<PAGE>
As filed with the Securities and Exchange Commission on
February 14, 1996
1933 Act Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No. __
/ / Post-Effective Amendment No. __
______________________________
NORWEST ADVANTAGE FUNDS
(Formerly "Norwest Funds" and
prior thereto "Prime Value Funds, Inc.")
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: 207-879-1900
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office) (Zip Code)
______________________________
David I. Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
(Name and address of agent for service)
Copies of communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, NW
Washington, DC 20005
______________________________
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective
date of this Registration Statement.
<PAGE>
The Registrant has registered an indefinite number of
securities under the Securities Act of 1933 pursuant to Rule 24f-
2 under the Investment Company Act of 1940; accordingly, no fee
is payable herewith. A Rule 24f-2 Notice for Registrant's fiscal
year ended October 31, 1995 was filed with the Commission on
November 15, 1995 and amended on December 8, 1995.
It is proposed that this filing will become effective on
March 15, 1996 pursuant to Rule 488 under the Securities Act of
1933.
<PAGE>
CROSS REFERENCE SHEET
Item of Part A Location in
of Form N-14 Prospectus
______________ ___________
1. .............. Cross Reference Sheet; Front Cover Page.
2. .............. Back Cover Page.
3. .............. Fee Table; Synopsis; Comparison of
Investment Objectives and Policies.
4. .............. Reasons for the Transaction; Information
About the Transaction.
5. .............. Comparison of Investment Objectives and
Policies; Information About the Funds;
Prospectus offering A Shares and B Shares
of Stable Income Fund and Intermediate U.S.
Government Fund dated March 1, 1996 and
Prospectus offering A Shares and B Shares
of Income Equity Fund dated March 1, 1996,
Prospectus offering I Shares of Stable
Income Fund, Intermediate U.S. Government
Fund and Income Equity Fund (the "Acquiring
Funds") dated March 1, 1996 (collectively,
the "Acquiring Funds Prospectuses").
6. .............. Comparison of Investment Objectives and
Policies; Information About the Funds;
Prospectus offering A Shares and B Shares
of Adjustable U.S. Government Reserve Fund,
Government Income Fund, Income Fund and
Total Return Bond Fund dated October 1,
1995 and Prospectus offering A Shares and B
Shares of Income Stock Fund, ValuGrowth
Stock Fund, Small Company Stock Fund,
Contrarian Stock Fund and International
Fund dated October 1, 1995, Prospectus
offering I Shares of Adjustable U.S.
Government Reserve Fund, Government Income
Fund, Income Fund, Total Return Bond Fund,
Tax-Free Income Fund, Colorado Tax-Free
Fund, Minnesota Tax-Free Fund, Income Stock
Fund, ValuGrowth Stock Fund, Small Company
Stock Fund, Contrarian Stock Fund and
International Fund dated October 1, 1995
(collectively, the "Prospectuses"). The
information in the Prospectuses pertaining
to the Adjustable U.S. Government Reserve
<PAGE>
Fund, Government Income Fund and Income
Stock Fund is incorporated herein by
reference from the paper filings of the
Prospectuses made on October 5, 1995
pursuant to Rule 497 under the Securities
Act of 1933.
7. .............. Voting Information.
8. .............. Inapplicable.
9. .............. Inapplicable.
<PAGE>
Item of Part B Location in Statement
of Form N-14 of Additional Information
______________ _________________________
10. .............. Cover Page.
11. .............. Cover Page.
12. .............. Statement of Additional Information
offering A Shares and B Shares of the
Acquiring Funds dated March 1, 1996,
Statement of Additional Information
offering I Shares of the Acquiring Funds
dated March 1, 1996.
13. .............. Inapplicable.
14. .............. Report of Independent Accountants and
financial statements of the Acquiring Funds
as of October 31, 1995, incorporated by
reference from Annual Report to
Shareholders of Norwest Advantage Funds
(the "Trust") as of October 31, 1995 filed
on January 31, 1996, accession no.
0000912057-96-001085, File Nos. 33-0645,
811-4881; unaudited semi-annual financial
statements of Adjustable U.S. Government
Reserve Fund, Government Income Fund and
Income Stock Fund (the "Transferor Funds")
as of November 30, 1995, incorporated by
reference from the Semi-Annual Report to
Shareholders of the Trust as of November
30, 1995 filed on January 31, 1996,
accession no. 0000912057-96-001084, File
Nos. 33-0645, 811-4881; Report of
Independent Accountants and audited
financial statements of the Transferor
Funds as of May 31, 1995, incorporated by
reference from the Annual Report to
Shareholders of the Trust, as of May 31,
1995 filed on February 14, 1996, accession
No. 0000912057-96-002500, File Nos. 33-
0645, 811-4881; unaudited pro forma
combined financial information as of
October 31, 1995.
<PAGE>
Acquisition of the assets of
Adjustable U.S. Government Reserve Fund,
Government Income Fund and Income Stock Fund
of Norwest Advantage Funds
By and in exchange for shares of
Stable Income Fund, Intermediate
U.S. Government Fund and Income Equity
Fund of Norwest Advantage Funds
PROSPECTUS/PROXY STATEMENT
[ ], 1996
NOT FDIC INSURED
<PAGE>
[logo] Norwest Adjustable U.S. Government Reserve Fund
Advantage Funds Government Income Fund
Income Stock Fund
_________________________________________________________________
Two Portland Square
Portland, Maine 04101
207-879-1900
_________________________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Adjustable U.S. Government Reserve Fund
Government Income Fund
Income Stock Fund
A Special Meeting of Shareholders of Adjustable U.S.
Government Reserve Fund, Government Income Fund and Income
Stock Fund of Norwest Advantage Funds (the "Trust") will be
held at the offices of the distributor of the Trust, Forum
Financial Services, Inc., at Two Portland Square, Portland,
Maine 04101, on [ ], 1996 at [ a.m./p.m.], (the
"Meeting") for the following purposes:
1. To approve a Plan of Reorganization and
Liquidation providing for:
PROPOSAL FOR SHAREHOLDERS OF ADJUSTABLE U.S. GOVERNMENT
RESERVE FUND
(a) the transfer of all the assets of Adjustable
U.S. Government Reserve Fund in exchange for shares of Stable
Income Fund of the Trust and the assumption by Stable Income
Fund of all the liabilities of Adjustable U.S. Government
Reserve Fund, the distribution of such shares to shareholders
of Adjustable U.S. Government Reserve Fund in liquidation of
Adjustable U.S. Government Reserve Fund;
PROPOSAL FOR SHAREHOLDERS OF GOVERNMENT INCOME FUND
(b) the transfer of all the assets of Government
Income Fund in exchange for shares of Intermediate U.S.
Government Fund of the Trust and the assumption by
Intermediate U.S. Government Fund of all the liabilities of
Government Income Fund, the distribution of such shares to
shareholders of Government Income Fund in liquidation of
Government Income Fund; and
1
<PAGE>
PROPOSAL FOR SHAREHOLDERS OF INCOME STOCK FUND
(c) the transfer of all the assets of Income Stock
Fund in exchange for shares of Income Equity Fund of the Trust
and the assumption by Income Equity Fund of all the
liabilities of Income Stock Fund, the distribution of such
shares to shareholders of Income Stock Fund in liquidation of
Income Stock Fund;
OTHER MATTERS
2. To transact such other business as may properly
come before the Meeting or any adjournment or adjournments
thereof.
The Board of Trustees (the "Board") has fixed the
close of business on February 26, 1996 as the record date for
determination of those shareholders entitled to notice of, and
to vote at, the Meeting or any adjournment thereof. The
enclosed proxy is being solicited on behalf of the Board of
Trustees. Each shareholder who does not expect to attend the
Meeting in person is requested to complete, date, sign and
promptly return the enclosed form of proxy.
By order of the Board
David I. Goldstein
Secretary
Portland, Maine
March [ ], 1996
2
47180012.AA0
<PAGE>
PROSPECTUS/PROXY STATEMENT
ACQUISITION OF ALL THE ASSETS OF
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND,
GOVERNMENT INCOME FUND AND INCOME STOCK FUND
OF NORWEST ADVANTAGE FUNDS
BY AND IN EXCHANGE FOR SHARES OF
STABLE INCOME FUND, INTERMEDIATE U.S.
GOVERNMENT FUND AND INCOME EQUITY FUND
OF NORWEST ADVANTAGE FUNDS
Two Portland Square
Portland, Maine 04101
207-879-1900
INTRODUCTION
This Prospectus/Proxy Statement relates to the
solicitation of shareholder approval for the proposed transfer
of all the assets of each portfolio of Norwest Advantage Funds
(the "Trust") listed below (each, a "Transferor Fund" and
collectively, the "Transferor Funds") to the portfolio of the
Trust whose name is set forth opposite the name of the
Transferor Fund (each, an "Acquiring Fund" and collectively,
the "Acquiring Funds") in exchange for A Shares, B Shares and
I Shares of the Acquiring Fund to which the assets are
transferred and the assumption by the Acquiring Fund of all
the liabilities of the Transferor Fund.
Transferor Fund Corresponding Acquiring Fund
Adjustable U.S. Government Stable Income Fund
Reserve Fund
Government Income Fund Intermediate U.S. Government
Fund
Income Stock Fund Income Equity Fund
An Acquiring Fund is sometimes referred to herein as
the "Corresponding Acquiring Fund" of the Transferor Fund from
which assets and liabilities are proposed to be transferred,
and a Transferor Fund is sometimes referred to herein as the
"Corresponding Transferor Fund" of its Acquiring Fund. The
Acquiring Funds and Transferor Funds are sometimes referred to
collectively herein as the "Funds" and individually as a
"Fund."
<PAGE>
As a consequence of the proposed transaction,
A Shares, B Shares and I Shares of each Acquiring Fund will be
distributed to the shareholders of the Corresponding
Transferor Fund in liquidation of the Corresponding Transferor
Fund. The proposed transaction will be effected at net asset
value without the imposition of any sales charges or other
fees.
The Trust is an open-end management investment
company organized as a Delaware business trust and each of the
Acquiring Funds and Transferor Funds is a diversified
portfolio of the Trust.
THE BOARD OF TRUSTEES RECOMMENDS APPROVAL OF
THE PLAN OF REORGANIZATION AND LIQUIDATION
This Prospectus/Proxy Statement, which should be
retained for future reference, sets forth concisely the
information about the Acquiring Funds that a prospective
investor should know before signing and returning the enclosed
proxy card. This Prospectus/Proxy Statement is accompanied by
the Prospectus offering A Shares and B Shares of Stable Income
Fund and Intermediate U.S. Government Fund dated March 1, 1996
(the "Income Funds Prospectus"), the Prospectus offering A
Shares and B Shares of Income Equity Fund dated March 1, 1996
(the "Equity Funds Prospectus") or the Prospectus offering I
Shares of Stable Income Fund, Intermediate U.S. Government
Fund and Income Equity Fund dated March 1, 1996 (the "I Shares
Prospectus"), as appropriate (collectively, the "Acquiring
Funds Prospectuses"), and the Annual Report to Shareholders of
the Acquiring Funds for the fiscal year ended October 31, 1995
(the "Acquiring Funds Annual Report"). The information in the
Acquiring Funds Prospectuses that pertains to the Acquiring
Funds is incorporated herein by reference. A Statement of
Additional Information dated March [ ], 1996 (the "SAI"),
which provides a further discussion of certain matters
discussed herein, as well as additional matters, including
information about the Acquiring Funds and the Transferor
Funds, has been filed with the Securities and Exchange
Commission (the "Commission") and is also incorporated herein
by reference. The Statement of Additional Information
offering A Shares and B Shares of the Acquiring Funds and the
Statement of Additional Information offering I Shares of the
Acquiring Funds each dated March 1, 1996 have been filed with
the Commission as part of the SAI and, as they pertain to the
Acquiring Funds, are further incorporated by reference herein.
Copies of the SAI may be obtained without charge by writing to
the distributor of the Trust, Forum Financial Services, Inc.
("Forum") at, Two Portland Square, Portland, Maine, 04101, or
by calling 207-879-1900.
2
<PAGE>
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/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SUMMARY
This summary is qualified by reference to the more
complete information contained elsewhere in this
Prospectus/Proxy Statement, the Acquiring Funds Prospectuses,
the Acquiring Funds Annual Report and the Plan of
Reorganization and Liquidation attached hereto as Exhibit A.
Proposed Transaction. At the meeting held on January
29, 1996, the Board of Trustees of the Trust (the "Board"),
including the Trustees who are not "interested persons" of the
Trust (the "Independent Trustees") within the meaning of the
Investment Company Act of 1940 (the "1940 Act"), approved a
Plan of Reorganization and Liquidation (the "Plan") providing
for (i) the transfer of all the assets of each Transferor Fund
in exchange for A Shares, B Shares and I Shares of the
Corresponding Acquiring Fund, (ii) the assumption by the
Corresponding Acquiring Fund of all the liabilities of the
Corresponding Transferor Fund and (iii) the distribution of
the A Shares, B Shares and I Shares of the Corresponding
Acquiring Fund to shareholders of the Corresponding Transferor
Fund in liquidation of the Transferor Fund (the
"Transaction"). The aggregate net asset value of the A
Shares, B Shares and I Shares of an Acquiring Fund issued in
the Transaction will be equal to the aggregate net asset value
of the A Shares, B Shares and I Shares, respectively, of the
Corresponding Transferor Fund then outstanding.
As a result of the Transaction, each holder of A
Shares, B Shares or I Shares of a Transferor Fund will receive
that number of full and fractional shares of the corresponding
class (i.e., A Shares, B Shares and I Shares, as the case may
be) of the Corresponding Acquiring Fund equal in net asset
value at the close of business on the date of the exchange to
the net asset value of such holder's A Shares, B Shares or I
Shares of the Transferor Fund. The Transaction will be
effected at net asset value without the imposition of any
sales charges or other fees.
The Board has determined that (i) the interests of
existing shareholders of each Transferor Fund would not be
diluted as a result of the Transaction and (ii) the
Transaction would be in the best interests of each Transferor
3
<PAGE>
Fund and the shareholders of each Transferor Fund and
recommends approval of the Transaction. Approval of the Plan
and the Transaction with respect to a Transferor Fund will
require the affirmative vote of the holders of a majority of
the outstanding shares of the Transferor Fund. The expenses
incurred in connection with the Transaction will be borne
equitably by each of the Transferor Funds and each of the
Acquiring Funds.
The Transaction is expected to occur shortly
following shareholder approval thereof. However, at any time
prior to the closing of the Transaction, the Board may
terminate the Plan in its entirety or with respect to any
Transferor Fund and its Corresponding Acquiring Fund. [The
Plan shall terminate as of the close of business on [ ],
1996 if the closing of the Transaction has not occurred on or
prior to that date.]
Tax Consequences of the Transaction. No gain or loss
shall be recognized by any Transferor Fund or the shareholders
of any Transferor Fund as a result of the Transaction. The
aggregate tax basis of the Acquiring Fund shares received by a
shareholder of the Corresponding Transferor Fund will be the
same as the shareholder's aggregate tax basis in the shares of
the Corresponding Transferor Fund and the holding period of
the Acquiring Fund shares received by a shareholder of the
Corresponding Transferor Fund will include the holding period
of the shares of the Corresponding Transferor Fund held by the
shareholder, provided that such shares are held as capital
assets by the shareholder at the time of the Transaction. The
foregoing tax information is based on an opinion of Seward &
Kissel, counsel to the Trust. An opinion of counsel is not
binding on the Internal Revenue Service. See "Information
about the Transaction - Federal Income Tax Consequences of the
Transaction" below.
Investment Objectives and Policies. The investment
objectives and policies of (i) Adjustable U.S. Government
Reserve Fund and Stable Income Fund are similar, (ii)
Government Income Fund and Intermediate U.S. Government Fund
are substantially similar and (iii) Income Stock Fund and
Income Equity Fund are substantially similar. The Funds'
investment objectives are listed below.
Investment Objective
Adjustable U.S. Government seeks high current income
Reserve Fund consistent with minimal
principal fluctuation.
4
<PAGE>
Stable Income Fund seeks to maintain safety of
principal while providing
low-volatility total return.
Government Income Fund seeks maximum income, as a
primary investment
objective, and preservation
of capital, as a secondary
investment objective.
Intermediate U.S. seeks to provide income and
Government Fund safety of principal by
investing primarily in U.S.
Government Securities.
Income Stock Fund seeks current income and
growth of income and,
consistent with those
objectives, long-term
capital growth.
Income Equity Fund seeks to provide both long-
term capital appreciation in
line with that of the
overall equity securities
markets and above average
dividend income.
The investment objectives and policies of the Funds are
discussed in detail below under "Comparison of Investment
Objectives and Policies."
Management of the Funds. The investment adviser to
each Fund is Norwest Investment Management, a part of Norwest
Bank Minnesota, N.A. ("Norwest"). Norwest serves as the
Trust's transfer agent, dividend disbursing agent and
custodian. The manager of the Trust and the distributor of
its shares is Forum.
Dividends and Distributions. Except as described
below, the dividend and distribution policies of each
Transferor Fund and its Corresponding Acquiring Fund are
identical. Effective March 31, 1996, dividends of net
investment income of Stable Income Fund and Intermediate U.S.
Government Fund will be declared and paid monthly and
dividends of net investment income of Income Equity Fund will
be declared and paid quarterly. Dividends of net investment
income of each Transferor Fund are declared and paid monthly.
5
<PAGE>
Each Fund's net capital gain, if any, is distributed at least
annually.
Purchase Procedures, Exchange Privileges, Redemption
Procedures. The purchase procedures, exchange privileges and
redemption procedures of each Transferor Fund and its
Corresponding Acquiring Fund are identical.
Alternative Distribution Arrangements - B Shares.
The Transferor Funds and the Acquiring Funds have adopted a
distribution plan with respect to the B Shares of the Funds,
pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"),
providing for distribution payments by each Fund to Forum.
The 12b-1 Plan is described in greater detail under "How to
Buy Shares - Alternative Distribution Arrangements - B Shares"
in the Income Funds Prospectus and the Equity Funds
Prospectus. The provisions of the 12b-1 Plan are identical
with respect to the Transferor Funds and the Acquiring Funds
except that the 12b-1 Plan permits the Board to authorize each
Acquiring Fund to assume the uncovered distribution charges or
unreimbursed distribution expenses of any other registered
investment company or series thereof upon an Acquiring Fund's
merger or combination with, or acquisition of, substantially
all of the assets of that registered investment company. The
12b-1 Plan does not currently permit any of the Transferor
Funds to assume the uncovered distribution charges or
unreimbursed distribution expenses of another registered
investment company or series thereof. See "Information About
the Transaction-Uncovered Distribution Charges" below.
6
<PAGE>
EXPENSE INFORMATION
The tables below set forth information with respect to
shares of each Transferor Fund and shares of its Corresponding
Acquiring Fund as well as pro forma information for shares of the
Acquiring Fund after giving effect to the Transaction. The
tables were prepared by Forum based on the net asset, fee and
expense levels of the Transferor and Acquiring Funds as of
October 31, 1995.
Adjustable U.S. Government Reserve Fund/Stable Income Fund
<TABLE>
<CAPTION>
Pro Forma
Adjustable Combined Fund
U.S. (i.e., Stable
Government Income Fund
Reserve Stable Following the
Fund Income Fund Transaction)
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
A Shares(a)..................................... 1.5% 1.5% 1.5%
B Shares and I Shares........................... Zero Zero Zero
Maximum deferred sales charge (as a
percentage of the lesser of original
purchase price or redemption proceeds)
A Shares and I Shares(a)........................ Zero Zero Zero
B Shares(b)..................................... 1.5% 1.5% 1.5%
Exchange Fee...................................... Zero Zero Zero
Annual Operating Expenses (as a percentage of
average daily net assets after applicable fee
waivers and expense reimbursements)(c)
Investment Advisory Fees........................... 0.43% 0.30% 0.30%
Rule 12b-1 Fees
A Shares and I Shares........................... None None None
B Shares(d)..................................... 0.75% 0.75% 0.75%
Other Expenses
A Shares........................................ 0.42% 0.35% 0.35%
B Shares........................................ 0.41% 0.35% 0.35%
I Shares........................................ 0.42% 0.35% 0.35%
7
<PAGE>
Total Operating Expenses
A Shares........................................ 0.85% 0.65% 0.65%
B Shares........................................ 1.59% 1.40% 1.40%
I Shares........................................ 0.85% 0.65% 0.65%
===== ===== =====
</TABLE>
(a) If A Shares of a Fund purchased without an initial sales
charge (purchases of $1,000,000 or more) are redeemed within
two years after purchase, a contingent deferred sales charge
of up to 0.50% will be applied to the redemption. See "How
to Buy Shares - Alternative Distribution Arrangements" in
the Income Funds Prospectus.
(b) The maximum 1.5% contingent deferred sales charge on B
Shares applies to redemptions during the first year after
purchase; the charge declines thereafter, becoming 0.75%
during the second year, and reaches zero thereafter. See
"How to Buy Shares - Alternative Distribution Arrangements"
in the Income Funds Prospectus.
(c) The amount of expenses for Adjustable U.S. Government
Reserve Fund and the I Shares of Stable Income Fund are
based on amounts incurred during each Fund's most recent
fiscal year ended May 31, 1995 and October 31, 1995,
respectively. Absent expense reimbursements and fee
waivers, (i) the expenses of the A Shares, B Shares and I
Shares of Adjustable U.S. Government Reserve Fund would have
been: Investment Advisory Fees, 0.50%; Other Expenses,
0.65%, 1.57% and 0.59%, respectively; and Total Fund
Operating Expenses, 1.15%, 3.07% and 1.09%, respectively,
and (ii) the expenses of the I Shares of Stable Income Fund
would have been: Other Expenses, 0.66%; and Total Fund
Operating Expenses, 0.96%. The information for the A Shares
and B Shares of Stable Income Fund and for each class of
shares of the pro forma combined fund is based on estimated
expenses for Stable Income Fund's current fiscal year. In
the absence of estimated expense reimbursements and fee
waivers, (i) the expenses of the A Shares and B Shares of
Stable Income Fund would be: Other Expenses: 0.66%; and
Total Fund Operating Expenses, 0.96, 1.96%, respectively,
and (ii) the expenses of the A Shares, B Shares and I Shares
of the pro forma combined fund would be: Other Expenses,
0.51%; Total Fund Operating Expenses, 0.81%, 1.81% and
0.81%, respectively. Waivers may be reduced or eliminated
at any time.
(d) Absent waivers, the Rule 12b-1 Fees would be 1.00%. Long-
term shareholders of B Shares may pay aggregate sales
8
<PAGE>
charges totaling more than the economic equivalent of the
maximum front-end sales charges permitted by the Rules of
Fair Practice of the National Association of Securities
Dealers, Inc.
EXAMPLE
The Example below indicates the dollar amount of
expenses that an investor would pay assuming a $1,000
investment in a Fund's Shares, a 5% annual return and
reinvestment of all dividends and distributions.
1 year 3 years 5 years 10 years
Adjustable U.S. Government Reserve Fund
A Shares............................ $24 $42 $61 $118
B Shares
Assuming redemption at the end
of the period..................... $31 $50 -- --
Assuming no redemption............. $16 $50 -- --
I Shares............................ $ 9 $27 $47 $105
Stable Income Fund
A Shares............................ $22 $36 $51 $96
B Shares
Assuming redemption at the end
of the period..................... $29 $44 -- --
Assuming no redemption............. $14 $44 -- --
I Shares............................ $ 7 $21 $36 $81
Pro Forma Combined Fund (i.e.,
Stable Income Fund following
the Transaction)
A Shares............................ $22 $36 $51 $96
B shares
Assuming redemption at the end
of the period..................... $29 $44 -- --
Assuming no redemption............. $14 $44 -- --
I Shares............................ $ 7 $21 $36 $81
9
<PAGE>
Government Income Fund/Intermediate U.S. Government Fund
<TABLE>
<CAPTION
Pro Forma
Combined Fund
Intermediate (i.e., Intermediate
Government U.S. U.S. Government
Income Government Fund Following
Fund Fund the Transaction)
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
A Shares(a)..................................... 3.75% 3.75% 3.75%
B Shares and I Shares........................... Zero Zero Zero
Maximum deferred sales charge (as a
percentage of the lesser of original
purchase price or redemption proceeds)
A Shares and I Shares(a)........................ Zero Zero Zero
B Shares(b)..................................... 3.0% 3.0% 3.0%
Exchange Fee.................................... Zero Zero Zero
Annual Operating Expenses (as a percentage of
average daily net assets after applicable fee
waivers and expense reimbursements)(c)
Investment Advisory Fees........................... 0.37% 0.33% 0.33%
Rule 12b-1 Fees
A Shares and I Shares........................... None None None
B Shares(d)..................................... 0.75% 0.75% 0.75%
Other Expenses
A Shares........................................ 0.38% 0.35% 0.35%
B Shares........................................ 0.38% 0.35% 0.35%
I Shares........................................ 0.38% 0.35% 0.35%
Total Operating Expenses
A Shares........................................ 0.75% 0.68% 0.68%
B Shares........................................ 1.50% 1.43% 1.43%
I Shares........................................ 0.75% 0.68% 0.68%
===== ===== =====
</TABLE>
10
<PAGE>
(a) If A Shares of a Fund purchased without an initial sales
charge (purchases of $1,000,000 or more) are redeemed within
two years after purchase, a contingent deferred sales charge
of up to 0.75% will be applied to the redemption. See "How
to Buy Shares - Alternative Distribution Arrangements" in
the Income Funds Prospectus.
(b) The maximum 3.0% contingent deferred sales charge on B
Shares applies to redemptions during the first year after
purchase; the charge declines thereafter, becoming 2.0%
during the second and third years, 1.0% during the fourth
year and reaches zero the following year. See "How to Buy
Shares - Alternative Distribution Arrangements" in the
Income Funds Prospectus.
(c) The amount of expenses for Government Income Fund and the I
Shares of Intermediate U.S. Government Fund are based on
amounts incurred during each Fund's most recent fiscal year
ended May 31, 1995 and October 31, 1995, respectively.
Absent expense reimbursements and fee waivers, (i) the
expenses of the A Shares, B Shares and I Shares of
Government Income Fund would have been: Investment Advisory
Fees 0.40%; Other Expenses, 0.61%, 0.60% and 0.53%,
respectively; and Total Fund Operating Expenses, 1.01%,
2.00% and 0.93%, respectively, and (ii) the expenses of the
I Shares of Intermediate U.S. Government Fund would have
been: Other Expenses, 0.66%; and Total Fund Operating
Expenses, 0.96%. The information for the A Shares and B
Shares of Intermediate U.S. Government Fund and for each
class of the pro forma combined fund is based on estimated
expenses for the Intermediate U.S. Government Fund's current
fiscal year. In the absence of estimated expense
reimbursements and fee waivers, (i) the expenses of the A
Shares and B Shares of Intermediate U.S. Government Fund
would be: Other Expenses, 0.66%; and Total Fund Operating
Expenses, 0.96% and 1.96%, respectively, and (ii) the
expenses of the A Shares, B Shares and I Shares of the pro
forma combined fund would be: Other Expenses 0.51%; and
Total Fund Operating Expenses, 0.84%, 1.84% and 0.84%,
respectively. Waivers may be reduced or eliminated at any
time.
(d) Absent waivers, the Rule 12b-1 Fees would be 1.00%. Long-
term shareholders of B Shares may pay aggregate sales
charges totaling more than the economic equivalent of the
maximum front-end sales charges permitted by the Rules of
Fair Practice of the National Association of Securities
Dealers, Inc.
11
<PAGE>
EXAMPLE
The Example below indicates the dollar amount of
expenses that an investor would pay assuming a $1,000
investment in a Fund's Shares, a 5% annual return and
reinvestment of all dividends and distributions.
1 year 3 years 5 years 10 years
Government Income Fund
A Shares............................ $45 $60 $77 $127
B Shares
Assuming redemption at the end
of the period..................... $45 $67 $82 --
Assuming no redemption............. $15 $47 $82 --
I Shares............................ $ 8 $24 $41 $92
Intermediate U.S. Government Fund
A Shares............................ $44 $59 $75 $122
B Shares
Assuming redemption at the end
of the period..................... $45 $65 $78 --
Assuming no redemption............. $15 $45 $78 --
I Shares............................ $ 7 $22 $38 $85
Pro Forma Combined Fund (i.e.,
Intermediate U.S. Government Fund
following the Transaction)
A Shares............................ $44 $59 $75 $122
B Shares
Assuming redemption at the end
of the period..................... $45 $65 $78 --
Assuming no redemption............. $15 $45 $78 --
I Shares............................ $ 7 $22 $38 $85
12
<PAGE>
Income Stock Fund/Income Equity Fund
<TABLE>
<CAPTION>
Pro Forma
Combined Fund
(i.e., Income
Income Income Equity Fund
Stock Equity Following the
Fund Fund Transaction)
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
A Shares(a)..................................... 4.50% 4.50% 4.50%
B Shares and I Shares........................... Zero Zero Zero
Sales Charge Imposed on
Dividend Reinvestments.......................... Zero Zero Zero
Maximum deferred sales charge (as a
percentage of the lesser of original
purchase price or redemption proceeds)
A Shares and I Shares(a)........................ Zero Zero Zero
B Shares(b)..................................... 4.0% 4.0% 4.0%
Exchange Fee...................................... Zero Zero Zero
Annual Operating Expenses (as a percentage of
average daily net assets after applicable fee
waivers and expense reimbursements)(c)
Investment Advisory Fees........................... 0.37% 0.65%(d) 0.65%(d)
Rule 12b-1 Fees
A Shares and I Shares........................... None None None
B Shares(e)..................................... 0.75% 0.75% 0.75%
Other Expenses
A Shares........................................ 0.63% 0.35% 0.35%
B Shares........................................ 0.63% 0.35% 0.35%
I Shares........................................ 0.63% 0.35% 0.35%
Total Operating Expenses
A Shares........................................ 1.00% 1.00% 1.00%
B Shares........................................ 1.75% 1.75% 1.75%
I Shares........................................ 1.00% 1.00% 1.00%
13
<PAGE>
===== ===== =====
</TABLE>
(a) If A Shares of a Fund purchased without an initial sales
charge (purchases of $1,000,000 or more) are redeemed within
two years after purchase, a contingent deferred sales charge
of up to 0.75% will be applied to the redemption. See "How
to Buy Shares - Alternative Distribution Arrangements" in
the Equity Funds Prospectus.
(b) The maximum 4.0% contingent deferred sales charge on B
Shares applies to redemptions during the first year after
purchase; the charge declines thereafter, becoming 3.0%
during the second and third years, 2.0% during the fourth
and fifth years, 1.0% during the sixth year and reaches zero
the following year. See "How to Buy Shares - Alternative
Distribution Arrangements" in the Equity Funds Prospectus.
(c) The amount of expenses for Income Stock Fund is based on
amounts incurred during the Fund's most recent fiscal year
ended May 31, 1995. Absent expense reimbursements and fee
waivers, the expenses of the A Shares, B Shares and I Shares
of Income Stock Fund would have been: Investment Advisory
Fees, 0.80%; Other Expenses, 0.71%, 1.02% and 0.67%,
respectively; and Total Operating Expenses, 1.51%, 2.82% and
1.47%, respectively.
The amount of expenses for Income Equity Fund and the pro
forma combined fund are based on estimated expenses for
current fiscal year of Income Equity Fund and, further,
assume approval by shareholders of Income Equity Fund of the
proposed increase in the Fund's advisory fee (described in
footnote (d) below). Absent estimated expense
reimbursements and fee waivers, (i) the estimated expenses
of the A Shares of Income Equity Fund and the pro forma
combined fund would be: Other Expenses, 0.59%, 0.42%,
respectively; and Total Operating Expenses, 1.24%, 1.17%,
respectively, (ii) the estimated expenses of the B Shares of
Income Equity Fund and the pro forma combined fund would be:
Other Expenses, 0.59%, 0.42%, respectively; and Total
Operating Expenses, 2.24%, 2.17%, respectively, and (iii)
the estimated expenses of the I Shares of Income Equity Fund
and the pro forma combined fund would be: Other Expenses,
0.59%, 0.42%, respectively; Total Operating Expenses, 1.24%,
1.17%, respectively.
Absent expense reimbursements and fee waivers, expenses of
the I Shares of Income Equity Fund incurred during the
Fund's most recently completed fiscal year ended October 31,
14
<PAGE>
1995 would have been: Investment Advisory, 0.50%; Other
Expenses, 0.59%; and Total Operating Expenses 1.09%. Absent
estimated expense reimbursements and fee waivers and
assuming that the advisory fee payable by Income Equity Fund
were to remain at 0.50% annualized of the average daily net
assets of the Fund, (i) the Total Operating Expenses of the
A Shares, B Shares and I Shares of Income Equity Fund would
be: 1.09%, 2.09% and 1.09%, respectively, and (ii) the Total
Operating Expenses of the A Shares, B Shares and I Shares of
the pro forma combined fund would be: 1.02%, 1.02% and
1.02%, respectively.
(d) Income Equity Fund currently pays an advisory fee equal to
0.50% annualized of the average daily net assets of the
Fund. A proposal to increase the amount of the advisory fee
paid by Income Equity Fund to 0.65% of the Fund's average
daily net assets has been submitted to the shareholders of
Income Equity Fund for their approval at a Special Meeting
of Shareholders scheduled to be held on March 11, 1996.
(e) Absent waivers, the Rule 12b-1 Fees would be 1.00%. Long-
term shareholders of B Shares may pay aggregate sales
charges totaling more than the economic equivalent of the
maximum front-end sales charges permitted by the Rules of
Fair Practice of the National Association of Securities
Dealers, Inc.
15
<PAGE>
EXAMPLE
The Example below indicates the dollar amount of
expenses that an investor would pay assuming a $1,000
investment in a Fund's Shares, a 5% annual return and
reinvestment of all dividends and distributions.
1 year 3 years 5 years 10 years
Income Stock Fund
A Shares............................ $55 $75 $ 98 $162
B Shares
Assuming redemption at the end
of the period..................... $58 $85 $115 --
Assuming no redemption............. $18 $55 $ 95 --
I Shares............................ $10 $32 $ 55 $122
Income Equity Fund
A Shares............................ $55 $77 $100 $167
B Shares
Assuming redemption at the end
of the period..................... $58 $85 $115 --
Assuming no redemption............. $18 $55 $ 95 --
I Shares............................ $10 $32 $ 55 $122
Pro Forma Combined Fund (i.e.,
Income Equity Fund following
the Transaction)
A Shares............................ $55 $77 $100 $167
B Shares
Assuming redemption at the end
of the period..................... $58 $85 $115 --
Assuming no redemption............. $18 $55 $ 95 --
I Shares............................ $10 $32 $ 55 $122
The examples are based on the expenses listed in
the "Annual Operating Expenses" tables above. The 5% annual
return is not predictive of and does not represent the
Funds' projected returns; rather, it is required by
government regulation. The examples assume deduction of the
maximum initial sales charges for A Shares, deduction of
contingent deferred sales charges for B Shares applicable to
a redemption at the end of the period and the conversion of
B Shares to A Shares at the end of four years, in the case
of Adjustable U.S. Government Reserve Fund and Stable Income
Fund, six years, in the case of Government Income Fund and
Intermediate U.S. Government Fund, and seven years in the
case of Income Stock Fund and Income Equity Fund. The
Examples should not be considered representations of past or
future expenses or return; actual expenses may be greater or
less than indicated.
16
<PAGE>
REASONS FOR THE TRANSACTION
At the January 29, 1996 Meeting of the Board, Norwest
and Forum recommended to the Board that it approve and
recommend to the shareholders of each Transferor Fund for
their approval a combination of each Transferor Fund and its
Corresponding Acquiring Fund by means of a tax-free
acquisition of all the assets of each Transferor Fund by its
Corresponding Acquiring Fund in exchange for shares of its
Corresponding Acquiring Fund and the assumption by the
Corresponding Acquiring Fund of all the liabilities of the
Transferor Fund, which shares would then be distributed to the
shareholders of each Transferor Fund in liquidation of each
Transferor Fund. The Board accepted the recommendation of
Norwest and Forum, concluded that the Transaction and the Plan
would be in the best interests of each Transferor Fund and its
shareholders and recommended that the shareholders approve the
proposed Transaction.
Norwest and Forum made their recommendation to the
Trustees based on the similarities in investment objectives,
policies and styles of each Transferor Fund and its
Corresponding Acquiring Fund. Norwest and Forum believe that
the Transaction would eliminate any existing or future
competition between the Transferor Funds and Corresponding
Acquiring Funds for investment opportunities and for
shareholders and would provide economies of scale by
eliminating duplicative functions and permitting larger
portfolio transactions.
The Board reviewed the annualized expense ratios of
the Transferor Funds and Acquiring Funds and the pro forma
combined funds and noted that the expense ratio of each pro
forma combined fund following the Transaction would be no
greater than the expense ratio of the Corresponding Transferor
Fund prior to the Transaction. In addition, the Board
considered the following comparative annualized total return
information relating to the I Shares of each Transferor and
each Acquiring Fund as of October 31, 1995:
17
<PAGE>
10 year
period
1 year 5 year (or since
period period inception)
Adjustable
U.S. Government
Reserve Fund 5.20% N/A 2.21% (6/16/92)
Stable Income Fund 7.39% N/A 7.39% (10/31/94)
Income Stock Fund 25.14% N/A 14.76% (6/1/93)
Income Equity Fund 25.99% 16.23% 15.05%
Government Income Fund 10.03% N/A 2.13% (12/1/88)
Intermediate U.S.
Government Fund 11.31% 7.21% 7.33%
The Board also considered, among other things: (i)
the terms and conditions of the Transaction; (ii) whether the
Transaction would result in the dilution of shareholders'
interests; (iii) the investment objectives and policies of
each Transferor Fund and each Acquiring Fund; (iv) the fact
that the expenses incurred in connection with the Transaction
will be borne equitably by each Transferor Fund and each
Acquiring Fund; (v) the benefits of the Transaction to persons
other than the Transferor Funds; (vi) the fact that each
Acquiring Fund will assume all the liabilities of the
Corresponding Transferor Fund; (vii) the expected federal
income tax consequences of the Transaction; (viii) the
historical and pro forma information referred to above; and
(ix) the treatment in the Transaction of the uncovered
distribution charges of the Transferor Funds.
Based on the factors described above, the Board
unanimously determined that the Transaction would be in the
best interests of each Transferor Fund and each Transferor
Fund's shareholders and would not result in dilution of the
interests of shareholders, and recommended that each
Transferor Fund's shareholders approve the proposed
Transaction.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
Stable Income Fund and Adjustable U.S. Government
Reserve Fund. The investment objectives, policies and styles
of the Funds are similar. The investment objective of Stable
Income Fund is to maintain safety of principal while providing
low-volatility total return. The investment objective of
Adjustable U.S. Government Reserve Fund is to seek high
current income consistent with minimal principal fluctuation.
18
<PAGE>
There can be no assurance that either Fund will achieve its
investment objective.
Stable Income Fund seeks to attain its investment
objective by investing primarily in investment grade short-
term obligations. Stable Income Fund invests in a diversified
portfolio of fixed and variable rate U.S. dollar denominated
fixed income securities of a broad spectrum of United States
and foreign issuers, including U.S. Government Securities and
the debt securities of financial institutions, corporations,
and others. The securities in which the Stable Income Fund
invests include mortgage-backed and other asset-backed
securities, although the Fund limits these investments to not
more than 60 percent and 25 percent, respectively, of its
total assets. In addition, Stable Income Fund limits its
holdings of mortgage-backed securities that are not U.S.
Government Securities to 25 percent of its total assets.
Stable Income Fund may invest any amount of its assets in U.S.
Government Securities, but under normal circumstances less
than 50 percent of the Fund's total assets are so invested.
In addition, Stable Income Fund may not invest more than 25
percent of its total assets in the securities issued or
guaranteed by any single agency or instrumentality of the U.S.
Government, except the U.S. Treasury, and may not invest more
than 10 percent of its total assets in the securities of any
other issuer.
Adjustable U.S. Government Reserve Fund seeks to
attain its investment objective primarily by investing in a
portfolio of adjustable rate securities, including adjustable
rate mortgage-backed securities ("ARMS"), that are U.S.
Government Securities. Under normal circumstances, the Fund
will invest at least 65 percent of its total assets in
adjustable rate U.S Government Securities. Norwest currently
anticipates that a substantial amount of the adjustable rate
U.S Government Securities purchased by the Fund will be ARMS.
Norwest focuses on high quality, short and intermediate
maturity instruments. Adjustable rate instruments are
emphasized to attempt to control principal fluctuation.
Investment return is enhanced through the application of
disciplined fixed income management techniques combined with
fundamental economic, credit and market analysis.
Adjustable U.S. Government Reserve Fund may invest up
to 35 percent of its total assets in fixed rate U.S.
Government Securities or corporate securities and in mortgage-
and asset-backed securities that are not U.S. Government
Securities.
Each of Funds invests (primarily, in the case of
Adjustable U.S. Government Reserve Fund) in securities with
19
<PAGE>
maturities (or average life in the case of mortgage-backed and
similar securities) ranging from short-term (including
overnight) to 12 years and seeks to maintain an average
dollar-weighted portfolio maturity of between 2 and 5 years.
[In addition, under normal circumstances, Adjustable U.S.
Government Reserve Fund's portfolio of securities has a
duration of no more than 1.75 years. Duration is a measure of
a debt security's average life that reflects the present value
of the security's cash flow and, accordingly, is a measure or
price sensitivity to interest rate changes ("duration risk").
Because earlier payments on a debt security have a higher
present value, duration of a security, except a zero-coupon
security, will be less than the security's stated maturity.]
Each Fund limits its investment to those securities
that are rated, at the time of purchase, within the three
highest long-term or two highest short-term rating categories
assigned by a nationally recognized statistical rating
organization, such as Moody's Investors Service, Inc.,
Standard & Poor's Ratings Services or Fitch Investors Service,
Inc., or which are unrated and determined by Norwest to be of
comparable quality.
In order to manage its exposure to different types of
investments, each Fund may enter into interest rate and
mortgage swap agreements and may purchase (and, in the case of
Stable Income Fund, sell) interest rate caps, floors and
collars. Each Fund may also engage in certain strategies
involving options (both exchange-traded and over-the-counter)
to attempt to enhance the Fund's income and may attempt to
reduce the overall risk of its investments or limit the
uncertainty in the level of future foreign exchange rates
(hedge) by using options and futures contracts and foreign
currency forward contracts. The Funds' ability to use these
strategies may be limited by market considerations, regulatory
limits and tax considerations. Each Fund may write covered
call and put options, buy put and call options, buy and sell
interest rate and foreign currency futures contracts and buy
options and write covered options on those futures contracts.
An option is covered if, so long as a Fund is obligated under
the option, it owns an offsetting position in the underlying
security or futures contract or maintains a segregated account
of liquid, high-grade debt instruments with a value at all
times sufficient to cover the Fund's obligations under the
option.
As fundamental policies that may not be changed
without the approval of a majority of a Fund's shareholders
(each, a "fundamental policy"), each Fund is diversified, as
that term is defined in the 1940 Act, and is prohibited from
concentrating its assets in the securities of issuers in any
20
<PAGE>
single industry. Stable Income Fund has reserved the right to
invest, without shareholder approval, all or a portion of its
assets in another open-end investment company with
substantially the same investment objectives as the Fund;
absent shareholder approval, Adjustable U.S. Government
Reserve Fund may not invest all of its assets in another
investment company. Other fundamental and nonfundamental
investment policies of the Funds are substantially the same,
including those with respect to repurchase agreements,
temporary defensive positions and illiquid securities. A more
detailed description of the types of securities in which
Stable Income Fund invests, its fundamental and nonfundamental
investment policies, and the risks associated with an
investment in the Fund is contained in more detail in the
Income Funds Prospectus, the I Shares Prospectus and the SAI.
Intermediate U.S. Government Fund and Government
Income Fund. The investment objectives, policies and styles of
the Funds are substantially similar. Intermediate U.S.
Government Fund seeks to provide income and safety of
principal by investing primarily in U.S Government Securities.
Government Income Fund seeks maximum income as a primary
investment objective and preservation of capital as a
secondary investment objective. There can be no assurance
that either Fund will achieve its investment objective.
The Funds pursue their investment objectives
primarily by investing in U.S. Government Securities. Under
normal circumstances, each Fund invests at least 65 percent of
its assets in U.S. Government Securities. However,
Intermediate U.S. Government Fund may invest up to 35 percent
of its assets in fixed income securities that are not U.S.
Government Securities and Government Income Fund may invest up
to 20 percent of its assets in mortgage-backed securities that
are not U.S Government Securities. In addition, Intermediate
U.S. Government Fund may not invest more than 25 percent of
its total assets in securities issued or guaranteed by any
single agency or instrumentality of the U.S. Government,
except the U.S. Treasury.
Intermediate U.S. Government Fund emphasizes the use
of intermediate maturity securities to lessen interest rate
risk, while employing low risk yield enhancement techniques to
add to the Fund's return over a complete economic or interest
rate cycle. Intermediate U.S. Government Fund invests in
mortgage-backed and other asset-backed securities, although
the Fund limits these investments to not more than 50 percent
and 25 percent, respectively, of its total assets.
Government Income Fund seeks to attain its investment
objective by investing in U.S. Government Securities,
21
<PAGE>
including mortgage-backed securities, and repurchase
agreements pertaining to U.S. Government Securities. Norwest
attempts to structure the Fund to benefit from the attractive
risk/return characteristics of intermediate maturity issues.
Norwest attempts to enhance the Fund's income through
ownership of mortgage- and asset-backed securities.
Government Income Fund may not invest more than 10 percent of
its net assets in asset-backed securities that are backed by a
particular type of credit, for instance, credit card
receivables.
In order to manage its exposure to different types of
investments, each Fund may enter into interest rate and
mortgage swap agreements and may purchase (and, in the case of
Intermediate U.S. Government Fund, sell) interest rate caps,
floors and collars. Each Fund may engage in certain
strategies involving options (both exchange-traded and over-
the-counter) to attempt to enhance return and may attempt to
reduce the overall risk of its investments ("hedge") by using
options and futures contracts. A Fund's ability to use these
strategies may be limited by market considerations, regulatory
limits and tax considerations. Each Fund may write covered
call and put options, buy put and call options, buy and sell
interest rate futures contracts, and buy options and write
covered options on those futures contracts. An option is
covered if, so long as the Fund using the option is obligated
under the option, it owns an offsetting position in the
underlying security or futures contract or maintains a
segregated account of liquid, high-grade debt instruments with
a value at all times sufficient to cover its obligations under
the option. However, Government Income Fund does not
currently contemplate that it will engage in options and
financial futures transactions to any material extent.
Each Fund invests primarily in debt obligations with
maturities (or average life in the case of mortgage-backed and
similar securities) ranging from short-term (including
overnight) to 12 years, and normally seeks to maintain an
average dollar-weighted maturity of between 3 and 7 years.
Under normal circumstances, each Fund's portfolio of
securities will have a duration of between 75 percent and 125
percent of the duration of the Lehman Intermediate Government
Bond Index, an unmanaged index of fixed income securities.
Duration is a measure of a debt security's average life that
reflects the present value of the security's cash flow and,
accordingly, is a measure of price sensitivity to interest
rate changes.
Intermediate U.S. Government Fund may enter into
dollar roll transactions as part of its mortgage-backed
securities investments, while Government Income Fund may
22
<PAGE>
engage in dollar roll transactions for the purpose of
acquiring securities for its portfolio, but not for investment
leverage.
