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As filed with the Securities and Exchange Commission on July 16, 1996
File No. 33-9645
File No. 811-4881
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 38
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 40
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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)
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on [ ] pursuant to Rule 485, paragraph (b)
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60 days after filing pursuant to Rule 485, paragraph (a)(i)
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on [ ] pursuant to Rule 485, paragraph (a)(i)
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X 75 days after filing pursuant to Rule 485, paragraph (a)(ii)
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on [ ] pursuant to Rule 485, paragraph (a)(ii)
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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 will
file a Rule 24f-2 notice for the most recent fiscal year of its various
portfolios on or before July 30, 1996.
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(Prospectus offering I Shares of Limited Term Tax-Free Fund)
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
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Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of
Registrant Summary; Investment Objective,
Policies and Risk Considerations;
Additional Investment Policies and
Risk Considerations; and Other
Information - The Trust and its
Shares
Item 5. Management of the Fund Summary; Management
Item 5A. Management's Discussion of
Fund Performance Not Applicable
Item 6. Capital Stock and
Other Securities Cover; Dividends, Distributions
and Tax Matters; Other Information
- The Trust and its Shares
Item 7. Purchase of Securities Being
Offered Purchases and Redemptions of
Shares; Management - Management
and Distribution Services
Item 8. Redemption or Repurchase Purchases and Redemptions of
Shares
Item 9. Pending Legal Proceedings Not Applicable
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART B
(SAI offering I Shares of Limited Term Tax-Free Fund)
Form N-1A Location in Statement of
Item No. (Caption) Additional Information (Caption)
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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
Restrictions
Item 14. Management of the Fund Management; Additional Information
about the Trust
Item 15. Control Persons and Principal
Holders of Securities Ownership of Fund Shares and
Additional Information about the
Trust
Item 16. Investment Advisory and Other
Services Management
Item 17. Brokerage Allocation and Other
Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Ownership of Fund Shares and
Additional Information about the
Trust
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered Additional Purchase and Redemption
Information
Item 20. Tax Status Taxation
Item 21. Underwriters Management - Administration and
Distribution
Item 22. Calculation of Performance Data Performance Data and Advertising
Item 23. Financial Statements Not Applicable
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(All other Prospectuses)
Not Applicable in this Filing
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART B
(All other SAIs)
Not Applicable in this Filing
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<PAGE>
LIMITED TERM TAX-FREE FUND
I 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
October 1, 1996
This Prospectus offers I Shares of Limited Term Tax-Free Fund Fund (the "Fund").
The Fund is a separate diversified equity portfolio of Norwest Advantage Funds
(the "Trust"), an open-end management investment company (a mutual fund).
This Prospectus sets forth concisely the information concerning the Trust and
the Fund 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") with respect to the 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 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 Two Portland Square, Portland, Maine 04101 or by calling 207-
879-1900. 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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1. SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
WHO SHOULD INVEST?
I Shares of the Fund 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." Participants in a Plan should consult
with their employer or plan sponsor to determine if the Fund is offered through
their Plan. I Shares are sometimes referred to herein as the "Shares."
While the Fund is not intended to provide a complete or balanced investment
program, it can serve as a component of an investor's long-term program to
accumulate assets for retirement or other major goals. The Fund may be an
appropriate investment vehicle for (i) investors willing to accept moderate
fluctuations in principal in order to seek higher tax-free income than they can
achieve in shorter-term instruments, (ii) investors in longer-term bonds and
stocks who wish to add a degree of stability to their portfolios, or (iii)
investors who desire a nation-wide portfolio of quality-oriented, limited-term
bonds.
THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to produce current income exempt from Federal
income taxes. The Fund pursues this objective by investing primarily in a
portfolio of investment grade fixed income securities the interest on which is
free from Federal income tax, consistent with the Fund's maturity and quality
standards.
MANAGEMENT OF THE FUND
The Fund's 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 December 31, 1995, managed assets totaling approximately $23 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."
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 the Fund. See "Management - Administration and Distribution
Services."
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PURCHASE AND REDEMPTION OF SHARES
Shares of beneficial interest of the Fund are offered without a sales charge and
may be redeemed without charge. Shares may be purchased or redeemed by mail, by
bank wire and through certain broker-dealers, banks, trust companies, or other
financial institutions. 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."
CERTAIN RISK FACTORS
There can be no assurance that the Fund will achieve its investment objective,
and the 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 the Fund may be worth more or less than its original value.
Normally, the value of the Fund's investments varies inversely with changes in
interest rates. Upon redemption, an investment in the Fund may be worth more or
less than its original value. The Fund's investments are subject to "credit
risk" relating to the financial condition of the issuers of the securities that
the Fund holds. The 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).
All investments made by the Fund entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage through borrowings, purchasing when-issued securities and
securities on a forward commitment basis other investment techniques. See
"Investment Objective, Policies and Risk Considerations - Risk Considerations."
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in understanding the
various expenses that an investor in the Fund will bear directly or indirectly.
There are no transaction charges in connection with purchases, redemptions or
exchanges of Fund shares. The Fund has not adopted a Rule 12b-1 plan with
respect to the Shares and, accordingly, the Fund incurs no distribution expenses
with respect to the Shares.
Annual Operating Expenses (1)
(As a percentage of average daily net assets)
Investment Advisory Fee 0.50%
Other Expenses
(after expense reimbursements and fee waivers) 0.15%
Total Operating Expenses 0.65%
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(1) For a further description of the various expenses incurred in the operation
of the Fund, see "Management." Other expenses for the Fund are based on
estimated amounts for the Fund's first fiscal year of operations ending May 31,
1997. Absent estimated expense reimbursements and fee waivers, the expenses of
the Fund would be: Other Expenses, 0.65%; and Total Operating Expenses, 1.15%.
Other Expenses include transfer agency and custodial fees payable to Norwest at
a combined annual rate of up to 0.30% of the Fund's average daily net assets.
Fee waivers are voluntary and may be reduced or eliminated at any time.
Example
The following is a hypothetical example that indicates the dollar amount of
expenses that an investor would pay, assuming a $1,000 investment in the Fund's
Shares, a 5% annual return and reinvestment of all dividends and distributions.
Hypothetical Expense Example
1 Year 3 Years
7 21
The example is based on the expenses listed in the "Annual Operating Expenses"
table. The 5% annual return is not predictive of and does not represent the
Fund's 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.
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2. INVESTMENT OBJECTIVE, POLICIES,
AND RISK CONSIDERATIONS
INVESTMENT OBJECTIVE
The investment objective of the Fund is to produce current income exempt from
Federal income taxes. The Fund pursues this objective by investing primarily in
a portfolio of investment grade fixed income securities the interest on which is
free from Federal income tax, consistent with the Fund's maturity and quality
standards. There can be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
In seeking to provide the highest level of Federally tax-free income that is
free from Federal income tax within the Fund's maturity and quality constraints,
the Fund will utilize certain investment techniques. These techniques include
seeking issues that the Adviser perceives to be undervalued in light of The Fund
will purchase bonds that In making its investments, the Fund also will strive to
maintain low price volatility.
Substantially all of the Fund's total assets normally will be invested in
municipal securities, which are debt obligations issued by or on behalf of the
states, territories or possessions of the United States, the District of
Columbia and their subdivisions, authorities, instrumentalities and corporations
the interest on which is exempt from Federal income tax and not treated as a
preference item for individuals for purposes of the Federal alternative minimum
tax ("municipal securities"). In order to respond to business and financial
conditions, the Fund may invest up to 20% of its assets in instruments on which
the interest is subject to Federal taxation. See "Taxable Investments" below,
and "Additional Investment Policies - Temporary Defensive Position" and
"Dividends, Distributions and Tax Matters." As a fundamental investment policy,
except during periods when the Fund assumes a temporary defensive position, the
Fund will invest at least 80% of its total assets in securities exempt from
Federal income taxes (including the Federal alternative minimum tax).
The average dollar-weighted maturity of the Fund's assets normally will be
between 1 and 7 years. Depending on market conditions, however, the average
dollar-weighted maturity could be higher or lower. In general, the longer the
maturity of a municipal security, the higher the rate of interest it pays.
However, a longer maturity is generally associated with a higher level of
volatility in the market value of a security. Since the Fund's objective is to
provide high current income, the Fund will invest in municipal securities with
an emphasis on income rather than stability of the Fund's net asset value, and
the average maturity of the Fund's portfolio will vary depending on anticipated
market conditions.
Substantially all of the Fund's assets will be invested in municipal securities
that are rated within the top four grades by an NRSRO at the time of purchase.
For example, for municipal bonds, these grades are Aaa, Aa, A and Baa in the
case of Moody's Investors Service ("Moody's") and AAA, AA, A and BBB in the case
of Standard & Poor's and Fitch Investors Services, L.P.
