listed on a securities exchange or included in the
National Association of Securities Dealers Automated Quotation (NASDAQ) National
Market System but may be traded in the over-the-counter securities market. Under
normal circumstances, each of the funds will invest substantially all of its
asses, but not less than 65 percent of its net assets, in equity securities.
Diversified Equity Fund and Growth Equity Fund each invest specified percentages
of their assets in accordance with different equity investment styles.
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INVESTMENTS IN CORE TRUST. The Trust has received an exemptive order from the
SEC under which Diversified Equity Fund and Growth Equity Fund (the "Blended
Funds") currently invest the portions of their assets that are managed in a
small company, an index and an international investment style, respectively, in
Small Company Portfolio, Index Portfolio, and International Portfolio II (the
"Blended Portfolios"). These Portfolios are each separate portfolios of Core
Trust. By pooling their assets in the Blended Portfolios, the Funds may be able
to achieve benefits that they could not achieve by investing directly in
securities. See "Other Information - Core Trust Structure." The conditions of
the Trust's exemptive order do not permit a Fund to invest all of its assets in
a Blended Portfolio.
The investment objectives and policies and investment risk considerations for
International Portfolio II and Index Portfolio are to provide long-term capital
appreciation by investing directly or indirectly in high-quality companies based
outside the United States and to duplicate the return of the Standard & Poor's
500 Composite Stock Price Index, respectively. and are identical to the
investment objectives and policies and investment risk considerations of
International Fund and Index Fund, separate series of the Trust, which are
offered by separate prospectuses.
The investment objective of Small Company Portfolio is to provide long-term
capital appreciation by investing primarily in small and medium-sized domestic
companies that are either growing rapidly or completing a period of significant
change. This Portfolio invests its assets partially in the style of Small
Company Stock Fund and partially in the style of Small Company Growth Fund and,
in the future, may invest its assets in accordance with additional small company
investment styles.
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
capital appreciation while moderating annual return volatility by diversifying
its investments in accordance with five different equity investment styles.
INVESTMENT POLICIES. Diversified Equity Fund is designed to minimize the
volatility and risk of investing in equity securities. The Fund's portfolio
combines five different equity investment styles, those of four equity funds of
the Trust - Large Company Growth Fund, International Fund, Income Equity Fund
and Index Fund - and a small company investment style ("Small Company
investment style"), which reflects a mix of the investment styles of Small
Company Stock Fund and Small Company Growth Fund, two other funds of the Trust,
and a small company value investment style (the "Small Company Value investment
style"). The Fund utilizes different equity investment styles in order to reduce
the risk of relying on a single investment style. Reliance on multiple equity
investment styles is intended to reduce the price and return volatility of the
Fund. 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. The Fund will
generally invest the following percentages of its total assets in accordance
with the indicated investment styles:
Diversified Equity Fund Allocation
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Index Fund style 25%
Income Equity Fund style 25%
Large Company Growth Fund style 25%
Small Company investment style 10%
International Fund style 15%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of the investment styles below for a
discussion of the investments and investment techniques of those styles and,
accordingly, of the portions of Diversified Equity Fund invested in those
styles. The management of the Fund's assets is divided among the Fund's seven
portfolio managers, four of whom are also the portfolio manager for a
corresponding Equity Fund and three of whom jointly co-manage the assets
allocated to Small Company investment style.
INVESTMENT STYLES
INDEX FUND INVESTMENT STYLE. The Index Fund investment style is designed to
duplicate the return of the Standard & Poor's 500 Composite Stock Index (the
"Index") with minimum tracking error, while also minimizing transaction costs.
Under normal circumstances, the portion of a Fund that invests in accordance
with the Index Fund investment style will hold stocks representing 96 percent or
more of the capitalization-weighted market values of the Index. Portfolio
transactions with respect to the Index Fund investment style generally are
executed only to duplicate the composition of the Index, to invest cash received
from portfolio security dividends or shareholder investments in the Fund, and to
raise cash for fund management purposes. The Fund may hold cash or cash
equivalents while awaiting investment in securities contained in the Index and
for the purpose of facilitating payment of expenses or funding redemptions. For
these and other reasons, assets allocated to this investment style can be
expected to approximate but not be equal to that of the Index.
In managing assets allocated to this style, the Adviser may utilize index
futures contracts to a limited extent. 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 index value at the close of trading of the contract and the price at which
the futures contract is originally struck. As no physical delivery of the fixed
income or equity securities comprising the index is made, a purchaser of index
futures contracts may participate in the performance of the securities contained
in the index without the required capital commitment.
Index futures contracts may be used for several reasons: to simulate full
investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading or to reduce transactions costs. For
a description of futures contracts and their risks see "Additional Investment
Policies and Risk Considerations - Futures Contracts."
The Index tracks the total return performance of 500 common stocks which are
chosen for inclusion in the Index by Standard & Poor's Corporation ("S&P") on a
statistical basis. The inclusion of a stock in the Index in no way implies that
S&P believes the stock to be an attractive
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investment. The 500 securities, most of which trade on the New York Stock
Exchange, represent approximately 70 percent of the total market value of all
U.S. common stocks. Each stock in the Index is weighted by its market value.
Because of the market-value weighting, the 50 largest companies in the Index
currently account for approximately 45 percent of its value. The Index
emphasizes large-capitalizations and, typically, companies included in the Index
are the largest and most dominant firms in their respective industries.
The Index Fund investment style is not sponsored, endorsed or promoted by S&P,
nor does S&P make any representation or warranty, implied or express, to the
purchasers of any Fund using the Index Fund investment style or any member of
the public regarding the advisability of investing in index funds or the ability
of the Index to track general stock market performance. S&P does not guarantee
the accuracy and/or the completeness of the Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by a
Fund using the Index Fund investment style, any person or any entity from the
use of the Index or any data included therein. S&P makes no express or implied
warranties and hereby expressly disclaims all such warranties of merchantability
or fitness for a particular purpose for use with respect to the Index or any
data included therein.
INCOME EQUITY FUND INVESTMENT STYLE. Assets allocated to the Income Equity Fund
investment style will invest in accordance with the investment objective and
policies of that Fund, which are described below.
LARGE COMPANY GROWTH FUND INVESTMENT STYLE. Employing the Large Company Growth
Fund investment style will result in investments primarily in the common stock
of large, high-quality domestic companies that have superior growth potential.
Large companies are those whose market capitalization is at least $500 million
at the time of investment and whose equity trading volume would permit the sale
or purchase of a large position in the securities of the company in 2 or 3
trading days. Market capitalization refers to the total market value of a
company's outstanding shares of common stock. In selecting securities for
investment, this investment style seeks issuers whose stock is attractively
valued and whose fundamental characteristics both are significantly better than
the market average and which support internal earnings growth capability. The
investments may also include the securities of companies whose growth potential
is generally unrecognized or misperceived by the market.
SMALL COMPANY INVESTMENT STYLE. In selecting securities for assets allocated to
the Small Company investment style, the Adviser uses the investment style of
Small Company Growth Fund and two other investment styles described below: Small
Company Stock Fund investment style and the Small Company Value investment
style. Assets allocated to the Small Company investment style are invested 1/3
in the Small Company Growth Fund style, 1/3 in the Small Company Stock Fund
investment style an 1/3 in the Small Company Value investment style.
Prior to December 11, 1995 the Small Company investment style did not allocate
any assets to the Small Company Value investment styles. The Small Company
investment style is expected to be allocated completely in this manner by June
1, 1996. Small Company investment style may in the future allocate its assets
to additional investment styles.
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In selecting securities in accordance with the Small Company Stock Fund
investment style, 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. In investing
assets allocated to this investment style, the Adviser may invest in preferred
stock and securities convertible into common stock and may invest up to 20
percent of total assets allocated to this style in foreign securities and in
American Depository Receipts, European Depository Receipts and other similar
securities of foreign issuers.
In selecting portfolio investments, the Small Company Value investment style
focuses on securities that are conservatively valued in the marketplace relative
to their underlying fundamentals. Value investing provides investors with a less
aggressive way to take advantage of growth opportunities of small companies.
Under a value approach, the Fund will seek to invest in stocks priced low
relative to comparable companies, determined by price/earnings ratios, cash
flows or other measures. Value investing therefore may reduce downside risk
while offering potential for capital appreciation as a stock gains favor among
other investors and its stock price rises.
SMALL COMPANY INVESTMENT RISKS AND CONSIDERATIONS. The companies in which Small
Company Growth Fund and the Small Company investment style components of the
other Funds invest may be in a relatively early stage of development or may
produce goods and services which have favorable prospects for growth due to
increasing demand or developing markets. Frequently, such companies have a small
management group and single product or product line expertise. These
characteristics may result in an enhanced entrepreneurial spirit and greater
focus which may make those companies 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. Small
companies frequently retain a large part of their earnings for research,
development and investment in capital assets, however, so that the prospects for
immediate dividend income are limited.
Investments in smaller companies generally involve greater risks than
investments in larger companies due to the small size of the issuer and the fact
that the issuer may have limited product lines, access to financial markets and
management depth. In addition, many of the securities of smaller companies trade
less frequently and in lower volumes than securities issued by larger firms. The
result is that the short-term price volatility of small company securities is
greater than the short-term price volatility of the securities of larger, more
established companies that are widely held. The securities of small companies
may also be more sensitive to market changes generally than the securities of
large companies. In addition, securities that are traded in the over-the-counter
market or on a regional securities exchange may not be traded every day or in
the volume typical of securities traded on a national securities exchange. As a
result, disposition of a portfolio security, to meet redemptions by shareholders
or otherwise, may require a Fund to sell the security 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.
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While securities issued by smaller companies historically have experienced
greater market appreciation than the securities of larger entities, there is no
assurance that they will continue to do so or that the Fund will be successful
in identifying companies whose securities will appreciate.
INTERNATIONAL FUND INVESTMENT STYLE. The International Fund investment style is
designed to achieve international diversification of investments by
participating in foreign securities markets. Because international investments
generally involve risks in addition to those risks associated with investments
in the United States, the style should be considered only as a vehicle for
international diversification.
International Fund investment style invests substantially in equity securities
of companies domiciled outside the United States. The investments are selected
on the basis of their potential for capital appreciation without regard to
current income. The International Fund investment style also invests in the
securities of closed-end investment companies investing primarily in foreign
securities and may invest in debt obligations of foreign governments or their
political subdivisions, agencies or instrumentalities, of supranational
organizations and of foreign corporations. Investment will be diversified among
securities of issuers in foreign countries including, but not limited to, Japan,
Germany, the United Kingdom, France, the Netherlands, Hong Kong, Singapore and
Australia. In general, under the International Fund investment style investments
will only be in securities of companies and governments in countries that
Schroder, in its judgment, considers both politically and economically stable.
Under the International Fund investment style there is no limit on the amount of
foreign assets which may be invested in any one type of foreign instrument or in
any foreign country; however, to the extent that International Fund investment
style concentrates assets in a foreign country, it will incur greater risks.
International Fund investment style may also invest in foreign exchange
contracts, including forward contracts to purchase or sell foreign currencies,
in anticipation of currency requirements and to protect against possible adverse
movements in foreign exchange rates. Although such contracts may reduce the risk
of loss from adverse movements in currency values, the contracts also limit
possible gains from favorable movements.
FOREIGN INVESTMENT RISKS AND CONSIDERATIONS. All investments, domestic and
foreign, involve certain risks. Investments in the securities of foreign issuers
may involve risks in addition to those normally associated with investments in
the securities of U.S. issuers. All foreign investments are subject to risks of
foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, and changes in foreign
governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
shareholders; commission rates payable on foreign transactions are generally
higher than in the United States; foreign accounting, auditing and financial
reporting standards differ from those in the United States and, accordingly,
less information may be available about foreign companies than is available
about issuers of comparable securities in the United States; and foreign
securities may trade less frequently and with lower volume and may exhibit
greater price volatility than United States securities.
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Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held. Exchange rates are influenced
generally by the forces of supply and demand in the foreign currency markets and
by numerous other political and economic events occurring outside the United
States, many of which may be difficult, if not impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, and each Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar will reduce the dollars available to make a
distribution. Similarly, if the exchange rate declines between the time after a
Fund's income has been earned and computed in U.S. dollars and the time it is
paid may require a Fund to liquidate portfolio securities to acquire sufficient
U.S. dollars to make a distribution. Similarly, if the exchange rate declines
between the time a Fund incurs expenses in U.S. dollars and the time such
expenses are paid, a Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek a high
level of long-term capital appreciation while moderating annual return
volatility by diversifying its investments in accordance with three different
investment styles. The Fund assumes a higher level of risk than Diversified
Equity Fund in order to seek increased returns.
INVESTMENT POLICIES. Growth Equity Fund is designed to reduce the volatility and
risk of investing in equity securities. The Fund's portfolio combines three
different equity investment styles, those of two of the Equity Funds - Large
Company Growth Fund and International Fund - and a small company investment
style ("Small Company investment style"), which reflects a mix of the investment
styles of both Small Company Stock Fund and Small Company Growth Fund. The Fund
utilizes different equity investment styles in order to reduce the risk of
relying on a single equity investment style. Reliance on multiple equity
investment styles is intended to reduce the price and return volatility of the
Fund. Although Growth Equity Fund blends three equity investment styles, 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 investment
styles. The Fund will generally invest the following percentages of its total
assets in accordance with the indicated investment styles:
Growth Equity Fund Allocation
Large Company Growth Fund style 35%
Small Company investment style 35%
International Fund style 30%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of each of the foregoing investment
styles for a discussion of the objectives, policies and risks involved in the
investments and investment techniques of those styles and, accordingly, of the
portions of Growth Equity Fund invested using
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those styles. The management of the Fund's assets is divided among the Fund's
four portfolio managers, two of whom are also the portfolio manager for a
corresponding Equity Fund and two of whom jointly co-manage the assets allocated
to Small Company investment style.
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
capital appreciation in line with that of the overall equity securities markets
and to provide above average dividend income.
INVESTMENT POLICIES. Income Equity Fund invests primarily in the common stock of
large, high-quality domestic companies which have above-average return potential
based on current market valuations. Primary emphasis is placed on 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. The Fund considers large companies to
be those whose market capitalization is at least $600 million at the time of the
Fund's purchase. Market capitalization refers to the total market value of a
company's outstanding shares of common stock. The Fund may also invest in
preferred stock and securities convertible into common stock and may purchase
American Depository Receipts, European Depository Receipts and other similar
securities of foreign issuers. See "Investment Policies - Equity Funds -
International Fund - Foreign Investment Risks and Considerations." Under normal
circumstances, the Fund will not invest more than 10 percent of its total assets
in the securities of a single issuer.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS.
Each Fund's investment objective and all investment policies of the Funds that
are designated as fundamental may not be changed without approval of the holders
of a majority of the outstanding voting securities of the Fund . A majority of
outstanding voting securities means the lesser of 67% of the shares present or
represented at a shareholders' meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or more than 50% of the
outstanding shares. Except as otherwise indicated, investment policies of the
Fund's are not deemed to be fundamental and may be changed by the Board of
Trustees of the Trust (the "Board") without shareholder approval. For more
information concerning shareholder voting, see "Other Information - The Trust
and Its Shares - Shareholder Voting and Other Rights" and "Other Information -
Core Trust Structure." A further description of the Funds' investment policies,
including additional fundamental policies, is contained in the SAI.
Each investment adviser monitors 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.
BORROWING. As a fundamental policy, each Fund may borrow money for temporary or
emergency purposes, including the meeting of redemption requests, and will limit
borrowings to amounts not in excess of 33 1/3% of the value of the Fund's total
assets. As computed immediately after the borrowing. No Fund may purchase
securities for investment while any borrowing equal to 5
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percent or more of the Fund's total assets is outstanding or borrow for purposes
other than meeting redemptions in an amount exceeding 5 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. 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. When a
Fund establishes a separate account to limit the amount of leveraging of the
Fund with respect to certain investment techniques, the Fund does not treat
those techniques as involving borrowings (although they may have characteristics
and risks similar to borrowings and result in the Fund's assets being
leveraged). The use of these techniques in connection with a segregated account
may result in a Fund's assets being 100 percent leveraged. See "Techniques
Involving Leverage". As a fundamental policy, no Fund may make loans except for
loans of portfolio securities, through the use of repurchase agreements that are
otherwise permitted investments for the Fund.
TECHNIQUES INVOLVING LEVERAGE. Utilization 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. 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. The Funds use these investment techniques only
when the Adviser 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.
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
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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.
SEGREGATED ACCOUNT. 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, U.S. Government Securities and other liquid, high-grade
debt securities in accordance with SEC guidelines. The accounts 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 the Fund's obligations to
settle when-issued and forward commitment transactions. The use of a segregated
account in connection with leveraged transactions may result in a Fund's
portfolio being 100 percent leveraged.
DIVERSIFICATION AND CONCENTRATION. Each Fund is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, no Fund may purchase a security
(other than a U.S. Government Security) if, as a result, (i) more than 5% of the
Fund's total assets would be invested in the securities of a single issuer or
(ii) the Fund would own more than 10% of the outstanding voting securities of
any single issuer. Each Fund reserves the right to invest all or a portion of
its assets in another diversified, open-end investment company with
substantially the same investment objective and policies as the Fund. Each Fund
is prohibited from concentrating its assets in the securities of issuers in any
industry. As a fundamental policy, each Fund may not purchase securities if,
immediately after the purchase, more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers conducting their principal
business activities in the same industry. This limit does not apply to
investments in U.S. Government Securities, foreign government securities or
repurchase agreements covering U.S. Government Securities or investment company
securities.
COMMON AND PREFERRED STOCK. The Funds may invest in common and preferred stock.
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company,
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in the alternative, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. 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.
The Funds 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
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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. The Funds may invest in convertible securities that are
investment grade, including convertible debt and convertible preferred stock,
which may be rated by a nationally recognized statistical rating organization
("NRSRO") or may be unrated. Convertible securities are fixed income securities
or preferred stock which 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. Convertible securities rank senior
to common stock in a corporation's capital structure but are usually subordinate
to comparable nonconvertible 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 convertible
securities, however, is also influenced by the value of the underlying common
stock.
The rating categories for convertible securities range from Aaa to C, in the
case of Moody's Investors Service, Inc. ("Moody's"), and from AAA to D, in the
case of Standard & Poor's Corporation ("S&P"), and for preferred stock range
from aaa to c, in the case of Moody's, and from AAA to D, in the case of S&P.
Securities in the lowest rating categories are characterized by Moody's as
having extremely poor prospects of ever attaining any real investment standing
and by S&P as being in default, in the case of debt, and non-paying with debt in
default, in the case of preferred stock. Unrated securities may not be as
actively traded as rated securities. A further description of the ratings used
by Moody's, S&P and certain other NRSROs is contained in the SAI.
AMERICAN DEPOSITORY RECEIPTS; EUROPEAN DEPOSITORY RECEIPTS. The Funds may invest
in sponsored and unsponsored American Depository Receipts ("ADRs"), which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets. Unsponsored ADRs may be created
without the participation of the foreign issuer. Holders of these ADRs generally
bear all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights. The Funds may also invest in European Depository Receipts ("EDRs"),
which are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs, and in other similar instruments
representing securities of foreign companies. EDRs, in bearer form, are designed
for use in European securities markets.
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U.S. GOVERNMENT SECURITIES. As used in this Prospectus, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities. The U.S. Government
Securities in which a Fund may invest include U.S. Treasury Securities and
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and backed by the full faith and credit of the U.S.
Government, such as those guaranteed by the Small Business Administration or
issued by the Government National Mortgage Association. In addition, the U.S.
Government Securities in which the Funds may invest include securities supported
primarily or solely by the creditworthiness of the issuer, such as securities of
the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority. There is no guarantee that the
U.S. Government will support securities not backed by its full faith and credit.
Accordingly, although these securities have historically involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. Government's full faith and credit.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio 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 might suffer a loss.
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. International Portfolio and, with
respect to the portion of their assets managed in the International Fund
investment style, Diversified Equity Fund and Growth Equity Fund may enter into
repurchase agreements with foreign entities. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 33 1/3% of the value of its total assets.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each of the Funds may purchase
securities offered on a "when-issued" basis and may purchase securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction, but delayed settlements beyond three
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased and, thus, no interest accrues
to the Fund. At the time a Fund makes a commitment to purchase securities in
this manner, however, 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.
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The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
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. No Fund will
purchase securities on a when-issued or forward commitment basis if, as a
result, more than 15 percent 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.
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 Fund's net
asset value per share.
ILLIQUID SECURITIES. No Fund may invest more than 15% of its net assets in
illiquid securities. 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 includes, 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, with respect to assets
allocated to a Blended Portfolio, Core Trust's board of trustees). 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.
A domestic institutional market has developed for certain securities that are
not registered under the Securities Act of 1933 (the "1933 Act"), including
repurchase agreements and foreign securities. 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 1933 Act, the
investment advisers may determine that such securities are not illiquid
securities under guidelines adopted by the Board (or, with respect to assets
allocated to a Blended Portfolio, Core Trust's 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.
FUTURES CONTRACTS. A Fund using the Index Fund investment style may invest in
index futures contracts to a limited extent. 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
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securities comprising the index is made. Generally, these futures contracts are
closed out prior to the expiration date of the contract.
RISK CONSIDERATIONS. A Fund's investment in futures contracts under the Index
Fund investment style subjects the Fund to certain investment risks and
transaction costs to which it might not otherwise be subject. These risks
include: (1) imperfect correlations between movements in the prices of futures
contracts and movements in the price of the securities hedged which may cause a
given hedge not to achieve its objective; (2) the fact that the skills and
techniques needed to trade futures are different from those needed to select the
other securities in which the Fund invests; (3) 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; and (4) the possible need to defer closing out of
certain futures contracts to avoid adverse tax consequences.
Other risks of investing in futures contracts in accordance with the Index Fund
investment style include the possibility that 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. 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.
The Funds have no current intention of investing in futures contracts for
purposes other than hedging. The current market value of all open futures
positions held by a Fund will not exceed 50 percent of its total assets.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant,
each Fund may assume a temporary defensive position and invest without limit in
cash or prime quality cash equivalents, including (i) short-term U.S. Government
Securities, (ii) certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of commercial banks doing business in the United
States, (iii) commercial paper, (iv) repurchase agreements and (v) 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. Except during periods when a Fund assumes a temporary
defensive position, each Fund will have at least 65% of its total assets
invested in equity securities. The Portfolio and, with respect to the portion of
their assets managed by Schroder, Diversified Equity Fund and Growth Equity Fund
may hold cash and bank instruments denominated in any major foreign currency.
PORTFOLIO TRANSACTIONS. The investment 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.
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The investment advisers seek "best execution" for all portfolio transactions,
but a Fund may pay higher than the lowest available commission rates when an
investment 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 United States securities exchanges.
Subject to the Funds' policy of obtaining "best execution" each investment
adviser may employ broker-dealer affiliates of the investment adviser
(collectively "Affiliated Brokers") to effect brokerage transactions for the
Funds. The Funds' payment of commissions to Affiliated Brokers is subject to
procedures adopted by the Board (and, with respect to assets allocated to a
Blended Portfolio, Core Trust's board of trustees) to provide that the
commissions will not exceed the usual and customary broker's commissions charged
by unaffiliated brokers. No specific portion of a Fund's brokerage will be
directed to Affiliated Brokers and in no event will a broker affiliated with the
investment adviser directing the transaction receive brokerage transactions in
recognition of research services provided to the adviser.
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. The Funds' portfolio
turnover is reported under "Financial Highlights." Schroder anticipates that the
annual portfolio turnover rate in the Portfolio will be less than 100%. An
annual portfolio turnover rate of 100% would occur if all of the securities in
the Portfolio were replaced once in a period of one year. Higher portfolio
turnover rates may result in increased brokerage costs to the Funds or Portfolio
and a possible increase in short-term capital gains or losses.
4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Trustees (the "Board"), and the business of Core Trust is managed under the
direction of Core Trust's Board of Trustees. The Board formulates the general
policies of the Funds and meets periodically to review the results of the Funds,
monitor investment activities and practices and discuss other matters affecting
the Funds and the Trust. The SAI contains general background information about
the Trustees and Officers of the Trust and of Core Trust. The Board consists of
eight persons.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT. Subject to the general supervision of the Board,
Norwest Investment Management 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 subadviser, as
applicable. The Adviser is a part of Norwest, a subsidiary of Norwest
Corporation, which is a multi-bank holding company that was incorporated under
the laws of Delaware in 1929. As of December 31, 1995, Norwest Corporation was
the ___th largest bank holding company in the United States in terms of assets.
As of that date, the Adviser managed or provided investment advice with respect
to assets totaling approximately $___ billion.
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The Adviser provides investment management services to each Fund pursuant to
investment advisory agreements between Norwest and the Trust. For the Adviser's
services, Norwest receives an advisory fee with respect to Diversified Equity
Fund, Growth Equity Fund and Income Equity Fund at the following annual rates:
0.65%, 0.90% and 0.50%, respectively, based on the average daily net assets of
the respective Fund.
Pursuant to the investment subadvisory agreements, the Adviser (and not the
Trust) pays Schroder and Crestone a fee for their investment subadvisory
services; however, that compensation does not increase the amount paid by the
Trust to the Adviser pursuant to the Adviser's investment advisory agreements.
Advisory fees are accrued daily and paid monthly. The advisory fees for the
Funds are higher than those paid by most investment companies of all types to
their advisers, but the Board believes that the fees are appropriate for equity
funds.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. Subject to the Adviser's general
oversight, Schroder, through its London, England branch, acts as investment
subadviser to Diversified Equity Fund and Growth Equity Fund pursuant to
investment subadvisory agreements among the Trust, Norwest and Schroder. Under
these agreements, Schroder makes investment decisions for each Fund and
continuously reviews, supervises and administers each Fund's investment program
with respect to that portion, if any, of the respective Fund's portfolio that
the Adviser believes should be invested using the International Fund investment
style. Each investment subadvisory agreement is the same in all material
respects. Through its management of International Portfolio, Schroder manages
the entire portfolio of International Fund.
Schroder, whose principal business address is 787 Seventh Avenue, New York, New
York 10019, is a wholly-owned U.S. subsidiary of Schroders Incorporated, the
wholly-owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large worldwide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in seventeen countries
worldwide. The Schroder Group specializes in providing investment management
services and as of June 30, 1995, had assets under management in excess of $90
billion.
Pursuant to the Fund's investment subadvisory agreement, the Adviser (and not
the Trust) pays Schroder a fee for its investment subadvisory services. This
compensation does not increase the amount paid by the Trust to the Adviser
pursuant to the Adviser's investment advisory agreement.
CORE TRUST BLENDED PORTFOLIOS. As noted under "Investment Objectives And
Policies - Investments in Core Trust," Diversified Equity Fund and Growth Equity
Fund invest their assets which are managed in a small company, index and
international investment style in three Blended Portfolios of Core Trust - Small
Company Portfolio, Index Portfolio and International Portfolio II. Any of the
Funds may withdraw its investment from a Blended Portfolio at any time that the
Board determines it is in the best interests of a Fund and its shareholders to
do so. See "Other Information - Core Trust Structure." Norwest serves as
investment adviser to Small Company Portfolio and Index Portfolio and Schroder
serves as investment adviser to International Portfolio
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II pursuant to separate advisory agreements with Core Trust. Subject to the
general supervision of Core Trust's board of trustees, Norwest and Schroder
perform services for the Blended Portfolios similar to those performed for the
Trust under its investment advisory agreements.
PORTFOLIO MANAGERS. Many persons on the advisory staff of each of the Adviser,
Crestone and Schroder contribute to the investment advisory services provided to
the Funds, International Portfolio and the three Blended Portfolios of Core
Trust, as applicable. The following persons, however, are primarily responsible
for the day-to-day management of the Funds:
INCOME EQUITY FUND - David L. Roberts, Senior Vice President of Norwest since
1991. Mr. Roberts has been associated with Norwest for 20 years in various
investment related capacities.
INVESTMENT STYLES OF DIVERSIFIED EQUITY FUND AND GROWTH EQUITY FUND
INDEX FUND INVESTMENT STYLE - No single person at the Adviser acts as portfolio
manager of this investment style.
LARGE COMPANY GROWTH FUND - John S. Dale, Senior Portfolio Manager and an
Officer of Norwest and Senior Vice President of Peregrine Capital Management,
Inc. Mr. Dale has held various investment management positions with Norwest or
its affiliates, including Peregrine, since 1968. From 1984 to 1987 he was a
Senior Vice President and Manager of Equity Advisors for Norwest.
SMALL COMPANY INVESTMENT STYLE/SMALL COMPANY PORTFOLIO - Robert B. Mersky, Kirk
McCown and Thomas H. Forester. Mr. Mersky has held various investment management
positions with Norwest or its affiliates, including Peregrine, since 1977. From
1980 to 1984 he was head of investments for Norwest. Mr. McCown is founder,
President and a Director of Crestone Capital Management, Inc., a subsidiary of
Norwest which is investment subadviser to Small Company Stock Fund, another fund
of the Trust. Prior thereto, Mr. McCown was Senior Vice President of Reich &
Tang, L.P. Mr.Mersky, Senior Portfolio Manager and an officer of Norwest and
President of Peregrine Capital Management, Inc. Mr. Forester is an officer of
Norwest and Senior Vice President of Peregrine Capital Management, Inc. Mr.
Forester joined Peregrine in 1995. From 1992 to 1995 he was Vice President of
Lord Asset Management, an investment adviser.
Mr. Mersky has served as a portfolio manager of this investment style since its
inception. Mr. McCown commenced serving as a portfolio manager of this style on
June 1, 1995; Mr. Forester commenced serving as a portfolio manager of this
style on _______, 199_.
INTERNATIONAL FUND/INTERNATIONAL PORTFOLIO - The investment management team of
Mark J. Smith, a First Vice President of Schroder since April 1990 and a
Director thereof since April 1993, and Laura Luckyn-Malone, a Senior Vice
President and Director of Schroder since 1990, with the assistance of an
investment committee, is primarily responsible for managing the day-to-day
operations of this investment style. Mr. Smith has been employed by various
Schroder Group companies in the investment research and portfolio management
areas since 1983. Prior to joining the Schroder Group, Ms. Luckyn-Malone was a
Principal of Scudder, Stevens & Clark, Inc. Mr.