Certain other of the Funds' investment policies
differ. While each Fund may invest in zero-coupon securities,
Intermediate U.S. Government Fund limits its investment in
these securities (except those issued through the U.S.
Treasury's STRIPS program) to not more than 10 percent of the
Fund's total assets. Intermediate U.S. Government Fund may
invest in securities that are restricted as to disposition
under the Federal securities laws (sometimes referred to as
private placements or restricted securities) and make short
sales of securities, while Government Income Fund has not
adopted investment policies with respect to, and, therefore,
does not currently intend to invest in private placements or
engage in short sales. Short sales of securities are
considered to be speculative. See "Additional Investment
Policies and Risk Considerations - Short Sales and -
Purchasing Securities on Margin" in the Income Funds'
Prospectus of the Trust and "Appendix A: Investments,
Investment Strategies and Risk Considerations - Short Sales
and - Purchasing Securities on Margin" in the I Shares
Prospectus of the Trust.
Intermediate U.S. Government Fund will only purchase
securities that are rated (at the time of purchase) within the
two highest rating categories assigned by a nationally
recognized statistical rating organization ("NRSRO"), such as
Moody's Investors Service, Inc., Standard & Poor's Ratings
Services or Fitch Investors Service, Inc. or which are unrated
and determined by the Adviser to be of comparable quality.
Government Income Fund limits its investments to securities
that are rated (at the time of purchase) within the three
highest rating categories assigned by an NRSRO.
As fundamental policies that may not be changed
without the approval of a majority of a Fund's shareholders
(each a "fundamental policy"), each Fund is diversified, as
that term is defined in the 1940 Act, and is prohibited from
concentrating its assets in the securities of issuers in any
single industry. Intermediate U.S. Government Fund has
reserved the right to invest, without shareholder approval,
all or a portion of its assets in another open-end investment
company with substantially the same investment objectives as
the Fund; absent shareholder approval, Government Income Fund
may not invest all of its assets in another investment
company. Other fundamental and nonfundamental investment
policies of the Funds are substantially the same, including
with respect to repurchase agreements, temporary defensive
positions and illiquid securities. A more detailed
23
<PAGE>
description of the types of securities in which Intermediate
U.S. Government Fund invests, its fundamental and
nonfundamental investment policies, and the risks associated
with an investment in the Fund is contained in more detail in
the Income Funds Prospectus, the I Shares Prospectus and the
SAI.
Income Equity Fund and Income Stock Fund. The
investment objectives, policies and styles of the two funds
are substantially similar. The investment objective of Income
Equity Fund is to provide both long-term capital appreciation
in line with that of the overall equity securities markets and
above average dividend income, while Income Stock Fund seeks
current income and growth of income and, consistent with those
objectives, long-term capital growth. There can be no
assurance that either Fund will achieve its investment
objective.
Income Equity Fund invests primarily in the common
stock of large, high-quality domestic companies that have
above-average return potential based on current market
valuations. Primary emphasis is placed on investing in
securities of companies with above average dividend income.
Income Equity Fund considers large companies to be those whose
market capitalization is at least $600 million at the time of
the Fund's purchase. Market capitalization refers to the
total market value of a company's outstanding shares of common
stock. Under normal circumstances, Equity Income Fund will
not invest more than 10 percent of its total assets in the
securities of a single issuer.
Income Stock Fund pursues its investment objective by
investing primarily in equity securities of companies that, in
the view of Norwest, offer earnings growth potential while
paying current dividends. [Over time, continued earnings
growth in a company leads to higher dividends and strengthened
capital value of the company's stock.] Income Stock Fund
invests primarily in equity securities paying current
dividends, although it may purchase securities that are not
paying dividends but offer prospects for growth of capital or
future income.
Income Stock Fund seeks to achieve its investment
objective by investing in a broadly diversified portfolio
which offers above average dividend and earnings growth
potential. The Fund's emphasis on current yield and dividend
and earnings growth potential is based upon the investment
philosophy that long-term performance is based upon both
current yield and capital appreciation derived from earnings
and dividend growth. Dividend income is generally a
significant contributor to the returns available from
24
<PAGE>
investing in stocks over the long-term, and Norwest believes
that dividend income is often more consistent as a source of
investment return than capital appreciation. Moreover, the
price volatility of stocks with relatively higher yields tends
to be less than stocks that pay out little dividend income,
affording the Fund the potential for greater principal
stability. While current yield is an important factor in
selecting stocks, Norwest believes that long-term capital
appreciation is generally associated with the stocks of
companies whose dividend income and earnings are growing.
In selecting securities for Income Equity Fund,
Norwest uses various valuation measures, including above-
average dividend yields and below industry average price to
earnings, price to book and price to sales ratios. In
selecting investments for Income Stock Fund, Norwest
emphasizes fundamental analysis of a company's operating
trends, balance sheet developments and industry conditions.
Valuation, yield, dividend and earnings growth potential and
portfolio diversification are also factors in purchase
decisions.
Each Fund may invest in common and preferred stock
and securities convertible into common stock and may purchase
American Depository Receipts, European Depository Receipts and
other similar securities of foreign issuers. See "Investment
Objectives and Policies - Investment Styles - International
Fund Investment Style - Foreign Investment Risks and
Considerations" in the Equity Funds Prospectus and "Investment
Policies - Equity Funds - International Fund - Foreign
Investment Risks and Considerations" in the I Shares
Prospectus of the Trust. However, Income Stock Fund may not
invest more than 20 percent of its assets in securities of
foreign issuers and in sponsored and unsponsored American
Depository Receipts.
Income Stock Fund may invest also in fixed income
securities, including corporate debt obligations, that are
rated in one of the three highest rating categories by a
nationally recognized statistical rating organization
("NRSRO") or, if unrated by any NRSRO, judged by Norwest to be
of comparable quality. However, under normal market
conditions, Income Stock Fund's fixed income positions (not
including convertible securities) will not exceed 20 percent
of the Fund's total assets. Income Equity Fund has not
adopted an investment policy with respect to, and therefore
does not currently intend to invest in, fixed income
securities (other than convertible securities).
As a fundamental policies that may not be changed
without the approval of a majority of a Fund's shareholders
25
<PAGE>
(each, a "fundamental policy"), each Fund is diversified, as
that term is defined in the 1940 Act, and is prohibited from
concentrating its assets in the securities of issuers in any
single industry. In addition, under normal circumstances,
Income Equity Fund will not invest more than 10 percent of its
total assets in the securities of a single issuer. Also,
Income Equity Fund has reserved the right to invest all or a
portion of its assets in another diversified, open-end
investment company with substantially the same investment
objective and policies as the Fund; absent shareholder
approval, Income Stock Fund may not invest all of its assets
in another investment company. Other fundamental and
nonfundamental investment policies of the Funds are
substantially the same, including with respect to repurchase
agreements, temporary defensive positions and illiquid
securities. A more detailed description of the types of
securities in which Income Equity Fund invests, its
fundamental and nonfundamental investment policies, and the
risks associated with an investment in the Fund is contained
in more detail in the Equity Funds Prospectus, the I Shares
Prospectus and the SAI.
INFORMATION ABOUT THE TRANSACTION
Plan of Reorganization and Liquidation. The Plan
provides that upon the closing of the Transaction, each
Acquiring Fund will acquire all the assets of its
Corresponding Transferor Fund and assume all the liabilities
of the Corresponding Transferor Fund in exchange for A Shares,
B Shares and I Shares of such Acquiring Fund (the "Closing").
The number of full and fractional A Shares, B Shares and I
Shares of any Acquiring Fund to be issued, to the holders of A
Shares, B Shares and I Shares of the Corresponding Transferor
Fund, is to be determined on the basis of the relative net
asset values per share of each class of shares.
At the Closing, each Transferor Fund will liquidate
and will distribute pro rata to its holders of record the
A Shares, B Shares and I Shares of the Corresponding Acquiring
Fund received by the Transferor Fund. The liquidation and
distribution will be accomplished by the establishment of an
account on the share records of the Trust with respect to each
Acquiring Fund in the name of each shareholder of the
Corresponding Transferor Fund representing the number of full
and fractional shares of the Acquiring Fund due such
shareholder. Fractional A Shares, B Shares and I Shares of
the Acquiring Funds will be carried to the third decimal
place. Simultaneously with the establishment of accounts on
the share records of the Trust with respect to the A Shares, B
Shares and I Shares of an Acquiring Fund due to the Transferor
Fund shareholders, Transferor Fund shares held by those
26
<PAGE>
shareholders will be canceled. New certificates for shares
will be issued only upon written shareholder request, and any
certificate representing shares of an Acquiring Fund to be
issued in replacement of a certificate representing shares of
a Transferor Fund will be issued only upon the surrender of
the certificate representing the Transferor Fund Shares.
Consummation of the Plan is subject to the conditions
set forth therein, including the condition that all necessary
orders or exemptions under the 1940 Act with respect to the
Transaction shall have been granted by the Commission. The
Plan may be terminated, in its entirety or with respect to any
Transferor Fund and its Corresponding Acquiring Fund, by the
Board and the Transaction abandoned at any time prior to the
Closing.
Description of Shares of the Acquiring Funds. Full
and fractional A Shares, B Shares and I Shares of the
Acquiring Funds will be issued without the imposition of a
sales load or other fee to the shareholders of the
Corresponding Transferor Funds in accordance with the
procedures described above. The A Shares, B Shares and I
Shares of each Acquiring Fund to be issued in the Transaction
will be fully paid and nonassessable when issued and will have
no preemptive or conversion rights, except that the B Shares
of each Acquiring Fund will convert to A Shares four years
after purchase, in the case of Stable Income Fund, six years
after purchase, in the case of Intermediate U.S. Government
Fund and seven years after purchase, in the case of Income
Equity Fund. In addition, the voting procedures of the
Transferor Funds and the Acquiring Funds are identical.
Federal Income Tax Consequences of the Transaction.
At the Closing, the Trust will receive an opinion from Seward
& Kissel, counsel to the Trust, with respect to the federal
income tax consequences of the Transactions. The tax opinion
will be to the effect that, with respect to each Transferor
Fund and its Corresponding Acquiring Fund, on the basis of
then current law and certain representations and assumptions,
and subject to certain limitations: (i) the Transaction will
constitute a reorganization within the meaning of Section
368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Transferor Fund and Acquiring Fund will
each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) the shareholders of the
Transferor Fund who receive shares of the Acquiring Fund
pursuant to the Transaction will not recognize any gain or
loss upon the exchange of their shares of the Transferor Fund
for shares of the Acquiring Fund; (iii) the aggregate tax
basis of the shares of the Acquiring Fund received by each
shareholder of the Transferor Fund will be the same as the
27
<PAGE>
aggregate tax basis of the shares of the Transferor Fund
surrendered in the exchange; and (iv) the holding period of
shares of the Acquiring Fund received by each shareholder of
the Transferor Fund will include the holding period of the
shares of the Transferor Fund which are surrendered in
exchange therefor, provided that the shares of the Transferor
Fund constitute capital assets of such shareholder at the
Closing. The tax opinion will address certain federal income
tax consequences of the Transaction in addition to those set
forth above and is described in greater detail in Section 4(k)
of the Plan which is attached hereto as Exhibit A. There is
no intention to consult the Internal Revenue Service as to the
foregoing matters.
Capitalization. The following tables show the
capitalization and net asset values per share of each class of
shares of beneficial interest of each Transferor Fund and each
Acquiring Fund as of October 31, 1995 and on a pro forma basis
as of that date after giving effect to the Transaction.
Adjustable Stable Pro Forma
Reserve Fund Income Fund Combined
Net assets........... $61,795,730 $48,086,568 $110,012,597
Net asset value
per share
A Shares........... $ 9.41 N/A $ 9.42
B Shares........... $ 9.37 N/A $ 9.38
I Shares........... $ 9.41 $10.72 $10.72
Shares outstanding(a)
A Shares........... 4,389,151 N/A 4,389,151
B Shares........... 41,603 N/A 41,603
I Shares........... 2,136,415 4,485,961 6,369,319
28
<PAGE>
Intermediate
Government Government Pro Forma
Income Fund Fund Combined
Net assets........... $128,724,844 $50,213,013 $179,097,386
Net asset value
per share
A Shares........... $8.78 N/A $ 8.79
B Shares........... $8.77 N/A $ 8.78
I Shares........... $8.78 $61.98 $61.98
Shares outstanding(a)
A Shares........... 2,307,078 N/A 2,307,078
B Shares........... 1,288,152 N/A 1,288,152
I Shares........... 11,070,701 810,182 2,380,176
Income Income Pro Forma
Stock Fund Equity Fund Combined
Net assets........... $113,948,582 $49,000,004 $162,910,726
Net asset value
per share
A Shares........... $12.37 N/A $12.37
B Shares........... $12.30 N/A $12.29
I Shares........... $12.38 $24.02 $24.02
Shares outstanding(a)
A Shares........... 1,439,861 N/A 1,439,861
B Shares........... 581,962 N/A 581,962
I Shares........... 7,185,782 2,040,062 5,743,209
______________________
(a) It is contemplated that, on or after the Closing, each
Acquiring Fund's net asset value ("NAV") per share of each
class will be adjusted to either (i) increase the number
of I Shares relative to the A Shares and B Shares
presented in the table above or (ii) decrease the number
of A Shares and B Shares relative to the number of I
Shares presented in the table above. The adjustment would
be designed to equalize the NAV per share among each class
of each Acquiring Fund. As a result of the adjustment,
there will be, with repect to each Acquiring Fund,
proportionally more I Shares outstanding, and
proportionally fewer A Shares and B Shares outstanding,
than presented in the table above.
29
<PAGE>
Uncovered Distribution Charges. Under the 12b-1
Plan, uncovered distribution charges are equivalent to all
sales commissions previously due (plus interest), less the
amount of distribution services fees received by Forum
pursuant to the 12b-1 Plan and all contingent deferred sales
charges previously paid to Forum. As of November 30, 1995,
Forum had incurred approximately $4,645, with respect to B
Shares of Adjustable U.S. Government Reserve Fund, $258,970,
with respect to B Shares of Government Income Fund, and
$274,914, with respect to B Shares of Income Stock Fund, in
distribution expenses under the 12b-1 Plan that had not been
recovered pursuant to the 12b-1 Plan, through contingent
deferred sales charges or otherwise. In connection with the
Transaction, the Board has determined that it would be
appropriate for each Acquiring Fund to assume the uncovered
distribution charges of its Corresponding Transferor Fund.
INFORMATION ABOUT THE FUNDS
Information about the Acquiring Funds is included in
the Acquiring Funds Annual Report, a copy of which is included
herewith, and in the Acquiring Funds Prospectuses, copies of
which are included herewith, as appropriate. The information
in the Acquiring Funds Prospectuses that pertains to the
Acquiring Funds is incorporated herein by reference.
Additional information concerning the Acquiring Funds is
included in their Statements of Additional Information each
dated March 1, 1996, which has been filed as part of the SAI
and is also incorporated herein by reference. A copy of the
SAI can be obtained without charge by writing to Forum at Two
Portland Square, Portland, Maine 04101 or by calling 207-879-
1900.
Information about the Transferor Funds is included in
the Prospectus offering A Shares and B Shares of Adjustable
U.S. Government Reserve Fund and Government Income Fund dated
October 1, 1995, the Prospectus offering A Shares and B Shares
of Income Stock Fund dated October 1, 1995 and the Prospectus
offering I Shares of each Transferor Fund dated October 1,
1995 (the "Transferor Funds Prospectuses") and the Annual
Report to shareholders of the Transferor Funds for the fiscal
year ended May 31, 1995 each of which is available upon
request without charge from Forum at the address and telephone
numbers listed below. The information in the Transferor
Funds Prospectuses pertaining to the Transferor Funds is
incorporated herein by reference. Additional information
concerning each Transferor Fund included in the Statement of
Additional Information of the Transferor Funds dated October
1, 1995 and is also incorporated herein by reference. A copy
of this information can be obtained without charge by writing
30
<PAGE>
to Forum at Two Portland Square, Portland, Maine 04101 or by
calling 207-879-1900.
The Funds file reports, proxy statements and other
information with the Commission. These documents and other
information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such material
can also be obtained from the Public Reference Branch, Office
of Filings and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549 at prescribed rates.
VOTING INFORMATION
Proxies of the shareholders of the Transferor Funds
are being solicited by the Board for the Special Meeting of
Shareholders to be held on [ ], 1996 (the "Meeting"), at
the offices of Forum at Two Portland Square, Portland, Maine
04101, at [____ a.m./p.m.] and at all adjournments thereof. A
proxy may be revoked at any time at or before the Meeting by
giving notice to the Secretary of the Trust, at Two Portland
Square, Portland, Maine 04101, by signing another proxy of a
later date or by personally voting at the Meeting. Unless
revoked, all valid proxies will be voted in accordance with
the specification thereon, or in the absence of a
specification, for approval of the Plan and the Transaction.
Approval of the Plan and the Transaction by the shareholders
of a Transferor Fund will be deemed to constitute approval by
the shareholders of a temporary amendment to any investment
objective, policy or restriction that would otherwise be
inconsistent with or violated upon the consummation of the
Transaction.
Approval of the Plan and the Transaction, with
respect to a Transferor Fund, requires the affirmative vote of
the holders of a majority of the outstanding shares of the
Transferor Fund. A majority of the outstanding voting
securities of a Transferor Fund means the lesser of 67% of the
shares present or represented at the Meeting at which the
holders of more than 50% of the outstanding shares are present
or represented, or more than 50% of the outstanding shares of
the Fund.
Shareholders of record of the Transferor Funds at the
close of business on February 26, 1996 (the "Record Date")
will be entitled to vote at the Meeting or any adjournments
thereof. With respect to each Transferor Fund, the holders of
one-third of the shares outstanding at the close of business
on the Record Date present in person or represented by proxy
will constitute a quorum for purposes of voting on the Plan at
the Meeting. Votes cast by proxy or in person at the Meeting
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<PAGE>
will be counted by the election inspectors for the Meeting.
The election inspectors will count the total number of votes
cast "for" approval of a proposal for purposes of determining
whether sufficient affirmative votes have been cast. The
election inspectors will count shares represented by proxies
that reflect abstentions as shares that are present and
entitled to vote on the matter for purposes of determining the
presence of a quorum. However, an abstention has the effect
of a negative vote on the proposal. Shares that are not voted
and for which no proxy has been given will not be counted as
present at the Meeting. Dissenting shareholders do not have
any appraisal rights in connection with the Transaction.
Shareholders are entitled to one vote for each share
held, and each fractional share is entitled to a proportionate
fractional vote. The following table shows the number of
outstanding shares of the Transferor Funds as of [October 31,
1995].
Total A Shares B Shares I Shares
Adjustable U.S.
Government Reserve
Fund 6,567,169 4,389,151 41,603 2,136,415
Government Income
Fund 14,665,931 2,307,078 1,288,152 11,070,701
Income Stock Fund 9,207,605 1,439,861 581,962 7,185,782
In the event that sufficient votes in favor of the
proposal set forth in the Notice of Special Meeting are not
received by the time scheduled for the Meeting, the persons
named as proxies may authorize one or more adjournments of the
Meeting for a period or periods not extending past [ ],
1996 to permit further solicitation of proxies with respect to
the proposal. Any such adjournment will require the
affirmative vote of a majority of the votes cast on the
question in person or by proxy at the session of the Meeting
to be adjourned. The persons named as proxies will vote in
favor of the adjournment those proxies which they are entitled
to vote in favor of the proposal. They will vote against any
such adjournment those proxies required to be voted against
the proposal.
Votes of the shareholders of the Acquiring Funds are
not being solicited in connection with the Transaction, since
their approval or consent is not necessary for the
consummation of the Transaction.
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<PAGE>
In addition to the solicitation of proxies by mail or
expedited delivery service, the Board and employees and agents
of Forum may solicit proxies in person or by telephone.
Persons holding shares as nominees will upon request be
reimbursed for their reasonable expenses in sending soliciting
material to their principals. The Trust has engaged the proxy
solicitation firm of [ ] (telephone number
[ ]) which, for its solicitation services, will
receive a fee from the Trust estimated at [ ], and
reimbursement of out of pocket expenses estimated at [ ]
to [ ].
Share Ownership. As of February 26, 1996, the
officers and Trustees as a group beneficially owned [less than
1 percent] of the outstanding A Shares, B Shares or I Shares
of each Fund and, to the knowledge of the Trust, the following
persons owned of record or beneficially, 5 percent or more of
the outstanding shares of each Transferor Fund and each
Acquiring Fund:
Stable Income Fund
I Shares
Adjustable U.S. Government Reserve Fund
A Shares
B Shares
I Shares
Intermediate U.S. Government Fund
I Shares
Government Income Fund
A Shares
B Shares
I Shares
Income Equity Fund
I Shares
Income Stock Fund
A Shares
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<PAGE>
B Shares
I Shares
As of February 26, 1996, Norwest controlled or held
with power to vote more than 25% of the outstanding shares of
each Transferor Fund in a trust, agency, custodial or other
fiduciary or representative capacity. Accordingly, Norwest
may be deemed to control each of the Transferor Funds and may
be able to greatly affect (if not determine) the outcome of
the shareholder vote on the Transaction. Norwest is a
national bank with its principal place of business in
Minnesota and is a subsidiary of Norwest Corporation, a bank
holding company.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS APPROVAL OF THE
PLAN.
34
47180012.AA0
<PAGE>
Exhibit A
NORWEST ADVANTAGE FUNDS
PLAN OF REORGANIZATION AND LIQUIDATION
1. Summary
This Plan of Reorganization and Liquidation (the "Plan")
has been adopted by the Board of Trustees (the "Board") of
Norwest Advantage Funds (the "Trust") for the purpose of
effecting the transfer of the assets and liabilities of
three portfolios of the Trust (each, a "Transferor Fund") to
three other portfolios of the Trust (each, an "Acquiring
Fund") as follows:
Transferor Funds Acquiring Funds
Adjustable U.S. Government Stable Income Fund
Reserve Fund
Government Income Fund Intermediate U.S.
Government Fund
Income Stock Fund Income Equity Fund
The transfer of the assets and liabilities of each
Transferor Fund will be made in exchange for A Shares, B
Shares and I Shares (collectively, the "Shares") of the
Acquiring Fund to which the assets and liabilities are
transferred and the distribution of the Shares of the
Acquiring Fund to the shareholders of the Transferor Fund in
liquidation of the Transferor Fund. An Acquiring Fund is
sometimes referred to herein as the "Corresponding
Acquiring" Fund of the Transferor Fund from which assets and
liabilities are proposed to be transferred, and a Transferor
Fund when used with respect to its Corresponding Acquiring
Fund is sometimes referred to herein as the "Corresponding
Transferor Fund".
2. Shareholder Approval
The Trust shall call and hold meetings of the
shareholders of each Transferor Fund for the purpose of
acting upon this Plan as it relates to that Transferor Fund
and the transactions contemplated herein. The Trust shall
furnish to the shareholders of each Transferor Fund a
prospectus/proxy statement containing certain information
relating to the Corresponding Acquiring Fund and this Plan
in connection with the meeting. Approval by the
shareholders of a Transferor Fund of this Plan and the
35
<PAGE>
transactions contemplated herein shall, to the extent
necessary to permit the consummation of the transactions
contemplated herein without violating any investment
objective, policy or restriction of such Transferor Fund, be
deemed to constitute approval by such shareholders of a
temporary amendment of any investment objective, policy or
restriction that would otherwise be inconsistent with or
violated upon the consummation of such transactions. The
Plan shall become effective for each Transferor Fund upon
approval of the shareholders of the Transferor Fund.
3. Reorganization
The transactions described in this section are
hereinafter referred to as the "Reorganization".
(a) Plan of Reorganization and Liquidation.
(i) The Trust shall cause each Transferor
Fund to grant, bargain, sell, convey, assign, transfer and
deliver to the Corresponding Acquiring Fund at the closing
provided for in Section 3(b) (the "Closing") all of the
assets, rights, claims and businesses of every kind,
character and description of the Transferor Fund to the
extent they exist on or after the Closing. In consideration
thereof, at the Closing, the Trust shall cause each
Acquiring Fund to (A) assume and pay, to the extent that
they exist on or after the Closing, all liabilities of the
Corresponding Transferor Fund (whether absolute, accrued,
contingent or otherwise, and whether or not determinable at
the time of the Closing), and (B) deliver to the
Corresponding Transferor Fund the number of full and
fractional A Shares, B Shares and I Shares of beneficial
interest of the Acquiring Fund (the "Acquiring Fund
Shares"), equal to that number of full and fractional A
Shares, B Shares and I Shares of beneficial interest of the
Corresponding Transferor Fund (the "Transferor Fund Shares")
determined by multiplying the number of Corresponding
Transferor Fund Shares of that class by the exchange ratio
as computed as set forth below and carrying the product of
such multiplication to the third decimal place. For
purposes of this section, A Shares, B Shares and I Shares of
each Transferor Fund will correspond to A Shares, B Shares
and I Shares, respectively, of the Corresponding Acquiring
Fund. The exchange ratio for each class of Transferor Fund
Shares shall be the number determined by dividing the net
asset value per share of that class of the Transferor Fund
Shares by the net asset value per share of the corresponding
class of the Corresponding Acquiring Fund Shares, in each
case such net asset values to be determined on a consistent
basis by the appropriate officers of the Trust as of the
36
<PAGE>
close of business on the last business day preceding the
Closing, using the valuation procedures set forth in the
then current prospectus of the Transferor Fund or
Corresponding Acquiring Fund, as the case may be. The
exchange ratio shall be carried to the fourth decimal place.
(ii) At the Closing, each Transferor Fund
shall liquidate and distribute pro rata to the holders of
record of each class of the Transferor Fund Shares as of the
Closing the Corresponding Acquiring Fund Shares of the
corresponding class received by each Transferor Fund
pursuant to this Section 3(a). Such liquidation and
distribution shall be accompanied by the establishment of an
open account on the share records of each Acquiring Fund in
the name of each holder of a class of the Corresponding
Transferor Fund Shares and representing the number of
Acquiring Fund Shares of the corresponding class due such
shareholder. Fractional Acquiring Fund Shares shall be
carried to the third decimal place. Simultaneously with
such crediting of Acquiring Fund Shares to the shareholders,
Corresponding Transferor Fund Shares held by such
shareholders shall be canceled. Certificates representing
Acquiring Fund Shares shall be issued in accordance with the
then current Acquiring Fund prospectus; provided, however,
that any certificate representing Acquiring Fund Shares to
be issued in replacement of a certificate representing
Transferor Fund Shares shall be issued only upon the
surrender of the certificate representing the Transferor
Fund Shares.
(b) Closing. The Closing shall take place at such
time and on such date as the Trust may determine, provided
that the Closing shall occur after the close of business on
the last business day preceding the Closing, using the
valuation procedures set forth in the then current
prospectus of the Transferor Fund or Corresponding Acquiring
Fund, as the case may be, on a date that is no earlier than
the date of the final adjournment of the meeting of the
holders of the Transferor Fund Shares at which this Plan is
approved.
4. Conditions to the Closing
The consummation of the Reorganization, with
respect to a Transferor Fund and the Corresponding Acquiring
Fund, is subject to satisfaction of the following conditions
and undertakings:
(a) Organization, Existence, Etc. The Trust shall
be a business trust duly organized, validly existing and in
good standing under the laws of the State of Delaware and
37
<PAGE>
have the power to carry on its business then being conducted
and as described in its then effective Registration
Statement on Form N-1A. Each Fund shall be qualified to do
business under the laws of every jurisdiction in which such
qualification is required, except where the failure to so
qualify would not have a material adverse effect on the
Trust. The Trust and each Fund shall have all necessary
federal, state and local authorizations to own all of its
properties and assets and to carry on its business as now
being conducted and as described in its then effective
Registration Statement on Form N-1A. Post-Effective
Amendment Number 33 to the Trusts Registration Statement on
Form N-1A shall have become effective.
(b) Registration as Investment Company. The Trust
shall be registered under the Act as an open-end management
investment company of the management type; such registration
shall not have been revoked or rescinded and shall be in
full force and effect.
(c) Capitalization. The Trust shall have an
unlimited number of A Shares, B Shares and I Shares of
beneficial interest divided into the number of separate
series described in the Trusts then effective Registration
Statement on Form N-1A. All of the outstanding shares shall
have been duly authorized and shall be validly issued, fully
paid and nonassessable.
(d) Shares to be Issued Upon Reorganization. The
Acquiring Fund Shares to be issued in connection with the
Reorganization shall have been duly authorized and upon
consummation of the Reorganization shall be validly issued,
fully paid and nonassessable, and no shareholder of any
Acquiring Fund shall have any preemptive right to subscribe
or purchase in respect thereof.
(e) Taxes. The Trust shall have agreed to file
the federal income tax return of each Acquiring Fund for the
taxable year ended October 31, 1995 and to pay any taxes
payable pursuant thereto prior to their due date. The
federal income tax returns of each Transferor Fund shall
have been filed for all taxable years prior to and including
the taxable year ended May 31, 1995 and all taxes payable
pursuant to such returns shall have been paid. Each
Acquiring Fund and each Transferor Fund shall have qualified
as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"), in respect of
each taxable year since the commencement of its operations
and the Trust shall have no reason to believe that each
Acquiring Fund and each Transferor Fund will not so qualify
in respect of its current taxable year.
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<PAGE>
(f) Registration Statement. The Trust shall have
filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form N-14 (the
Registration Statement) under the Securities Act of 1933
(the Securities Act) relating to the Acquiring Fund Shares
issuable hereunder. At the time it becomes effective, the
Registration Statement (i) shall comply in all material
respects with the provisions of the Securities Act and the
rules and regulations of the Commission thereunder (the
Regulations) and (ii) shall not contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading; and at the time the Registration
Statement becomes effective, at the time of the shareholders
meeting referred to in Section 2 hereof and at the Closing,
the prospectus (the Prospectus) and statement of additional
information included therein (the Statement of Additional
Information), as amended or supplemented by any amendments
or supplements filed with the Commission by the Trust, shall
not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(g) Portfolio Securities. All securities to be
acquired by each Acquiring Fund in the Reorganization shall
have been approved for acquisition by the President, Vice
President or Secretary of the Trust as consistent with the
investment policies of the Acquiring Fund.
(h) Approval by Shareholders. This Plan and the
transactions contemplated by the Reorganization, with
respect to a Transferor Fund and its Corresponding Acquiring
Fund, shall have been approved by the affirmative vote of a
majority of the outstanding shares of beneficial interest of
the Transferor Fund entitled to be voted with respect
thereto.
(i) Regulatory Approval. The Registration
Statement shall have been declared effective by the
Commission and no stop order under the Securities Act
pertaining thereto shall have been issued; all necessary
orders or exemptions under the Act with respect to the
transactions contemplated hereby shall have been granted by
the Commission; and all necessary approvals, registrations,
and exemptions under federal and state laws shall have been
obtained.
(j) Shares to Be Issued Upon Reorganization. The
shares of each Acquiring Fund to be issued in connection
with the Reorganization shall have been duly authorized and
39
<PAGE>
upon consummation of the Reorganization shall be validly
issued, fully paid, and nonassessable.
(k) Tax Opinion. The Trust shall have received
the opinion of Seward & Kissel, dated as of the Closing,
addressed to it and in form and substance satisfactory to
the Trust, as to certain of the federal income tax
consequences of the Reorganization under the Code to the
Acquiring Funds, the Transferor Funds and the Transferor
Funds shareholders. For purposes of rendering the opinion,
Seward & Kissel may rely exclusively and without independent
verification as to factual matters upon the statements made
in this Plan and the Registration Statement, and upon such
other written representations as to matters of fact as an
executive officer of the Trust shall have verified as of the
Closing. The opinion of Seward & Kissel with respect to
each Transferor Fund and its Corresponding Acquiring Fund
shall be to the effect that, based on the facts and
assumptions stated therein, for federal income tax purposes:
(i) the Reorganization shall constitute a reorganization
within the meaning of Section 368(a)(1) of the Code and that
the Transferor Fund and the Acquiring Fund shall each be a
party to a reorganization within the meaning of Section
368(b) of the Code; (ii) neither the Transferor Fund nor the
Acquiring Fund shall recognize any gain or loss upon the
transfer of all the assets of the Transferor Fund to the
Acquiring Fund in exchange for Acquiring Fund Shares and the
assumption by the Acquiring Fund of all the liabilities of
the Transferor Fund pursuant to this Plan and upon
distribution (whether actual or constructive) of the
Acquiring Fund Shares to shareholders of the Transferor Fund
in exchange for their respective Transferor Fund Shares;
(iii) the shareholders of the Transferor Fund who receive
Acquiring Fund Shares pursuant to the Reorganization shall
not recognize any gain or loss upon the exchange (whether
actual or constructive) of their Transferor Fund Shares for
Acquiring Fund Shares (including any fractional share
interests they are deemed to have received) in the
Reorganization; (iv) the aggregate tax basis of the
Acquiring Fund Shares received (whether actually or
constructively) by each shareholder of the Transferor Fund
shall be the same as the aggregate tax basis of the
Transferor Fund Shares surrendered in the exchange; (v) the
holding period of the Acquiring Fund Shares received
(whether actually or constructively) by each shareholder of
the Transferor Fund shall include the holding period of the
Transferor Fund Shares that are surrendered in exchange
therefor, provided that the relevant Transferor Fund Shares
constitute capital assets of such shareholder at the
Closing; (vi) the holding period and tax basis of the assets
of the Transferor Fund acquired by the Acquiring Fund shall
40
<PAGE>
be the same as the holding period and tax basis that the
Transferor Fund had in such assets immediately prior to the
Reorganization; and (vii) the use by the Acquiring Fund of
any capital loss carryovers may be subject to limitation
under Section 383 of the Code.
(l) Opinion of Counsel. The Trust shall have
received the opinion of Seward & Kissel, as counsel for the
Trust, dated as of the Closing, addressed to and in form and
substance satisfactory to the Trust, to the effect that:
(i) the Trust is a business trust duly organized and validly
existing under the laws of the State of Delaware; (ii) the
Trust is an open-end management investment company of the
management type registered under the Act; (iii) this Plan
and the Reorganization provided for herein have been duly
authorized and approved by requisite action of the Trust and
the Plan is a valid and binding obligation of the Trust,
subject to applicable bankruptcy, insolvency, fraudulent
conveyance and similar laws or court decisions regarding
enforcement of creditors rights generally, and to general
principles of equity (regardless of whether enforceability
is considered in a proceeding at law or in equity); (iv) the
Registration Statement has been declared effective under the
Securities Act and to Seward & Kissel's knowledge no stop
order has been issued or threatened suspending its
effectiveness; (v) to Seward & Kissel's knowledge, no
consent, approval, order or other authorization of any
federal or state court or administrative or regulatory
agency is required for the Trust to carry out the terms of
the Plan that will not have been obtained by the Closing,
other than as may be required under the securities or blue
sky laws of any state and other than where the failure to
obtain any such consent, approval, order or authorization
would not have a material adverse effect on the operations
of the Trust; and (vi) the A Shares, B Shares and I Shares
of beneficial interest of each Acquiring Fund to be issued
in the Reorganization have been duly authorized and upon
issuance thereof in accordance with this Plan will be
validly issued, fully paid and nonassessable, and no
shareholder of the Trust has any preemptive right to
subscribe or purchase in respect thereof.
5. Amendments; Termination
(a) Amendments. The Plan may be amended by the
Board at any time before or after approval hereof by the
shareholders of each Transferor Fund, but after such
approval, no amendment shall be made that materially alters
the obligations of either party hereto. In addition, the
officers of the Trust may amend the Plan at any time prior
to the closing, notwithstanding shareholder approval of the
41
<PAGE>
Plan, provided that no amendment shall have a material
adverse effect of the interests of the shareholders of any
Transferor Fund or its Corresponding Acquiring Fund.
(b) Termination. The Board may terminate the Plan
at any time prior to the Closing without liability on the
part of the Trust or its Trustees or officers or the
shareholders of the Transferor Funds or Acquiring Funds.
Termination of the Plan by the Board may relate to one or
more of the Transferor Funds and Corresponding Acquiring
Funds without affect on the survival of the Plan with
respect to any other Transferor Fund and Corresponding
Acquiring Fund. Unless the Trust shall otherwise determine
in writing, this Plan shall terminate, without liability to
any party, as of the close of business on [ ] if
the Closing is not held on or prior to such date.
6. Expenses
The Transferor Funds and the Acquiring Funds shall
equally bear all expenses incurred in connection with this
Plan, and all transactions contemplated hereby, whether or
not the Reorganization is consummated.
7. General
The Board and the shareholders of each Acquiring
and Transferor Fund shall not be liable for any obligations
of the Trust or of the Acquiring and Transferor Funds under
this Plan.
42
47180012.AC6
<PAGE>
TABLE OF CONTENTS Page
Introduction..........................
Summary...............................
Expense Information...................
Reasons for the Transaction...........
Comparison of Investment Objectives and
Policies............................
Information about the Transaction.....
Information about the Funds...........
Voting Information....................
Exhibit A: Plan of
Reorganization and Liquidation...... A-1
NOT FDIC INSURED
47180012.AC6
<PAGE>
<PAGE>
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
INCOME EQUITY FUND
A SHARES
B SHARES
Account Information and
Shareholder Servicing:
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
612-667-8833 or 800-338-1348
PROSPECTUS
March 1, 1996
This prospectus offers A Shares and B Shares of Diversified Equity Fund, Growth
Equity Fund and Income Equity Fund (each a "Fund" and collectively the "Funds").
The Funds are separate diversified equity portfolios of Norwest Advantage Funds
(the "Trust"), which is a registered open-end management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated March 1, 1995, as amended from time to
time, which contains more detailed information about the Trust and each of the
Funds and is incorporated into this Prospectus by reference. An investor may
obtain a copy of the SAI without charge by contacting the Trust's distributor,
Forum Financial Services, Inc., at 61 Broadway, New York, New York 10006 or by
calling 212-363-3300. Investors should read this Prospectus and retain it for
future reference.
NORWEST ADVANTAGE FUNDS IS A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER
GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF,
OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OTHER BANK OR
BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
57
<PAGE>
1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
DIVERSIFIED EQUITY FUND seeks long-term capital appreciation while moderating
annual return volatility by diversifying its investments in accordance with five
different equity investment styles.
GROWTH EQUITY FUND seeks a high level of long-term capital appreciation while
moderating annual return volatility by diversifying its investments in
accordance with three different investment styles. The Fund assumes a higher
level of risk than Diversified Equity Fund in order to seek increased returns.
INCOME EQUITY FUND seeks long-term capital appreciation in line with that of the
overall equity securities markets and to provide above average dividend income.
INVESTMENT ADVISERS
The Funds' investment adviser (the "Adviser") is Norwest Investment Management,
a part of Norwest Bank Minnesota, N.A. ("Norwest"). Norwest is a subsidiary of
Norwest Corporation, a bank holding company with operations in 50 states and
$___ billion in total assets. The Adviser provides investment advice to various
institutions, pension plans and other accounts and, as of _________.___, 1995,
managed assets totaling approximately $___ billion. See "Management -
Investment Advisory Services." The Adviser makes investment decisions for the
Funds and continuously reviews, supervises and administers each Fund's
investment program.
The Adviser may, in the process of providing investment advise to the Funds,
utilize different equity investment styles employed by other funds of the Trust
(Index Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund and International Fund). These Funds are offered by separate
prospectus to fiduciary, agency and custodial clients of bank trust departments,
trust companies and their affiliates (See "Shares of the Funds"). The use of
different equity investment styles is intended to reduce the risk associated
with the use of a single style, which may move in and out-of-favor during the
course of a market cycle. The percentage of a Fund's assets invested using a
specified investment style may be changed by the Adviser in response to market
or other conditions. For a further description of each Fund's investments and
investment techniques and additional risk considerations associated with those
investments, see the discussion below, "Investment Objectives and Policies -
Investment Styles", "Additional Investment Policies and Risk Considerations" and
the SAI.
Subject to the Adviser's general oversight, Crestone Capital Management, Inc.
("Crestone"), a subsidiary of Norwest, acts as investment subadviser to Small
Company Stock Fund. Subject to the Adviser's general oversight, Schroder Capital
Management International, Inc. ("Schroder")
58
<PAGE>
acts as investment subadviser to Diversified Equity Fund and Growth Equity Fund
(Crestone, Schroder and the Adviser, collectively, are sometimes referred to as
the "Advisers").
Norwest serves as the Trust's transfer agent, dividend disbursing agent and
custodian. See "Management - Shareholder Servicing and Custody."
FUND MANAGEMENT
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"), a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. Norwest provides certain administrative
services to International Fund. See "Management - Management and Distribution
Services."
SHARES OF THE FUNDS
Each Fund currently offers three separate classes of shares: A class ("A
Shares"), B class ("B Shares") and I class ("I Shares"). A Shares and B Shares
are sold through this Prospectus and are collectively referred to as the
"Shares."
A SHARES. A Shares are offered at a price equal to their net asset value
plus a sales charge imposed at the time of purchase or, in some cases, a
contingent deferred sales charge imposed on redemptions made within two years of
purchase.
B SHARES. B Shares are offered at a price equal to their net asset value
plus a contingent deferred sales charge imposed on most redemptions made within
six years of purchase. B Shares pay a distribution services fee at an annual
rate of up to 0.75%, and a maintenance fee in an amount equal to 0.25%, of the B
Shares' average daily net assets. B Shares automatically convert to A Shares of
the same Fund seven years after the end of the calendar month in which the B
Shares were originally purchased.
The choice of A Shares or B Shares permits each investor to purchase those
shares that the investor believes to be most beneficial given the amount
purchased, the length of time the investor expects to hold the shares and other
circumstances. A Shares will normally be more beneficial to the investor who
qualifies for reduced initial sales charges as described below. See "How to Buy
Shares - Alternative Distribution Arrangements."
I Shares are offered by a separate prospectus to fiduciary, agency and custodial
clients of bank trust departments, trust companies and their affiliates. Shares
of each class of a Fund have identical interests in the investment portfolio of
the Fund and, with certain exceptions, have the same rights. See "Other
Information - The Trust and Its Shares."
HOW TO BUY AND SELL SHARES
Shares may be purchased or redeemed by mail, by bank wire and through an
investor's broker-dealer or other financial institution. The minimum initial
investment in Shares is $1,000. The minimum subsequent investment is $100. See
"How to Buy Shares" and "How to Sell Shares."
EXCHANGES
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<PAGE>
Shareholders may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of certain other funds of the Trust. In addition, A Shares may be
exchanged for investor class shares of certain money market funds of the Trust
and B Shares may be exchanged for exchange class shares of Ready Cash Investment
Fund of the Trust. See "Other Shareholder Services - Exchanges."
SHAREHOLDER FEATURES
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. Purchases of A Shares may be subject to Rights of
Accumulation, Cumulative Quantity Discounts or a Reinstatement Privilege. See
"Other Shareholder Services" and "How to Buy Shares - Alternative Distribution
Arrangements."
DIVIDENDS
Dividends of net investment income are declared and paid annually. Each Fund's
net capital gain, if any, is distributed annually. All dividends and
distributions are reinvested in additional Fund shares unless the shareholder
elects to have them paid in cash. See "Dividends and Tax Matters."
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Upon redemption, an investment in a
Fund may be worth more or less than its original value. The policy of investing
in smaller companies employed by the Funds that invest in small company
securities entails certain risks in addition to those normally associated with
investments in equity securities.
An investment in any Fund involves certain risks, depending on the types of
investments made and the types of investment techniques employed. All
investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as investments in
issuers with limited market capitalization. The use of leverage by certain Funds
through borrowings, securities lending and other investment techniques involves
additional risks. See "Investment Objectives and Policies - Additional
Investment Policies and Risk Considerations."
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<PAGE>
EXPENSE INFORMATION
The purpose of the following table is to assist investors in understanding the
expenses that an investor in Shares of a Fund will bear directly or indirectly.
A Shares B Shares
-------- --------
Maximum sales charge imposed on purchases 4.5% Zero
(as a percentage of public offering price)
Maximum deferred sales charge (as a Zero(2) 4.0%
percentage of the lesser of original
purchase price or redemption proceeds)
Exchange Fee Zero Zero
ANNUAL OPERATING EXPENSES(3)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<TABLE>
<CAPTION>
Diversified Equity Growth Equity Income Equity
Fund Fund Fund
A Shares B Shares A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.65% 0.65% 0.90% 0.90% 0.50% 0.50%
Rule 12b-1 Fees(4) None 0.75% None 0.75% None 0.75%
Other Expenses 0.30% 0.30% 0.35% 0.36% 0.35% 0.35%
Total Operating Expenses 1.00% 1.75% 1.25% 2.01% 0.85% 1.60%
</TABLE>
(1) Sales charge waivers and reduced sales charge plans are available for A
Shares. The maximum 4.0% contingent deferred sales charge on B Shares applies
to redemptions during the first year after purchase; the charge declines
thereafter, becoming 3.0% during the second and third years, 2.0% during the
fourth and fifth years, 1.0% during the sixth year and reaches zero the
following year. See "How to Buy Shares - Alternative Distribution
Arrangements."
(2) If A Shares purchased without an initial sales charge (purchases of
$1,000,000 or more) are redeemed within two years after purchase, a contingent
deferred sales charge of up to 1.0% will be applied to the redemption. See "How
to Buy Shares - Alternative Distribution Arrangements."
(3) For a further description of the various expenses associated with Shares,
see "Management." Expenses associated with the I Shares of a Fund differ from
those of Shares listed in the table shown above. The amounts of expenses for
Diversified Equity Fund, Growth Equity Fund and Income Equity Fund are based on
amounts incurred during the Funds' first fiscal year ended October 31, 1995.
With respect to A Shares, absent expense reimbursements and fee waivers the
expenses of Diversified Equity Fund, Growth Equity Fund and Income Equity Fund
would be: Other Expenses, 0.35%, 0.42%, and 0.59%, respectively; and Total
Operating Expenses, 1.07%, 1.32%, and 1.09%, respectively. With respect to B
Shares, absent expense reimbursements and fee waivers the expenses of
Diversified Equity Fund, Growth Equity Fund, and Income Equity Fund would be:
Other Expenses, 0.35%, 0.42%, and 0.59%, respectively; and Total Operating
Expenses, 2.07%, 2.32%, and 2.09%, respectively. Other Expenses include
transfer agency and custodial fees payable to Norwest at a combined annual
rate of up to 0.30% of each Fund's average daily net assets attributable to A
Shares and B Shares.
(4) Absent waivers, the Rule 12b-1 Fees would be 1.00% for B Shares of each
Fund. Long-term shareholders of B Shares may pay aggregate sales charges
totaling more than the economic equivalent of the maximum front-end sales
charges permitted by the Rules of Fair Practice of National Association of
Securities Dealers, Inc.
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EXAMPLE
Following is a hypothetical example that indicates the dollar amount of expenses
that an investor would pay, assuming a $1,000 investment in a Fund's Shares, a 5
% annual return and reinvestment of all dividends and distributions:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Equity Fund
A Shares 55 75 98 162
B Shares
Assuming redemption at the end of the period 58 85 115 -
Assuming no redemption 18 55 95 -
Growth Equity Fund
A Shares 57 83 111 190
B Shares
Assuming redemption at the end of the period 60 93 128 -
Assuming no redemption 20 63 108 -
Income Equity Fund
A Shares 53 71 90 145
B Shares
Assuming redemption at the end of the period 56 80 107 -
Assuming no redemption 16 50 87 -
</TABLE>
The example is based on the expenses listed in the expense table. The 5% annual
return is not predictive of and does not represent the Funds' projected returns;
rather, it is required by government regulation. The example assumes deduction
of the maximum initial sales charge for A Shares, deduction of the contingent
deferred sales charge for B Shares applicable to a redemption at the end of the
period and the conversion of B Shares to A Shares at the end of seven years.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.