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These securities are generally considered to be investment grade securities,
although Moody's indicates that municipal securities rated Baa have speculative
characteristics. The Fund also may invest in unrated securities that the
Adviser believes are comparable in quality to rated securities in which the Fund
may invest. A description of the rating categories of certain NRSROs is
contained in the SAI of the Fund.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective and all investment policies of the Fund that are
designated as fundamental may not be changed without approval of the holders of
a majority of the Fund's outstanding voting securities. A majority of the Fund's
outstanding voting securities means the lesser of 67% of the shares of that Fund
present or represented at a meeting at which the holders of more than 50% of the
outstanding shares of the Fund are present or represented or more than 50% of
the outstanding shares of the Fund. Except as otherwise indicated, investment
policies of the Fund are not deemed to be fundamental and may be changed by the
Board of Trustees (the "Board") without shareholder approval. A further
description of the Fund's investment policies, including additional fundamental
policies, is contained in the SAI.
The Adviser monitors the creditworthiness of counterparties to the Fund's
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, the 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. Borrowing for
other than temporary or emergency purposes or meeting redemption requests may
not exceed 5% of the value of any Fund's assets. The Fund may enter 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.
MUNICIPAL SECURITIES. The municipal securities in which the Fund may invest
include municipal bonds, notes and leases. Municipal securities may be zero-
coupon securities. Yields on municipal securities are dependent on a variety of
factors, including the general conditions of the municipal security markets and
the fixed income markets in general, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The achievement of the
Fund's investment objective is dependent in part on the continuing ability of
the issuers of municipal securities in which the Fund invests to meet their
obligations for the payment of principal and interest when due.
The market value of the interest-bearing debt securities, including municipal
securities, held by the Fund will be affected by changes in interest rates.
There is normally an inverse relationship
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between the market value of securities sensitive to prevailing interest rates
and actual changes in interest rates; i.e., a decline in interest rates produces
an increase in market value, while an increase in rates produces a decrease in
market value. Moreover, the longer the remaining maturity of a security, the
greater will be the affect of interest rate changes on the market value of that
security. In addition, fixed income investments held by the Fund are subject to
"credit risk." Changes in the ability of an issuer to make payments of interest
and principal and the market's perception of an issuer's creditworthiness will
affect the market value of the debt securities of that issuer. Obligations of
issuers of debt securities, including municipal issuers, are also subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors which may restrict the ability of any issuer to pay, when
due, the principal of and interest on its debt securities. 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.
The Fund may retain securities whose rating has been lowered below the lowest
permissible rating category or, in the case of an unrated security, determined
by the Adviser to be of comparable quality, if the Adviser determines that
retaining such security is in the best interests of the Fund. Because a
downgrade often results in a reduction in the market price of the security, sale
of a downgraded security may result in a loss.
MUNICIPAL BONDS. Municipal bonds can be classified as either "general
obligation" bonds or "revenue" bonds. General obligation bonds are secured by a
municipality's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other tax, but not from general
tax revenues. Municipal bonds include industrial development bonds.
The Fund may invest in tax-exempt industrial development and private activity
bonds, which in most cases are revenue bonds and generally are not secured by a
pledge of the credit of the municipality. The payment of the principal and
interest on such bonds is dependent solely on the ability of an initial or
subsequent user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
MUNICIPAL NOTES AND LEASES. Municipal notes, which may be either "general
obligation" or "revenue" securities, are intended to fulfill the short-term
capital needs of the issuer and generally have original maturities not exceeding
one year. They include tax anticipation notes, revenue anticipation notes (which
generally are issued in anticipation of various seasonal revenues), bond
anticipation notes, construction loan notes and tax-exempt commercial paper.
Municipal leases, which may take the form of a lease or an installment purchase
or conditional sale contract, are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities such as fire
and sanitation vehicles, telecommunications equipment and other capital assets.
PARTICIPATION INTERESTS. The Fund may purchase participation interests in
municipal securities that are held by banks or other financial institutions.
Participation interests usually carry a
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demand feature backed by a letter of credit or guarantee of the bank or other
financial institution permitting the holder to tender them back to the bank or
other financial institution. Prior to purchasing any participation interest, the
Fund will obtain appropriate assurances from counsel that the interest earned by
the Fund from the obligations in which it holds participation interests is
exempt from Federal income tax.
STAND-BY COMMITMENTS. The Fund may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a "stand-by commitment," and the aggregate price
which the Fund pays for securities with a stand-by commitment may be higher than
the price which otherwise would be paid. The primary purpose of this practice is
to permit the Fund to be as fully invested as practicable in municipal
securities while preserving the necessary flexibility and liquidity to meet
unanticipated redemptions. In this regard, the Fund acquires stand-by
commitments solely to facilitate portfolio liquidity and does not exercise its
rights thereunder for trading purposes. Stand-by commitments involve certain
expenses and risks, including the inability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised, non-
marketability of the commitment, and differences between the maturity of the
underlying security and the maturity of the commitment. The Fund's policy is to
enter into stand-by commitment transactions only with municipal securities
dealers which, in the view of the Adviser, present minimal credit risks.
PUTS ON MUNICIPAL SECURITIES. The Fund may acquire "puts" on municipal
securities they purchase. A put gives the Fund the right to sell the municipal
security at a specified price at any time on or before a specified date. The
Fund will acquire puts only to enhance liquidity, shorten the maturity of the
related municipal security or permit the Fund to invest its funds at more
favorable rates. Generally, the Fund will buy a municipal security that is
accompanied by a put only if the put is available at no extra cost. In some
cases, however, the Fund may pay an extra amount to acquire a put, either in
connection with the purchase of the related municipal security or separately
from the purchase of the security. Puts involve the same risks discussed above
with respect to stand-by commitments.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Fund invests
(including mortgage-related 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 the Fund may be tied to Treasury
or other government securities or indices on those securities as well as any
other rate of interest or index. Certain variable rate securities (including
mortgage-related securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For instance, upon reset the interest rate payable on a security may
go down when the
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<PAGE>
underlying index has risen. During times when short-term interest rates are
relatively low as compared to long-term interest rates the 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 the Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights (such as puts) it
may have. The 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.
ZERO-COUPON SECURITIES. Zero-coupon securities are sold at original issue
discount and pay no interest to holders prior to maturity, but the Fund holding
a zero-coupon security must include the original issue discount of the security
as income. Zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Fund's may invest. The Fund
distributes all of its 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.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. The 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, the Fund might suffer a loss.
Repurchase agreements are transactions in which the 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 the 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 Fund may pay fees to arrange
securities loans and the 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. The 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
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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
the 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 the 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.
The use of when-issued transactions and forward commitments may enable the 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, the Fund might be required to complete when-issued or forward
transactions at prices inferior to the current market values. The Fund enters
into when-issued and forward commitments only with the intention of actually
receiving the securities, but the Fund may sell the securities before the
settlement date if deemed advisable. If the 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. When-issued securities may include bonds purchased on a "when, as and if
issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant,
the 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 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 the Fund has assumed a
temporary defensive position, it may not be pursuing its investment objective.
Apart from temporary defensive purposes, the Fund may at any time invest a
portion of its assets in cash and cash equivalents as described above. When the
Fund assumes a temporary defensive position, it is likely that shareholders will
be subject to Federal and applicable state income taxes on a greater portion of
their income dividends received from the Fund.
TAXABLE INVESTMENTS. Apart from temporary defensive purposes, the Fund may
invest up to 20% of the value of its total assets in cash equivalents the
interest on which is not exempt from Federal income tax or is treated as a
preference item for purposes of the Federal alternative minimum tax. For more
information regarding the alternative minimum tax, see "Dividends and Tax
Matters." In addition, the Fund may hold a portion of its assets in cash and
cash-equivalents pending investment in municipal securities, to meet requests
for redemptions or to assume a temporary defensive position. These securities
include debt securities of corporate issuers
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meeting the Fund's investment quality standards described above and bonds or
notes issued by or on behalf of a municipality, the interest on which is an item
of tax preference for purposes of the Federal alternative minimum tax on
individuals.
PORTFOLIO TRANSACTIONS. The frequency of portfolio transactions of the Fund
(the portfolio turnover rate) will vary from year to year depending on many
factors. From time to time the Fund may engage in active short-term trading to
take advantage of price movements affecting individual issues, groups of issues
or markets. The Fund's portfolio turnover is reported under "Financial
Highlights." It is the Fund's policy to obtain best net results in effecting
portfolio transactions. The Adviser may effect transactions for the Fund through
brokers who sell Fund shares. The Fund has no obligation to deal with any
specific broker or dealer in the execution of portfolio transactions.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
GEOGRAPHIC CONCENTRATION. To the extent it may concentrate its investments in
securities issued by issuers within a particular state and the state's political
subdivisions, the Fund will be subject to similar risks. These risks arise from
the financial condition of the state and its political subdivisions. To the
extent state or local governmental entities are unable to meet their financial
obligations, the income derived by the Fund, its ability to preserve or realize
appreciation of its portfolio assets or its liquidity could be impaired.
To the extent the Fund's investments are primarily concentrated in issuers
located in a particular state, the value of the Fund's shares may be especially
affected by factors pertaining to that state's economy and other factors
specifically affecting the ability of issuers of that state to meet their
obligations. As a result, the value of the Fund's assets may fluctuate more
widely than the value of shares of a portfolio investing in securities relating
to a number of different states. The ability of state, county or local
governments and quasi-government agencies to meet their obligations will depend
primarily on the availability of tax and other revenues to those governments and
on their fiscal conditions generally. The amounts of tax and other revenues
available to governmental issuers may be affected from time to time by economic,
political and demographic conditions within their state. In addition,
constitutional or statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of Federal, state and local aid to
governmental issuers may also affect their ability to meet obligations. Payments
of principal of and interest on private activity securities will depend on the
economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by economic,
political or demographic conditions in the state.