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Smith has served as portfolio manager of this investment style since its
inception; Ms. Luckyn-Malone joined the portfolio's investment management team
in 1995.
SMALL COMPANY INVESTMENT STYLE AND SMALL COMPANY PORTFOLIO - Kirk McCown and
Robert B. Mersky. For a description of Mr. McCown and Mr. Mersky, see "Small
Company Stock Fund" and "Small Company Growth Fund" above. Mr. McCown commenced
serving as a portfolio manager of Small Company Portfolio on June 1, 1995.
The day-to-day management of the portfolios of Diversified Equity Fund and
Growth Equity Fund is performed by the portfolio managers listed above with
respect to the portion of the Fund's portfolio that is invested using the
investment style of another Fund.
As an example, there are five portfolio managers of Growth Equity Fund: Mr.
Mersky. Mr. McCown and Mr. Forester are responsible for the Fund's assets
invested in accordance with Small Company investment style, Mr. Dale is
responsible for the Fund's assets invested in accordance with Large Company
Growth Fund investment style and Mr. Smith of Schroder is responsible for the
Fund's assets invested in accordance with International Fund's investment style.
Cash balances of each Fund, are managed by Mr. Sylvester and Ms. White, the
portfolio managers for Ready Cash Investment Fund, a separate series of the
Trust which is offered by a separate prospectus.
MANAGEMENT AND DISTRIBUTION SERVICES
Forum supervises the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay) and provides the
Trust with general office facilities pursuant to a Management Agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. 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. As of the date of this Prospectus, Forum provided
management and administrative services to registered investment companies and
collective investment funds with assets of approximately $11 billion. Forum is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. As of the date of this Prospectus, Forum
is controlled by John Y. Keffer, President and Chairman of the Trust. For its
services and facilities, Forum receives from each Fund a management fee at an
annual rate of 0.10% of the average daily net assets attributable to each class
of the Fund. From its own resources, Forum may pay a fee to broker-dealers or
other persons for distribution or other services related to the Funds.
Forum also serves as administrator of Core Trust and provides administrative
services for each Blended Portfolio that are similar to those provided to the
Funds. For its administrative services Forum is compensated by Core Trust at an
annual rate of 0.10% of the average daily net assets of each Blended Portfolio.
Forum may subcontract any or all of its duties to one or more qualified
subadministrators who agree to comply with the terms of Forum's management
agreement. Forum may compensate those agents for their services; however, no
such compensation may increase the aggregate amount of payments by the Trust to
Forum pursuant to the management agreement.
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Forum also acts as the distributor of the Shares pursuant to a distribution
services agreement with the Trust and in accordance therewith receives and may
reallow the initial sales charge assessed on purchases of A Shares of a Fund. As
authorized by a distribution plan with respect to B Shares of each Fund and
pursuant to the distribution services agreement, Forum receives a distribution
services fee as compensation for its distribution expenses with respect to B
Shares and a maintenance fee for its or certain broker-dealer's shareholder
services with respect to B Shares. For further information about the
distribution services agreement and the distribution plan, including the fees
payable thereunder, see "How to Buy Shares - Alternative Distribution
Arrangements." Pursuant to separate agreements, Forum also provides portfolio
accounting services to each Fund.
SHAREHOLDER SERVICING AND CUSTODY
Norwest serves as transfer agent and dividend disbursing agent for the Trust (in
this capacity, the "Transfer Agent") pursuant to a Transfer Agency Agreement
with the Trust. 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 or Forum, who
agree to comply with the terms of the Transfer Agency Agreement. 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 transfer agency services, the Transfer Agent receives from each
Fund a fee at an annual rate of 0.25% of the average daily net assets
attributable to each class of the Fund.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. Norwest
currently receives no additional compensation for its custodial services, but
the Funds will incur the expenses and costs of any subcustodian. The Chase
Manhattan Bank, N.A. serves as custodian of International Portfolio II and is
paid a fee by Core Trust for its services. Norwest serves as custodian of Small
Company Portfolio and Index Portfolio and currently receives no additional
compensation for its custodial services with respect to those Portfolios.
EXPENSES OF THE FUNDS
The Funds' expenses include Trust expenses attributable to the Funds, which are
allocated to each Fund, and expenses not specifically attributable to any Fund
of the Trust, which are allocated among the Funds and all other funds of the
Trust in proportion to their average net assets. Each investment adviser, Forum
and the Transfer Agent may each 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
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effect. No fee waivers may be recouped at a later date. Other than investment
advisory fees, any fee paid by the Trust may be increased by the Board without
shareholder approval
Norwest and Forum and their agents and affiliates may also act in various
capacities for, and receive compensation from, their customers who are
shareholders of a Fund. Under agreements with those customers, Norwest and Forum
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.
Subject to the obligation of Norwest to reimburse the Trust for certain
expenses, under the Investment Advisory Agreements, the Trust has confirmed its
obligation to pay all the Trust's expenses, including: interest charges, taxes,
brokerage fees and commissions; certain insurance premiums; fees, interest
charges and expenses of the Trust's custodian, transfer agent and dividend
disbursing agent and providers of pricing, credit analysis and dividend
services; telecommunications expenses; auditing, legal and compliance expenses;
costs of maintaining corporate existence; costs of preparing and printing the
Funds' prospectuses, SAIs, account application forms and shareholder reports and
delivering them to existing shareholders; 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 Funds; costs of
reproduction, stationery and supplies; compensation of trustees, officers and
employees of the Funds or the Trust who are not employees of Norwest, Forum or
their affiliates and costs of other personnel performing services for the Fund;
costs of meetings of the Trust; SEC registration fees and related expenses;
state securities laws registration fees and expenses; fees and out of pocket
expenses payable to Norwest, Schroder and Forum; and fees and expenses paid by
the Funds pursuant to the distribution plan.
5. HOW TO BUY SHARES
MINIMUM INVESTMENT
There is a $1,000 minimum for initial purchases and a $100 minimum for
subsequent purchases of Shares of the Funds. A Fund may in its discretion waive
the investment minimums. Shareholders who elect electronic share purchase
privileges such as the Automatic Investment Plan or the Directed Dividend Option
are not subject to the initial investment minimum. See "Other Shareholder
Services - Automatic Investment Plan" and "Dividends and Tax Matters."
Except as set forth below with respect to purchases through Processing
Organizations, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of Federal funds. Fund shares become
entitled to receive dividends and distributions on the next Fund Business Day
after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
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INITIAL PURCHASES
THERE ARE THREE WAYS TO PURCHASE SHARES INITIALLY.
1. BY MAIL. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed under
"Account Application" on page ___. Checks 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.
2. BY BANK WIRE. Investors may make an initial investment in a Fund using the
wire system for transmittal of money among banks. The investor should first
telephone the Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an
account number. The investor should then instruct a bank to wire the investor's
money immediately to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Advantage Funds
0844-131
Re: [Name of Fund]
[Designate A Shares or B Shares]
Account No.:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
3. THROUGH FINANCIAL INSTITUTIONS. SHARES MAY BE PURCHASED AND REDEEMED
THROUGH CERTAIN BROKER-DEALERS, BANKS AND OTHER FINANCIAL INSTITUTIONS
("Processing Organizations"). The Transfer Agent, Forum and their affiliates may
be Processing Organizations. Processing Organizations may receive as a broker-
dealer's reallowance a portion of the sales charge paid by their customers who
purchase A Shares of a Fund, may receive payments from Forum with respect to
sales of B Shares and may receive payments as a processing agent from the
Transfer Agent. In addition, 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.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Funds' procedures, may have
Fund shares transferred into their name. There is typically a three-
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day settlement period for purchases and redemptions through broker-dealers.
Certain Processing Organizations may also enter purchase orders with payment to
follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with confirmations and periodic statements. The Trust is not
responsible for the failure of any Processing Organization to carry out its
obligations to its customer. Certain states, such as Texas, permit shares of the
Funds to be purchased and redeemed only through registered broker-dealers,
including the Funds' distributor.
SUBSEQUENT PURCHASES
SUBSEQUENT PURCHASES MAY BE MADE BY MAILING A CHECK, BY SENDING A BANK WIRE OR
THROUGH THE SHAREHOLDER'S PROCESSING ORGANIZATION AS INDICATED ABOVE. All
payments should clearly indicate the shareholder's name and account number.
ACCOUNT APPLICATION
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
GENERAL INFORMATION
FUND SHARES ARE CONTINUOUSLY SOLD ON EVERY WEEKDAY EXCEPT CUSTOMARY NATIONAL
BUSINESS HOLIDAYS AND GOOD FRIDAY ("Fund Business Day"). The purchase price for
Fund shares equals their net asset value next-determined after acceptance of an
order plus, in the case of the A Shares, any applicable sales charge imposed at
the time of purchase.
Investments in a Fund may be made either through certain financial institutions
or by an investor directly. An investor who invests in a Fund directly will be
the shareholder of record. All
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transactions in Fund shares are effected through the Transfer Agent which
accepts orders for redemptions and for subsequent purchases only from
shareholders of record. Shareholders of record will receive from the Trust
periodic statements listing all account activity during the statement period.
ALTERNATIVE DISTRIBUTION ARRANGEMENTS
INVESTORS SHOULD COMPARE SALES CHARGES AND FEES BEFORE SELECTING A PARTICULAR
CLASS OF SHARES. Investors should consider whether, during the anticipated life
of their investment in a Fund, the accumulated distribution services fee and
maintenance fee and contingent deferred sales charges on B Shares prior to
conversion would be less than the initial sales charge on A Shares purchased at
the same time and whether that differential would be offset by the higher yield
of A Shares. A summary of the charges applicable to shares of each Fund is
listed under "Prospectus Summary - Expense Information." Sales personnel of
selected broker-dealers distributing a Fund's shares may receive differing
compensation for selling A Shares and B Shares.
Because initial sales charges are deducted at the time of purchase, investors
purchasing a Fund's A Shares receive fewer shares than if the sales charge were
not deducted and, accordingly, do not have the entire purchase price invested.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time should consider
whether, in light of the initial sales charge and its effect on the amount of
the purchase price invested, purchases of A Shares are more or less advantageous
than purchases of B Shares with their associated accumulated continuing
distribution and maintenance charges. For example, based on estimated current
fees and expenses, an investor subject to the 4.5% initial sales charge who
elects to reinvest all dividends and distributions would have to hold the
shareholder's investment approximately six years for the B Shares' distribution
services fee and maintenance fee to exceed the initial sales charge. The
foregoing example does not take into account the time value of money,
fluctuations in net asset value or the effects of different performance
assumptions.
A SHARES
THE PUBLIC OFFERING PRICE OF EACH FUND'S A SHARES IS THEIR NEXT-DETERMINED NET
ASSET VALUE PLUS AN INITIAL SALES CHARGE assessed as follows (no sales charge is
assessed on the reinvestment of dividends or distributions):
Broker-
Dealers'
Reallowance
Sales Charge As a As a
Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
Less than $50,000 4.50% 4.71% 4.05%
$50,000 to $99,999 3.50 3.63 3.15
$100,000 to $499,000 2.50 2.56 2.25
$500,000 to $999,000 2.00 2.04 1.80
$1,000,000 and over None None None
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* Rounded to the nearest one-hundredth percent
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations. Normally, Forum will reallow discounts
to selected broker-dealers in the amounts indicated in the table above. In
addition, Forum may elect to reallow the entire sales charge to selected broker-
dealers for all sales with respect to which orders are placed with Forum. The
broker-dealers' reallowance may be changed from time to time. Forum may make
additional payments (out of its own resources) to selected broker-dealers of up
to 1.00% of the value of Fund shares purchased at net asset value.
No sales charge is assessed on purchases by: (a) 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) and (b)
trustees and officers of the Trust; directors, officers and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor or direct descendant (collectively, "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. These shares may not be resold except to the Funds and share
purchases under clause (b) must be made for investment purposes.
In addition, no sales charge is assessed on purchases (a) 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, or (b) of A
Shares of a Fund made through the Directed Dividend Option from a fund that
charges a front-end sales charge. See "Dividends and Tax Matters."
REINSTATEMENT PRIVILEGE. An investor who has redeemed A Shares of a Fund may,
within 60 days following the redemption, purchase without a sales charge A
Shares in an amount up to the amount of the redemption. Investors who desire to
exercise this "Reinstatement Privilege" should contact the Trust for further
information.
INVESTORS IN OTHER FUND FAMILIES. No sales charge is assessed on purchases of A
Shares of a Fund with the proceeds of a redemption at net asset value, within
the preceding 60 days, of shares of a mutual fund that does not impose on the
redeemed shares at the time of their purchase a sales charge equal to or greater
than that applicable to the A Shares of that Fund. Investors should contact the
Trust for further information and to obtain the necessary forms.
REDUCED INITIAL SALES CHARGES. To qualify for a reduced sales charge, an
investor or the investor's Processing Organization must notify the Transfer
Agent at the time of purchase of the investor's intention to qualify and must
provide the Transfer Agent with sufficient information to verify that the
purchase qualifies for the reduced sales charge. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. Further information about reduced sales charges is
contained in the SAI.
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SELF-DIRECTED 401(K) PROGRAMS. Purchases of A Shares of a Fund through self-
directed 401(k) programs and other qualified retirement plans offered by
Norwest, Forum or their affiliates in accumulated amounts of less than $100,000
are subject to a reduced sales charge applicable to a single purchase of
$100,000.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An investor's purchase of
additional A Shares of a Fund may qualify for rights of accumulation ("ROA")
under which the applicable sales charge will be based on the total of the
investor's current purchase and the net asset value (at the end of the previous
Fund Business Day) of all A Shares of that Fund held by the investor. For
example, if an investor owned A Shares of a Fund worth $500,000 at the then
current net asset value and purchased A Shares of that Fund worth an additional
$50,000, the sales charge for the $50,000 purchase would be 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, an investor in a Fund that has previously purchased A Shares of any
other fund of the Trust that is sold with a sales charge equal to or greater
than the sales charge imposed on the A Shares of the Fund ("Eligible Fund") may
also qualify for ROA and may aggregate existing investments in A Shares of
Eligible Funds with current purchases of A Shares of the Fund to determine the
applicable sales charge. In addition, purchases of A Shares of a Fund by an
investor and the investor's spouse, direct ancestor or direct descendant may be
combined for purposes of ROA.
STATEMENT OF INTENTION. A Shares investors may also obtain reduced sales charges
based on cumulative purchases by means of a written Statement of Intention,
expressing the investor's intention to invest $50,000 or more in A Shares of a
Fund within a period of 13 months. Each purchase of shares under a Statement of
Intention will be made at net asset value plus the sales charge applicable at
the time of the purchase to a single transaction of the dollar amount indicated
in the Statement.
Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a Fund should complete the appropriate
portion to the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
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.
Contingent Deferred Sales
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Charge as a % of Dollar
Amount of Purchase Period Shares Held Amount Subject to Charge
$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 described under "B Shares - Contingent Deferred Sales Charge" below. 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.
B SHARES
DISTRIBUTION PLAN. B SHARES OF 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, each Fund has adopted a distribution plan pursuant to Rule
12b-1 (the "Plan") under the 1940 Act 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 (i) sales commissions at levels
set from time to time by the Board ("sales commissions") and (ii) an interest
fee calculated by applying the rate of 1% over the prime rate to the outstanding
balance of uncovered distribution charges (as described below). The current
sales commission rate is 4.0% and Forum currently expects to pay sales
commissions to each broker-dealer at the time of sale of up to 4.0% 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 those
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.
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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. As of the date
of this Prospectus, there are no unrecovered distribution expenses for any of
the Fund's net assets attributable to B Shares.
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 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.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
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.
The distribution services fees payable to Forum by a Fund with respect to each
day are accrued on that day as a liability of the Fund with respect to the B
Shares and as a result of the accrual reduce the net assets of the B Shares.
However, a Fund does not accrue future distribution services fees as a liability
of the Fund with respect to the B 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 will 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) until the earlier of (a) four years after the date
of termination or discontinuance or (b) such time as there exist no uncovered
distribution charges attributable to that Fund under the Plan. In deciding
whether to purchase B 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
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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.
Contingent Deferred Sales Charge. B Shares of a Fund which are redeemed within
six years of purchase will be subject to contingent deferred sales charges equal
to the percentages set forth below of the dollar amount subject to the charge.
The amount of the contingent deferred sales charge, if any, will vary depending
on the number of years between the payment for the purchase of B Shares of a
Fund and their redemption.
The contingent deferred sales 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.
Contingent Deferred Sales
Charge as a % of Dollar
Year Since Purchase Amount Subject to Charge
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh None
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in a Fund will automatically be made first from any A
Shares in the Fund, second from B Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for over six years and fourth from the longest outstanding B Shares of the
Fund held for less than six years.
No contingent deferred sales charge is imposed on (i) redemptions of shares
acquired through the reinvestment of dividends and distributions, (ii)
involuntary redemptions by a Fund of shareholder accounts with low account
balances, (iii) redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability and (iv) redemptions to effect a distribution (other than a lump
sum distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan. See the SAI for further information.
CONVERSION FEATURE. After seven years from the end of the calendar month in
which the shareholder's purchase order for B shares was accepted, the Shares
will automatically convert to A Shares of that Fund. The conversion will be on
the basis of the relative net asset values of the
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Shares, without the imposition of any sales load, fee or other charge. For
purposes of conversion, B Shares of a Fund purchased by a shareholder through
the reinvestment of dividends and distributions will be considered to be held in
a separate sub-account. Each time any B Shares in the shareholder's account
(other than those in the sub-account) convert, an equal pro rata portion of
those shares in the sub-account will also convert. The conversion of B Shares to
A Shares is subject to the continuing availability of certain opinions of
counsel and the conversion of a Fund's 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 of the Fund's B Shares would occur, and
shares might continue to be subject to a distribution services and maintenance
fee for an indefinite period.
6. HOW TO SELL SHARES
GENERAL INFORMATION
Fund Shares may be sold (redeemed) at their net asset value on any Fund Business
Day subject to a contingent deferred sales charge imposed, in the case of A
Shares, on some redemptions made within two years of purchase and, in the case
of B Shares, on most redemptions made within six years of purchase. There is no
minimum period of investment and no restriction on the frequency of redemptions.
Fund shares are redeemed 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 which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends declared after
the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment date postponed for more than seven days after
the tender of the shares to a Fund except when the New York Stock Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings, for any period during which an emergency
exists as a result of which disposal by the Fund of its portfolio securities or
determination by the Fund of the value of its net assets is not reasonably
practicable and for such other periods as the SEC may permit.
REDEMPTION PROCEDURES
Shareholders who have invested directly in a Fund may redeem their Shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described above. Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be
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available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone.
1. BY MAIL. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. BY TELEPHONE. A shareholder who has elected telephone redemption privileges
may make a telephone redemption request by calling the Transfer Agent at 800-
338-1348 or 612-667-8833 and providing the shareholder's account number, the
exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. See "How to Sell Shares - Other Redemption Matters."
3. BY BANK WIRE. For redemptions of more than $5,000, a shareholder who has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
OTHER REDEMPTION MATTERS
SIGNATURE GUARANTEE. A signature guarantee is required for the following: any
endorsement on a share certificate and for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions, Automatic Investment or Withdrawal Plan, dividend election,
telephone redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any bank, broker-dealer, national securities exchange, credit union, savings
association or other eligible institution that is authorized to guarantee
signatures, and is 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.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust, the Transfer Agent and Forum, will employ
reasonable procedures in order to verify that telephone requests are genuine,
including recording telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the Trust did not
employ such procedures, it could be liable for losses arising from unauthorized
or fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to
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implement. In the event that a shareholder is unable to reach the Transfer Agent
by telephone, requests may be mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 immediately
following any redemption. The Trust will not redeem accounts that fall below
that amount solely as a result of a reduction in net asset value.
7. OTHER SHAREHOLDER SERVICES
EXCHANGES
Shareholders of A Shares and B Shares may exchange their shares for A Shares and
B Shares, respectively, of the other funds of the Trust that offer those shares.
As of the date of this Prospectus, the funds of the Trust that offer A Shares
and B Shares, which are offered through separate prospectuses, are ____________.
It is anticipated that the Trust may in the future create additional funds that
will offer Shares which will be exchangeable with the Funds' Shares. In
addition, A Shares may be exchanged for Investor Shares of Ready Cash Investment
Fund and Municipal Money Market Fund of the Trust. B Shares may be exchanged for
Exchange Shares of Ready Cash Investment Fund. Prospectuses for the shares of
the funds listed above, as well as a current list of the funds of the Trust that
offer shares exchangeable with the Shares of the Funds, can be obtained through
Forum by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make. The Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees (other than contingent deferred sales charges) charged by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence.
The Funds and Federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may 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 the shares at the time of the exchange transaction. Exchange procedures
may be amended materially or terminated by the Trust at any time upon 60 days'
notice to shareholders. See "Additional Purchase and Redemption Information" in
the SAI.
SALES CHARGES. The exchange of A Shares may result in additional sales charges.
If an exchange of A Shares is made into a fund that imposes an initial sales
charge, the shareholder is required to pay an amount equal to any excess of that
Fund's initial sales charge attributable to the number of
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shares being acquired in the exchange over any initial sales charge paid by the
shareholder for the shares being exchanged. For example, if a shareholder paid a
2% initial sales charge in connection with a purchase of shares and then
exchanged those shares into A Shares of another fund with a 3% initial sales
charge, the shareholder would pay an additional 1% sales charge on the exchange.
A Shares acquired through the reinvestment of dividends or distributions are
deemed to have been acquired with a sales charge rate equal to that applicable
to the shares on which the dividends or distributions were paid.
Shares of a Fund ("Original Shares") may be exchanged without the payment of any
contingent deferred sales charge. A and B Shares acquired as a result of such
exchange ("New Shares") and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Original Shares as if
those shares were being redeemed at that time. For purposes of computing both
the contingent deferred sales charge payable upon redemption of the New Shares
and, in the case of B Shares, the time remaining before the New B Shares convert
to A Shares of that Fund, the deferred sales charge and the time remaining
applicable to the Original Shares will apply to the New Shares rather than the
deferred sales charge and time remaining that would otherwise apply. The
deferred sales charge and time remaining applicable to Shares first purchased by
a shareholder will apply to New Shares resulting from both an initial and any
subsequent exchanges.
1. EXCHANGES BY MAIL. Exchanges may be made by sending a written request to
the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. EXCHANGES BY TELEPHONE. A shareholder who has elected telephone exchange
privileges may make a telephone exchange request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See "How to
Sell Shares - Other Redemption Matters."
AUTOMATIC INVESTMENT PLAN
Under the Funds' Automatic Investment Plan, shareholders may authorize monthly
amounts of $50 or more to be withdrawn automatically from the shareholder's
designated bank account (other than passbook savings) and sent to the Transfer
Agent for investment in either A or B Shares of a Fund. Shareholders wishing to
use this plan must complete an application which may be obtained by writing or
calling the Transfer Agent. The Trust may modify or terminate the automatic
investment plan with respect to any shareholder in the event that the Trust is
unable to settle any transaction with the shareholder's bank. If the Automatic
Investment Plan is terminated before the shareholder's account totals $1,000,
the Trust reserves the right to close the account in accordance with the
procedures described under "How to Sell Shares - Other Redemption Matters."
INDIVIDUAL RETIREMENT ACCOUNTS
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The Funds may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). An IRA account application form
may be obtained by contacting the Trust at 800-338-1348 or 612-667-8833.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, the deduction will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
AUTOMATIC WITHDRAWAL PLAN
A shareholder whose Shares in a single account total $1,000 or more may
establish a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
annual basis. Under the withdrawal plan, sufficient shares in the shareholder's
account are redeemed to provide the amount of the periodic payment and any
taxable gain or loss is recognized by the shareholder upon redemption of the
shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than $1,000 at any time.
REOPENING ACCOUNTS
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
8. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of Diversified Equity Fund's, Growth Equity Fund's and Income Equity
Fund's net investment income are declared and paid annually. Distributions of
net capital gain, if any, realized by a Fund are distributed annually. Dividends
paid by a Fund with respect to each class of shares of the Fund will be
calculated in the same manner at the same time on the same day. The per share
dividends on a Fund's B Shares will be lower than the per share dividends on A
Shares as a result of the distribution services fees and maintenance fees
applicable to B Shares.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (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.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a
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Fund's net asset value as of the payment date of the dividend or distribution.
Shareholders are assigned this option unless one of the other two options is
selected. Under the Cash Option, all dividends and distributions are paid to the
shareholder in cash. Under the Directed Dividend Option, shareholders of a Fund
whose shares in a single account of that Fund total $10,000 or more may elect to
have all dividends and distributions reinvested in shares of another fund of the
Trust, provided that those shares are eligible for sale in the shareholder's
state of residence. For further information concerning the Directed Dividend
Option, shareholders should contact the Transfer Agent.
TAXES
Each Fund intends to continue to qualify for each fiscal year to be taxed as a
'regulated investment company' under the Internal Revenue Code of 1986 (the
"Code"). As such, the Funds will not be liable for Federal income and excise
taxes on the net investment income and capital gain distributed to their
shareholders. Because each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
Federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including realized
net short-term capital gain) are taxable to shareholders of the Fund as ordinary
income notwithstanding that the dividends are reinvested in additional shares of
the Fund.
Distributions of net long-term capital gain, if any, realized by a Fund are
taxable to shareholders of the Fund as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If a shareholder holds shares for six months or less and during
that period receives a distribution taxable to the shareholder as long-term
capital gain, any loss realized on the sale of the shares during that six-month
period would be a long-term capital loss to the extent of the distribution.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of the shares by the amount of
the dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to the
shareholder as described above.
It is expected that a portion of each Fund's dividends from net investment
income will be eligible for the dividends received deduction for corporations.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each year.
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9. OTHER INFORMATION
BANKING LAW MATTERS
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent, or 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. Counsel to the Trust believes that Norwest and any other
bank or bank affiliate that may serve as a Processing Organization or perform
sub-transfer agent or similar services or purchase shares as agent for its
customers may perform the services described in this Prospectus for the Trust
and its shareholders without violating applicable Federal banking laws or
regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If a
bank or bank affiliate were prohibited from so acting, changes in the operation
of the Trust could occur and a shareholder serviced by a 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.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of each Fund as of 4:00 P.M.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's 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.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value or, in their absence, at fair value as determined
by the Board. The Trust does not determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas.
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. Trading in securities on European, Far Eastern
and other international securities exchanges and over-the-counter markets is
normally completed well before the close of business of each Fund Business Day.
In addition, trading in foreign securities generally or in a particular country
or countries may not take place on all Fund Business Days. Trading does take
place in various foreign markets, however, on days on which the Fund's net asset
value is not calculated. Calculation of the net asset value per share of the
Fund may not occur contemporaneously with the determination of the prices of the
foreign securities used in the calculation. Events affecting
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the values of foreign securities that occur after the time their prices are
determined and before the Fund's determination of net asset value will not be
reflected in the Fund's calculation of net asset value unless the Adviser or
Schroder determines that the particular event would materially affect net asset
value, in which case an adjustment will be made.
All assets and liabilities of a Fund denominated in foreign currencies are
converted into United States dollars at the mean of the bid and asked prices of
such currencies against the United States dollar last quoted by a major bank
prior to the time of conversion.
PERFORMANCE INFORMATION
A Fund's performance may be quoted in advertising in terms of yield or total
return. All performance information is based on historical results and is not
intended to indicate future performance. 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, a Fund takes the interest 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. 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 Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gain or loss. Published yield quotations
are, and total return figures may be, based on amounts actually invested in a
Fund net of sales loads that may be paid by an investor. A computation of yield
or total return that does not take into account the sales load paid by an
investor will be higher than a computation based on the public offering price of
shares purchased that take into account payment of the sales load.
PERFORMANCE BENCHMARKS. Each of the Funds uses a benchmark securities index as a
measure of the Fund's performance. These indices may be comprised of a composite
of various recognized securities indices to reflect the investment policies of
Diversified Equity Fund, Growth Equity Fund and Income Equity Fund, which invest
their assets using different investment styles. These indices are not used in
the management of the Fund but rather are standards by which the Advisers and
shareholders may compare the performance of a Fund to an unmanaged composite of
securities with similar, but not identical, characteristics as the Fund. The
Funds may from time to time advertise a comparison of their performance against
any of these or other indices.
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Funds may be compared to recognized indices of market performance. The
comparative material found in the Funds' advertisements, sales literature or
reports to shareholders may contain performance ratings. This material is not to
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be considered representative or indicative of future performance. All
performance information for a Fund is calculated on a class basis.
THE TRUST AND ITS SHARES
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust. 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 Funds) and may divide portfolios or series into classes of
shares (such as A and B Shares), and the costs of doing so will be borne by the
Trust. Currently the authorized shares of the Trust are divided into thirty-one
separate series.
OTHER CLASSES OF SHARES. In addition to the Shares, each Fund may create and
issue shares of other classes of securities. Each Fund currently offers three
classes of shares: A Shares; B Shares; and I Shares. I Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates without any sales charges or distribution service
or maintenance fees. 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 Funds investors may contact the
Transfer Agent at 612-667-8833 or 800-338-1348. Investors may also contact their
Norwest sales representative or the Funds' distributor 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 A, B and I Shares of the Funds.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each fund of the 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 plan which pertain 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
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio 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 portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
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From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
The Portfolio normally will not hold meetings of investors except as required by
the 1940 Act. Each investor in the Portfolio, such as International Fund, will
be entitled to vote in proportion to its relative beneficial interest in the
Portfolio. On most issues subject to a vote of investors, as required by the
1940 Act and other applicable law, the Fund will solicit proxies from
shareholders of the Fund and will vote its interest in the Portfolio in
proportion to the votes cast by its shareholders. If there are other investors
in the Portfolio, there can be no assurance that any issue that receives a
majority of the votes cast by Fund shareholders will receive a majority of votes
cast by all investors in the Portfolio; indeed, if other investors hold a
majority interest in the Portfolio, they could hold have voting control of the
Portfolio.