3. INVESTMENT OBJECTIVES AND POLICIES
To achieve their investment objectives, the funds invest primarily in common
stocks and other equity securities. The domestic securities in which a Fund
invests are generally listed on a securities exchange or included in the
National Association of Securities Dealers Automated Quotation (NASDAQ) National
Market System but may be traded in the over-the-counter securities market. Under
normal circumstances, each of the funds will invest substantially all of its
asses, but not less than 65 percent of its net assets, in equity securities.
Diversified Equity Fund and Growth Equity Fund each invest specified percentages
of their assets in accordance with different equity investment styles.
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<PAGE>
INVESTMENTS IN CORE TRUST. The Trust has received an exemptive order from the
SEC under which Diversified Equity Fund and Growth Equity Fund (the "Blended
Funds") currently invest the portions of their assets that are managed in a
small company, an index and an international investment style, respectively, in
Small Company Portfolio, Index Portfolio, and International Portfolio II (the
"Blended Portfolios"). These Portfolios are each separate portfolios of Core
Trust. By pooling their assets in the Blended Portfolios, the Funds may be able
to achieve benefits that they could not achieve by investing directly in
securities. See "Other Information - Core Trust Structure." The conditions of
the Trust's exemptive order do not permit a Fund to invest all of its assets in
a Blended Portfolio.
The investment objectives and policies and investment risk considerations for
International Portfolio II and Index Portfolio are to provide long-term capital
appreciation by investing directly or indirectly in high-quality companies based
outside the United States and to duplicate the return of the Standard & Poor's
500 Composite Stock Price Index, respectively. and are identical to the
investment objectives and policies and investment risk considerations of
International Fund and Index Fund, separate series of the Trust, which are
offered by separate prospectuses.
The investment objective of Small Company Portfolio is to provide long-term
capital appreciation by investing primarily in small and medium-sized domestic
companies that are either growing rapidly or completing a period of significant
change. This Portfolio invests its assets partially in the style of Small
Company Stock Fund and partially in the style of Small Company Growth Fund and,
in the future, may invest its assets in accordance with additional small company
investment styles.
DIVERSIFIED EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
capital appreciation while moderating annual return volatility by diversifying
its investments in accordance with five different equity investment styles.
INVESTMENT POLICIES. Diversified Equity Fund is designed to minimize the
volatility and risk of investing in equity securities. The Fund's portfolio
combines five different equity investment styles, those of four equity funds of
the Trust - Large Company Growth Fund, International Fund, Income Equity Fund
and Index Fund - and a small company investment style ("Small Company
investment style"), which reflects a mix of the investment styles of Small
Company Stock Fund and Small Company Growth Fund, two other funds of the Trust,
and a small company value investment style (the "Small Company Value investment
style"). The Fund utilizes different equity investment styles in order to reduce
the risk of relying on a single investment style. Reliance on multiple equity
investment styles is intended to reduce the price and return volatility of the
Fund. Because Diversified Equity Fund blends five equity investment styles, it
is anticipated that its price and return volatility will be less than that of
Growth Equity Fund, which blends three equity investment styles. The Fund will
generally invest the following percentages of its total assets in accordance
with the indicated investment styles:
Diversified Equity Fund Allocation
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Index Fund style 25%
Income Equity Fund style 25%
Large Company Growth Fund style 25%
Small Company investment style 10%
International Fund style 15%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of the investment styles below for a
discussion of the investments and investment techniques of those styles and,
accordingly, of the portions of Diversified Equity Fund invested in those
styles. The management of the Fund's assets is divided among the Fund's seven
portfolio managers, four of whom are also the portfolio manager for a
corresponding Equity Fund and three of whom jointly co-manage the assets
allocated to Small Company investment style.
INVESTMENT STYLES
INDEX FUND INVESTMENT STYLE. The Index Fund investment style is designed to
duplicate the return of the Standard & Poor's 500 Composite Stock Index (the
"Index") with minimum tracking error, while also minimizing transaction costs.
Under normal circumstances, the portion of a Fund that invests in accordance
with the Index Fund investment style will hold stocks representing 96 percent or
more of the capitalization-weighted market values of the Index. Portfolio
transactions with respect to the Index Fund investment style generally are
executed only to duplicate the composition of the Index, to invest cash received
from portfolio security dividends or shareholder investments in the Fund, and to
raise cash for fund management purposes. The Fund may hold cash or cash
equivalents while awaiting investment in securities contained in the Index and
for the purpose of facilitating payment of expenses or funding redemptions. For
these and other reasons, assets allocated to this investment style can be
expected to approximate but not be equal to that of the Index.
In managing assets allocated to this style, the Adviser may utilize index
futures contracts to a limited extent. Index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the index value at the close of trading of the contract and the price at which
the futures contract is originally struck. As no physical delivery of the fixed
income or equity securities comprising the index is made, a purchaser of index
futures contracts may participate in the performance of the securities contained
in the index without the required capital commitment.
Index futures contracts may be used for several reasons: to simulate full
investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading or to reduce transactions costs. For
a description of futures contracts and their risks see "Additional Investment
Policies and Risk Considerations - Futures Contracts."
The Index tracks the total return performance of 500 common stocks which are
chosen for inclusion in the Index by Standard & Poor's Corporation ("S&P") on a
statistical basis. The inclusion of a stock in the Index in no way implies that
S&P believes the stock to be an attractive
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<PAGE>
investment. The 500 securities, most of which trade on the New York Stock
Exchange, represent approximately 70 percent of the total market value of all
U.S. common stocks. Each stock in the Index is weighted by its market value.
Because of the market-value weighting, the 50 largest companies in the Index
currently account for approximately 45 percent of its value. The Index
emphasizes large-capitalizations and, typically, companies included in the Index
are the largest and most dominant firms in their respective industries.
The Index Fund investment style is not sponsored, endorsed or promoted by S&P,
nor does S&P make any representation or warranty, implied or express, to the
purchasers of any Fund using the Index Fund investment style or any member of
the public regarding the advisability of investing in index funds or the ability
of the Index to track general stock market performance. S&P does not guarantee
the accuracy and/or the completeness of the Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by a
Fund using the Index Fund investment style, any person or any entity from the
use of the Index or any data included therein. S&P makes no express or implied
warranties and hereby expressly disclaims all such warranties of merchantability
or fitness for a particular purpose for use with respect to the Index or any
data included therein.
INCOME EQUITY FUND INVESTMENT STYLE. Assets allocated to the Income Equity Fund
investment style will invest in accordance with the investment objective and
policies of that Fund, which are described below.
LARGE COMPANY GROWTH FUND INVESTMENT STYLE. Employing the Large Company Growth
Fund investment style will result in investments primarily in the common stock
of large, high-quality domestic companies that have superior growth potential.
Large companies are those whose market capitalization is at least $500 million
at the time of investment and whose equity trading volume would permit the sale
or purchase of a large position in the securities of the company in 2 or 3
trading days. Market capitalization refers to the total market value of a
company's outstanding shares of common stock. In selecting securities for
investment, this investment style seeks issuers whose stock is attractively
valued and whose fundamental characteristics both are significantly better than
the market average and which support internal earnings growth capability. The
investments may also include the securities of companies whose growth potential
is generally unrecognized or misperceived by the market.
SMALL COMPANY INVESTMENT STYLE. In selecting securities for assets allocated to
the Small Company investment style, the Adviser uses the investment style of
Small Company Growth Fund and two other investment styles described below: Small
Company Stock Fund investment style and the Small Company Value investment
style. Assets allocated to the Small Company investment style are invested 1/3
in the Small Company Growth Fund style, 1/3 in the Small Company Stock Fund
investment style an 1/3 in the Small Company Value investment style.
Prior to December 11, 1995 the Small Company investment style did not allocate
any assets to the Small Company Value investment styles. The Small Company
investment style is expected to be allocated completely in this manner by June
1, 1996. Small Company investment style may in the future allocate its assets
to additional investment styles.
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<PAGE>
In selecting securities in accordance with the Small Company Stock Fund
investment style, the Adviser seeks securities with significant price
appreciation potential and attempts to identify companies that show above
average growth, as compared to long term overall market growth. In investing
assets allocated to this investment style, the Adviser may invest in preferred
stock and securities convertible into common stock and may invest up to 20
percent of total assets allocated to this style in foreign securities and in
American Depository Receipts, European Depository Receipts and other similar
securities of foreign issuers.
In selecting portfolio investments, the Small Company Value investment style
focuses on securities that are conservatively valued in the marketplace relative
to their underlying fundamentals. Value investing provides investors with a less
aggressive way to take advantage of growth opportunities of small companies.
Under a value approach, the Fund will seek to invest in stocks priced low
relative to comparable companies, determined by price/earnings ratios, cash
flows or other measures. Value investing therefore may reduce downside risk
while offering potential for capital appreciation as a stock gains favor among
other investors and its stock price rises.
SMALL COMPANY INVESTMENT RISKS AND CONSIDERATIONS. The companies in which Small
Company Growth Fund and the Small Company investment style components of the
other Funds invest may be in a relatively early stage of development or may
produce goods and services which have favorable prospects for growth due to
increasing demand or developing markets. Frequently, such companies have a small
management group and single product or product line expertise. These
characteristics may result in an enhanced entrepreneurial spirit and greater
focus which may make those companies successful. The Adviser believes that such
companies may develop into significant business enterprises and that an
investment in such companies offers a greater opportunity for capital
appreciation than an investment in larger more established entities. Small
companies frequently retain a large part of their earnings for research,
development and investment in capital assets, however, so that the prospects for
immediate dividend income are limited.
Investments in smaller companies generally involve greater risks than
investments in larger companies due to the small size of the issuer and the fact
that the issuer may have limited product lines, access to financial markets and
management depth. In addition, many of the securities of smaller companies trade
less frequently and in lower volumes than securities issued by larger firms. The
result is that the short-term price volatility of small company securities is
greater than the short-term price volatility of the securities of larger, more
established companies that are widely held. The securities of small companies
may also be more sensitive to market changes generally than the securities of
large companies. In addition, securities that are traded in the over-the-counter
market or on a regional securities exchange may not be traded every day or in
the volume typical of securities traded on a national securities exchange. As a
result, disposition of a portfolio security, to meet redemptions by shareholders
or otherwise, may require a Fund to sell the security at a discount from market
prices, to sell during periods when disposition is not desirable, or to make
many small sales over an extended period.
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While securities issued by smaller companies historically have experienced
greater market appreciation than the securities of larger entities, there is no
assurance that they will continue to do so or that the Fund will be successful
in identifying companies whose securities will appreciate.
INTERNATIONAL FUND INVESTMENT STYLE. The International Fund investment style is
designed to achieve international diversification of investments by
participating in foreign securities markets. Because international investments
generally involve risks in addition to those risks associated with investments
in the United States, the style should be considered only as a vehicle for
international diversification.
International Fund investment style invests substantially in equity securities
of companies domiciled outside the United States. The investments are selected
on the basis of their potential for capital appreciation without regard to
current income. The International Fund investment style also invests in the
securities of closed-end investment companies investing primarily in foreign
securities and may invest in debt obligations of foreign governments or their
political subdivisions, agencies or instrumentalities, of supranational
organizations and of foreign corporations. Investment will be diversified among
securities of issuers in foreign countries including, but not limited to, Japan,
Germany, the United Kingdom, France, the Netherlands, Hong Kong, Singapore and
Australia. In general, under the International Fund investment style investments
will only be in securities of companies and governments in countries that
Schroder, in its judgment, considers both politically and economically stable.
Under the International Fund investment style there is no limit on the amount of
foreign assets which may be invested in any one type of foreign instrument or in
any foreign country; however, to the extent that International Fund investment
style concentrates assets in a foreign country, it will incur greater risks.
International Fund investment style may also invest in foreign exchange
contracts, including forward contracts to purchase or sell foreign currencies,
in anticipation of currency requirements and to protect against possible adverse
movements in foreign exchange rates. Although such contracts may reduce the risk
of loss from adverse movements in currency values, the contracts also limit
possible gains from favorable movements.
FOREIGN INVESTMENT RISKS AND CONSIDERATIONS. All investments, domestic and
foreign, involve certain risks. Investments in the securities of foreign issuers
may involve risks in addition to those normally associated with investments in
the securities of U.S. issuers. All foreign investments are subject to risks of
foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, and changes in foreign
governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
shareholders; commission rates payable on foreign transactions are generally
higher than in the United States; foreign accounting, auditing and financial
reporting standards differ from those in the United States and, accordingly,
less information may be available about foreign companies than is available
about issuers of comparable securities in the United States; and foreign
securities may trade less frequently and with lower volume and may exhibit
greater price volatility than United States securities.
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Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held. Exchange rates are influenced
generally by the forces of supply and demand in the foreign currency markets and
by numerous other political and economic events occurring outside the United
States, many of which may be difficult, if not impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, and each Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar will reduce the dollars available to make a
distribution. Similarly, if the exchange rate declines between the time after a
Fund's income has been earned and computed in U.S. dollars and the time it is
paid may require a Fund to liquidate portfolio securities to acquire sufficient
U.S. dollars to make a distribution. Similarly, if the exchange rate declines
between the time a Fund incurs expenses in U.S. dollars and the time such
expenses are paid, a Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek a high
level of long-term capital appreciation while moderating annual return
volatility by diversifying its investments in accordance with three different
investment styles. The Fund assumes a higher level of risk than Diversified
Equity Fund in order to seek increased returns.
INVESTMENT POLICIES. Growth Equity Fund is designed to reduce the volatility and
risk of investing in equity securities. The Fund's portfolio combines three
different equity investment styles, those of two of the Equity Funds - Large
Company Growth Fund and International Fund - and a small company investment
style ("Small Company investment style"), which reflects a mix of the investment
styles of both Small Company Stock Fund and Small Company Growth Fund. The Fund
utilizes different equity investment styles in order to reduce the risk of
relying on a single equity investment style. Reliance on multiple equity
investment styles is intended to reduce the price and return volatility of the
Fund. Although Growth Equity Fund blends three equity investment styles, it is
anticipated that the Fund's price and return volatility will be somewhat greater
than those of Diversified Equity Fund, which blends five equity investment
styles. The Fund will generally invest the following percentages of its total
assets in accordance with the indicated investment styles:
Growth Equity Fund Allocation
Large Company Growth Fund style 35%
Small Company investment style 35%
International Fund style 30%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of each of the foregoing investment
styles for a discussion of the objectives, policies and risks involved in the
investments and investment techniques of those styles and, accordingly, of the
portions of Growth Equity Fund invested using
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those styles. The management of the Fund's assets is divided among the Fund's
four portfolio managers, two of whom are also the portfolio manager for a
corresponding Equity Fund and two of whom jointly co-manage the assets allocated
to Small Company investment style.
INCOME EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
capital appreciation in line with that of the overall equity securities markets
and to provide above average dividend income.
INVESTMENT POLICIES. Income Equity Fund invests primarily in the common stock of
large, high-quality domestic companies which have above-average return potential
based on current market valuations. Primary emphasis is placed on investing in
securities of companies with above-average dividend income. In selecting
securities for the Fund, the Adviser uses various valuation measures, including
above-average dividend yields and below industry average price to earnings,
price to book and price to sales ratios. The Fund considers large companies to
be those whose market capitalization is at least $600 million at the time of the
Fund's purchase. Market capitalization refers to the total market value of a
company's outstanding shares of common stock. The Fund may also invest in
preferred stock and securities convertible into common stock and may purchase
American Depository Receipts, European Depository Receipts and other similar
securities of foreign issuers. See "Investment Policies - Equity Funds -
International Fund - Foreign Investment Risks and Considerations." Under normal
circumstances, the Fund will not invest more than 10 percent of its total assets
in the securities of a single issuer.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS.
Each Fund's investment objective and all investment policies of the Funds that
are designated as fundamental may not be changed without approval of the holders
of a majority of the outstanding voting securities of the Fund . A majority of
outstanding voting securities means the lesser of 67% of the shares present or
represented at a shareholders' meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or more than 50% of the
outstanding shares. Except as otherwise indicated, investment policies of the
Fund's are not deemed to be fundamental and may be changed by the Board of
Trustees of the Trust (the "Board") without shareholder approval. For more
information concerning shareholder voting, see "Other Information - The Trust
and Its Shares - Shareholder Voting and Other Rights" and "Other Information -
Core Trust Structure." A further description of the Funds' investment policies,
including additional fundamental policies, is contained in the SAI.
Each investment adviser monitors the creditworthiness of counterparties to the
Funds' transactions and intends to enter into a transaction only when it
believes that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
BORROWING. As a fundamental policy, each Fund may borrow money for temporary or
emergency purposes, including the meeting of redemption requests, and will limit
borrowings to amounts not in excess of 33 1/3% of the value of the Fund's total
assets. As computed immediately after the borrowing. No Fund may purchase
securities for investment while any borrowing equal to 5
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percent or more of the Fund's total assets is outstanding or borrow for purposes
other than meeting redemptions in an amount exceeding 5 percent of the value of
the Fund's total assets. A Fund's use of borrowed proceeds to make investments
would subject the Fund to the risks of leveraging. Borrowing involves special
risk considerations. Interest costs on borrowings may fluctuate with changing
market rates of interest and may partially offset or exceed the return earned on
borrowed funds (or on the assets that were retained rather than sold to meet the
needs for which funds were borrowed). Under adverse market conditions, a Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. When a
Fund establishes a separate account to limit the amount of leveraging of the
Fund with respect to certain investment techniques, the Fund does not treat
those techniques as involving borrowings (although they may have characteristics
and risks similar to borrowings and result in the Fund's assets being
leveraged). The use of these techniques in connection with a segregated account
may result in a Fund's assets being 100 percent leveraged. See "Techniques
Involving Leverage". As a fundamental policy, no Fund may make loans except for
loans of portfolio securities, through the use of repurchase agreements that are
otherwise permitted investments for the Fund.
TECHNIQUES INVOLVING LEVERAGE. Utilization of leveraging involves special risks
and may involve speculative investment techniques. The Funds may borrow for
other than temporary or emergency purposes, lend their securities, enter reverse
repurchase agreements, and purchase securities on a when issued or forward
commitment basis. Each of these transactions involve the use of "leverage" when
cash made available to the Fund through the investment technique is used to make
additional portfolio investments. The Funds use these investment techniques only
when the Adviser to a Fund believes that the leveraging and the returns
available to the Fund from investing the cash will provide shareholders a
potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining
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market could be a greater decrease in net asset value per share than if the Fund
were not leveraged. In an extreme case, if the Fund's current investment income
were not sufficient to meet the interest expense of leveraging, it could be
necessary for the Fund to liquidate certain of its investments at an
inappropriate time. The use of leverage may be considered speculative.
SEGREGATED ACCOUNT. In order to limit the risks involved in various transactions
involving leverage, the Trust's custodian will set aside and maintain in a
segregated account cash, U.S. Government Securities and other liquid, high-grade
debt securities in accordance with SEC guidelines. The accounts value, which is
marked to market daily, will be at least equal to the Fund's commitments under
these transactions. The Fund's commitments may include the Fund's obligations to
settle when-issued and forward commitment transactions. The use of a segregated
account in connection with leveraged transactions may result in a Fund's
portfolio being 100 percent leveraged.
DIVERSIFICATION AND CONCENTRATION. Each Fund is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, no Fund may purchase a security
(other than a U.S. Government Security) if, as a result, (i) more than 5% of the
Fund's total assets would be invested in the securities of a single issuer or
(ii) the Fund would own more than 10% of the outstanding voting securities of
any single issuer. Each Fund reserves the right to invest all or a portion of
its assets in another diversified, open-end investment company with
substantially the same investment objective and policies as the Fund. Each Fund
is prohibited from concentrating its assets in the securities of issuers in any
industry. As a fundamental policy, each Fund may not purchase securities if,
immediately after the purchase, more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers conducting their principal
business activities in the same industry. This limit does not apply to
investments in U.S. Government Securities, foreign government securities or
repurchase agreements covering U.S. Government Securities or investment company
securities.
COMMON AND PREFERRED STOCK. The Funds may invest in common and preferred stock.
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company,
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in the alternative, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. The market value of all securities, including equity securities, is
based upon the market's perception of value and not necessarily the book value
of an issuer or other objective measure of a company's worth.
The Funds may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Unlike
convertible securities and preferred stocks, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations as a result of speculation or other factors and
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failure of the price of the underlying security to reach a level at which the
warrant can be prudently exercised (in which case the warrant may expire without
being exercised, resulting in the loss of the Fund's entire investment therein).
CONVERTIBLE SECURITIES. The Funds may invest in convertible securities that are
investment grade, including convertible debt and convertible preferred stock,
which may be rated by a nationally recognized statistical rating organization
("NRSRO") or may be unrated. Convertible securities are fixed income securities
or preferred stock which may be converted at a stated price within a specific
amount of time into a specified number of shares of common stock. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stream of income with generally higher yields than those of
common stocks of the same or similar issuers. Convertible securities rank senior
to common stock in a corporation's capital structure but are usually subordinate
to comparable nonconvertible securities. In general, the value of a convertible
security is the higher of its investment value (its value as a fixed income
security) and its conversion value (the value of the underlying shares of common
stock if the security is converted). As a fixed income security, the value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. The value of convertible
securities, however, is also influenced by the value of the underlying common
stock.
The rating categories for convertible securities range from Aaa to C, in the
case of Moody's Investors Service, Inc. ("Moody's"), and from AAA to D, in the
case of Standard & Poor's Corporation ("S&P"), and for preferred stock range
from aaa to c, in the case of Moody's, and from AAA to D, in the case of S&P.
Securities in the lowest rating categories are characterized by Moody's as
having extremely poor prospects of ever attaining any real investment standing
and by S&P as being in default, in the case of debt, and non-paying with debt in
default, in the case of preferred stock. Unrated securities may not be as
actively traded as rated securities. A further description of the ratings used
by Moody's, S&P and certain other NRSROs is contained in the SAI.
AMERICAN DEPOSITORY RECEIPTS; EUROPEAN DEPOSITORY RECEIPTS. The Funds may invest
in sponsored and unsponsored American Depository Receipts ("ADRs"), which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets. Unsponsored ADRs may be created
without the participation of the foreign issuer. Holders of these ADRs generally
bear all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights. The Funds may also invest in European Depository Receipts ("EDRs"),
which are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs, and in other similar instruments
representing securities of foreign companies. EDRs, in bearer form, are designed
for use in European securities markets.
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U.S. GOVERNMENT SECURITIES. As used in this Prospectus, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities. The U.S. Government
Securities in which a Fund may invest include U.S. Treasury Securities and
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and backed by the full faith and credit of the U.S.
Government, such as those guaranteed by the Small Business Administration or
issued by the Government National Mortgage Association. In addition, the U.S.
Government Securities in which the Funds may invest include securities supported
primarily or solely by the creditworthiness of the issuer, such as securities of
the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority. There is no guarantee that the
U.S. Government will support securities not backed by its full faith and credit.
Accordingly, although these securities have historically involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. Government's full faith and credit.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. International Portfolio and, with
respect to the portion of their assets managed in the International Fund
investment style, Diversified Equity Fund and Growth Equity Fund may enter into
repurchase agreements with foreign entities. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 33 1/3% of the value of its total assets.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each of the Funds may purchase
securities offered on a "when-issued" basis and may purchase securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction, but delayed settlements beyond three
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased and, thus, no interest accrues
to the Fund. At the time a Fund makes a commitment to purchase securities in
this manner, however, the Fund immediately assumes the risk of ownership,
including price fluctuation. Failure by the other party to deliver a security
purchased by a Fund may result in a loss or a missed opportunity to make an
alternative investment.
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The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
or Schroder were to forecast incorrectly the direction of interest rate
movements, however, a Fund might be required to complete these transactions when
the value of the security is lower than the price paid by the Fund. No Fund will
purchase securities on a when-issued or forward commitment basis if, as a
result, more than 15 percent of the value of the Fund's total assets would be
committed to such transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds purchase securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
Commitment of a Fund's assets to the purchase of securities on a when-issued or
forward commitment basis will tend to increase the volatility of the Fund's net
asset value per share.
ILLIQUID SECURITIES. No Fund may invest more than 15% of its net assets in
illiquid securities. Illiquid securities are securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities and includes, among other
things, repurchase agreements not entitling the holder to payment within seven
days and restricted securities (other than those determined to be liquid
pursuant to guidelines established by the Board or, with respect to assets
allocated to a Blended Portfolio, Core Trust's board of trustees). Limitations
on resale may have an adverse effect on the marketability of portfolio
securities, and a Fund might also have to register restricted securities in
order to dispose of them, resulting in expense and delay. A Fund might not be
able to dispose of restricted or other securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions. There can
be no assurance that a liquid market will exist for any security at any
particular time.
A domestic institutional market has developed for certain securities that are
not registered under the Securities Act of 1933 (the "1933 Act"), including
repurchase agreements and foreign securities. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on the issuer's ability to honor a demand for repayment of the
unregistered security. A security's contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act, the
investment advisers may determine that such securities are not illiquid
securities under guidelines adopted by the Board (or, with respect to assets
allocated to a Blended Portfolio, Core Trust's board of trustees). These
guidelines take into account trading activity in the securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, a Fund's holdings
of that security may be illiquid.
FUTURES CONTRACTS. A Fund using the Index Fund investment style may invest in
index futures contracts to a limited extent. Index futures contracts are
bilateral agreements pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the bond or stock index value at the close of trading of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the
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securities comprising the index is made. Generally, these futures contracts are
closed out prior to the expiration date of the contract.
RISK CONSIDERATIONS. A Fund's investment in futures contracts under the Index
Fund investment style subjects the Fund to certain investment risks and
transaction costs to which it might not otherwise be subject. These risks
include: (1) imperfect correlations between movements in the prices of futures
contracts and movements in the price of the securities hedged which may cause a
given hedge not to achieve its objective; (2) the fact that the skills and
techniques needed to trade futures are different from those needed to select the
other securities in which the Fund invests; (3) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time, which, among other things, may hinder a Fund's ability to limit exposures
by closing its positions; and (4) the possible need to defer closing out of
certain futures contracts to avoid adverse tax consequences.
Other risks of investing in futures contracts in accordance with the Index Fund
investment style include the possibility that the futures exchanges may limit
the amount of fluctuation permitted in certain futures contract prices during a
single trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position. The Fund may use various futures
contracts that are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
in those contracts will develop or continue to exist.
The Funds have no current intention of investing in futures contracts for
purposes other than hedging. The current market value of all open futures
positions held by a Fund will not exceed 50 percent of its total assets.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant,
each Fund may assume a temporary defensive position and invest without limit in
cash or prime quality cash equivalents, including (i) short-term U.S. Government
Securities, (ii) certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of commercial banks doing business in the United
States, (iii) commercial paper, (iv) repurchase agreements and (v) shares of
"money market funds" registered under the 1940 Act within the limits specified
therein. During periods when and to the extent that a Fund has assumed a
temporary defensive position, it may not be pursuing its investment objective.
Prime quality instruments are those that are rated in one of the two highest
short-term rating categories by an NRSRO or, if not rated, determined by the
Adviser to be of comparable quality. Apart from temporary defensive purposes, a
Fund may at any time invest a portion of its assets in cash and cash equivalents
as described above. Except during periods when a Fund assumes a temporary
defensive position, each Fund will have at least 65% of its total assets
invested in equity securities. The Portfolio and, with respect to the portion of
their assets managed by Schroder, Diversified Equity Fund and Growth Equity Fund
may hold cash and bank instruments denominated in any major foreign currency.
PORTFOLIO TRANSACTIONS. The investment advisers place orders for the purchase
and sale of assets they manage with brokers and dealers selected by and in the
discretion of the respective adviser.
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The investment advisers seek "best execution" for all portfolio transactions,
but a Fund may pay higher than the lowest available commission rates when an
investment adviser believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on United States securities exchanges.
Subject to the Funds' policy of obtaining "best execution" each investment
adviser may employ broker-dealer affiliates of the investment adviser
(collectively "Affiliated Brokers") to effect brokerage transactions for the
Funds. The Funds' payment of commissions to Affiliated Brokers is subject to
procedures adopted by the Board (and, with respect to assets allocated to a
Blended Portfolio, Core Trust's board of trustees) to provide that the
commissions will not exceed the usual and customary broker's commissions charged
by unaffiliated brokers. No specific portion of a Fund's brokerage will be
directed to Affiliated Brokers and in no event will a broker affiliated with the
investment adviser directing the transaction receive brokerage transactions in
recognition of research services provided to the adviser.
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. The Funds' portfolio
turnover is reported under "Financial Highlights." Schroder anticipates that the
annual portfolio turnover rate in the Portfolio will be less than 100%. An
annual portfolio turnover rate of 100% would occur if all of the securities in
the Portfolio were replaced once in a period of one year. Higher portfolio
turnover rates may result in increased brokerage costs to the Funds or Portfolio
and a possible increase in short-term capital gains or losses.
4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Trustees (the "Board"), and the business of Core Trust is managed under the
direction of Core Trust's Board of Trustees. The Board formulates the general
policies of the Funds and meets periodically to review the results of the Funds,
monitor investment activities and practices and discuss other matters affecting
the Funds and the Trust. The SAI contains general background information about
the Trustees and Officers of the Trust and of Core Trust. The Board consists of
eight persons.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT. Subject to the general supervision of the Board,
Norwest Investment Management makes investment decisions for the Funds and
continuously reviews, supervises and administers each Fund's investment program
or oversees the investment decisions of the investment subadviser, as
applicable. The Adviser is a part of Norwest, a subsidiary of Norwest
Corporation, which is a multi-bank holding company that was incorporated under
the laws of Delaware in 1929. As of December 31, 1995, Norwest Corporation was
the ___th largest bank holding company in the United States in terms of assets.
As of that date, the Adviser managed or provided investment advice with respect
to assets totaling approximately $___ billion.
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The Adviser provides investment management services to each Fund pursuant to
investment advisory agreements between Norwest and the Trust. For the Adviser's
services, Norwest receives an advisory fee with respect to Diversified Equity
Fund, Growth Equity Fund and Income Equity Fund at the following annual rates:
0.65%, 0.90% and 0.50%, respectively, based on the average daily net assets of
the respective Fund.
Pursuant to the investment subadvisory agreements, the Adviser (and not the
Trust) pays Schroder and Crestone a fee for their investment subadvisory
services; however, that compensation does not increase the amount paid by the
Trust to the Adviser pursuant to the Adviser's investment advisory agreements.
Advisory fees are accrued daily and paid monthly. The advisory fees for the
Funds are higher than those paid by most investment companies of all types to
their advisers, but the Board believes that the fees are appropriate for equity
funds.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. Subject to the Adviser's general
oversight, Schroder, through its London, England branch, acts as investment
subadviser to Diversified Equity Fund and Growth Equity Fund pursuant to
investment subadvisory agreements among the Trust, Norwest and Schroder. Under
these agreements, Schroder makes investment decisions for each Fund and
continuously reviews, supervises and administers each Fund's investment program
with respect to that portion, if any, of the respective Fund's portfolio that
the Adviser believes should be invested using the International Fund investment
style. Each investment subadvisory agreement is the same in all material
respects. Through its management of International Portfolio, Schroder manages
the entire portfolio of International Fund.
Schroder, whose principal business address is 787 Seventh Avenue, New York, New
York 10019, is a wholly-owned U.S. subsidiary of Schroders Incorporated, the
wholly-owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large worldwide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in seventeen countries
worldwide. The Schroder Group specializes in providing investment management
services and as of June 30, 1995, had assets under management in excess of $90
billion.
Pursuant to the Fund's investment subadvisory agreement, the Adviser (and not
the Trust) pays Schroder a fee for its investment subadvisory services. This
compensation does not increase the amount paid by the Trust to the Adviser
pursuant to the Adviser's investment advisory agreement.
CORE TRUST BLENDED PORTFOLIOS. As noted under "Investment Objectives And
Policies - Investments in Core Trust," Diversified Equity Fund and Growth Equity
Fund invest their assets which are managed in a small company, index and
international investment style in three Blended Portfolios of Core Trust - Small
Company Portfolio, Index Portfolio and International Portfolio II. Any of the
Funds may withdraw its investment from a Blended Portfolio at any time that the
Board determines it is in the best interests of a Fund and its shareholders to
do so. See "Other Information - Core Trust Structure." Norwest serves as
investment adviser to Small Company Portfolio and Index Portfolio and Schroder
serves as investment adviser to International Portfolio
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II pursuant to separate advisory agreements with Core Trust. Subject to the
general supervision of Core Trust's board of trustees, Norwest and Schroder
perform services for the Blended Portfolios similar to those performed for the
Trust under its investment advisory agreements.
PORTFOLIO MANAGERS. Many persons on the advisory staff of each of the Adviser,
Crestone and Schroder contribute to the investment advisory services provided to
the Funds, International Portfolio and the three Blended Portfolios of Core
Trust, as applicable. The following persons, however, are primarily responsible
for the day-to-day management of the Funds:
INCOME EQUITY FUND - David L. Roberts, Senior Vice President of Norwest since
1991. Mr. Roberts has been associated with Norwest for 20 years in various
investment related capacities.
INVESTMENT STYLES OF DIVERSIFIED EQUITY FUND AND GROWTH EQUITY FUND
INDEX FUND INVESTMENT STYLE - No single person at the Adviser acts as portfolio
manager of this investment style.
LARGE COMPANY GROWTH FUND - John S. Dale, Senior Portfolio Manager and an
Officer of Norwest and Senior Vice President of Peregrine Capital Management,
Inc. Mr. Dale has held various investment management positions with Norwest or
its affiliates, including Peregrine, since 1968. From 1984 to 1987 he was a
Senior Vice President and Manager of Equity Advisors for Norwest.
SMALL COMPANY INVESTMENT STYLE/SMALL COMPANY PORTFOLIO - Robert B. Mersky, Kirk
McCown and Thomas H. Forester. Mr. Mersky has held various investment management
positions with Norwest or its affiliates, including Peregrine, since 1977. From
1980 to 1984 he was head of investments for Norwest. Mr. McCown is founder,
President and a Director of Crestone Capital Management, Inc., a subsidiary of
Norwest which is investment subadviser to Small Company Stock Fund, another fund
of the Trust. Prior thereto, Mr. McCown was Senior Vice President of Reich &
Tang, L.P. Mr.Mersky, Senior Portfolio Manager and an officer of Norwest and
President of Peregrine Capital Management, Inc. Mr. Forester is an officer of
Norwest and Senior Vice President of Peregrine Capital Management, Inc. Mr.
Forester joined Peregrine in 1995. From 1992 to 1995 he was Vice President of
Lord Asset Management, an investment adviser.
Mr. Mersky has served as a portfolio manager of this investment style since its
inception. Mr. McCown commenced serving as a portfolio manager of this style on
June 1, 1995; Mr. Forester commenced serving as a portfolio manager of this
style on _______, 199_.
INTERNATIONAL FUND/INTERNATIONAL PORTFOLIO - The investment management team of
Mark J. Smith, a First Vice President of Schroder since April 1990 and a
Director thereof since April 1993, and Laura Luckyn-Malone, a Senior Vice
President and Director of Schroder since 1990, with the assistance of an
investment committee, is primarily responsible for managing the day-to-day
operations of this investment style. Mr. Smith has been employed by various
Schroder Group companies in the investment research and portfolio management
areas since 1983. Prior to joining the Schroder Group, Ms. Luckyn-Malone was a
Principal of Scudder, Stevens & Clark, Inc. Mr.
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Smith has served as portfolio manager of this investment style since its
inception; Ms. Luckyn-Malone joined the portfolio's investment management team
in 1995.
SMALL COMPANY INVESTMENT STYLE AND SMALL COMPANY PORTFOLIO - Kirk McCown and
Robert B. Mersky. For a description of Mr. McCown and Mr. Mersky, see "Small
Company Stock Fund" and "Small Company Growth Fund" above. Mr. McCown commenced
serving as a portfolio manager of Small Company Portfolio on June 1, 1995.
The day-to-day management of the portfolios of Diversified Equity Fund and
Growth Equity Fund is performed by the portfolio managers listed above with
respect to the portion of the Fund's portfolio that is invested using the
investment style of another Fund.
As an example, there are five portfolio managers of Growth Equity Fund: Mr.
Mersky. Mr. McCown and Mr. Forester are responsible for the Fund's assets
invested in accordance with Small Company investment style, Mr. Dale is
responsible for the Fund's assets invested in accordance with Large Company
Growth Fund investment style and Mr. Smith of Schroder is responsible for the
Fund's assets invested in accordance with International Fund's investment style.
Cash balances of each Fund, are managed by Mr. Sylvester and Ms. White, the
portfolio managers for Ready Cash Investment Fund, a separate series of the
Trust which is offered by a separate prospectus.
MANAGEMENT AND DISTRIBUTION SERVICES
Forum supervises the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay) and provides the
Trust with general office facilities pursuant to a Management Agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers, as well as certain other officers and Trustees of the
Trust, may be directors, officers or employees of (and persons providing
services to the Trust may include) Forum, its affiliates or certain non-banking
affiliates of Norwest. As of the date of this Prospectus, Forum provided
management and administrative services to registered investment companies and
collective investment funds with assets of approximately $11 billion. Forum is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. As of the date of this Prospectus, Forum
is controlled by John Y. Keffer, President and Chairman of the Trust. For its
services and facilities, Forum receives from each Fund a management fee at an
annual rate of 0.10% of the average daily net assets attributable to each class
of the Fund. From its own resources, Forum may pay a fee to broker-dealers or
other persons for distribution or other services related to the Funds.
Forum also serves as administrator of Core Trust and provides administrative
services for each Blended Portfolio that are similar to those provided to the
Funds. For its administrative services Forum is compensated by Core Trust at an
annual rate of 0.10% of the average daily net assets of each Blended Portfolio.
Forum may subcontract any or all of its duties to one or more qualified
subadministrators who agree to comply with the terms of Forum's management
agreement. Forum may compensate those agents for their services; however, no
such compensation may increase the aggregate amount of payments by the Trust to
Forum pursuant to the management agreement.
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Forum also acts as the distributor of the Shares pursuant to a distribution
services agreement with the Trust and in accordance therewith receives and may
reallow the initial sales charge assessed on purchases of A Shares of a Fund. As
authorized by a distribution plan with respect to B Shares of each Fund and
pursuant to the distribution services agreement, Forum receives a distribution
services fee as compensation for its distribution expenses with respect to B
Shares and a maintenance fee for its or certain broker-dealer's shareholder
services with respect to B Shares. For further information about the
distribution services agreement and the distribution plan, including the fees
payable thereunder, see "How to Buy Shares - Alternative Distribution
Arrangements." Pursuant to separate agreements, Forum also provides portfolio
accounting services to each Fund.
SHAREHOLDER SERVICING AND CUSTODY
Norwest serves as transfer agent and dividend disbursing agent for the Trust (in
this capacity, the "Transfer Agent") pursuant to a Transfer Agency Agreement
with the Trust. The Transfer Agent maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents or
processing agents), performs other transfer agency functions and acts as
dividend disbursing agent for the Trust. The Transfer Agent is permitted to
subcontract any or all of its functions with respect to all or any portion of
the Trust's shareholders to one or more qualified sub-transfer agents or
processing agents, which may be affiliates of the Transfer Agent or Forum, who
agree to comply with the terms of the Transfer Agency Agreement. Sub-transfer
agents and processing agents may be "Processing Organizations" as described
under "How to Buy Shares - Purchase Procedures." The Transfer Agent is permitted
to compensate those agents for their services; however, that compensation may
not increase the aggregate amount of payments by the Trust to the Transfer
Agent. For its transfer agency services, the Transfer Agent receives from each
Fund a fee at an annual rate of 0.25% of the average daily net assets
attributable to each class of the Fund.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. Norwest
currently receives no additional compensation for its custodial services, but
the Funds will incur the expenses and costs of any subcustodian. The Chase
Manhattan Bank, N.A. serves as custodian of International Portfolio II and is
paid a fee by Core Trust for its services. Norwest serves as custodian of Small
Company Portfolio and Index Portfolio and currently receives no additional
compensation for its custodial services with respect to those Portfolios.
EXPENSES OF THE FUNDS
The Funds' expenses include Trust expenses attributable to the Funds, which are
allocated to each Fund, and expenses not specifically attributable to any Fund
of the Trust, which are allocated among the Funds and all other funds of the
Trust in proportion to their average net assets. Each investment adviser, Forum
and the Transfer Agent may each elect to waive (or continue to waive) all or a
portion of their fees, which are accrued daily and paid monthly. Any such
waivers will have the effect of increasing a Fund's performance for the period
during which the waiver is in
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effect. No fee waivers may be recouped at a later date. Other than investment
advisory fees, any fee paid by the Trust may be increased by the Board without
shareholder approval
Norwest and Forum and their agents and affiliates may also act in various
capacities for, and receive compensation from, their customers who are
shareholders of a Fund. Under agreements with those customers, Norwest and Forum
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in a Fund.
Subject to the obligation of Norwest to reimburse the Trust for certain
expenses, under the Investment Advisory Agreements, the Trust has confirmed its
obligation to pay all the Trust's expenses, including: interest charges, taxes,
brokerage fees and commissions; certain insurance premiums; fees, interest
charges and expenses of the Trust's custodian, transfer agent and dividend
disbursing agent and providers of pricing, credit analysis and dividend
services; telecommunications expenses; auditing, legal and compliance expenses;
costs of maintaining corporate existence; costs of preparing and printing the
Funds' prospectuses, SAIs, account application forms and shareholder reports and
delivering them to existing shareholders; costs of maintaining books of original
entry for portfolio and fund accounting and other required books and accounts
and of calculating the net asset value of shares of the Funds; costs of
reproduction, stationery and supplies; compensation of trustees, officers and
employees of the Funds or the Trust who are not employees of Norwest, Forum or
their affiliates and costs of other personnel performing services for the Fund;
costs of meetings of the Trust; SEC registration fees and related expenses;
state securities laws registration fees and expenses; fees and out of pocket
expenses payable to Norwest, Schroder and Forum; and fees and expenses paid by
the Funds pursuant to the distribution plan.
5. HOW TO BUY SHARES
MINIMUM INVESTMENT
There is a $1,000 minimum for initial purchases and a $100 minimum for
subsequent purchases of Shares of the Funds. A Fund may in its discretion waive
the investment minimums. Shareholders who elect electronic share purchase
privileges such as the Automatic Investment Plan or the Directed Dividend Option
are not subject to the initial investment minimum. See "Other Shareholder
Services - Automatic Investment Plan" and "Dividends and Tax Matters."
Except as set forth below with respect to purchases through Processing
Organizations, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of Federal funds. Fund shares become
entitled to receive dividends and distributions on the next Fund Business Day
after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
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INITIAL PURCHASES
THERE ARE THREE WAYS TO PURCHASE SHARES INITIALLY.
1. BY MAIL. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed under
"Account Application" on page ___. Checks are accepted at full value subject to
collection. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal funds within two business days after
receipt of the check. Checks drawn on some non-member banks may take longer.
2. BY BANK WIRE. Investors may make an initial investment in a Fund using the
wire system for transmittal of money among banks. The investor should first
telephone the Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an
account number. The investor should then instruct a bank to wire the investor's
money immediately to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Advantage Funds
0844-131
Re: [Name of Fund]
[Designate A Shares or B Shares]
Account No.:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
3. THROUGH FINANCIAL INSTITUTIONS. SHARES MAY BE PURCHASED AND REDEEMED
THROUGH CERTAIN BROKER-DEALERS, BANKS AND OTHER FINANCIAL INSTITUTIONS
("Processing Organizations"). The Transfer Agent, Forum and their affiliates may
be Processing Organizations. Processing Organizations may receive as a broker-
dealer's reallowance a portion of the sales charge paid by their customers who
purchase A Shares of a Fund, may receive payments from Forum with respect to
sales of B Shares and may receive payments as a processing agent from the
Transfer Agent. In addition, financial institutions, including Processing
Organizations, may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Funds' procedures, may have
Fund shares transferred into their name. There is typically a three-
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day settlement period for purchases and redemptions through broker-dealers.
Certain Processing Organizations may also enter purchase orders with payment to
follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with confirmations and periodic statements. The Trust is not
responsible for the failure of any Processing Organization to carry out its
obligations to its customer. Certain states, such as Texas, permit shares of the
Funds to be purchased and redeemed only through registered broker-dealers,
including the Funds' distributor.
SUBSEQUENT PURCHASES
SUBSEQUENT PURCHASES MAY BE MADE BY MAILING A CHECK, BY SENDING A BANK WIRE OR
THROUGH THE SHAREHOLDER'S PROCESSING ORGANIZATION AS INDICATED ABOVE. All
payments should clearly indicate the shareholder's name and account number.
ACCOUNT APPLICATION
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
GENERAL INFORMATION
FUND SHARES ARE CONTINUOUSLY SOLD ON EVERY WEEKDAY EXCEPT CUSTOMARY NATIONAL
BUSINESS HOLIDAYS AND GOOD FRIDAY ("Fund Business Day"). The purchase price for
Fund shares equals their net asset value next-determined after acceptance of an
order plus, in the case of the A Shares, any applicable sales charge imposed at
the time of purchase.
Investments in a Fund may be made either through certain financial institutions
or by an investor directly. An investor who invests in a Fund directly will be
the shareholder of record. All
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transactions in Fund shares are effected through the Transfer Agent which
accepts orders for redemptions and for subsequent purchases only from
shareholders of record. Shareholders of record will receive from the Trust
periodic statements listing all account activity during the statement period.
ALTERNATIVE DISTRIBUTION ARRANGEMENTS
INVESTORS SHOULD COMPARE SALES CHARGES AND FEES BEFORE SELECTING A PARTICULAR
CLASS OF SHARES. Investors should consider whether, during the anticipated life
of their investment in a Fund, the accumulated distribution services fee and
maintenance fee and contingent deferred sales charges on B Shares prior to
conversion would be less than the initial sales charge on A Shares purchased at
the same time and whether that differential would be offset by the higher yield
of A Shares. A summary of the charges applicable to shares of each Fund is
listed under "Prospectus Summary - Expense Information." Sales personnel of
selected broker-dealers distributing a Fund's shares may receive differing
compensation for selling A Shares and B Shares.
Because initial sales charges are deducted at the time of purchase, investors
purchasing a Fund's A Shares receive fewer shares than if the sales charge were
not deducted and, accordingly, do not have the entire purchase price invested.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time should consider
whether, in light of the initial sales charge and its effect on the amount of
the purchase price invested, purchases of A Shares are more or less advantageous
than purchases of B Shares with their associated accumulated continuing
distribution and maintenance charges. For example, based on estimated current
fees and expenses, an investor subject to the 4.5% initial sales charge who
elects to reinvest all dividends and distributions would have to hold the
shareholder's investment approximately six years for the B Shares' distribution
services fee and maintenance fee to exceed the initial sales charge. The
foregoing example does not take into account the time value of money,
fluctuations in net asset value or the effects of different performance
assumptions.