RELATED ISSUERS. Some municipal securities are related in such a way that an
economic, business or political development affecting one municipal security
would have a similar effect on another municipal security. For example, the
repayment of different obligations may depend on similar types of projects or on
projects located in the same state. The Fund will not invest more than 25% of
its total assets in securities that are so related or invest more than 25% of
its total assets in a single type of revenue bond (e.g. electric revenue,
housing revenue, etc.).
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DIVERSIFICATION MATTERS. The Fund is diversified and, therefore, as a
fundamental policy, with respect to 75% of its assets, may not purchase a
security (other than a U.S. Government Security) if, as a result, more than 5%
of the Fund's total assets would be invested in the securities of a single
issuer.
When the assets and revenues of an issuing agency, authority, instrumentality or
other political subdivision are separate from those of the government creating
the issuing entity and a security is backed only by the assets and revenues of
the entity, the entity will be deemed to be the sole issuer of the security.
Similarly, in the case of a security issued by or on behalf of public
authorities to finance various privately operated facilities, such as an
industrial development bond, that is backed only by the assets and revenues of
the non-governmental user, the non-governmental user will be viewed as the sole
issuer of the bond.
3. MANAGEMENT
The business of the Trust is managed under the direction of its Board of
Trustees (the "Board"). The Board formulates the general policies of the Fund
and generally meets quarterly to review the results of the Fund, monitor
investment activities and practices and discuss other matters affecting the Fund
and the Trust. The SAI contains general background information about the
trustees and officers of the Trust. The Board currently consists of seven
members.
INVESTMENT ADVISORY SERVICES
Subject to the general supervision of the Board, Norwest Investment Management
makes investment decisions for the Fund and continuously reviews, supervises and
administers the 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 since 1929, 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 11th 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 $23
billion. Norwest receives an advisory fee of 0.50% of the Fund's average daily
net assets. This fee is accrued daily and paid monthly.
PORTFOLIO MANAGER
Many persons on the advisory staff of the Adviser contribute to the investment
services provided to the Fund. Mr. William T. Jackson, however, is primarily
responsible for the day-to-day management of the Fund. Mr. Jackson, a Vice
President of Norwest since 1993, has served as portfolio manager of the Fund its
inception. Prior thereto, Mr. Jackson was a Senior Vice President and
Institutional Sales Manager with Norwest Investment Services from 1992-1993; a
Vice President and Municipal Bond Trading Manager from 1991-1992; and a Vice
President and Municipal Bond Trader with Kemper Securities, Inc., from 1984-
1991.
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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 March 1, 1996, Forum provided management and
administrative services to registered investment companies and collective
investment funds with assets of approximately $15.5 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 a management fee at an annual
rate of 0.10% of the average daily net assets 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 Fund.
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.
Pursuant to a separate distribution agreement with the Trust, Forum acts as the
agent of the Trust in connection with the offering of Shares of the Fund. Forum
receives no payments for its services as distributor. In addition, the Fund has
not adopted a Rule 12b-1 Plan applicable to the I Shares and, accordingly, does
not incur any distribution expenses with respect to the Shares. Pursuant to a
separate agreement with the Trust, Forum also provides portfolio accounting
services to the 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 "Purchases and
Redemptions of 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 the
Fund a fee at an annual rate of 0.25% of the
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average daily net assets attributable to I Shares. Norwest also serves as the
Trust's custodian. For its custodial services, Norwest is compensated at an
annual rate of up to 0.05% of the average daily net assets of the Fund.
EXPENSES OF THE FUND
The Fund is obligated to pay for all of its expenses, although Norwest has
agreed to reimburse the Trust for certain of the 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 more information about Fund expenses, see "Summary -
Expenses of Investing in the Fund." These expenses include but are not limited
to: interest charges; taxes; brokerage fees and commissions; certain insurance
premiums; applicable fees and expenses under the Trust's contracts with the
Advisers, Forum and the Transfer Agent; 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 trustees, officers and employees and other personnel performing
services for the Trust; and registration fees and related expenses.
The 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 Fund and all other portfolios of the Trust in proportion to
their average net assets.
The Advisers, Forum, the Transfer Agent and any other service provider to the
Fund may elect to waive all or a portion of their fees. Any such waivers will
have the effect of increasing the 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 may be increased by the
Board without shareholder approval. Fee waivers are voluntary and may be
reduced or eliminated at any time.
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 the 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 Fund.
4. PURCHASES AND REDEMPTIONS OF SHARES
Shares of the 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 the
Fund are offered to fiduciary, agency and custodial clients of bank trust
departments, trust companies and their affiliates.
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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 broker-dealers, 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 Fund.
Investors who purchase shares through a Processing Organization may be charged a
fee if they effect transactions in Fund Shares through a broker or agent and
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
the 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 the 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 Fund's 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 the 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 Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's 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 the
cover of this 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.
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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 the 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 Advantage Funds 0844-131
Re: Limited Term Tax-Free Fund
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
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
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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 the 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 may exchange their Shares for certain other portfolios
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 Fund.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make; the Fund reserves 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 Fund may be made either through certain
financial institutions or by an investor directly. An investor who invests in
the Fund directly will be the
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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 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 the Fund are offered without a sales charge and
may be redeemed without charge. The minimum initial 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
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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. 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 a 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 the 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 the 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 the 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
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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 the 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 the Fund or the
Portfolio for which market quotations are readily available are valued at
current market value or, in their absence, at fair value as determined by the
Board or pursuant to procedures approved by the Board. The Trust does not
determine net asset value on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
5. DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
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. Dividends of net investment
income currently are declared and paid at least annually by the Fund in
accordance with the Fund's dividend policy. The Fund's net capital gain, if any,
is distributed at least annually, typically in December.
Shareholders may choose to have dividends and distributions of the Fund
reinvested in shares of the 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 the Fund.
Under the Reinvestment Option, all dividends and distributions are automatically
invested in additional Shares of the Fund. All dividends and distributions are
reinvested at the 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,
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shareholders of the 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 FUND. The Fund is treated as a 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, the
Fund intends to distribute all of its net investment income and capital gain
each year. Accordingly, it is anticipated that the Fund will not be liable for
Federal income or excise taxes on its net investment income and capital gain.
THE PORTFOLIO. The 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 the
Portfolio are deemed to have been "passed through" to the Fund in proportion to
its holdings of the Portfolio, regardless of whether such interest, dividends or
gains have been distributed by the Portfolio or losses have been realized by the
Portfolio.
SHAREHOLDER TAX MATTERS
GENERAL. Dividends paid by the Fund out of its net investment income (including
any realized net short-term capital gain) are taxable to shareholders as
ordinary income. Distributions by the 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.
All capital gain distributions and dividends paid by the 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 the dividends to shareholders will
qualify for the dividends received deduction for corporations. The amount of
such dividends eligible for the dividends received deduction is limited to the
amount of dividends from domestic corporations received during the Fund's fiscal
year.
The Fund 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
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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 Fund 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 the 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.
6. OTHER INFORMATION
FUND PERFORMANCE
The 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 Fund's 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 the Fund may be compared to recognized indices of market
performance. The comparative material found in the Fund's 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. The 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. The 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 the Fund's returns, shareholders
should recognize that they are not the same as actual year-by-year results.
PERFORMANCE BENCHMARKS. The Fund uses a benchmark securities index as a measure
of the Fund's performance. This index is not used in the management of the Fund
but rather is a standard by which the Advisers and shareholders may compare the
performance of the Fund to an unmanaged composite of securities with similar,
but not identical, characteristics as the Fund. Accordingly, the Adviser
generally uses the index as a comparison to measure the performance
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of the Fund. The Fund may from time to time advertise a comparison of its
performance against any index.
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 the Fund
may pay higher than the lowest available commission rates when the 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.
Subject to the Fund's policy of obtaining the best price consistent with quality
of execution of transactions, the Adviser may employ Norwest Investment
Services, Inc. and any other broker-dealer affiliates of the Adviser
(collectively "Affiliated Brokers") to effect brokerage transactions for the
Fund. 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 the Fund's brokerage will be directed to Affiliated Brokers
and in no event will a broker affiliated with the Adviser directing the
transaction receive brokerage transactions in recognition of research or other
services provided to the Adviser.
Tax rules applicable to short-term trading may affect the timing of the Fund's
portfolio transactions or its ability to realize short-term trading profits or
establish short-term positions.
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An annual turnover rate of 100 percent would occur if all of the securities in
the Fund were replaced once in a period of 1 year. Higher portfolio turnover
rates may result in higher taxable income for shareholders and may result in
increased brokerage costs to the Fund. For more information about the portfolio
transactions of the Fund, see the SAI.