CORE TRUST STRUCTURE
Pursuant to an exemptive order issued by the SEC, the Blended Funds invest
portions of their assets in Small Company Portfolio, International Portfolio II
and Index Portfolio of Core Trust. Core Trust currently consists of only these
three diversified portfolios and one other, International Portoflio, in which
another portfolio of the Trust invests all of its assets. The assets of each
Portfolio of Core Trust belong only to, and the liabilities of each Portfolio
are borne solely by, the respective Portfolio and no other Portfolio of Core
Trust.
The Blended Funds are permitted to invest a portion of their assets which are
managed by using the small company, index and international investment styles in
Small Company Portfolio, Index Portfolio, and International Portfolio II
pursuant to an exemptive order obtained from the SEC. The conditions of the
Trust's exemptive order do not permit a Fund to invest all of its assets in a
Blended Portfolio.
The Trust's exemptive order imposes several substantive conditions. On behalf of
each Blended Fund, the Board is required to review at least annually reports
identifying all instances in which a Portfolio in which the Fund invests buys a
security at approximately the same time that another Portfolio in which the Fund
invests sells the same security. The Board will consider whether the duplication
of brokerage costs resulting from these transactions is significant. If the
duplication of brokerage costs becomes significant, the Board will adopt
procedures designed to limit duplication. The Board will determine, at least
annually, that investment in the Portfolios is in the best interests of the
shareholders of each Blended Fund.
NO PERSON 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 IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. 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.
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INTERMEDIATE U.S. GOVERNMENT FUND
STABLE INCOME FUND
A SHARES
B SHARES
Account Information and
Shareholder Servicing:
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
612-667-8833 or 800-338-1348
PROSPECTUS
March 1, 1996
This prospectus offers A Shares and B Shares of Intermediate U.S. Government
Fund and Stable Income (each a "Fund" and collectively the "Funds"). The Funds
are separate diversified fixed income portfolios of Norwest Advantage Funds (the
"Trust"), which is a registered open-end management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated March 1, 1996, as amended from time to
time, which contains more detailed information about the Trust and each of the
Funds and is incorporated into this Prospectus by reference. An investor may
obtain a copy of the SAI without charge by contacting the Trust's distributor,
Forum Financial Services, Inc., at 61 Broadway, New York, New York 10006 or by
calling 212-363-3300. Investors should read this Prospectus and retain it for
future reference.
NORWEST ADVANTAGE FUNDS IS A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER
GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF,
OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OTHER BANK OR
BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1. PROSPECTUS SUMMARY
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Highlights of the Funds
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
Investment Objectives and Policies
INTERMEDIATE U.S. GOVERNMENT FUND seeks income and safety of principal by
investing primarily in U.S. Government Securities. The Fund seeks to moderate
its volatility by using a conservative approach to structuring the maturities of
its investment portfolio.
STABLE INCOME FUND seeks to maintain safety of principal and provide low
volatility total return by investing primarily in short and intermediate
maturity, investment grade fixed income securities.
Investment Adviser
The Funds' investment adviser (the "Adviser") is Norwest Investment Management,
a part of Norwest Bank Minnesota, N.A. ("Norwest"). The Adviser provides
investment advice to various institutions, pension plans and other accounts and,
as of _______ ___, 1995, managed assets totaling approximately $___ billion. See
"Management - Investment Advisory Services." Norwest serves as the Trust's
transfer agent, dividend disbursing agent and custodian. See "Management -
Shareholder Servicing and Custody."
Fund Management
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"), a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. See "Management - Management and
Distribution Services."
Shares of the Funds
Each Fund currently offers three separate classes of shares: A class ("A
Shares"), B class ("B Shares") and I class ("I Shares"). A Shares and B Shares
are sold through this Prospectus and are collectively referred to as the
"Shares."
A Shares. Shares are offered at a price equal to their net asset value plus
a sales charge imposed at the time of purchase or, in some cases, a contingent
deferred sales charge imposed on redemptions made within two years of purchase.
B Shares. Shares are offered at a price equal to their net asset value plus
a contingent deferred sales charge imposed on most redemptions made within four
years of purchase. B Shares pay a distribution services fee at an annual rate of
up to 0.75%, and a maintenance fee in an amount equal to 0.25%, of the B Shares'
average daily net assets. B Shares automatically convert to A Shares of the same
Fund six years after the end of the calendar month in which the B Shares were
originally purchased.
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The choice of A Shares or B Shares permits each investor to purchase those
shares that the investor believes to be most beneficial given the amount
purchased, the length of time the investor expects to hold the shares and other
circumstances. A Shares will normally be more beneficial to the investor who
qualifies for reduced initial sales charges as described below. See "How to Buy
Shares - Alternative Distribution Arrangements."
I Shares are offered by a separate prospectus to fiduciary, agency and custodial
clients of bank trust departments, trust companies and their affiliates. Shares
of each class of a Fund have identical interests in the investment portfolio of
the Fund and, with certain exceptions, have the same rights. See "Other
Information - The Trust and Its Shares."
How to Buy and Sell Shares
Shares may be purchased or redeemed by mail, by bank wire and through an
investor's broker-dealer or other financial institution. The minimum initial
investment in Shares is $1,000. The minimum subsequent investment is $100. See
"How to Buy Shares" and "How to Sell Shares."
Exchanges
Shareholders may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of certain other funds of the Trust. In addition, A Shares may be
exchanged for investor class shares of certain money market funds of the Trust
and B Shares may be exchanged for exchange class shares of Ready Cash Investment
Fund of the Trust. See "Other Shareholder Services - Exchanges."
Shareholder Features
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. Purchases of A Shares may be subject to Rights of
Accumulation, Cumulative Quantity Discounts or a Reinstatement Privilege. See
"Other Shareholder Services" and "How to Buy Shares - Alternative Distribution
Arrangements."
Dividends
Dividends of each Fund's net investment income are declared and paid annually.
Each Fund's net capital gain, if any, is distributed annually. All dividends and
distributions are reinvested in additional Fund shares unless the shareholder
elects to have them paid in cash. See "Dividends and Tax Matters."
Certain Investment Considerations and Risk Factors
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Normally, the value of a Fund's
investments varies inversely with changes in interest rates. The potential for
appreciation in a Fund in the event of a decline in interest rates may be
limited or negated by increased principal prepayments on certain mortgage-backed
securities held by the Fund. Upon redemption, an investment in a Fund may be
worth more or less than its original value. The Funds' investments are subject
to "credit risk" relating to the financial condition of the issuers of the
securities that each Fund holds. Each Fund, however, invests only in investment
grade securities (those rated in the top four grades by a nationally recognized
statistical rating organization ("NRSRO") such as Standard & Poor's Corporation.
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All investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending, swap
transactions and other investment techniques. See "Investment Objectives and
Policies - Additional Investment Policies and Risk Considerations." Similarly, a
Fund's use of mortgage- and asset-backed securities entails certain risks. See
"Investment Objectives and Policies - Additional Investment Policies and Risk
Considerations - Mortgage-Backed Securities" and " Asset-Backed Securities."
Expenses of Investing in the Funds
The purpose of the following table is to assist investors in understanding the
various expenses that an investor in the Funds will bear directly or indirectly.
There are no transaction charges in connection with purchases, redemptions or
exchanges of Shares. None of the Funds has adopted a Rule 12b-1 plan with
respect to the Shares and, accordingly, no Fund incurs distribution expenses.
Annual Fund Operating Expenses
[Expense Table]
Example of Expenses
[Example]
The above table is a hypothetical example that indicates the expenses an
investor would pay assuming a $1,000 investment in each Fund, a 5 percent annual
return, reinvestment of all dividends and distributions, and full redemption at
the end of each period. The example is based on the expenses listed in the
"Annual Fund Operating Expenses" table above. The 5 percent annual return is not
a prediction of and does not represent the Funds' projected returns; rather, it
is required by government regulation. The example should not be considered a
representation of past or future expenses or return. Actual expenses and return
may be greater or less than indicated.
Financial Highlights
The information in the Financial Highlights section represents selected data for
a single outstanding A or B Share of each Fund for the period shown. Information
for the year ended October 31, 1995 has been audited by _______________,
independent auditors. Further information about each of these Fund's performance
is contained in the Annual Report, which may be obtained from the Trust without
charge.
[Financial Highlights]
3. INVESTMENT OBJECTIVES AND POLICIES
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The Funds invest primarily in fixed income securities pursuant to the investment
policies listed below. Stable Income Fund may invest in foreign issuers. These
investments may involve certain risks. See "Additional Investment Policies and
Risk Considerations - Foreign Investment Risks and Considerations".
INTERMEDIATE U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE. Intermediate U.S. Government Fund's investment objective
is to provide income and safety of principal by investing primarily in U.S.
Government Securities.
INVESTMENT POLICIES. Intermediate U.S. Government Fund seeks to attain its
investment objective by investing primarily in fixed and variable rate U.S.
Government Securities. Under normal circumstances, the Fund intends to invest at
least 65 percent of its assets in U.S. Government Securities and may invest up
to 35 percent of its assets in fixed income securities that are not U.S.
Government Securities. The Fund emphasizes the use of intermediate maturity
securities to lessen interest rate risk, while employing low risk yield
enhancement techniques to add to the Fund's return over a complete economic or
interest rate cycle.
The securities in which the Fund invests will include mortgage-backed and other
asset-backed securities, although the Fund will limit these investments to not
more than 50 percent and 25 percent, respectively, of its total assets. As part
of its mortgage-backed securities investments, the Fund may enter into "dollar
roll" transactions. Certain fixed income securities are "zero-coupon" securities
and the Fund will limit its investment in these securities, except those issued
through the U.S. Treasury's STRIPS program, to not more than 10 percent of the
Fund's total assets. The Fund may also invest in securities that are restricted
as to disposition under the Federal securities laws (sometimes referred to as
"private placements" or "restricted securities"). In addition, the Fund may not
invest more than 25 percent of its total assets in securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury. The Fund may make short sales and may purchase
securities on margin (borrow money in order to purchase securities), which are
considered speculative investment techniques. See "______ Risk Considerations -
Short Sales" and "- Purchasing Securities on Margin."
The Fund will only purchase securities that are rated, at the time of purchase,
within the two highest rating categories assigned by a Nationally Recognized
Statistical Rating Organization, such as Moody's Investors Service, Inc.,
Standard & Poor's Corporation or Fitch Investors Services, Inc., or which are
unrated and determined by the Adviser to be of comparable quality.
The Fund primarily will invest in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from short-
term (including overnight) to 12 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 7 years. Under normal circumstances, the Fund's portfolio of securities
will have a duration of between 75 percent and 125 percent of the duration of
the Lehman Intermediate Government Bond Index, which is used as the Fund's
benchmark index as described under "Other Information - Fund Performance."
Duration is a measure of a debt securities average life that reflects the
present value of the securities cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because earlier
payments on
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a debt security have a higher present value, duration of a security, except a
zero-coupon security, will be less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts, and buy options and write covered options on those futures contracts.
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 a segregated account of liquid, high-grade debt instruments with a
value at all times sufficient to cover the Fund's obligations under the option.
STABLE INCOME FUND
INVESTMENT OBJECTIVES. Stable Income Fund's investment objective is to maintain
safety of principal while providing low-volatility total return.
INVESTMENT POLICIES. Stable Income Fund seeks to maintain safety of principal
while providing low volatility total return by investing primarily in investment
grade short-term obligations. The Fund invests in a diversified portfolio of
fixed and variable rate U.S. dollar denominated fixed income securities of a
broad spectrum of United States and foreign issuers, including U.S. Government
Securities and the debt securities of financial institutions, corporations, and
others.
The securities in which the Fund invests include mortgage-backed and other
asset-backed securities, although the Fund limits these investments to not more
than 60 percent and 25 percent, respectively, of its total assets. In addition,
the Fund limits its holdings of mortgage-backed securities that are not U.S.
Government Securities to 25 percent of its total assets. The Fund may invest any
amount of its assets in U.S. Government Securities, but under normal
circumstances less than 50 percent of the Fund's total assets are so invested.
The Fund may invest in securities that are restricted as to disposition under
the Federal securities laws (sometimes referred to as "private placements" or
"restricted securities"). In addition, the Fund may not invest more than 25
percent of its total assets in the securities issued or guaranteed by any single
agency or instrumentality of the U.S. Government, except the U.S. Treasury, and
may not invest more than 10 percent of its total assets in the securities of any
other issuer.
The Fund only purchases those securities that are rated, at the time of
purchase, within the three highest long-term or two highest short-term rating
categories assigned by a Nationally Recognized Statistical Rating Organization,
such as Moody's Investors Service, Inc., Standard & Poor's Corporation or Fitch
Investors Services, Inc., or which are unrated and determined by the Adviser to
be of comparable quality.
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The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to12 years and seeks to maintain an average dollar-
weighted portfolio maturity of between 2 and 5 years.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's income and may attempt to reduce the overall risk
of its investments or limit the uncertainty in the level of future foreign
exchange rates (hedge) by using options and futures contracts and foreign
currency forward contracts. The Fund's ability to use these strategies may be
limited by market considerations, regulatory limits and tax considerations. The
Fund may write covered call and put options, buy put and call options, buy and
sell interest rate and foreign currency futures contracts and buy options and
write covered options on those futures contracts. 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 a segregated account
of liquid, high-grade debt instruments with a value at all times sufficient to
cover the Fund's obligations under the option.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
Each Fund's investment objective and all investment policies of the Funds that
are designated as fundamental may not be changed without approval of the holders
of a majority of that Fund's outstanding voting securities. A majority of a
Fund's outstanding voting securities means the lesser of 67% of the shares of a
Fund present or represented at a shareholders' meeting at which the holders of
more than 50% of the shares are present or represented, or more than 50% of the
outstanding shares of a Fund. Except as otherwise indicated, investment policies
of the Funds are not deemed to be fundamental and may be changed by the Board of
Trustees of the Trust (the "Board") without shareholder approval. A further
description of the Funds' investment policies, including additional fundamental
policies, is contained in the SAI.
The Adviser monitors 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. No Fund may invest more than 15% of its
net assets in illiquid securities, including repurchase agreements not entitling
the Fund to payment within seven days. As used herein, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities.
BORROWING. As a fundamental policy, each Fund may borrow money from banks or by
entering into reverse repurchase agreements and will limit borrowings to amounts
not in excess of 33 1/3% of the value of the Fund's total assets. Borrowings for
other than temporary or emergency purposes or meeting redemption requests may
not exceed 5% of the value of Stable Income Fund's assets. Each Fund may enter
into reverse repurchase agreements, transactions in which a 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.
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MARGIN AND SHORT SALES. Except for Intermediate U.S. Government Fund, no Fund
may purchase securities on margin or make short sales of securities, except
short sales against the box. These prohibitions do not restrict the Funds'
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.
DIVERSIFICATION AND CONCENTRATION. Each Fund is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, no Fund may purchase a security
(other than a U.S. Government Security or shares of investment companies) if, as
a result, (i) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer or (ii) the Fund would own more than 10% of the
outstanding voting securities of any single issuer. Each Fund is prohibited from
concentrating its assets in the securities of issuers in any industry. As a
fundamental policy, each Fund may not purchase securities if, immediately after
the purchase, more than 25% of the value of the Fund's total assets would be
invested in the securities of issuers conducting their principal business
activities in the same industry. This limit does not apply to investments in
U.S. Government Securities, foreign government securities or repurchase
agreements covering U.S. Government Securities.
FOREIGN INVESTMENT RISKS AND CONSIDERATIONS. All investments, domestic and
foreign, involve certain risks. Investments in the securities of foreign issuers
may involve risks in addition to those normally associated with investments in
the securities of U.S. issuers. All foreign investments are subject to risks of
foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, and changes in foreign
governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
Stable Income Fund's shareholders; commission rates payable on foreign
transactions are generally higher than in the United States; foreign accounting,
auditing and financial reporting standards differ from those in the United
States and, accordingly, less information may be available about foreign
companies than is available about issuers of comparable securities in the United
States; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and the Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar will reduce the dollars available to make a
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distribution. Similarly, if the exchange rate declines between the time after
the Fund's income has been earned and computed in U.S. dollars and the time it
is paid may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS. Although each Fund only
invests in investment grade fixed income securities, including money market
instruments, an investment in a Fund 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.
The market value of the interest-bearing debt securities held by the Funds will
be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an increase
in interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity (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
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. The possibility exists that, the
ability of any issuer to pay, when due, the principal of and interest on its
debt securities may become impaired.
RATING MATTERS. 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 will generally buy securities that are rated in
the top four long-term rating categories by an NRSRO or in the top two short-
term rating categories by an NRSRO, although certain Funds have greater
restrictions. Accordingly, the lowest permissible long-term investment grades
for corporate bonds, including convertible bonds, are Baa in the case of Moody's
Investor Services, Inc. ("Moody's") and BBB in the case of Standard & Poor's
Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch"); the lowest
permissible long-term investment grades for preferred stock are Baa in the case
of Moody's and BBB in the case of S&P and Fitch; and the lowest permissible
short-term investment grades for short-term debt, including commercial paper,
are Prime-2 (P-2) in the case of Moody's, A-2 in the case of S&P and F-2 in the
case of Fitch.
The Funds also may purchase unrated securities if the Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Each Fund may retain a security whose rating has been lowered below the Fund's
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 Fund's lowest permissible rating category) if the 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.
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VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Funds invest
(including mortgage-backed securities) may have 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 various
rates of interest or indices. 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.
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 it may have. A Fund
could, for this or other reasons, suffer a loss with respect to an instrument.
The Adviser monitors the liquidity of each Funds' investment in variable and
floating rate instruments, but there can be no guarantee that an active
secondary market will exist.
U.S. GOVERNMENT SECURITIES. As used in this Prospectus, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the United States Government, its agencies or instrumentalities. The U.S.
Government Securities in which a Fund may invest include U.S. Treasury
securities and obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and backed by the full faith and credit of the U.S.
Government, such as those guaranteed by the Small Business Administration or
issued by the Government National Mortgage Association ("Ginnie Mae"). In
addition, the U.S. Government Securities in which the Funds may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association ("Fannie Mae"),
the Federal Home Loan Mortgage Corporation ("Freddie Mac") 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.
ZERO-COUPON SECURITIES. A Fund may invest in separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury.
These 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
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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"). 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 the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
CORPORATE DEBT SECURITIES. The corporate debt securities in which the Funds may
invest include corporate bonds and notes and short-term investments such as
commercial paper. Commercial paper (short-term promissory notes) is issued by
companies to finance their or an affiliates' current obligations and is
frequently unsecured.
Demand Notes. The Funds 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 issuers of these
obligations often have 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.
Although a Fund would generally not be able to resell a master demand note to a
third party, the Fund is entitled to demand payment from the issuer at any time.
The Adviser continuously monitors the financial condition of the issuer to
determine the issuer's likely ability to make payment on demand.
FINANCIAL INSTITUTION OBLIGATIONS. 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.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be
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withdrawn on demand but may be subject to early withdrawal penalties which could
reduce the Fund's yield. Deposits subject to early withdrawal penalties or that
mature in more than 7 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.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Each Fund may invest up to 15
percent of its net assets in securities that at the time of purchase are
illiquid. 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 securities 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. 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.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant, the
Funds may assume a temporary defensive position and invest without limit in cash
or prime quality cash equivalents, including (i) short-term U.S. Government
Securities, (ii) certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of commercial banks doing business in the United
States, (iii) commercial paper, (iv) repurchase agreements and (v) shares of
"money market funds" registered under the Investment Company Act of 1940 (the
"1940 Act") within the limits specified therein. 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. During periods when and to the extent that a Fund has assumed a
temporary defensive position, it may not be pursuing its investment objective.
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.
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Portfolio Transactions. The frequency of portfolio transactions of each 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. The Funds' portfolio turnover is reported under "Financial
Highlights." It is each Fund's policy to obtain best net results in effecting
portfolio transactions. The Adviser may effect transactions for the Funds
through brokers who sell Fund shares. The Funds have no obligation to deal with
any specific broker or dealer in the execution of portfolio transactions.
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 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,
research and other 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 each Fund
that invests in foreign securities than would be the case for comparable
transactions effected on United States securities exchanges.
Subject to the Funds' policy of obtaining the best price consistent with quality
of execution of transactions, the Adviser may employ Norwest Investment
Services, Inc. and other broker-dealer affiliates of the Adviser ("Affiliated
Brokers") to effect brokerage transactions for the Funds. The Fund's payment of
commissions to Affiliated Brokers is subject to procedures adopted by the Board
to provide that the commissions will not exceed the usual and customary broker's
commissions charged by unaffiliated brokers. No specific portion of a Fund's
brokerage will be directed to Affiliated Brokers and in no event will a broker
affiliated with an Adviser directing the transaction receive brokerage
transactions in recognition of research or other services provided to the
Adviser.
The Adviser anticipates that the annual turnover rate in each Fund will be less
than 100 percent. An annual turnover rate of 100 percent would occur if all of
the securities in a Fund were replaced once in a period of 1 year.
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
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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 AND LENDING OF PORTFOLIO SECURITIES. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio 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 might suffer a loss.
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, as a fundamental policy, limit securities
lending to not more than 33 1/3% of the value of its total assets.
REVERSE REPURCHASE AGREEMENTS. 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 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.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities offered on a "when-issued" basis and may purchase securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction, but delayed settlements beyond three
months may be negotiated.
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During the period between a commitment and settlement, no payment is made for
the securities purchased and, thus, no interest accrues to the Fund. At the time
a Fund makes a commitment to purchase securities in this manner, however, the
Fund immediately assumes the risk of ownership, including price fluctuation.
Failure by the other party to deliver or pay for a security purchased or sold by
the Fund may result in a loss or a missed opportunity to make an alternative
investment. Any significant commitment of a Fund's assets committed to the
purchase of securities on a when-issued or forward commitment basis may increase
the volatility of its net asset value. 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 of the value of the Fund's total assets
would be committed to such transactions.
The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the 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. The Funds enter into when-issued
and forward commitments only with the intention of actually receiving the
securities, but a Fund may sell the securities before the settlement date if
deemed advisable. If a Fund chooses to dispose of the right to acquire a when-
issued security prior to its acquisition or to dispose of its right to deliver
or receive against a forward commitment, it can incur a gain or loss.
PURCHASING SECURITIES ON MARGIN. When Intermdiate U.S. Government Fund purchases
securities on margin, it only pays part of the purchase price and borrows the
remainder, typically from the Fund's broker. 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.
TECHNIQUES INVOLVING LEVERAGE. Utilization 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, funds may engage in dollar roll transactions and
Intermediate U.S. Government 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 the Adviser 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.
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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.
Segregated Account. 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, U.S. Government Securities and other liquid, high-grade
debt securities in accordance with SEC guidelines. The accounts 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 (i) 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 (ii) 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. The use of a segregated account in connection
with leveraged transactions may result in a Fund's portfolio being 100 percent
leveraged.
DOLLAR ROLL TRANSACTIONS. 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
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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 Fund's use of the
proceeds of the transaction may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
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% of the Fund's net assets.
SWAP AGREEMENTS. To manage their exposure to different types of investments,
Adjustable U.S. Government Reserve Fund and Government Income Fund may enter
into interest rate and mortgage (or other asset) swap agreements and may
purchase 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. 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 Fund's
performance. Swap agreements involve risks depending upon the counterparty's
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions. The Adviser monitors the creditworthiness of counterparties to
these transactions and intends to enter into these transactions only when they
believe the counterparties present minimal credit risks and the income expected
to be earned from the transaction justifies the attendant risks.
SHORT SALES. Intermediate U.S. Government Fund is authorized to make short sales
of securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (referred to as short sales
"against the box") and to make short sales of securities which it does not own
or have the right to acquire. A short sale that is not made "against the box" is
a transaction in which a Fund sells a security it does not own 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,
the 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 that are not made "against the box" create opportunities to increase
the Fund's return but, at the same time, involve special risk considerations and
may be considered a speculative technique. Since the 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
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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.
If the Fund makes a short sale "against the box", the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Adviser believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund or a security convertible into or exchangeable for such security. In
such case, any future losses in the Fund's long position would be reduced by an
offsetting future gain in the short position. The Fund's ability to enter into
short sales transactions is limited by certain tax requirements. See "Dividends,
Distributions and Taxes" in the SAI.
MORTGAGE-BACKED SECURITIES. 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.
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LIQUIDITY AND MARKETABILITY. Generally, government and government-related pass-
through pools are highly liquid. While private conventional pools of mortgages
(pooled by non-government-related entities) have also achieved broad market
acceptance and an active secondary market has emerged, the market for
conventional pools is smaller and less liquid than the market for government and
government-related mortgage pools.
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 the
Fund and may even result in losses to the 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. The assumed average
life of pools of mortgages having terms of 30 years or less is typically between
five and 12 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted 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 the Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is Ginnie Mae, a wholly-owned United States
Government corporation within the Department of Housing and Urban Development.
Mortgage-backed securities are also issued by Fannie Mae, a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development, and Freddie Mac, a
corporate instrumentality of the United States Government. While Fannie Mae and
Freddie Mac each guarantee the payment of principal and interest on the
securities they issue, unlike Ginnie Mae securities, their securities 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
("CMOs"). 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 these securities.
Timely payment of interest and principal may also be supported by various forms
of insurance, including individual loan, title, pool and hazard policies.
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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 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 the Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a lower value until the interest rate resets to market
rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations collateralized by
mortgages or mortgage pass-through securities issued by Ginnie Mae, Freddie Mac
or Fannie Mae 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
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that prepayments will be greater or smaller than contemplated. CMOs may have
complicated structures and generally involve more risks than simpler forms of
mortgage-related 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 the 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.
ASSET-BACKED SECURITIES. Asset-backed securities represent direct or indirect
participations in, or are secured by and payable from, assets other than
mortgage-related 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% 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-related 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-related
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-related securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
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FUTURES CONTRACTS AND OPTIONS. The Funds may seek to enhance their return
through the writing (selling) and purchasing exchange-traded and over-the-
counter options on fixed income securities or indices. The Funds may also to
attempt to hedge against a decline in the value of securities owned by them or
an increase in the price of securities which they plan to purchase through the
use of those options and the purchase and sale of interest rate futures
contracts and options on those futures contracts. The Funds 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, high-grade debt securities in a segregated account with a value
at all times sufficient to cover the Fund's obligation under the option. A Fund
may enter into these futures contracts only if the aggregate of initial deposits
for open futures contract positions does not exceed 5% 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 the Adviser'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 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 limit 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, the Adviser 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.
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LIMITATIONS. The Funds have no current intention of investing in futures
contracts and options thereon for purposes other than hedging. No 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% 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% 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% 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 INDEXES. 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 a 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 fixed income or equity securities comprising the index is made.
Generally, futures contracts are closed out prior to the expiration date of the
contract.
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.
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4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Trustees (the "Board"). The Board formulates the general policies of the Funds
and meets periodically to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. The Board consists of eight persons.
Investment Advisory Services
Norwest Investment Management. Subject to the general supervision of the Board,
Norwest Investment Management makes investment decisions for the Funds and
continuously reviews, supervises and administers each Fund's investment program.
The Adviser is a part of Norwest, a subsidiary of Norwest Corporation, which is
a multi-bank holding company that was incorporated under the laws of Delaware in
1929. As of _______ ___, 1995, Norwest Corporation was the ___th largest bank
holding company in the United States in terms of assets. As of that date, the
Adviser managed or provided investment advice with respect to assets totaling
approximately $___ billion.
The Adviser provides investment management services to each Fund pursuant to
investment advisory agreements between Norwest and the Trust. For the Adviser's
services, Norwest receives an advisory fee with respect to Intermediate U.S.
Government Fund at an annual rate of 0.33% of the Fund's average daily net
assets and with respect to Stable Income Fund at an annual rate of 0.30% of the
Fund's average daily net assets.
PORTFOLIO MANAGERS. Many persons on the advisory staff of the Adviser contribute
to the investment services provided to the Funds. The following persons,
however, are primarily responsible for the day-to-day management of the Funds:
INTERMEDIATE U.S. GOVERNMENT FUND - Marjorie H. Grace, Vice President of Norwest
since 1992. Ms. Grace was a portfolio manager of Norwest Bank from 1992-1993; an
Institutional Salesperson with Norwest Investment Services, Inc. from 1991-1992;
a portfolio manager with United Banks of Colorado from 1989-1991; and Vice
President and portfolio manager with Colombia Savings and Loan from 1987-1989.
STABLE INCOME FUND - Karl P. Tourville, Vice President of Norwest since 1989.
Mr. Tourville has been associated with Norwest since 1986. As of December 31,
1994, Mr. Tourville was responsible for the management of over $1.3 billion in
pooled fixed income assets.
MANAGEMENT AND DISTRIBUTION SERVICES
Forum supervises the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay) and provides the
Trust with general office facilities pursuant to a Management Agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers, as well as certain other officers and Trustees of the
Trust, may be directors, officers or employees of (and persons providing
services
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to the Trust may include) Forum, its affiliates or certain non-banking
affiliates of Norwest. As of the date of this Prospectus, Forum provided
management and administrative services to registered investment companies and
collective investment funds with assets of approximately $11 billion. Forum is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. As of the date of this Prospectus, Forum
is controlled by John Y. Keffer, President and Chairman of the Trust. For its
services and facilities, Forum receives from each Fund a management fee at an
annual rate of 0.10% of the average daily net assets attributable to each class
of the Fund. From its own resources, Forum may pay a fee to broker-dealers or
other persons for distribution or other services related to the Funds.
Forum also acts as the distributor of the Shares pursuant to a distribution
services agreement with the Trust and in accordance therewith receives and may
reallow the initial sales charge assessed on purchases of A Shares of a Fund. As
authorized by a distribution plan with respect to B Shares of each Fund and
pursuant to the distribution services agreement, Forum receives a distribution
services fee as compensation for its distribution expenses with respect to B
Shares and a maintenance fee for its or certain broker-dealer's shareholder
services with respect to B Shares. For further information about the
distribution services agreement and the distribution plan, including the fees
payable thereunder, see "How to Buy Shares - Alternative Distribution
Arrangements." Pursuant to a separate agreement, Forum also provides portfolio
accounting services to each Fund.