A SHARES
THE PUBLIC OFFERING PRICE OF EACH FUND'S A SHARES IS THEIR NEXT-DETERMINED NET
ASSET VALUE PLUS AN INITIAL SALES CHARGE assessed as follows (no sales charge is
assessed on the reinvestment of dividends or distributions):
Broker-
Dealers'
Reallowance
Sales Charge As a As a
Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
Less than $50,000 4.50% 4.71% 4.05%
$50,000 to $99,999 3.50 3.63 3.15
$100,000 to $499,000 2.50 2.56 2.25
$500,000 to $999,000 2.00 2.04 1.80
$1,000,000 and over None None None
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* Rounded to the nearest one-hundredth percent
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations. Normally, Forum will reallow discounts
to selected broker-dealers in the amounts indicated in the table above. In
addition, Forum may elect to reallow the entire sales charge to selected broker-
dealers for all sales with respect to which orders are placed with Forum. The
broker-dealers' reallowance may be changed from time to time. Forum may make
additional payments (out of its own resources) to selected broker-dealers of up
to 1.00% of the value of Fund shares purchased at net asset value.
No sales charge is assessed on purchases by: (a) any bank, trust company or
other institution acting on behalf of its fiduciary customer accounts or any
other account maintained by its trust department (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended) and (b)
trustees and officers of the Trust; directors, officers and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor or direct descendant (collectively, "relatives") of any such
person; any trust or individual retirement account or self-employed retirement
plan for the benefit of any such person or relative; or the estate of any such
person or relative. These shares may not be resold except to the Funds and share
purchases under clause (b) must be made for investment purposes.
In addition, no sales charge is assessed on purchases (a) by any registered
investment adviser with whom Forum has entered into a Share purchase agreement
and which is acting on behalf of its fiduciary customer accounts, or (b) of A
Shares of a Fund made through the Directed Dividend Option from a fund that
charges a front-end sales charge. See "Dividends and Tax Matters."
REINSTATEMENT PRIVILEGE. An investor who has redeemed A Shares of a Fund may,
within 60 days following the redemption, purchase without a sales charge A
Shares in an amount up to the amount of the redemption. Investors who desire to
exercise this "Reinstatement Privilege" should contact the Trust for further
information.
INVESTORS IN OTHER FUND FAMILIES. No sales charge is assessed on purchases of A
Shares of a Fund with the proceeds of a redemption at net asset value, within
the preceding 60 days, of shares of a mutual fund that does not impose on the
redeemed shares at the time of their purchase a sales charge equal to or greater
than that applicable to the A Shares of that Fund. Investors should contact the
Trust for further information and to obtain the necessary forms.
REDUCED INITIAL SALES CHARGES. To qualify for a reduced sales charge, an
investor or the investor's Processing Organization must notify the Transfer
Agent at the time of purchase of the investor's intention to qualify and must
provide the Transfer Agent with sufficient information to verify that the
purchase qualifies for the reduced sales charge. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. Further information about reduced sales charges is
contained in the SAI.
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SELF-DIRECTED 401(K) PROGRAMS. Purchases of A Shares of a Fund through self-
directed 401(k) programs and other qualified retirement plans offered by
Norwest, Forum or their affiliates in accumulated amounts of less than $100,000
are subject to a reduced sales charge applicable to a single purchase of
$100,000.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An investor's purchase of
additional A Shares of a Fund may qualify for rights of accumulation ("ROA")
under which the applicable sales charge will be based on the total of the
investor's current purchase and the net asset value (at the end of the previous
Fund Business Day) of all A Shares of that Fund held by the investor. For
example, if an investor owned A Shares of a Fund worth $500,000 at the then
current net asset value and purchased A Shares of that Fund worth an additional
$50,000, the sales charge for the $50,000 purchase would be at the 2.0% rate
applicable to a $550,000 purchase, rather than at the 3.5% rate applicable to a
$50,000 purchase.
In addition, an investor in a Fund that has previously purchased A Shares of any
other fund of the Trust that is sold with a sales charge equal to or greater
than the sales charge imposed on the A Shares of the Fund ("Eligible Fund") may
also qualify for ROA and may aggregate existing investments in A Shares of
Eligible Funds with current purchases of A Shares of the Fund to determine the
applicable sales charge. In addition, purchases of A Shares of a Fund by an
investor and the investor's spouse, direct ancestor or direct descendant may be
combined for purposes of ROA.
STATEMENT OF INTENTION. A Shares investors may also obtain reduced sales charges
based on cumulative purchases by means of a written Statement of Intention,
expressing the investor's intention to invest $50,000 or more in A Shares of a
Fund within a period of 13 months. Each purchase of shares under a Statement of
Intention will be made at net asset value plus the sales charge applicable at
the time of the purchase to a single transaction of the dollar amount indicated
in the Statement.
Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a Fund should complete the appropriate
portion to the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. A Shares of a Fund on which no initial sales
charge was assessed due to the amount purchased in a single transaction or
pursuant to the Cumulative Quantity Discount or a Statement of Intention and
that are redeemed (including certain redemptions in connection with an exchange)
within specified periods after the purchase date of the shares will be subject
to contingent deferred sales charges equal to the percentages set forth below of
the dollar amount subject to the charge. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being redeemed and their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from the reinvestment of
dividends and distributions.
Contingent Deferred Sales
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Charge as a % of Dollar
Amount of Purchase Period Shares Held Amount Subject to Charge
$1,000,000 to $2,499,999 Less than one year 1.00%
One to two years 0.75%
$2,500,000 to $4,999,999 Less than one year 0.50%
Over $5,000,000 Less than one year 0.25%
No contingent deferred sales charge is charged on redemptions to the same extent
as described under "B Shares - Contingent Deferred Sales Charge" below. The
contingent deferred sales charge on shares purchased through an exchange from
another fund of the Trust is based upon the original purchase date and price of
the other Fund's shares. For A shareholders with a Statement of Intention that
do not purchase $1,000,000 of a Fund's A Shares pursuant to their Statement, no
contingent deferred sales charge is imposed. The Statement of Intention provides
for a contingent deferred sales charge in certain other cases. Further
information about the contingent deferred sales charge is contained in the SAI.
B SHARES
DISTRIBUTION PLAN. B SHARES OF A FUND ARE SOLD AT THEIR NET ASSET VALUE PER
SHARE WITHOUT THE IMPOSITION OF A SALES CHARGE AT THE TIME OF PURCHASE. With
respect to B Shares, each Fund has adopted a distribution plan pursuant to Rule
12b-1 (the "Plan") under the 1940 Act providing for distribution payments, at an
annual rate of up to 0.75% of the average daily net assets of the Fund
attributable to the B Shares (the "distribution services fee"), by each Fund to
Forum, to compensate Forum for its distribution activities. The distribution
payments due to Forum from each Fund comprise (i) sales commissions at levels
set from time to time by the Board ("sales commissions") and (ii) an interest
fee calculated by applying the rate of 1% over the prime rate to the outstanding
balance of uncovered distribution charges (as described below). The current
sales commission rate is 4.0% and Forum currently expects to pay sales
commissions to each broker-dealer at the time of sale of up to 4.0% of the
purchase price of B Shares of each Fund sold by the broker-dealer.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares. The combined contingent
deferred sales charge and distribution services fee on B Shares are intended to
finance the distribution of those shares by permitting an investor to purchase
shares through broker-dealers without the assessment of an initial sales charge
and, at the same time, permitting Forum to compensate broker-dealers in
connection with the sales of the shares. Proceeds from the contingent deferred
sales charge with respect to a Fund are paid to Forum to defray the expenses
related to providing distribution-related services in connection with the sales
of B Shares, such as the payment of compensation to broker-dealers selling B
Shares. Forum may spend the distribution services fees it receives as it deems
appropriate on any activities primarily intended to result in the sale of those
shares.
Under the Plan, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to that Fund.
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Uncovered distribution charges are equivalent to all sales commissions
previously due (plus interest), less amounts received pursuant to the Plan and
all contingent deferred sales charges previously paid to Forum. As of the date
of this Prospectus, there are no unrecovered distribution expenses for any of
the Fund's net assets attributable to B Shares.
The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to a Fund is not related directly to the
amount of expenses incurred by Forum in connection with providing distribution
services to the B Shares and may be higher or lower than those expenses. Forum
may be considered to have realized a profit under the Plan if, at any time, the
aggregate amounts of all distribution services fees and contingent deferred
sales charge payments previously made to Forum exceed the total expenses
incurred by Forum in distributing B Shares.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
in an amount equal to 0.25% of the average daily net assets of the Fund
attributable to B Shares for providing personal services to shareholder
accounts. The maintenance fee may be paid by Forum to broker-dealers in an
amount not to exceed 0.25% of the value of the B Shares held by the customers of
the broker-dealers. The distribution services fee and the maintenance fee are
each accrued daily and paid monthly and will cause a Fund's B Shares to have a
higher expense ratio and to pay lower dividends than A Shares of that Fund.
Notwithstanding the discontinuation of distribution services fees with respect
to a Fund, the Fund may continue to pay maintenance fees.
The distribution services fees payable to Forum by a Fund with respect to each
day are accrued on that day as a liability of the Fund with respect to the B
Shares and as a result of the accrual reduce the net assets of the B Shares.
However, a Fund does not accrue future distribution services fees as a liability
of the Fund with respect to the B Shares or reduce the Fund's current net assets
in respect of distribution services fees which may become payable under the Plan
in the future.
In the event that the Plan is terminated or not continued with respect to a
Fund, the Fund will continue to pay distribution services fees to Forum (but
only with respect to sales that occurred prior to the termination or
discontinuance of the Plan) until the earlier of (a) four years after the date
of termination or discontinuance or (b) such time as there exist no uncovered
distribution charges attributable to that Fund under the Plan. In deciding
whether to purchase B Shares of a Fund, investors should consider that payments
of distribution services fees could continue until such time as there are no
uncovered distribution charges under the Plan attributable to that Fund. In
approving the Plan, the Board determined that there was a reasonable likelihood
that the Plan would benefit each Fund and its B shareholders.
Periods with a high level of sales of B Shares of a Fund accompanied by a low
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of B Shares of a Fund accompanied by a high
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to reduce uncovered distribution charges. A high level
of sales of B Shares during the first few years of operations, coupled with the
limitation on the amount of distribution services fees payable by a Fund with
respect to B Shares during any fiscal year, would cause a large portion of the
distribution services fees attributable to a sale of the B
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Shares to be accrued and paid by the Fund to Forum with respect to those shares
in fiscal years subsequent to the years in which those shares were sold. The
payment delay would in turn result in the incurrence and payment of increased
interest fees under the Plan.
Contingent Deferred Sales Charge. B Shares of a Fund which are redeemed within
six years of purchase will be subject to contingent deferred sales charges equal
to the percentages set forth below of the dollar amount subject to the charge.
The amount of the contingent deferred sales charge, if any, will vary depending
on the number of years between the payment for the purchase of B Shares of a
Fund and their redemption.
The contingent deferred sales charge will be assessed on an amount equal to the
lesser of the cost of the shares being redeemed and their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed on increases in
net asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from the reinvestment of dividends and distributions.
Contingent Deferred Sales
Charge as a % of Dollar
Year Since Purchase Amount Subject to Charge
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh None
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in a Fund will automatically be made first from any A
Shares in the Fund, second from B Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for over six years and fourth from the longest outstanding B Shares of the
Fund held for less than six years.
No contingent deferred sales charge is imposed on (i) redemptions of shares
acquired through the reinvestment of dividends and distributions, (ii)
involuntary redemptions by a Fund of shareholder accounts with low account
balances, (iii) redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability and (iv) redemptions to effect a distribution (other than a lump
sum distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan. See the SAI for further information.
CONVERSION FEATURE. After seven years from the end of the calendar month in
which the shareholder's purchase order for B shares was accepted, the Shares
will automatically convert to A Shares of that Fund. The conversion will be on
the basis of the relative net asset values of the
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Shares, without the imposition of any sales load, fee or other charge. For
purposes of conversion, B Shares of a Fund purchased by a shareholder through
the reinvestment of dividends and distributions will be considered to be held in
a separate sub-account. Each time any B Shares in the shareholder's account
(other than those in the sub-account) convert, an equal pro rata portion of
those shares in the sub-account will also convert. The conversion of B Shares to
A Shares is subject to the continuing availability of certain opinions of
counsel and the conversion of a Fund's B Shares to A Shares may be suspended if
such an opinion is no longer available at the time the conversion is to occur.
In that event, no further conversions of the Fund's B Shares would occur, and
shares might continue to be subject to a distribution services and maintenance
fee for an indefinite period.
6. HOW TO SELL SHARES
GENERAL INFORMATION
Fund Shares may be sold (redeemed) at their net asset value on any Fund Business
Day subject to a contingent deferred sales charge imposed, in the case of A
Shares, on some redemptions made within two years of purchase and, in the case
of B Shares, on most redemptions made within six years of purchase. There is no
minimum period of investment and no restriction on the frequency of redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends declared after
the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment date postponed for more than seven days after
the tender of the shares to a Fund except when the New York Stock Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings, for any period during which an emergency
exists as a result of which disposal by the Fund of its portfolio securities or
determination by the Fund of the value of its net assets is not reasonably
practicable and for such other periods as the SEC may permit.
REDEMPTION PROCEDURES
Shareholders who have invested directly in a Fund may redeem their Shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described above. Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be
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available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone.
1. BY MAIL. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. BY TELEPHONE. A shareholder who has elected telephone redemption privileges
may make a telephone redemption request by calling the Transfer Agent at 800-
338-1348 or 612-667-8833 and providing the shareholder's account number, the
exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. See "How to Sell Shares - Other Redemption Matters."
3. BY BANK WIRE. For redemptions of more than $5,000, a shareholder who has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
OTHER REDEMPTION MATTERS
SIGNATURE GUARANTEE. A signature guarantee is required for the following: any
endorsement on a share certificate and for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions, Automatic Investment or Withdrawal Plan, dividend election,
telephone redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any bank, broker-dealer, national securities exchange, credit union, savings
association or other eligible institution that is authorized to guarantee
signatures, and is acceptable to the Transfer Agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust, the Transfer Agent and Forum, will employ
reasonable procedures in order to verify that telephone requests are genuine,
including recording telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the Trust did not
employ such procedures, it could be liable for losses arising from unauthorized
or fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to
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implement. In the event that a shareholder is unable to reach the Transfer Agent
by telephone, requests may be mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 immediately
following any redemption. The Trust will not redeem accounts that fall below
that amount solely as a result of a reduction in net asset value.
7. OTHER SHAREHOLDER SERVICES
EXCHANGES
Shareholders of A Shares and B Shares may exchange their shares for A Shares and
B Shares, respectively, of the other funds of the Trust that offer those shares.
As of the date of this Prospectus, the funds of the Trust that offer A Shares
and B Shares, which are offered through separate prospectuses, are ____________.
It is anticipated that the Trust may in the future create additional funds that
will offer Shares which will be exchangeable with the Funds' Shares. In
addition, A Shares may be exchanged for Investor Shares of Ready Cash Investment
Fund and Municipal Money Market Fund of the Trust. B Shares may be exchanged for
Exchange Shares of Ready Cash Investment Fund. Prospectuses for the shares of
the funds listed above, as well as a current list of the funds of the Trust that
offer shares exchangeable with the Shares of the Funds, can be obtained through
Forum by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make. The Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees (other than contingent deferred sales charges) charged by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence.
The Funds and Federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in the shares at the time of the exchange transaction. Exchange procedures
may be amended materially or terminated by the Trust at any time upon 60 days'
notice to shareholders. See "Additional Purchase and Redemption Information" in
the SAI.
SALES CHARGES. The exchange of A Shares may result in additional sales charges.
If an exchange of A Shares is made into a fund that imposes an initial sales
charge, the shareholder is required to pay an amount equal to any excess of that
Fund's initial sales charge attributable to the number of
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shares being acquired in the exchange over any initial sales charge paid by the
shareholder for the shares being exchanged. For example, if a shareholder paid a
2% initial sales charge in connection with a purchase of shares and then
exchanged those shares into A Shares of another fund with a 3% initial sales
charge, the shareholder would pay an additional 1% sales charge on the exchange.
A Shares acquired through the reinvestment of dividends or distributions are
deemed to have been acquired with a sales charge rate equal to that applicable
to the shares on which the dividends or distributions were paid.
Shares of a Fund ("Original Shares") may be exchanged without the payment of any
contingent deferred sales charge. A and B Shares acquired as a result of such
exchange ("New Shares") and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Original Shares as if
those shares were being redeemed at that time. For purposes of computing both
the contingent deferred sales charge payable upon redemption of the New Shares
and, in the case of B Shares, the time remaining before the New B Shares convert
to A Shares of that Fund, the deferred sales charge and the time remaining
applicable to the Original Shares will apply to the New Shares rather than the
deferred sales charge and time remaining that would otherwise apply. The
deferred sales charge and time remaining applicable to Shares first purchased by
a shareholder will apply to New Shares resulting from both an initial and any
subsequent exchanges.
1. EXCHANGES BY MAIL. Exchanges may be made by sending a written request to
the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. EXCHANGES BY TELEPHONE. A shareholder who has elected telephone exchange
privileges may make a telephone exchange request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See "How to
Sell Shares - Other Redemption Matters."
AUTOMATIC INVESTMENT PLAN
Under the Funds' Automatic Investment Plan, shareholders may authorize monthly
amounts of $50 or more to be withdrawn automatically from the shareholder's
designated bank account (other than passbook savings) and sent to the Transfer
Agent for investment in either A or B Shares of a Fund. Shareholders wishing to
use this plan must complete an application which may be obtained by writing or
calling the Transfer Agent. The Trust may modify or terminate the automatic
investment plan with respect to any shareholder in the event that the Trust is
unable to settle any transaction with the shareholder's bank. If the Automatic
Investment Plan is terminated before the shareholder's account totals $1,000,
the Trust reserves the right to close the account in accordance with the
procedures described under "How to Sell Shares - Other Redemption Matters."
INDIVIDUAL RETIREMENT ACCOUNTS
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The Funds may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). An IRA account application form
may be obtained by contacting the Trust at 800-338-1348 or 612-667-8833.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, the deduction will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
AUTOMATIC WITHDRAWAL PLAN
A shareholder whose Shares in a single account total $1,000 or more may
establish a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
annual basis. Under the withdrawal plan, sufficient shares in the shareholder's
account are redeemed to provide the amount of the periodic payment and any
taxable gain or loss is recognized by the shareholder upon redemption of the
shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than $1,000 at any time.
REOPENING ACCOUNTS
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
8. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of Diversified Equity Fund's, Growth Equity Fund's and Income Equity
Fund's net investment income are declared and paid annually. Distributions of
net capital gain, if any, realized by a Fund are distributed annually. Dividends
paid by a Fund with respect to each class of shares of the Fund will be
calculated in the same manner at the same time on the same day. The per share
dividends on a Fund's B Shares will be lower than the per share dividends on A
Shares as a result of the distribution services fees and maintenance fees
applicable to B Shares.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for Federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a
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Fund's net asset value as of the payment date of the dividend or distribution.
Shareholders are assigned this option unless one of the other two options is
selected. Under the Cash Option, all dividends and distributions are paid to the
shareholder in cash. Under the Directed Dividend Option, shareholders of a Fund
whose shares in a single account of that Fund total $10,000 or more may elect to
have all dividends and distributions reinvested in shares of another fund of the
Trust, provided that those shares are eligible for sale in the shareholder's
state of residence. For further information concerning the Directed Dividend
Option, shareholders should contact the Transfer Agent.
TAXES
Each Fund intends to continue to qualify for each fiscal year to be taxed as a
'regulated investment company' under the Internal Revenue Code of 1986 (the
"Code"). As such, the Funds will not be liable for Federal income and excise
taxes on the net investment income and capital gain distributed to their
shareholders. Because each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
Federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including realized
net short-term capital gain) are taxable to shareholders of the Fund as ordinary
income notwithstanding that the dividends are reinvested in additional shares of
the Fund.
Distributions of net long-term capital gain, if any, realized by a Fund are
taxable to shareholders of the Fund as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If a shareholder holds shares for six months or less and during
that period receives a distribution taxable to the shareholder as long-term
capital gain, any loss realized on the sale of the shares during that six-month
period would be a long-term capital loss to the extent of the distribution.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of the shares by the amount of
the dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to the
shareholder as described above.
It is expected that a portion of each Fund's dividends from net investment
income will be eligible for the dividends received deduction for corporations.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each year.
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9. OTHER INFORMATION
BANKING LAW MATTERS
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent, or custodian to an investment
company and to purchase shares of the investment company as agent for and upon
the order of a customer and, in connection therewith, to retain a sales charge
or similar payment. Counsel to the Trust believes that Norwest and any other
bank or bank affiliate that may serve as a Processing Organization or perform
sub-transfer agent or similar services or purchase shares as agent for its
customers may perform the services described in this Prospectus for the Trust
and its shareholders without violating applicable Federal banking laws or
regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If a
bank or bank affiliate were prohibited from so acting, changes in the operation
of the Trust could occur and a shareholder serviced by a bank or bank affiliate
may no longer be able to avail itself of those services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of each Fund as of 4:00 P.M.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's net
assets (i.e., the value of its securities and other assets less its liabilities)
by the number of shares outstanding at the time the determination is made.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value or, in their absence, at fair value as determined
by the Board. The Trust does not determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary. Due to the higher expenses of B Shares,
the net asset value of B Shares will generally be lower than the net asset value
of the other classes. The per share net asset value of each class of a Fund
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes. Trading in securities on European, Far Eastern
and other international securities exchanges and over-the-counter markets is
normally completed well before the close of business of each Fund Business Day.
In addition, trading in foreign securities generally or in a particular country
or countries may not take place on all Fund Business Days. Trading does take
place in various foreign markets, however, on days on which the Fund's net asset
value is not calculated. Calculation of the net asset value per share of the
Fund may not occur contemporaneously with the determination of the prices of the
foreign securities used in the calculation. Events affecting
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the values of foreign securities that occur after the time their prices are
determined and before the Fund's determination of net asset value will not be
reflected in the Fund's calculation of net asset value unless the Adviser or
Schroder determines that the particular event would materially affect net asset
value, in which case an adjustment will be made.
All assets and liabilities of a Fund denominated in foreign currencies are
converted into United States dollars at the mean of the bid and asked prices of
such currencies against the United States dollar last quoted by a major bank
prior to the time of conversion.
PERFORMANCE INFORMATION
A Fund's performance may be quoted in advertising in terms of yield or total
return. All performance information is based on historical results and is not
intended to indicate future performance. A Fund's yield is a way of showing the
rate of income the Fund earns on its investments as a percentage of the Fund's
share price. To calculate standardized yield, a Fund takes the interest income
it earned from its investments for a 30-day period (net of expenses), divides it
by the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. A Fund's total return shows its overall change in
value, including changes in share price and assuming all the Fund's dividends
and distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gain or loss. Published yield quotations
are, and total return figures may be, based on amounts actually invested in a
Fund net of sales loads that may be paid by an investor. A computation of yield
or total return that does not take into account the sales load paid by an
investor will be higher than a computation based on the public offering price of
shares purchased that take into account payment of the sales load.
PERFORMANCE BENCHMARKS. Each of the Funds uses a benchmark securities index as a
measure of the Fund's performance. These indices may be comprised of a composite
of various recognized securities indices to reflect the investment policies of
Diversified Equity Fund, Growth Equity Fund and Income Equity Fund, which invest
their assets using different investment styles. These indices are not used in
the management of the Fund but rather are standards by which the Advisers and
shareholders may compare the performance of a Fund to an unmanaged composite of
securities with similar, but not identical, characteristics as the Fund. The
Funds may from time to time advertise a comparison of their performance against
any of these or other indices.
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Funds may be compared to recognized indices of market performance. The
comparative material found in the Funds' advertisements, sales literature or
reports to shareholders may contain performance ratings. This material is not to
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be considered representative or indicative of future performance. All
performance information for a Fund is calculated on a class basis.
THE TRUST AND ITS SHARES
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust. The Trust has an unlimited number of authorized
shares of beneficial interest. The Board may, without shareholder approval,
divide the authorized shares into an unlimited number of separate portfolios or
series (such as the Funds) and may divide portfolios or series into classes of
shares (such as A and B Shares), and the costs of doing so will be borne by the
Trust. Currently the authorized shares of the Trust are divided into thirty-one
separate series.
OTHER CLASSES OF SHARES. In addition to the Shares, each Fund may create and
issue shares of other classes of securities. Each Fund currently offers three
classes of shares: A Shares; B Shares; and I Shares. I Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates without any sales charges or distribution service
or maintenance fees. Each class of a Fund may have a different expense ratio and
different sales charges (including distribution fees) and each class'
performance will be affected by its expenses and sales charges. For more
information on any other class of shares of the Funds investors may contact the
Transfer Agent at 612-667-8833 or 800-338-1348. Investors may also contact their
Norwest sales representative or the Funds' distributor to obtain information
about the other classes. Sales personnel of broker-dealers and other financial
institutions selling the Fund's shares may receive differing compensation for
selling A, B and I Shares of the Funds.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each fund of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertain to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio or class, as appropriate. Delaware law does not
require the Trust to hold annual meetings of shareholders, and it is anticipated
that shareholder meetings will be held only when specifically required by
Federal or state law. Shareholders have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
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From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
The Portfolio normally will not hold meetings of investors except as required by
the 1940 Act. Each investor in the Portfolio, such as International Fund, will
be entitled to vote in proportion to its relative beneficial interest in the
Portfolio. On most issues subject to a vote of investors, as required by the
1940 Act and other applicable law, the Fund will solicit proxies from
shareholders of the Fund and will vote its interest in the Portfolio in
proportion to the votes cast by its shareholders. If there are other investors
in the Portfolio, there can be no assurance that any issue that receives a
majority of the votes cast by Fund shareholders will receive a majority of votes
cast by all investors in the Portfolio; indeed, if other investors hold a
majority interest in the Portfolio, they could hold have voting control of the
Portfolio.
CORE TRUST STRUCTURE
Pursuant to an exemptive order issued by the SEC, the Blended Funds invest
portions of their assets in Small Company Portfolio, International Portfolio II
and Index Portfolio of Core Trust. Core Trust currently consists of only these
three diversified portfolios and one other, International Portoflio, in which
another portfolio of the Trust invests all of its assets. The assets of each
Portfolio of Core Trust belong only to, and the liabilities of each Portfolio
are borne solely by, the respective Portfolio and no other Portfolio of Core
Trust.
The Blended Funds are permitted to invest a portion of their assets which are
managed by using the small company, index and international investment styles in
Small Company Portfolio, Index Portfolio, and International Portfolio II
pursuant to an exemptive order obtained from the SEC. The conditions of the
Trust's exemptive order do not permit a Fund to invest all of its assets in a
Blended Portfolio.
The Trust's exemptive order imposes several substantive conditions. On behalf of
each Blended Fund, the Board is required to review at least annually reports
identifying all instances in which a Portfolio in which the Fund invests buys a
security at approximately the same time that another Portfolio in which the Fund
invests sells the same security. The Board will consider whether the duplication
of brokerage costs resulting from these transactions is significant. If the
duplication of brokerage costs becomes significant, the Board will adopt
procedures designed to limit duplication. The Board will determine, at least
annually, that investment in the Portfolios is in the best interests of the
shareholders of each Blended Fund.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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<PAGE>
INTERMEDIATE U.S. GOVERNMENT FUND
STABLE INCOME FUND
A SHARES
B SHARES
Account Information and
Shareholder Servicing:
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
612-667-8833 or 800-338-1348
PROSPECTUS
March 1, 1996
This prospectus offers A Shares and B Shares of Intermediate U.S. Government
Fund and Stable Income (each a "Fund" and collectively the "Funds"). The Funds
are separate diversified fixed income portfolios of Norwest Advantage Funds (the
"Trust"), which is a registered open-end management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated March 1, 1996, as amended from time to
time, which contains more detailed information about the Trust and each of the
Funds and is incorporated into this Prospectus by reference. An investor may
obtain a copy of the SAI without charge by contacting the Trust's distributor,
Forum Financial Services, Inc., at 61 Broadway, New York, New York 10006 or by
calling 212-363-3300. Investors should read this Prospectus and retain it for
future reference.
NORWEST ADVANTAGE FUNDS IS A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER
GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF,
OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OTHER BANK OR
BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1. PROSPECTUS SUMMARY
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Highlights of the Funds
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
Investment Objectives and Policies
INTERMEDIATE U.S. GOVERNMENT FUND seeks income and safety of principal by
investing primarily in U.S. Government Securities. The Fund seeks to moderate
its volatility by using a conservative approach to structuring the maturities of
its investment portfolio.
STABLE INCOME FUND seeks to maintain safety of principal and provide low
volatility total return by investing primarily in short and intermediate
maturity, investment grade fixed income securities.
Investment Adviser
The Funds' investment adviser (the "Adviser") is Norwest Investment Management,
a part of Norwest Bank Minnesota, N.A. ("Norwest"). The Adviser provides
investment advice to various institutions, pension plans and other accounts and,
as of _______ ___, 1995, managed assets totaling approximately $___ billion. See
"Management - Investment Advisory Services." Norwest serves as the Trust's
transfer agent, dividend disbursing agent and custodian. See "Management -
Shareholder Servicing and Custody."
Fund Management
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"), a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. See "Management - Management and
Distribution Services."
Shares of the Funds
Each Fund currently offers three separate classes of shares: A class ("A
Shares"), B class ("B Shares") and I class ("I Shares"). A Shares and B Shares
are sold through this Prospectus and are collectively referred to as the
"Shares."
A Shares. Shares are offered at a price equal to their net asset value plus
a sales charge imposed at the time of purchase or, in some cases, a contingent
deferred sales charge imposed on redemptions made within two years of purchase.
B Shares. Shares are offered at a price equal to their net asset value plus
a contingent deferred sales charge imposed on most redemptions made within four
years of purchase. B Shares pay a distribution services fee at an annual rate of
up to 0.75%, and a maintenance fee in an amount equal to 0.25%, of the B Shares'
average daily net assets. B Shares automatically convert to A Shares of the same
Fund six years after the end of the calendar month in which the B Shares were
originally purchased.
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The choice of A Shares or B Shares permits each investor to purchase those
shares that the investor believes to be most beneficial given the amount
purchased, the length of time the investor expects to hold the shares and other
circumstances. A Shares will normally be more beneficial to the investor who
qualifies for reduced initial sales charges as described below. See "How to Buy
Shares - Alternative Distribution Arrangements."
I Shares are offered by a separate prospectus to fiduciary, agency and custodial
clients of bank trust departments, trust companies and their affiliates. Shares
of each class of a Fund have identical interests in the investment portfolio of
the Fund and, with certain exceptions, have the same rights. See "Other
Information - The Trust and Its Shares."
How to Buy and Sell Shares
Shares may be purchased or redeemed by mail, by bank wire and through an
investor's broker-dealer or other financial institution. The minimum initial
investment in Shares is $1,000. The minimum subsequent investment is $100. See
"How to Buy Shares" and "How to Sell Shares."
Exchanges
Shareholders may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of certain other funds of the Trust. In addition, A Shares may be
exchanged for investor class shares of certain money market funds of the Trust
and B Shares may be exchanged for exchange class shares of Ready Cash Investment
Fund of the Trust. See "Other Shareholder Services - Exchanges."
Shareholder Features
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. Purchases of A Shares may be subject to Rights of
Accumulation, Cumulative Quantity Discounts or a Reinstatement Privilege. See
"Other Shareholder Services" and "How to Buy Shares - Alternative Distribution
Arrangements."
Dividends
Dividends of each Fund's net investment income are declared and paid annually.
Each Fund's net capital gain, if any, is distributed annually. All dividends and
distributions are reinvested in additional Fund shares unless the shareholder
elects to have them paid in cash. See "Dividends and Tax Matters."
Certain Investment Considerations and Risk Factors
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Normally, the value of a Fund's
investments varies inversely with changes in interest rates. The potential for
appreciation in a Fund in the event of a decline in interest rates may be
limited or negated by increased principal prepayments on certain mortgage-backed
securities held by the Fund. Upon redemption, an investment in a Fund may be
worth more or less than its original value. The Funds' investments are subject
to "credit risk" relating to the financial condition of the issuers of the
securities that each Fund holds. Each Fund, however, invests only in investment
grade securities (those rated in the top four grades by a nationally recognized
statistical rating organization ("NRSRO") such as Standard & Poor's Corporation.
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All investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending, swap
transactions and other investment techniques. See "Investment Objectives and
Policies - Additional Investment Policies and Risk Considerations." Similarly, a
Fund's use of mortgage- and asset-backed securities entails certain risks. See
"Investment Objectives and Policies - Additional Investment Policies and Risk
Considerations - Mortgage-Backed Securities" and " Asset-Backed Securities."
SHAREHOLDER TRANSACTION EXPENSES(1)
(applicable to each Fund)
<TABLE>
<CAPTION>
Stable Income Intermediate U.S.
Fund Government Fund
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases (as
a percentage of public offering price) 1.5% Zero 3.75 Zero
Maximum deferred sales charge (as a
percentage of the lesser of original
purchase price or redemption proceeds) Zero(2) 1.5% Zero 3.0%
Exchange Fee Zero Zero Zero Zero
</TABLE>
ANNUAL OPERATING EXPENSES(3)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<TABLE>
<CAPTION>
Stable Income Intermediate U.S.
Fund Government Fund
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Investment Advisory Fees 0.30% 0.30% 0.33% 0.33%
Rule 12b-1 Fees(4) None 0.75% None 0.75%
Other Expenses 0.35% 0.35% 0.35% 0.35%
Total Operating Expenses 0.65% 1.40% 0.68% 1.43%
</TABLE>
(1) Sales charge waivers and reduced sales charge plans are available for A
Shares. The maximum 4.0% contingent deferred sales charge on B Shares applies
to redemptions during the first year after purchase; the charge declines
thereafter, becoming 3.0% during the second and third years, 2.0% during the
fourth and fifth years, 1.0% during the sixth year and reaches zero the
following year. See "How to Buy Shares - Alternative Distribution
Arrangements."
(2) If A Shares purchased without an initial sales charge (purchases of
$1,000,000 or more) are redeemed within two years after purchase, a contingent
deferred sales charge of up to 1.0% will be applied to the redemption. See "How
to Buy Shares - Alternative Distribution Arrangements."
(3) For a further description of the various expenses associated with Shares,
see "Management." Expenses associated with the I Shares of a Fund differ from
those of Shares listed in the table shown above. The amounts of expenses for
Diversified Equity Fund, Growth Equity Fund and Income Equity Fund are based on
amounts incurred during the Funds' first fiscal year ended October 31, 1995.
With respect to A Shares, absent expense reimbursements and fee waivers the
expenses of Stable Income Fund and Intermediate U.S. Government Fund would be:
Other Expenses, 0.66% and 0.58%, respectively; and Total Operating Expenses,
0.96% and 0.91%, respectively. With respect to B Shares, absent expense
reimbursements and fee waivers the expenses of Stable Income Fund and
Intermediate U.S. Government Fund would be: Other Expenses, 0.66% and 0.58%,
respectively; and Total Operating Expenses, 1.96% and 1.91%, respectively.
Other Expenses include transfer agency and custodial fees payable to Norwest
at a combined annual rate of up to 0.30% of each Fund's average daily net
assets attributable to A Shares and B Shares.
(4) Absent waivers, the Rule 12b-1 Fees would be 1.00% for B Shares of each
Fund. Long-term shareholders of B Shares may pay aggregate sales charges
totaling more than the economic equivalent of the maximum front-end sales
charges permitted by the Rules of Fair Practice of National Association of
Securities Dealers, Inc.
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EXAMPLE
Following is a hypothetical example that indicates the dollar amount of expenses
that an investor would pay, assuming a $1,000 investment in a Fund's Shares, a 5
% annual return and reinvestment of all dividends and distributions:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stable Income Fund
A Shares 22 35 51 95
B Shares
Assuming redemption at the end of the period 29 44 - -
Assuming no redemption 14 44 - -
Intermediate U.S. Government Fund
A Shares 44 58 74 119
B Shares
Assuming redemption at the end of the period 45 65 78 -
Assuming no redemption 15 45 78 -
</TABLE>
The example is based on the expenses listed in the expense table. The 5% annual
return is not predictive of and does not represent the Funds' projected returns;
rather, it is required by government regulation. The example assumes deduction
of the maximum initial sales charge for A Shares, deduction of the contingent
deferred sales charge for B Shares applicable to a redemption at the end of the
period and the conversion of B Shares to A Shares at the end of seven years.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.
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3. INVESTMENT OBJECTIVES AND POLICIES
The Funds invest primarily in fixed income securities pursuant to the investment
policies listed below. Stable Income Fund may invest in foreign issuers. These
investments may involve certain risks. See "Additional Investment Policies and
Risk Considerations - Foreign Investment Risks and Considerations".
INTERMEDIATE U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE. Intermediate U.S. Government Fund's investment objective
is to provide income and safety of principal by investing primarily in U.S.
Government Securities.
INVESTMENT POLICIES. Intermediate U.S. Government Fund seeks to attain its
investment objective by investing primarily in fixed and variable rate U.S.
Government Securities. Under normal circumstances, the Fund intends to invest at
least 65 percent of its assets in U.S. Government Securities and may invest up
to 35 percent of its assets in fixed income securities that are not U.S.
Government Securities. The Fund emphasizes the use of intermediate maturity
securities to lessen interest rate risk, while employing low risk yield
enhancement techniques to add to the Fund's return over a complete economic or
interest rate cycle.
The securities in which the Fund invests will include mortgage-backed and other
asset-backed securities, although the Fund will limit these investments to not
more than 50 percent and 25 percent, respectively, of its total assets. As part
of its mortgage-backed securities investments, the Fund may enter into "dollar
roll" transactions. Certain fixed income securities are "zero-coupon" securities
and the Fund will limit its investment in these securities, except those issued
through the U.S. Treasury's STRIPS program, to not more than 10 percent of the
Fund's total assets. The Fund may also invest in securities that are restricted
as to disposition under the Federal securities laws (sometimes referred to as
"private placements" or "restricted securities"). In addition, the Fund may not
invest more than 25 percent of its total assets in securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury. The Fund may make short sales and may purchase
securities on margin (borrow money in order to purchase securities), which are
considered speculative investment techniques. See "______ Risk Considerations -
Short Sales" and "- Purchasing Securities on Margin."
The Fund will only purchase securities that are rated, at the time of purchase,
within the two highest rating categories assigned by a Nationally Recognized
Statistical Rating Organization, such as Moody's Investors Service, Inc.,
Standard & Poor's Corporation or Fitch Investors Services, Inc., or which are
unrated and determined by the Adviser to be of comparable quality.
The Fund primarily will invest in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from short-
term (including overnight) to 12 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 7 years. Under normal circumstances, the Fund's portfolio of securities
will have a duration of between 75 percent and 125 percent of the duration of
the Lehman Intermediate Government Bond Index, which is used as the Fund's
benchmark index as described under "Other Information - Fund Performance."
Duration is a measure of a debt securities average life that reflects the
present value of the securities cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because earlier
payments on
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a debt security have a higher present value, duration of a security, except a
zero-coupon security, will be less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts, and buy options and write covered options on those futures contracts.
An option is covered if, so long as the Fund is obligated under the option, it
owns an offsetting position in the underlying security or futures contract or
maintains a segregated account of liquid, high-grade debt instruments with a
value at all times sufficient to cover the Fund's obligations under the option.
STABLE INCOME FUND
INVESTMENT OBJECTIVES. Stable Income Fund's investment objective is to maintain
safety of principal while providing low-volatility total return.
INVESTMENT POLICIES. Stable Income Fund seeks to maintain safety of principal
while providing low volatility total return by investing primarily in investment
grade short-term obligations. The Fund invests in a diversified portfolio of
fixed and variable rate U.S. dollar denominated fixed income securities of a
broad spectrum of United States and foreign issuers, including U.S. Government
Securities and the debt securities of financial institutions, corporations, and
others.
The securities in which the Fund invests include mortgage-backed and other
asset-backed securities, although the Fund limits these investments to not more
than 60 percent and 25 percent, respectively, of its total assets. In addition,
the Fund limits its holdings of mortgage-backed securities that are not U.S.
Government Securities to 25 percent of its total assets. The Fund may invest any
amount of its assets in U.S. Government Securities, but under normal
circumstances less than 50 percent of the Fund's total assets are so invested.
The Fund may invest in securities that are restricted as to disposition under
the Federal securities laws (sometimes referred to as "private placements" or
"restricted securities"). In addition, the Fund may not invest more than 25
percent of its total assets in the securities issued or guaranteed by any single
agency or instrumentality of the U.S. Government, except the U.S. Treasury, and
may not invest more than 10 percent of its total assets in the securities of any
other issuer.
The Fund only purchases those securities that are rated, at the time of
purchase, within the three highest long-term or two highest short-term rating
categories assigned by a Nationally Recognized Statistical Rating Organization,
such as Moody's Investors Service, Inc., Standard & Poor's Corporation or Fitch
Investors Services, Inc., or which are unrated and determined by the Adviser to
be of comparable quality.
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The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to12 years and seeks to maintain an average dollar-
weighted portfolio maturity of between 2 and 5 years.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's income and may attempt to reduce the overall risk
of its investments or limit the uncertainty in the level of future foreign
exchange rates (hedge) by using options and futures contracts and foreign
currency forward contracts. The Fund's ability to use these strategies may be
limited by market considerations, regulatory limits and tax considerations. The
Fund may write covered call and put options, buy put and call options, buy and
sell interest rate and foreign currency futures contracts and buy options and
write covered options on those futures contracts. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or futures contract or maintains a segregated account
of liquid, high-grade debt instruments with a value at all times sufficient to
cover the Fund's obligations under the option.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
Each Fund's investment objective and all investment policies of the Funds that
are designated as fundamental may not be changed without approval of the holders
of a majority of that Fund's outstanding voting securities. A majority of a
Fund's outstanding voting securities means the lesser of 67% of the shares of a
Fund present or represented at a shareholders' meeting at which the holders of
more than 50% of the shares are present or represented, or more than 50% of the
outstanding shares of a Fund. Except as otherwise indicated, investment policies
of the Funds are not deemed to be fundamental and may be changed by the Board of
Trustees of the Trust (the "Board") without shareholder approval. A further
description of the Funds' investment policies, including additional fundamental
policies, is contained in the SAI.
The Adviser monitors the creditworthiness of counterparties to the Funds'
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal credit risks and the benefits from the
transaction justify the attendant risks. No Fund may invest more than 15% of its
net assets in illiquid securities, including repurchase agreements not entitling
the Fund to payment within seven days. As used herein, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities.
BORROWING. As a fundamental policy, each Fund may borrow money from banks or by
entering into reverse repurchase agreements and will limit borrowings to amounts
not in excess of 33 1/3% of the value of the Fund's total assets. Borrowings for
other than temporary or emergency purposes or meeting redemption requests may
not exceed 5% of the value of Stable Income Fund's assets. Each Fund may enter
into reverse repurchase agreements, transactions in which a Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date.
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MARGIN AND SHORT SALES. Except for Intermediate U.S. Government Fund, no Fund
may purchase securities on margin or make short sales of securities, except
short sales against the box. These prohibitions do not restrict the Funds'
ability to use short-term credits necessary for the clearance of portfolio
transactions and to make margin deposits in connection with permitted
transactions in options and futures contracts.
DIVERSIFICATION AND CONCENTRATION. Each Fund is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, no Fund may purchase a security
(other than a U.S. Government Security or shares of investment companies) if, as
a result, (i) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer or (ii) the Fund would own more than 10% of the
outstanding voting securities of any single issuer. Each Fund is prohibited from
concentrating its assets in the securities of issuers in any industry. As a
fundamental policy, each Fund may not purchase securities if, immediately after
the purchase, more than 25% of the value of the Fund's total assets would be
invested in the securities of issuers conducting their principal business
activities in the same industry. This limit does not apply to investments in
U.S. Government Securities, foreign government securities or repurchase
agreements covering U.S. Government Securities.
FOREIGN INVESTMENT RISKS AND CONSIDERATIONS. All investments, domestic and
foreign, involve certain risks. Investments in the securities of foreign issuers
may involve risks in addition to those normally associated with investments in
the securities of U.S. issuers. All foreign investments are subject to risks of
foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, and changes in foreign
governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
Stable Income Fund's shareholders; commission rates payable on foreign
transactions are generally higher than in the United States; foreign accounting,
auditing and financial reporting standards differ from those in the United
States and, accordingly, less information may be available about foreign
companies than is available about issuers of comparable securities in the United
States; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and the Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar will reduce the dollars available to make a
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distribution. Similarly, if the exchange rate declines between the time after
the Fund's income has been earned and computed in U.S. dollars and the time it
is paid may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS. Although each Fund only
invests in investment grade fixed income securities, including money market
instruments, an investment in a Fund is subject to risk even if all fixed income
securities in the Fund's portfolio are paid in full at maturity. All fixed
income securities, including U.S. Government Securities, can change in value
when there is a change in interest rates or the issuer's actual or perceived
creditworthiness or ability to meet its obligations.
The market value of the interest-bearing debt securities held by the Funds will
be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an increase
in interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity (and duration) of a security, the greater will be the effect
of interest rate changes on the market value of that security. Changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. The possibility exists that, the
ability of any issuer to pay, when due, the principal of and interest on its
debt securities may become impaired.
RATING MATTERS. The Funds' investments are subject to "credit risk" relating to
the financial condition of the issuers of the securities that each Fund holds.
To limit credit risk, each Fund will generally buy securities that are rated in
the top four long-term rating categories by an NRSRO or in the top two short-
term rating categories by an NRSRO, although certain Funds have greater
restrictions. Accordingly, the lowest permissible long-term investment grades
for corporate bonds, including convertible bonds, are Baa in the case of Moody's
Investor Services, Inc. ("Moody's") and BBB in the case of Standard & Poor's
Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch"); the lowest
permissible long-term investment grades for preferred stock are Baa in the case
of Moody's and BBB in the case of S&P and Fitch; and the lowest permissible
short-term investment grades for short-term debt, including commercial paper,
are Prime-2 (P-2) in the case of Moody's, A-2 in the case of S&P and F-2 in the
case of Fitch.
The Funds also may purchase unrated securities if the Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Each Fund may retain a security whose rating has been lowered below the Fund's
lowest permissible rating category (or that are unrated and determined by the
Adviser to be of comparable quality to securities whose rating has been lowered
below the Fund's lowest permissible rating category) if the Adviser determines
that retaining the security is in the best interests of the Fund. Because a
downgrade often results in a reduction in the market price of the security, sale
of a downgraded security may result in a loss.
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VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Funds invest
(including mortgage-backed securities) may have variable or floating rates of
interest. These securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some interest rate
index or market interest rate (the "underlying index"). The interest paid on
these securities is a function primarily of the underlying index upon which the
interest rate adjustments are based. Such adjustments minimize changes in the
market value of the obligation and, accordingly, enhance the ability of the Fund
to maintain a stable net asset value. Similar to fixed rate debt instruments,
variable and floating rate instruments are subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
The rate of interest on securities purchased by a Fund may be tied to various
rates of interest or indices. Certain variable rate securities (including
mortgage-related securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For instance, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During times when short-term
interest rates are relatively low as compared to long-term interest rates a Fund
may attempt to enhance its yield by purchasing inverse floaters. Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This form of leverage may have the effect of
increasing the volatility of the security's market value while increasing the
security's, and thus the Fund's, yield.
There may not be an active secondary market for certain floating or variable
rate instruments (particularly inverse floaters and similar instruments) which
could make it difficult for a Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights it may have. A Fund
could, for this or other reasons, suffer a loss with respect to an instrument.
The Adviser monitors the liquidity of each Funds' investment in variable and
floating rate instruments, but there can be no guarantee that an active
secondary market will exist.