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 under the name "Norwest Funds." On October 1, 1995,
the Trust changed its name to "Norwest Advantage Funds." The Trust has an
unlimited number of authorized shares of beneficial interest. The Board may,
without shareholder approval, divide the authorized shares into an unlimited
number of separate portfolios or series (such as the Fund) and may divide
portfolios or series into classes of shares (such as I Shares), and the costs of
doing so will be borne by the Trust. Currently the authorized shares of the
Trust are divided into 31 series.
OTHER CLASSES OF SHARES. The 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. Investor Shares are offered with a
minimum investment of $1,000 and incur greater transfer agency and other
expenses than Institutional Shares. Each class of a fund will have a different
expense ratio and may have different sales charges (including distribution
fees). Each class's performance is affected by its expenses and sales charges.
For more information on any other class of shares of the Fund, investors may
contact the Transfer Agent at 612-667-8833 or 800-338-1348. 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 Fund.
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
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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.
Prior to the offering of the Fund's Shares, Forum will be the Fund's sole
shareholder and, therefore, a controlling person of the Fund. From time to
time, a shareholder may own a large percentage of the Fund. Accordingly, that
shareholder 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 FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S 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
OCTOBER 1, 1996
LIMITED TERM TAX-FREE FUND
I SHARES
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STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1996
This Statement of Additional Information ("SAI") supplements the Prospectus
offering I Shares of Limited Term Tax-Free Fund. The Fund is a diversified
series of Norwest Advantage Funds, a registered open-end, management investment
company (the "Trust"). The Fund currently invests all of its investment assets
in the Portfolio of Core Trust (Delaware) ("Portfolio"), a registered open-end,
management investment company. This SAI should be read only in conjunction with
the Fund's Prospectus, copies of which may be obtained without charge.
TABLE OF CONTENTS
Page
----
1. Norwest Advantage Funds. . . . . . . . . . . . . .
2. Investment Policies. . . . . . . . . . . . . . . .
3. Investment Restrictions. . . . . . . . . . . . . .
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., TWO PORTLAND
SQUARE, PORTLAND, MAINE 04101.
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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 the Fund's investment adviser, Norwest Investment
Management, a part of Norwest.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"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 the separate portfolio 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.
"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 supplements the information contained in the Fund's prospectus.
The Fund may only invest in the investments and engage in the investment
techniques described in the prospectus for the Fund to the extent permitted in
the prospectus (to the extent any limits are imposed).
RATINGS AS INVESTMENT CRITERIA
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds, notes
and other securities by several NRSROs is included in the Appendix. The Fund
may use these ratings in determining whether to purchase, sell or hold a
security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have
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different market prices. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event requires sale of such security
by the Fund, but the Adviser will consider such event in its determination of
whether the Fund should continue to hold the security. To the extent that the
ratings given by a NRSRO may change as a result of changes in such organizations
or their rating systems, the Adviser will attempt to substitute comparable
ratings. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES. Yields on fixed income
securities, including municipal securities, are dependent on a variety of
factors including the general conditions of the money market and of the bond and
note markets, the size of a particular offering, the maturity of the obligation
and the rating of the issue. Fixed income securities with longer maturities
tend to produce higher yields and are generally subject to greater price
movements than obligations with shorter maturities. An increase in interest
rates will generally reduce the market value of portfolio investments, and a
decline in interest rates will generally increase the value of portfolio
investments.
The achievement of a Fixed Income Fund's investment objective is dependent in
part on the continuing ability of the issuers of the securities in which the
Fund invests to meet their obligations for the payment of principal and interest
when due. Municipal securities historically have not been subject to
registration with the Securities and Exchange Commission, although there have
been proposals which would require registration in the future.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal
issuers may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the ability of any issuer
to pay, when due, the principal of and interest on its municipal securities may
be materially affected.
U.S. GOVERNMENT SECURITIES. In addition to obligations of the U.S. Treasury,
the Fund may invest in U.S. Government Securities. Obligations of certain
agencies and instrumentalities of the U.S. government are supported 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; others are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations; and still others are supported
primarily or solely by the creditworthiness of the issuer, such as securities of
the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority. No assurance can be given that
the U.S. government would provide financial support to U.S. government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
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 The Fund will
invest in the obligations of such agencies or instrumentalities only when the
Adviser believes that the credit risk with respect thereto is minimal.
BANK OBLIGATIONS. Certificates of deposit represent an institution's obligation
to repay funds deposited with it that earn a specified interest rate over a
given period. Bankers' acceptances are negotiable obligations of a bank to pay
a draft which has been drawn by a customer and are usually backed by goods in
international trade. Time deposits are non-negotiable deposits with a banking
institution that earn a specified interest rate over a given period.
Certificates of deposit and fixed time deposits, which are payable at the stated
maturity date and bear a fixed rate of interest, generally may be withdrawn on
demand 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 seven days are treated as illiquid securities if there is no readily
available market for the securities. To the extent permitted, the Fund's
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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 Adviser believes do not
present undue risk.
COMMERCIAL PAPER. The Fund may assume a temporary defensive position and may
invest without limit in commercial paper that is rated in one of the two highest
rating categories by an NRSRO or, if not rated, determined by the Adviser to be
of comparable quality. Commercial paper consists of unsecured promissory notes
issued by corporations. Except as noted below with respect to variable master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return. In general, investment in lower-rated
instruments is riskier than investment in instruments in higher-rated
categories. For a description of the rating categories of several NRSROs, see
the Appendix.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between the Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper. The Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand.
ZERO COUPON SECURITIES. Zero coupon securities are sold at original issue
discount and pay no interest to holders prior to maturity. Accordingly, these
securities usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. Federal tax law requires that the Fund accrue a
portion of the discount at which a zero-coupon security was purchased as income
each year even though the Fund receives no interest payment in cash on the
security during the year. Interest on these securities, however, is reported as
income by the Fund and must be distributed to its shareholders. The Fund
distributes 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.
Currently U.S. Treasury securities issued without coupons include Treasury
bills and separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. These stripped 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"). 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"). In addition, corporate debt
securities may be zero coupon securities.
MUNICIPAL SECURITIES
Municipal securities are issued by the States, territories and possessions of
the United States, their political subdivisions (such as cities, counties and
towns) and various authorities (such as public housing or redevelopment
authorities), instrumentalities, public corporations and special districts (such
as water, sewer or sanitary districts) of the States, territories and
possessions of the United States or their political subdivisions. In addition,
municipal securities include securities issued on or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds, that are backed only by the assets and revenues of the non-
governmental user (such as hospitals and airports).
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes are issued to finance working capital needs
of municipalities. Generally, they are issued in anticipation of various
seasonal tax revenues, such as income, sales, use and business
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taxes, and are payable from these specific future taxes. Revenue anticipation
notes are issued in expectation of receipt of other types of revenues, such as
federal revenues available under various federal revenue sharing programs. Bond
anticipation notes are issued to provide interim financing until long-term
financing can be arranged. In most cases, the long-term bonds then provide the
money for the repayment of the Notes. Construction loan notes are sold to
provide construction financing. After successful completion and acceptance,
many projects receive permanent financing through the Federal Housing
Administration under the Federal National Mortgage Association or the Government
National Mortgage Association. Tax-exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is issued by agencies
of state and local governments to finance seasonal working capital needs or as
short-term financing in anticipation of longer term financing. Municipal notes
also include longer term issues that are remarketed to investors periodically,
usually at one year intervals or less.
MUNICIPAL BONDS. Municipal Bonds meet longer term capital needs of a municipal
issuer and generally have maturities of more than one year when issued. General
obligation bonds are bonds the proceeds of which are used to fund a wide range
of public projects, including construction or improvement of schools, highways
and roads, and water and sewer systems. General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. The taxes that can be levied for the payment
of debt service may be limited or unlimited as to the rate or amount. Revenue
Bonds in recent years have come to include an increasingly wide variety of types
of municipal obligations. As with other kinds of municipal obligations, the
issuers of revenue bonds may consist of virtually any form of state or local
governmental entity. Generally, revenue bonds are secured by the revenues or
net revenues derived from a particular facility, class of facilities, or, in
some cases, from the proceeds of a special excise or other specific revenue
source, but not from general tax revenues. Revenue bonds are issued to finance
a wide variety of capital projects including electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities; colleges
and universities; and hospitals. Many of these bonds are additionally secured
by a debt service reserve fund which can be used to make a limited number of
principal and interest payments should the pledged revenues be insufficient.
Various forms of credit enhancement, such as a bank letter of credit or
municipal bond insurance, may also be employed in revenue bond issues. Revenue
bonds issued by housing authorities may be secured in a number of ways,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated, as discussed below.
Private Activity Bonds are considered municipal bonds if the interest paid
thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, and health care and other
nonprofit or charitable purposes. These bonds are also used to finance public
facilities such as airports, mass transit systems and ports. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property as security for such payment.