SHAREHOLDER SERVICING AND CUSTODY
Norwest serves as transfer agent and dividend disbursing agent for the Trust (in
this capacity, the "Transfer Agent") pursuant to a Transfer Agency Agreement
with the Trust. 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 or Forum, who
agree to comply with the terms of the Transfer Agency Agreement. 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 transfer agency services, the Transfer Agent receives from each
Fund a fee at an annual rate of 0.25% of the average daily net assets
attributable to each class of the Fund.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. Norwest
currently receives no additional compensation for its custodial services, but
the Funds will incur the expenses and costs of any subcustodian.
EXPENSES OF THE FUNDS
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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. Norwest, Forum and the Transfer Agent
may each elect to waive (or continue to waive) all or a portion of their fees.
Any such waivers will have the effect of increasing a Fund's performance for the
period during which the waiver is in effect. No fee waivers may be recouped at a
later date. Other than investment advisory fees, any fee paid by the Trust may
be increased by the Board without shareholder approval.
Norwest and Forum and their agents and affiliates may also act in various
capacities for, and receive compensation from, their customers who are
shareholders of a Fund. Under agreements with those customers, Norwest and Forum
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.
5. HOW TO BUY SHARES
Minimum Investment
There is a $1,000 minimum for initial purchases and a $100 minimum for
subsequent purchases of Shares of the Funds. A Fund may in its discretion waive
the investment minimums. Shareholders who elect electronic share purchase
privileges such as the Automatic Investment Plan or the Directed Dividend Option
are not subject to the initial investment minimum. See "Other Shareholder
Services - Automatic Investment Plan" and "Dividends and Tax Matters."
Except as set forth below with respect to purchases through Processing
Organizations, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of Federal funds. Fund shares become
entitled to receive dividends and distributions on the next Fund Business Day
after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
Purchase Procedures
Initial Purchases
There are three ways to purchase shares initially.
1. By Mail. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed under
"Account Application" on page ___. Checks 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
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business days after receipt of the check. Checks drawn on some non-member banks
may take longer.
2. By Bank Wire. Investors may make an initial investment in a Fund using the
wire system for transmittal of money among banks. The investor should first
telephone the Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an
account number. The investor should then instruct a bank to wire the investor's
money immediately to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Advantage Funds
0844-131
Re: [Name of Fund]
[Designate A Shares or B Shares]
Account No.:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money
by bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
3. Through Financial Institutions. Shares may be purchased and redeemed
through certain broker-dealers, banks and other financial institutions
("Processing Organizations"). The Transfer Agent, Forum and their affiliates may
be Processing Organizations. Processing Organizations may receive as a broker-
dealer's reallowance a portion of the sales charge paid by their customers who
purchase A Shares of a Fund, may receive payments from Forum with respect to
sales of B Shares and may receive payments as a processing agent from the
Transfer Agent. In addition, 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.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Funds' procedures, may have
Fund shares transferred into their 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.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will
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provide its customers with confirmations and periodic statements. The Trust is
not responsible for the failure of any Processing Organization to carry out its
obligations to its customer. Certain states, such as Texas, permit shares of the
Funds to be purchased and redeemed only through registered broker-dealers,
including the Funds' distributor.
Subsequent Purchases
Subsequent purchases may be made by mailing a check, by sending a bank wire or
through a shareholder's Processing Organization as indicated above. All payments
should clearly indicate the shareholder's name and account number.
Account Application
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
General Information
Fund shares are continuously sold on every weekday except customary national
business holidays and Good Friday ("Fund Business Day"). The purchase price for
Fund shares equals their net asset value next-determined after acceptance of an
order plus, in the case of the A Shares, any applicable sales charge imposed at
the time of purchase.
Investments in the Funds may be made either through certain financial
institutions or by an investor directly. An investor who invests in a Fund
directly will be the shareholder of record. All transactions in Fund shares are
effected through the Transfer Agent which accepts orders for redemptions and for
subsequent purchases only from shareholders of record. Shareholders of record
will receive from the Trust periodic statements listing all account activity
during the statement period.
Alternative Distribution Arrangements
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Investors should compare sales charges and fees before selecting a particular
class of shares. Investors should consider whether, during the anticipated life
of their investment in a Fund, the accumulated distribution services fee and
maintenance fee and contingent deferred sales charges on B Shares prior to
conversion would be less than the initial sales charge on A Shares purchased at
the same time and whether that differential would be offset by the higher yield
of A Shares. A summary of the charges applicable to shares of each Fund is
listed under "Prospectus Summary - Expense Information." Sales personnel of
selected broker-dealers distributing a Fund's shares may receive differing
compensation for selling A Shares and B Shares.
Because initial sales charges are deducted at the time of purchase, investors
purchasing a Fund's A Shares receive fewer shares than if the sales charge were
not deducted and, accordingly, do not have the entire purchase price invested.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time should consider
whether, in light of the initial sales charge and its effect on the amount of
the purchase price invested, purchases of A Shares are more or less advantageous
than purchases of B Shares with their associated accumulated continuing
distribution and maintenance charges. For example, based on estimated current
fees and expenses, an investor in each Fund subject to the 3.75% initial sales
charge who elects to reinvest all dividends and distributions would have to hold
the shareholder's investment approximately five years for the B Shares'
distribution services fee and maintenance fee to exceed the initial sales
charge. The foregoing examples do not take into account the time value of money,
fluctuations in net asset value or the effects of different performance
assumptions.
A Shares
The public offering price of A Shares is their next-determined net asset value
plus an initial sales charge assessed as follows (no sales charge is assessed on
the reinvestment of dividends or distributions):
________ Fund
Broker-Dealers'
Reallowance
Sales Charge As a As a
Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
Less than $50,000 1.50% 1.52% 1.35%
$50,000 to $99,999 1.00 1.01 0.90
$100,000 to $499,000 0.75 0.76 0.70
$500,000 to $999,000 0.50 0.50 0.45
$1,000,000 and over None None None
* Rounded to the nearest one-hundredth percent
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations.
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Normally, Forum will reallow discounts to selected broker-dealers in the amounts
indicated in the table above. In addition, Forum may elect to reallow the entire
sales charge to selected broker-dealers for all sales with respect to which
orders are placed with Forum. The broker-dealers' reallowance may be changed
from time to time. Forum may make additional payments (out of its own resources)
to selected broker-dealers of up to 0.75% of the value of Fund shares purchased
at net asset value.
No sales charge is assessed on purchases by: (a) 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) and (b)
trustees and officers of the Trust; directors, officers and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor or direct descendant (collectively, "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. These shares may not be resold except to the Funds and share
purchases under clause (b) must be made for investment purposes.
In addition, no sales charge is assessed on purchases (a) 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, or (b) of A
Shares of a Fund made through the Directed Dividend Option from a fund that
charges a front-end sales charge. See "Dividends and Tax Matters."
Reinstatement Privilege. An investor who has redeemed A Shares of a Fund may,
within 60 days following the redemption, purchase without a sales charge A
Shares in an amount up to the amount of the redemption. Investors who desire to
exercise this "Reinstatement Privilege" should contact the Trust for further
information.
Investors in Other Fund Families. No sales charge is assessed on purchases of A
Shares of a Fund with the proceeds of a redemption at net asset value, within
the preceding 60 days, of shares of a mutual fund that does not impose on the
redeemed shares at the time of their purchase a sales charge equal to or greater
than that applicable to the A Shares of that Fund. Investors should contact the
Trust for further information and to obtain the necessary forms.
Reduced Initial Sales Charges. To qualify for a reduced sales charge, an
investor or the investor's Processing Organization must notify the Transfer
Agent at the time of purchase of the investor's intention to qualify and must
provide the Transfer Agent with sufficient information to verify that the
purchase qualifies for the reduced sales charge. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. Further information about reduced sales charges is
contained in the SAI.
Self-Directed 401(k) Programs. Purchases of A Shares of a Fund through self-
directed 401(k) programs and other qualified retirement plans offered by
Norwest, Forum or their affiliates in accumulated amounts of less than $100,000
are subject to a reduced sales charge applicable to a single purchase of
$100,000.
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Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of
additional A Shares of a Fund may qualify for rights of accumulation ("ROA")
under which the applicable sales charge will be based on the total of the
investor's current purchase and the net asset value (at the end of the previous
Fund Business Day) of all A Shares of that Fund held by the investor. For
example, if an investor in Stable Income Fund owned A Shares of the Fund worth
$500,000 at the then current net asset value and purchased A Shares of that Fund
worth an additional $50,000, the sales charge for the $50,000 purchase would be
at the 1.75% rate applicable to a $550,000 purchase, rather than at the 3.25%
rate applicable to a $50,000 purchase.
In addition, an investor in a Fund that has previously purchased A Shares of any
other fund of the Trust that is sold with a sales charge equal to or greater
than the sales charge imposed on the A Shares of the Fund ("Eligible Fund") may
also qualify for ROA and may aggregate existing investments in A Shares of
Eligible Funds with current purchases of A Shares of the Fund to determine the
applicable sales charge. In addition, purchases of A Shares of a Fund by an
investor and the investor's spouse, direct ancestor or direct descendant may be
combined for purposes of ROA.
Statement of Intention. A Shares investors may also obtain reduced sales charges
based on cumulative purchases by means of a written Statement of Intention,
expressing the investor's intention to invest $50,000 or more in A Shares of a
Fund within a period of 13 months. Each purchase of shares under a Statement of
Intention will be made at net asset value plus the sales charge applicable at
the time of the purchase to a single transaction of the dollar amount indicated
in the Statement.
Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a Fund should complete the appropriate
portion to the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
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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_________ Fund
Contingent Deferred Sales
Charge as a % of Dollar
Amount of Purchase Period Shares Held Amount Subject to 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%
No contingent deferred sales charge is charged on redemptions to the same extent
as described under "B Shares - Contingent Deferred Sales Charge" below. 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.
B Shares
Distribution Plan. B Shares 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, each Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act providing for distribution payments, at an annual
rate of up to 0.75% of the average daily net assets of the Fund attributable to
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 (i) sales commissions at levels set from time to time by
the Board ("sales commissions") and (ii) an interest fee calculated by applying
the rate of 1% over the prime rate to the outstanding balance of uncovered
distribution charges (as described below). The current sales commission rate is
3% and Forum currently expects to pay sales commissions to each broker-dealer at
the time of sale of up to 3% 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 those
shares.
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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 _______ __, 1995, there were no unrecovered distribution expenses
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 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.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
in an amount equal to 0.25% of the average daily net assets of the Fund
attributable to the 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 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.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B 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 will 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) until the earlier of (a) four years after the date
of termination or discontinuance or (b) such time as there exist no uncovered
distribution charges attributable to that Fund under the Plan. In deciding
whether to purchase B 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
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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.
Contingent Deferred Sales Charge. B Shares of a Fund which are redeemed within
four years of purchase will be subject to contingent deferred sales charges
equal to the percentages set forth below of the dollar amount subject to the
charge. The amount of the contingent deferred sales charge, if any, will vary
depending on the number of years between the payment for the purchase of B
Shares of a Fund and their redemption.
The contingent deferred sales 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.
Contingent Deferred Sales Charge as a % of Dollar Amount Subject to Charge
_____________ Fund
Year Since Purchase
First 3.0%
Second 2.0%
Third 2.0%
Fourth 1.0%
Fifth None
Sixth None
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in a Fund will automatically be made first from any A
Shares in the Fund, second from B Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for over four years, and fourth from the longest outstanding B Shares of
the Fund held for less than four years.
No contingent deferred sales charge is imposed on (i) redemptions of shares
acquired through the reinvestment of dividends and distributions, (ii)
involuntary redemptions by a Fund of shareholder accounts with low account
balances, (iii) redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability and (iv) redemptions to effect a distribution (other than a lump
sum distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan. See the SAI for further information.
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Conversion Feature. After six years from the end of the calendar month in which
the shareholder's purchase order for B shares was accepted, the Shares will
automatically convert to A Shares of that Fund. 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, B Shares of a
Fund purchased by a shareholder through the reinvestment of dividends and
distributions will be considered to be held in a separate sub-account. Each time
any B Shares in the shareholder's account (other than those in the sub-account)
convert, an equal pro rata portion of those shares in the sub-account will also
convert. The conversion of B Shares to A Shares is subject to the continuing
availability of certain opinions of counsel and the conversion of a Fund's 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 of
the Fund's B Shares would occur, and shares might continue to be subject to a
distribution services and maintenance fee for an indefinite period.
6. HOW TO SELL SHARES
General Information
Fund Shares may be sold (redeemed) at their net asset value on any Fund Business
Day subject to a contingent deferred sales charge imposed, in the case of A
Shares, on some redemptions made within two years of purchase and, in the case
of B Shares, on most redemptions made within four years of purchase . There is
no minimum period of investment and no restriction on the frequency of
redemptions.
Fund shares are redeemed 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 which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends declared after
the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days after
the tender of the shares to a Fund except when the New York Stock Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings, for any period during which an emergency
exists as a result of which disposal by the Fund of its portfolio securities or
determination by the Fund of the value of its net assets is not reasonably
practicable and for such other periods as the SEC may permit.
Redemption Procedures
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Shareholders who have invested directly in a Fund may redeem their Shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described above. Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be available until several weeks after a shareholder's application is
received. Shares for which certificates have been issued may not be redeemed by
telephone.
1. By Mail. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. By Telephone. A shareholder who has elected telephone redemption privileges
may make a telephone redemption request by calling the Transfer Agent at 800-
338-1348 or 612-667-8833 and providing the shareholder's account number, the
exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. See "How to Sell Shares - Other Redemption Matters."
3. By Bank Wire. For redemptions of more than $5,000, a shareholder who has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
Other Redemption Matters
Signature Guarantee. A signature guarantee is required for the following: any
endorsement on a share certificate and for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions, Automatic Investment or Withdrawal Plan, dividend election,
telephone redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any bank, broker-dealer, national securities exchange, credit union, savings
association or other eligible institution that is authorized to guarantee
signatures, and is 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.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust will employ reasonable procedures in order to
verify that telephone requests are genuine, including recording telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Trust did not employ such procedures, it
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could be liable for losses arising from unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt of confirmation statements. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach the
Transfer Agent by telephone, requests may be mailed or hand-delivered to the
Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000
immediately following any redemption.
7. OTHER SHAREHOLDER SERVICES
Exchanges
Shareholders of A Shares and B Shares may exchange their shares for A Shares and
B Shares, respectively, of the other funds of the Trust that offer those shares.
As of the date of this Prospectus, the funds of the Trust that offer A Shares
and B Shares, which are offered through separate prospectuses, are
________________. It is anticipated that the Trust may in the future create
additional funds that will offer Shares which will be exchangeable with the
Funds' Shares. In addition, A Shares may be exchanged for Investor Shares of
Ready Cash Investment Fund and Municipal Money Market Fund of the Trust. B
Shares may be exchanged for Exchange Shares of Ready Cash Investment Fund.
Prospectuses for the shares of the funds listed above, as well as a current list
of the funds of the Trust that offer shares exchangeable with the Shares of the
Funds, can be obtained through Forum by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make. The Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees (other than contingent deferred sales charges) charged by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence.
The Funds and Federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may 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 the shares at the time of the exchange transaction. Exchange procedures
may be amended materially or terminated by the Trust at any time upon 60 days'
notice to shareholders. See "Additional Purchase and Redemption Information" in
the SAI.
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Sales Charges. The exchange of A Shares may result in additional sales charges.
If an exchange of A Shares is made into a fund that imposes an initial sales
charge, the shareholder is required to pay an amount equal to any excess of that
fund's initial sales charge attributable to the number of shares being acquired
in the exchange over any initial sales charge paid by the shareholder for the
shares being exchanged. For example, if a shareholder paid a 2% initial sales
charge in connection with a purchase of shares and then exchanged those shares
into A Shares of another fund with a 3% initial sales charge, the shareholder
would pay an additional 1% sales charge on the exchange. A Shares acquired
through the reinvestment of dividends or distributions are deemed to have been
acquired with a sales charge rate equal to that applicable to the shares on
which the dividends or distributions were paid.
Shares of a Fund ("Original Shares") may be exchanged without the payment of any
contingent deferred sales charge. A and B Shares acquired as a result of such
exchange ("New Shares") and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Original Shares as if
those shares were being redeemed at that time. For purposes of computing both
the contingent deferred sales charge payable upon redemption of the New Shares
and, in the case of B Shares, the time remaining before the New B Shares convert
to A Shares of that Fund, the deferred sales charge and the time remaining
applicable to the Original Shares will apply to the New Shares rather than the
deferred sales charge and time remaining that would otherwise apply. The
deferred sales charge and time remaining applicable to Shares first purchased by
a shareholder will apply to New Shares resulting from both an initial and any
subsequent exchanges.
1. Exchanges By Mail. Exchanges may be made by sending a written request to
the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. Exchanges By Telephone. A shareholder who has elected telephone exchange
privileges may make a telephone exchange request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See "How to
Sell Shares - Other Redemption Matters."
Automatic Investment Plan
Under the Funds' Automatic Investment Plan, shareholders may authorize monthly
amounts of $50 or more to be withdrawn automatically from the shareholder's
designated bank account (other than passbook savings) and sent to the Transfer
Agent for investment in either A or B Shares of a Fund. Shareholders wishing to
use this plan must complete an application which may be obtained by writing or
calling the Transfer Agent. The Trust may modify or terminate the automatic
investment plan with respect to any shareholder in the event that the Trust is
unable to settle any transaction with the shareholder's bank. If the Automatic
Investment Plan is terminated before the shareholder's account totals $1,000,
the Trust reserves the right to close the account in accordance with the
procedures described under "How to Sell Shares - Other Redemption Matters."
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Individual Retirement Accounts
The Funds may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). An IRA account application form
may be obtained by contacting the Trust at 800-338-1348 or 612-667-8833.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, the deduction will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
Automatic Withdrawal Plan
A shareholder whose Shares in a single account total $1,000 or more may
establish a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
annual basis. Under the withdrawal plan, sufficient shares in the shareholder's
account are redeemed to provide the amount of the periodic payment and any
taxable gain or loss is recognized by the shareholder upon redemption of the
shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than $1,000 at any time.
Reopening Accounts
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
8. DIVIDENDS AND TAX MATTERS
Dividends
Dividends of the Funds' net investment income are declared and paid monthly.
Distributions of net capital gain, if any, realized by a Fund are distributed
annually. Dividends paid by a Fund with respect to each class of shares of the
Fund will be calculated in the same manner at the same time on the same day. The
per share dividends on a Fund's B Shares will be lower than the per share
dividends on A Shares as a result of the distribution services fees and
maintenance fees applicable to B Shares.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (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.
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Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
Taxes
Each Fund intends to continue to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986 (the
"Code"). As such, the Funds will not be liable for Federal income and excise
taxes on the net investment income and capital gain distributed to their
shareholders. Because each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
Federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including realized
net short-term capital gain) are taxable to shareholders of the Fund as ordinary
income notwithstanding that the dividends are reinvested in additional shares of
the Fund.
Distributions of net long-term capital gain, if any, realized by a Fund are
taxable to shareholders of the Fund as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If a shareholder holds shares for six months or less and during
that period receives a distribution taxable to the shareholder as long-term
capital gain, any loss realized on the sale of the shares during that six-month
period would be a long-term capital loss to the extent of the distribution. Any
distribution of capital gain received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of the shares by the amount of
the distribution. Furthermore, a distribution made shortly after the purchase of
shares by a shareholder, although in affect a return of capital to that
particular shareholder, would be taxable to the shareholder as described above.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each year.
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Tax-Deferred Accounts. Dividends or distributions of net long-term capital gain,
if any, paid with respect to the shares of a Fund held by a tax-deferred account
will not be taxable to that account. Currently, distributions from such accounts
will be taxable to individual participants under applicable tax rules without
regard to the character of the income earned by the account.
9. OTHER INFORMATION
Banking Law Matters
Federal banking laws and regulations 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. Counsel to the Trust believes that Norwest and any other
bank or bank affiliate that may serve as a Processing Organization or perform
sub-transfer agent or similar services or purchase shares as agent for its
customers may perform the services described in this Prospectus for the Trust
and its shareholders without violating applicable Federal banking laws or
regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If a
bank or bank affiliate were prohibited from so acting, changes in the operation
of the Trust could occur and a shareholder serviced by a 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.
Determination of Net Asset Value
The Trust determines the net asset value per share of each Fund as of 4:00 P.M.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's 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.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value or, in their absence, at fair value as determined
by the Board. The Trust does not determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. Securities for which market quotations are not
readily available are valued at fair value as determined by the Board in
accordance with procedures adopted by the Board.
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.
Performance Information
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A Fund's performance may be quoted in advertising in terms of yield or total
return. All performance information is based on historical results and is not
intended to indicate future performance. 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, a Fund takes the interest 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. 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 Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gain or loss. Published yield quotations
are, and total return figures may be, based on amounts actually invested in a
Fund net of sales loads that may be paid by an investor. A computation of yield
or total return that does not take into account the sales load paid by an
investor will be higher than a computation based on the public offering price of
shares purchased that take into account payment of the sales load.
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Funds may be compared to recognized indices of market performance. The
comparative material found in the Funds' advertisements, sales literature or
reports to shareholders may contain performance ratings. This material is not to
be considered representative or indicative of future performance. All
performance information for a Fund is calculated on a class basis.
The Trust and Its Shares
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust. 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 Funds) and may divide portfolios or series into classes of
shares (such as A and B Shares), and the costs of doing so will be borne by the
Trust. Currently the authorized shares of the Trust are divided into thirty-one
separate series.
Other Classes of Shares. In addition to the Shares, each Fund may create and
issue shares of other classes of securities. Each Fund currently offers three
classes of shares: A Shares; B Shares; and I Shares. I Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates without any sales charges or distribution service
or maintenance fees. 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
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and sales charges. For more information on any other class of shares of the
Funds investors may contact the Transfer Agent at 612-667-8833 or 800-338-1348.
Investors may also contact their Norwest sales representative or the Funds'
distributor 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 A, B and I Shares of the Funds.
Shareholder Voting and Other Rights. Each share of each fund of the 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 plan which pertain 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
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio 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 portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the Shares
of a Fund. Accordingly, these shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
NO PERSON 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 IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. 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.
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
COMPONENT EQUITY FUNDS
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
EQUITY FUNDS
LARGE COMPANY GROWTH FUND
SMALL COMPANY GROWTH FUND
INTERNATIONAL FUND
INTERNATIONAL PORTFOLIO
INCOME EQUITY FUND
INDEX FUND
BALANCED FUNDS
CONSERVATIVE BALANCED FUND
MODERATE BALANCED FUND
GROWTH BALANCED FUND
FIXED INCOME FUNDS
INTERMEDIATE U.S. GOVERNMENT FUND
MANAGED FIXED INCOME FUND
STABLE INCOME FUND
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
This Statement of Additional Information ("SAI") supplements the Prospectus
offering I Shares (the "Shares") of Diversified Equity Fund, Growth Equity Fund,
Large Company Growth Fund, Small Company Growth Fund, International Fund, Income
Equity Fund, Index Fund, Conservative Balanced Fund, Moderate Balanced Fund,
Growth Balanced Fund, Intermediate U.S. Government Fund, Managed Fixed Income
Fund and Stable Income Fund (each a "Fund" and collectively the "Funds"). Each
Fund is a diversified series of Norwest Advantage Funds, a registered open-end,
management investment company (the "Trust"). International Fund currently
invests all of its investable assets in the International Portfolio of Core
Trust (Delaware) ("International Portfolio"), a registered open-end, management
investment company. This SAI should be read only in conjunction with the Funds'
Prospectus, copies of which may be obtained without charge.
TABLE OF CONTENTS
Page
----
1. Norwest Advantage Funds . . . . . . . . . . . .
2. Investment Policies . . . . . . . . . . . . . .
3. Investment Limitations. . . . . . . . . . . . .
4. Performance Data and Advertising. . . . . . . .
5. Management. . . . . . . . . . . . . . . . . . .
6. Other Information . . . . . . . . . . . . . . .
Appendix A - Description of Securities Ratings . . . A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED BY AN INVESTOR WITHOUT CHARGE BY
CONTACTING THE TRUST'S DISTRIBUTOR, FORUM FINANCIAL SERVICES, INC., 61 BROADWAY,
NEW YORK, NEW YORK 10006.
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1. NORWEST ADVANTAGE FUNDS
DEFINITIONS
The Trust was originally organized under the name Prime Value Funds, Inc. as a
Maryland corporation on August 29, 1986. On July 30, 1993, pursuant to a
shareholder vote, the Trust was reorganized as a Delaware business trust. On
October 1, 1995, the Trust's name was changed from "Norwest Funds." As used in
this SAI, the following terms shall have the meanings listed:
"Adviser" shall mean each Fund's investment adviser, Norwest Investment
Management, a part of Norwest. "Advisers" shall mean, collectively, the Adviser
and Schroder.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Core Trust" shall mean Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Forum" shall mean Forum Financial Services, Inc., the Trust's
administrator and distributor of the Trust's shares.
"FFC" shall mean Forum Financial Corp., the Trust's fund accountant.
"Fund" shall mean each of the thirteen separate portfolios of the Trust to
which this Statement of Additional Information relates as identified on the
cover page.
"Norwest" shall mean Norwest Bank Minnesota, N.A., a subsidiary of Norwest
Corporation.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Portfolio" shall mean International Portfolio, International Portfolio II,
Small Company Portfolio and Index Portfolio, four separate portfolios of Core
Trust.
"Schroder" shall mean Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund, Growth Equity Fund, International Fund,
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Transfer Agent" shall mean Norwest acting in its capacity as transfer and
dividend disbursing agent of the Trust.
"Trust" shall mean Norwest Advantage Funds, an open-end management
investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
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2. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning the Funds' investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any investment
or employ any investment technique or strategy not referenced in the Prospectus
as relates to that Fund. For example, while the SAI describes "swap"
transactions below, only those Funds whose investment policies, as described in
the Prospectus, allow the Fund to invest in swap transactions may do so.
Reference to the investment policies and investment limitations of International
Fund also pertain to the International Portfolio, in which that Fund currently
invests all of its assets.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc., Standard & Poor's Corporation 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. However, ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, interest rate and rating may have different market
prices. If an issue of securities ceases to be rated or if its rating is
reduced after it is purchased by a Fund, the investment adviser or investment
subadviser of the Fund will determine whether the Fund should continue to hold
the obligation. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings. An
issuer's current financial condition may be better or worse than a rating
indicates.
CONVERTIBLE SECURITIES
A Fund may invest in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Although no
securities investment is without some risk, investment in convertible securities
generally entails less risk than in the issuer's common stock. However, the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (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
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.
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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
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. A fund may invest in the
securities described below or other similar equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
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 at any time or if 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.
WARRANTS
Warrants 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. 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
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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. The
Fund may not invest more than 2% of its net assets in warrants not traded on the
American or New York Stock Exchange.
MORTGAGE BACKED AND ASSET BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets (as defined in
the Prospectus) 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 (i) "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), (ii) 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 (iii) "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.
OTHER GOVERNMENTAL RELATED MORTGAGE-BACKED SECURITIES
The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
Government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These
assets include, among other things, single family and multi-family mortgage
loans, as well as commercial mortgage loans. In order to dispose of such assets
in an orderly manner, RTC has established a vehicle registered with the SEC
through which it sells mortgage-backed securities. RTC mortgage-backed
securities represent pro rata interests in pools of mortgage loans that RTC
holds or has acquired, as described above, and are supported by one or more of
the types of private credit enhancements used by Private Mortgage Lenders.
It is anticipated that in the future the Federal Deposit Insurance Corporation
(which also holds mortgage loans as a conservator or receiver of insolvent banks
or in its corporate capacity) or other governmental agencies or
instrumentalities may establish vehicles for the issuance of mortgage-backed
securities that are similar in structure and in types of credit enhancements to
RTC securities.
ASSET-BACKED SECURITIES
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
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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.
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
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only ("POs") securities 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 ("IOs") securities 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.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Funds invest (including mortgage-backed securities)
may have 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-backed
securities) pay interest at a rate that 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
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an interest rate 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.
There may not be an active secondary market for any particular floating or
variable rate instrument (particularly inverse floaters) which could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
repayment obligation during periods that the Fund is not entitled to exercise
any demand rights it may have. A Fund could, for this or other reasons, suffer
a loss with respect to an instrument. The Adviser monitors the liquidity of the
Fund's investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Funds may enter into interest rate protection transactions, including
interest rate swaps, caps, collars and floors. Interest rate swap transactions
involve an agreement between two parties to exchange interest payment streams
that are based, for example, on variable and fixed rates that are calculated on
the basis of a specified amount of principal (the "notional principal amount")
for a specified period of time. Interest rate cap and floor transactions
involve an agreement between two parties in which the first party agrees to make
payments to the counterparty when a designated market interest rate goes above
(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which the payments are
made when a designated market interest rate either goes above a designated
ceiling or goes below a designated floor on predetermined dates or during a
specified time period.
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 believed by the investment adviser to the Fund 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, they are less liquid than swaps.
FOREIGN CURRENCY TRANSACTIONS
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 during the completion of certain investment programs.
Accordingly, the value of the assets of a Fund, as measured in United States
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, the Fund may incur costs in
connection
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with conversions between various currencies. A Fund may conduct foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or by entering into
foreign currency forward contracts ("forward contracts") to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. 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 currency contracts in connection with
existing portfolio positions. For example, when an investment 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 portfolio 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 investment
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 portfolio securities or other assets
denominated in that currency.
At or before the settlement of a forward currency 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, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a global,
around-the-clock market.
When required by applicable regulatory guidelines, a Fund will set aside cash,
U.S. Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
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HEDGING AND OPTION INCOME STRATEGIES
Certain Funds may engage in certain options strategies in order to enhance the
Fund's income and may engage in certain options and futures strategies to
attempt to hedge the Fund's portfolio. The instruments in which the Funds may
invest include (i) options on fixed income securities, fixed income securities
indexes and foreign currencies, (ii) index, interest rate and foreign currency
futures contracts ("futures contracts"), and (iii) options on 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, and the
CFTC.
The various strategies referred to herein and in the Prospectus are intended to
illustrate the type of strategies that are available to, and may be used by, an
investment adviser in managing a Fund's portfolio. No assurance can be given,
however, that any strategies will succeed.