U.S. GOVERNMENT SECURITIES. As used in this Prospectus, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the United States Government, its agencies or instrumentalities. The U.S.
Government Securities in which a Fund may invest include U.S. Treasury
securities and obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and backed by the full faith and credit of the U.S.
Government, such as those guaranteed by the Small Business Administration or
issued by the Government National Mortgage Association ("Ginnie Mae"). In
addition, the U.S. Government Securities in which the Funds may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association ("Fannie Mae"),
the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Tennessee
Valley Authority. There is no guarantee that the U.S. Government will support
securities not backed by its full faith and credit. Accordingly, although these
securities have historically involved little risk of loss of principal if held
to maturity, they may involve more risk than securities backed by the U.S.
Government's full faith and credit.
ZERO-COUPON SECURITIES. A Fund may invest in separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury.
These components are traded independently under the Treasury's Separate Trading
of Registered Interest and Principal of Securities ("STRIPS") program or as
Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may invest in other
types of related zero-coupon securities. For instance, a number of banks
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and brokerage firms separate the principal and interest portions of U.S.
Treasury securities and sell them separately in the form of receipts or
certificates representing undivided interests in these instruments. These
instruments are generally held by a bank in a custodial or trust account on
behalf of the owners of the securities and are known by various names, including
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS"). Zero-coupon securities
also may be issued by corporations and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
CORPORATE DEBT SECURITIES. The corporate debt securities in which the Funds may
invest include corporate bonds and notes and short-term investments such as
commercial paper. Commercial paper (short-term promissory notes) is issued by
companies to finance their or an affiliates' current obligations and is
frequently unsecured.
Demand Notes. The Funds may purchase variable and floating rate demand notes of
corporations, which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement with the issuer of the instrument. The issuers of these
obligations often have the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Although a Fund would generally not be able to resell a master demand note to a
third party, the Fund is entitled to demand payment from the issuer at any time.
The Adviser continuously monitors the financial condition of the issuer to
determine the issuer's likely ability to make payment on demand.
FINANCIAL INSTITUTION OBLIGATIONS. A Fund may invest in obligations of financial
institutions, including negotiable certificates of deposit, bankers' acceptances
and time deposits of U.S. banks (including savings banks and savings
associations), foreign branches of U.S. banks, foreign banks and their non-U.S.
branches (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and wholly-owned banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be
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withdrawn on demand but may be subject to early withdrawal penalties which could
reduce the Fund's yield. Deposits subject to early withdrawal penalties or that
mature in more than 7 days are treated as illiquid securities if there is no
readily available market for the securities. A Fund's investments in the
obligations of foreign banks and their branches, agencies or subsidiaries may be
obligations of the parent, of the issuing branch, agency or subsidiary, or both.
Investments in foreign bank obligations are limited to banks and branches
located in countries which the Advisers believe do not present undue risk.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Each Fund may invest up to 15
percent of its net assets in securities that at the time of purchase are
illiquid. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 ("restricted securities"),
securities which are otherwise not readily marketable, such as over-the-counter
options, and repurchase agreements not entitling the holder to payment of
principal in 7 days. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a Fund might also have to register
restricted securities in order to dispose of them, resulting in expense and
delay. A Fund might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on the issuer's ability to honor
a demand for repayment of the unregistered security. A securities contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the Securities Act of 1933 or other exemptions, the Advisers may determine that
such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board. These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular Rule
144A security, a Fund's holdings of that security may be illiquid.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant, the
Funds may assume a temporary defensive position and invest without limit in cash
or prime quality cash equivalents, including (i) short-term U.S. Government
Securities, (ii) certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of commercial banks doing business in the United
States, (iii) commercial paper, (iv) repurchase agreements and (v) shares of
"money market funds" registered under the Investment Company Act of 1940 (the
"1940 Act") within the limits specified therein. Prime quality instruments are
those that are rated in one of the two highest short-term rating categories by
an NRSRO or, if not rated, determined by the Adviser to be of comparable
quality. During periods when and to the extent that a Fund has assumed a
temporary defensive position, it may not be pursuing its investment objective.
Apart from temporary defensive purposes, a Fund may at any time invest a portion
of its assets in cash and cash equivalents as described above.
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Portfolio Transactions. The frequency of portfolio transactions of each Fund
(the portfolio turnover rate) will vary from year to year depending on many
factors. From time to time a Fund may engage in active short-term trading to
take advantage of price movements affecting individual issues, groups of issues
or markets. The Funds' portfolio turnover is reported under "Financial
Highlights." It is each Fund's policy to obtain best net results in effecting
portfolio transactions. The Adviser may effect transactions for the Funds
through brokers who sell Fund shares. The Funds have no obligation to deal with
any specific broker or dealer in the execution of portfolio transactions.
The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
The Advisers seek "best execution" for all portfolio transactions, but a Fund
may pay higher than the lowest available commission rates when an Adviser
believes it is reasonable to do so in light of the value of the brokerage,
research and other services provided by the broker effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to each Fund
that invests in foreign securities than would be the case for comparable
transactions effected on United States securities exchanges.
Subject to the Funds' policy of obtaining the best price consistent with quality
of execution of transactions, the Adviser may employ Norwest Investment
Services, Inc. and other broker-dealer affiliates of the Adviser ("Affiliated
Brokers") to effect brokerage transactions for the Funds. The Fund's payment of
commissions to Affiliated Brokers is subject to procedures adopted by the Board
to provide that the commissions will not exceed the usual and customary broker's
commissions charged by unaffiliated brokers. No specific portion of a Fund's
brokerage will be directed to Affiliated Brokers and in no event will a broker
affiliated with an Adviser directing the transaction receive brokerage
transactions in recognition of research or other services provided to the
Adviser.
The Adviser anticipates that the annual turnover rate in each Fund will be less
than 100 percent. An annual turnover rate of 100 percent would occur if all of
the securities in a Fund were replaced once in a period of 1 year.
A Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including dollar roll transactions) entails
certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, the Fund might suffer a loss. Failure by the other
party to deliver a security purchased by the Fund may result in a missed
opportunity to make an alternative investment. The Advisers monitor the
creditworthiness of counterparties to these transactions and intend to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income to be earned from the transaction justifies
the attendant risks. Counterparty insolvency risk with respect to repurchase
agreements is reduced by favorable insolvency laws that allow the Fund, among
other things, to liquidate the collateral held in the event of the bankruptcy of
the counterparty. Those laws do not apply to securities lending and,
accordingly, securities lending involves more risk than does the use of
repurchase agreements. As
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a result of entering forward commitments and reverse repurchase agreements, as
well as lending its securities, a Fund may be exposed to greater potential
fluctuations in the value of its assets and net asset value per share.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 33 1/3% of the value of its total assets.
REVERSE REPURCHASE AGREEMENTS. A Fund may enter into reverse repurchase
agreements, transactions in which the Fund sells a security and simultaneously
commits to repurchase that security from the buyer at an agreed upon price on an
agreed upon future date. The resale price in a reverse repurchase agreement
reflects a market rate of interest that is not related to the coupon rate or
maturity of the sold security. For certain demand agreements, there is no agreed
upon repurchase date and interest payments are calculated daily, often based
upon the prevailing overnight repurchase rate. Because certain of the incidents
of ownership of the security are retained by the Fund, reverse repurchase
agreements may be viewed as a form of borrowing by the Fund from the buyer,
collateralized by the security sold by the Fund. A Fund will use the proceeds of
reverse repurchase agreements to fund redemptions or to make investments. In
most cases these investments either mature or have a demand feature to resell to
the issuer on a date not later than the expiration of the agreement. Interest
costs on the money received in a reverse repurchase agreement may exceed the
return received on the investments made by the Fund with those monies. Any
significant commitment of a Fund's assets to the reverse repurchase agreements
will tend to increase the volatility of the Fund's net asset value per share.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities offered on a "when-issued" basis and may purchase securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction, but delayed settlements beyond three
months may be negotiated.
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During the period between a commitment and settlement, no payment is made for
the securities purchased and, thus, no interest accrues to the Fund. At the time
a Fund makes a commitment to purchase securities in this manner, however, the
Fund immediately assumes the risk of ownership, including price fluctuation.
Failure by the other party to deliver or pay for a security purchased or sold by
the Fund may result in a loss or a missed opportunity to make an alternative
investment. Any significant commitment of a Fund's assets committed to the
purchase of securities on a when-issued or forward commitment basis may increase
the volatility of its net asset value. Except for dollar-roll transactions, a
Fund will not purchase securities on a when-issued or forward commitment basis
if, as a result, more than 15 percent of the value of the Fund's total assets
would be committed to such transactions.
The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values. The Funds enter into when-issued
and forward commitments only with the intention of actually receiving the
securities, but a Fund may sell the securities before the settlement date if
deemed advisable. If a Fund chooses to dispose of the right to acquire a when-
issued security prior to its acquisition or to dispose of its right to deliver
or receive against a forward commitment, it can incur a gain or loss.
PURCHASING SECURITIES ON MARGIN. When Intermdiate U.S. Government Fund purchases
securities on margin, it only pays part of the purchase price and borrows the
remainder, typically from the Fund's broker. As a borrowing, a Fund's purchase
of securities on margin is subject to the limitations and risks described in
"Borrowing" above. In addition, if the value of the securities purchased on
margin decreases such that the Fund's borrowing with respect to the security
exceeds the maximum permissible borrowing amount, the Fund will be required to
make margin payments (additional payments to the broker to maintain the level
of borrowing at permissible levels). A Fund's obligation to satisfy margin calls
may require the Fund to sell securities at an inappropriate time.
TECHNIQUES INVOLVING LEVERAGE. Utilization of leveraging involves special risks
and may involve speculative investment techniques. The Funds may borrow for
other than temporary or emergency purposes, lend their securities, enter reverse
repurchase agreements, and purchase securities on a when issued or forward
commitment basis. In addition, funds may engage in dollar roll transactions and
Intermediate U.S. Government Fund may purchase securities on margin and sell
securities short (other than against the box). Each of these transactions
involve the use of "leverage" when cash made available to the Fund through the
investment technique is used to make additional portfolio investments. In
addition, the use of swap and related agreements may involve leverage. The Funds
use these investment techniques only when the Adviser to a Fund believes that
the leveraging and the returns available to the Fund from investing the cash
will provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
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The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
Segregated Account. In order to limit the risks involved in various transactions
involving leverage, the Trust's custodian will set aside and maintain in a
segregated account cash, U.S. Government Securities and other liquid, high-grade
debt securities in accordance with SEC guidelines. The accounts value, which is
marked to market daily, will be at least equal to the Fund's commitments under
these transactions. The Fund's commitments may include (i) the Fund's
obligations to repurchase securities under a reverse repurchase agreement,
settle when-issued and forward commitment transactions and make payments under a
cap or floor (see "Swap Agreements") and (ii) the greater of the market value of
securities sold short or the value of the securities at the time of the short
sale (reduced by any margin deposit). The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each interest rate swap
will be calculated on a daily basis and an amount at least equal to the accrued
excess will be maintained in the segregated account. If the Fund enters into an
interest rate swap on other than a net basis, the Fund will maintain the full
amount accrued on a daily basis of the Fund's obligations with respect to the
swap in their segregated account. The use of a segregated account in connection
with leveraged transactions may result in a Fund's portfolio being 100 percent
leveraged.
DOLLAR ROLL TRANSACTIONS. A Fund may enter into dollar roll transactions wherein
the Fund sells fixed income securities, typically mortgage-backed securities,
and makes a commitment to purchase similar, but not identical, securities at a
later date from the same party. Like a forward commitment, during the roll
period no payment is made for the securities purchased and no interest or
principal payments on the security accrue to the purchaser, but the Fund assumes
the risk of ownership. A Fund is compensated for entering into dollar roll
transactions by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. Like other when-issued securities or firm
commitment agreements, dollar roll transactions involve the risk that the market
value of the
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securities sold by the Fund may decline below the price at which a Fund is
committed to purchase similar securities. In the event the buyer of securities
under a dollar roll transaction becomes insolvent, the Fund's use of the
proceeds of the transaction may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. The Funds will engage in roll
transactions for the purpose of acquiring securities for its portfolio and not
for investment leverage. Each Fund will limit its obligations on dollar roll
transactions to 35% of the Fund's net assets.
SWAP AGREEMENTS. To manage their exposure to different types of investments,
Adjustable U.S. Government Reserve Fund and Government Income Fund may enter
into interest rate and mortgage (or other asset) swap agreements and may
purchase interest rate caps, floors and collars. In a typical interest rate swap
agreement, one party agrees to make regular payments equal to a floating
interest rate on a specified amount (the "notional principal amount") in return
for payments equal to a fixed interest rate on the same amount for a specified
period. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Fund's
performance. Swap agreements involve risks depending upon the counterparty's
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions. The Adviser monitors the creditworthiness of counterparties to
these transactions and intends to enter into these transactions only when they
believe the counterparties present minimal credit risks and the income expected
to be earned from the transaction justifies the attendant risks.
SHORT SALES. Intermediate U.S. Government Fund is authorized to make short sales
of securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (referred to as short sales
"against the box") and to make short sales of securities which it does not own
or have the right to acquire. A short sale that is not made "against the box" is
a transaction in which a Fund sells a security it does not own in anticipation
of a decline in the market price for the security. When the Fund makes a short
sale, the proceeds it receives are retained by the broker until the Fund
replaces the borrowed security. In order to deliver the security to the buyer,
the Fund must arrange through a broker to borrow the security and, in so doing,
the Fund becomes obligated to replace the security borrowed at its market price
at the time of replacement, whatever that price may be.
Short sales that are not made "against the box" create opportunities to increase
the Fund's return but, at the same time, involve special risk considerations and
may be considered a speculative technique. Since the Fund in effect profits from
a decline in the price of the securities sold short without the need to invest
the full purchase price of the securities on the date of the short sale, the
Fund's net asset value per share, will tend to increase more when the securities
it has sold short
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decrease in value, and to decrease more when the securities it has sold short
increase in value, than would otherwise be the case if it had not engaged in
such short sales. Short sales theoretically involve unlimited loss potential, as
the market price of securities sold short may continuously increase, although a
Fund may mitigate such losses by replacing the securities sold short before the
market price has increased significantly. Under adverse market conditions a Fund
might have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
If the Fund makes a short sale "against the box", the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Adviser believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund or a security convertible into or exchangeable for such security. In
such case, any future losses in the Fund's long position would be reduced by an
offsetting future gain in the short position. The Fund's ability to enter into
short sales transactions is limited by certain tax requirements. See "Dividends,
Distributions and Taxes" in the SAI.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an interest in
a pool of mortgages originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-backed securities may be
issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by banks, savings associations,
private mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1 4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
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LIQUIDITY AND MARKETABILITY. Generally, government and government-related pass-
through pools are highly liquid. While private conventional pools of mortgages
(pooled by non-government-related entities) have also achieved broad market
acceptance and an active secondary market has emerged, the market for
conventional pools is smaller and less liquid than the market for government and
government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of the
Fund and may even result in losses to the Fund if the securities were acquired
at a premium. The occurrence of mortgage prepayments is affected by various
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. The assumed average
life of pools of mortgages having terms of 30 years or less is typically between
five and 12 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted based
on the maturity of the underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of mortgages.
Conversely, in periods of rising rates the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the pool. Actual prepayment
experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of the Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government guarantor
of mortgage-backed securities is Ginnie Mae, a wholly-owned United States
Government corporation within the Department of Housing and Urban Development.
Mortgage-backed securities are also issued by Fannie Mae, a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development, and Freddie Mac, a
corporate instrumentality of the United States Government. While Fannie Mae and
Freddie Mac each guarantee the payment of principal and interest on the
securities they issue, unlike Ginnie Mae securities, their securities are not
backed by the full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds (which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans); and collateralized mortgage obligations
("CMOs"). Mortgage-backed securities issued by non-governmental issuers may
offer a higher rate of interest than securities issued by government issuers
because of the absence of direct or indirect government guarantees of payment.
Many non-governmental issuers or servicers of mortgage-backed securities,
however, guarantee timely payment of interest and principal on these securities.
Timely payment of interest and principal may also be supported by various forms
of insurance, including individual loan, title, pool and hazard policies.
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Adjustable Rate Mortgage-Backed securities. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities. ARMs may have less risk of a decline in value during periods of
rapidly rising rates, but they may also have less potential for capital
appreciation than other debt securities of comparable maturities due to the
periodic adjustment of the interest rate on the underlying mortgages and due to
the likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to the Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a lower value until the interest rate resets to market
rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations collateralized by
mortgages or mortgage pass-through securities issued by Ginnie Mae, Freddie Mac
or Fannie Mae or by pools of conventional mortgages ("Mortgage Assets"). CMOs
may be privately issued or U.S. Government Securities. Payments of principal and
interest on the Mortgage Assets are passed through to the holders of the CMOs on
the same schedule as they are received, although, certain classes (often
referred to as tranches) of CMOs have priority over other classes with respect
to the receipt of payments. Multi-class mortgage pass-through securities are
interests in trusts that hold Mortgage Assets and that have multiple classes
similar to those of CMOs. Unless the context indicates otherwise, references to
CMOs include multi-class mortgage pass-through securities. Payments of principal
of and interest on the underlying Mortgage Assets (and in the case of CMOs, any
reinvestment income thereon) provide funds to pay debt service on the CMOs or to
make scheduled distributions on the multi-class mortgage pass-through
securities. Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier.
Planned amortization class mortgage-based securities ("PAC Bonds") are a form of
parallel pay CMO. PAC Bonds are designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a contemplated range.
If the actual prepayment experience on the underlying mortgage loans is at a
rate faster or slower than the contemplated range, or if deviations from other
assumptions occur, principal payments on a PAC Bond may be greater or smaller
than predicted. The magnitude of the contemplated range varies from one PAC Bond
to another; a narrower range increases the risk
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that prepayments will be greater or smaller than contemplated. CMOs may have
complicated structures and generally involve more risks than simpler forms of
mortgage-related securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a Z-tranche). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class). Currently, no fund may
purchase IOs or POs.
ASSET-BACKED SECURITIES. Asset-backed securities represent direct or indirect
participations in, or are secured by and payable from, assets other than
mortgage-related assets such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. No Fund
may invest more than 10% of its net assets in asset-backed securities that are
backed by a particular type of credit, for instance, credit card receivables.
Asset-backed securities, including adjustable rate asset-backed securities, have
yield characteristics similar to those of mortgage-related securities and,
accordingly, are subject to many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution. Asset-
backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-related
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-related securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
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FUTURES CONTRACTS AND OPTIONS. The Funds may seek to enhance their return
through the writing (selling) and purchasing exchange-traded and over-the-
counter options on fixed income securities or indices. The Funds may also to
attempt to hedge against a decline in the value of securities owned by them or
an increase in the price of securities which they plan to purchase through the
use of those options and the purchase and sale of interest rate futures
contracts and options on those futures contracts. The Funds may only write
options that are covered. An option is covered if, so long as the Fund is
obligated under the option, it owns an offsetting position in the underlying
security or futures contract or maintains cash, U.S. Government Securities or
other liquid, high-grade debt securities in a segregated account with a value
at all times sufficient to cover the Fund's obligation under the option. A Fund
may enter into these futures contracts only if the aggregate of initial deposits
for open futures contract positions does not exceed 5% of the Fund's total
assets.
Risk Considerations. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on the Adviser's
ability to predict movements in the prices of individual securities and
fluctuations in the general securities markets; (2) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time, which, among other things, may limit a Fund's ability to limit exposures
by closing its positions; (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences; and (6) the potential for unlimited loss when investing in futures
contracts or writing options for which an offsetting position is not held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an over-the-
counter option transaction will be able to perform its obligations. There are a
limited number of options on interest rate futures contracts and exchange traded
options contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, the Adviser may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
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LIMITATIONS. The Funds have no current intention of investing in futures
contracts and options thereon for purposes other than hedging. No Fund may
purchase any call or put option on a futures contract if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased. No Fund may sell a put option if
the exercise value of all put options written by the Fund would exceed 50% of
the Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDEXES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the fixed income or equity securities comprising the index is made.
Generally, futures contracts are closed out prior to the expiration date of the
contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
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4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Trustees (the "Board"). The Board formulates the general policies of the Funds
and meets periodically to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. The Board consists of eight persons.
Investment Advisory Services
Norwest Investment Management. Subject to the general supervision of the Board,
Norwest Investment Management makes investment decisions for the Funds and
continuously reviews, supervises and administers each Fund's investment program.
The Adviser is a part of Norwest, a subsidiary of Norwest Corporation, which is
a multi-bank holding company that was incorporated under the laws of Delaware in
1929. As of _______ ___, 1995, Norwest Corporation was the ___th largest bank
holding company in the United States in terms of assets. As of that date, the
Adviser managed or provided investment advice with respect to assets totaling
approximately $___ billion.
The Adviser provides investment management services to each Fund pursuant to
investment advisory agreements between Norwest and the Trust. For the Adviser's
services, Norwest receives an advisory fee with respect to Intermediate U.S.
Government Fund at an annual rate of 0.33% of the Fund's average daily net
assets and with respect to Stable Income Fund at an annual rate of 0.30% of the
Fund's average daily net assets.
PORTFOLIO MANAGERS. Many persons on the advisory staff of the Adviser contribute
to the investment services provided to the Funds. The following persons,
however, are primarily responsible for the day-to-day management of the Funds:
INTERMEDIATE U.S. GOVERNMENT FUND - Marjorie H. Grace, Vice President of Norwest
since 1992. Ms. Grace was a portfolio manager of Norwest Bank from 1992-1993; an
Institutional Salesperson with Norwest Investment Services, Inc. from 1991-1992;
a portfolio manager with United Banks of Colorado from 1989-1991; and Vice
President and portfolio manager with Colombia Savings and Loan from 1987-1989.
STABLE INCOME FUND - Karl P. Tourville, Vice President of Norwest since 1989.
Mr. Tourville has been associated with Norwest since 1986. As of December 31,
1994, Mr. Tourville was responsible for the management of over $1.3 billion in
pooled fixed income assets.
MANAGEMENT AND DISTRIBUTION SERVICES
Forum supervises the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay) and provides the
Trust with general office facilities pursuant to a Management Agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers, as well as certain other officers and Trustees of the
Trust, may be directors, officers or employees of (and persons providing
services
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to the Trust may include) Forum, its affiliates or certain non-banking
affiliates of Norwest. As of the date of this Prospectus, Forum provided
management and administrative services to registered investment companies and
collective investment funds with assets of approximately $11 billion. Forum is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. As of the date of this Prospectus, Forum
is controlled by John Y. Keffer, President and Chairman of the Trust. For its
services and facilities, Forum receives from each Fund a management fee at an
annual rate of 0.10% of the average daily net assets attributable to each class
of the Fund. From its own resources, Forum may pay a fee to broker-dealers or
other persons for distribution or other services related to the Funds.
Forum also acts as the distributor of the Shares pursuant to a distribution
services agreement with the Trust and in accordance therewith receives and may
reallow the initial sales charge assessed on purchases of A Shares of a Fund. As
authorized by a distribution plan with respect to B Shares of each Fund and
pursuant to the distribution services agreement, Forum receives a distribution
services fee as compensation for its distribution expenses with respect to B
Shares and a maintenance fee for its or certain broker-dealer's shareholder
services with respect to B Shares. For further information about the
distribution services agreement and the distribution plan, including the fees
payable thereunder, see "How to Buy Shares - Alternative Distribution
Arrangements." Pursuant to a separate agreement, Forum also provides portfolio
accounting services to each Fund.
SHAREHOLDER SERVICING AND CUSTODY
Norwest serves as transfer agent and dividend disbursing agent for the Trust (in
this capacity, the "Transfer Agent") pursuant to a Transfer Agency Agreement
with the Trust. The Transfer Agent maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents or
processing agents), performs other transfer agency functions and acts as
dividend disbursing agent for the Trust. The Transfer Agent is permitted to
subcontract any or all of its functions with respect to all or any portion of
the Trust's shareholders to one or more qualified sub-transfer agents or
processing agents, which may be affiliates of the Transfer Agent or Forum, who
agree to comply with the terms of the Transfer Agency Agreement. Sub-transfer
agents and processing agents may be "Processing Organizations" as described
under "How to Buy Shares - Purchase Procedures." The Transfer Agent is permitted
to compensate those agents for their services; however, that compensation may
not increase the aggregate amount of payments by the Trust to the Transfer
Agent. For its transfer agency services, the Transfer Agent receives from each
Fund a fee at an annual rate of 0.25% of the average daily net assets
attributable to each class of the Fund.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. Norwest
currently receives no additional compensation for its custodial services, but
the Funds will incur the expenses and costs of any subcustodian.
EXPENSES OF THE FUNDS
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Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Funds, the Trust has confirmed its obligation to pay all the Trust's
expenses. The Funds' expenses include Trust expenses attributable to the Funds,
which are allocated to each Fund, and expenses not specifically attributable to
the Funds, which are allocated among the Funds and all other funds of the Trust
in proportion to their average net assets. Norwest, Forum and the Transfer Agent
may each elect to waive (or continue to waive) all or a portion of their fees.
Any such waivers will have the effect of increasing a Fund's performance for the
period during which the waiver is in effect. No fee waivers may be recouped at a
later date. Other than investment advisory fees, any fee paid by the Trust may
be increased by the Board without shareholder approval.
Norwest and Forum and their agents and affiliates may also act in various
capacities for, and receive compensation from, their customers who are
shareholders of a Fund. Under agreements with those customers, Norwest and Forum
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in a Fund.
5. HOW TO BUY SHARES
Minimum Investment
There is a $1,000 minimum for initial purchases and a $100 minimum for
subsequent purchases of Shares of the Funds. A Fund may in its discretion waive
the investment minimums. Shareholders who elect electronic share purchase
privileges such as the Automatic Investment Plan or the Directed Dividend Option
are not subject to the initial investment minimum. See "Other Shareholder
Services - Automatic Investment Plan" and "Dividends and Tax Matters."
Except as set forth below with respect to purchases through Processing
Organizations, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of Federal funds. Fund shares become
entitled to receive dividends and distributions on the next Fund Business Day
after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
Purchase Procedures
Initial Purchases
There are three ways to purchase shares initially.
1. By Mail. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed under
"Account Application" on page ___. Checks are accepted at full value subject to
collection. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal funds within two
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business days after receipt of the check. Checks drawn on some non-member banks
may take longer.
2. By Bank Wire. Investors may make an initial investment in a Fund using the
wire system for transmittal of money among banks. The investor should first
telephone the Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an
account number. The investor should then instruct a bank to wire the investor's
money immediately to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Advantage Funds
0844-131
Re: [Name of Fund]
[Designate A Shares or B Shares]
Account No.:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money
by bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
3. Through Financial Institutions. Shares may be purchased and redeemed
through certain broker-dealers, banks and other financial institutions
("Processing Organizations"). The Transfer Agent, Forum and their affiliates may
be Processing Organizations. Processing Organizations may receive as a broker-
dealer's reallowance a portion of the sales charge paid by their customers who
purchase A Shares of a Fund, may receive payments from Forum with respect to
sales of B Shares and may receive payments as a processing agent from the
Transfer Agent. In addition, financial institutions, including Processing
Organizations, may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Funds' procedures, may have
Fund shares transferred into their name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will
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provide its customers with confirmations and periodic statements. The Trust is
not responsible for the failure of any Processing Organization to carry out its
obligations to its customer. Certain states, such as Texas, permit shares of the
Funds to be purchased and redeemed only through registered broker-dealers,
including the Funds' distributor.
Subsequent Purchases
Subsequent purchases may be made by mailing a check, by sending a bank wire or
through a shareholder's Processing Organization as indicated above. All payments
should clearly indicate the shareholder's name and account number.
Account Application
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
General Information
Fund shares are continuously sold on every weekday except customary national
business holidays and Good Friday ("Fund Business Day"). The purchase price for
Fund shares equals their net asset value next-determined after acceptance of an
order plus, in the case of the A Shares, any applicable sales charge imposed at
the time of purchase.
Investments in the Funds may be made either through certain financial
institutions or by an investor directly. An investor who invests in a Fund
directly will be the shareholder of record. All transactions in Fund shares are
effected through the Transfer Agent which accepts orders for redemptions and for
subsequent purchases only from shareholders of record. Shareholders of record
will receive from the Trust periodic statements listing all account activity
during the statement period.
Alternative Distribution Arrangements
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Investors should compare sales charges and fees before selecting a particular
class of shares. Investors should consider whether, during the anticipated life
of their investment in a Fund, the accumulated distribution services fee and
maintenance fee and contingent deferred sales charges on B Shares prior to
conversion would be less than the initial sales charge on A Shares purchased at
the same time and whether that differential would be offset by the higher yield
of A Shares. A summary of the charges applicable to shares of each Fund is
listed under "Prospectus Summary - Expense Information." Sales personnel of
selected broker-dealers distributing a Fund's shares may receive differing
compensation for selling A Shares and B Shares.
Because initial sales charges are deducted at the time of purchase, investors
purchasing a Fund's A Shares receive fewer shares than if the sales charge were
not deducted and, accordingly, do not have the entire purchase price invested.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time should consider
whether, in light of the initial sales charge and its effect on the amount of
the purchase price invested, purchases of A Shares are more or less advantageous
than purchases of B Shares with their associated accumulated continuing
distribution and maintenance charges. For example, based on estimated current
fees and expenses, an investor in each Fund subject to the 3.75% initial sales
charge who elects to reinvest all dividends and distributions would have to hold
the shareholder's investment approximately five years for the B Shares'
distribution services fee and maintenance fee to exceed the initial sales
charge. The foregoing examples do not take into account the time value of money,
fluctuations in net asset value or the effects of different performance
assumptions.
A Shares
The public offering price of A Shares is their next-determined net asset value
plus an initial sales charge assessed as follows (no sales charge is assessed on
the reinvestment of dividends or distributions):
________ Fund
Broker-Dealers'
Reallowance
Sales Charge As a As a
Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
Less than $50,000 1.50% 1.52% 1.35%
$50,000 to $99,999 1.00 1.01 0.90
$100,000 to $499,000 0.75 0.76 0.70
$500,000 to $999,000 0.50 0.50 0.45
$1,000,000 and over None None None
* Rounded to the nearest one-hundredth percent
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations.
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Normally, Forum will reallow discounts to selected broker-dealers in the amounts
indicated in the table above. In addition, Forum may elect to reallow the entire
sales charge to selected broker-dealers for all sales with respect to which
orders are placed with Forum. The broker-dealers' reallowance may be changed
from time to time. Forum may make additional payments (out of its own resources)
to selected broker-dealers of up to 0.75% of the value of Fund shares purchased
at net asset value.
No sales charge is assessed on purchases by: (a) any bank, trust company or
other institution acting on behalf of its fiduciary customer accounts or any
other account maintained by its trust department (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended) and (b)
trustees and officers of the Trust; directors, officers and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor or direct descendant (collectively, "relatives") of any such
person; any trust or individual retirement account or self-employed retirement
plan for the benefit of any such person or relative; or the estate of any such
person or relative. These shares may not be resold except to the Funds and share
purchases under clause (b) must be made for investment purposes.
In addition, no sales charge is assessed on purchases (a) by any registered
investment adviser with whom Forum has entered into a Share purchase agreement
and which is acting on behalf of its fiduciary customer accounts, or (b) of A
Shares of a Fund made through the Directed Dividend Option from a fund that
charges a front-end sales charge. See "Dividends and Tax Matters."
Reinstatement Privilege. An investor who has redeemed A Shares of a Fund may,
within 60 days following the redemption, purchase without a sales charge A
Shares in an amount up to the amount of the redemption. Investors who desire to
exercise this "Reinstatement Privilege" should contact the Trust for further
information.
Investors in Other Fund Families. No sales charge is assessed on purchases of A
Shares of a Fund with the proceeds of a redemption at net asset value, within
the preceding 60 days, of shares of a mutual fund that does not impose on the
redeemed shares at the time of their purchase a sales charge equal to or greater
than that applicable to the A Shares of that Fund. Investors should contact the
Trust for further information and to obtain the necessary forms.
Reduced Initial Sales Charges. To qualify for a reduced sales charge, an
investor or the investor's Processing Organization must notify the Transfer
Agent at the time of purchase of the investor's intention to qualify and must
provide the Transfer Agent with sufficient information to verify that the
purchase qualifies for the reduced sales charge. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. Further information about reduced sales charges is
contained in the SAI.
Self-Directed 401(k) Programs. Purchases of A Shares of a Fund through self-
directed 401(k) programs and other qualified retirement plans offered by
Norwest, Forum or their affiliates in accumulated amounts of less than $100,000
are subject to a reduced sales charge applicable to a single purchase of
$100,000.
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Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of
additional A Shares of a Fund may qualify for rights of accumulation ("ROA")
under which the applicable sales charge will be based on the total of the
investor's current purchase and the net asset value (at the end of the previous
Fund Business Day) of all A Shares of that Fund held by the investor. For
example, if an investor in Stable Income Fund owned A Shares of the Fund worth
$500,000 at the then current net asset value and purchased A Shares of that Fund
worth an additional $50,000, the sales charge for the $50,000 purchase would be
at the 1.75% rate applicable to a $550,000 purchase, rather than at the 3.25%
rate applicable to a $50,000 purchase.
In addition, an investor in a Fund that has previously purchased A Shares of any
other fund of the Trust that is sold with a sales charge equal to or greater
than the sales charge imposed on the A Shares of the Fund ("Eligible Fund") may
also qualify for ROA and may aggregate existing investments in A Shares of
Eligible Funds with current purchases of A Shares of the Fund to determine the
applicable sales charge. In addition, purchases of A Shares of a Fund by an
investor and the investor's spouse, direct ancestor or direct descendant may be
combined for purposes of ROA.
Statement of Intention. A Shares investors may also obtain reduced sales charges
based on cumulative purchases by means of a written Statement of Intention,
expressing the investor's intention to invest $50,000 or more in A Shares of a
Fund within a period of 13 months. Each purchase of shares under a Statement of
Intention will be made at net asset value plus the sales charge applicable at
the time of the purchase to a single transaction of the dollar amount indicated
in the Statement.
Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a Fund should complete the appropriate
portion to the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
Contingent Deferred Sales Charge. A Shares of a Fund on which no initial sales
charge was assessed due to the amount purchased in a single transaction or
pursuant to the Cumulative Quantity Discount or a Statement of Intention and
that are redeemed (including certain redemptions in connection with an exchange)
within specified periods after the purchase date of the shares will be subject
to contingent deferred sales charges equal to the percentages set forth below of
the dollar amount subject to the charge. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being redeemed and their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from the reinvestment of
dividends and distributions.
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_________ Fund
Contingent Deferred Sales
Charge as a % of Dollar
Amount of Purchase Period Shares Held Amount Subject to Charge
$1,000,000 to $4,999,999 Less than one year 0.50%
One to two years 0.25%
Over $5,000,000 Less than one year 0.25%
No contingent deferred sales charge is charged on redemptions to the same extent
as described under "B Shares - Contingent Deferred Sales Charge" below. The
contingent deferred sales charge on shares purchased through an exchange from
another fund of the Trust is based upon the original purchase date and price of
the other fund's shares. For A shareholders with a Statement of Intention that
do not purchase $1,000,000 of a Fund's A Shares pursuant to their Statement, no
contingent deferred sales charge is imposed. The Statement of Intention provides
for a contingent deferred sales charge in certain other cases. Further
information about the contingent deferred sales charge is contained in the SAI.
B Shares
Distribution Plan. B Shares are sold at their net asset value per share without
the imposition of a sales charge at the time of purchase. With respect to B
Shares, each Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act providing for distribution payments, at an annual
rate of up to 0.75% of the average daily net assets of the Fund attributable to
B Shares (the "distribution services fee"), by each Fund to Forum, to compensate
Forum for its distribution activities. The distribution payments due to Forum
from each Fund comprise (i) sales commissions at levels set from time to time by
the Board ("sales commissions") and (ii) an interest fee calculated by applying
the rate of 1% over the prime rate to the outstanding balance of uncovered
distribution charges (as described below). The current sales commission rate is
3% and Forum currently expects to pay sales commissions to each broker-dealer at
the time of sale of up to 3% of the purchase price of B Shares of each Fund sold
by the broker-dealer.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares. The combined contingent
deferred sales charge and distribution services fee on B Shares are intended to
finance the distribution of those shares by permitting an investor to purchase
shares through broker-dealers without the assessment of an initial sales charge
and, at the same time, permitting Forum to compensate broker-dealers in
connection with the sales of the shares. Proceeds from the contingent deferred
sales charge with respect to a Fund are paid to Forum to defray the expenses
related to providing distribution-related services in connection with the sales
of B Shares, such as the payment of compensation to broker-dealers selling B
Shares. Forum may spend the distribution services fees it receives as it deems
appropriate on any activities primarily intended to result in the sale of those
shares.
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Under the Plan, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to that Fund. Uncovered distribution charges are equivalent
to all sales commissions previously due (plus interest), less amounts received
pursuant to the Plan and all contingent deferred sales charges previously paid
to Forum. At _______ __, 1995, there were no unrecovered distribution expenses
attributable to B Shares as of the same date.
The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to a Fund is not related directly to the
amount of expenses incurred by Forum in connection with providing distribution
services to the B Shares and may be higher or lower than those expenses. Forum
may be considered to have realized a profit under the Plan if, at any time, the
aggregate amounts of all distribution services fees and contingent deferred
sales charge payments previously made to Forum exceed the total expenses
incurred by Forum in distributing B Shares.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
in an amount equal to 0.25% of the average daily net assets of the Fund
attributable to the B Shares for providing personal services to shareholder
accounts. The maintenance fee may be paid by Forum to broker-dealers in an
amount not to exceed 0.25% of the value of B Shares held by the customers of the
broker-dealers. The distribution services fee and the maintenance fee are each
accrued daily and paid monthly and will cause a Fund's B Shares to have a higher
expense ratio and to pay lower dividends than A Shares of that Fund.
Notwithstanding the discontinuation of distribution services fees with respect
to a Fund, the Fund may continue to pay maintenance fees.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B Shares or reduce the Fund's current net assets in
respect of distribution services fees which may become payable under the Plan in
the future.
In the event that the Plan is terminated or not continued with respect to a
Fund, the Fund will continue to pay distribution services fees to Forum (but
only with respect to sales that occurred prior to the termination or
discontinuance of the Plan) until the earlier of (a) four years after the date
of termination or discontinuance or (b) such time as there exist no uncovered
distribution charges attributable to that Fund under the Plan. In deciding
whether to purchase B Shares of a Fund, investors should consider that payments
of distribution services fees could continue until such time as there are no
uncovered distribution charges under the Plan attributable to that Fund. In
approving the Plan, the Board determined that there was a reasonable likelihood
that the Plan would benefit each Fund and its B shareholders.
Periods with a high level of sales of B Shares of a Fund accompanied by a low
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of B Shares of a Fund accompanied by a high
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to reduce uncovered distribution charges. A high level
of sales of B Shares during the first few years of operations, coupled with the
limitation on the amount of distribution services fees payable by a Fund with
respect to B Shares during any fiscal
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year, would cause a large portion of the distribution services fees attributable
to a sale of the B Shares to be accrued and paid by the Fund to Forum with
respect to those shares in fiscal years subsequent to the years in which those
shares were sold. The payment delay would in turn result in the incurrence and
payment of increased interest fees under the Plan.
Contingent Deferred Sales Charge. B Shares of a Fund which are redeemed within
four years of purchase will be subject to contingent deferred sales charges
equal to the percentages set forth below of the dollar amount subject to the
charge. The amount of the contingent deferred sales charge, if any, will vary
depending on the number of years between the payment for the purchase of B
Shares of a Fund and their redemption.
The contingent deferred sales charge will be assessed on an amount equal to the
lesser of the cost of the shares being redeemed and their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed on increases in
net asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from the reinvestment of dividends and distributions.
Contingent Deferred Sales Charge as a % of Dollar Amount Subject to Charge
_____________ Fund
Year Since Purchase
First 3.0%
Second 2.0%
Third 2.0%
Fourth 1.0%
Fifth None
Sixth None
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in a Fund will automatically be made first from any A
Shares in the Fund, second from B Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for over four years, and fourth from the longest outstanding B Shares of
the Fund held for less than four years.
No contingent deferred sales charge is imposed on (i) redemptions of shares
acquired through the reinvestment of dividends and distributions, (ii)
involuntary redemptions by a Fund of shareholder accounts with low account
balances, (iii) redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability and (iv) redemptions to effect a distribution (other than a lump
sum distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan. See the SAI for further information.
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Conversion Feature. After six years from the end of the calendar month in which
the shareholder's purchase order for B shares was accepted, the Shares will
automatically convert to A Shares of that Fund. The conversion will be on the
basis of the relative net asset values of the Shares, without the imposition of
any sales load, fee or other charge. For purposes of conversion, B Shares of a
Fund purchased by a shareholder through the reinvestment of dividends and
distributions will be considered to be held in a separate sub-account. Each time
any B Shares in the shareholder's account (other than those in the sub-account)
convert, an equal pro rata portion of those shares in the sub-account will also
convert. The conversion of B Shares to A Shares is subject to the continuing
availability of certain opinions of counsel and the conversion of a Fund's B
Shares to A Shares may be suspended if such an opinion is no longer available at
the time the conversion is to occur. In that event, no further conversions of
the Fund's B Shares would occur, and shares might continue to be subject to a
distribution services and maintenance fee for an indefinite period.
6. HOW TO SELL SHARES
General Information
Fund Shares may be sold (redeemed) at their net asset value on any Fund Business
Day subject to a contingent deferred sales charge imposed, in the case of A
Shares, on some redemptions made within two years of purchase and, in the case
of B Shares, on most redemptions made within four years of purchase . There is
no minimum period of investment and no restriction on the frequency of
redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends declared after
the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days after
the tender of the shares to a Fund except when the New York Stock Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings, for any period during which an emergency
exists as a result of which disposal by the Fund of its portfolio securities or
determination by the Fund of the value of its net assets is not reasonably
practicable and for such other periods as the SEC may permit.
Redemption Procedures
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Shareholders who have invested directly in a Fund may redeem their Shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described above. Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be available until several weeks after a shareholder's application is
received. Shares for which certificates have been issued may not be redeemed by
telephone.
1. By Mail. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. By Telephone. A shareholder who has elected telephone redemption privileges
may make a telephone redemption request by calling the Transfer Agent at 800-
338-1348 or 612-667-8833 and providing the shareholder's account number, the
exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. See "How to Sell Shares - Other Redemption Matters."
3. By Bank Wire. For redemptions of more than $5,000, a shareholder who has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
Other Redemption Matters
Signature Guarantee. A signature guarantee is required for the following: any
endorsement on a share certificate and for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions, Automatic Investment or Withdrawal Plan, dividend election,
telephone redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any bank, broker-dealer, national securities exchange, credit union, savings
association or other eligible institution that is authorized to guarantee
signatures, and is acceptable to the Transfer Agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust will employ reasonable procedures in order to
verify that telephone requests are genuine, including recording telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Trust did not employ such procedures, it
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could be liable for losses arising from unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt of confirmation statements. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach the
Transfer Agent by telephone, requests may be mailed or hand-delivered to the
Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000
immediately following any redemption.
7. OTHER SHAREHOLDER SERVICES
Exchanges
Shareholders of A Shares and B Shares may exchange their shares for A Shares and
B Shares, respectively, of the other funds of the Trust that offer those shares.
As of the date of this Prospectus, the funds of the Trust that offer A Shares
and B Shares, which are offered through separate prospectuses, are
________________. It is anticipated that the Trust may in the future create
additional funds that will offer Shares which will be exchangeable with the
Funds' Shares. In addition, A Shares may be exchanged for Investor Shares of
Ready Cash Investment Fund and Municipal Money Market Fund of the Trust. B
Shares may be exchanged for Exchange Shares of Ready Cash Investment Fund.
Prospectuses for the shares of the funds listed above, as well as a current list
of the funds of the Trust that offer shares exchangeable with the Shares of the
Funds, can be obtained through Forum by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make. The Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees (other than contingent deferred sales charges) charged by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence.
The Funds and Federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in the shares at the time of the exchange transaction. Exchange procedures
may be amended materially or terminated by the Trust at any time upon 60 days'
notice to shareholders. See "Additional Purchase and Redemption Information" in
the SAI.
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Sales Charges. The exchange of A Shares may result in additional sales charges.
If an exchange of A Shares is made into a fund that imposes an initial sales
charge, the shareholder is required to pay an amount equal to any excess of that
fund's initial sales charge attributable to the number of shares being acquired
in the exchange over any initial sales charge paid by the shareholder for the
shares being exchanged. For example, if a shareholder paid a 2% initial sales
charge in connection with a purchase of shares and then exchanged those shares
into A Shares of another fund with a 3% initial sales charge, the shareholder
would pay an additional 1% sales charge on the exchange. A Shares acquired
through the reinvestment of dividends or distributions are deemed to have been
acquired with a sales charge rate equal to that applicable to the shares on
which the dividends or distributions were paid.
Shares of a Fund ("Original Shares") may be exchanged without the payment of any
contingent deferred sales charge. A and B Shares acquired as a result of such
exchange ("New Shares") and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Original Shares as if
those shares were being redeemed at that time. For purposes of computing both
the contingent deferred sales charge payable upon redemption of the New Shares
and, in the case of B Shares, the time remaining before the New B Shares convert
to A Shares of that Fund, the deferred sales charge and the time remaining
applicable to the Original Shares will apply to the New Shares rather than the
deferred sales charge and time remaining that would otherwise apply. The
deferred sales charge and time remaining applicable to Shares first purchased by
a shareholder will apply to New Shares resulting from both an initial and any
subsequent exchanges.
1. Exchanges By Mail. Exchanges may be made by sending a written request to
the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. Exchanges By Telephone. A shareholder who has elected telephone exchange
privileges may make a telephone exchange request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See "How to
Sell Shares - Other Redemption Matters."
Automatic Investment Plan
Under the Funds' Automatic Investment Plan, shareholders may authorize monthly
amounts of $50 or more to be withdrawn automatically from the shareholder's
designated bank account (other than passbook savings) and sent to the Transfer
Agent for investment in either A or B Shares of a Fund. Shareholders wishing to
use this plan must complete an application which may be obtained by writing or
calling the Transfer Agent. The Trust may modify or terminate the automatic
investment plan with respect to any shareholder in the event that the Trust is
unable to settle any transaction with the shareholder's bank. If the Automatic
Investment Plan is terminated before the shareholder's account totals $1,000,
the Trust reserves the right to close the account in accordance with the
procedures described under "How to Sell Shares - Other Redemption Matters."
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Individual Retirement Accounts
The Funds may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). An IRA account application form
may be obtained by contacting the Trust at 800-338-1348 or 612-667-8833.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, the deduction will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
Automatic Withdrawal Plan
A shareholder whose Shares in a single account total $1,000 or more may
establish a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
annual basis. Under the withdrawal plan, sufficient shares in the shareholder's
account are redeemed to provide the amount of the periodic payment and any
taxable gain or loss is recognized by the shareholder upon redemption of the
shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than $1,000 at any time.
Reopening Accounts
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
8. DIVIDENDS AND TAX MATTERS
Dividends
Dividends of the Funds' net investment income are declared and paid monthly.
Distributions of net capital gain, if any, realized by a Fund are distributed
annually. Dividends paid by a Fund with respect to each class of shares of the
Fund will be calculated in the same manner at the same time on the same day. The
per share dividends on a Fund's B Shares will be lower than the per share
dividends on A Shares as a result of the distribution services fees and
maintenance fees applicable to B Shares.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for Federal income tax purposes whether received in cash or
reinvested in shares of a fund.