While at one time the pertinent provisions of the Internal Revenue Code
permitted private activity bonds to bear tax-exempt interest in connection with
virtually any type of commercial or industrial project (subject to various
restrictions as to authorized costs, size limitations, state per capita volume
restrictions, and other matters), the types of qualifying projects under the
Code have become increasingly limited, particularly since the enactment of the
Tax Reform Act of 1986. Under current provisions of the Code, tax-exempt
financing remains available, under prescribed conditions, for certain privately
owned and operated facilities of a organization described in Section 501(c)(3)
of the Internal Revenue Code, rental multi-family housing facilities, airports,
docks and wharves, mass commuting facilities and solid waste disposal projects,
among others, and for the refunding (that is, the tax-exempt refinancing) of
various kinds of other private commercial projects originally financed with tax-
exempt bonds. In future years, the types of projects qualifying under the Code
for tax-exempt financing are expected to become increasingly limited.
Because of terminology formerly used in the Internal Revenue Code, virtually any
form of private activity bond may still be referred to as an "industrial
development bond," but more and more frequently revenue bonds have
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become classified according to the particular type of facility being financed,
such as hospital revenue bonds, nursing home revenue bonds, multifamily housing
revenues bonds, single family housing revenue bonds, industrial development
revenue bonds, solid waste resource recovery revenue bonds, and so on.
OTHER MUNICIPAL OBLIGATIONS. Other municipal obligations, incurred for a
variety of financing purposes, include: municipal leases, which may take the
form of a lease or an installment purchase or conditional sale contract, are
issued by state and local governments and authorities to acquire a wide variety
of equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Municipal leases
frequently have special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations of many
state constitutions and statutes are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to
whether the interest is or is not includible in the calculation of alternative
minimum taxes imposed on individuals, according to whether the costs of
acquiring or carrying the bonds are or are not deductible in part by banks and
other financial institutions, and according to other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of Internal
Revenue Code and related requirements governing the issuance of tax-exempt
bonds, industry practice has uniformly required, as a condition to the issuance
of such bonds, but particularly for revenue bonds, an opinion of nationally
recognized bond counsel as to the tax-exempt status of interest on the bonds.
PUTS AND STANDBY COMMITMENTS ON MUNICIPAL SECURITIES. The Fund may acquire
"puts" with respect to municipal securities. A put gives the Fund the right to
sell the municipal security at a specified price at any time on or before a
specified date. The Fund may sell, transfer or assign a put only in conjunction
with its sale, transfer or assignment of the underlying security or securities.
The amount payable to the Fund upon its exercise of a "put" is normally (i) the
Fund's acquisition cost of the municipal securities (excluding any accrued
interest which the Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by the Fund to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of the Fund's
assets at a rate of return more favorable than that of the underlying security.
The Fund expects that they will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities). The Fund intends to enter into puts only with dealers, banks
and broker-dealers that, in the Adviser's opinion, present minimal credit risks.
Puts may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of the Fund's assets.
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The Fund may purchase municipal securities together with the right to resell
them to the seller or a third party at an agreed-upon price or yield within
specified periods prior to their maturity dates. Such a right to resell is
commonly known as a "stand-by commitment," and the aggregate price which the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to
permit the Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, the Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Fund's policy is to enter into stand-by
commitment transactions only with municipal securities dealers which are
determined to present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When the Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Fund invests (including municipal 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 the Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-related
securities) pay interest at a rate that varies inversely to prevailing short-
term interest rates (sometimes referred to as inverse floaters). For instance,
upon reset the interest rate payable on a security may go down when the
underlying index has risen. During times when short-term interest rates are
relatively low as compared to long-term interest rates the 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 the 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. The 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.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain
securities purchased by the Fund may be guaranteed by letters of credit or other
credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a municipal security meets
the Fund's investment quality requirements.
Variable rate obligations purchased by the Fund may include participation
interests in variable rate obligations purchased by the Fund from banks,
insurance companies or other financial institutions that are backed by
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irrevocable letters of credit or guarantees of banks. The Fund can exercise the
right, on not more than thirty days' notice, to sell such an instrument back to
the bank from which it purchased the instrument and draw on the letter of credit
for all or any part of the principal amount of the Fund's participation interest
in the instrument, plus accrued interest, but will do so only (i) as required to
provide liquidity to the Fund, (ii) to maintain a high quality investment
portfolio, or (iii) upon a default under the terms of the demand instrument.
Banks and other financial institutions retain portions of the interest paid on
such variable rate obligations as their fees for servicing such instruments and
the issuance of related letters of credit, guarantees and repurchase
commitments.
The Fund will not purchase participation interests in variable rate obligations
unless it is advised by counsel or receives a ruling of the Internal Revenue
Service that interest earned by the Fund from the obligations in which it holds
participation interests is exempt from Federal income tax. The Internal Revenue
Service has announced that it ordinarily will not issue advance rulings on
certain of the Federal income tax consequences applicable to securities, or
participation interests therein, subject to a put. The Adviser monitors the
pricing, quality and liquidity of variable rate demand obligations and
participation interests therein held by the Fund on the basis of published
financial information, rating agency reports and other research services to
which the Adviser may subscribe.
HEDGING STRATEGIES
The Fund has no current intention to, but may in the future, upon appropriate
notice to shareholders, (i) purchase put and call options on securities to
enhance their performance and (ii) seek to hedge against a decline in the value
of securities owned by it or an increase in the price of securities which it
plans to purchase through the writing and purchase of exchange-traded and over-
the-counter options on individual securities or securities or financial indices
and through the purchase and sale of financial futures contracts and related
options. Whether or not used for hedging purposes, these investments techniques
involve risks that are different in certain respects from the investment risks
associated with the other investments of the Fund.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES
The 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 1933 Act ("restricted securities"),
securities which are otherwise not readily marketable and repurchase agreements
not entitling the holder to repayment within seven days. The Board has the
ultimate responsibility for determining whether specific securities are liquid
or illiquid and has delegated the function of making day-to-day determinations
of liquidity to the Adviser. The Adviser take into account a number of factors
in reaching liquidity decisions, including but not limited to: (1) the frequency
of trades and quotations for the security; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and the Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. The
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 institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional
investors 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 under guidelines adopted by the Board, the Adviser may determine that such
securities are not illiquid securities. These guidelines take into account
trading activity in the securities and the availability of reliable pricing
information,
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among other factors. If there is a lack of trading interest in a particular
Rule 144A security, the Fund's holdings of that security may be illiquid.
BORROWING
The 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, the 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 may purchase
securities for investment while any borrowing equaling five percent or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding five percent of the value of the Fund's total
assets. The 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. See
"Techniques Involving Leverage" below.
OTHER TECHNIQUES INVOLVING LEVERAGE. Utilization of leveraging involves special
risks and may involve speculative investment techniques. The 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 Fund uses these investment techniques
only when the Adviser 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 the Fund achieves the right to a return on a capital base
that exceeds the investment the Fund has invested. Leverage creates the risk of
magnified capital losses which occur when losses affect an asset base, enlarged
by borrowings or the creation of liabilities, that exceeds the equity base of
the Fund. Leverage may involve the creation of a liability that requires the
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as the 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 Securities and Exchange
Commission guidelines. The account's value, which is marked to market daily,
will be at least equal to the Fund's commitments under these transactions.
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The Fund's commitments include the Fund's obligations to repurchase securities
under a reverse repurchase agreement and settle when-issued and forward
commitment transactions.
OTHER INVESTMENTS
REPURCHASE AGREEMENTS. The Fund maintains procedures for evaluating and
monitoring the creditworthiness of vendors of repurchase agreements. In
entering into repurchase agreements, the Fund requires continual maintenance of
collateral held by its custodian with a market value at least equal to the
repurchase price. Counterparties to a repurchase agreement must be primary
reporting dealers that report to the Federal Reserve Bank of New York ("primary
dealers") or one of the largest 100 commercial banks in the United States.
Under the terms of a repurchase agreement, the Fund purchases securities from
registered broker-dealers, banks or their affiliates subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. The seller under
a repurchase agreement is required to maintain the value of collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). If the seller were to default on its repurchase obligation
or become insolvent, the Fund holding such obligation would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that the Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Fund's believe
that, under the regular procedures normally in effect for custody of the Fund's
securities subject to repurchase agreements, and under Federal laws, a court of
competent jurisdiction would rule in favor of the Fund if presented with the
question. Securities subject to repurchase agreements will be held by the
Fund's custodian or another qualified custodian or in the Federal Reserve book-
entry system. Repurchase agreements are considered to be loans by the Fund for
certain purposes under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are 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. The Fund will use the proceeds of reverse repurchase
agreements only to fund redemptions or to make investments equal in value and
not more than 5% of the Fund's net assets which either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Counterparties to a reverse repurchase agreement must be primary
dealers or one of the largest 100 commercial banks in the United States.
Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by the 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 TRANSACTIONS. The Fund may purchase or sell
portfolio securities on a when-issued or delayed delivery basis. When-issued or
delayed delivery transactions arise when securities are purchased by the Fund
with payment and delivery to take place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time it
enters into the transaction. When the Fund enters into a delayed delivery
transaction, it becomes obligated to purchase securities and it has all of the
rights and risks attendant to ownership of the security, although delivery and
payment occur at a later date.
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At the time the Fund makes the commitment to purchase securities on a when-
issued or delayed delivery basis, it will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value. The value of the fixed income securities to be delivered in
the future will fluctuate as interest rates and the credit of the underlying
issuer vary. The Fund generally has the ability to close out a purchase
obligation on or before the settlement date, rather than purchase the security.