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 the Fund to an obligation to another party
unless it owns either (1) an offsetting ("covered") position or (2) cash, U.S.
Government Securities or other liquid, high-grade debt securities with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Fund will set aside cash, U.S. Government
Securities or other liquid, high-grade debt securities in a segregated account
with its custodian in the prescribed amount. Any assets used for cover or held
in a segregated account cannot be sold or closed out while the hedging 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 write (sell) put
and call options covering specified securities, stock index-related amounts 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 a security or 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 a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. 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 an
investment 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 securities or
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,
the relationship of the exercise price to the market price, the historical price
volatility of the underlying securities index, the option period, supply and
demand and interest rates.
A Fund may purchase call options on debt securities that an investment 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
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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 investment 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.
A Fund may purchase and write put and call options on fixed income 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 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.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
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 "Options Strategies" above
and "Foreign Currency Forward Transactions" 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, the 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.
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 investment 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
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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.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. A futures contract is a bilateral agreement wherein one
party agrees to accept, and the other party agrees to make, delivery of cash, an
underlying debt security or the currency as called for in the contract at a
specified future date and at a specified price. For futures contracts with
respect to an index, delivery is of an amount of cash equal to a specified
dollar amount times the difference between the index value at the time of the
contract and the close of trading of the contract.
A 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
the 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 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.
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
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the daily limit for several consecutive trading days with little or no trading
and thereby prevent prompt liquidation of positions. In such event, it may not
be possible for a Fund to close a position, and in the event of adverse price
movements, the Fund 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 securities or currencies due to price
distortions in the futures market or otherwise. There may be several
reasons unrelated to the value of the underlying securities or 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 the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with
options on futures transactions are not greater than the risks in
connection with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is
at risk. Sellers of options on futures contracts, however, must post an
initial margin and are subject to additional margin calls which could be
substantial in the event of adverse price movements.
(6) A 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 the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however that in addition,
with respect to positions in commodity futures and option contracts not for bona
fide hedging purposes the Fund represents that the aggregate initial margin and
premiums required to establish these positions (subject to certain exclusions)
will not exceed 5% of the liquidation value of the Fund's assets after taking
into account unrealized profits and losses on any such contract the Fund has
entered into.
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GUARANTEED INVESTMENT CONTRACTS
A Fund may invest in guaranteed investment contracts ("GICs") issued by
insurance companies. Pursuant to such contracts, the 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 that are rated high quality by an NRSRO having the
characteristics described above. 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.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a 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.
Generally, a reverse repurchase agreement enables a 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 AND DELAYED DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed delivery basis.
In those cases, the purchase price and the interest rate payable on the
securities are fixed on the transaction date and delivery and payment may take
place a month or more after the date of the transaction. At the time a 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.
A Fund will make commitments for such when-issued transactions only when it has
the intention of actually acquiring the securities. 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. 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. If a Fund chooses to dispose of the right to acquire
a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation.
DOMESTIC AND FOREIGN BANK OBLIGATIONS
A Fund may invest in fixed-time deposits, which are payable at their 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.
Investments that a Fund may make in securities of foreign branches of domestic
banks and domestic and foreign branches of foreign banks may involve certain
risks, including future political and economic developments, the possible
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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.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the investment adviser of each
Fund, pursuant to guidelines approved by the Board. The investment adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer. The investment
adviser monitors the liquidity of the securities in each Fund's portfolio and
reports periodically on such decisions to the Board.
TEMPORARY DEFENSIVE POSITION
When a Fund assumes a temporary defensive position, it may invest in (i) short-
term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation, (iii) 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, (iv) repurchase agreements covering any of
the securities in which the Fund may invest directly and (v) money market mutual
funds.
The Funds may invest in the securities of other investment companies within the
limits prescribed by the 1940 Act. Under normal circumstances, each Fund
intends to invest less than 5% of the value of its net assets in the securities
of other investment companies. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).
3. INVESTMENT LIMITATIONS
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of a
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund and cannot be changed without the affirmative vote of a
majority of the Fund's outstanding voting securities (as defined in the
Prospectus). A Fund may not:
(1) Diversification: With respect to 75 percent of its assets, the Fund
may not purchase a security other than a U.S. Government Security if, as a
result, more than five percent of the Fund's total assets would be invested
in the securities of a single issuer or the Fund would own more than ten
percent of the outstanding
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voting securities of any single issuer; provided, however, 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.
(2) Concentration: The Fund may not purchase securities if, immediately
after the purchase, more than 25 percent of the value of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in the same industry; provided, however, that
there is no limit on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, foreign government
securities, mortgage related or housing-related securities, municipal
securities, and issuers domiciled in a single country; that financial
service companies are classified according to the end users of their
services (for example, automobile finance, bank finance and diversified
finance); that utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric and
telephone); that will each invest more than 25 percent of the value of the
Fund's total assets in obligations of domestic and foreign financial
institutions and their holding companies; and that each Fund may invest all
of 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.
(3) Borrowing: Each Fund may borrow money for temporary or emergency
purposes, including the meeting of redemption requests; but not in excess
of 33 1/3 percent of the value of the Fund's total assets (as computed
immediately after the borrowing).
(4) Issuance of Senior Securities: The Fund may not issue senior
securities except to the extent permitted by the 1940 Act.
(5) Underwriting Activities: The Fund may not 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.
(6) Making Loans: The Fund may not make loans, except the Funds may enter
into repurchase agreements, purchase debt securities that are otherwise
permitted investments and lend portfolio securities.
(7) Purchases and Sales of Real Estate: The Fund may not purchase or sell
real estate, 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.
(8) Purchases and Sales of Commodities: The Fund may not purchase or sell
physical commodities or contracts, options or options on contracts to
purchase or sell physical commodities, provided that currencies and
currency-related contracts and contracts on indices are not deemed to be
physical commodities.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund and may be changed by the Board.
(1) Borrowing: Borrowing for other than temporary or emergency purposes
or meeting redemption requests is limited to five percent of the value of
each Funds total assets except in the case of Intermediate U.S. Government
Fund, and Managed Fixed Income Fund. Where a Fund establishes a segregated
account to limit the amount of leveraging of the Fund with respect to
certain investment techniques, the Fund does not treat those techniques as
involving borrowings fro purposes of this limitation.
(2) Illiquid Securities: No Fund may acquire securities or invest in
repurchase agreements with respect to any securities if, as a result, more
than (i) fifteen percent 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
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virtue of restrictions on the sale of such securities to the public without
registration under the Securities Act of 1933 ("Restricted Securities") or
(ii) ten percent of the Fund's total assets would be invested in Restricted
Securities.
(3) Other Investment Companies: The Fund may not invest in securities of
another investment company, except to the extent permitted by the 1940 Act.
(4) Margin and Short Sales: Except for Intermediate U.S. Government Fund,
a 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. A Fund may make margin deposits in connection with
permitted transactions in options and futures contracts. A Fund may not
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.
(5) Unseasoned Issuers: The Fund may not invest in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including the
operations of predecessors, unless guaranteed as to principal and interest
by an issuer in whose securities the Fund could invest, if, as a result,
more than five percent of the value of the Fund's total assets would be so
invested; provided, that the Fund may invest all of 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.
(6) Pledging: The Fund may not pledge, mortgage, hypothecate or encumber
any of its assets except to secure permitted borrowings.
(7) Investments by Officers and Trustees: The Fund may not invest in or
hold securities of any issuer if, to the Trust's knowledge, officers and
trustees of the Trust or an investment adviser to the Fund, individually
owning beneficially more than one-half of one percent of the securities of
the issuer, in the aggregate own more than five percent of the issuer's
securities.
(8) Oil, Gas and Mineral Investments: The Fund may not invest in
interests in oil and gas or interests in other mineral exploration or
development programs, including oil, gas and other mineral leases and the
Fund may not invest in real estate limited partnerships.
(9) Securities With Voting Rights: No Fixed Income Fund may purchase
securities having voting rights, except securities of other investment
companies.
(10) Warrants: Each Fund may not purchase warrants if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
(11) Options: Each Fund may not purchase an option if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
4. PERFORMANCE DATA AND ADVERTISING
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. Each Fund's yield and
total return fluctuate in response to market conditions and other factors. The
value of a Fund's shares when redeemed may be more or less than their original
cost.
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
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investment performance of investment companies ("Fund Tracking Companies").
Each Fund may also compare any of its performance information with the
performance of recognized stock, bond and other indexes, including but not
limited to Standard & Poor's 500 Composite Stock Index, Russell 2000 Index,
Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, Salomon Brothers Bond Index, Shearson Lehman Bond Index, the Dow Jones
Industrial Average, U.S. Treasury bonds, bills or notes and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The 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 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. Also, Norwest and others may charge the 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.
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.
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.
For the 30-day period ended October 31, 1995 the annualized yield of I Shares of
each of the Fixed Income Funds was as follows.
[Yield Table]
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, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in 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. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
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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) to the power of 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.
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 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.
For the 30-day period ended October 31, 1995 the annualized yield of I Shares of
each of the Fixed Income Funds was as follows.
The average annual total return of each class of each Fixed Income and Equity
Fund for the periods ended October 31, 1995 was as follows. The actual dates
of the commencement of each Fund's operations is listed in the Fund's financial
statements.
[Total Return Table]
OTHER ADVERTISEMENT MATTERS
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 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.
The Funds may also include various information in their advertisements.
Information included in a Fund's advertisements may include, but is not limited
to (i) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity, (ii) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents, (iv)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quartile or daily), (v) information
relating to inflation and its effects on the dollar; for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968,
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$13,465 and $12,100, respectively, if the annual rates of inflation were 4%, 5%,
6% and 7%, respectively, (vi) information regarding the effects of automatic
investment and systematic withdrawal plans, including the principle of dollar
cost averaging, (vii) descriptions of the 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, (viii) 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, (ix) 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 (x) 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 principle 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 ensure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- -----
Total Invested $600 Average Price $15.17 Total Shares 41.81
In connection with its advertisements 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 more than 60 years been
committed to quality products and outstanding service in order to assist its
customers in meeting their financial goals and the reasons Norwest believes that
it has been successful as a national financial service firm.
5. MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer and David R. Keffer are brothers.
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John Y. Keffer, Chairman and President.*
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent), Forum
Advisors, Inc. (a registered investment adviser). Mr. Keffer is a
Director, Trustee and officer of various registered investment companies
for which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is 61 Broadway, New York, New York 10006.
Robert C. Brown, Trustee.*
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corp. Prior thereto, he was Manager of the
Capital Markets Group, Norwest Corporation (a multi-bank holding company
and parent of Norwest) until 1991. His address is 1431 Landings Place,
Sarasota, Florida 34231.
Donald H. Burkhardt, Trustee.
Principal, The Burkhardt Law Firm. His address is 777 South Steele Street,
Denver, Colorado 80209.
James C. Harris, Trustee.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating Trustee and former
Director of First Midwest Corporation, a small business investment company.
His address is 6950 France Avenue South, Minneapolis, Minnesota 55435.
Richard M. Leach, Trustee.
Chief Executive Officer, Tee Box Company (a golf equipment manufacturer),
since January 1994 and President of Richard M. Leach Associates (a
financial consulting firm) since 1992. Prior thereto, Mr. Leach was Senior
Adviser of Taylor Investments (a registered investment adviser), a Director
of Mountainview Broadcasting (a radio station) and Managing Director,
Digital Techniques, Inc. (an interactive video design and manufacturing
company). His address is P.O. Box 1888, New London, New Hampshire 03257.
Donald C. Willeke, Trustee
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
Michael D. Martins, Vice President and Treasurer
Fund Accounting Manager, Forum Financial Corp., with which he has been
associated since 1995. Prior thereto, Mr. Martins was at the audit firm of
Deloitte & Touche LLP. Mr. Martins is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
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David I. Goldstein, Vice President and Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
Chief Financial Officer, Forum Financial Services, Inc. Mr. Keffer is also
an officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is 61 Broadway, New York, New York 10006.
Sara M. Clark, Vice President and Assistant Treasurer.
Managing Director, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, from 1991 to 1994 Ms. Clark was
Controller of Wright Express Corporation (a national credit card company)
and for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Clark is also an officer of various registered investment
companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland Square,
Portland, Maine 04101.
Thomas G. Sheehan, Vice President and Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1993. Prior thereto, Mr. Sheehan was Special Counsel to the Division
of Investment Management of the SEC. Mr. Sheehan is also an officer of
various registered investment companies for which Forum Financial Services,
Inc. serves as manager, administrator and/or distributor. His address is
Two Portland Square, Portland, Maine 04101.
Renee A. Walker, Assistant Secretary.
Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, Ms. Walker was an administrator at
Longwood Partners (the manager of a hedge fund partnership) for a year.
After graduating for college, from 1991 to 1993 Ms. Walker was a sales
representative assistant at PaineWebber Incorporated (a broker-dealer).
Her address is Two Portland Square, Portland, Maine 04101.
COMPENSATION OF TRUSTEES AND OFFICERS
Effective June 1, 1995 each Trustee of the Trust is paid a quarterly retained
fee for the Trustee's service to the Trust and to Norwest Select Funds, a
separate registered open-end management investment company for which each
Trustee serves as trustee. of $4,000. In addition, each Trustee is paid $3,000
for each Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year and no
officer of the Trust is compensated by the Trust. Prior to June 1, 1995 Trustee
of the Trust was paid $1,000 for each Board meeting attended (whether in person
or by electronic communication) plus $100 per active portfolio of the Trust and
was paid $1,000 for each Committee meeting attended on a date when a Board
meeting is not held.
Mr. Burkhart, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $5,000 from the Trust and $1,000
form Norwest Select Funds for his services as Chairman. Mr. Willeke was
appointed a Trustee in July 1995 and, accordingly, was not paid any compensation
during the Trust's last fiscal year
As of October 1, 1995, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Fund.
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The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Information is
presented for the year ended May 31, 1995, which was the fiscal year end of 18
of the Trust's portfolios. The Funds have an October 31 fiscal year end.
Total Compensation From
Total Compensation the Trust and Norwest
from the Trust Select Funds
-------------- ------------
Mr. Brown $13,647 $18,847
Mr. Burkhart $16,581 $25,047
Mr. Harris $13,647 $18,847
Mr. Leach $13,647 $18,847
Neither the Trust or Norwest Select Funds has adopted any from of retirement
plan covering Trustees or officers. For the Trust's fiscal year ended May 31,
1995 total expenses of the Trustees (other than Mr. Keffer) was $8,795 and total
expenses of the trustees of Norwest Select Funds was $4,030. Mr. Keffer
currently is not reimbursed for his expenses in serving as Trustee.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of Core Trust is indicated by an asterisk.
Mr. John Y. Keffer, Mr. David R. Keffer and Messrs. Goldstein, Martins and
Sheehan, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Trustees and Officers of the Trust" above.
John Y. Keffer*, Chairman and President.
Costas Azariadis, Trustee.
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
James C. Cheng, Trustee.
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.
Partner at the law firm of Winthrop Stimson Putnam & Roberts since 1989.
Prior thereto, he was a partner at LeBoeuf, Lamb, Leiby & MacRae, a law
firm of which he was a member from 1974 to 1989. His address is 40 Wall
Street, New York, New York 10005.
Michael D. Martins, Treasurer
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
David I. Goldstein, Secretary.
Thomas G. Sheehan, Assistant Secretary.
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Max Berueffy, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since May 1994. For seven years prior to that, Mr. Berueffy held various
positions on the staff of the U.S. Securities and Exchange Commission. His
last position was Senior Special Counsel in the Division of Investment
Management. Mr. Berueffy is also an officer of various registered invest-
ment companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine 04101.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT
Norwest Investment Management, a part of Norwest Bank Minnesota, N.A., is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. With respect to the Adviser's services
for International Fund, see "International Fund" below. Under its advisory
agreements, Norwest may delegate its responsibilities to any investment
subadviser approved by the Board with respect to all or a portion of the assets
of a Fund.
The Advisory Agreement between each Fund and Norwest will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by vote of the shareholders of the Fund, and in either case by a majority of
the Trustees who are not parties to the Advisory Agreement or interested persons
of any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement with respect to a Fund is terminable without penalty by
the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
Board, or by the Adviser on not more than 60 days nor less than 30 days written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreements also provide that, with respect to each Fund, neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any act or omission in the performance of its or their duties to
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's or their duties or by reason of reckless disregard
of its or their obligations and duties under the Advisory Agreement. The
Advisory Agreements provide that the Adviser may render service to others.
In addition to receiving its advisory fee from the Funds, Norwest may also act
and be compensated as investment manager for its clients with respect to assets
which are invested in a Fund. In some instances Norwest may elect to credit
against any investment management, custodial or other fee received from, or
rebate to, a client who is also a shareholder in the Fund an amount equal to all
or a portion of the fees received by Norwest or any affiliate of Norwest from a
Fund with respect to the client's assets invested in the Fund.
The advisory fees are accrued daily and paid monthly. Norwest, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
each Fund. Norwest has agreed to reimburse the Trust for certain of each Fund's
operating expenses (exclusive of interest, taxes and brokerage fees,
organization expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) which in any year exceed
the limits prescribed by any state in which the Fund's shares are qualified for
sale. The Trust may elect not to qualify its shares for sale in every state.
For the purpose of this obligation to reimburse expenses, a Fund's annual
expenses are estimated and accrued daily, and any appropriate estimated payments
will be made by Norwest monthly. Subject to these obligations, the Trust pays
for all of its expenses.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under the Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(i) interest charges, taxes, brokerage fees and commissions; (ii) certain
insurance premiums; (iii) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (iv) fees of pricing,
interest, dividend, credit and other reporting services; (v) costs of membership
in trade associations; (vi) telecommunications expenses; (vii) auditing, legal
and compliance expenses; (viii) costs of the Trust's formation and maintaining
its existence; (ix) costs of preparing and printing the Trust's prospectuses,
statements of additional information, account application
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forms and shareholder reports and delivering them to existing and prospective
shareholders; (x) costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of shares of the Trust; (xi) costs of reproduction, stationery and
supplies; (xii) compensation of the Trust's trustees, officers and employees who
are not employees of the Adviser, Forum Financial Services, Inc. or affiliated
persons of the Adviser or Forum Financial Services, Inc. and costs of other
personnel performing services for the Trust; (xiii) costs of corporate meetings;
(xiv) registration fees and related expenses for registration with the SEC and
the securities regulatory authorities of other countries in which the Trust's
shares are sold; (xv) state securities law registration fees and related
expenses; (xvi) fees and out-of-pocket expenses payable to Forum Financial
Services, Inc. under any distribution, management or similar agreement; (xvii)
and all other fees and expenses paid by the Trust pursuant to any distribution
or shareholder service plan adopted pursuant to Rule 12b-1 under the Act.
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. The data is for the past fiscal year.
[Fee Table]
SUBADVISORY ARRANGEMENTS
With respect to each of International Fund, Diversified Equity Fund, Growth
Equity Fund, Conservative Balanced Fund, Moderate Balanced Fund and Growth
Balanced Fund (the Funds that may invest in international securities), Norwest
and the Trust have entered into Subadvisory Agreements with Schroder.
Schroder makes investment decisions for each of the Funds listed above and
continuously reviews, supervises and administers each Fund's investment program
with respect to that portion, if any, of the respective Fund's portfolio that
Norwest has so delegated. Schroder 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 Subadvisory Agreements among those Funds, Norwest and the Subadviser will
continue in effect only if such continuance is specifically approved at least
annually by the Board or by vote of the shareholders of the Fund, and in either
case by a majority of the Trustees who are not parties to the Subadvisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Subadvisory Agreement.
The Subadvisory Agreement with respect to a Fund is terminable without penalty
by the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
Board, or by the Subadviser on not more than 60 days nor less than 30 days
written notice, and will automatically terminate in the event of its assignment.
The Subadvisory Agreements also provide that, with respect to each Fund, neither
the Subadviser nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the performance of its or their
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Subadvisory Agreement. The Subadvisory Agreements provide that the Subadviser
may render services to others.
The Subadvisory fees are accrued daily and paid monthly. Each Subadviser, in
its sole discretion, may waive all or any portion of its subadvisory fee with
respect to each Fund.
The following table shows the dollar amount of fees payable under the
Subadvisory Agreements with respect to each Fund, the amount of fee that was
waived by the Subadviser, if any, and the actual fee received by Norwest. The
data is for the past fiscal year.
[Fee Table]
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INTERNATIONAL FUND
The Advisory Agreement and Subadvisory Agreement with respect to International
Fund are identical to the Advisory Agreement and Subadvisory Agreement of each
other Fund for which Schroder acts as investment subadviser, except for the fees
payable thereunder and as follows. No payments will be made under International
Fund's Advisory Agreement or Subadvisory Agreement so long as all of the Fund's
investments consist solely of the International Portfolio or any other
registered investment company.
Schroder acts as investment adviser to the International Portfolio and is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing the International Portfolio's investments
and effecting portfolio transactions for the International Portfolio. The
Advisory Agreement between the International Portfolio and Schroder will
continue in effect only if such continuance is specifically approved at least
annually by the Board of Trustees of Core Trust or by vote of the holders of
beneficial interest of the International Portfolio, and in either case by a
majority of the Trustees of Core Trust who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Advisory Agreement.
The Advisory Agreement with respect to the International Portfolio is terminable
without penalty by the International Portfolio on 60 days written notice when
authorized either by vote of the International Portfolio's shareholders or by a
vote of a majority of the Board of Trustees of Core Trust, or by Schroder on not
more than 60 days nor less than 30 days written notice, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to the International Portfolio, neither Schroder nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the International
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of Schroder's or their duties or by reason of reckless disregard of
its or their obligations and duties under the Advisory Agreement. The Advisory
Agreement provides that Schroder may render service to others.
The advisory fees are accrued daily and paid monthly. Schroder, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
International Portfolio. For the Fund's fiscal year ended October 31, 1995, the
Adviser did not pay Schroder any investment advisory fee pursuant to its
Advisory Agreement with respect to the Fund.
ADMINISTRATION AND DISTRIBUTION
Forum supervises the overall management of the Trust (which includes, among
other responsibilities, negotiation of contracts and fees with, and monitoring
of performance and billing of, the Trust's transfer agent and custodian and
arranging for maintenance of books and records of the Trust) and provides the
Trust with general office facilities pursuant to a Management Agreement.
The Management Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by the shareholders and,
in either case, by a majority of the Trustees who are not parties to the
Management Agreement or interested persons of any such party.
The Management Agreement terminates automatically if it is assigned and may be
terminated without penalty 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, with respect to
each Fund, neither Forum nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
or their duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's or their duties or by reason of
reckless disregard of its or their obligations and duties under the Management
Agreement.
The following table shows the dollar amount of fees payable under the Management
Agreement between Forum and the Trust with respect to each Fund, the amount of
fee that was waived by Forum, if any, and the actual fee received by Forum. The
data is for the past fiscal year.
[Fee Table]
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The Manager is also the Trust's Distributor and acts as the agent of the Trust
in connection with the offering of I Shares of each Fund on a "best efforts"
basis pursuant to a Distribution Agreement. Under a servicing agreement between
the Trust and Norwest with respect to International Fund, Norwest performs
ministerial, administrative and oversight functions for the Fund and undertakes
to reimburse certain excess expenses of the Fund. Among other things, Norwest
gathers performance and other data from the adviser of the International
Portfolio and from other sources, formats the data and prepares reports to the
Fund's shareholders and the Trustees. Norwest also ensures that the adviser to
the International Portfolio is aware of pending net purchases or redemptions of
Fund shares and other matters that may affect the adviser's performance of its
duties. Lastly, Norwest has agreed to reimburse the Fund for any amounts by
which its operating expenses (exclusive of interest, taxes and brokerage fees,
organization expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale. No
fees will be paid to Norwest under the Servicing Agreement unless the Fund's
assets are invested solely in the International Portfolio or in a portfolio of
another registered investment company. This agreement will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by the shareholders and, in either case, by a majority of the Trustees who
are not parties to the Management Agreement or interested persons of any such
party.
The agreement provides that neither Norwest nor its personnel shall be liable
for any error of judgment or mistake of law or for any act or omission in the
performance of its or their duties to the Fund, except for willful misfeasance,
bad faith or gross negligence in the performance of Forum's or their duties or
by reason of reckless disregard of its or their obligations and duties under the
agreement.
TRANSFER AGENT
Norwest acts as Transfer Agent of the Trust pursuant to a Transfer Agency
Agreement. The Transfer Agency Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Transfer Agency Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of the Transfer Agent as agent for the Trust are:
(1) answering customer inquiries regarding account status and history, the
manner in which purchases and redemptions of shares of the Fund may be effected
and certain other matters pertaining to the Fund; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, (4) assisting in processing purchase and redemption
transactions and receiving wired funds; (5) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (6) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (7) furnishing periodic statements and confirmations of
purchases and redemptions; (8) transmitting proxy statements, annual reports,
prospectuses and other communications from the Trust to its shareholders; (9)
receiving, tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the Trust; and (10)
providing such other related services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives from the Trust, with respect to
each Fund a fee computed and paid monthly at the annual rate of 0.25% of the
Fund's average daily net assets (or, in those Funds with more than one class,
the Fund's average daily net assets attributable to the class).
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest acts as the custodian of the Trust's
assets. The custodian's responsibilities include safeguarding and controlling
the Trust's cash and securities, determining income and collecting interest on
Fund investments. For these services, the custodian receives no fee. The
custodian receives a separate fee for performing certain functions in connection
with loans of portfolio securities.
Pursuant to rules adopted under the 1940 Act, each 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 of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and
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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 further 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. The Chase Manhattan Bank, N.A.,
through its Global Securities Services Division located in London, England, acts
as custodian of International Fund's assets, but plays no role in making
decisions as to the purchase or sale of portfolio securities for the Fund.
A Fund will not pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Where the Fund's investments consists
solely of such shares, such as International Fund's investment in shares of the
International Portfolio, the Fund will pay no custodian fees directly
The Chase Manhattan Bank, N.A. serves as custodian to International Portfolio
and International Portfolio II of Core Trust and is compensated by Core Trust
with respect to those Portfolios. Norwest serves as custodian of Small Company
Portfolio and Index Portfolio of Core Trust and receives no compensation for its
services to those Portfolios.
PORTFOLIO ACCOUNTING
Forum Financial Corp., 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 in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
Under its agreement, FFC prepares maintains books and records of 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, FFC receives from the Trust with
respect to each Fund a fee of $36,000 per year plus, for each class of the Fund
above one, $6,000 per year. In addition, FFC is paid an additional $12,000 per
year with respect to tax-free money market Funds, global and international Funds
and Funds with more than 25% of their total assets invested in asset backed
securities, that have more than 100 security positions or that have a monthly
portfolio turnover rate of 10% or greater.
FFC is required to use its best judgment and efforts in rendering fund
accounting services and is not be liable to the Trust for any action or inaction
in the absence of bad faith, willful misconduct or gross negligence. FFC is not
responsible or liable for any failure or delay in performance of its fund
accounting obligations arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control and the Trust has agreed to
indemnify and hold harmless FFC, its employees, agents, officers and directors
against and from any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way related to FFC's actions
taken or failures to act with respect to a Fund or based, if applicable, upon
information, instructions or requests with respect to a Fund given or made to
FFC by an officer of the Trust duly authorized. This indemnification does not
apply to FFC's actions taken or failures to act in cases of FFC's own bad faith,
willful misconduct or gross negligence.
The following table shows the dollar amount of fees payable to FFC for its
portfolio accounting services with respect to each Fund, the amount of fee that
was waived by FFC, if any, and the actual fee received by FFC. The data is for
the past fiscal year.
[Fee Table]
FFC performs similar services for each Portfolio and, in addition, acts as each
Portfolio's transfer agent.
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6. OTHER INFORMATION
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis. Proceeds of redemptions
normally are paid in cash. However, payments may be made wholly or partially in
portfolio securities if the Board determines that payment in cash would be
detrimental to the best interests of the Fund. If payment for shares redeemed
is made wholly or partially in portfolio securities, brokerage costs may be
incurred by the shareholder in converting securities to cash. The Trust and
Core Trust have each filed a formal election with the SEC pursuant to which the
Funds and the International Portfolio will only effect a redemption in portfolio
securities if the particular shareholder is redeeming more than $250,000 or one
percent of a Fund's or the International Portfolio's total net assets,
whichever is less, during any 90-day period.
The Trust may redeem shares involuntarily, from time to time, 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 the Fund's shares as provided in the Prospectus.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that (i) are not restricted as to transfer either by law
or liquidity of market and (ii) have a value which is readily ascertainable (and
not established only by valuation procedures).
By use of telephone redemption and exchange privileges, the shareholder
authorizes the Transfer Agent to act upon the instruction of any person
representing himself either to be, or to have the authority to act on behalf of,
the investor and believed by the Transfer Agent to be genuine. The records of
the Transfer Agent of such instructions are binding.
The exchange privilege permits I Shares shareholders to exchange their shares
for I Shares of any other Fund. For Federal income tax purposes, an exchange
transaction is treated as a sale and subsequent purchase on which a purchaser
may realize a capital gain or loss depending on whether the value of the shares
redeemed is more or less than his basis in such shares at the time of the
transaction.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction. The terms of the exchange
privilege are subject to change, and the privilege may be terminated by any of
the Participating Funds or the Company. However the privilege will not be
terminated, and no material change that restricts the availability of the
privilege to shareholders will be implemented, without reasonable advance notice
to shareholders.
DETERMINATION OF NET ASSET VALUE
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. The Funds value their securities as follows. A
security listed or traded on an exchange is valued at its last sale price (prior
to the time as of which assets are valued) on the exchange where it is
principally traded. Lacking any such sales on the day of valuation, the
security is valued at the mean of the last bid and asked prices. All other
securities for which over-the-counter market quotations are readily available
generally are valued at the mean of the current bid and asked prices. When
market quotations are not readily available, securities are valued at fair value
as determined in good faith by the Board. Debt securities may be valued on the
basis of valuations furnished by pricing services which utilize electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value of
such securities. All assets and liabilities of a Fund denominated in foreign
currencies are converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar last quoted by
a major bank.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original net asset value
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and the recalculated net asset value divided by the recalculated net asset value
is 0.005 (1/2 of 1%) or less or shareholder transactions are otherwise
insubstantially affected, further action is not required.