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Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
Taxes
Each Fund intends to continue to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986 (the
"Code"). As such, the Funds will not be liable for Federal income and excise
taxes on the net investment income and capital gain distributed to their
shareholders. Because each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
Federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including realized
net short-term capital gain) are taxable to shareholders of the Fund as ordinary
income notwithstanding that the dividends are reinvested in additional shares of
the Fund.
Distributions of net long-term capital gain, if any, realized by a Fund are
taxable to shareholders of the Fund as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If a shareholder holds shares for six months or less and during
that period receives a distribution taxable to the shareholder as long-term
capital gain, any loss realized on the sale of the shares during that six-month
period would be a long-term capital loss to the extent of the distribution. Any
distribution of capital gain received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of the shares by the amount of
the distribution. Furthermore, a distribution made shortly after the purchase of
shares by a shareholder, although in affect a return of capital to that
particular shareholder, would be taxable to the shareholder as described above.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each year.
142
<PAGE>
Tax-Deferred Accounts. Dividends or distributions of net long-term capital gain,
if any, paid with respect to the shares of a Fund held by a tax-deferred account
will not be taxable to that account. Currently, distributions from such accounts
will be taxable to individual participants under applicable tax rules without
regard to the character of the income earned by the account.
9. OTHER INFORMATION
Banking Law Matters
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent, and custodian to an investment
company and to purchase shares of the investment company as agent for and upon
the order of a customer and, in connection therewith, to retain a sales charge
or similar payment. Counsel to the Trust believes that Norwest and any other
bank or bank affiliate that may serve as a Processing Organization or perform
sub-transfer agent or similar services or purchase shares as agent for its
customers may perform the services described in this Prospectus for the Trust
and its shareholders without violating applicable Federal banking laws or
regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If a
bank or bank affiliate were prohibited from so acting, changes in the operation
of the Trust could occur and a shareholder serviced by a bank or bank affiliate
may no longer be able to avail itself of those services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
Determination of Net Asset Value
The Trust determines the net asset value per share of each Fund as of 4:00 P.M.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's net
assets (i.e., the value of its securities and other assets less its liabilities)
by the number of shares outstanding at the time the determination is made.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value or, in their absence, at fair value as determined
by the Board. The Trust does not determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. Securities for which market quotations are not
readily available are valued at fair value as determined by the Board in
accordance with procedures adopted by the Board.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary.
Performance Information
143
<PAGE>
A Fund's performance may be quoted in advertising in terms of yield or total
return. All performance information is based on historical results and is not
intended to indicate future performance. A Fund's yield is a way of showing the
rate of income the Fund earns on its investments as a percentage of the Fund's
share price. To calculate standardized yield, a Fund takes the interest income
it earned from its investments for a 30-day period (net of expenses), divides it
by the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. A Fund's total return shows its overall change in
value, including changes in share price and assuming all the Fund's dividends
and distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gain or loss. Published yield quotations
are, and total return figures may be, based on amounts actually invested in a
Fund net of sales loads that may be paid by an investor. A computation of yield
or total return that does not take into account the sales load paid by an
investor will be higher than a computation based on the public offering price of
shares purchased that take into account payment of the sales load.
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Funds may be compared to recognized indices of market performance. The
comparative material found in the Funds' advertisements, sales literature or
reports to shareholders may contain performance ratings. This material is not to
be considered representative or indicative of future performance. All
performance information for a Fund is calculated on a class basis.
The Trust and Its Shares
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust. The Trust has an unlimited number of authorized
shares of beneficial interest. The Board may, without shareholder approval,
divide the authorized shares into an unlimited number of separate portfolios or
series (such as the Funds) and may divide portfolios or series into classes of
shares (such as A and B Shares), and the costs of doing so will be borne by the
Trust. Currently the authorized shares of the Trust are divided into thirty-one
separate series.
Other Classes of Shares. In addition to the Shares, each Fund may create and
issue shares of other classes of securities. Each Fund currently offers three
classes of shares: A Shares; B Shares; and I Shares. I Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates without any sales charges or distribution service
or maintenance fees. Each class of a Fund may have a different expense ratio and
different sales charges (including distribution fees) and each class'
performance will be affected by its expenses
144
<PAGE>
and sales charges. For more information on any other class of shares of the
Funds investors may contact the Transfer Agent at 612-667-8833 or 800-338-1348.
Investors may also contact their Norwest sales representative or the Funds'
distributor to obtain information about the other classes. Sales personnel of
broker-dealers and other financial institutions selling the Fund's shares may
receive differing compensation for selling A, B and I Shares of the Funds.
Shareholder Voting and Other Rights. Each share of each fund of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertain to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio or class, as appropriate. Delaware law does not
require the Trust to hold annual meetings of shareholders, and it is anticipated
that shareholder meetings will be held only when specifically required by
Federal or state law. Shareholders have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the Shares
of a Fund. Accordingly, these shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
145
<PAGE>
<PAGE>
Prospectus
March 1, 1996
I Shares - Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Small Company Growth Fund, International Fund, Income Equity Fund, Index
Fund, Conservative Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund,
Intermediate U.S. Government Fund, Managed Fixed Income Fund and Stable Income
Fund.
This Prospectus offers the above listed shares (the "Shares") of thirteen
separate portfolios (each a "Fund" and collectively the "Funds") of Norwest
Advantage Funds (the "Trust"), an open-end, management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
each Fund that a prospective investor should know before investing. Investors
should read this Prospectus and retain it for future reference. The Trust has
filed with the Securities and Exchange Commission ("SEC") a Statement of
Additional Information (the "SAI") with respect to each Fund dated the same date
as the prospectus for the Fund and as may be further amended from time to time,
which contains more detailed information about the Trust and the Fund and which
is incorporated into this Prospectus by reference. The SAI is available without
charge by contacting the transfer agent at 733 Marquette Avenue, Minneapolis,
Minnesota, 55479-0040, (800) 338-1348. Investors should read this Prospectus and
retain it for future reference.
International Fund currently seeks to achieve its investment objective by
investing all of its investment assets in International Portfolio, a separate
portfolio of Core Trust (Delaware) ("Core Trust"), a registered investment
company. International Fund and International Portfolio have identical
investment objectives.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER FEDERAL AGENCY.
SHARES OF THE FUNDS ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF OR ENDORSED OR
GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OF ITS BANK OR NON-BANK
AFFILIATES.
AN INVESTMENT IN A FUND IS SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT READY CASH INVESTMENT FUND (WHICH
IS A MONEY MARKET FUND) WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
8
<PAGE>
Table of Contents
Shareholder
Information
(800) 338-1348
Norwest Bank Minnesota, N.A.
733 Marquette Avenue
Minneapolis, Minnesota 55479-0040
Summary
Financial Highlights
Investment Objectives, Policies and Risk Considerations
Investment Objectives
Investments in Core Trust
Investment Policies - Equity Funds
Investment Policies - Balanced Funds
Investment Policies - Fixed Income Funds
Additional Investment Policies
Management of the Funds
Investment Advisory Services
Advisory Fees
Administrative and Other Services
Expenses of the Funds
Purchases and Redemptions of Shares
Purchase and Redemption Procedures
General Information
Dividends, Distributions and Tax Matters
Dividends and Distributions
Tax Matters
Shareholder Tax Matters
Other Information
Fund Performance
Banking Law Matters
Portfolio Transactions
The Trust and its Shares
Core Trust Structure
Appendix A: Investments, Investment Strategies
and Risk Considerations
9
<PAGE>
Summary
Who Should Invest?
I Shares of the Funds are offered through this Prospectus to fiduciary, agency
and custodial clients of bank trust departments, trust companies and their
affiliates, including participants in certain qualified and nonqualified
employee benefit plans ("Plans") and to related IRA and KEOGH accounts. See
"Purchases and Redemptions of Shares." Only certain Funds may be available as
investment alternatives in a Plan; participants in a Plan that invests in the
Funds should consult with their employer or plan sponsor to determine which
Funds are offered through their Plan. While no single Fund is intended to
provide a complete or balanced investment program, each can serve as a component
of an investor's long-term program to accumulate assets for retirement or other
major goals.
The Norwest
Advantage
Funds
Each Fund has distinct investment objectives and policies as described under
"Investment Objectives, Policies and Risk Considerations." There are seven
equity funds (the "Equity Funds"): Diversified Equity Fund and Growth Equity
Fund, each of which invests specified percentages of its assets using different
equity investment styles, and five equity funds, each of which uses a different
equity investment style.
There are three balanced funds (the "Balanced Funds") and three fixed income
funds. The Balanced Funds invest specified percentages of their assets in
accordance with the investment styles of Diversified Equity Fund and three to
five different fixed income investment styles.
Equity Funds
Diversified Equity Fund seeks long-term capital appreciation while moderating
annual return volatility by diversifying its investments in accordance with five
different equity investment styles.
Growth Equity Fund seeks a high level of long-term capital appreciation while
moderating annual return volatility by diversifying its investments in
accordance with three different equity investment styles. The Fund assumes a
higher level of risk than Diversified Equity Fund in order to seek increased
returns.
Small Company Growth Fund seeks long-term capital appreciation by investing
primarily in the common stock of small and medium-sized domestic companies that
are either growing rapidly or completing a period of significant change. This
Fund currently is not open to new investors.
Large Company Growth Fund seeks long-term capital appreciation by investing in
large, high-quality domestic companies that the investment adviser believes have
superior growth potential.
International Fund seeks long-term capital appreciation by investing directly or
indirectly in high-quality companies based outside the United States. Currently,
the International Fund invests exclusively in the International Portfolio
("International Portfolio") of Core Trust, itself a registered open-end
management investment company. Accordingly, the investment experience of
International Fund will correspond directly with the investment experience of
International Portfolio. See "Other Information - Core Trust Structure."
International Portfolio has the same investment objective and policies as
International Fund and selects its investments on the basis of their potential
for capital appreciation without regard to current income.
Income Equity Fund seeks long-term capital appreciation in line with that of the
overall equity securities markets and to provide above average dividend income.
Index Fund seeks to duplicate the return of the Standard & Poor's 500 Composite
Stock Price Index.
10
<PAGE>
Balanced Funds
Conservative Balanced Fund seeks a combination of current income and capital
appreciation by diversifying investment of the Fund's assets among stocks, bonds
and other fixed income instruments. Of the Balanced Funds, the Fund most
emphasizes safety of principal through limited exposure to equity securities.
Moderate Balanced Fund seeks a combination of current income and capital
appreciation by diversifying investment of the Fund's assets among stocks, bonds
and other fixed income investments. The Fund provides a portfolio more evenly-
balanced between fixed income and equity securities than the other Balanced
Funds.
Growth Balanced Fund seeks a combination of current income and capital
appreciation by diversifying investment of the Fund's assets between stocks and
bonds. The Fund holds more equity securities than the other Balanced Funds.
Fixed Income Funds
Intermediate U.S. Government Fund seeks income and safety of principal by
investing primarily in U.S. Government Securities. The Fund seeks to moderate
its volatility by using a conservative approach to structuring the maturities of
its investment portfolio.
Managed Fixed Income Fund seeks to provide consistent fixed income returns by
investing primarily in a portfolio of intermediate maturity, investment grade
fixed income securities.
Stable Income Fund seeks to maintain safety of principal and provide low
volatility total return by investing primarily in short and intermediate
maturity, investment grade fixed income securities.
Management of the Funds
The investment adviser to each Fund (the "Adviser") is Norwest Investment
Management, a part of Norwest Bank Minnesota, N.A. ("Norwest"). Norwest is a
subsidiary of Norwest Corporation, a bank holding company with operations in 50
states and $59.3 billion in total assets. The Adviser provides investment advice
with respect to assets that totaled approximately $____ billion as of December
31, 1995. Except for International Fund, the Adviser makes investment decisions
for the Funds and continuously reviews, supervises and administers each Fund's
investment program.
Subject to the Adviser's general oversight, Schroder Capital Management
International Inc. ("Schroder") acts as investment subadviser to Diversified
Equity Fund, Growth Equity Fund and each Balanced Fund (Schroder and the
Adviser, collectively, are sometimes referred to as the "Advisers"). Schroder
also serves as International Portfolio's investment adviser.
Norwest serves as the Trust's transfer agent, dividend disbursing agent and
custodian, and provides certain administrative services to International Fund.
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"). Forum also serves as administrator of Core Trust. See
"Management of the Funds - Investment Advisory Services" and "Administrative and
Other Services."
Purchase and Redemption of Shares
Shares of beneficial interest of each Fund are offered without a sales charge
and may be redeemed without charge. Norwest offers investors in the Funds
various periodic investment and redemption services. The minimum initial
investment in each Fund is $1,000, except that the minimum initial investment in
Ready Cash Investment Fund is $100,000. See "Purchases and Redemptions of
Shares."
Dividends and Distributions
Dividends of net investment income are declared annually by each Fund. Each
Fund's net capital gain, if any, is distributed at least annually. See
"Dividends, Distributions and Tax Matters."
11
<PAGE>
Certain Risk Factors
There can be no assurance that any Fund will achieve its investment objective or
that Ready Cash Investment Fund will maintain a stable net asset value. Except
for Ready Cash Investment Fund, each Fund's net asset value will fluctuate based
upon changes in the value of the Fund's portfolio securities and, accordingly,
upon redemption an investment in a Fund may be worth more or less than its
original value. The Fixed Income Funds' net asset values will tend to vary
inversely with movements in interest rates and the potential for appreciation in
a Fixed Income Fund in the event of a decline in interest rates may be limited
or negated by increased principal prepayments on certain mortgage-backed
securities held by the Fund. The policy of investing in smaller companies
employed by Small Company Growth Fund and the Equity Funds that invest in small
company securities entails certain risks in addition to those normally
associated with investments in equity securities. Similarly, International
Fund's policy of investing directly or indirectly in foreign securities entails
certain risks in addition to those normally associated with investments in
equity securities.
By investing solely in International Portfolio, International Fund may achieve
certain efficiencies and economies of scale. Nonetheless, this investment could
also have potential adverse effects on International Fund. Investors in
International Fund should consider these risks, as described under "Other
Information - Core Trust Structure."
An investment in any Fund involves certain risks, depending on the types of
investments made and the types of investment techniques employed. All
investments by the Funds entail some risk. Certain investments and investment
techniques, however, entail additional risks, such as investments in foreign
issuers, issuers with limited market capitalization, mortgage or asset-backed
securities, zero-coupon bonds and options, futures contracts, forward contracts
and swap agreements. The use of leverage by certain Funds through borrowings,
margin transactions, short sales, reverse repurchase agreements and other
investment techniques involves additional risks. For more details about each
Fund, their investments and their risks see "Investment Objectives, Policies and
Risk Considerations" and "Appendix A: Investments, Investment Strategies and
Risk Considerations."
Expenses of Investing in the Funds
The purpose of the following table is to assist investors in understanding the
various expenses that an investor in the Funds will bear directly or indirectly.
There are no transaction charges in connection with purchases, redemptions or
exchanges of Shares. None of the Funds has adopted a Rule 12b-1 plan with
respect to the Shares and, accordingly, no Fund incurs distribution expenses.
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS
(AFTER WAIVERS AND REIMBURSEMENTS AS NOTED BELOW)(1)
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY SHAREHOLDER OTHER OPERATING
FEE SERVICING EXPENSES(2) EXPENSES
<S> <C> <C> <C> <C>
Diversified Equity Fund (3) 0.65% 0.25% 0.10% 1.00%
Growth Equity Fund (3) 0.90% 0.25% 0.10% 1.25%
Small Company Growth Fund 0.90% 0.25% 0.10% 1.25%
Large Company Growth Fund 0.65% 0.25% 0.10% 1.00%
International Fund (3) 0.45% 0.25% 0.80% 1.50%
Income Equity Fund 0.50% 0.25% 0.10% 0.85%
Index Fund 0.15% 0.25% 0.10% 0.50%
Conservative Balanced Fund (3) 0.45% 0.25% 0.10% 0.80%
Moderate Balanced Fund (3) 0.53% 0.25% 0.10% 0.88%
Growth Balanced Fund (3) 0.58% 0.25% 0.10% 0.93%
Intermediate U.S. Government Fund 0.33%(2) 0.25% 0.10% 0.68%
Managed Fixed Income Fund 0.32% 0.25% 0.10% 0.67%
Stable Income Fund 0.30% 0.25% 0.10% 0.65%
</TABLE>
(1) The amounts of expenses are based on amounts incurred during the Funds'
first fiscal year ended October 31, 1995.
(2) Absent actual expense reimbursements and fee waivers, the Other Expenses and
Total Operating Expenses of each Fund would be, respectively: Diversified Equity
Fund: 0.18% and 1.08%; Growth Equity Fund: 0.19% and 1.34%; Small Company Growth
Fund: 0.20% and 1.35%; Large Company Growth Fund: 0.30% and 1.20%; International
Fund: 0.96% and 1.66%; Income Equity Fund: 0.37% and 1.12%; Index Fund: 0.14%
and 0.64%; Conservative Balanced Fund: 0.26% and 0.96%; Moderate Balanced Fund:
0.20% and 0.98%; Growth Balanced Fund: 0.20% and 1.03%; Intermediate U.S.
Government Fund: 0.35% and 0.93%; Stable Income Fund: 0.43% and 0.98%. With
respect to Managed Fixed Income Fund, absent actual expense reimbursements and
fee waivers, the Investment Advisory Fees, Other Expenses and Total Operating
Expenses of that Fund would be: 0.35%. 0.12%, and 0.82%, respectively. For a
further description of the various expenses incurred in the operation of the
Funds, see "Management of the Funds."
(3) International Fund's Other Expenses include the Fund's pro rata portion of
the operating expenses of International Portfolio, which will be borne
indirectly by International Fund shareholders. As long as its assets are
invested in International Portfolio, International Fund pays no investment
advisory fees directly. International Fund pays Forum a management fee, and Core
Trust pays Forum an administration fee for its services to International
Portfolio, of which International Fund will bear its pro rata portion. The Board
of Trustees of the Trust believes that the aggregate per share expenses of
International Fund and International Portfolio will be approximately equal to
the expenses International Fund would incur if its assets were invested directly
in foreign securities. Pursuant to several expense waiver undertakings,
Diversified Equity Fund, Growth Equity Fund, Conservative Balanced Fund,
Moderate Balanced Fund and Growth Balanced Fund invest portions of their assets
in other portfolios of Core Trust, each of which bears certain expenses not
reflected in the table. See "Investment Objectives, Policies and Risk
Considerations - Investments in Core Trust" and "Management of the Funds -
Expenses of the Funds."
12
<PAGE>
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
Diversified Equity Fund $10 $32 $55 $122
Growth Equity Fund 13 40 69 152
Small Company Growth Fund 13 40 69 151
Large Company Growth Fund 10 32 55 122
International Fund 15 47 82 179
Income Equity Fund 9 27 47 105
Index Fund 5 16 28 63
Conservative Balanced Fund 8 26 44 99
Moderate Balanced Fund 9 28 49 108
Growth Balanced Fund 9 30 51 114
Intermediate
U.S. Government Fund 7 22 38 85
Managed Fixed Income Fund 7 21 37 83
Stable Income Fund 7 21 36 81
</TABLE>
The above table is a hypothetical example that indicates the expenses an
investor would pay assuming a $1,000 investment in each Fund, a 5 percent annual
return, reinvestment of all dividends and distributions, and full redemption at
the end of each period. The example is based on the expenses listed in the
"Annual Fund Operating Expenses" table above. The 5 percent annual return is not
a prediction of and does not represent the Funds' projected returns; rather, it
is required by government regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN
MAY BE GREATER OR LESS THAN INDICATED.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for each Fund. This
information represents selected data for a single outstanding share of each
Fund for the fiscal period ended October 31, 1995. Information was audited by
KPMG Peat Marwick LLP, independent auditors. The Funds' financial statements
for the fiscal period ended October 31, 1995, and independent auditors' report
thereon are contained in the Annual Report of the Funds, and are incorporated
by reference into the SAI. Further information about each Fund's performance
is contained in the Annual Report which may be obtained from the Trust without
charge.
<TABLE>
<CAPTION>
Diversified Growth
Equity Fund Equity Fund
----------- -----------
Period Ended Period Ended
October 31 October 31
1995 1995
---- ----
<S> <C> <C>
Beginning Net Asset Value per Share $ 22.21 $ 22.28
Net Investment Income (Deficit) 0.22 (0.02)
Net Realized and Unrealized
Gain (Loss) on Investments,
Foreign Currency Transactions
and Futures Transactions 5.10 4.71
Dividends from Net
Investment Income -.- -.-
Distributions from Net
Realized Gains -.- -.-
------- -------
Ending Net Asset Value per Share $ 27.53 $ 26.97
------- -------
------- -------
Ratios to Average Net Assets:
Expenses (a) 1.00%(b)(c) 1.25%(b)(c)
Net Investment Income (Deficit) 1.01%(b) (0.11%)(b)
Total Return 23.95%(b) 21.10%(b)
Portfolio Turnover Rate 10.33% 8.90%
Net Assets at the End of
Period/Year (000's Omitted) $ 711,111 $ 564,004
</TABLE>
(a) During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the ratios of
expenses to average net assets would have been:
Expenses 1.08%(b)(c) 1.34%(b)(c)
(b) Annualized
(c) Excludes expenses related to investments in Core Trust.
14
<PAGE>
<TABLE>
<CAPTION>
Large Company Small Company International Income Index
Growth Fund Growth Fund Fund Equity Fund Fund
----------- ----------- ---- ----------- ----
Period Ended Period Ended Period Ended Period Ended Period Ended
October 31 October 31 October 31 October 31 October 31
1995 1995 1995 1995 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $ 18.50 $ 21.88 $ 17.28 $ 18.90 $ 21.80
Net Investment Income (Deficit) (0.05) (0.11) 0.09 0.46 0.45
Net Realized and Unrealized
Gain (Loss) on Investments,
Foreign Currency Transactions
and Futures Transactions 5.14 8.22 0.62 4.66 5.42
Dividends from Net
Investment Income -.- -.- -.- -.- -.-
Distributions from Net
Realized Gains -.- -.- -.- -.- -.-
------- ------- ------- ------- -------
Ending Net Asset Value per Share $ 23.59 $ 29.99 $ 17.99 $ 24.02 $ 27.67
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios to Average Net Assets:
Expenses (a) 1.00%(b) 1.25%(b) 1.50%(b)(c) 0.85%(b) 0.50%(b)
Net Investment Income (Deficit) (0.23%)(b) (0.47%)(b) 0.54% (b) 2.51%(b) 2.12%(b)
Total Return 27.51%(b) 37.07%(b) 4.11%(b) 27.09%(b) 26.93%(b)
Portfolio Turnover Rate 31.60% 106.55% N/A% 7.03% 14.48%
Net Assets at the End of
Period/Year (000's Omitted) $ 63,567 $ 278,058 $91,401 $ 49,000 $ 186,197
(a) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratios of expenses to average net assets would have been:
Expenses 1.20%(b) 1.35%(b) 1.66%(b) 1.12%(b) 0.64%(b)
(b) Annualized
(c)Includes expenses allocated from International Portfolio of Core Trust of 0.80%, net of waivers of 0.10%.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Conservative Moderate Growth
Balanced Fund Balanced Fund Balanced Fund
------------- ------------- -------------
Period Ended Period Ended Period Ended
October 31 October 31 October 31
1995 1995 1995
---- ---- ----
<S> <C> <C> <C>
Beginning Net Asset Value per Share $ 16.19 $ 17.25 $ 17.95
Net Investment Income (Deficit) 0.75 0.65 0.47
Net Realized and Unrealized
Gain (Loss) on Investments,
Foreign Currency Transactions
and Futures Transactions 1.27 1.94 2.83
Dividends from Net
Investment Income -.- -.- -.-
Distributions from Net
Realized Gains -.- -.- -.-
------- ------- -------
Ending Net Asset Value per Share $ 18.21 $ 19.84 $ 21.25
------- ------- -------
------- ------- -------
Ratios to Average Net Assets:
Expenses (a) 0.80%(b)(c) 0.88%(b)(c) 0.93%(b)(c)
Net Investment Income (Deficit) 4.67%(b) 3.76%(b) 2.63%(b)
Total Return 12.48%(b) 15.01%(b) 18.38%(b)
Portfolio Turnover Rate 65.53% 62.08% 41.04%
Net Assets at the End of
Period/Year (000's Omitted) $ 136,710 $ 373,998 $ 374,892
(a) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratios of expenses to average net assets would have been:
Expenses 0.96%(b)(c) 0.98%(b)(c) 1.03%(b)(c)
(b) Annualized
(c) Excludes expenses related to investments in Core Trust.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Intermediate Managed
US Government Fixed Income Stable Income
Fund Fund Fund
---- ---- ----
Period Ended Period Ended Period Ended
October 31 October 31 October 31
1995 1995 1995
---- ---- ----
<S> <C> <C> <C>
Beginning Net Asset Value per Share $ 55.55 $ 25.08 $ 10.00
Net Investment Income (Deficit) 4.67 1.65 0.50
Net Realized and Unrealized
Gain (Loss) on Investments,
Foreign Currency Transactions
and Futures Transactions 1.76 1.19 0.22
Dividends from Net
Investment Income -.- -.- -.-
Distributions from Net
Realized Gains -.- -.- -.-
------- ------- -------
Ending Net Asset Value per Share $ 61.98 $ 27.92 $ 10.72
------- ------- -------
------- ------- -------
Ratios to Average Net Assets:
Expenses (a) 0.68%(b) 0.67%(b) 0.65%(b)
Net Investment Income (Deficit) 7.79%(b) 5.87%(b) 5.91%(b)
Total Return 11.58%(b) 11.32%(b) 7.20%(b)
Portfolio Turnover Rate 240.90% 58.90% 115.85%
Net Assets at the End of
Period/Year (000's Omitted) $ 50,213 $ 171,453 $ 48,087
(a) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratios of expenses to average net assets would have been:
Expenses 0.93%(b) 0.82%(b) 0.98%(b)
(b) Annualized
</TABLE>
17
<PAGE>
Investment Objectives, Policies
and Risk Considerations
The Funds offered through this Prospectus consist of thirteen Funds, each of
which has distinct investment objectives and policies. There are seven Equity
Funds - Diversified Equity Fund and Growth Equity Fund, each of which invests
specified percentages of its assets in accordance with different equity
investment styles, and five equity funds each of which uses a different equity
investment approach. The use of different equity investment styles is intended
to reduce the risk associated with the use of a single style, which may move in
and out-of-favor during the course of a market cycle. The Funds also include
three Balanced Funds and three Fixed Income Funds. The Balanced Funds invest
specified percentages of their assets in accordance with the investment styles
of Diversified Equity Fund and three to five different fixed income investment
styles. The Balanced Funds rebalance their portfolios periodically and
Diversified Equity and Growth Equity Funds rebalance their portfolios daily to
maintain specified percentages of assets invested in particular investment
styles. The percentage of a Fund's assets invested using a specified investment
style may be changed by the Adviser in response to market or other conditions.
For a further description of each Fund's investments and investment techniques
and additional risk considerations associated with those investments and
techniques, see the discussion below, "Investment Objectives, Investment
Policies and Risk Considerations - Additional Investment Policies," "Appendix A:
Investments, Investment Strategies and Risk Considerations" and the SAI.
Investment Objectives
Each of the Funds has its own distinct investment objective which may not be
changed without approval of the Fund's shareholders. There can be no assurance
that any Fund will achieve its investment objective.
Equity Funds
Diversified Equity Fund's investment objective is to provide long-term capital
appreciation while moderating annual return volatility by diversifying its
investments in accordance with different equity investment styles.
Growth Equity Fund's investment objective is to provide a high level of long-
term capital appreciation while moderating annual return volatility by
diversifying its investments in accordance with different equity investment
styles. Because the Fund seeks increased returns, it is subject to
correspondingly greater risks than Diversified Equity Fund.
Small Company Growth Fund's investment objective is to provide long-term capital
appreciation by investing primarily in small and medium-sized domestic companies
that are either growing rapidly or completing a period of significant change.
International Fund's investment objective is to provide long-term capital
appreciation by investing directly or indirectly in high-quality companies based
outside the United States. International Portfolio, in which International Fund
invests all of its assets, has the same investment objective.
Large Company Growth Fund's investment objective is to provide long-term capital
appreciation by investing primarily in large, high-quality domestic companies
that the investment adviser believes have superior growth potential.
Income Equity Fund's investment objective is to provide both long-term capital
appreciation in line with that of the overall equity securities markets and
above average dividend income.
Index Fund's investment objective is to duplicate the return of the Standard &
Poor's 500 Composite Stock Price Index.
18
<PAGE>
Balanced Funds
Conservative Balanced Fund's investment objective is to provide a combination of
current income and capital appreciation by diversifying investment of the Fund's
assets among stocks, bonds and other fixed income investments. The Fund
emphasizes safety of principal through limited exposure to equity securities.
The Fund has the smallest equity securities position of the three Balanced
Funds.
Moderate Balanced Fund's investment objective is to provide a combination of
current income and capital appreciation by diversifying investment of the Fund's
assets among stocks, bonds and other fixed income investments. The Fund provides
a portfolio more evenly-balanced between fixed income and equity securities than
the other Balanced Funds.
Growth Balanced Fund's investment objective is to provide a combination of
current income and capital appreciation by diversifying investment of the Fund's
assets between stocks and bonds. The Fund has the largest equity securities
position of the Balanced Funds.
Fixed Income Funds
Intermediate U.S. Government Fund's investment objective is to provide income
and safety of principal by investing primarily in U.S. Government Securities.
Managed Fixed Income Fund's investment objective is to provide consistent fixed
income returns by investing primarily in a portfolio of intermediate maturity,
investment grade fixed income securities.
Stable Income Fund's investment objective is to maintain safety of principal
while providing low-volatility total return.
Investments in Core Trust
International Fund currently seeks to achieve its investment objective by
investing all of its investment assets in International Portfolio, a separate
Portfolio of Core Trust. In addition, the Trust has received an exemptive order
from the SEC under which Diversified Equity Fund, Growth Equity Fund,
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund
(collectively the "Blended Funds") currently invest the portions of their assets
that are managed in a small company, an index and an international investment
style, respectively, in Small Company Portfolio, Index Portfolio, and
International Portfolio II (the "Blended Portfolios"). These Portfolios are each
separate portfolios of Core Trust. By pooling their assets in the Blended
Portfolios, the Blended Funds may be able to achieve benefits that they could
not achieve by investing directly in securities. See "Other Information - Core
Trust Structure."
The investment objectives and policies and investment risk considerations for
International Portfolio II and Index Portfolio are identical to the investment
objectives and policies and investment risk considerations of International Fund
and Index Fund. The investment objective of Small Company Portfolio is to
provide long-term capital appreciation by investing primarily in small and
medium-sized domestic companies that are either growing rapidly or completing a
period of significant change. This Portfolio invests its assets in a small
company stock investment style ("Small Company Stock investment style"), a small
company value investment style ("Small Company Value investment style") and in
the style of Small Company Growth Fund and, in the future, may invest its assets
in accordance with additional small company investment styles.
Investment Policies
Equity Funds
To achieve their investment objectives, the Equity Funds invest primarily in
common stocks and other equity securities. International Fund currently invests
exclusively in International Portfolio which invests primarily in common stocks
and other equity securities of foreign issuers. See "Other Information - Core
Trust Structure." The domestic securities in which an Equity Fund invests are
generally listed on a securities exchange or included in the National
Association of Securities Dealers Automated Quotation (NASDAQ) National Market
System but may be traded in the over-the-
19
<PAGE>
counter securities market. Under normal circumstances, each of the Equity Funds
will invest substantially all of its assets, but not less than 65 percent of its
net assets, in equity securities.
Diversified Equity Fund is designed to minimize the volatility and risk of
investing in equity securities. The Fund's portfolio combines five different
equity investment styles, those of four of the Equity Funds - Large Company
Growth Fund, International Fund, Income Equity Fund and Index Fund - and a small
company investment style ("Small Company investment style"), which reflects a
mix of Small Company Growth Fund investment styles and the Small Company Stock
and Small Company Value investment styles. The Fund utilizes different equity
investment styles in order to reduce the risk of relying on a single investment
style. Reliance on multiple equity investment styles is intended to reduce the
price and return volatility of the Fund. Because Diversified Equity Fund blends
five equity investment styles, it is anticipated that its price and return
volatility will be less than that of Growth Equity Fund, which blends three
equity investment styles. The Fund will generally invest the following
percentages of its total assets in accordance with the indicated investment
styles:
Diversified Equity Fund Allocation
Index Fund style 25%
Income Equity Fund style 25%
Large Company Growth Fund style 25%
Small Company investment style 10%
International Fund style 15%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of each of the foregoing Equity Funds
and Small Company investment styles below for a discussion of the objectives,
policies and risks involved in the investments and investment techniques of
those styles and, accordingly, of the portions of Diversified Equity Fund
invested in those styles. The management of the Fund's assets is divided among
the Fund's six portfolio managers, four of whom are also the portfolio manager
for a corresponding Equity Fund and two of whom jointly co-manage the assets
allocated to Small Company investment style.
Growth Equity Fund is designed to reduce the volatility and risk of investing in
equity securities. The Fund's portfolio combines three different equity
investment styles, those of two of the Equity Funds - Large Company Growth Fund
and International Fund - and a small company investment style ("Small Company
investment style"), which reflects a mix of both the Small Company Stock and
Small Company Growth Fund investment styles. The Fund utilizes different equity
investment styles in order to reduce the risk of relying on a single equity
investment style. Reliance on multiple equity investment styles is intended to
reduce the price and return volatility of the Fund. Although Growth Equity Fund
blends three equity investment styles, it is anticipated that the Fund's price
and return volatility will be somewhat greater than those of Diversified Equity
Fund, which blends five equity investment styles. The Fund will generally invest
the following percentages of its total assets in accordance with the indicated
investment styles:
Growth Equity Fund Allocation
Large Company Growth Fund style 35%
Small Company investment style 35%
International Fund style 30%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of each of the foregoing Equity Funds
and Small Company investment styles for a discussion of the objectives,
policies and risks involved in the investments and investment techniques of
those styles and, accordingly, of the portions of Growth Equity Fund invested
using those styles. The management of the Fund's assets is divided among the
Fund's four portfolio managers, two of whom are also the portfolio manager for a
corresponding Equity Fund and two of whom jointly co-manage the assets allocated
to Small Company investment style.
20
<PAGE>
Small Company Growth Fund and the Small Company investment style component of
other Funds invest primarily in the common stock of small and medium size
domestic companies which have a market capitalization well below that of the
average company in the Standard & Poor's 500 Composite Stock Price Index. Small
Company Growth Fund considers small and medium companies to be those whose
market capitalizations are less than $750 million at the time of the Fund's
purchase. Market capitalization refers to the total market value of a company's
outstanding shares of common stock.
In selecting securities for Small Company Growth Fund, the Adviser seeks to
identify companies that are rapidly growing (usually with relatively short
operating histories) or that are emerging from a period of investor neglect by
undergoing a dramatic change. These changes may involve a sharp increase in
earnings, the hiring of new management or measures taken to close the gap
between its share price and takeover/asset value. The Fund may invest up to 10
percent of its total assets in foreign securities and in American Depository
Receipts, European Depository Receipts and other similar securities of foreign
issuers. See "Investment Policies - Equity Funds - International Fund - Foreign
Investment Risks and Considerations." The Fund may not invest more than 10% of
its total assets in the securities of a single issuer. The Fund does not
currently invest in preferred stock and securities convertible into common stock
but reserves the right to do so in the future.
In selecting securities allocated to the Small Company investment style
component of Growth Equity Fund, Diversified Equity Fund and the Balanced Funds,
the Adviser uses the investment style of Small Company Growth Fund and two other
investment styles described below: Small Company Stock investment style and the
Small Company Value investment style. Assets allocated to the Small Company
investment style are invested 1/3 in the Small Company Growth Fund style, 1/3 in
the Small Company Stock investment style an 1/3 in the Small Company Value
investment style.
Prior to December 11, 1995 the Small Company investment style did not allocate
any assets to the Small Company Value investment styles. The Small Company
investment style is expected to be allocated completely in this manner by June
1, 1996. Small Company investment style may in the future allocate its assets
to additional investment styles.
In selecting securities in accordance with the Small Company Stock investment
style, the Adviser seeks securities with significant price appreciation
potential and attempts to identify companies that show above average growth, as
compared to long term overall market growth. In investing assets allocated to
this investment style, the Adviser may invest in preferred stock and securities
convertible into common stock and may invest up to 20 percent of total assets
allocated to this style in foreign securities and in American Depository
Receipts, European Depository Receipts and other similar securities of foreign
issuers.
In selecting portfolio investments, the Small Company Value investment style
focuses on securities that are conservatively valued in the marketplace relative
to their underlying fundamentals. Value investing provides investors with a less
aggressive way to take advantage of growth opportunities of small companies.
Under a value approach, the Fund will seek to invest in stocks priced low
relative to comparable companies, determined by price/earnings ratios, cash
flows or other measures. Value investing therefore may reduce downside risk
while offering potential for capital appreciation as a stock gains favor among
other investors and its stock price rises.
Small Company Investment Risks and Considerations. The companies in which Small
Company Growth Fund and the Small Company investment style components of the
other Funds invest may be in a relatively early stage of development or may
produce goods and services which have favorable prospects for growth due to
increasing demand or developing markets. Frequently, such companies have a small
management group and single product or product line expertise. These
characteristics may result in an enhanced entrepreneurial spirit and greater
focus which may make those companies successful. The Adviser believes that such
companies may develop into significant business enterprises and that an
investment in such companies offers a greater opportunity for capital
appreciation than an investment in larger more established entities. Small
companies frequently retain a large part of their earnings for research,
development and investment in capital assets, however, so that the prospects for
immediate dividend income are limited.
21
<PAGE>
Investments in smaller companies generally involve greater risks than
investments in larger companies due to the small size of the issuer and the fact
that the issuer may have limited product lines, access to financial markets and
management depth. In addition, many of the securities of smaller companies trade
less frequently and in lower volumes than securities issued by larger firms. The
result is that the short-term price volatility of small company securities is
greater than the short-term price volatility of the securities of larger, more
established companies that are widely held. The securities of small companies
may also be more sensitive to market changes generally than the securities of
large companies. In addition, securities that are traded in the over-the-counter
market or on a regional securities exchange may not be traded every day or in
the volume typical of securities traded on a national securities exchange. As a
result, disposition of a portfolio security, to meet redemptions by shareholders
or otherwise, may require a Fund to sell the security at a discount from market
prices, to sell during periods when disposition is not desirable, or to make
many small sales over an extended period.
While securities issued by smaller companies historically have experienced
greater market appreciation than the securities of larger entities, there is no
assurance that they will continue to do so or that the Fund will be successful
in identifying companies whose securities will appreciate.
Large Company Growth Fund invests primarily in the common stock of large, high-
quality domestic companies that have superior growth potential. Large companies
are those whose market capitalization is at least $500 million at the time of
the Fund's purchase and whose equity trading volume would permit the sale or
purchase of a large position in the securities of the company in 2 or 3 trading
days. Market capitalization refers to the total market value of a company's
outstanding shares of common stock. In selecting securities for the Fund, the
Adviser seeks issuers whose stock is attractively valued and whose fundamental
characteristics both are significantly better than the market average and which
support internal earnings growth capability. The Fund's holdings may include the
securities of companies whose growth potential is, in the Adviser's opinion,
generally unrecognized or misperceived by the market. In addition, the Fund may
invest up to 20 percent of its total assets in American Depository Receipts,
European Depository Receipts and other similar securities of large foreign
issuers and may attempt to reduce the overall risk of its foreign investments by
using foreign currency forward contracts. See "Investment Policies - Equity
Funds - International Fund - Foreign Investment Risks and Considerations." Under
normal circumstances, the Fund will not invest more than 10 percent of its total
assets in the securities of a single issuer. The Fund does not currently invest
in preferred stock or securities convertible into common stock but reserves the
right to do so in the future.
International Fund is designed for investors who desire to achieve international
diversification of their investments by participating in foreign securities
markets. Because international investments generally involve risks in addition
to those risks associated with investments in the United States, the Fund should
be considered only as a vehicle for international diversification.
As the Fund has the same investment policies as International Portfolio and
currently invests all of its assets in International Portfolio, the following
investment policies are discussed with respect to International Portfolio only.
International Portfolio normally will invest substantially all of its assets in
equity securities of companies domiciled outside the United States.
International Portfolio selects its investments on the basis of their potential
for capital appreciation without regard to current income. International
Portfolio may also invest in the securities of closed-end investment companies
investing primarily in foreign securities and may invest in debt obligations of
foreign governments or their political subdivisions, agencies or
instrumentalities, of supranational organizations and of foreign corporations.
Investment will be diversified among securities of issuers in foreign countries
including, but not limited to, Japan, Germany, the United Kingdom, France, the
Netherlands, Hong Kong, Singapore and Australia. In general, International
Portfolio will invest only in securities of companies and governments in
countries that Schroder, in its judgment, considers both politically and
economically stable. International Portfolio has no limit on the amount of its
foreign assets which may be invested in any one type of foreign instrument or in
any foreign country; however, to the extent International Portfolio concentrates
its assets in a foreign country, it will incur greater risks.
International Portfolio may purchase preferred stock and securities convertible
into common stock, and may purchase American Depository Receipts, European
Depository Receipts or other similar securities of foreign issuers.
International Portfolio may also enter into foreign exchange contracts,
including forward contracts to purchase or sell foreign currencies, in
anticipation of its currency requirements and to protect against possible
adverse movements in
22
<PAGE>
foreign exchange rates. Although such contracts may reduce the risk of loss to
International Portfolio from adverse movements in currency values, the contracts
also limit possible gains from favorable movements.
Foreign Investment Risks and Considerations. All investments, domestic and
foreign, involve certain risks. Investments in the securities of foreign issuers
may involve risks in addition to those normally associated with investments in
the securities of U.S. issuers. All foreign investments are subject to risks of
foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital, and changes in foreign
governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
International Portfolio's shareholders; commission rates payable on foreign
transactions are generally higher than in the United States; foreign accounting,
auditing and financial reporting standards differ from those in the United
States and, accordingly, less information may be available about foreign
companies than is available about issuers of comparable securities in the United
States; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by International Portfolio.
Exchange rates are influenced generally by the forces of supply and demand in
the foreign currency markets and by numerous other political and economic events
occurring outside the United States, many of which may be difficult, if not
impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, and International Portfolio is required to compute and distribute
income in U.S. dollars. Accordingly, a decline in the value of a particular
foreign currency against the U.S. dollar will reduce the dollars available to
make a distribution. Similarly, if the exchange rate declines between the time
after International Portfolio's income has been earned and computed in U.S.
dollars and the time it is paid may require International Portfolio to liquidate
portfolio securities to acquire sufficient U.S. dollars to make a distribution.
Similarly, if the exchange rate declines between the time International
Portfolio incurs expenses in U.S. dollars and the time such expenses are paid,
International Portfolio may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
Income Equity Fund invests primarily in the common stock of large, high-quality
domestic companies which have above-average return potential based on current
market valuations. Primary emphasis is placed on investing in securities of
companies with above-average dividend income. In selecting securities for the
Fund, the Adviser uses various valuation measures, including above-average
dividend yields and below industry average price to earnings, price to book and
price to sales ratios. The Fund considers large companies to be those whose
market capitalization is at least $600 million at the time of the Fund's
purchase. Market capitalization refers to the total market value of a company's
outstanding shares of common stock. The Fund may also invest in preferred stock
and securities convertible into common stock and may purchase American
Depository Receipts, European Depository Receipts and other similar securities
of foreign issuers. See "Investment Policies - Equity Funds - International
Fund - Foreign Investment Risks and Considerations." Under normal circumstances,
the Fund will not invest more than 10 percent of its total assets in the
securities of a single issuer.
Index Fund is designed to duplicate the return of the Standard & Poor's 500
Composite Stock Index (the "Index") with minimum tracking error, while also
minimizing transaction costs. Under normal circumstances, the Fund will hold
stocks representing 96 percent or more of the capitalization-weighted market
values of the Index. Portfolio transactions for the Fund generally are executed
only to duplicate the composition of the Index, to invest cash received from
portfolio security dividends or shareholder investments in the Fund, and to
raise cash to fund Share redemptions. The Fund may hold cash or cash equivalents
for the purpose of facilitating payment of the Fund's expenses or Share
redemptions. For these and other reasons, the Fund's performance can be expected
to approximate but not be equal to that of the Index.
In addition, the Fund may utilize index futures contracts to a limited extent.
Index futures contracts are bilateral agreements pursuant to which two parties
agree to take or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which
23
<PAGE>
the futures contract is originally struck. As no physical delivery of the fixed
income or equity securities comprising the index is made, a purchaser of index
futures contracts may participate in the performance of the securities contained
in the index without the required capital commitment.
Index futures contracts may be used for several reasons: to simulate full
investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading or to reduce transactions costs. For
a description of futures contracts and their risks see "Appendix A: Investments,
Investment Strategies and Risk Considerations - Futures Contracts and Options."
The Index tracks the total return performance of 500 common stocks which are
chosen for inclusion in the Index by Standard & Poor's Corporation ("S&P") on a
statistical basis. The inclusion of a stock in the Index in no way implies that
S&P believes the stock to be an attractive investment. The 500 securities, most
of which trade on the New York Stock Exchange, represent approximately 70
percent of the total market value of all U.S. common stocks. Each stock in the
Index is weighted by its market value. Because of the market-value weighting,
the 50 largest companies in the Index currently account for approximately 45
percent of its value. The Index emphasizes large-capitalizations and, typically,
companies included in the Index are the largest and most dominant firms in their
respective industries.
The Fund is not sponsored, endorsed, sold or promoted by S&P, nor does S&P make
any representation or warranty, implied or express, to the purchasers of the
Fund or any member of the public regarding the advisability of investing in
index funds or the ability of the Index to track general stock market
performance. S&P does not guarantee the accuracy and/or the completeness of the
Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund, owners of the Fund, any person or any entity from the use of the
Index or any data included therein. S&P makes no express or implied warranties
and hereby expressly disclaims all such warranties of merchantability or fitness
for a particular purpose for use with respect to the Index or any data included
therein.
Investment Policies
Balanced Funds
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund each
invest in a balanced portfolio of fixed income and equity securities.
Conservative Balanced Fund has the smallest equity securities position of the
three Funds and is the most conservative Balanced Fund. Growth Balanced Fund has
the largest equity securities position of the three Funds and is the most
aggressive Balanced Fund. The equity portion of each Balanced Fund's portfolio
uses the five different equity investment styles of Diversified Equity Fund.
Diversified Equity Fund combines the different equity investment styles of four
of the Equity Funds - Large Company Growth Fund, International Fund, Income
Equity Fund and Index Fund - and investment in a small company investment style
("Small Company investment style") in order to reduce the risk of relying on a
single equity investment style. The blending of different equity investment
styles is intended to reduce the price and return volatility of the equity
portion of the Balanced Funds.
The fixed income portion of each Balanced Fund's portfolio uses from three to
five different fixed income investment styles. Conservative Balanced Fund uses
five investment styles - the investment styles of Managed Fixed Income Fund and
Stable Income Fund, a "total return" investment style ("Total Return investment
style"), a "positive return" investment style ("Positive Return investment
style") and a short maturity investment style ("Short Maturity investment
style"). Moderate Balanced Fund uses four investment styles - the investment
styles of Managed Fixed Income Fund and Stable Income Fund and Total Return and
Positive Return investment styles. Growth Balanced Fund uses three investment
styles - the investment styles of Managed Fixed Income Fund and the Total Return
and Positive Return investment styles. The blending of different fixed income
investment styles is intended to reduce the risk associated with relying on a
single fixed income investment style.