If the 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, realize a gain or loss due to market fluctuation.
To the extent the Fund engages in when-issued or delayed delivery transactions,
it will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to dispose of the right to acquire these securities before the
settlement date if deemed advisable.
The use of when-issued transactions and forward commitments enables the 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,
the Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values. When-issued securities and
forward commitments may be sold prior to the settlement date, but the Fund
enters into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. In some
instances, the third-party seller of when-issued or forward commitment
securities may determine prior to the settlement date that it will be unable to
meet its existing transaction commitments without borrowing securities. If
advantageous from a yield perspective, the Fund may, in that event, agree to
resell its purchase commitment to the third-party seller at the current market
price on the date of sale and concurrently enter into another purchase
commitment for such securities at a later date. As an inducement for the Fund
to "roll over" its purchase commitment, the Fund may receive a negotiated fee.
When-issued securities may include bonds purchased on a "when, as and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Any significant commitment of the Fund's assets to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of the Fund's net asset value. For purposes of the Fund's investment
policies, the purchase of securities with a settlement date occurring on a
Public Securities Association approved settlement date is considered a normal
delivery and not a when-issued or forward commitment purchase.
3. INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment restrictions that
cannot be changed without the affirmative vote of a majority of the Fund's
outstanding voting securities (as defined in the Prospectus).
(1) With respect to 75% of its assets, the Fund may not purchase a
security other than a U.S. Government Security if, as a result, more than
5% of the Fund's total assets would be invested in the securities of a
single issuer or the Fund would own more than 10% of the outstanding voting
securities of any single issuer.
(2) The 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; provided, however, that there is no limit
on investments in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Securities"),
repurchase agreements covering U.S. Government Securities or municipal
securities and that financial service companies are classified according to
the end users of their services (for example, automobile finance, bank
finance and diversified finance) and utility companies are classified
according to their services (for example, gas, gas transmission, electric
and gas, electric and telephone).
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(3) The Fund may borrow money from banks or by entering into reverse
repurchase agreements, but the Fund will, as a fundamental policy, limit
borrowings to amounts not in excess of 33 1/3% of the value of the Fund's
total assets (computed immediately after the borrowing).
(4) The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
(5) 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) The Fund may not make loans, except the Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted
investments and lend portfolio securities.
(7) The Fund may not purchase or sell real estate or any interest therein,
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) The Fund may not purchase or sell physical commodities or contracts,
options or options on contracts to purchase or sell physical commodities,
provided that currency and currency-related contracts and contracts on
indices will not be deemed to be physical commodities.
The Fund has adopted the following nonfundamental investment restrictions that
may be changed by the Board without shareholder approval.
(a) The Fund's borrowings for other than temporary or emergency purposes
or meeting redemption requests may not exceed an amount equal to 5% of the
value of the Fund's net assets.
(b) The Fund may not acquire securities or invest in repurchase agreements
with respect to any securities if, as result, more than (i) 15% of the
Fund's net assets (taken at current value) would be invested in repurchase
agreements not entitling the holder to payment of principal within seven
days and in securities which are not readily marketable, including
securities that are not readily marketable by virtue of restrictions on the
sale of such securities to the public without registration under the 1933
Act ("Restricted Securities") or (ii) 10% of the Fund's total assets would
be invested in Restricted Securities (not including Section 4(2)
commercial paper).
(c) The Fund may not invest in securities of another investment company,
except to the extent permitted by the 1940 Act.
(d) The 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. The Fund may make margin deposits in connection with
permitted transactions in options, futures contracts and options on futures
contracts.
(e) 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 that 5% of
the value of the Fund's total assets would be so invested.
(f) The Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings.
(g) 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 officers and
directors of the Fund's investment adviser, individually owning
beneficially more than 1/2 of 1% of the securities of the issuer, in the
aggregate own more than 5% of the issuer's securities.
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(h) The Fund may not invest in interests in oil and gas or interests in
other mineral exploration or development programs.
(i) The The Fund may not purchase securities having voting rights except
securities of other investment companies.
(j) The Fund may not lend portfolio securities if the total value of all
loaned securities would exceed 33 1/3% of the Fund's total assets.
(k) The Fund may not purchase real estate limited partnership interests.
Except as required by the 1940 Act, if a percentage restriction on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from a change in the market
values of the Fund's assets will not be considered a violation of the
restriction.
For purposes of limitation number (1), which relates to the diversification of
the Fund's assets, the District of Columbia, each state, each political
subdivision, agency, instrumentality and authority thereof, and each multi-state
agency of which a state is a member is deemed to be a separate "issuer." When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of private activity bonds, if the bond is backed only by the assets and revenues
of the nongovernmental user, then such nongovernmental user would be deemed to
be the sole issuer. However, if in either case, the creating government or some
other agency guarantees a security, that guarantee would be considered a
separate security and would be treated as an issue of such government or other
agency.
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 Fund is
historical and is not intended to indicate future returns. The Fund's yield and
total return fluctuate in response to market conditions and other factors. The
value of the Fund's shares when redeemed may be more or less than their original
cost.
In performance advertising the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Fund Tracking Companies"). The
Fund may also compare any of its performance information with the performance of
recognized stock, bond and other indices, 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 Fund 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 Fund 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 Fund 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 the
Fund's performance, investors should be aware that the 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
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others may charge the various retirement plans or other shareholders that invest
in the Fund fees in connection with an investment in the Fund, which will have
the effect of reducing the Fund's net yield to those shareholders. The yields
of the Fund are not fixed or guaranteed, and an investment in the Fund is not
insured or guaranteed. Accordingly, yield information may not necessarily be
used to compare shares of the Fund with investment alternatives which, like
money market instruments or bank accounts, may provide a fixed rate of interest.
Also, it may not be appropriate to compare the Fund's yield information directly
to similar information regarding investment alternatives which are insured or
guaranteed.
Standardized yields for the Fund used in advertising are computed by dividing
the 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 the 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 the Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of the 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 the 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 Fund.
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:
n
P(1+T) = 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, the 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:
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PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average annual total return
above.
OTHER ADVERTISEMENT MATTERS
The Fund may advertise other forms of performance. For example, the Fund 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 the 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 Fund may also include various information in their advertisements.
Information included in the Fund's advertisements may include, but is not
limited to (i) portfolio holdings and portfolio allocation as of certain dates,
such as portfolio diversification by instrument type, by instrument, 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 portfolio managers of the Fund and
Portfolio and portfolio management staff of the Adviser or summaries of the
views of the portfolio managers with respect to the financial markets, (viii)
the results of a hypothetical investment in the 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 the 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 the 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 the Fund's performance.
The Fund 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 the 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 the Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
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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 the 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
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.
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.
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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.
Timothy J. Penny, Trustee
Senior Counselor to the public relations firm Himle-Horner since 1994.
Prior thereto Mr. Penny was the Representative to the United States
Congress from Minnesota's First Congressional District. His address is 500
North State Street, Waseca, Minnesota 56095.
Donald C. Willeke, Trustee
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
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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.
Christopher J. Kelley, Assistant Secretary.
Assistant Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto and subsequent to attending law
school, Mr. Kelley was employed at Putnam Investments in legal and
compliance capacities. His 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. In addition, Mr. Keffer
currently is not compensated or reimbursed for his expenses in serving as
Trustee. 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
from Norwest Select Funds for his services as Chairman. Mr. Penny was appointed
a Trustee in January 1996 and, accordingly, was not paid any compensation during
the Trust's last fiscal year.
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, 1996, the fiscal year end of the Fund.
Total Compensation From
Total Compensation the Trust and Norwest
from the Trust Select Funds
-------------- ------------
Mr. Brown
Mr. Burkhart
Mr. Harris
Mr. Leach
Mr. Penny
Mr. Willeke
Neither the Trust nor Norwest Select Funds has adopted any from of retirement
plan covering Trustees or officers.
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INVESTMENT ADVISORY SERVICES
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 the Fund's investments and effecting
portfolio transactions for the 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 the Fund.
The Advisory Agreement between the 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 is terminable without penalty by the 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 Agreement also provides that, with respect to
the 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 Fund, Norwest may also act
and be compensated as investment manager for its clients with respect to assets
which are invested in the 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
the 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 the
Fund. Norwest has agreed to reimburse the Trust for certain of the 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, the 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.
No payments will be made under the Fund's Advisory Agreement so long as all of
the Fund's investments consist solely of the Portfolio or any other registered
investment company or series thereof.
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-
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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.
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 by vote of the 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 the 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 Manager is also the Trust's Distributor and acts as the agent of the Trust
in connection with the offering of shares of the Fund on a "best efforts" basis
pursuant to a Distribution Agreement. Under a servicing agreement between the
Trust and Norwest with respect to the 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 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 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
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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
the Fund a fee computed and paid monthly at the annual rate of 0.25% of the
Fund's average daily net assets attributable to each 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 a fee of 0.05% of the
Fund's average daily net assets. The custodian receives a separate fee for
performing certain functions in connection with loans of portfolio securities.