PORTFOLIO TRANSACTIONS
The following discussion concerning portfolio transactions relates to the Funds
and, with respect to International Fund, the International Portfolio.
Investment decisions for the Funds will be made independently from those for any
other client account or investment company that is or may in the future become
managed by the Adviser or its affiliates. Investment decisions are the product
of many factors including basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the respective Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients. In addition, when purchases or sales of the
same security for the Fund and other client accounts managed by the 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.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
There usually are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and ask prices. In the case of
securities traded in the foreign and domestic over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed
commission or markup. In underwritten offerings, the price includes a disclosed
fixed commission or discount.
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions. Allocations of transactions to brokers
and dealers and the frequency of transactions are determined by the Advisers in
their best judgment and in a manner deemed to be in the best interest of
shareholders of the Funds (holders of beneficial interest in the case of the
International Portfolio) rather than by any formula. The primary consideration
is prompt execution of orders in an effective manner and at the most favorable
price available to the Fund. In transactions on stock exchanges in the United
States, these commissions are negotiated, whereas on foreign stock exchanges
these commissions are generally fixed. Where transactions are executed in the
over-the-counter market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, it will utilize
the services of others. In all cases the Fund will attempt to negotiate best
execution. No Fixed Income Fund paid any brokerage commissions during the
fiscal year ended October 31, 1995.
The following table shows the aggregate brokerage commissions with respect to
each Equity Fund and Balanced Fund with respect to each Fund's investment in
equity securities. The data is for the past fiscal year.
[Commission Table]
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with securities transactions, the Advisers take into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Advisers may also take into account
payments made by brokers effecting transactions for a Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
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In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Fund to pay these
brokers a higher amount of commission than may be charged by other brokers.
Such research and analysis may be used by the Advisers in connection with
services to clients other than the Funds, and the Advisers' fees are not reduced
by reason of the Advisers' receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, an Adviser may consider sales of shares of the Funds as a factor in
the selection of broker-dealers to execute portfolio transactions for the Funds.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Advisers to employ their
respective affiliates to effect securities transactions of the Funds, provided
certain other conditions are satisfied. Payment of brokerage commissions to an
affiliate of an Adviser for effecting such transactions is subject to Section
17(e) of the 1940 Act, which requires, among other things, that commissions for
transactions on securities exchanges paid by a registered investment company to
a broker which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. It is the Funds' policy
that commissions paid to Schroder Securities Limited, Norwest Investment
Management, Inc. and other affiliates of an Adviser will, in the judgment of the
Adviser responsible for making portfolio decisions and selecting brokers, be (i)
at least as favorable as commissions contemporaneously charged by the affiliate
on comparable transactions for its most favored unaffiliated customers and (ii)
at least as favorable as those which would be charged on comparable transactions
by other qualified brokers having comparable execution capability. The Board,
including a majority of the non-interested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of an Adviser by the Funds satisfy
the foregoing standards.
The Fund has no understanding or arrangement to direct any specific portion of
its brokerage to Schroder Securities, and will not direct brokerage to Schroder
Securities in recognition of research services.
TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements 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.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered a 60 percent long-term and 40
percent short-term capital gain or loss. Each Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as described below)
from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund upon the lapse or sale of such options held by such Fund will be either
long-term or short-term capital gain or loss depending upon the Fund's holding
period with respect to such option. However, gain or loss realized upon the
lapse or closing out of such options that are written by a Fund will be treated
as short-term capital gain or loss. In general, if a Fund exercises an option,
or an option that a Fund has written is exercised, gain or loss on the option
will not be separately recognized but the premium received or paid will be
included in the calculation of gain or loss upon disposition of the property
underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund may constitute a
"straddle" for Federal income tax purposes. A straddle of which at least one,
but not all, the positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that (i) loss realized on
disposition of one position of a straddle not be recognized to the
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extent that a Fund has unrealized gains with respect to the other position in
such straddle; (ii) a Fund's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in any gain being treated as
short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60 percent long-
term and 40 percent short-term capital loss; (iv) losses recognized with respect
to certain straddle positions which would otherwise constitute short-term
capital losses be treated as long-term capital losses; and (v) the deduction of
interest and carrying charges attributable to certain straddle positions may be
deferred. Various elections are available to a Fund which may mitigate the
effects of the straddle rules, particularly with respect to mixed straddles. In
general, the straddle rules described above do not apply to any straddles held
by a Fund if all of the offsetting positions consist of section 1256 contracts.
Each International Fund shareholder should include in the shareholder's report
of gross income in his Federal income tax return both cash dividends received by
the shareholder from the Fund and also the amount which the Fund advises the
shareholder is the shareholder's pro rata portion of foreign income taxes paid
with respect to, or withheld from, dividends and interest paid to the
International Portfolio from its foreign investments. Each shareholder then
would be entitled, subject to certain limitations, to take a foreign tax credit
against the shareholders' Federal income tax liability for the amount of such
foreign taxes or else to deduct such foreign taxes as an itemized deduction from
gross income.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, New York 10004.
__________, independent auditors, acts as auditors for the Trust.
OWNERSHIP OF FUND SHARES
Prior to the public issuance of shares of the Funds, due to its initial
investment, Forum owned all outstanding shares of each Fund and, accordingly,
may be deemed to be a controlling person of each Fund. Upon the investment in
each Fund by public shareholders, Forum ceased to be a controlling person of any
Fund. As of February ___, 1995, the Trustees and officers of the Trust in the
aggregate owned less than one percent of the outstanding shares of each Fund.
The following persons owned of record 5% or more of the outstanding shares of a
Fund or any class thereof, as of February ___, 1995:
[5% Shareholder Table]
ADDITIONAL INFORMATION ABOUT THE TRUST
Currently, the Trust is divided into thirty-one separate series representing
shares of each of the thirteen Funds and shares of Cash Investment Fund, Ready
Cash Investment Fund, U.S. Government Fund, Treasury Fund, Municipal Money
Market Fund, Adjustable U.S. Government Reserve Fund, Government Income Fund,
Income Fund, Total Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free
Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Stock Fund,
ValuGrowth Stock Fund, Small Company Stock Fund, Contrarian Stock Fund and Short
Maturity Investment Fund. The Trust has received an order from the SEC
permitting the issuance and sale of separate classes of shares representing
interests in each of the Trust's portfolios. It is anticipated, however, that
the Trust will operate the classes of each Fund in accordance with rules of the
SEC adopted after the Trust obtained its exemptive order.
The Board determined that currently no conflict of interest exists between or
among each Fund's I Shares and its other classes, if any. On an ongoing basis,
the Board, pursuant to its fiduciary duties under the 1940 Act and state law,
will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
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the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states,
including Texas. As a result, to the extent that the Trust or a shareholder is
subject to the jurisdiction of courts in those states, the courts may not apply
Delaware law, and may thereby subject the Trust shareholders to liability. To
guard against this risk, the Trust Instrument of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation and instrument entered into by
the Trust or its Trustees, and provides for indemnification out of Trust
property of any shareholder held personally liable for the obligations of the
Trust. Thus, the risk of a shareholder incurring financial loss beyond his
investment because of shareholder liability is limited to circumstances in which
(1) a court refuses to apply Delaware law, (2) no contractual limitation of
liability is in effect, and (3) the Trust itself is unable to meet its
obligations. In light of Delaware law, the nature of the Trust's business, and
the nature of its assets, the Board believes that the risk of personal liability
to a Trust shareholder is extremely remote.
FINANCIAL STATEMENTS
The financial statements of each Fund for the year ended October 31, 1995 (which
include statements of assets and liabilities, statements of operations,
statements of changes in net assets, notes to financial statements, financial
highlights, statements of investments and the 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.
[To be included in subsequent amendment to Trust's registration statement, filed
pursuant to Rule 485(b), to become effective on same day as this amendment]
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Funds' registration statement filed with the SEC under the Securities Act of
1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract of other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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.
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.
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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. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
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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.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
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.
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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 CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
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.
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COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 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 CORPORATION
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 INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
EQUITY FUNDS
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
INCOME EQUITY FUND
FIXED INCOME FUNDS
INTERMEDIATE U.S. GOVERNMENT FUND
STABLE INCOME FUND
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
This Statement of Additional Information ("SAI") supplements the Prospectus
offering A Shares and B Shares (collectively the "Shares") of Diversified Equity
Fund, Growth Equity Fund, Income Equity Fund, Intermediate U.S. Government Fund
and Stable Income Fund (each a "Fund" and collectively the "Funds"). Each Fund
is a diversified series of Norwest Advantage Funds, a registered open-end,
management investment company (the "Trust"). This SAI should be read only in
conjunction with the Funds' Prospectus, copies of which may be obtained without
charge.
TABLE OF CONTENTS
Page
----
1. Norwest Advantage Funds . . . . . . . . . . . .
2. Investment Policies . . . . . . . . . . . . . .
3. Investment Limitations. . . . . . . . . . . . .
4. Performance Data and Advertising. . . . . . . .
5. Management. . . . . . . . . . . . . . . . . . .
6. Other Information . . . . . . . . . . . . . . .
Appendix A - Description of Securities Ratings . . . A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED BY AN INVESTOR WITHOUT CHARGE BY
CONTACTING THE TRUST'S DISTRIBUTOR, FORUM FINANCIAL SERVICES, INC., 61 BROADWAY,
NEW YORK, NEW YORK 10006.
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1. NORWEST ADVANTAGE FUNDS
DEFINITIONS
The Trust was originally organized under the name Prime Value Funds, Inc. as a
Maryland corporation on August 29, 1986. On July 30, 1993, pursuant to a
shareholder vote, the Trust was reorganized as a Delaware business trust. On
October 1, 1995, the Trust's name was changed from "Norwest Funds." As used in
this SAI, the following terms shall have the meanings listed:
"Adviser" shall mean each Fund's investment adviser, Norwest Investment
Management, a part of Norwest. "Advisers" shall mean, collectively, the Adviser
and Schroder.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Core Trust" shall mean Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Forum" shall mean Forum Financial Services, Inc., the Trust's
administrator and distributor of the Trust's shares.
"FFC" shall mean Forum Financial Corp., the Trust's fund accountant.
"Fund" shall mean each of the thirteen separate portfolios of the Trust to
which this Statement of Additional Information relates as identified on the
cover page.
"Norwest" shall mean Norwest Bank Minnesota, N.A., a subsidiary of Norwest
Corporation.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Portfolio" shall mean International Portfolio II, Small Company Portfolio
and Index Portfolio, three separate portfolios of Core Trust.
"Schroder" shall mean Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund and Growth Equity Fund.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Transfer Agent" shall mean Norwest acting in its capacity as transfer and
dividend disbursing agent of the Trust.
"Trust" shall mean Norwest Advantage Funds, an open-end management
investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
2. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning the Funds' investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any
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investment or employ any investment technique or strategy not referenced in the
Prospectus as relates to that Fund. For example, while the SAI describes "swap"
transactions below, only those Funds whose investment policies, as described in
the Prospectus, allow the Fund to invest in swap transactions may do so.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc., Standard & Poor's Corporation 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. However, ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, interest rate and rating may have different market
prices. If an issue of securities ceases to be rated or if its rating is
reduced after it is purchased by a Fund, the investment adviser or investment
subadviser of the Fund will determine whether the Fund should continue to hold
the obligation. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings. An
issuer's current financial condition may be better or worse than a rating
indicates.
CONVERTIBLE SECURITIES
A Fund may invest in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Although no
securities investment is without some risk, investment in convertible securities
generally entails less risk than in the issuer's common stock. However, the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (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
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
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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. A fund may invest in the
securities described below or other similar equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
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 at any time or if 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.
WARRANTS
Warrants 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. 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. The Fund may not invest more than 2% of its net assets in
warrants not traded on the American or New York Stock Exchange.
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MORTGAGE BACKED AND ASSET BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets (as defined in
the Prospectus) 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 (i) "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), (ii) 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 (iii) "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.
OTHER GOVERNMENTAL RELATED MORTGAGE-BACKED SECURITIES
The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
Government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These
assets include, among other things, single family and multi-family mortgage
loans, as well as commercial mortgage loans. In order to dispose of such assets
in an orderly manner, RTC has established a vehicle registered with the SEC
through which it sells mortgage-backed securities. RTC mortgage-backed
securities represent pro rata interests in pools of mortgage loans that RTC
holds or has acquired, as described above, and are supported by one or more of
the types of private credit enhancements used by Private Mortgage Lenders.
It is anticipated that in the future the Federal Deposit Insurance Corporation
(which also holds mortgage loans as a conservator or receiver of insolvent banks
or in its corporate capacity) or other governmental agencies or
instrumentalities may establish vehicles for the issuance of mortgage-backed
securities that are similar in structure and in types of credit enhancements to
RTC securities.
ASSET-BACKED SECURITIES
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.
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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.
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
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only ("POs") securities 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 ("IOs") securities 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.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Funds invest (including mortgage-backed securities)
may have 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-backed
securities) pay interest at a rate that 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 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.
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There may not be an active secondary market for any particular floating or
variable rate instrument (particularly inverse floaters) which could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
repayment obligation during periods that the Fund is not entitled to exercise
any demand rights it may have. A Fund could, for this or other reasons, suffer
a loss with respect to an instrument. The Adviser monitors the liquidity of the
Fund's investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Funds may enter into interest rate protection transactions, including
interest rate swaps, caps, collars and floors. Interest rate swap transactions
involve an agreement between two parties to exchange interest payment streams
that are based, for example, on variable and fixed rates that are calculated on
the basis of a specified amount of principal (the "notional principal amount")
for a specified period of time. Interest rate cap and floor transactions
involve an agreement between two parties in which the first party agrees to make
payments to the counterparty when a designated market interest rate goes above
(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which the payments are
made when a designated market interest rate either goes above a designated
ceiling or goes below a designated floor on predetermined dates or during a
specified time period.
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 believed by the investment adviser to the Fund 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, they are less liquid than swaps.
FOREIGN CURRENCY TRANSACTIONS
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 during the completion of certain investment programs.
Accordingly, the value of the assets of a Fund, as measured in United States
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. A Fund may conduct
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or by entering
into foreign currency forward contracts ("forward contracts") to purchase or
sell foreign currencies. A forward contract involves an
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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 currency contracts in connection with
existing portfolio positions. For example, when an investment 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 portfolio 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 investment
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 portfolio securities or other assets
denominated in that currency.
At or before the settlement of a forward currency 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, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a global,
around-the-clock market.
When required by applicable regulatory guidelines, a Fund will set aside cash,
U.S. Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
HEDGING AND OPTION INCOME STRATEGIES
Certain Funds may engage in certain options strategies in order to enhance the
Fund's income and may engage in certain options and futures strategies to
attempt to hedge the Fund's portfolio. The instruments in which the Funds may
invest include (i) options on fixed income securities, fixed income securities
indexes and foreign currencies, (ii)
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index, interest rate and foreign currency futures contracts ("futures
contracts"), and (iii) options on 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, and the CFTC.
The various strategies referred to herein and in the Prospectus are intended to
illustrate the type of strategies that are available to, and may be used by, an
investment adviser in managing a Fund's portfolio. No assurance can be given,
however, that any strategies will succeed.
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 the Fund to an obligation to another party
unless it owns either (1) an offsetting ("covered") position or (2) cash, U.S.
Government Securities or other liquid, high-grade debt securities with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Fund will set aside cash, U.S. Government
Securities or other liquid, high-grade debt securities in a segregated account
with its custodian in the prescribed amount. Any assets used for cover or held
in a segregated account cannot be sold or closed out while the hedging 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 write (sell) put
and call options covering specified securities, stock index-related amounts 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 a security or 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 a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. 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 an
investment 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 securities or
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,
the relationship of the exercise price to the market price, the historical price
volatility of the underlying securities index, the option period, supply and
demand and interest rates.
A Fund may purchase call options on debt securities that an investment 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.
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An investment 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.
A Fund may purchase and write put and call options on fixed income 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 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.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
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 "Options Strategies" above
and "Foreign Currency Forward Transactions" 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, the 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.
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 investment 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
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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.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. A futures contract is a bilateral agreement wherein one
party agrees to accept, and the other party agrees to make, delivery of cash, an
underlying debt security or the currency as called for in the contract at a
specified future date and at a specified price. For futures contracts with
respect to an index, delivery is of an amount of cash equal to a specified
dollar amount times the difference between the index value at the time of the
contract and the close of trading of the contract.
A 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
the 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 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.
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 such event, it may not be possible for a Fund to close a
position, and in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin. In addition:
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(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 securities or currencies due to price
distortions in the futures market or otherwise. There may be several
reasons unrelated to the value of the underlying securities or 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 the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with
options on futures transactions are not greater than the risks in
connection with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is
at risk. Sellers of options on futures contracts, however, must post an
initial margin and are subject to additional margin calls which could be
substantial in the event of adverse price movements.
(6) A 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 the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however that in addition,
with respect to positions in commodity futures and option contracts not for bona
fide hedging purposes the Fund represents that the aggregate initial margin and
premiums required to establish these positions (subject to certain exclusions)
will not exceed 5% of the liquidation value of the Fund's assets after taking
into account unrealized profits and losses on any such contract the Fund has
entered into.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a 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
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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.
Generally, a reverse repurchase agreement enables a 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 AND DELAYED DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed delivery basis.
In those cases, the purchase price and the interest rate payable on the
securities are fixed on the transaction date and delivery and payment may take
place a month or more after the date of the transaction. At the time a 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.
A Fund will make commitments for such when-issued transactions only when it has
the intention of actually acquiring the securities. 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. 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. If a Fund chooses to dispose of the right to acquire
a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation.
DOMESTIC AND FOREIGN BANK OBLIGATIONS
A Fund may invest in fixed-time deposits, which are payable at their 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.
Investments that a Fund may make in securities of foreign branches of domestic
banks and domestic and foreign branches of foreign banks may involve certain
risks, including future political and economic developments, the possible
imposition of foreign withholding taxes on interest income payable on such
securities, the possible seizure or nationalization of foreign deposits,
differences from domestic banks in applicable accounting, auditing and financial
reporting standards, and the possible establishment of exchange controls or
other foreign governmental laws or restrictions applicable to the payment of
certificates of deposit or time deposits which might affect adversely the
payment of principal and interest on such securities held by the Fund.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
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The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the investment adviser of each
Fund, pursuant to guidelines approved by the Board. The investment adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer. The investment
adviser monitors the liquidity of the securities in each Fund's portfolio and
reports periodically on such decisions to the Board.
TEMPORARY DEFENSIVE POSITION
When a Fund assumes a temporary defensive position, it may invest in (i) short-
term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation, (iii) 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, (iv) repurchase agreements covering any of
the securities in which the Fund may invest directly and (v) money market mutual
funds.
The Funds may invest in the securities of other investment companies within the
limits prescribed by the 1940 Act. Under normal circumstances, each Fund
intends to invest less than 5% of the value of its net assets in the securities
of other investment companies. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).
3. INVESTMENT LIMITATIONS
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of a
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund and cannot be changed without the affirmative vote of a
majority of the Fund's outstanding voting securities (as defined in the
Prospectus). A Fund may not:
(1) Diversification: With respect to 75 percent of its assets, the Fund
may not purchase a security other than a U.S. Government Security if, as a
result, more than five percent of the Fund's total assets would be invested
in the securities of a single issuer or the Fund would own more than ten
percent of the outstanding voting securities of any single issuer;
provided, however, 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.
(2) Concentration: The Fund may not purchase securities if, immediately
after the purchase, more than 25 percent of the value of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in the same industry; provided, however, that
there is no limit on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, foreign government
securities, mortgage related or housing-related securities, municipal
securities, and issuers domiciled in a single country; that financial
service companies are classified according to the end users of their
services (for example, automobile finance, bank finance and diversified
finance); that utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric and
telephone); that will each invest more than 25 percent of the value of the
Fund's total assets in obligations of
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domestic and foreign financial institutions and their holding companies;
and that each Fund may invest all of 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.
(3) Borrowing: Each Fund may borrow money for temporary or emergency
purposes, including the meeting of redemption requests; but not in excess
of 33 1/3 percent of the value of the Fund's total assets (as computed
immediately after the borrowing).
(4) Issuance of Senior Securities: The Fund may not issue senior
securities except to the extent permitted by the 1940 Act.
(5) Underwriting Activities: The Fund may not 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.
(6) Making Loans: The Fund may not make loans, except the Funds may enter
into repurchase agreements, purchase debt securities that are otherwise
permitted investments and lend portfolio securities.
(7) Purchases and Sales of Real Estate: The Fund may not purchase or sell
real estate, 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.
(8) Purchases and Sales of Commodities: The Fund may not purchase or sell
physical commodities or contracts, options or options on contracts to
purchase or sell physical commodities, provided that currencies and
currency-related contracts and contracts on indices are not deemed to be
physical commodities.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund and may be changed by the Board.
(1) Borrowing: Borrowing for other than temporary or emergency purposes
or meeting redemption requests is limited to five percent of the value of
each Funds total assets except in the case of Intermediate U.S. Government
Fund, and Managed Fixed Income Fund. Where a Fund establishes a segregated
account to limit the amount of leveraging of the Fund with respect to
certain investment techniques, the Fund does not treat those techniques as
involving borrowings fro purposes of this limitation.
(2) Illiquid Securities: No Fund may acquire securities or invest in
repurchase agreements with respect to any securities if, as a result, more
than (i) fifteen percent 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 Securities Act of 1933 ("Restricted Securities") or
(ii) ten percent of the Fund's total assets would be invested in Restricted
Securities.
(3) Other Investment Companies: The Fund may not invest in securities of
another investment company, except to the extent permitted by the 1940 Act.
(4) Margin and Short Sales: Except for Intermediate U.S. Government Fund,
a 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. A Fund may make margin deposits in connection with
permitted transactions in options and futures contracts. A Fund may not
enter short sales if, as a result, more that 25% of the value of the Fund's
total assets would be so invested, or
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such a position would represent more than 2% of the outstanding voting
securities of any single issuer or class of an issuer.
(5) Unseasoned Issuers: The Fund may not invest in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including the
operations of predecessors, unless guaranteed as to principal and interest
by an issuer in whose securities the Fund could invest, if, as a result,
more than five percent of the value of the Fund's total assets would be so
invested; provided, that the Fund may invest all of 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.
(6) Pledging: The Fund may not pledge, mortgage, hypothecate or encumber
any of its assets except to secure permitted borrowings.
(7) Investments by Officers and Trustees: The Fund may not invest in or
hold securities of any issuer if, to the Trust's knowledge, officers and
trustees of the Trust or an investment adviser to the Fund, individually
owning beneficially more than one-half of one percent of the securities of
the issuer, in the aggregate own more than five percent of the issuer's
securities.
(8) Oil, Gas and Mineral Investments: The Fund may not invest in
interests in oil and gas or interests in other mineral exploration or
development programs, including oil, gas and other mineral leases and the
Fund may not invest in real estate limited partnerships.
(9) Securities With Voting Rights: No Fixed Income Fund may purchase
securities having voting rights, except securities of other investment
companies.
(10) Warrants: Each Fund may not purchase warrants if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
(11) Options: Each Fund may not purchase an option if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
4. PERFORMANCE DATA AND ADVERTISING
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. Each Fund's yield and
total return fluctuate in response to market conditions and other factors. The
value of a Fund's shares when redeemed may be more or less than their original
cost.
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").
Each Fund may also compare any of its performance information with the
performance of recognized stock, bond and other indexes, including but not
limited to Standard & Poor's 500 Composite Stock Index, Russell 2000 Index,
Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, Salomon Brothers Bond Index, Shearson Lehman Bond Index, the Dow Jones
Industrial Average, U.S. Treasury bonds, bills or notes and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The 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 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.
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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. Also, Norwest and others may charge the 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.
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.
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.
For the 30-day period ended October 31, 1995 the annualized yield of each of the
Fixed Income Funds was as follows.
[Yield Table]
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, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in 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. 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) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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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.
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 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.
The average annual total return of each class of each Fund for the periods ended
October 31, 1995 was as follows. The actual dates of the commencement of each
Fund's operations is listed in the Fund's financial statements.
[Total Return Table]
OTHER ADVERTISEMENT MATTERS
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 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.
The Funds may also include various information in their advertisements.
Information included in a Fund's advertisements may include, but is not limited
to (i) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity, (ii) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents, (iv)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quartile or daily), (v) information
relating to inflation and its effects on the dollar; for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively, (vi) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principle of dollar cost
averaging, (vii) descriptions of the 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, (viii) 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, (ix) 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 (x) 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.
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The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principle of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in 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 ensure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
In connection with its advertisements 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 more than 60 years been
committed to quality products and outstanding service in order to assist its
customers in meeting their financial goals and the reasons Norwest believes that
it has been successful as a national financial service firm.
5. MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer and David R. Keffer are brothers.
John Y. Keffer, Chairman and President.*
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent), Forum
Advisors, Inc. (a registered investment adviser). Mr. Keffer is a
Director, Trustee and officer of various registered investment companies
for which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is 61 Broadway, New York, New York 10006.
Robert C. Brown, Trustee.*
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corp. Prior thereto, he was Manager of the
Capital Markets Group, Norwest Corporation (a multi-bank holding company
and parent of Norwest) until 1991. His address is 1431 Landings Place,
Sarasota, Florida 34231.
Donald H. Burkhardt, Trustee.
Principal, The Burkhardt Law Firm. His address is 777 South Steele Street,
Denver, Colorado 80209.
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James C. Harris, Trustee.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating Trustee and former
Director of First Midwest Corporation, a small business investment company.
His address is 6950 France Avenue South, Minneapolis, Minnesota 55435.
Richard M. Leach, Trustee.
Chief Executive Officer, Tee Box Company (a golf equipment manufacturer),
since January 1994 and President of Richard M. Leach Associates (a
financial consulting firm) since 1992. Prior thereto, Mr. Leach was Senior
Adviser of Taylor Investments (a registered investment adviser), a Director
of Mountainview Broadcasting (a radio station) and Managing Director,
Digital Techniques, Inc. (an interactive video design and manufacturing
company). His address is P.O. Box 1888, New London, New Hampshire 03257.
Donald C. Willeke, Trustee
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
Michael D. Martins, Vice President and Treasurer
Fund Accounting Manager, Forum Financial Corp., with which he has been
associated since 1995. Prior thereto, Mr. Martins was at the audit firm of
Deloitte & Touche LLP. Mr. Martins is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David I. Goldstein, Vice President and Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
Chief Financial Officer, Forum Financial Services, Inc. Mr. Keffer is also
an officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is 61 Broadway, New York, New York 10006.
Sara M. Clark, Vice President and Assistant Treasurer.
Managing Director, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, from 1991 to 1994 Ms. Clark was
Controller of Wright Express Corporation (a national credit card company)
and for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Clark is also an officer of various registered investment
companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland Square,
Portland, Maine 04101.
Thomas G. Sheehan, Vice President and Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1993. Prior thereto, Mr. Sheehan was Special Counsel to the
Division of Investment Management of the SEC. Mr. Sheehan is also an
officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
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Renee A. Walker, Assistant Secretary.
Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, Ms. Walker was an administrator at
Longwood Partners (the manager of a hedge fund partnership) for a year.
After graduating for college, from 1991 to 1993 Ms. Walker was a sales
representative assistant at PaineWebber Incorporated (a broker-dealer).
Her address is Two Portland Square, Portland, Maine 04101.
COMPENSATION OF TRUSTEES AND OFFICERS
Effective June 1, 1995 each Trustee of the Trust is paid a quarterly retained
fee for the Trustee's service to the Trust and to Norwest Select Funds, a
separate registered open-end management investment company for which each
Trustee serves as trustee. of $4,000. In addition, each Trustee is paid $3,000
for each Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year and no
officer of the Trust is compensated by the Trust. Prior to June 1, 1995 Trustee
of the Trust was paid $1,000 for each Board meeting attended (whether in person
or by electronic communication) plus $100 per active portfolio of the Trust and
was paid $1,000 for each Committee meeting attended on a date when a Board
meeting is not held.
Mr. Burkhart, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $5,000 from the Trust and $1,000
form Norwest Select Funds for his services as Chairman. Mr. Willeke was
appointed a Trustee in July 1995 and, accordingly, was not paid any compensation
during the Trust's last fiscal year
As of October 1, 1995, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Fund.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Information is
presented for the year ended May 31, 1995, which was the fiscal year end of 18
of the Trust's portfolios. The Funds have an October 31 fiscal year end.
Total Compensation From
Total Compensation the Trust and Norwest
from the Trust Select Funds
-------------- ------------
Mr. Brown $13,647 $18,847
Mr. Burkhart $16,581 $25,047
Mr. Harris $13,647 $18,847
Mr. Leach $13,647 $18,847
Neither the Trust or Norwest Select Funds has adopted any from of retirement
plan covering Trustees or officers. For the Trust's fiscal year ended May 31,
1995 total expenses of the Trustees (other than Mr. Keffer) was $8,795 and total
expenses of the trustees of Norwest Select Funds was $4,030. Mr. Keffer
currently is not reimbursed for his expenses in serving as Trustee.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of Core Trust is indicated by an asterisk.
Mr. John Y. Keffer, Mr. David R. Keffer and Messrs. Goldstein, Martins and
Sheehan, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Trustees and Officers of the Trust" above.
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John Y. Keffer*, Chairman and President.
Costas Azariadis, Trustee.
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
James C. Cheng, Trustee.
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.
Partner at the law firm of Winthrop Stimson Putnam & Roberts since 1989.
Prior thereto, he was a partner at LeBoeuf, Lamb, Leiby & MacRae, a law
firm of which he was a member from 1974 to 1989. His address is 40 Wall
Street, New York, New York 10005.
Michael D. Martins, Treasurer
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
David I. Goldstein, Secretary.
Thomas G. Sheehan, Assistant Secretary.
Max Berueffy, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since May 1994. For seven years prior to that, Mr. Berueffy held various
positions on the staff of the U.S. Securities and Exchange Commission. His
last position was Senior Special Counsel in the Division of Investment
Management. Mr. Berueffy is also an officer of various registered invest-
ment companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine 04101.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT
Norwest Investment Management, a part of Norwest Bank Minnesota, N.A., is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. Under its advisory agreements, Norwest
may delegate its responsibilities to any investment subadviser approved by the
Board with respect to all or a portion of the assets of a Fund.