The base allocation among investment styles for each Balanced Fund is set forth
below. As market values of the Funds' assets change, the percentage of Fund
assets invested in any style may temporarily deviate from the base allocations.
In response thereto, the Adviser will periodically effect transactions for the
Balanced Funds to reestablish their base
24
<PAGE>
allocations. In addition, as the securities markets change, the Adviser may
attempt to enhance the returns of any of the Balanced Funds by changing, within
certain limits, the percentage of Fund assets invested in fixed-income and
equity securities. The Adviser may, in its discretion, increase or decrease the
fixed income and equity percentages by up to 5 percent for Conservative Balanced
Fund, 10 percent for Moderate Balanced Fund and 15 percent for Growth Balanced
Fund. For example, the Managed Fixed Income Fund investment style, Total Return
investment style and Positive Return investment style of Growth Balanced Fund,
each of which currently is used for 11 2/3 percent of that Fund's assets (a
total of 35 percent), may each be increased to 16 2/3 percent (a total of 50
percent) or decreased to 6 2/3 percent (a total of 20 percent) of that Fund's
assets. In making these changes, each Balanced Fund is required to limit its
redemptions to no more than 1% of a Blended Portfolio's net assets during any
period of less than thirty days. Absent unstable market conditions, the Adviser
does not anticipate making a substantial number of percentage changes. When the
Adviser believes a change in the base allocation percentages is desirable, it
will sell and purchase securities to effect the change. When the Adviser
believes that a change will be temporary (generally, 3 years or less), it may
choose to effect the change by using futures contract strategies as described
below in "Temporary Allocations."
Conservative Balanced Fund is designed for investors seeking exposure primarily
to fixed income securities with limited exposure to equity securities. The fixed
income portion of the Fund's portfolio uses the investment styles of Managed
Fixed Income Fund and Stable Income Fund, Total Return investment style,
Positive Return investment style and Short Maturity investment style, in order
to reduce the risk of relying on a single fixed income investment style.
The Fund will generally invest the following percentages of its total assets in
accordance with the indicated investment styles (as noted under "Investment
Policies - Equity Funds - Diversified Equity Fund" above, Diversified Equity
Fund generally invests its assets using five different equity investment
styles):
Conservative Balanced Fund Allocation
Diversified Equity Fund style 25%
Index Fund style 25%, Income Equity Fund style 25%,
Large Company Growth Fund style 25%,
Small Company investment style 10%, International Fund style 15%
Managed Fixed Income Fund style 16 2/3%
Total Return investment style 16 2/3%
Positive Return investment style 16 2/3%
Stable Income Fund style 15%
Short Maturity investment style 10%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of Diversified Equity Fund (and the
five investment styles used by Diversified Equity Fund), Managed Fixed Income
Fund and Stable Income Fund for a discussion of the objectives, policies and
risks involved in the investments and investment techniques of those Funds and,
accordingly, of the portions of Conservative Balanced Fund that are invested
using similar investment styles. The investment policies related to Total Return
investment style, Positive Return investment style and Short Maturity investment
style are listed below. The management of the Fund's assets is divided among the
Fund's eleven portfolio managers - the portfolio managers of Diversified Equity
Fund, the portfolio managers of Managed Fixed Income Fund and Stable Income Fund
and the portfolio managers who manage the assets allocated to the Total Return,
Positive Return and Short Maturity investment styles.
Moderate Balanced Fund is designed for investors seeking roughly equivalent
exposures to fixed income securities and equity securities. The fixed income
portion of the Fund's portfolio uses the investment styles of Managed Fixed
Income Fund, Stable Income Fund, and Total Return and Positive Return investment
styles in order to reduce the risk of relying on a single fixed income
investment style.
The Fund will generally invest the following percentages of its total assets in
accordance with the indicated investment styles (as noted under "Investment
Policies - Equity Funds - Diversified Equity Fund" above, Diversified Equity
Fund generally invests its assets using five different equity investment
styles):
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Moderate Balanced Fund Allocation
Diversified Equity Fund style 40%
Index Fund style 25%, Income Equity Fund style 25%,
Large Company Growth Fund style 25%,
Small Company investment style 10%, International Fund style 15%
Managed Fixed Income Fund style 15%
Total Return investment style 15%
Positive Return investment style 15%
Stable Income Fund style 15%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of Diversified Equity Fund (and the
five investment styles used by Diversified Equity Fund), Managed Fixed Income
Fund and Stable Income Fund for a discussion of the objectives, policies and
risks involved in the investments and investment techniques of those Funds and,
accordingly, of the portions of Moderate Balanced Fund that are invested using
similar investment styles. The investment policies related to Total Return and
Positive Return investment styles are listed below. The management of the Fund's
assets is divided among the Fund's ten portfolio managers - the portfolio
managers of Diversified Equity Fund, the portfolio managers of Managed Fixed
Income Fund, and Stable Income fund and the portfolio managers who manages the
assets allocated to the Total Return and Positive Return investment style.
Growth Balanced Fund is designed for investors seeking long-term capital
appreciation in the equity securities market in a balanced fund. The fixed
income portion of the Fund's portfolio uses the investment styles of Managed
Fixed Income Fund, and Total Return and Positive Return investment styles in
order to reduce the risk of relying on a single fixed income investment style.
The Fund will generally invest the following percentages of its total assets in
accordance with the indicated investment styles (as noted under "Investment
Policies - Equity Funds - Diversified Equity Fund" above, Diversified Equity
Fund generally invests its assets using five different equity investment
styles):
Growth Balanced Fund Allocation
Diversified Equity Fund style 65%
Index Fund style 25%, Income Equity Fund style 25%,
Large Company Growth Fund style 25%,
Small Company investment style 10%, International Fund style 15%
Managed Fixed Income Fund style 11 2/3%
Total Return investment style 11 2/3%
Positive Return investment style 11 2/3%
TOTAL FUND ASSETS 100%
Investors should refer to the descriptions of Diversified Equity Fund (and the
five investment styles used by Diversified Equity Fund) and Managed Fixed Income
Fund for a discussion of the objectives, policies and risks involved in the
investments and investment techniques of those Funds and, accordingly, of the
portions of Growth Balanced Fund that are invested using similar investment
styles. The investment policies related to Total Return and Positive Return
investment styles are listed below. Management of the Fund's assets is divided
among the Fund's nine portfolio managers - the portfolio managers of Diversified
Equity Fund, the portfolio managers of Managed Fixed Income Fund and the
portfolio managers who manage the assets allocated to the Total Return and
Positive Return investment styles.
Total Return investment style seeks seeks total return by investing in a
portfolio of U.S. Government and high-quality corporate fixed income securities,
including mortgage-backed securities, and high-quality corporate fixed income
securities. The Adviser's investment decisions are based on its analysis of
major changes in the direction of interest rates rather than on attempts by the
Adviser to predict short-term interest rate fluctuations. The Adviser also
applies a contrarian perspective by looking for undervalued segments of the
fixed income market which the Adviser believes offer opportunities for increased
returns.
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In making its investment decisions assets allocated to this investment style,
the Adviser focuses on the maturity structure and quality structure of the
Fund's portfolio. When the Adviser's outlook is for rising interest rates and
falling bond values, the majority of these assets will be invested in securities
with short-term maturities in an effort to take advantage of rising interest
rates while minimizing the negative effect of falling bond prices. When the
Adviser anticipates interest rates to fall and bond prices to increase, the
Adviser will invest assets allocated to this investment style in securities with
long-term maturities in an attempt to lock in high interest rates and capitalize
on bond price appreciation. Accordingly, the average maturity of securities
managed in accordance with this investment style will vary from 1 to 30 years.
The Adviser may invest assets allocated to this investment style in an unlimited
amount of its assets in either corporate securities, including corporate bonds,
debentures and notes, or U.S. Government Securities. The Adviser will invest
assets allocated to this investment style to a greater degree in corporate
securities, however, as the spread between corporate and U.S. Government
Securities offers potential for incremental returns. In investing assets
allocated to this investment style, the Adviser limits investment in variable or
floating rate securities to 5 percent of its net assets. In investing assets in
accordance with this investment style, the Adviser does not currently invest in
mortgage-backed securities or enter "dollar roll" transactions, but reserves the
right to do so in the future.
In investing assets in accordance with this investment style, the Adviser may
invest in preferred stocks and securities convertible into common stock, but may
not own the common stock underlying a convertible security. The Adviser will
only purchase securities (including convertible securities) that are rated, at
the time of purchase, within the four highest long term or two highest short-
term rating categories assigned by a Nationally Recognized Statistical Rating
Organization, such as Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Services, Inc., or which are unrated and
determined by the Adviser to be of comparable quality.
Positive Return investment style seeks positive total return each calendar year
regardless of the bond market by investing in a portfolio of U.S. Government and
corporate fixed income investments. The Adviser's investment with respect to
assets invested in this investment style are divided into two components, short
bonds with maturities of 2 years or less and long bonds with maturities of 25
years or more. Shifts between short bonds and long bonds are made based on
movement in the prices of bonds rather than on the Adviser's forecast of
interest rates. During periods of falling prices (generally decreasing interest
rate environments) long bonds are sold to protect capital and limit losses.
Conversely, when bond prices rise, long bonds are purchased. Accordingly, the
average maturity of the portfolio of securities invested in the Positive Return
investment style will vary. It is anticipated that under normal circumstances
the portfolio of securities invested in this investment style will have an
average dollar-weighted maturity of between 1 and 30 years.
Under normal circumstances, at least 50% of the net assets allocated to this
style will be U.S. Government Securities, including Treasury securities. All
securities allocated to Positive Return investment style will be, at the time of
purchase, (i) rated in one of the two highest long-term rating categories
assigned by a Nationally Recognized Statistical Rating Organization such as
Moody's Investors Service, Inc., Standard & Poor's Corporation and Fitch
Investors Services, Inc. or (ii) unrated and determined by the Adviser to be of
comparable quality. No more than 25 percent may be in the second highest rating
category. Investments may include zero-coupon securities, securities with
variable or floating rates of interest and asset-backed securities, but only 25
percent of the net assets allocated to this investment style, in the aggregate,
may be invested in these securities. Positive Return investment style may not
invest in convertible securities, mortgage pass-through securities or private
placement securities. Within these constraints, the Adviser purchases securities
which it believes have above average yields.
Short Maturity investment style seeks to provide a higher total return than is
generally available from money market funds. The assets allocated to Short
Maturity investment style will be invested in a portfolio of high-quality fixed
and variable rate fixed income securities. This portion of Conservative Balanced
Fund's assets is managed to increase income and preserve or enhance total return
by actively managing average portfolio maturity in light of market conditions
and trends. Investments may include a broad spectrum of short-term instruments
of United States and foreign issuers, including U.S. Government Securities, and
the debt securities of financial institutions, corporations, foreign
governments, municipal governments, supranational organizations and others.
Investments are limited to instruments with a remaining maturity of 5 years or
less. With respect to assets allocated to this investment style, the Fund will
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<PAGE>
maintain a dollar-weighted average portfolio maturity of 1 year or less and,
under normal circumstances, will maintain 50 percent of the assets in
instruments with a maturity of under 1 year. Up to 25 percent of the assets may
be non-U.S. dollar denominated and, with respect to those assets, the Adviser
will attempt to hedge currency fluctuation risk. Investments may include
mortgage-backed securities and other asset-backed securities, limited to not
more than 50 percent and 25 percent, respectively, of the assets allocated to
this investment style. The Fund may enter into "dollar roll" transactions
related to these investments and may purchase stripped mortgage-backed
securities. The Fund may invest up to 10 percent of its assets allocated to the
style in guaranteed investment contracts issued by insurance companies. The
securities allocated to the style may have variable or floating rates of
interest or principal and may include participation interests and Municipal
Securities. Municipal Securities include obligations of the states, territories
or possessions of the United States and their subdivisions, authorities and
corporations.
All securities allocated to Short Maturity investment style will be, at the time
of purchase, (i) rated in one of the two highest short-term rating categories by
two Nationally Recognized Statistical Rating Organizations ("NRSROs") (or, if
only one NRSRO has issued a rating, by that NRSRO), (ii) rated in one of the
three highest long-term rating categories by two NRSROs (or, if only one NRSRO
has issued a rating, by that NRSRO), or (iii) unrated and determined by the
Adviser to be of comparable quality. Of the securities allocated to this style,
no more than 5 percent may be in any of the lowest permissible rating
categories.
In order to manage its exposure to different types of investments, Conservative
Balanced Fund may enter into interest rate, currency and mortgage swap
agreements invested in the Short Maturity investment style and may purchase and
sell interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the return on assets invested in this style and may attempt
to reduce the overall risk of those assets or limit the uncertainty in the level
of future foreign exchange rates (hedge) by using options and futures contracts
and foreign currency forward contracts. The Fund's ability to use these
strategies may be limited by market considerations, regulatory limits and tax
considerations. In pursuing its Short Maturity investment style strategies, the
Fund may write covered call and put options, buy put and call options, buy and
sell interest rate and foreign currency futures contracts and buy options and
write covered options on those futures contracts. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or futures contract or maintains a segregated account
of liquid, high-grade debt instruments with a value at all times sufficient to
cover the Fund's obligations under the option.
Temporary Allocations. In its discretion, the Adviser may increase or decrease
the percentage of assets of each Balanced Fund that are invested in fixed income
and equity securities. When the Adviser believes that a percentage reallocation
will be of short duration (generally, up to 3 years), the Adviser may determine
to achieve the economic equivalent of a reallocation without incurring
securities transaction costs by using futures contracts rather than selling and
purchasing securities. Under this strategy, to the extent of the percentage
asset allocation change, the Fund would not be invested in nor subject to the
risks related to the types of individual securities purchased in accordance with
the various investment styles used by the Fund. Rather, the Fund would be
invested in and subject to the risks related to futures contracts. For a
description of futures contracts and their risks see "Appendix A: Investments,
Investment Strategies and Risk Considerations - Futures Contracts and Options."
Investment Policies
Fixed Income Funds
The five Fixed Income Funds invest primarily in fixed income securities pursuant
to the investment policies described below. For a general description of fixed
income securities, see "Additional Investment Policies - Fixed Income Securities
and Their Characteristics" below. Each Fixed Income Fund except Intermediate
U.S. Government Fund may invest in foreign issuers. These investments may
involve certain risks. See "Investment Policies - Equity Funds - International
Fund - Foreign Investment Risks and Considerations."
Intermediate U.S. Government Fund seeks to attain its investment objective by
investing primarily in fixed and variable rate U.S. Government Securities. Under
normal circumstances, the Fund intends to invest at least 65 percent of its
assets in U.S. Government Securities and may invest up to 35 percent of its
assets in fixed income securities that are not U.S. Government Securities. The
Fund emphasizes the use of intermediate maturity securities to lessen interest
rate
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risk, while employing low risk yield enhancement techniques to add to the Fund's
return over a complete economic or interest rate cycle.
The securities in which the Fund invests will include mortgage-backed and other
asset-backed securities, although the Fund will limit these investments to not
more than 50 percent and 25 percent, respectively, of its total assets. As part
of its mortgage-backed securities investments, the Fund may enter into "dollar
roll" transactions. Certain fixed income securities are "zero-coupon" securities
and the Fund will limit its investment in these securities, except those issued
through the U.S. Treasury's STRIPS program, to not more than 10 percent of the
Fund's total assets. The Fund may also invest in securities that are restricted
as to disposition under the Federal securities laws (sometimes referred to as
"private placements" or "restricted securities"). In addition, the Fund may not
invest more than 25 percent of its total assets in securities issued or
guaranteed by any single agency or instrumentality of the U.S. Government,
except the U.S. Treasury. The Fund may make short sales and may purchase
securities on margin (borrow money in order to purchase securities), which are
considered speculative investment techniques. See "Appendix A: Investments,
Investment Strategies and Risk Considerations - Short Sales" and "- Purchasing
Securities on Margin."
The Fund will only purchase securities that are rated, at the time of purchase,
within the two highest rating categories assigned by a Nationally Recognized
Statistical Rating Organization, such as Moody's Investors Service, Inc.,
Standard & Poor's Corporation or Fitch Investors Services, Inc., or which are
unrated and determined by the Adviser to be of comparable quality.
The Fund primarily will invest in debt obligations with maturities (or average
life in the case of mortgage-backed and similar securities) ranging from short-
term (including overnight) to 12 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 7 years. Under normal circumstances, the Fund's portfolio of securities
will have a duration of between 75 percent and 125 percent of the duration of
the Lehman Intermediate Government Bond Index, which is used as the Fund's
benchmark index as described under "Other Information - Fund Performance."
Duration is a measure of a debt securities average life that reflects the
present value of the securities cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because earlier
payments on a debt security have a higher present value, duration of a security,
except a zero-coupon security, will be less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts, and buy options and write covered options on those futures contracts.
An option is covered if, so long as the Fund is obligated under the option, it
owns an offsetting position in the underlying security or futures contract or
maintains a segregated account of liquid, high-grade debt instruments with a
value at all times sufficient to cover the Fund's obligations under the option.
Managed Fixed Income Fund seeks to attain its investment objective by investing
primarily in investment grade intermediate term obligations. The Fund invests
in a diversified portfolio of fixed and variable rate U.S. dollar denominated
fixed income securities of a broad spectrum of United States and foreign
issuers, including U.S. Government Securities and the debt securities of
financial institutions, corporations, and others. The Fund emphasizes the use of
intermediate maturity securities to lessen duration risk (as described below),
while employing low risk yield enhancement techniques to add to the Fund's
return over a complete economic or interest rate cycle. Intermediate term
obligations comprise securities with maturities of between 2 and 20 years.
The securities in which the Fund invests include mortgage-backed securities and
other asset-backed securities, although the Fund limits these investments to not
more than 50 percent and 25 percent, respectively, of its total assets. As part
of its asset-backed securities investments, the Fund may enter into "dollar
roll" transactions and may purchase stripped mortgage-backed securities. The
Fund may invest any amount of its assets in U.S. Government Securities, or in
the securities of financial institutions, corporations, and others. The Fund may
invest in securities that are restricted as to disposition under the Federal
securities laws (sometimes referred to as "private placement" or "restricted
securities"). In
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addition, the Fund may not invest more than 30 percent of its total assets in
the securities issued or guaranteed by any single agency or instrumentality of
the U.S. Government, except the U.S. Treasury.
The Fund may invest up to 10 percent of its total assets in participations
purchased from financial institutions in loans or securities in which the Fund
may invest directly. The Fund may also invest up to 10 percent of its total
assets in each of (i) obligations issued or guaranteed by the governments of
countries which the Adviser believes do not present undue risk or by those
countries' political subdivisions, agencies or instrumentalities, (ii)
obligations of supranational organizations and (iii) obligations of the states,
territories or possessions of the United States and their subdivisions,
authorities and corporations ("municipal securities").
The Fund only purchases securities that are rated, at the time of purchase,
within the four highest long-term or two highest short-term rating categories
assigned by a Nationally Recognized Statistical Rating Organization, such as
Moody's Investors Service, Inc., Standard & Poor's Corporation or Fitch
Investors Services, Inc., or which are unrated and determined by the Adviser to
be of comparable quality.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 30 years. Under normal circumstances, the Fund's
portfolio of securities will have an average dollar-weighted portfolio maturity
of between 3 and 12 years and a duration of between 2 and 6 years. Duration is
a measure of a debt security's average life that reflects the present value of
the security's cash flow and, accordingly, is a measure of price sensitivity to
interest rate changes ("duration risk"). Because earlier payments on a debt
security have a higher present value, duration of a security, except a zero-
coupon security, is less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's return and may attempt to reduce the overall risk
of its investments ("hedge") by using options and futures contracts. The Fund's
ability to use these strategies may be limited by market considerations,
regulatory limits and tax considerations. The Fund may write covered call and
put options, buy put and call options, buy and sell interest rate futures
contracts and buy options and write covered options on those futures contracts.
An option is covered if, so long as the Fund is obligated under the option, it
owns an offsetting position in the underlying security or futures contract or
maintains a segregated account of liquid, high-grade debt instruments with a
value at all times sufficient to cover the Fund's obligations under the option.
Effective April 1, 1996 the Fund will employ two investment styles - Total
Return investment style and Positive Return investment style - in addition to
the investment style currently employed by the Fund, to the extent consistent
with the Fund's investment objective and policies. Each of the two new
investment styles, based on distinct investment criteria, tends to invest in
debt obligations with either shorter or longer maturities. For a desciption of
these investment styles, see "Investment Policies - Balanced Funds." Reliance on
multiple investment styles is intended to reduce the price and return volatility
of the Fund and provide more consistent fixed income returns. In addition, to
more appropriately reflect the utilization of three distinct investment styles
in pursuit of the the Fund's investment objective, effective April 1, 1995 the
Fund will change its name to "Diversified Bond Fund."
Stable Income Fund seeks to maintain safety of principal while providing low
volatility total return by investing primarily in investment grade short-term
obligations. The Fund invests in a diversified portfolio of fixed and variable
rate U.S. dollar denominated fixed income securities of a broad spectrum of
United States and foreign issuers, including U.S. Government Securities and the
debt securities of financial institutions, corporations, and others.
The securities in which the Fund invests include mortgage-backed and other
asset-backed securities, although the Fund limits these investments to not more
than 60 percent and 25 percent, respectively, of its total assets. In addition,
the Fund limits its holdings of mortgage-backed securities that are not U.S.
Government Securities to 25 percent of its total assets. The Fund may invest any
amount of its assets in U.S. Government Securities, but under normal
circumstances less than 50 percent of the Fund's total assets are so invested.
The Fund may invest in securities that are restricted as to disposition under
the Federal securities laws (sometimes referred to as "private placements" or
"restricted securities"). In addition, the Fund may not invest more than 25
percent of its total assets in the securities issued or guaranteed by
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any single agency or instrumentality of the U.S. Government, except the U.S.
Treasury, and may not invest more than 10 percent of its total assets in the
securities of any other issuer.
The Fund only purchases those securities that are rated, at the time of
purchase, within the three highest long-term or two highest short-term rating
categories assigned by a Nationally Recognized Statistical Rating Organization,
such as Moody's Investors Service, Inc., Standard & Poor's Corporation or Fitch
Investors Services, Inc., or which are unrated and determined by the Adviser to
be of comparable quality.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to12 years and seeks to maintain an average dollar-
weighted portfolio maturity of between 2 and 5 years.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase and sell
interest rate caps, floors and collars. The Fund may also engage in certain
strategies involving options (both exchange-traded and over-the-counter) to
attempt to enhance the Fund's income and may attempt to reduce the overall risk
of its investments or limit the uncertainty in the level of future foreign
exchange rates (hedge) by using options and futures contracts and foreign
currency forward contracts. The Fund's ability to use these strategies may be
limited by market considerations, regulatory limits and tax considerations. The
Fund may write covered call and put options, buy put and call options, buy and
sell interest rate and foreign currency futures contracts and buy options and
write covered options on those futures contracts. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or futures contract or maintains a segregated account
of liquid, high-grade debt instruments with a value at all times sufficient to
cover the Fund's obligations under the option.
Ready Cash Investment Fund invests in a broad spectrum of high-quality, short-
term money market instruments of United States and foreign issuers that are
determined by the Adviser, pursuant to procedures adopted by the Board, to be
eligible for purchase and to present minimal credit risks. These instruments may
be U.S. Government Securities or the securities of financial institutions,
corporations, foreign governments, municipal governments, supranational
organizations and others. The Fund may invest only in U.S. dollar-denominated
instruments that have a remaining maturity of 397 days or less (as calculated
pursuant to Rule 2a-7 under the Investment Company Act of 1940) and will
maintain a dollar-weighted average portfolio maturity of 90 days or less. The
Fund may purchase securities with ultimate maturities of greater than 397 days
only in accordance with Rule 2a-7. Under that Rule, only those long-term
instruments that have demand features which comply with certain requirements and
certain variable rate U.S. Government Securities may be purchased.
The securities in which the Fund invests will include mortgage-related
securities, asset-backed securities and participation interests and may have
variable or floating rates of interest or principal. Except to the limited
extent permitted by Rule 2a-7 and except for U.S. Government Securities, the
Fund will not invest more than 5 percent of its total assets in the securities
of any one issuer. In addition, to ensure adequate liquidity, the Fund may not
invest more than 10 percent of its net assets in illiquid securities. Under the
supervision of the Board, the Adviser determines and monitors the liquidity of
portfolio securities.
High-quality instruments include those that (i) are rated (or, if unrated, are
issued by an issuer with comparable outstanding short-term debt that is rated)
in one of the two highest rating categories by two Nationally Recognized
Statistical Rating Organizations ("NRSROs") or, if only one NRSRO has issued a
rating, by that NRSRO or (ii) are otherwise unrated and determined by the
Adviser to be of comparable quality. The Fund will invest at least 95 percent of
its total assets in securities in the highest rating category (as determined
pursuant to Rule 2a-7).
Additional Investment Policies
All investment policies of a Fund that are designated as fundamental, and each
Fund's investment objective, may not be changed without approval of the holders
of a majority of the Fund's outstanding voting securities. A majority of a
Fund's outstanding voting securities means the lesser of 67 percent of the
shares of the Fund present or represented at a shareholders' meeting at which
the holders of more than 50 percent of the shares are present or represented, or
more than 50 percent of the outstanding shares of the Fund. Except as otherwise
indicated, investment policies of the Funds are not fundamental and may be
changed by the Board without shareholder approval.
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Investment Limitations. The Funds have adopted the investment limitations listed
below, each of which is a nonfundamental policy except as noted. These policies
relate to each Fund and, unless otherwise noted, not to a portion of a Fund
invested in a particular investment style. Other investment limitations,
including additional provisions with respect to the limitations listed below,
are described in the SAI.
Diversification. Each Fund is a "diversified" portfolio as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). As a fundamental
policy, with respect to 75 percent of its assets, no Fund may purchase a
security (other than a U.S. Government Security) if, as a result, (i) more than
5 percent of the Fund's total assets would be invested in the securities of a
single issuer or (ii) the Fund would own more than 10 percent of the outstanding
voting securities of any single issuer. International Fund may invest up to 100
percent of its investment assets in the International Portfolio and each other
Fund (except Ready Cash Investment Fund) reserves the right to invest all or a
portion of its assets in another diversified, open-end investment company with
substantially the same investment objective and policies as the Fund.
Concentration. Except as noted below, each of the Funds is prohibited from
concentrating its assets in the securities of issuers in any industry. As a
fundamental policy, no Fund may purchase securities if, immediately after the
purchase, more than 25 percent of the value of the Fund's total assets would be
invested in the securities of issuers conducting their principal business
activities in the same industry. This limit does not apply to investments in
U.S. Government Securities, foreign government securities, repurchase agreements
covering U.S. Government Securities or investment company securities. Under
normal circumstances, Ready Cash Investment Fund will invest more than 25
percent of its total assets in the obligations of domestic and foreign financial
institutions and their holding companies. This concentration may result in
increased exposure to risks pertaining to the financial institution industry.
These risks include a sustained increase in interest rates, which can adversely
affect the availability and cost of a bank's lending activities; exposure to
credit losses during times of economic decline; concentration of loan portfolios
in certain industries; regulatory developments; and competition among financial
institutions.
Illiquid Securities. Each of the Funds limits its purchase of illiquid
securities. No Fund may knowingly acquire securities or invest in repurchase
agreements with respect to any securities if, as a result, more than 15 percent
(10 percent for Ready Cash Investment Fund) of the Fund's net assets taken at
current value would be invested in securities which are not readily marketable.
Illiquid investments include securities that are illiquid by virtue of legal or
contractual restrictions on the sale of such securities and repurchase
agreements not entitling the holder to principal within 7 days. Under the
supervision of the Board, the Advisers determine and monitor the liquidity of
portfolio securities.
Borrowing and Lending. As a fundamental policy, each Fund may borrow money for
temporary or emergency purposes, including the meeting of redemption requests,
but not in excess of 33 1/3 percent of the value of the Fund's total assets as
computed immediately after the borrowing. Borrowing for other than temporary or
emergency purposes or meeting redemption requests is limited to 5 percent of the
value of each Fund's total assets except in the case of Intermediate U.S.
Government Fund, Managed Fixed Income Fund and, with respect to their assets
invested in the Managed Fixed Income Fund investment style, the Balanced Funds.
When a Fund establishes a segregated account to limit the amount of leveraging
of the Fund with respect to certain investment techniques, the Fund does not
treat those techniques as involving borrowings (although they may have
characteristics and risks similar to borrowings and result in the Fund's assets
being leveraged). See "Appendix A: Investments, Investment Strategies and Risk
Considerations - Borrowing" and "Techniques Involving Leverage." As a
fundamental policy, no Fund may make loans except for loans of portfolio
securities, through the use of repurchase agreements, and through the purchase
of debt securities that are otherwise permitted investments for the Fund.
Margin and Short Sales. Except for Intermediate U.S. Government Fund, no Fund
may purchase securities on margin or make short sales of securities, except
short sales against the box. These prohibitions do not restrict the Funds'
ability to use short-term credits necessary for the clearance of portfolio
transactions and to make margin deposits in connection with permitted
transactions in options and futures contracts.
Temporary Defensive Position. When business or financial conditions warrant,
each Fund may assume a temporary defensive position and invest all or any
portion of their assets in cash or in cash equivalents, including (i) short-term
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U.S. Government Securities, (ii) prime quality short-term instruments of
commercial banks, (iii) prime quality commercial paper, (iv) repurchase
agreements with banks and broker-dealers covering any of the securities in which
the Fund may invest directly and (v) shares of money market mutual funds. During
periods when and to the extent that a Fund has assumed a temporary defensive
position, it may not be pursuing its investment objective. The Funds may from
time to time maintain investments in cash and cash equivalents pending
investment in securities. The International Portfolio and, with respect to the
portion of their assets managed by Schroder, Diversified Equity Fund, Growth
Equity Fund and each Balanced Fund, may hold cash and bank instruments
denominated in any major foreign currency. Prime quality refers to the two
highest short-term ratings of a Nationally Recognized Statistical Rating
Organization.
Common Investment Techniques. Each of the Funds may enter into repurchase
agreements (for reasons other than temporary defensive purposes) and reverse
repurchase agreements, may lend their portfolio securities and may purchase
portfolio securities on a when-issued or forward commitment basis. It is
currently anticipated that the Equity Funds will not enter into reverse
repurchase agreements or purchase portfolio securities on a when-issued or
forward commitment basis to any material extent.
Fixed Income Securities and Their Characteristics. Although each Fund only
invests in investment grade fixed income securities, including money market
instruments, an investment in a Fund is subject to risk even if all fixed income
securities in the Fund's portfolio are paid in full at maturity. All fixed
income securities, including U.S. Government Securities, can change in value
when there is a change in interest rates or the issuer's actual or perceived
creditworthiness or ability to meet its obligations.
The market value of the interest-bearing debt securities held by the Funds will
be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an increase
in interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
Fixed income securities include those issued by the governments of foreign
countries or by those countries' political subdivisions, agencies or
instrumentalities as well as by supranational organizations such as the
International Bank for Reconstruction and Development. To the extent otherwise
permitted, the Funds may invest in these securities if the Adviser or Schroder
believes that the securities do not present risks inconsistent with a Fund's
investment objective.
Rating Matters. The Fixed Income Funds and, with respect to their assets
invested in fixed income investment styles, the Balanced Funds, will invest in
securities rated in the categories described in "Investment Objectives, Policies
and Risk Considerations - Investment Policies - Fixed Income Funds." The Funds
also may purchase unrated securities if the Adviser determines the security to
be of comparable quality to a rated security that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. Each Fund
may retain a security whose rating has been lowered below the Fund's lowest
permissible rating category (or that are unrated and determined by the Adviser
to be of comparable quality to securities whose rating has been lowered below
the Fund's lowest permissible rating category) if the Adviser or Schroder
determines that retaining the security is in the best interests of the Fund.
The Fund's investments are subject to "credit risk" relating to the financial
condition of the issuers of the securities that the Funds hold. To limit credit
risks, the Funds (other than Ready Cash Investment Fund) may only invest in
securities that are investment grade - rated in the top four long-term
investment grades by a Nationally Recognized Statistical Rating Organization
("NRSRO") or in the top two short-term investment grades by an NRSRO.
Accordingly, the lowest permissible long-term investment grades for corporate
bonds, including convertible bonds, are Baa in the case of Moody's Investor
Services, Inc. ("Moody's") and BBB in the case of Standard & Poor's Corporation
("S&P") and Fitch Investors Service, Inc. ("Fitch"); the lowest permissible
long-term investment grades for preferred stock are Baa in the case of Moody's
and BBB in the case of S&P and Fitch; and the lowest permissible short-term
investment grades for short-term debt, including commercial paper, are Prime-2
(P-2) in the case of Moody's, A-2 in the case of S&P and F-2 in the case of
Fitch. A further description of the rating categories of certain NRSROs is
contained in the SAI. All
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these ratings are generally considered to be investment grade ratings, although
Moody's indicates that securities with long-term ratings of Baa have speculative
characteristics.
Variable and Floating Rate Securities. The securities in which the Funds invest
may have variable or floating rates of interest and, under certain limited
circumstances, may have varying principal amounts. These securities pay interest
at rates that are adjusted periodically according to a specified formula,
usually with reference to some interest rate index or market interest rate (the
"underlying index"). The interest paid on these securities is a function
primarily of the underlying index upon which the interest rate adjustments are
based. Such adjustments minimize changes in the market value of the obligation
and, accordingly, enhance the ability of the Fund to maintain a stable net asset
value. Similarly to fixed rate debt instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities purchased by a Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-backed
securities) pay interest at a rate that varies inversely to prevailing short-
term interest rates (sometimes referred to as inverse floaters). For example,
upon reset the interest rate payable on a security may go down when the
underlying index has risen. During periods when short-term interest rates are
relatively low as compared to long-term interest rates, a Fund may attempt to
enhance its yield by purchasing inverse floaters. Certain inverse floaters may
have an interest rate reset mechanism that multiplies the effects of changes in
the underlying index. While this form of leverage may increase the security's,
and thus the Fund's, yield, it may also increase the volatility of the
security's market value.
There may not be an active secondary market for any particular floating or
variable rate instrument; this could make it difficult for a Fund to dispose of
the instrument during periods of market volatility or economic uncertainty or if
the issuer's credit became impaired at a time when the Fund was not entitled to
exercise any demand rights it might have. A Fund could, for this or other
reasons, suffer a loss with respect to the instrument. The Advisers monitor the
liquidity of the Funds' investments in variable and floating rate instruments,
but there can be no guarantee that an active secondary market will exist at any
time. Ready Cash Investment Fund also may purchase variable and floating rate
demand notes which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Funds intend to purchase these securities only when the Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Advisers may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that an Adviser
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
Management of the Funds
The business of the Trust is managed under the direction of the Board of
Trustees. The Board formulates the general policies of the Funds and generally
meets quarterly to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. In order to minimize potential conflicts of interest, only one trustee of
Core Trust, John Y. Keffer, is also a trustee of the Trust. The SAI contains
general background information about the trustees and officers of the Trust and
Core Trust. The Board currently consists of seven members.
Investment Advisory Services
Norwest Investment Management. The Adviser serves as investment adviser of each
Fund pursuant to investment advisory agreements between Norwest and the Trust.
Subject to the general supervision of the Board, the Adviser makes
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investment decisions for each Fund and continuously reviews, supervises and
administers each Fund's investment program or oversees the investment decisions
of the investment subadviser, as applicable. The Adviser is a part of Norwest,
which is a subsidiary of Norwest Corporation, a multi-bank holding company
incorporated under the laws of Delaware in 1929. As of December 31, 1995,
Norwest Corporation was the __th largest bank holding company in the United
States in terms of assets. Norwest became a subsidiary of Norwest Corporation in
1929 and, as of December 31, 1995, the Adviser managed or provided investment
advice with respect to assets totaling approximately $____ billion. Except for
the fees paid to Norwest, each investment advisory agreement is the same in all
material respects.
Schroder Capital Management International Inc. Subject to the Adviser's general
oversight, Schroder, through its London, England branch, acts as investment
subadviser to International Fund, Diversified Equity Fund, Growth Equity Fund,
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund
pursuant to investment subadvisory agreements among the Trust, Norwest and
Schroder. Under these agreements, Schroder makes investment decisions for each
Fund and continuously reviews, supervises and administers each Fund's investment
program with respect to that portion, if any, of the respective Fund's portfolio
that the Adviser believes should be invested using International Fund's
investment philosophy. Each investment subadvisory agreement is the same in all
material respects. Through its management of International Portfolio, Schroder
manages the entire portfolio of International Fund.
Schroder, whose principal business address is 787 Seventh Avenue, New York, New
York 10019, is registered with the SEC as an investment adviser and is a wholly-
owned U.S. subsidiary of Schroders Incorporated, the wholly-owned U.S. holding
company subsidiary of Schroders plc. Schroders plc is the holding company parent
of a large worldwide group of banks and financial services companies (referred
to as the "Schroder Group") and has associated companies and branch and
representative offices located in seventeen countries worldwide. The Schroder
Group specializes in providing investment management services and has assets
under management currently in excess of $90 billion.
International Fund. International Fund may withdraw its investment from
International Portfolio, for which Schroder serves as investment adviser, at any
time if the Board determines that it is in the best interests of International
Fund and its shareholders to do so. See "Other Information - Core Trust
Structure." Accordingly, International Fund has retained the Adviser as its
investment adviser and Schroder as its investment subadviser to manage the
Fund's assets in the event International Fund so withdraws its investment.
Neither the Adviser or Schroder will receive any advisory or subadvisory fees
with respect to International Fund as long as International Fund remains
completely invested in International Portfolio or any other investment company.
Schroder acts as investment adviser to International Portfolio pursuant to an
advisory agreement with Core Trust. Subject to the general supervision of Core
Trust's board of trustees, Schroder makes investment decisions for International
Portfolio and continuously reviews, supervises and administers International
Portfolio's investment program. The investment advisory agreement between
Schroder and Core Trust with respect to International Portfolio is the same in
all material respects as the Funds' investment subadvisory agreements except as
to the parties, the circumstances under which fees will be paid and the
jurisdiction whose laws govern the agreement.
Core Trust Blended Portfolios. As noted under "Investment Policies - Investment
in Core Trust," the five Blended Funds invest their assets which are managed in
a small company, index and international investment style in three Blended
Portfolios of Core Trust - Small Company Portfolio, Index Portfolio and
International Portfolio II. Each Blended Fund may withdraw its investment from a
Blended Portfolio at any time that the Board determines it is in the best
interests of the Blended Fund and its shareholders to do so. See "Other
Information - Core Trust Structure." Norwest serves as investment adviser to
Small Company Portfolio and Index Portfolio and Schroder serves as investment
adviser to International Portfolio II pursuant to separate advisory agreements
with Core Trust. Subject to the general supervision of Core Trust's board of
trustees, Norwest and Schroder perform services for the Blended Portfolios
similar to those performed for the Trust under its investment advisory
agreements.
Portfolio Managers. Many persons on the advisory staff of each of the Adviser
and Schroder contribute to the investment advisory services provided to the
Funds, International Portfolio and the three Blended Portfolios of Core Trust,
as applicable. The following persons, however, are primarily responsible for the
day-to-day management of the Funds' investment portfolios and, unless otherwise
noted, have been since inception of the Funds:
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Small Company Growth Fund - Robert B. Mersky, Senior Portfolio Manager and an
Officer of Norwest and President of Peregrine Capital Management, Inc. Mr.
Mersky has held various investment management positions with Norwest or its
affiliates, including Peregrine, since 1977. From 1980 to 1984 he was head of
investments for Norwest.
Large Company Growth Fund - John S. Dale, Senior Portfolio Manager and an
Officer of Norwest and Senior Vice President of Peregrine Capital Management,
Inc. Mr. Dale has held various investment management positions with Norwest or
its affiliates, including Peregrine, since 1968. From 1984 to 1987 he was a
Senior Vice President and Manager of Equity Advisors for Norwest.
International Fund - International Fund invests all of its assets in the
International Portfolio and, accordingly, there is currently no portfolio
manager for this Fund. Mr. Mark J. Smith, First Vice President and Director of
Schroder since April 1993, however, is responsible for the day-to-day management
of the International Portfolio's investment portfolio. Mr. Smith has been
associated with Schroder or its affiliates since 1983 in various positions,
including portfolio manager of other mutual funds and pooled investment vehicles
that invest in international securities. Mr. Smith also serves as portfolio
manager of International Portfolio II.
Income Equity Fund - David L. Roberts, Senior Vice President of Norwest since
1991. Mr. Roberts has been associated with Norwest for 20 years in various
investment related capacities.
Index Fund - No single person at the Adviser acts as portfolio manager of the
Fund.
Intermediate U.S. Government Fund - Marjorie H. Grace, Vice President of Norwest
since 1992. Ms. Grace was a portfolio manager of Norwest Bank from 1992-1993; an
Institutional Salesperson with Norwest Investment Services, Inc. from 1991-1992;
a portfolio manager with United Banks of Colorado from 1989-1991; and Vice
President and portfolio manager with Colombia Savings and Loan from 1987-1989.
Managed Fixed Income Fund - William D. Giese, Senior Portfolio Manager and an
officer of Norwest and Senior Vice President of Peregrine Capital Management,
Inc. Mr. Giese has been a portfolio manager with Peregrine for 10 years and has
approximately 20 years experience in the fixed income securities management
business.
Stable Income Fund - Karl P. Tourville, Vice President of Norwest since 1989.
Mr. Tourville has been associated with Norwest since 1986. As of December 31,
1994, Mr. Tourville was responsible for the management of over $1.3 billion in
pooled fixed income assets.
Short Maturity investment style - David D. Sylvester and Laurie R. White. For a
description of Mr. Sylvester and Ms. White, see "Ready Cash Investment Fund"
above.
Small Company investment style and Small Company Portfolio - Robert B. Mersky,
Kirk McCown and Thomas H. Forester. For a description of Mr. Mersky, see "Small
Company Growth Fund" above. Mr. McCown is founder, President and a Director of
Crestone Capital Management, Inc., a subsidiary of Norwest which is investment
subadviser to Small Company Stock Fund, another fund of the Trust. Prior
thereto, Mr. McCown was Senior Vice President of Reich & Tang, L.P. Mr. Forester
is an officer of Norwest and Senior Vice President of Peregrine Capital
Management, Inc. Mr. Forester joined Peregrine in 1995. From 1992 to 1995 he
was Vice President of Lord Asset Management, an investment adviser. Mr. McCown
commenced serving as a portfolio manager of each Blended Fund on June 1, 1995.
Mr. Forester commenced serving as a portfolio manager of each Blended Fund on
_______, 199_.
Total Return investment style - Mr. David B. Kinney, Vice President and Senior
Portfolio Manager of Norwest, has been associated with Norwest since 1981. Mr.
Kinney has been portfolio manager of the Total Return Bond Fund, another fund of
the Trust that invests exclusively in this investment style since its inception
and commenced serving as a portfolio manager of each Blended Fund on June 1,
1995.
Positive Return investment style - William D. Giese, Senior Portfolio Manager
and an officer of Norwest and Senior Vice President of Peregrine Capital
Management, Inc. For a description of Mr. Giese see "Managed Fixed Income Fund"
above. Mr. Giese commenced serving as a portfolio manager of each Blended Fund
on June 1, 1995.
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The day-to-day management of the portfolios of Diversified Equity Fund, Growth
Equity Fund, Conservative Balanced Fund, Moderate Balanced Fund and Growth
Balanced Fund is performed by the portfolio managers listed above with respect
to the portion of the Fund's portfolio that is invested using the investment
style of another Fund. In addition, the portfolio managers responsible for the
management of a Blended Funds' assets allocated to the Small Company investment
style, Positive Return investment style and Short Maturity investment style are
listed above:
As an example, there are five portfolio managers of Growth Equity Fund: Mr.
Mersky. Mr. McCown and Mr. Forester are responsible for the Fund's assets
invested in accordance with Small Company investment style, Mr. Dale is
responsible for the Fund's assets invested in accordance with Large Company
Growth Fund investment style and Mr. Smith of Schroder is responsible for the
Fund's assets invested in accordance with International Fund's investment style.
Cash balances of each Fund, are managed by Mr. Sylvester and Ms. White, the
portfolio managers for Ready Cash Investment Fund, a separate series of the
Trust which is offered by a separate prospectus.
Advisory Fees
The investment advisory fees payable to Norwest by the Trust with respect to
each Fund (and payable to Schroder by Core Trust with respect to International
Portfolio) are based on the average daily net assets of the respective Fund (or
International Portfolio) at the following annual rates:
Advisory Fee Rate
Diversified Equity Fund 0.65%
Growth Equity Fund 0.90%
Large Company Growth Fund 0.65%
Small Company Growth Fund 0.90%
International Fund 0.45%
Income Equity Fund 0.50%
Index Fund 0.15%
Conservative Balanced Fund 0.45%
Moderate Balanced Fund 0.53%
Growth Balanced Fund 0.58%
Intermediate U.S. Government Fund 0.33%
Managed Fixed Income Fund 0.35%
Stable Income Fund 0.30%
The advisory agreement for International Fund provides for an advisory fee
payable to the Adviser of 0.85 percent of the average annual daily net assets of
the Fund in the event that the Fund is not completely invested in International
Portfolio or another investment company. As International Fund currently invests
all of its assets in International Portfolio, no fees are payable under that
agreement. Pursuant to the investment subadvisory agreements, the Adviser (and
not the Trust) pays Schroder a fee for their investment subadvisory services;
however, that compensation does not increase the amount paid by the Trust to the
Adviser pursuant to the Adviser's investment advisory agreements.
With respect to International Portfolio, for services under its advisory
agreement, Schroder receives from Core Trust an advisory fee of 0.45 percent of
International Portfolio's average annual daily net assets.
With respect to Small Company Portfolio and Index Portfolio of Core Trust, for
services under its investment advisory agreements, Norwest receives from Core
Trust advisory fees of 0.90 percent and 0.15 percent of the respective
Portfolio's average annual daily net assets. For its services under its
investment advisory agreement, with respect to International Portfolio II of
Core Trust, Schroder receives from Core Trust an advisory fee of 0.45 percent of
International Portfolio II's average annual daily net assets. Norwest waives all
of the advisory fees payable by Small Company Portfolio and Index Portfolio.
Schroder does not receive a subadvisory fee from any Blended Fund to the extent
that such Fund's assets are invested in International Portfolio II, and Norwest
reimburses International Portfolio II the amount of the advisory fee the
Portfolio pays to Schroder. Accordingly, duplicative investment advisory fees
are not incurred by any Fund.
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Advisory fees are accrued daily and paid monthly. The advisory fees for Growth
Equity Fund and Small Company Growth Fund and the combined advisory and
administrative services fees for International Fund are higher than those paid
by most investment companies of all types to their advisers, but the Trust
believes that the fees are appropriate for these Funds considering their
investment objectives and policies.
Administrative and Other Services
Administration and Distribution Services. Subject to the supervision of the
Board, Forum Financial Services, Inc. ("Forum") supervises the overall
management of the Trust (other than portfolio management), including the Trust's
receipt of services for which the Trust is obligated to pay, and provides the
Trust with general office facilities pursuant to a management agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. As of the date of this Prospectus, Forum acted as manager and
distributor of registered investment companies and collective trust funds with
assets of approximately $9.0 billion. Forum, whose principal business address is
61 Broadway, New York, New York 10006, is a registered broker-dealer and
investment adviser and is a member of the National Association of Securities
Dealers, Inc. As of the date hereof, Forum is controlled by John Y. Keffer,
Chairman and President of the Trust.