PORTFOLIO ACCOUNTING
Forum Financial Corp., an affiliate of Forum, performs portfolio accounting
services for the 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 the Fund on
behalf of the Trust that are required to be maintained under the 1940 Act,
calculates the net asset value per share of the 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 the 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 the Fund if it has more than 100 security positions or 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 the Fund or based, if applicable, upon
information, instructions or requests with respect to the 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.
FFC performs similar services for the Portfolio and, in addition, acts as the
Portfolio's transfer agent.
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6. OTHER INFORMATION
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
PURCHASES
Shares of the Fund are sold on a continuous basis and are offered at their next
determined net asset value.
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).
EXCHANGES AND TELEPHONE TRANSACTIONS
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.
The exchange privilege permits I Share 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.
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
the 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 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 securities to
cash. The Trust and Core Trust have each filed a formal election with the SEC
pursuant to which the Fund and the Portfolio will only effect a redemption in
portfolio securities if the particular shareholder is redeeming more than
$250,000 or one percent of the Fund's or the Portfolio's total net assets,
whichever is less, during any 90-day period.
DETERMINATION OF NET ASSET VALUE
Securities owned by the Fund for which market quotations are readily available
are valued at current market value. The Fund values its 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
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accurately reflect the fair market value of such securities. All assets and
liabilities of the 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 the 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.
PORTFOLIO TRANSACTIONS
The following discussion concerning portfolio transactions relates to the Fund
and the Portfolio.
Investment decisions for the Fund 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 Adviser
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
There usually are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and ask prices. In the case of
securities traded in the foreign and domestic over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed
commission or markup. In underwritten offerings, the price includes a disclosed
fixed commission or discount.
The 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 Adviser takes 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 Adviser may also take into account
payments made by brokers effecting transactions for the 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 Adviser may give consideration to research services furnished
by brokers to the Adviser for its 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 Adviser in connection with
services to clients other than the Fund, and the Adviser's fees are not reduced
by reason of the Adviser's receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, an Adviser may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute portfolio transactions for the Fund.
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Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Adviser to employ their respective
affiliates to effect securities transactions of the Fund, 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 Fund's policy that
commissions paid to 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 Fund satisfy the foregoing standards.
From time to time, the Fund may purchase securities of a broker or dealer
through which its regularly engages in securities transactions.
TAXATION
The 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 the
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
the 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 the Fund on section
1256 contracts generally will be considered a 60 percent long-term and 40
percent short-term capital gain or loss. The 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
the 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 the Fund will be
treated as short-term capital gain or loss. In general, if the Fund exercises
an option, or an option that the 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 the Fund
in conjunction with any other position held by the 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 the 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
the Fund has unrealized gains with respect to the other position in such
straddle; (ii) the 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 the Fund which may mitigate the
effects of the straddle rules, particularly with respect to
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mixed straddles. In general, the straddle rules described above do not apply to
any straddles held by the Fund if all of the offsetting positions consist of
section 1256 contracts.
Each Fund shareholder should include in the shareholder's report of gross income
in his Federal income tax return cash dividends received by the shareholder from
the Fund.
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 Fund, due to its initial
investment, Forum owned all outstanding shares of the Fund and may be deemed to
have been a controlling person of the Fund as of that date. Upon the investment
in the Fund by public shareholders, Forum ceased to be a controlling person of
the Fund. As of October 1, 1996, the Trustees and officers of the Trust in the
aggregate owned less than one percent of the outstanding shares of the Fund.
ADDITIONAL INFORMATION ABOUT THE TRUST
Currently, the Trust is divided into thirty separate series representing shares
of the Fund and shares of Cash Investment Fund, Ready Cash Investment Fund, U.S.
Government Fund, Treasury Fund, Municipal Money Market Fund, Income Fund, Total
Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free Fund, Colorado Tax-Free
Fund, Minnesota Tax-Free Fund, ValuGrowth Stock Fund, Small Company Stock Fund,
Small Cap Oppurtunities Fund, Contrarian Stock Fund, 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,
Diversified Bond Fund, Stable 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 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
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 fiscal year end of the Fund is May 31. Financial statements for the Fund's
semi-annual period and fiscal year will be distributed to shareholders of
record. The Board in the future may change the fiscal year end of the Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Fund's 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 ("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.
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STANDARD AND POOR'S ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. 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.
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FITCH INVESTORS SERVICE, L.P. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
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.
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PREFERRED STOCK
MOODY'S INVESTORS SERVICE
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present
but may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of
the issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
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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.
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an
A rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues
with an A-2 designation is strong. However, the relative degree of safety is
not as high as for issues designated A-1. A-3 issues have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
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FITCH INVESTORS SERVICE
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:
Not applicable to this filing.
Included in the Statement of Additional Information:
Not applicable to this filing.
(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)* Trust Instrument of Registrant as now in effect (filed as Exhibit 1 to
PEA No. 35).
(2)* By-Laws of Registrant as now in effect (filed as Exhibit 2 to PEA No.
35).
(3) Not Applicable.
(4)* Specimen 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 the same as the specimen certificate, and
therefore, is omitted pursuant to Rule 483(d)(2) under the 1933 Act
(filed as Exhibit 4 to PEA No. 35).
(5) (a)* Investment Advisory Agreement 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 and
Stable Income Fund. Except for the names of each series of the
Registrant, the Investment Advisory Agreement of each series of
Registrant is substantially the same as the Investment Advisory
Agreement, and therefore, is omitted pursuant to Rule 483(d)(2)
under the 1933 Act (filed as Exhibit 5(a) to PEA No. 35).
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(b)* Investment Sub-Advisory Agreement between Registrant and Crestone
Capital Management, Inc. relating to Small Company Stock Fund
(filed as Exhibit 5(b) to PEA No. 35).
(c)* Investment Sub-Advisory Agreement 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 as Exhibit 5(c) to PEA No. 35).
(d)* 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 as Exhibit 5(d) to PEA No. 35).
(6)* Distribution Agreement between Registrant and Forum Financial Services,
Inc. relating to each portfolio of Registrant (filed as Exhibit 6 to PEA
No. 35).
(7) Not Applicable.
(8) (a)* Custodian Agreement between Registrant and Norwest Bank Minnesota,
N.A. dated August 1, 1993 as amended November 11, 1994 (filed as
Exhibit 8(a) to PEA No. 35).
(b)* Transfer Agency Agreement to be between Registrant and Norwest
Bank Minnesota, N.A. (filed as Exhibit 8(b) to PEA No. 35).
(9) (a)* Management Agreement between Registrant and Forum Financial
Services, Inc. relating to each portfolio of Registrant (filed as
Exhibit 9(a) to PEA No. 35).
(b)* Fund Accounting Agreement between Registrant and Forum Financial
Corp. (filed as Exhibit 9(b) to PEA No. 35).
(c)* Administration Services Agreement between Registrant and Norwest
Bank Minnesota, N.A. relating to International Fund (filed as
Exhibit 9(c) to PEA No. 35).
(10) (a)* Opinion of Seward & Kissel (filed on December 31, 1986 as Exhibit
10(a) of PreEA 2).
(b)* Opinion of Seward & Kissel (filed as Exhibit 10(b) to PEA No.
35).
(11) Not applicable to this filing.
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(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)* 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 Fund, Government Income Fund, Total Return Bond Fund, Stable Income
Fund, Income Equity Fund, Diversified Equity Fund, Intermediate U.S.
Government Fund, Growth Equity Fund and Exchange Shares of Ready Cash
Investment Fund (filed as Exhibit 15 to PEA No. 35).
(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)* Multiclass (Rule 18f-3) Plan adopted by Registrant (filed as Exhibit 18
to PEA No. 35).
Other Exhibits
(A)* Power of Attorney of James C. Harris, Trustee of Registrant (filed as
Other Exhibit A to PEA No. 35).
(B)* Power of Attorney of Richard M. Leach, Trustee of Registrant (filed as
Other Exhibit B to PEA No. 35).
(C)* Power of Attorney of Robert C. Brown, Trustee of Registrant (filed as
Other Exhibit C to PEA No. 35).
(D)* Power of Attorney of Donald H. Burkhardt, Trustee of Registrant (filed as
Other Exhibit D to PEA No. 35).
(E)* Power of Attorney of John Y. Keffer, Trustee of Registrant (filed as
Other Exhibit E to PEA No. 35).
(F)* Power of Attorney of Donald C. Willeke, Trustee of Registrant (filed as
Other Exhibit F to PEA No. 35).
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(G)* Power of Attorney of Timothy J. Penny, Trustee of Registrant (filed as
Other Exhibit G to PEA No. 35).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF JUNE 30, 1996.