The Advisory Agreement between each Fund and Norwest will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by vote of the shareholders of the Fund, and in either case by a majority of
the Trustees who are not parties to the Advisory Agreement or interested persons
of any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement with respect to a Fund is terminable without penalty by
the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
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Board, or by the Adviser on not more than 60 days nor less than 30 days written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreements also provide that, with respect to each Fund, neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any act or omission in the performance of its or their duties to
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's or their duties or by reason of reckless disregard
of its or their obligations and duties under the Advisory Agreement. The
Advisory Agreements provide that the Adviser may render service to others.
In addition to receiving its advisory fee from the Funds, Norwest may also act
and be compensated as investment manager for its clients with respect to assets
which are invested in a Fund. In some instances Norwest may elect to credit
against any investment management, custodial or other fee received from, or
rebate to, a client who is also a shareholder in the Fund an amount equal to all
or a portion of the fees received by Norwest or any affiliate of Norwest from a
Fund with respect to the client's assets invested in the Fund.
The advisory fees are accrued daily and paid monthly. Norwest, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
each Fund. Norwest has agreed to reimburse the Trust for certain of each Fund's
operating expenses (exclusive of interest, taxes and brokerage fees,
organization expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) which in any year exceed
the limits prescribed by any state in which the Fund's shares are qualified for
sale. The Trust may elect not to qualify its shares for sale in every state.
For the purpose of this obligation to reimburse expenses, a Fund's annual
expenses are estimated and accrued daily, and any appropriate estimated payments
will be made by Norwest monthly. Subject to these obligations, the Trust pays
for all of its expenses.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under the Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(i) interest charges, taxes, brokerage fees and commissions; (ii) certain
insurance premiums; (iii) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (iv) fees of pricing,
interest, dividend, credit and other reporting services; (v) costs of membership
in trade associations; (vi) telecommunications expenses; (vii) auditing, legal
and compliance expenses; (viii) costs of the Trust's formation and maintaining
its existence; (ix) costs of preparing and printing the Trust's prospectuses,
statements of additional information, account application forms and shareholder
reports and delivering them to existing and prospective shareholders; (x) costs
of maintaining books of original entry for portfolio and fund accounting and
other required books and accounts and of calculating the net asset value of
shares of the Trust; (xi) costs of reproduction, stationery and supplies; (xii)
compensation of the Trust's trustees, officers and employees who are not
employees of the Adviser, Forum Financial Services, Inc. or affiliated persons
of the Adviser or Forum Financial Services, Inc. and costs of other personnel
performing services for the Trust; (xiii) costs of corporate meetings; (xiv)
registration fees and related expenses for registration with the SEC and the
securities regulatory authorities of other countries in which the Trust's shares
are sold; (xv) state securities law registration fees and related expenses;
(xvi) fees and out-of-pocket expenses payable to Forum Financial Services, Inc.
under any distribution, management or similar agreement; (xvii) and all other
fees and expenses paid by the Trust pursuant to any distribution or shareholder
service plan adopted pursuant to Rule 12b-1 under the Act.
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. The data is for the past fiscal year.
[Fee Table]
SUBADVISORY ARRANGEMENTS
With respect to each of, Diversified Equity Fund and Growth Equity Fund (the
Funds that may invest in international securities), Norwest and the Trust have
entered into Subadvisory Agreements with Schroder.
Schroder makes investment decisions for each of the Funds listed above and
continuously reviews, supervises and administers each Fund's investment program
with respect to that portion, if any, of the respective Fund's portfolio that
Norwest has so delegated. Schroder is required to furnish at its own expense
all services, facilities and personnel
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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 Subadvisory Agreements among those Funds, Norwest and the Subadviser will
continue in effect only if such continuance is specifically approved at least
annually by the Board or by vote of the shareholders of the Fund, and in either
case by a majority of the Trustees who are not parties to the Subadvisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Subadvisory Agreement.
The Subadvisory Agreement with respect to a Fund is terminable without penalty
by the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
Board, or by the Subadviser on not more than 60 days nor less than 30 days
written notice, and will automatically terminate in the event of its assignment.
The Subadvisory Agreements also provide that, with respect to each Fund, neither
the Subadviser nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the performance of its or their
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Subadvisory Agreement. The Subadvisory Agreements provide that the Subadviser
may render services to others.
The Subadvisory fees are accrued daily and paid monthly. Each Subadviser, in
its sole discretion, may waive all or any portion of its subadvisory fee with
respect to each Fund.
The following table shows the dollar amount of fees payable under the
Subadvisory Agreements with respect to each Fund, the amount of fee that was
waived by the Subadviser, if any, and the actual fee received by Norwest. The
data is for the past fiscal year.
[Fee Table]
ADMINISTRATION
Forum supervises the overall management of the Trust (which includes, among
other responsibilities, negotiation of contracts and fees with, and monitoring
of performance and billing of, the Trust's transfer agent and custodian and
arranging for maintenance of books and records of the Trust) and provides the
Trust with general office facilities pursuant to a Management Agreement.
The Management Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by the shareholders
and, in either case, by a majority of the Trustees who are not parties to the
Management Agreement or interested persons of any such party.
The Management Agreement terminates automatically if it is assigned and may be
terminated without penalty 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, with respect to
each Fund, neither Forum nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
or their duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's or their duties or by reason of
reckless disregard of its or their obligations and duties under the Management
Agreement.
The following table shows the dollar amount of fees payable under the Management
Agreement between Forum and the Trust with respect to each Fund, the amount of
fee that was waived by Forum, if any, and the actual fee received by Forum. The
data is for the past fiscal year.
[Fee Table]
DISTRIBUTION
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Forum also acts as distributor of the shares of the Fund. Forum acts as
distributor of the Funds pursuant to a Distribution Services Agreement with the
Trust. Forum distributes shares of each Fund on a "best efforts" basis under
which it is required to take and pay for only such shares as may be sold.
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 agreement related to the distribution
plan cast in person at a meeting called for the purpose of voting on such
approval.
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 (i) 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
Trustees who do not have any direct or indirect financial interest in any such
plan or in any agreements related to the plan, on 60 days' written notice to
Forum or (ii) by Forum on 60 days' written notice to the Trust.
Under the Distribution Services Agreement, 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, 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, which may not exceed an annual rate of
0.75%, and a maintenance fee in an amount equal to 0.25%, of the average daily
net assets of the Fund attributable to the B Shares.
The Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plan requires the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the 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 trustees who are not interested persons of the Trust and who have
no direct or indirect interest in the operation of the Plan, the Distribution
Services Agreement or any agreement related to the Plan. The Plan further
provides that it may not be amended to increase materially the costs which may
be borne by the Trust for distribution pursuant to the Plan without shareholder
approval and that other material amendments to the Plan must be approved by the
trustees in the manner described in 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.
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As of the date hereof, the Trust had not yet commenced operations with respect
to A Shares and B Shares of the Funds. Thus, Forum had not yet received any fee
for its distribution services with respect to each Fund's B Shares nor any sales
charges with respect to sales of each Fund's A Shares.
TRANSFER AGENT
Norwest acts as Transfer Agent of the Trust pursuant to a Transfer Agency
Agreement. The Transfer Agency Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Transfer Agency Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of the Transfer Agent as agent for the Trust are:
(1) answering customer inquiries regarding account status and history, the
manner in which purchases and redemptions of shares of the Fund may be effected
and certain other matters pertaining to the Fund; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, (4) assisting in processing purchase and redemption
transactions and receiving wired funds; (5) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (6) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (7) furnishing periodic statements and confirmations of
purchases and redemptions; (8) transmitting proxy statements, annual reports,
prospectuses and other communications from the Trust to its shareholders; (9)
receiving, tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the Trust; and (10)
providing such other related services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives from the Trust, with respect to
each Fund a fee computed and paid monthly at the annual rate of 0.25% of the
Fund's average daily net assets (or, in those Funds with more than one class,
the Fund's average daily net assets attributable to the class).
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest acts as the custodian of the Trust's
assets. The custodian's responsibilities include safeguarding and controlling
the Trust's cash and securities, determining income and collecting interest on
Fund investments. For these services, the custodian receives no fee. The
custodian receives a separate fee for performing certain functions in connection
with loans of portfolio securities.
Pursuant to rules adopted under the 1940 Act, each 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 of Trustees following a 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 further 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.
A Fund will not pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Where the Fund's investments consists
solely of such shares, the Fund will pay no custodian fees directly
The Chase Manhattan Bank, N.A. serves as custodian to International Portfolio II
of Core Trust and is compensated by Core Trust with respect to that Portfolio.
Norwest serves as custodian of Small Company Portfolio and Index Portfolio of
Core Trust and receives no compensation for its services to those Portfolios.
PORTFOLIO ACCOUNTING
Forum Financial Corp., 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
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continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Fund Accounting Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Fund Accounting Agreement.
Under its agreement, FFC prepares maintains books and records of 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, FFC receives from the Trust with
respect to each Fund a fee of $36,000 per year plus, for each class of the Fund
above one, $6,000 per year. In addition, FFC is paid an additional $12,000 per
year with respect to tax-free money market Funds, global and international Funds
and Funds with more than 25% of their total assets invested in asset backed
securities, that have more than 100 security positions or that have a monthly
portfolio turnover rate of 10% or greater.
FFC is required to use its best judgment and efforts in rendering fund
accounting services and is not be liable to the Trust for any action or inaction
in the absence of bad faith, willful misconduct or gross negligence. FFC is not
responsible or liable for any failure or delay in performance of its fund
accounting obligations arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control and the Trust has agreed to
indemnify and hold harmless FFC, its employees, agents, officers and directors
against and from any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way related to FFC's actions
taken or failures to act with respect to a Fund or based, if applicable, upon
information, instructions or requests with respect to a Fund given or made to
FFC by an officer of the Trust duly authorized. This indemnification does not
apply to FFC's actions taken or failures to act in cases of FFC's own bad faith,
willful misconduct or gross negligence.
The following table shows the dollar amount of fees payable to FFC for its
portfolio accounting services with respect to each Fund, the amount of fee that
was waived by FFC, if any, and the actual fee received by FFC. The data is for
the past fiscal year.
[Fee Table]
FFC performs similar services for each Portfolio and, in addition, acts as each
Portfolio's transfer agent.
EXPENSES
The Trust may elect not to qualify its shares for sale in every state. The
Adviser has agreed to reimburse the Trust for certain of the operating expenses
of the Funds (exclusive of interest, taxes, brokerage, fees 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. Forum believes that currently the most
restrictive expense ratio limitation imposed by any state is 2-1/2% of the first
$30 million of each Fund's average net assets, 2% of the next $70 million of its
average net assets and 1-1/2% of its average net assets in excess of $100
million. For the purpose of this obligation to reimburse expenses, a Fund's
annual expenses are estimated and accrued daily, and any appropriate estimated
payments will be made by the Adviser or the manager and distributor monthly.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under the Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(i) interest charges, taxes, brokerage fees and commissions; (ii) certain
insurance premiums; (iii) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (iv) telecommunications
expenses; (v) auditing, legal and compliance expenses; (vi) costs of the Trust's
formation and maintaining its existence; (vii) 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; (viii) 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; (ix) costs of
reproduction, stationery and supplies; (x) compensation of the Trust's trustees,
officers and employees and costs of other personnel performing services for the
Trust who are not officers of the Adviser, Forum Financial Services, Inc. or
affiliated persons of the Adviser or Forum Financial Services, Inc.; (xi) costs
of corporate meetings; (xii) 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; (xiii) state securities law
registration fees
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and related expenses; (xiv) fees and out-of-pocket expenses payable to Forum
Financial Services, Inc. under any distribution, management or similar
agreement; (xv) 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.
6. OTHER INFORMATION
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of all Funds are sold on a continuous basis by the distributor.
Set forth below is an example of the method of computing the offering price of
the Funds' A Shares. All other shares of the Trust are offered at their next
determined net asset value. The example assumes a purchase of A Shares of a
hypothetical fund ("Fund Q") in an amount such that the purchase would be
subject to the fund's maximum sales charge (in this case, 4.5%) at a price based
on a hypothetical net asset value per share of A Shares of the fund. Offering
price is determined as follows: Net asset value per share times the sum of one
(1) plus the sales charge expressed as a percentage (for example 4.5% would
equal 0.045).
Net Asset Offering
Value Per Share Price
--------------- -----
Fund Q 11.49 12.00
STATEMENT OF INTENTION
As more fully described in the Prospectus, investors may obtain reduced sales
charges with respect to the purchase of A Shares of the Funds by means of a
written Statement of Intention, which expresses the investor's intention to
invest not less than $100,000 within a period of 13 months in A Shares of a
Fund. The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. A Shares purchased with the first 5% of
such amount will be held subject to a registered pledge (while remaining
registered in the name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full amount indicated
is not purchased, and such pledged shares will be involuntarily redeemed to pay
the additional sales charge, if necessary. When the full amount indicated has
been purchased, the shares will be released from pledge.
EXCHANGES
By making an exchange, the investor authorizes the Trust's transfer agent to act
on telephonic instructions from any person representing himself or herself to be
the investor and believed by the Trust's transfer agent to be genuine. The
records of the Trust's transfer agent of such instructions are binding. The
exchange procedures may be modified or terminated at any time upon appropriate
notice to shareholders. For Federal income tax purposes, exchanges are treated
as sales on which a purchaser will realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than his basis in such
shares at the time of such transaction.
Shareholders of A Shares may purchase, with the proceeds from a redemption of
all or part of their shares, A Shares of the other funds of the Trust that offer
A Shares or Investor class shares ("Investor Shares") of Ready Cash Investment
Fund or Municipal Money Market Fund, two money market portfolios of the Trust.
Shareholders of B Shares may purchase, with the proceeds from a redemption of
all or part of their shares, B Shares of the other funds of the Trust that offer
B Shares or Exchange class shares ("Exchange Shares") of Ready Cash Investment
Fund.
Shareholders of Investor Shares of Ready Cash Investment Fund and Municipal
Money Market Fund may purchase, with the proceeds from a redemption of all or
part of their shares, Investor Shares of the other Fund or A Shares of the funds
of the Trust that offer A Shares. Shareholders of Exchange Shares of Ready Cash
Investment Fund may purchase, with the proceeds from a redemption of all or part
of their shares, B Shares of the funds of the Trust that offer B Shares.
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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.
B Shares may be exchanged without the payment of any contingent deferred sales
charge; however, B Shares or Exchange Shares acquired as a result of such
exchange and subsequently redeemed will nonetheless be subject to the contingent
deferred sales charge applicable to the original B Shares as if those shares
were being redeemed at that time. Exchange Shares may be exchanged without the
payment of any contingent deferred sales charge; however, B Shares acquired as a
result of such exchange and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Exchange Shares as if
those shares were being redeemed at that time.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse 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)
Certain A Shares of the Funds on which no initial sales charge was assessed,
that are redeemed within specified periods after the purchase date will be
subject to a contingent deferred sales charge upon redemption.
RIGHT OF ACCUMULATION. Contingent deferred sales charges may be charged on
redemptions of A Shares purchased pursuant to the Cumulative Quantity Discount
(Right of Accumulation). The contingent deferred sales charge will apply to A
Shares purchased if the value of those shares on the date of purchase plus the
net asset value of any Investor Shares held by the shareholder (as of the close
of business on the previous Fund Business Day) of all A Shares held by the
shareholder exceed $1,000,000. For example, if a shareholder has made prior
purchases of A Shares which now have a value of $900,000, the purchase of
$150,000 of A Shares will not be subject to an initial sales charge but will be
subject to the contingent deferred sales charge. The $900,000 of A Shares is
not subject to the contingent deferred sales charge.
STATEMENT OF INTENTION. Contingent deferred sales charges may be charged on
redemptions of A Shares purchased pursuant to a Statement of Intention ("SOI").
The contingent deferred sales charge will not apply to SOIs of under $1,000,000
and will not be applied to SOIs for a greater amount if the shareholder never
purchases $1,000,000 or more of A Shares under the SOI. If a shareholder
purchases $1,000,000 or more under an SOI, the contingent deferred sales charge
will apply with respect to the entire amount purchased. The holding period for
each A Share, however, shall be determined from the date the share was
purchased. If the shareholder redeems A Shares during the period that the SOI
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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.
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 (i) redemptions of shares acquired through the reinvestment
of dividends and distributions, (ii) involuntary redemptions by a Fund of
shareholder accounts with low account balances, (iii) redemptions of shares
following the death or disability of a shareholder if the Fund is notified
within one year of the shareholder's death or disability, (iv) redemptions to
effect a distribution (other than a lump sum distribution) from an IRA, Keogh
plan or Section 403(b) custodial account or from a qualified retirement plan.
For these purposes, the term disability shall have the meaning ascribed thereto
in Section 72(m)(7) of the Code. Under that provision, a person is considered
disabled if the person is unable to engage in any substantial activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration.
Appropriate documentation satisfactory to the Fund is required to substantiate
any shareholder death or disability.
CONVERSION OF B SHARES
The conversion of Exchange Shares to Investor Shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the distribution services fee with respect to the Exchange Shares
does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) the conversion of Exchange
Shares to Investor Shares does not constitute a taxable event under Federal
income tax law. The conversion of Exchange Shares to Investor Shares may be
suspended if such an opinion is no longer available at the time the conversion
is to occur. In that event, no further conversions of Exchange Shares would
occur, and shares might continue to be subject to a distribution services fee
for an indefinite period, which may extend beyond the specified number of years
for conversion of the original B Shares.
DETERMINATION OF NET ASSET VALUE
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. The Funds value their securities as follows. A
security listed or traded on an exchange is valued at its last sale price (prior
to the time as of which assets are valued) on the exchange where it is
principally traded. Lacking any such sales on the day of valuation, the
security is valued at the mean of the last bid and asked prices. All other
securities for which over-the-counter market quotations are readily available
generally are valued at the mean of the current bid and asked prices. When
market quotations are not readily available, securities are valued at fair value
as determined in good faith by the Board. Debt securities may be valued on the
basis of valuations furnished by pricing services which utilize electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value of
such securities. All assets and liabilities of a Fund denominated in foreign
currencies are converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar last quoted by
a major bank.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original net asset value and the recalculated net
asset value divided by the recalculated net asset value is 0.005 (1/2 of 1%) or
less or shareholder transactions are otherwise insubstantially affected, further
action is not required.
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PORTFOLIO TRANSACTIONS
Investment decisions for the Funds will be made independently from those for any
other client account or investment company that is or may in the future become
managed by the Adviser or its affiliates. Investment decisions are the product
of many factors including basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the respective Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients. In addition, when purchases or sales of the
same security for the Fund and other client accounts managed by the 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.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
There usually are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and ask prices. In the case of
securities traded in the foreign and domestic over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed
commission or markup. In underwritten offerings, the price includes a disclosed
fixed commission or discount.
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions. Allocations of transactions to brokers
and dealers and the frequency of transactions are determined by the Advisers in
their best judgment and in a manner deemed to be in the best interest of
shareholders of the Funds rather than by any formula. The primary consideration
is prompt execution of orders in an effective manner and at the most favorable
price available to the Fund. In transactions on stock exchanges in the United
States, these commissions are negotiated, whereas on foreign stock exchanges
these commissions are generally fixed. Where transactions are executed in the
over-the-counter market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, it will utilize
the services of others. In all cases the Fund will attempt to negotiate best
execution. No Fixed Income Fund paid any brokerage commissions during the
fiscal year ended October 31, 1995.
The following table shows the aggregate brokerage commissions with respect to
each Equity Fund with respect to each Fund's investment in equity securities.
The data is for the past fiscal year.
[Commission Table]
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with securities transactions, the Advisers take into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Advisers may also take into account
payments made by brokers effecting transactions for a Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Fund to pay these
brokers a higher amount of commission than may be charged by other brokers.
Such research and analysis may be used by the Advisers in connection with
services to clients other than the Funds, and the Advisers' fees are not reduced
by reason of the Advisers' receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine,
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an Adviser may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute portfolio transactions for the Funds.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Advisers to employ their
respective affiliates to effect securities transactions of the Funds, provided
certain other conditions are satisfied. Payment of brokerage commissions to an
affiliate of an Adviser for effecting such transactions is subject to Section
17(e) of the 1940 Act, which requires, among other things, that commissions for
transactions on securities exchanges paid by a registered investment company to
a broker which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. It is the Funds' policy
that commissions paid to Schroder Securities Limited, Norwest Investment
Management, Inc. and other affiliates of an Adviser will, in the judgment of the
Adviser responsible for making portfolio decisions and selecting brokers, be (i)
at least as favorable as commissions contemporaneously charged by the affiliate
on comparable transactions for its most favored unaffiliated customers and (ii)
at least as favorable as those which would be charged on comparable transactions
by other qualified brokers having comparable execution capability. The Board,
including a majority of the non-interested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of an Adviser by the Funds satisfy
the foregoing standards.
The Fund has no understanding or arrangement to direct any specific portion of
its brokerage to Schroder Securities, and will not direct brokerage to Schroder
Securities in recognition of research services.
TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements 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.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered a 60 percent long-term and 40
percent short-term capital gain or loss. Each Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as described below)
from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund upon the lapse or sale of such options held by such Fund will be either
long-term or short-term capital gain or loss depending upon the Fund's holding
period with respect to such option. However, gain or loss realized upon the
lapse or closing out of such options that are written by a Fund will be treated
as short-term capital gain or loss. In general, if a Fund exercises an option,
or an option that a Fund has written is exercised, gain or loss on the option
will not be separately recognized but the premium received or paid will be
included in the calculation of gain or loss upon disposition of the property
underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund may constitute a
"straddle" for Federal income tax purposes. A straddle of which at least one,
but not all, the positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that (i) loss realized on
disposition of one position of a straddle not be recognized to the extent that a
Fund has unrealized gains with respect to the other position in such straddle;
(ii) a Fund's holding period in straddle positions be suspended while the
straddle exists (possibly resulting in any gain being treated as short-term
capital gain rather than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-section 1256 positions be treated as 60 percent long-term and 40
percent short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Fund which may
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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 if all of the offsetting positions consist of section
1256 contracts.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, New York 10004.
__________, independent auditors, acts as auditors for the Trust.
OWNERSHIP OF FUND SHARES
Prior to the public issuance of shares of the Funds, due to its initial
investment, Forum owned all outstanding shares of each Fund and, accordingly,
may be deemed to be a controlling person of each Fund. Upon the investment in
each Fund by public shareholders, Forum ceased to be a controlling person of any
Fund. As of February ___, 1995, the Trustees and officers of the Trust in the
aggregate owned less than one percent of the outstanding shares of each Fund.
The following persons owned of record 5% or more of the outstanding shares of a
Fund, or any class thereof, as of February ___, 1995:
[5% Shareholder Table]
ADDITIONAL INFORMATION ABOUT THE TRUST
Currently, the Trust is divided into thirty-one separate series representing
shares of each of the five Funds and shares of Cash Investment Fund, Ready Cash
Investment Fund, U.S. Government Fund, Treasury Fund, Municipal Money Market
Fund, Adjustable U.S. Government Reserve Fund, Government Income Fund, Income
Fund, Total Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free Fund,
Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Stock Fund, ValuGrowth
Stock Fund, Small Company Stock Fund, Contrarian Stock Fund, Large Company
Growth Fund, Small Company Growth Fund, International Fund, Index Fund,
Conservative Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund,
Managed Fixed Income Fund and Short Maturity Investment Fund. The Trust has
received an order from the SEC permitting the issuance and sale of separate
classes of shares representing interests in each of the Trust's portfolios. It
is anticipated, however, that the Trust will operate the classes of each Fund in
accordance with rules of the SEC adopted after the Trust obtained its exemptive
order.
The Board determined that currently no conflict of interest exists between or
among each Fund's A Shares, B Shares, and other classes, if any. On an ongoing
basis, the Board, pursuant to its fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (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,
including Texas. As a result, to the extent that the Trust or a shareholder is
subject to the jurisdiction of courts in those states, the courts may not apply
Delaware law, and may thereby subject the Trust shareholders to liability. To
guard against this risk, the Trust Instrument of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation and instrument entered into by
the Trust or its Trustees, and provides for indemnification out of Trust
property of any shareholder held personally liable for the obligations of the
Trust. Thus, the risk of a shareholder incurring financial loss beyond his
investment because of shareholder liability is limited to circumstances in which
(1) a court refuses to apply Delaware law, (2) no contractual limitation of
liability is in effect, and (3) the Trust itself is unable to meet its
obligations. In light of Delaware law, the nature of the Trust's business, and
the nature of its assets, the Board believes that the risk of personal liability
to a Trust shareholder is extremely remote.
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FINANCIAL STATEMENTS
The financial statements of each Fund for the year ended October 31, 1995 (which
include statements of assets and liabilities, statements of operations,
statements of changes in net assets, notes to financial statements, financial
highlights, statements of investments and the 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.
[To be included in subsequent amendment to Trust's registration statement, filed
pursuant to Rule 485(b), to become effective on same day as this amendment]
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Funds' registration statement filed with the SEC under the Securities Act of
1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract of other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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.
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.
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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. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
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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.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
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.
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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 CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
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.
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COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 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 CORPORATION
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 INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
Included in the Prospectus:
For all Funds (A Shares, B Shares and I Shares) for which a Prospectus is
contained in this amendment to the Registration Statement:
None.
Included in the Statement of Additional Information:
For all Funds (A Shares, B Shares and I Shares) for which a Prospectus is
contained in this amendment to the Registration Statement:
None
(b) EXHIBITS.
NOTE: * INDICATES THAT THE EXHIBIT IS INCORPORATED HEREIN BY REFERENCE. ALL
REFERENCES TO A POST-EFFECTIVE AMENDMENT ("PEA") OR PRE-EFFECTIVE AMENDMENT
("PreEA") ARE TO PEAS AND PreEAS TO REGISTRANT'S REGISTRATION STATEMENT ON FORM
N-1A, FILE NO. 33-9645.
(1)* Copy of the Declaration of Trust of Registrant as now in effect (filed on
July 30, 1993 as Exhibit 1 of PEA 20).
(2)* Copy of By-laws of Registrant as now in effect (filed on July 30, 1993 as
Exhibit 2 of PEA 20).
(3) Not Applicable.
(4) (a)* Form of Certificate for shares of Cash Investment Fund Common
Stock of Registrant (filed on January 31, 1992 as Exhibit 4(a) of
PEA 15).
(b)* Form of Certificate for shares of Treasury Fund Common Stock of
Registrant (filed on January 31, 1992 as Exhibit 4(b) of PEA 15).
(c)* Form of Certificate for shares of Municipal Money Market Fund
Common Stock of Registrant (filed on January 31, 1992 as Exhibit
4(c) of PEA 15).
(d)* Form of Certificate for shares of U.S. Government Fund Common
Stock of Registrant (filed on January 31, 1992 as Exhibit 4(d) of
PEA 15).
(e)* Form of Certificate for shares of Government Income Fund Common
Stock of Registrant (filed on January 31, 1992 as Exhibit 4(e) of
PEA 15).
(f)* Form of Certificate for shares of Ready Cash Investment Fund
Common Stock of Registrant (filed on January 31, 1992 as Exhibit
4(f) of PEA 15).
(g)* Form of Certificate for shares of Minnesota Municipal Bond Fund
Common Stock of Registrant (filed on January 31, 1992 as Exhibit
4(g) of PEA 15).
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(h)* Form of Certificate for shares of Growth Stock Fund Common Stock
of Registrant (filed on January 31, 1992 as Exhibit 4(h) of PEA
15).
(i)* Form of Certificate for shares of Prime Altura Income Bond Fund
Common Stock of Registrant (filed on January 31, 1992 as Exhibit
4(i) of PEA 15).
(j)* Form of Certificate for shares of Prime Altura Tax-Free Income
Bond Fund Common Stock of Registrant (filed on January 31, 1992 as
Exhibit 4(j) of PEA 15).
(k)* Form of Certificate for shares of Prime Altura Adjustable U.S.
Government Reserve Fund Common Stock of Registrant and form of
Certificate for shares of Prime Altura Tax-Free Income Bond Fund
Common Stock of Registrant (filed on December 1, 1992 as Exhibit
4(k) of PEA 17).
(l)* Form of Certificate for shares of Prime Altura Colorado Tax-Free
Fund Common Stock of Registrant and form of Certificate for shares
of Prime Altura Tax-Free Income Bond Fund Common Stock of
Registrant (filed on December 1, 1992 as Exhibit 4(l) of PEA 17).
(m)* Form of Certificate for shares of Prime Altura IncomGrowth Stock
Fund Common Stock of Registrant (filed on December 1, 1992 as
Exhibit 4(m) of PEA 17).
(n)* Form of Certificate for the Arizona Tax-Free Fund shares of
beneficial interest (filed on July 30, 1993, as Exhibit 4(n) of
PEA 20).
(o)* Form of Certificate for shares of beneficial interest of each
class of each portfolio of Registrant. Except for the names of
the classes of shares and cusip numbers. the certificate of each
class of each portfolio of Registrant is substantially identical
to the form of certificate, and therefore, is omitted pursuant to
Rule 483(d)(2) under the 1933 Act (filed on February 18, 1994, as
Exhibit 4(o) of PEA 23).
(5) (a)* Form of Investment Advisory Agreement between Registrant and
Norwest Bank Minnesota, N.A, relating to shares of the Government
Income Fund (filed on August 12, 1988 as Exhibit 5(a) of PEA 6).
(b)* Form of Investment Advisory Agreement between Registrant and
Norwest Bank Minnesota, N.A. (filed on October 16, 1987 as Exhibit
5 of PEA 3).
(c)* Form of Investment Advisory Agreement between Registrant and
Norwest Bank Minnesota, N.A. relating to the Prime Altura Income
Bond Fund (filed on January 21, 1992 as Exhibit 5(c) of PEA 13).
(d)* Form of Investment Advisory Agreement between Registrant and
Norwest Bank Minnesota, N.A. relating to the Prime Altura Tax-Free
Income Bond Fund (filed on January 21, 1992 as Exhibit 5(d) of PEA
13).
(e)* Form of Investment Advisory Agreement to be between Registrant and
Norwest Bank Minnesota, N.A. relating to the Prime Altura
Adjustable U.S. Government Reserve Fund (filed on January 23, 1992
as Exhibit 5(e) of PEA 14).
(f)* Form of Investment Advisory Agreement to be between Registrant and
Norwest Bank Minnesota, N.A. relating to the Prime Altura Colorado
Tax-Free Fund (filed on December 2, 1992 as Exhibit 5(f) of PEA
17).
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(g)* Form of Investment Advisory Agreement to be between Registrant and
Norwest Bank Minnesota, N.A. relating to the Prime Altura
IncomGrowth Stock Fund (filed on December 2, 1992 as Exhibit 5(g)
of PEA 17).
(h)* Form of Investment Advisory Agreement to be between Registrant and
Norwest Bank Minnesota, N.A. relating to the Arizona Tax-Free Fund
(filed on June 2, 1993 as Exhibit 5(h) of PEA 19).
(i)* Advisory Agreement between Registrant and Norwest Bank Minnesota,
N.A. relating to Total Return Bond Fund, Arizona Tax-Free Fund,
Contrarian Stock Fund and Small Company Stock Fund (filed on April
22, 1994 as Exhibit 5(i) to PEA 24).
(j)* Form of Investment Advisory Agreement to be between Registrant and
Norwest Bank Minnesota, N.A. relating to the Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Small Company
Growth Fund, International Fund, Income Equity Fund, Index Fund,
Conservative Balanced Fund, Moderate Balanced Fund, Growth
Balanced Fund, Intermediate U.S. Government Fund, Managed Fixed
Income Fund, Stable Income Fund and Short Maturity Investment Fund
(filed December 30, 1993 as Exhibit 5(j) of PEA 22).
(k)* Sub-Investment Advisory Contract between Registrant and Crestone
Capital Management, Inc. relating to the Small Company Stock Fund
(filed on April 22, 1994 as Exhibit 5(k) to PEA 24).
(l)* Form of Investment Sub-Advisory Agreement to be between Registrant
and Schroder Capital Management International, Inc. relating to
the Diversified Equity Fund, Growth Equity Fund, International
Fund, Conservative Balanced Fund, Moderate Balanced Fund and
Growth Balanced Fund (filed December 30, 1993 as Exhibit 5(l) of
PEA 22).
(m)* Advisory Agreement between Registrant and Norwest Bank Minnesota,
N.A., relating to Cash Investment Fund, Treasury Fund, U.S.
Government Fund, Ready Cash Investment Fund, Municipal Money
Market Fund, Minnesota Tax-Free Fund, Colorado Tax-Free Fund,
Government Income Fund, Income Fund, Tax-Free Income Fund,
Adjustable U.S. Government Reserve Fund, ValuGrowth Stock Fund,
and Income Stock Fund (filed on April 22, 1994 as Exhibit 5(m) to
PEA 24).
(6) (a)* Management and Distribution Agreement between Registrant and Forum
Financial Services, Inc. relating to Cash Investment Fund, U.S.
Government Fund, Treasury Fund, Municipal Money Market Fund, Ready
Cash Investment Fund (filed on April 22, 1994 as Exhibit 6(a) to
PEA 24).
(b)* Distribution Services Agreement between Registrant and Forum
Financial Services, Inc. relating to Government Income Fund,
Income Fund, Tax-Free Income Fund, Minnesota Tax-Free Fund,
ValuGrowth Stock Fund, Adjustable U.S. Government Reserve Fund,
Colorado Tax-Free Fund, Income Stock Fund, Total Return Bond Fund,
Arizona Tax-Free Fund, Contrarian Stock Fund and Small Company
Stock Fund (filed on April 22, 1994 as Exhibit 6(b) to PEA 24).
(c)* Distribution Services Agreement between Registrant and Forum
Financial Services, Inc. relating to Exchange Shares of Ready Cash
Investment Fund (filed on April 22, 1994 as Exhibit 6(c) to PEA
24).
(d)* Distribution Services Agreement between Registrant and Forum
Financial Services, Inc. relating to Diversified Equity Fund,
Growth Equity Fund, Large Company Growth Fund, Small Company
Growth Fund, International Fund, Income Equity Fund, Index Fund,
Conservative Balanced Fund, Moderate Balanced Fund, Growth
Balanced Fund, Intermediate U.S. Government Fund, Managed Fixed
Income Fund and Stable Income Fund (filed on March 1, 1995 as
Exhibit 6(d) to PEA 29).
(e)* Form of Distribution Agreement between Registrant and Forum
Financial Services, Inc. relating to each portfolio of Registrant
(filed October 2, 1995 as Exhibit 6(e) of PEA 32).
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<PAGE>
(7) Not Applicable.
(8) (a)* Custodian Agreement between Registrant and Norwest Bank Minnesota,
N.A. dated as of August 1, 1993 (filed December 30, 1993 as
Exhibit 8(a) of PEA 22).
(b)* Form of Transfer Agency Agreement to be between Registrant and
Norwest Bank Minnesota, N.A. (filed on December 30, 1993 as
Exhibit 8(b) to PEA 22).
(9) (a)* Management Agreement between Registrant and Forum Financial
Services, Inc. relating to ValuGrowth Stock Fund, Income Stock
Fund, Contrarian Stock Fund, Small Company Stock Fund, Government
Income Fund, Income Fund, Adjustable U.S. Government Reserve Fund,
Total Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free
Fund, Colorado Tax-Free Fund and Minnesota Tax-Free Fund (filed on
April 22, 1994 as Exhibit 9(a) to PEA 24).
(b)* Management Agreement between Registrant and Forum Financial
Services, Inc. relating to Diversified Equity Fund, Growth Equity
Fund, Large Company Growth Fund, Small Company Growth Fund,
International Fund, Income Equity Fund, Index Fund, Conservative
Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund,
Intermediate U.S. Government Fund, Managed Fixed Income Fund and
Stable Income Fund (filed on March 1, 1995 as Exhibit 9(b) to PEA
29).
(c)* Fund Accounting Agreement between Registrant and Forum Financial
Corp. (filed on April 22, 1994 as Exhibit 9(c) to PEA 24).
(d)* Transfer Agency Agreement between Registrant and Norwest Bank
Minnesota, N.A. (filed on April 22, 1994 as Exhibit 9(d) to PEA
24).
(e)* Administrative Services Agreement between Registrant and Norwest
Bank Minnesota, N.A. relating to International Fund (filed on
March 1, 1995 as Exhibit 9(e) to PEA 29).
(f)* Form of Management Agreement between Registrant and Forum
Financial Services, Inc. relating to each portfolio of Registrant
(filed October 2, 1995 as Exhibit 9(f) of PEA 32).
(g)* Form of Fund Accounting Agreement between Registrant and Forum
Financial Services, Inc. relating to each portfolio of Registrant
(filed October 2, 1995 as Exhibit 9(g) of PEA 32).
(10) (a)* Opinion of Seward & Kissel (filed on December 31, 1986 as Exhibit
10(a) of PreEA 2).
(b)* Opinion of Venable, Baetjer and Howard (filed on December 31, 1986
as Exhibit 10(b) of PreEA 2).
(c)* Opinion of Seward & Kissel (filed on August 3, 1994 as Exhibit
10(c) of PEA 25).
(11) Not Applicable.
(12) Not Applicable.
(13)* Investment representation letter of John Y. Keffer as initial purchaser
of shares of stock of Registrant (filed on December 31, 1986 as Exhibit
13 of PreEA 2).
(14)* Individual Retirement Account materials (filed on April 22, 1994 as
Exhibit 14 to PEA 24).
(15)* Form of Rule 12b-1 Plan adopted by Registrant with respect to the Income
Fund, Tax-Free Income Fund, Minnesota Tax-Free Fund, ValuGrowth Stock
Fund, Adjustable U.S. Government Reserve Fund, Colorado Tax-Free Fund,
Income Stock Fund, Arizona Tax-Free Fund, Contrarian Stock Fund, Small
Company Stock
226
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Fund and Exchange Shares of Ready Cash Investment Fund (filed on December
30, 1993 as Exhibit 15 of PEA 23).
(16)* Schedule for Computation of each Performance Quotation provided in the
Registration Statement in response to Item 22 for the Colorado Tax-Free
Fund and Income Stock Fund (filed on February 18, 1994 as Exhibit 16 to
PEA 23).
(17) Not Applicable.
(18)* Copy of Multiclass (Rule 18f-3) Plan adopted by Registrant (filed on May
22, 1995 as Exhibit 18 to PEA 31).
Other Exhibits
*Power of Attorney (filed on July 31, 1987 as an exhibit to PEA 2).
*Powers of Attorney of Robert C. Brown and Donald H. Burkhardt, Trustees
of Registrant (filed on January 31, 1992 as an exhibit to PEA 15).
*Powers of Attorney of John Y. Keffer, Robert C. Brown, Donald H.
Burkhardt, James C. Harris and Richard M. Leach, Trustees of Registrant
(filed on April 22, 1994 as an exhibit to PEA 24).
*Power of Attorney of James C. Cheng and J. Michael Parish (filed on
November 10, 1994 as an exhibit to PEA 27).
*Power of Attorney of Costas Azariadis (filed on February 2, 1995 as an
exhibit to PEA 28).
*Power of Attorney of Donald C. Willeke, Trustee of Registrant (filed
herewith).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF FEBRUARY __, 1996.
Number of
Title of Class of Unit of Beneficial Interest Record Holders
- --------------------------------------------- --------------
Cash Investment Fund
U.S. Government Fund
Treasury Fund
Municipal Money Market Fund
Investor Shares
Institutional Shares
Ready Cash Investment Fund
Investor Shares
Institutional Shares
Exchange Class
Adjustable U.S. Government Reserve Fund
A Shares
B Shares
I Shares
Government Income Fund
A Shares
B Shares
I Shares
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<PAGE>
Income Fund
A Shares
B Shares
I Shares
Total Return Bond Fund
A Shares
B Shares
I Shares
Arizona Tax-Free 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
Tax-Free Income Fund
A Shares
B Shares
I Shares
Income Stock Fund
A Shares
B Shares
I Shares
ValuGrowth Stock Fund
A Shares
B Shares
I Shares
Contrarian Stock Fund
A Shares
B Shares
I Shares
Small Company Stock Fund
A Shares
B Shares
I Shares
Diversified Equity Fund
A Shares
B Shares
I Shares
Growth Equity Fund
I Shares
Large Company Growth Fund
I Shares
Small Company Growth Fund
I Shares
International Fund
A Shares
B Shares
I Shares
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<PAGE>
Income Equity Fund
A Shares
B Shares
I Shares
Index Fund
I Shares
Conservative Balanced Fund
I Shares
Moderate Balanced Fund
I Shares
Growth Balanced Fund
A Shares
B Shares
I Shares
Intermediate U.S. Government Fund
A Shares
B Shares
I Shares
Managed Fixed Income Fund
I Shares
Stable Income Fund
A Shares
B Shares
I Shares
ITEM 27. INDEMNIFICATION.
The general effect of Section 10.02 of Registrant's Trust Instrument is to
indemnify existing or former trustees and officers of the Trust to the fullest
extent permitted by law against liability and expenses. There is no
indemnification if, among other things, any such person is adjudicated liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. This description is modified in its entirety by the provisions of
Section 10.02 of Registrant's Trust Instrument contained in this Registration
Statement as Exhibit 1 and incorporated herein by reference.
Registrant's Investment Advisory Agreements, Investment Subadvisory Agreements,
Management and Distribution Agreements and Distribution Services Agreements
provide that Registrant's investment advisers and principal underwriter are
protected against liability to the extent permitted by Section 17(i) of the
Investment Company Act of 1940. Similar provisions are contained in the
Management Agreement and Transfer Agency and Fund Accounting Agreement.
Registrant's principal underwriter is also provided with indemnification against
various liabilities and expenses under the Management and Distribution
Agreements and Distribution Services Agreements between Registrant and the
principal underwriter; provided, however, that in no event shall the
indemnification provision be construed as to protect the principal underwriter
against any liability to Registrant or its security holders to which the
principal underwriter would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under those
agreements. Registrant's transfer agent and fund accountant and certain related
individuals are also provided with indemnification against various liabilities
and expenses under the Transfer Agency and Fund Accounting Agreements between
Registrant and the transfer agent and fund accountant; provided, however, that
in no event shall the transfer agent, fund accountant or such persons be
indemnified against any liability or expense that is the direct result of
willful misfeasance, bad faith or gross negligence by the transfer agent or such
persons.
The preceding paragraph is modified in its entirety by the provisions of the
Investment Advisory Agreements, Investment SubAdvisory Agreements, Management
and Distribution Agreements, Distribution Services Agreements, Management
Agreements, Transfer Agency Agreement and Fund Accounting Agreement of
Registrant filed as Exhibits 5, 6, and 9 to Registrant's Registration Statement
and incorporated herein by reference.
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Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
NORWEST BANK MINNESOTA, N.A.
The description of Norwest Bank Minnesota, N.A., under the caption
"Management-Adviser" or "Management of the Funds -Norwest Investment Management"
in each Prospectus and under the caption "Management-Adviser" or "Management-
Investment Advisory Services-Norwest Investment Management" in each Statement of
Additional Information constituting Parts A and B, respectively, of this
Registration Statement are incorporated by reference herein.
The following are the directors and principal executive officers of Norwest Bank
Minnesota, N.A., including their business connections which are of a substantial
nature. The address of Norwest Corporation, the parent of Norwest Bank
Minnesota, N.A., is Norwest Center, Sixth Street and Marquette Avenue,
Minneapolis, MN 55479. Unless otherwise indicated below, the principal business
address of any company with which the directors and principal executive
officers are connected is also Sixth Street and Marquette Avenue, Minneapolis,
MN 55479.
A. Rodney Boren, Jr., Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr. Boren is also a Director of
Norwest Trust Company, New York, New York and Norwest Foundation.
James R. Campbell, Director, President and Chief Executive Officer, has
held this position for the last two years. Mr. Campbell is also Executive
Vice President of Norwest Corporation, Director and Chairman of Norwest
Investment Advisors, Inc., and a Director of Flore Properties, Inc.,
Centennial Investment Corporation and Peregrine Capital Management, Inc.,
which is located at LaSalle Plaza, 800 LaSalle Avenue, Suite 1850,
Minneapolis, Minnesota 55402-2056. Mr. Campbell is also a Director of a
number of non-profit organizations located in Minneapolis, Minnesota.
Within the last two years Mr. Campbell was a Director of Norwest Insurance,
Inc. and Norwest Equipment Finance, Inc.
Michael A. Graf, Controller and Cashier, also serves as Senior Vice
President and Controller of Norwest Corporation.
P. Jay Kiedrowski, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates since August 1987. Mr. Kiedrowski is also a Director and
Chairman of the Board of Norwest Investment Management, Inc. and President
of Norwest Investment Management, a part of Norwest.
Scott A. Kisting, Director and Executive Vice President, is also a Director
of Norwest Insurance, Inc., IntraWest Insurance Company and Fidelity
National Life Insurance Company.
Edgar M. Morsman, Jr., Executive Vice President and Chief Lending Officer,
has served in various capacities as an employee of Norwest Bank Minnesota,
N.A. and/or its affiliates during the last two years. Mr. Morsman is also
a Director of Centennial Investment Corporation, First Interstate Equipment
Finance, Inc., Flore Properties, Inc., Norwest Credit, Inc., Norwest
Business Credit, Inc., R.D. Leasing, Inc. and Norwest
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Equipment Finance, Inc., which is located at 733 Marquette Avenue, Suite
300, Minneapolis, MN 55479-2048.
Dharani P. Narayana, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr. Narayana is also a Director and
Chairman of Norwest Bank International, Director and Secretary of Norwest
Investments Limited, a Director of Norwest Bank International, Colorado, a
Director and Vice President of Norwest Bank International, Iowa, and a
Director of Norwest Bank International, Wisconsin. Mr. Narayana is also a
Director and Secretary of Minnetonka Overseas Investments Limited, and a
Director of Minnetonka Representaocoes Commerciais Ltda. and Nortico
Investments Ltd. all of which are located at Grand Cayman, Cayman Islands,
British West Indies.
William H. Queenan, Director, is also Executive Vice President of Norwest
Corporation.
John T. Thornton, Director, is also Executive Vice President and Chief
Financial Officer of Norwest Corporation. Mr. Thornton is also a Director
of Northern Prairie Indemnity, Limited, Grand Cayman, Cayman Islands,
British West Indies, a Director of Norwest Capital Markets, Inc. Mr.
Thornton is also a Director of Norwest Growth Fund, Inc., Norwest Venture
Capital Management, Inc. and Norwest Equity Capital, Inc., and Director,
President and Treasurer of Norwest Investors, Inc., and Director, President
and CEO of Norwest Limited, Inc., all located at 2800 Piper Jaffray Tower,
222 South Ninth Street, Minneapolis, MN 54402. Mr. Thornton is also
Director and President of Superior Guaranty Insurance Company and Norwest
Holding Company, and a Director of Bettendorf Asset Management, Inc. Mr.
Thornton is also a Director of Eau Claire Asset Management, Inc., Green Bay
Asset Management, Inc., Iowa Asset Management, Inc., LaCrosse Asset
Management, Inc., South Bend Asset Management, Inc., South Dakota Asset
Management, Inc., Waupun Asset Management, Inc., all located at 100 West
Commons Blvd., Suite 303, New Castle, DE 19720.
Richard C. Westergaard, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr.Westergaard is also a Director of
Norwest Business Credit, Inc., Norwest Credit, Inc., First Interstate
Equipment Finance, Inc. and R.D. Leasing, Inc. and a Director of Norwest
Equipment Finance, Inc. and Commonwealth Leasing Corporation, located at
Investors Building, 733 Marquette, Suite 300, Minneapolis, MN 55479-2048.
Charles D. White, Senior Vice President, has served in various capacities
as an employee of Norwest Bank Minnesota, N.A. and/or its affiliates during
the last two years. Mr. White is also Treasurer and Chief Financial
Officer of Norwest Limited, Inc. Mr. White is also a Director of
Bettendorf Asset Management, Inc., Eau Claire Asset Management, Inc., Green
Bay Asset Management, Inc., IntraWest Asset Management, Inc., Iowa Asset
Management, Inc., LaCrosse Asset Management, Inc., South Bend Asset
Management, Inc., South Dakota Asset Management, Inc., and Waupun Asset
Management, Inc., located at 100 West Commons Boulevard, Suite 303, New
Castle, DE 19720.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL, INC.
The description of Schroder Capital Management International, Inc. "Schroder")
under the caption "Management of the Funds-Investment Advisory Services-Schroder
Capital Management International, Inc." in the Prospectus and "Management-
Investment Advisory Services" in the Statement of Additional Information
relating to International Fund, Diversified Equity Fund, Growth Equity Fund,
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund,
constituting certain of Parts A and B, respectively, of the Registration
Statement, are incorporated by reference herein.
The following are the directors and principal officers of Schroder, including
their business connections which are of a substantial nature. The address of
each company listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS,
United Kingdom. Schroder Capital Management International Limited ("Schroder
Ltd.") is a United Kingdom affiliate of Schroder which provides investment
management services international clients located principally in the United
States.
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I. Peter Sedgwick, Chairman. Mr. Sedgwick is also Group Managing
Director - Investment Management of Schroders PLC, 120 Cheapside, London
EC2V 6DS, United Kingdom, the holding company of the various Schroder
companies, Chairman and Director of Schroder Ltd., Director and Chief
Executive Officer of Schroder Investment Management Limited, an investment
management company, Director of Schroder Investment Management (UK)
Limited, Schroder Personal Financial Management Limited, Schroder
Investment Management (Europe) Limited, Schroder Investment Trust
Management Limited and Church, Charity & Local Authorities Fund Managers
Limited, 2 Fore Street, London EC2Y 5AQ, United Kingdom, each an investment
management company, and Director, The Equitable Life Assurance Company,
Walton Street, Aylesbury, Bucks, United Kingdom, a life assurance company.
Mr. Sedgwick is also a director of various nominee companies and of various
unit trust companies, investment trusts and closed end investment companies
for which Schroder and/or its affiliates provide investment services.
David M. Salisbury, Chief Executive Officer. Mr. Salisbury is also the
Chief Executive Officer of Schroder Ltd. and Director of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, California, an investment
advisory company and DFA Securities Inc., a broker dealer subsidiary of
Dimensional Fund Advisors Inc. located at the same address. Until October
1992 Mr. Salisbury was Chairman of Schroder Capital Distributors Inc.
("Schroder Distributors"), 787 Seventh Avenue, New York, New York, a broker
dealer. Mr. Salisbury is a director or former director of various
investment trust companies and closed end investment companies for which
Schroder and/or its affiliates provide investment services.
John S. Ager, Director. Mr. Ager is also a Director of Schroder Ltd.
Richard R. Foulkes, Director. Mr. Foulkes is also a Director of Schroder
Ltd. and Schroder Distributors.
Laura E. Luckyn-Malone, Director. Ms. Luckyn-Malone is also a Director of
Schroder Ltd. and President and Director of a closed-end investment company
for which Schroder and/or its affiliates provide investment services.
David J. Mumford, Director. Mr. Mumford is also a Director of Schroder
Ltd. and Schroder Investment Management Limited and is Chairman of
Schroders Guernsey Limited, St. Julian's Avenue, St. Peter Port, Guernsey
C.J., a Guernsey based bank, and Director of J. Henry Schroder Wagg &
Company Limited, 120 Cheapside London EC2V 6DS, United Kingdom, a United
Kingdom based bank.
Gavin D.L. Ralston, Director. Mr. Ralston is also a Director of Schroder
Ltd.
Mark J. Smith, Director. Mr. Smith is also Director, Schroder Ltd. and
Schroder Investment Management (Guernsey) Limited, an investment management
company, and Director and Vice President of Schroder Distributors. Mr.
Smith is also a director of various investment trusts and open end
investment companies for which Schroder and/or its affiliates provide
investment services.
Ton F. Tija, Director. Mr. Tija is also a Director of Schroder Ltd.
John A. Trioano, Director. Mr. Trioano is also a Director of Schroder
Ltd., Chairman of Schroder Distributors and President and Director open
end investment companies for which Schroder and/or its affiliates provide
investment services.
Kathleen Adams, Vice President. Ms. Adams is also Vice President of
Schroder Distributors.
Mark J. Astley, Vice President.
Andrew R. Barker, First Vice President. Mr. Barker is also First Vice
President of Schroder Ltd.
David A.W. Butler, First Vice President. Mr. Butler is also First Vice
President and Treasurer of Schroder Ltd. and an officer of open end
investment companies for which Schroder and/or its affiliates provide
investment services.
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Richard J. Conyers, Vice President. Mr. Conyers is also Vice President of
Schroder Ltd. and Manger of Schroder Investment Management Limited.
Heather F. Crighton, Fund Manger. Ms. Crighton is also Fund Manager of
Schroder Ltd.
Louise Crouset, First Vice President. Mr. Crouset is also First Vice
President of Schroder Ltd. and, until October 1993, was Vice President of
Wellington Management, an investment adviser.
Robert C. Davy, First Vice President. Mr. Davy is also an officer of open
end investment companies for which Schroder and/or its affiliates provide
investment services.
Margaret H. Douglas-Hamilton, Secretary. Ms. Douglas-Hamilton is also
First Vice President and General Counsel of Schroders Incorporated
("Schroders Inc."), 787 Seventh Avenue, New York, New York, the holding
company for various United States based Schroder affiliates. Ms. Douglas-
Hamilton is also Secretary to various Schroder affiliates, including
Schroder Distributors.
Lyn M. Fox, Vice President.
Stephen M. Futrell, Comptroller. Mr. Futrell is Treasurer of Schroders
Inc., President, Treasurer and Director of Schroder Distributors and an
officer of various open end investment companies for which Schroder and/or
its affiliates provide investment services.
David Gibson, First Vice President. Mr. Gibson is also First Vice
President of Schroder Ltd. and Assistant Director of Schroder Investment
Management Limited.
Simon C. Hallett, Fund Manager. Mr. Hallett is also Fund Manager of
Schroder Ltd.
Nicholas J. A. Melhuish, Fund Manager. Mr. Melhuish is also Fund Manager of
Schroder Ltd.
Laurette J. Oat, First Vice President. Within the last two years, Ms. Oat
was a Senior Vice President of NatWest Investment Bank, 65 East 55th
Street, New York, New York 10002.
John Stainsby, First Vice President. Mr. Stainsby is also First Vice
President of Schroder Ltd.
Fariba Talebi, First Vice President. Mr. Talebi is also an officer of
various open end investment companies for which Schroder and/or its
affiliates provide investment services.
Jan Kees van Heusde, First Vice President. Mr. van Heusde is also First
Vice President of Schroder Ltd.
Patrick Vermeulen, Vice First President. Mr. Vermeulen is also Vice First
President of Schroder Ltd.
Susan M. Belson, Vice President.
Alan Gilston, Vice President.
Abdallah Nauphal, First Vice President.
Ellen B. Sullivan, First Vice President.
Ira L. Unschuld, Vice President.
CRESTONE CAPITAL MANAGEMENT, INC.
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The description of Crestone Capital Management, Inc. ("Crestone") under the
caption "Management-Subdviser" in the Prospectus and "Management- Adviser-
SubAdviser-Small Company Stock Fund" in the Statement of Additional Information
relating to the Small Company Stock Fund, constituting certain of Parts A and B,
respectively, of the Registration Statement, are incorporated by reference
herein.
The following are the directors and principal officers of Crestone, including
their business connections which are of a substantial nature.
Kirk McCown, President and Director. His address is 7720 East Belleview
Avenue, Suite 220, Englewood, Colorado 80111.
Mark Steven Sunderhuse, Senior Vice President and Director. His address is
7720 East Belleview Avenue, Suite 220, Englewood, Colorado 80111.
P. Jay Kiedrowski, Director. Mr. Kiedrowski is an Executive Vice President
of Norwest and is also a Director and Chairman of the Board of Norwest
Investment Management, Inc. His address is Sixth and Marquette Avenue,
Minneapolis, Minnesota 55479.
Steven P. Gianoli, Director. Mr. Gianoli is a Vice President of Norwest.
His address is Sixth and Marquette Avenue, Minneapolis, Minnesota 55479.
Susan Koonsman, Director. Ms. Koonsman is President of Norwest Investments
& Trust. Her address is 1740 Broadway, Denver, Colorado 80274.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Forum Financial Services, Inc., Registrant's underwriter, serves as
underwriter to Forum Funds, Inc., Stone Bridge Funds, Inc., Monarch Funds,
The Cutler Trust, Sound Shore Fund, Inc., Norwest Select Funds,
Transadvisers Funds, Inc., The Milestone Funds.
(b) John Y. Keffer, President and Secretary of Forum Financial Services, Inc.,
is the Chairman and President of Registrant. David R. Keffer, Vice
President and Treasurer of Forum Financial Services, Inc., is the Vice
President, Assistant Treasurer and Assistant Secretary of Registrant.
Their business address is 61 Broadway, New York, New York 10006.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of accounts, books and other documents required to be maintained by
31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of Forum Financial Services, Inc. at 61 Broadway, New
York, New York 10006 and 2 Portland Square, Portland, Maine 04101 and at Forum
Financial Corp., 2 Portland Square, Portland, Maine 04101. The records
required to be maintained under Rule 31a-1(b)(1) with respect to journals of
receipts and deliveries of securities and receipts and disbursements of cash are
maintained at the offices of Registrant's custodian. The records required to be
maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at the offices of
Registrant's investment advisers as indicated in the various prospectuses
constituting Part A of this Registration Statement.
Additional records are maintained at the offices of Norwest Bank Minnesota,
N.A., 733 Marquette Avenue, Minneapolis, MN 55479-0040, Registrant's investment
adviser, custodian and transfer agent.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
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ITEM 32. UNDERTAKINGS.
(a) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders
relating to the portfolio or class thereof to which the prospectus relates
upon request and without charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Portland, and State of Maine on the 28th day of
December, 1995.
NORWEST FUNDS
By: /s/ John Y. Keffer
-------------------
John Y. Keffer
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement amendment has been signed below by the following persons on the 28th
day of December, 1995.
Signatures Title
---------- -----
(a) Principal Executive Officer
/s/ John Y. Keffer Chairman and President
-----------------------
John Y. Keffer
(b) Principal Financial and Accounting Officer
/s/ Michael D. Martins Treasurer, Principal Financial
------------------------ and Accounting Officer
Michael D. Martins
(c) 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
Donald C. Willeke Trustee
By: /s/ John Y. Keffer
--------------------
John Y. Keffer
Attorney in Fact
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SIGNATURES
On behalf of Core Trust (Delaware), being duly authorized, I have duly caused
this amendment to the Registration Statement of Norwest Advantage Funds to be
signed in the City of Portland, State of Maine on the 28th day of December,
1995.
CORE TRUST (DELAWARE)
By: /s/ John Y. Keffer
-------------------
John Y. Keffer
President
This amendment to the Registration Statement of Norwest Advantage Funds has been
signed below by the following persons in the capacities indicated on the 28th
day of December, 1995.
SIGNATURES TITLE
(a) Principal Executive Officer
/s/ John Y. Keffer Chairman and President
-----------------------
John Y. Keffer
(b) Principal Financial and Accounting Officer
/s/ Michael D. Martins Treasurer, Principal Financial
----------------------- and Accounting Officer
Michael D. Martins
(c) 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
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INDEX TO EXHIBITS
Sequential
Exhibit Page Number
- ------- -----------
Other Power of Attorney of Donald C. Willeke,
Exhibit Trustee of Registrant
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Donald C. Willeke constitutes and
appoints David I. Goldstein, Thomas G. Sheehan, John Y. Keffer and Anthony C.J.
Nuland and each of them, as true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign the Registration Statement on Form
N-1A and any or all amendments thereto of Norwest Advantage Funds, and to file
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof; the execution of this power of attorney shall revoke any
and all previous powers of attorney with respect to the same matters.
/s/ Donald C. Willeke
---------------------
Donald C. Willeke
Dated: October 16, 1995
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