Number of
Title of Class of Unit of Beneficial Interest Record Holders
- --------------------------------------------- --------------
Cash Investment Fund 3,531
U.S. Government Fund 598
Treasury Fund 399
Municipal Money Market Fund
Investor Shares 642
Institutional Shares 281
Ready Cash Investment Fund
Investor Shares 14,671
Institutional Shares 18
Exchange Class 9
Income Fund
A Shares 280
B Shares 242
I Shares 238
Total Return Bond Fund
A Shares 77
B Shares 220
I Shares 119
Colorado Tax-Free Fund
A Shares 446
B Shares 185
I Shares 7
Minnesota Tax-Free Fund
A Shares 483
B Shares 342
I Shares 33
Tax-Free Income Fund
A Shares 657
B Shares 217
I Shares 107
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ValuGrowth Stock Fund
A Shares 1,240
B Shares 614
I Shares 291
Contrarian Stock Fund
A Shares 57
B Shares 93
I Shares 60
Small Company Stock Fund
A Shares 529
B Shares 567
I Shares 514
Diversified Equity Fund
A Shares 159
B Shares 268
I Shares 9
Growth Equity Fund
A Shares 154
B Shares 151
I Shares 8
Large Company Growth Fund
I Shares 6
Small Company Growth Fund
I Shares 7
International Fund
A Shares 158
B Shares 154
I Shares 14
Income Equity Fund
A Shares 1,569
B Shares 1,907
I Shares 19
Index Fund
I Shares 7
Conservative Balanced Fund
I Shares 7
Moderate Balanced Fund
I Shares 7
Growth Balanced Fund
I Shares 7
Intermediate Government Income Fund
A Shares 611
B Shares 548
I Shares 19
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Diversified Bond Fund
I Shares 8
Stable Income Fund
A Shares 97
B Shares 33
I Shares 14
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.
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Michael A. Graf, Controller and Cashier, also serves as Senior Vice
President and Controller of Norwest Corporation.
P. Jay Kiedrowski, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates since August 1987. Mr. Kiedrowski is also a Director and
Chairman of the Board of Norwest Investment Management, Inc. and President
of Norwest Investment Management, a part of Norwest.
Scott A. Kisting, Director and Executive Vice President, is also a Director
of Norwest Insurance, Inc., IntraWest Insurance Company and Fidelity
National Life Insurance Company.
Edgar M. Morsman, Jr., Executive Vice President and Chief Lending Officer,
has served in various capacities as an employee of Norwest Bank Minnesota,
N.A. and/or its affiliates during the last two years. Mr. Morsman is also
a Director of Centennial Investment Corporation, First Interstate Equipment
Finance, Inc., Flore Properties, Inc., Norwest Credit, Inc., Norwest
Business Credit, Inc., R.D. Leasing, Inc. and Norwest Equipment Finance,
Inc., which is located at 733 Marquette Avenue, Suite 300, Minneapolis, MN
55479-2048.
Dharani P. Narayana, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr. Narayana is also a Director and
Chairman of Norwest Bank International, Director and Secretary of Norwest
Investments Limited, a Director of Norwest Bank International, Colorado, a
Director and Vice President of Norwest Bank International, Iowa, and a
Director of Norwest Bank International, Wisconsin. Mr. Narayana is also a
Director and Secretary of Minnetonka Overseas Investments Limited, and a
Director of Minnetonka 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
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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.
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
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company, and Director, The Equitable Life Assurance Company, Walton Street,
Aylesbury, Bucks, United Kingdom, a life assurance company. Mr. Sedgwick
is also a director of various nominee companies and of various unit trust
companies, investment trusts and closed end investment companies for which
Schroder and/or its affiliates provide investment services.
David M. Salisbury, Chief Executive Officer. Mr. Salisbury is also the
Chief Executive Officer of Schroder Ltd. and Director of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, California, an investment
advisory company and DFA Securities Inc., a broker dealer subsidiary of
Dimensional Fund Advisors Inc. located at the same address. Until October
1992 Mr. Salisbury was Chairman of Schroder Capital Distributors Inc.
("Schroder Distributors"), 787 Seventh Avenue, New York, New York, a broker
dealer. Mr. Salisbury is a director or former director of various
investment trust companies and closed end investment companies for which
Schroder and/or its affiliates provide investment services.
John S. Ager, Director. Mr. Ager is also a Director of Schroder Ltd.
Richard R. Foulkes, Deputy Chairman and Director. Mr. Foulkes is also a
Director of Schroder Ltd. and Schroder Distributors.
Laura E. Luckyn-Malone, Managing Director. Ms. Luckyn-Malone is also a
Director of Schroder Wertheim Investment Services, Inc. and Schroder Ltd.
and President and Director of a closed-end investment company for which
Schroder and/or its affiliates provide investment services. Director and
President of Schroder Advisors.
David J. Mumford, Director. Mr. Mumford is also a Director of Schroder
Ltd. and Schroder Investment Management Limited and is Chairman of
Schroders Guernsey Limited, St. Julian's Avenue, St. Peter Port, Guernsey
C.J., a Guernsey based bank, and Director of J. Henry Schroder Wagg &
Company Limited, 120 Cheapside London EC2V 6DS, United Kingdom, a United
Kingdom based bank.
Gavin D.L. Ralston, Director. Mr. Ralston is also a Director of Schroder
Ltd.
Mark J. Smith, Director. Mr. Smith is also Director, Schroder Ltd. and
Schroder Investment Management (Guernsey) Limited, an investment management
company, and Director and Vice President of Schroder Distributors and
Director and Vice President of Schroder Advisors. Mr. Smith is also a
director of various investment trusts and open end investment companies for
which Schroder and/or its affiliates provide investment services.
Ton F. Tija, Director. Mr. Tija is also a Director of Schroder Ltd.
John A. Troiano, Managing Director. Mr. Troiano is also a Director of
Schroder Ltd. and Schroder Advisors, Chairman of Schroder Distributors and
President and Director open
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end investment companies for which Schroder and/or its affiliates provide
investment services.
Jane P. Lucas, Director. Ms. Lucas is also a Director of Schroder Wertheim
Investment Services, Inc. and Assistant Director of Schroder Investment
Management, Ltd.
Kathleen Adams, Vice President. Ms. Adams is also Vice President of
Schroder Distributors.
Mark J. Astley, Vice President.
Andrew R. Barker, First Vice President. Mr. Barker is also First Vice
President of Schroder Ltd.
David A.W. Butler, First Vice President. Mr. Butler is also First Vice
President and Treasurer of Schroder Ltd. and an officer of open end
investment companies for which Schroder and/or its affiliates provide
investment services.
Richard J. Conyers, Vice President. Mr. Conyers is also Vice President of
Schroder Ltd. and Manger of Schroder Investment Management Limited.
Heather F. Crighton, Fund Manger. Ms. Crighton is also Fund Manager of
Schroder Ltd.
Louise Crouset, First Vice President. Mr. Crouset is also First Vice
President of Schroder Ltd. and, until October 1993, was Vice President of
Wellington Management, an investment adviser.
Robert C. Davy, Director. Mr. Davy is also a Director of Schroder Ltd. and
an officer of open end investment companies for which Schroder and/or its
affiliates provide investment services.
Margaret H. Douglas-Hamilton, Secretary. Ms. Douglas-Hamilton is also
First Vice President and General Counsel of Schroders Incorporated
("Schroders Inc."), 787 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.
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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.
Catherine A. Mazza, Vice President. Ms. Mazza is also Senior Vice President
of Schroder Advisors.
Robert Jackowitz, Vice President. Mr. Jackowitz is also Vice President and
Treasurer of Schroder Wertheim Investment Services, Inc., Treasurer of
Schroder Advisors and Assistant Treasurer of Schroders Incorporated.
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CRESTONE CAPITAL MANAGEMENT, INC.
The description of Crestone Capital Management, Inc. ("Crestone") under the
caption "Management - SubAdviser" 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 Avalon Capital, Inc., Core Trust (Delaware), The CRM Funds,
The Cutler Trust, Forum Funds, Monarch Funds, Norwest Advantage Funds,
Norwest Select Funds, Sound Shore Fund, Inc., Stone Bridge Funds, Inc. and
Trans Adviser Funds, Inc.
(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 Two Portland Square, Portland, Maine
(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
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Forum Financial Services, Inc. at Two Portland Square, Portland, Maine 04101 and
at Forum Financial Corp., Two Portland Square, Portland, Maine 04101. The
records required to be maintained under Rule 31a-1(b)(1) with respect to
journals of receipts and deliveries of securities and receipts and disbursements
of cash are maintained at the offices of 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.
ITEM 32. UNDERTAKINGS.
(i) Registrant undertakes to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
latter of the effective date of Registrant's Securities Act of 1933
Registration Statement relating to the prospectuses offering those shares
or the commencement of operations; and
(ii) 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 12th day of
July, 1996.
NORWEST ADVANTAGE FUNDS
John Y. Keffer
By:/s/ Thomas G. Sheehan
---------------------
Thomas G. Sheehan
Attorney in Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement amendment has been signed below by the following persons on the 12th
day of July, 1996.
Signatures Title
---------- -----
(a) Principal Executive Officer
John Y. Keffer Chairman and President
By: /s/ Thomas G. Sheehan
----------------------
Thomas G. Sheehan
Attorney in Fact
(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
John Y. Keffer* Chairman
Robert C. Brown* Trustee
Donald H. Burkhardt* Trustee
James C. Harris* Trustee
Richard M. Leach* Trustee
Donald C. Willeke* Trustee
By: /s/ Thomas G. Sheehan
---------------------
Thomas G. Sheehan
Attorney in Fact*
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