For its management services and facilities, Forum receives a fee at an annual
rate of 0.10 percent of the average daily net assets of each Fund. Forum also
serves as administrator of Core Trust and provides administrative services for
the International Portfolio and each Blended Portfolio that are similar in
nature to those provided to the Funds. For its administrative services, Forum is
compensated by Core Trust at an annual rate of 0.15 percent of the average daily
net assets of International Portfolio and at an annual rate of 0.10 percent of
the average daily net assets of each Blended Portfolio. Forum will waive the
amount of its management fee that it would otherwise be entitled to receive from
a Blended Fund for that portion of the assets of the Blended Fund invested in a
Blended Portfolio. Forum's management and administration fees are accrued daily
and paid monthly.
In addition, pursuant to a separate services agreement, Norwest receives a fee
at an annual rate of 0.25 percent of the average annual daily net assets of
International Fund. Under this agreement, Norwest is responsible for compiling
data for and preparing communications between the Fund and its shareholders,
maintaining requisite information flows between the Fund and the investment
adviser to International Portfolio, monitoring and reporting to the Board on the
performance of International Portfolio and reimbursing the Fund for certain
excess expenses. No fees are payable under this service agreement in the event
that the International Fund is not completely invested in International
Portfolio or another investment company. International Fund incurs total
management and administrative fees at a higher rate than the other Funds due in
part to the nature of the Fund's structure and the Fund's investment policies.
Pursuant to a separate distribution agreement with the Trust, Forum acts as the
agent of the Trust in connection with the offering of the shares of the Funds.
Forum receives no payments for its services as distributor of the Shares. In
addition, no Fund and no Portfolio of Core Trust has adopted a Rule 12b-1 Plan
applicable to the Shares and, accordingly, no Fund incurs any distribution
expenses. Forum also provides accounting services to the Funds and to Core
Trust.
Shareholder Servicing and Custody. Norwest serves as transfer agent and dividend
disbursing agent for the Trust (in this capacity, the "Transfer Agent"). The
Transfer Agent maintains an account for each shareholder of the Trust (unless
such accounts are maintained by sub-transfer agents or processing agents),
performs other transfer agency and shareholder servicing functions for the
Trust, and acts as dividend disbursing agent for the Trust. The Transfer Agent
is permitted to subcontract any or all of its functions with respect to all or
any portion of the Trust's shareholders to one or more qualified sub-transfer
agents or processing agents, which may be its or Forum's affiliates, who agree
to comply with the terms of the Transfer Agent's agreement with the Trust. The
Transfer Agent is permitted to compensate those agents for their services;
however, no such compensation may increase the aggregate amount of payments by
the Trust to the Transfer Agent. For its services, Norwest is compensated at the
annual rate of 0.25 percent of each Fund's average annual daily net assets
attributable to the Shares.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. Except as
noted below, Norwest currently receives no additional compensation for its
custodial services, but the Funds will incur the expenses and costs of any
subcustodian. International Fund and, to the extent they invest in the
International Fund investment style, each Blended Fund indirectly incurs its pro
rata portion of
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the custodial fees of Core Trust. The Chase Manhattan Bank, N.A. serves as
custodian of International Portfolio and International Portfolio II and is paid
a fee by Core Trust for its services. Norwest serves as custodian of Small
Company Portfolio and Index Portfolio and currently receives no additional
compensation for its custodial services with respect to those Portfolios.
Expenses of the Funds
Each Fund, as well as each Portfolio of Core Trust, is obligated to pay for all
of its expenses, although Norwest has agreed to reimburse the Trust for certain
of each Fund's operating expenses which in any year exceed the limits prescribed
by any state in which the Fund's shares are qualified for sale. For an estimate
of each Fund's expenses for the current fiscal year, see "Summary - Expenses of
Investing in the Funds." These expenses include: interest charges; taxes;
brokerage fees and commissions; certain insurance premiums; applicable fees and
expenses under the Trust's or Core Trust's contracts with the Advisers, Forum,
the Transfer Agent and any custodian; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
auditing, legal and compliance expenses; costs of preparing and printing the
Trust's prospectuses, statements of additional information and shareholder
reports and delivering them to existing shareholders; compensation of certain of
the Trust's or Core Trust's trustees, officers and employees and other personnel
performing services for the Trust or Core Trust; and registration fees and
related expenses.
Each Fund's expenses comprise Trust expenses attributable to the Fund and
expenses not attributable to any particular portfolio of the Trust, which are
allocated among the Funds and all other portfolios of the Trust in proportion to
their average net assets. International Fund's expenses include the Fund's pro
rata share of the operating expenses of International Portfolio, which are borne
indirectly by International Fund's shareholders. Although the Blended
Portfolio's do not incur investment advisory fees, they do incur other
administrative and operating expenses. While the Blended Portfolios expenses are
not borne directly by the Blended Funds, those expenses have the effect of
reducing the net investment income of the Blended Portfolios.
The Advisers, Forum, the Transfer Agent and any other service provider to the
Funds, International Portfolio or a Blended Portfolio may elect to waive all or
a portion of their fees. Any such waivers will have the effect of increasing a
Fund's performance for the period during which the waiver was in effect. No fee
waivers may be recouped at a later date. Other than investment advisory fees,
any fee paid by the Trust or Core Trust may be increased by the Board or the
board of trustees of Core Trust without shareholder approval.
Each service provider to the Trust or their agents or affiliates may also act in
various capacities for, and receive compensation from, their customers who are
shareholders in a Fund. Under agreements with those customers, these entities
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in the Funds.
Purchases and
Redemptions of Shares
Shares of each Fund are continuously sold and redeemed at a price equal to their
net asset value on each Fund Business Day (as defined below) without charge. All
transactions in Fund Shares are effected through the Transfer Agent, which
accepts orders for purchases and redemptions only from shareholders of record
and new investors. Shareholders of record receive periodic statements from the
Trust listing all account activity during the statement period. I Shares of a
Fund are offered to fiduciary, agency and custodial clients of bank trust
departments, trust companies and their affiliates.
Purchase and Redemption Procedures
Purchases and Redemptions Through Financial Institutions. Shares may be
purchased and redeemed (and in the case of Plans, generally will be purchased
and redeemed) through certain banks, trust companies and their affiliates,
including Norwest and its affiliates ("Processing Organizations"). Processing
Organizations may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
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Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their Processing
Organization procedures and should read this Prospectus in conjunction with any
materials and information provided by their Processing Organization. Customers
who purchase a Fund's shares through a Processing Organization may or may not be
the shareholder of record and, subject to their Processing Organization's and
the Funds' procedures, may have Fund shares transferred into their name. Under
their arrangements with the Trust, broker-dealer Processing Organizations are
not generally required to deliver payment for purchase orders until several
business days after a purchase order has been received by a Fund. Certain other
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Funds
to be purchased and redeemed only through registered broker-dealers, including
the Funds' distributor.
Initial Purchases of Shares. Investors may obtain the account application form
necessary to open an account by writing the Trust at the address listed on page
2 of the Prospectus.
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
By Mail. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed below.
Checks are accepted at full value subject to collection. Payment by a check
drawn on any member of the Federal Reserve System can normally be converted into
Federal funds within two business days after receipt of the check. Checks drawn
on some non-member banks may take longer.
By Bank Wire. To make an initial investment in a Fund using the wire system for
transmittal of money among banks, an investor should first telephone the Trust
Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an account number. The
investor should then instruct a bank to wire the investor's money immediately
to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Funds 0844-131
Re: [Name of Fund], [I Shares]
Account Number:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
Subsequent Purchases of Shares. Subsequent purchases may be made by mailing a
check, by sending a bank wire or through the shareholder's Processing
Organization as indicated above. All payments should clearly indicate the
shareholder's name and account number.
Redemptions of Shares. Shareholders that wish to redeem shares by telephone or
receive redemption proceeds by bank wire must elect these options by properly
completing the appropriate sections of their account application form. These
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privileges may not be available until several weeks after a shareholder's
application is received. Shares for which certificates have been issued may not
be redeemed by telephone.
By Mail. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. See "Purchases and Redemptions of Shares - General
Information."
By Telephone. A shareholder who has elected telephone redemption privileges may
make a telephone redemption request by calling the Transfer Agent at 800-338-
1348 or 612-667-8833 and providing the shareholder's account number, the exact
name in which the shares are registered and the shareholder's social security or
taxpayer identification number. In response to the telephone redemption
instruction, the Trust will mail a check to the shareholder's record address or,
if the shareholder has elected wire redemption privileges, wire the proceeds.
See "Purchases and Redemptions of Shares - General Information."
By Bank Wire. For redemptions of more than $5,000, a shareholder who has elected
wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Trust Transfer Agent.
Exchanges. Shareholders of I Shares may exchange their Shares for I Shares of
the other Funds or certain other portfolios of the Trust, Institutional Shares
of certain other portfolios of the Trust, and for shares of U.S. Government Fund
and Treasury Fund of the Trust. The Trust may in the future offer I Shares,
Institutional Shares, or other shares which will be exchangeable with the Shares
of the Funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make; the Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees charged by, and the limitations (including minimum investment
restrictions) of, the Fund into which a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence. For Federal tax
purposes, an exchange is treated as a redemption and a simultaneous new
purchase. Exchange procedures may be materially amended or terminated by the
Trust at any time upon 60 days' notice to shareholders. See "Additional Purchase
and Redemption Information" in the SAI.
By Mail. Exchanges may be made by sending a written request to the Transfer
Agent accompanied by any share certificates for the shares to be exchanged. All
written requests for exchanges must be signed by the shareholder, and all
certificates submitted for exchange must be endorsed by the shareholder with
signature guaranteed. See "Purchases and Redemptions of Shares - General
Redemption Information."
By Telephone. A shareholder who has elected telephone exchange privileges may
make a telephone exchange by calling the Transfer Agent at 800-338-1348 or 612-
667-8833 and providing the shareholder's account number, the exact name in which
the shareholder's shares are registered and the shareholder's social security or
taxpayer identification number. See "Purchases and Redemptions of Shares -
General Information."
General Information
Purchasing Shares. Investments in the Funds may be made either through certain
financial institutions or by an investor directly. An investor who invests in a
Fund directly will be the shareholder of record. Fund Shares are issued
immediately following the next determination of net asset value made after
acceptance of an investor's subscription and
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funds. An investor's funds will not be accepted or invested during the period
before the Fund's receipt of funds on deposit at a Federal Reserve Bank
("Federal Funds"). The Fund reserves the right to reject any subscription for
the purchase of its shares. Share certificates are issued only to shareholders
of record upon their written request and are not issued for fractional shares.
With approval of the Trust and the Adviser, shares may be purchased with
portfolio securities in lieu of cash.
Redeeming Shares. There is no minimum period of investment and no restriction on
the frequency of redemptions. Fund Shares are redeemed as of the next
determination of the Fund's net asset value following acceptance by the Transfer
Agent of the redemption order in proper form (and any supporting documentation
which the Transfer Agent may require). Normally, redemption proceeds are paid
immediately, but in no event later than 7 days, following acceptance of a
redemption order. Proceeds of a redemption request, however, will not be paid
unless any check used for investment has been cleared by the shareholder's bank,
which may take up to 15 days. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to the shareholder's record address. The right
of redemption may not be suspended nor the payment dates postponed for more than
7 days except when the New York Stock Exchange is closed (or when trading
thereon is restricted) for any reason other than its customary weekend or
holiday closings or under any emergency or other circumstances as determined by
the SEC.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust, the Transfer Agent and Forum are not
responsible for the authenticity of telephone instructions or losses, if any,
resulting from unauthorized telephone redemption or exchange requests which
reasonably are believed to be genuine. The Trust employs reasonable procedures
(including the recording of certain telephone transactions) to insure that
telephone orders are genuine. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
Investment Minimums. Shares of each Fund are offered without a sales charge and
may be redeemed without charge. The minimum investment in I Shares is $1,000.
The minimum subsequent investment is $100. Shareholders who elect to purchase I
Shares through electronic share purchase privileges such as the Automatic
Investment Plan or the Directed Dividend Option are not subject to the initial
investment minimums. See "Purchases and Redemptions of Shares - General
Information - Automatic Investment Plan" and "Dividends, Distributions and Tax
Matters."
IRAs and KEOGHs. Shares may be a suitable investment vehicle for part or all of
the assets held in certain IRAs or KEOGH accounts. An appropriate account
application form may be obtained by contacting the Trust or, for accounts
rolling over from a Plan, the shareholder's employer. Under current IRA rules,
by directly rolling over a distribution from a Plan, investors can avoid the 20
percent withholding tax imposed on distributions from a Plan. Rollover IRA
assets must be held separately from other IRA assets if the investor wishes to
invest his Rollover IRA in another employer's plan in the future. The amount of
the deductible contribution to an IRA will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
Currently, individuals may make tax-deductible IRA contributions of up to a
maximum of $2,000 annually. However, the deduction will be reduced if the
individual or, in the case of a married individual filing jointly, either the
individual or the individual's spouse is an active participant in an employer-
sponsored retirement plan and has adjusted gross income above certain levels.
Signature Guarantees. A signature guarantee is required for any endorsement on a
share certificate and for instructions to change a shareholder's record name or
address, designated bank account for wire redemptions, Automatic Investment or
Withdrawal Plan, dividend election, telephone redemption or any other option
election in connection with the shareholder's account. Signature guarantees may
be provided by any eligible institution acceptable to the Transfer Agent,
including a bank, a broker, a dealer, a national securities exchange, a credit
union, or a savings association that is authorized to guarantee signatures.
Whenever a signature guarantee is required, each person required to sign for the
account must have that person's signature guaranteed.
Other Redemption Information. Proceeds of redemptions normally are paid in cash.
However, payments may be made wholly or partially in portfolio securities if the
Board determines that payment in cash would be detrimental to the best interests
of the Fund. The Company will only effect a redemption in portfolio securities
if the particular shareholder is redeeming more than $250,000 or 1 percent of
the Fund's total net assets, whichever is less, during any 90-day period.
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Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days written notice, all shares in
any Fund account with an aggregate net asset value of less than $1,000. The
Trust will not redeem accounts that fall below that amount solely as a result of
a reduction in net asset value.
Automatic Investment Plan. Under the Automatic Investment Plan which is
available to shareholders of I Shares of a Fund, shareholders may authorize
monthly amounts of $50 or more to be withdrawn automatically from the
shareholder's designated bank account (other than passbook savings) and sent to
the Transfer Agent for investment in a Fund. Shareholders wishing to use this
plan must complete an application which may be obtained by writing or calling
the Transfer Agent. The Trust may modify or terminate the Automatic Investment
Plan with respect to any shareholder in the event that the Trust is unable to
settle any transaction with the shareholder's bank. If the Automatic Investment
Plan is terminated before the shareholder's account totals $1,000, the Trust
reserves the right to close the account in accordance with the procedures
described under "Other Redemption Information" above.
Automatic Withdrawal Plan. A shareholder of I Shares of a Fund whose shares in a
single account total $1,000 or more may establish a withdrawal plan to provide
for the preauthorized payment from the shareholder's account of $250 or more on
a monthly, quarterly, semi-annual or annual basis. Under the withdrawal plan,
sufficient shares in the shareholder's account are redeemed to provide the
amount of the periodic payment and any taxable gain or loss is recognized by the
shareholder upon redemption of the shares.
Shareholders wishing to utilize the withdrawal plan may do so by completing an
application which may be obtained by writing or calling the Transfer Agent. The
Trust may suspend a shareholder's withdrawal plan without notice if the account
contains insufficient funds to effect a withdrawal or if the account balance is
less than the required minimum amount at any time.
Reopening Accounts. Provided that the information on the account application
form on file with the Trust is still applicable, a shareholder may reopen an
account, without filing a new account application form, at any time within one
year after the shareholder's account is closed.
Determination of Net Asset Value. The Trust determines the net asset value per
share of each Fund as of 4:00 P.M., Eastern time, on all weekdays, except New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas ("Fund Business Day") by dividing the value of the Fund's net assets
(i.e., the value of its securities and other assets less its liabilities) by the
number of Shares outstanding at the time the determination is made.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. Securities for which market quotations are not
readily available are valued at fair value as determined by the Board in
accordance with procedures adopted by the Board.
Trading in securities on European, Far Eastern and other international
securities exchanges and over-the-counter markets is normally completed well
before the close of business of each Fund Business Day. In addition, trading in
foreign securities generally or in a particular country or countries may not
take place on all Fund Business Days. Trading does take place in various foreign
markets, however, on days on which the Funds' net asset value is not calculated.
Calculation of the net asset value per share of a Fund may not occur
contemporaneously with the determination of the prices of the foreign securities
used in the calculation. Events affecting the values of foreign securities that
occur after the time their prices are determined and before the Fund's
determination of net asset value will not be reflected in the Fund's calculation
of net asset value unless the Adviser or Schroder determines that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
All assets and liabilities of a Fund denominated in foreign currencies are
valued in U.S. dollars at the mean of the bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank prior to the time
of the valuation.
Dividends, Distributions
and Tax Matters
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Dividends and Distributions
Except with respect to Ready Cash Investment Fund, Shares become entitled to
receive dividends on the next Fund Business Day after acceptance of an order and
are not entitled to receive dividends declared after the day on which their
redemption becomes effective. Ready Cash Investment Fund Shares become entitled
to receive dividends on the day of the acceptance of an order and are not
entitled to receive dividends declared on or after the day on which their
redemption becomes effective.
Dividends of net investment income currently are declared and paid annually by
each Fund. Each Fund's net capital gain, if any, is distributed at least
annually, typically in December.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). Plan, IRA and KEOGH accounts are automatically
assigned the Reinvestment Option. All dividends and distributions are treated in
the same manner for Federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional Shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
Tax Matters
Taxation of the Funds. Each Fund is treated as a separate corporation for
Federal tax purposes and intends to qualify for each fiscal year as a regulated
investment company under the Internal Revenue Code of 1986, as amended. In
addition, each Fund intends to distribute all of its net investment income and
capital gain each year. Accordingly, it is anticipated that the Funds will not
be liable for Federal income or excise taxes on their net investment income and
capital gain.
International Fund-International Portfolio. International Portfolio is not
required to pay Federal income taxes on its net investment income and capital
gain, as it is treated as a partnership for Federal tax purposes. All interest,
dividends and gains and losses of International Portfolio are deemed to have
been "passed through" to International Fund in proportion to its holdings of
International Portfolio, regardless of whether such interest, dividends or gains
have been distributed by International Portfolio or losses have been realized by
the International Portfolio. Investment income received by International Fund
from sources within foreign countries may be subject to foreign income or other
taxes. International Fund intends to elect, if eligible to do so, to permit its
shareholders to take a credit (or a deduction) for foreign income and other
taxes paid by International Portfolio. Shareholders of International Fund will
be notified of their share of those taxes and will be required to include that
amount as income. In that event, the shareholder may be entitled to claim a
credit or deduction for those taxes.
Shareholder Tax Matters
General. Dividends paid by a Fund out of its net investment income (including
any realized net short-term capital gain) are taxable to shareholders as
ordinary income. Distributions by a Fund of realized net long-term capital gain,
if any, are taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If Fund shares are sold at a loss after being held for 6 months or
less, the loss will be treated as long-term capital loss to the extent of any
long-term capital gain distribution received on those shares.
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All capital gain distributions paid by a Fund and all dividends paid by a Fund
and received by a shareholder reduce the net asset value of the shareholder's
shares by the amount of the distribution or dividend. Furthermore, a dividend or
distribution made shortly after the purchase of shares by a shareholder,
although in effect a return of capital to that particular shareholder, would be
taxable to the shareholder as described above.
It is expected that a substantial portion of each Equity Fund's dividends to
shareholders and a portion of each Balanced Fund's dividends to shareholders
will qualify for the dividends received deduction for corporations.
The Funds may be required by Federal law to withhold 31 percent of reportable
payments (which may include taxable dividends, capital gain distributions and
redemption proceeds) paid to individuals and certain other non-corporate
shareholders. Withholding is not required if a shareholder certifies that the
shareholder's social security or tax identification number provided to the Trust
is correct and that the shareholder is not subject to backup withholding for
prior under-reporting to the Internal Revenue Service.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by the Funds will
be mailed to shareholders shortly after the close of each year.
Tax-Deferred Accounts. Dividends or distributions of net long-term capital gain,
if any, paid with respect to the shares of a Fund held by a tax-deferred
account will not be taxable to that account. Currently, distributions from such
accounts will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the account.
Other Information
Fund Performance
Each Fund's performance may be quoted in advertising in terms of yield or total
return. Both types are based on historical results and are not intended to
indicate future performance. The Funds' advertisements may reference ratings and
rankings among similar funds by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the
performance of a Fund may be compared to recognized indices of market
performance. The comparative material found in the Funds' advertisements, sales
literature or reports to shareholders may contain performance ratings. This
material is not to be considered representative or indicative of future
performance.
Yield. A Fund's yield is a way of showing the rate of income earned by the Fund
as a percentage of the Fund's share price. Yield is calculated by dividing the
net investment income of the Fund for the stated period by the average number of
shares entitled to receive dividends and expressing the result as an annualized
percentage rate based on the Fund's share price at the end of the period. A Fund
may also quote a compounded annualized yield which assumes the reinvestment of
dividends paid by the Fund and therefore will be somewhat higher than the
annualized yield for the same period.
Total Return. Total Return refers to the average annual compounded rates of
return over some representative period that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, after giving effect to the reinvestment of all dividends and
distributions and deductions of expenses during the period. Because average
annual returns tend to smooth out variations in a Fund's returns, shareholders
should recognize that they are not the same as actual year-by-year results.
Performance Benchmarks. Each of the Funds uses a benchmark securities index as a
measure of the Fund's performance. These indices may be comprised of a composite
of various recognized securities indices to reflect the investment policies of
Diversified Equity Fund, Growth Equity Fund and each Balanced Fund, which invest
their assets using different investment styles. These indices are not used in
the management of the Fund but rather are standards by which the Advisers and
shareholders may compare the performance of a Fund to an unmanaged composite of
securities with similar, but not identical, characteristics as the Fund. For
instance, Index Fund's investment objective is to duplicate the return of the
Standard & Poor's 500 Composite Stock Price Index. Accordingly, the Adviser
generally
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uses that index as a comparison to measure the performance of Index Fund. The
Funds may from time to time advertise a comparison of their performance against
any of these or other indices.
Banking Law Matters
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent and custodian to an investment
company and to purchase shares of the investment company as agent for and upon
the order of a customer. Forum believes that Norwest and any other bank or bank
affiliate that may perform sub-transfer agent or similar services or purchase
shares as agent for its customers may perform the services described in this
Prospectus for the Trust and its shareholders without violating applicable
Federal banking laws or regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If
Norwest or another bank or bank affiliate were prohibited from so acting, its
shareholder customers would be permitted to remain shareholders of the Trust and
alternative means for continuing the servicing of such shareholders would be
sought. In this event, changes in the operation of the Trust might occur and
shareholders serviced by the bank or bank affiliate might no longer be able to
avail themselves of its services. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
Portfolio Transactions
The Advisers place orders for the purchase and sale of assets they manage with
brokers and dealers selected by and in the discretion of the respective Adviser.
The Advisers seek "best execution" for all portfolio transactions, but a Fund
may pay higher than the lowest available commission rates when an Adviser
believes it is reasonable to do so in light of the value of the brokerage,
research and other services provided by the broker effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to
International Fund and each other Fund that invests in foreign securities than
would be the case for comparable transactions effected on United States
securities exchanges.
Subject to the Funds' policy of obtaining the best price consistent with quality
of execution of transactions, each Adviser may employ Norwest Investment
Services, Inc., Wertheim Schroder & Company and other broker-dealer affiliates
of an Adviser (collectively "Affiliated Brokers") to effect brokerage
transactions for the Funds. The Fund's payment of commissions to Affiliated
Brokers is subject to procedures adopted by the Board and, with respect to the
Portfolios of Core Trust, Core Trust's board of trustees, to provide that the
commissions will not exceed the usual and customary broker's commissions charged
by unaffiliated brokers. No specific portion of a Fund's brokerage will be
directed to Affiliated Brokers and in no event will a broker affiliated with an
Adviser directing the transaction receive brokerage transactions in recognition
of research or other services provided to the Adviser.
The Adviser anticipates that the annual turnover rate in each Fund except Small
Company Growth Fund will be less than 100 percent and that the annual turnover
rate in Small Company Growth Fund will be less than 125 percent. Schroder
anticipates that the annual turnover rate in International Portfolio will be
less than 100 percent. An annual turnover rate of 100 percent would occur if all
of the securities in a Fund were replaced once in a period of 1 year. With
respect to Funds that invest in equity securities, higher portfolio turnover
rates may result in increased brokerage costs to the Fund.
The Trust and its Shares
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986 and on July 30, 1993 was reorganized as
a Delaware business trust. The Trust has an unlimited number of authorized
shares of beneficial interest. The Board may, without shareholder approval,
divide the authorized shares into an unlimited number of separate portfolios or
series (such as the Funds) and may divide portfolios or series into classes of
shares (such as I Shares), and the costs of doing so will be borne by the Trust.
Currently the authorized shares of the Trust are divided into 30 series.
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The Trust and its Shares
Other Classes of Shares. Each Fund may issue shares of other classes. Funds of
the Trust (except money market funds) currently may issue three classes of
shares, I Shares, A Shares and B Shares, and may in the future create additional
class types. I Shares are offered to fiduciary, agency and custodial clients of
bank trust departments, trust companies and their affiliates without any sales
charges. A Shares are sold with front-end sales charge or, in some cases, a
contingent deferred sales charge. B Shares are sold with a contingent deferred
sales charge and pay distribution fees. Each class of a Fund will have a
different expense ratio and may have different sales charges (including
distribution fees). Each class' performance is affected by its expenses and
sales charges. For more information on any other class of shares of the Funds
investors may contact the Transfer Agent at 612-667-8833 or 800-338-1348.
Investors may also contact their Norwest sales representative to obtain
information on the other classes. Sales personnel of broker-dealers and other
financial institutions selling the Fund's shares may receive differing
compensation for selling I Shares, A Shares and B Shares of the Funds.
Shareholder Voting and Other Rights. Each share of each portfolio of the Trust
and each class of shares has equal dividend, distribution, liquidation and
voting rights, and fractional shares have those rights proportionately, except
that expenses related to the distribution of the shares of each class (and
certain other expenses such as transfer agency and administration expenses) are
borne solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertain to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio or class, as appropriate. Delaware law does not
require the Trust to hold annual meetings of shareholders, and it is anticipated
that shareholder meetings will be held only when specifically required by
Federal or state law. Shareholders have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
As an investor in International Portfolio, International Fund will be entitled
to vote in proportion to its relative beneficial interest in International
Portfolio. On most issues subject to a vote of investors, as required by the
1940 Act and other applicable law, the Fund will solicit proxies from
shareholders of the Fund and will vote its interest in International Portfolio
in proportion to the votes cast by its shareholders. If there are other
investors in International Portfolio, there can be no assurance that any issue
that receives a majority of the votes cast by Fund shareholders will receive a
majority of votes cast by all investors in International Portfolio; indeed, if
other investors hold a majority interest in International Portfolio, they could
hold have voting control of International Portfolio.
From time to time, that shareholder or other shareholders may own a large
percentage of a Fund. Accordingly, that shareholder or other shareholders may be
able to greatly affect (if not determine) the outcome of a shareholder vote.
Core Trust Structure
International Fund invests all of its assets in International Portfolio, a
separate series of Core Trust, a business trust organized under the laws of the
State of Delaware in September 1994. Core Trust is registered under the 1940 Act
as an open-end management investment company. Pursuant to an exemptive order
issued by the SEC, the Blended Funds invest portions of their assets in Small
Company Portfolio, International Portfolio II and Index Portfolio of Core Trust.
Core Trust currently consists of only these four diversified portfolios. The
assets of each Portfolio of Core Trust belong only to, and the liabilities of
each Portfolio are borne solely by, the respective Portfolio and no other
Portfolio of Core Trust.
International Portfolio. International Fund seeks to achieve its investment
objective by investing all of its investable assets in International Portfolio,
which has the same investment objective and policies as the Fund. Accordingly,
International Portfolio directly acquires its own securities and the Fund
acquires an indirect interest in those securities.
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The investment objective and fundamental investment policies of International
Fund and International Portfolio can be changed only with shareholder approval.
See "Summary," "Investment Objectives, Policies and Risk Considerations,"
"Management of the Funds" and "Appendix A: Investments, Investment Strategies
and Risk Considerations" for a complete description of International Portfolio's
investment objective, policies, restrictions, management, and expenses.
International Fund's investment in International Portfolio is in the form of a
non-transferable beneficial interest. As of the date of this Prospectus, the
Fund is the only institutional investor that has invested all of its assets in
International Portfolio. International Portfolio may permit other investment
companies or institutional investors to invest in International Portfolio. All
investors in International Portfolio will invest on the same terms and
conditions as International Fund and will pay a proportionate share of
International Portfolio's expenses.
International Portfolio will not sell its shares directly to members of the
general public. Another institutional investor in International Portfolio that
might sell its shares to members of the general public would not be required to
sell its shares at the same public offering price as International Fund, could
have different advisory and other fees and expenses than International Fund, and
might charge a sales commission. Therefore, International Fund shareholders may
have different returns than shareholders in another investment company that
invests exclusively in International Portfolio. There is currently no such other
investment company that offers its shares to members of the general public.
Information regarding any such funds in the future will be available from Core
Trust by calling 212-363-3300.
Certain Risks of Investing in International Portfolio. International Fund's
investment in International Portfolio may be affected by the actions of other
large investors in International Portfolio, if any. For example, if
International Portfolio had a large investor other than International Fund that
redeemed its interest in International Portfolio, International Portfolio's
remaining investors (including the Fund) might, as a result, experience higher
pro rata operating expenses, thereby producing lower returns.
International Fund may withdraw its entire investment from International
Portfolio at any time, if the Board determines that it is in the best interests
of International Fund and its shareholders to do so. International Fund might
withdraw, for example, if there were other investors in International Portfolio
with power to, and who did by a vote of the shareholders of all investors
(including the Fund), change the investment objective or policies of
International Portfolio in a manner not acceptable to the Board. A withdrawal
could result in a distribution in kind of portfolio securities (as opposed to a
cash distribution) by International Portfolio. That distribution could result in
a less diversified portfolio of investments for the Fund and could affect
adversely the liquidity of the Fund's portfolio. If International Fund decided
to convert those securities to cash, it usually would incur brokerage fees or
other transaction costs. If International Fund withdrew its investment from
International Portfolio, the Board would consider what action might be taken,
including the management of the Fund's assets in accordance with its investment
objective and policies by the Adviser and Schroder, the Fund's investment
adviser and subadviser, respectively, or the investment of all of the Fund's
investable assets in another pooled investment entity having substantially the
same investment objective as the Fund. The inability of International Fund to
find a suitable replacement investment, in the event the Board decided not to
permit the Adviser and Schroder to manage the Fund's assets, could have a
significant impact on shareholders of the Fund.
Each investor in International Portfolio, including International Fund, will be
liable for all obligations of International Portfolio but not for those of any
other portfolio of Core Trust. The risk to an investor in International
Portfolio of incurring financial loss on account of such liability, however,
would be limited to circumstances in which International Portfolio was unable
to meet its obligations. Upon liquidation of International Portfolio, investors
would be entitled to share pro rata in the net assets of International Portfolio
available for distribution to investors.
Core Trust Blended Portfolios. The Blended Funds are permitted to invest a
portion of their assets which are managed by using the small company, index and
international investment styles in Small Company Portfolio, Index Portfolio, and
International Portfolio II pursuant to an exemptive order obtained from the SEC.
The conditions of the Trust's exemptive order do not permit a Fund to invest all
of its assets in a Blended Portfolio. Accordingly, Index Fund does not invest in
Index Portfolio and International Fund does not invest in International
Portfolio II.
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The Trust's exemptive order imposes several substantive conditions. On behalf of
each Blended Fund, the Board is required to review at least annually reports
identifying all instances in which a Portfolio in which the Fund invests buys a
security at approximately the same time that another Portfolio in which the Fund
invests sells the same security. The Board will consider whether the duplication
of brokerage costs resulting from these transactions is significant. If the
duplication of brokerage costs becomes significant, the Board will adopt
procedures designed to limit duplication. Conservative Balanced Fund, Moderate
Balanced Fund, and Growth Balanced Fund will limit any redemptions resulting
from a reallocation in their respective equity and fixed income security
positions to no more than 1percent of a Portfolio during any period of less than
30 days. The Board will determine, at least annually, that investment in the
Portfolios is in the best interests of the shareholders of each Blended Fund.
Appendix A
Investments, Investment Strategies
and Risk Considerations
Common Stock and Preferred Stock
Equity Funds, Balanced Funds. Common stockholders are the owners of the company
issuing the stock and, accordingly, vote on various corporate governance matters
such as mergers. They are not creditors of the company, but rather, upon
liquidation of the company are entitled to their pro rata share of the company's
assets after creditors (including fixed income security holders) and, if
applicable, preferred stockholders are paid. Preferred stock is a class of stock
having a preference over common stock as to dividends and, in the alternative,
as to the recovery of investment. A preferred stockholder is a shareholder in
the company and not a creditor of the company as is a holder of the company's
fixed income securities. Dividends paid to common and preferred stockholders are
distributions of the earnings of the company and not interest payments, which
are expenses of the company. Equity securities owned by a Fund may be traded on
national securities exchanges, in the over-the-counter market or on a regional
securities exchange and may not be traded every day or in the volume typical of
securities traded on a major national securities exchange. As a result,
disposition by a Fund of a portfolio security to meet redemptions by
shareholders or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time. The
market value of all securities, including equity securities, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth.
Convertible Securities
Equity Funds, Balanced Funds. Convertible securities, which include convertible
debt, convertible preferred stock and other securities exchangeable under
certain circumstances for shares of common stock, are fixed income securities or
preferred stock which generally may be converted at a stated price within a
specific amount of time into a specified number of shares of common stock. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stream of income with generally higher yields
than those of common stocks of the same or similar issuers. These securities are
usually senior to common stock in a company's capital structure, but usually are
subordinated to non-convertible debt securities. In general, the value of a
convertible security is the higher of its investment value (its value as a fixed
income security) and its conversion value (the value of the underlying shares of
common stock if the security is converted). As a fixed income security, the
value of a convertible security generally increases when interest rates decline
and generally decreases when interest rates rise. The value of a convertible
security is, however, also influenced by the value of the underlying common
stock.
A Fund may invest in equity-linked securities, including Preferred Equity
Redemption Cumulative Stock ("PERCS"), Equity-Linked Securities ("ELKS"), and
Liquid Yield Option Notes ("LYONS"). Equity-Linked Securities are securities
that are convertible into or based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
these securities is not fixed but is based on the price of the underlying
common stock which may rise or fall. In addition, it is not possible to predict
how equity-linked securities will trade in the secondary market or whether the
market for them will be liquid or illiquid.
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Warrants
Equity Funds, Balanced Funds. A Fund may invest in warrants, which are options
to purchase an equity security at a specified price (usually representing a
premium over the applicable market value of the underlying equity security at
the time of the warrant's issuance) and usually during a specified period of
time. Unlike convertible securities and preferred stocks, warrants do not pay a
fixed dividend. Investments in warrants involve certain risks, including the
possible lack of a liquid market for the resale of the warrants, potential price
fluctuations as a result of speculation or other factors and failure of the
price of the underlying security to reach a level at which the warrant can be
prudently exercised (in which case the warrant may expire without being
exercised, resulting in the loss of the Fund's entire investment therein).
ADRs and EDRs
All Equity Funds (except Index Fund and Small Company Growth Fund), Balanced
Funds. A Fund may invest in sponsored and unsponsored American Depository
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depository of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. A Fund may also invest in European
Depository Receipts ("EDRs"), receipts issued by a European financial
institution evidencing an arrangement similar to that of ADRs, and in other
similar instruments representing securities of foreign companies. EDRs, in
bearer form, are designed for use in European securities markets.
U.S. Government Securities
All Funds. As used in this Prospectus, the term U.S. Government Securities means
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. The U.S. Government Securities in
which a Fund may invest include U.S. Treasury Securities and obligations issued
or guaranteed by U.S. Government agencies and instrumentalities and backed by
the full faith and credit of the U.S. Government, such as those guaranteed by
the Small Business Administration or issued by the Government National Mortgage
Association. In addition, the U.S. Government Securities in which the Funds may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities of the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation and the Tennessee Valley Authority.
There is no guarantee that the U.S. Government will support securities not
backed by its full faith and credit. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
Zero Coupon Securities
Fixed Income Funds, Balanced Funds. A Fund may invest in separately traded
principal and interest components of securities issued or guaranteed by the U.S.
Treasury. These components are traded independently under the Treasury's
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program or as Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may
invest in other types of related zero coupon securities. For instance, a number
of banks and brokerage firms separate the principal and interest portions of
U.S. Treasury securities and sell them separately in the form of receipts or
certificates representing undivided interests in these instruments. These
instruments are generally held by a bank in a custodial or trust account on
behalf of the owners of the securities and are known by various names, including
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS"). Zero-coupon securities
also may be issued by corporations and municipalities.
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities
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to distribute imputed income, which may occur at a time when the Adviser or
Schroder would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Corporate Debt Securities
Commercial Paper
Corporate Debt Securities - Balanced Funds, Fixed Income Funds. Commercial Paper
- - All Funds. The corporate debt securities in which the Funds may invest
include corporate bonds and notes and short-term investments such as commercial
paper and variable rate demand notes. Commercial paper (short-term promissory
notes) is issued by companies to finance their or their affiliates' current
obligations and is frequently unsecured. Variable and floating rate demand notes
are unsecured obligations redeemable upon not more than 30 days' notice. These
obligations include master demand notes that permit investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangement with the
issuer of the instrument. The issuer of these obligations often has the right,
after a given period, to prepay the outstanding principal amount of the
obligations upon a specified number of days' notice. These obligations generally
are not traded, nor generally is there an established secondary market for these
obligations. To the extent a demand note does not have a 7 day or shorter demand
feature and there is no readily available market for the obligation, it is
treated as an illiquid security.
Financial Institution Obligations
All Funds. A Fund may invest in obligations of financial institutions, including
negotiable certificates of deposit, bankers' acceptances and time deposits of
U.S. banks (including savings banks and savings associations), foreign branches
of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S.
branches and agencies of foreign banks (Yankee dollars), and wholly-owned
banking-related subsidiaries of foreign banks. Short Maturity investment style
of Conservative Balanced Fund limits these purchases to institutions which at
the time of investment have total assets in excess of 1 billion dollars, or the
equivalent in other currencies.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce the Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than 7 days are
treated as illiquid securities if there is no readily available market for the
securities. A Fund's investments in the obligations of foreign banks and their
branches, agencies or subsidiaries may be obligations of the parent, of the
issuing branch, agency or subsidiary, or both. Investments in foreign bank
obligations are limited to banks and branches located in countries which the
Advisers believe do not present undue risk.
Participation Interests
Balanced Funds, Managed Fixed Income Fund. A Fund may purchase participation
interests in loans or securities in which the Fund may invest directly that are
owned by banks or other financial institutions. A participation interest gives
the Fund an undivided interest in a loan or security in the proportion that the
Fund's interest bears to the total principal amount of the security.
Participation interests, which may have fixed, floating or variable rates, may
carry a demand feature backed by a letter of credit or guarantee of the bank or
institution permitting the holder to tender them back to the bank or other
institution. For certain participation interests the Fund will have the right to
demand payment, on not more than 7 days' notice, for all or a part of the Fund's
participation interest. A Fund will only purchase participation interests from
banks or other financial institutions that the Adviser deems to be creditworthy.
A Fund will not invest more than 10 percent of its total assets in participation
interests in which the Fund does not have demand rights.
Illiquid Securities
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Restricted Securities
Illiquid Securities - All Funds. Restricted Securities - International Fund,
Balanced Funds, Fixed Income Funds. Each Fund may invest up to 15 percent of
its net assets in securities that at the time of purchase are illiquid.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 ("restricted securities"),
securities which are otherwise not readily marketable, such as
over-the-counter options, and repurchase agreements not entitling the holder
to payment of principal in 7 days. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a Fund might also
have to register restricted securities in order to dispose of them, resulting
in expense and delay. A Fund might not be able to dispose of restricted or
other securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions. There can be no assurance that
a liquid market will exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on the issuer's ability to honor
a demand for repayment of the unregistered security. A securities contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the Securities Act of 1933 or other exemptions, the Advisers may determine that
such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board. These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular Rule
144A security, a Fund's holdings of that security may be illiquid.
Borrowing
All Funds. Each Fund may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, in amounts up to 33 1/3 percent of
the Fund's total assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, a Fund might have
to sell portfolio securities to meet interest or principal payments at a time
when investment considerations would not favor such sales. No Fund, other than
Managed Fixed Income Fund, Intermediate U.S. Government Fund and, to the extent
they invest in Managed Fixed Income Fund's investment style or Short Maturity
investment style, the Balanced Funds may purchase securities for investment
while any borrowing equal to 5 percent or more of the Fund's total assets is
outstanding or borrow for purposes other than meeting redemptions in an amount
exceeding 5 percent of the value of the Fund's total assets. A Fund's use of
borrowed proceeds to make investments would subject the Fund to the risks of
leveraging. Reverse repurchase agreements, short sales not against the box,
dollar roll transactions and other similar investments that involve a form of
leverage have characteristics similar to borrowings but are not considered
borrowings if the Fund maintains a segregated account; the use of these
techniques in connection with a segregated account may result in a Fund's assets
being 100 percent leveraged. See "Appendix A - Techniques Involving Leverage."
Purchasing Securities on Margin
Intermediate U.S. Government Fund. When the Fund purchases securities on margin,
it only pays part of the purchase price and borrows the remainder, typically
from the Fund's broker. As a borrowing, a Fund's purchase of securities on
margin is subject to the limitations and risks described in "Borrowing" above.
In addition, if the value of the securities purchased on margin decreases such
that the Fund's borrowing with respect to the security exceeds the maximum
permissible borrowing amount, the Fund will be required to make margin payments
(additional payments to the broker to maintain the level of borrowing at
permissible levels). A Fund's obligation to satisfy margin calls may require the
Fund to sell securities at an inappropriate time.
Techniques Involving Leverage
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All Funds. Utilization of leveraging involves special risks and may involve
speculative investment techniques. The Funds may borrow for other than temporary
or emergency purposes, lend their securities, enter reverse repurchase
agreements, and purchase securities on a when issued or forward commitment
basis. In addition, certain funds may engage in dollar roll transactions and
Intermediate U.S. Government Fund may purchase securities on margin and sell
securities short (other than against the box). Each of these transactions
involve the use of "leverage" when cash made available to the Fund through the
investment technique is used to make additional portfolio investments. In
addition, the use of swap and related agreements may involve leverage. The Funds
use these investment techniques only when the Adviser to a Fund believes that
the leveraging and the returns available to the Fund from investing the cash
will provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
Segregated Account. In order to limit the risks involved in various transactions
involving leverage, the Trust's custodian will set aside and maintain in a
segregated account cash, U.S. Government Securities and other liquid, high-grade
debt securities in accordance with SEC guidelines. The accounts value, which is
marked to market daily, will be at least equal to the Fund's commitments under
these transactions. The Fund's commitments may include (i) the Fund's
obligations to repurchase securities under a reverse repurchase agreement,
settle when-issued and forward commitment transactions and make payments under a
cap or floor (see "Appendix A - Swap Agreements") and (ii) the greater of the
market value of securities sold short or the value of the securities at the time
of the short sale (reduced by any margin deposit). The net amount of the excess,
if any, of a Fund's obligations over its entitlements with respect to each
interest rate swap will be calculated on a daily basis and an amount at least
equal to the accrued excess will be maintained in the segregated account. If the
Fund enters into an interest rate swap on other than a net basis, the Fund will
maintain the full amount accrued on a daily basis of the Fund's obligations with
respect to the swap in their segregated account. The use of a segregated account
in connection with leveraged transactions may result in a Fund's portfolio being
100 percent leveraged.
Repurchase Agreements
Securities Lending
Reverse Repurchase Agreements
When-Issued Securities and Forward Commitments
Dollar Roll Transactions
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A Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including dollar roll transactions) entails
certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty while these transactions remained open or a counterparty
defaulted on its obligations, the Fund might suffer a loss. Failure by the other
party to deliver a security purchased by the Fund may result in a missed
opportunity to make an alternative investment. The Advisers monitor the
creditworthiness of counterparties to these transactions and intend to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income to be earned from the transaction justifies
the attendant risks. Counterparty insolvency risk with respect to repurchase
agreements is reduced by favorable insolvency laws that allow the Fund, among
other things, to liquidate the collateral held in the event of the bankruptcy of
the counterparty. Those laws do not apply to securities lending and,
accordingly, securities lending involves more risk than does the use of
repurchase agreements. As a result of entering forward commitments and reverse
repurchase agreements, as well as lending its securities, a Fund may be exposed
to greater potential fluctuations in the value of its assets and net asset value
per share. See "Appendix A - Techniques Involving Leverage."
Repurchase Agreements - All Funds. A Fund may enter into repurchase agreements,
transactions in which a Fund purchases a security and simultaneously commits to
resell that security to the seller at an agreed-upon price on an agreed-upon
future date, normally 1 to 7 days later. The resale price of a repurchase
agreement reflects a market rate of interest that is not related to the coupon
rate or maturity of the purchased security. The Trust's custodian maintains
possession of the collateral underlying a repurchase agreement, which has a
market value, determined daily, at least equal to the repurchase price, and
which consists of the types of securities in which the Fund may invest directly.
International Portfolio and, with respect to the portion of their assets managed
in the International Fund investment style, Diversified Equity Fund, Growth
Equity Fund and each Balanced Fund, may enter into repurchase agreements with
foreign entities.
Securities Lending - All Funds. A Fund may lend securities from its portfolios
to brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. A Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. A Fund may pay fees
to arrange the loans. No Fund will lend portfolio securities in excess of 33 1/3
percent of the value of the Fund's total assets.
Reverse Repurchase Agreements - Balanced Funds, Fixed Income Funds. A Fund may
enter into reverse repurchase agreements, transactions in which the Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Because certain of the incidents of ownership of the security are retained by
the Fund, reverse repurchase agreements may be viewed as a form of borrowing by
the Fund from the buyer, collateralized by the security sold by the Fund. A Fund
will use the proceeds of reverse repurchase agreements to fund redemptions or to
make investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the Fund
with those monies. Any significant commitment of a Fund's assets to the reverse
repurchase agreements will tend to increase the volatility of the Fund's net
asset value per share.
When-Issued Securities and Forward Commitments - All Funds. A Fund may purchase
fixed income securities on a "when-issued" or "forward commitment" basis. When
these transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within 3 months after the transaction. During the period between a
commitment and settlement, no payment is made for the securities purchased and
no interest on the security accrues to the purchaser. At the time a Fund makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by a Fund may result in a loss or a missed
opportunity to make an alternative investment.
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The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
or Schroder were to forecast incorrectly the direction of interest rate
movements, however, a Fund might be required to complete these transactions when
the value of the security is lower than the price paid by the Fund. Except for
dollar-roll transactions, a Fund will not purchase securities on a when-issued
or forward commitment basis if, as a result, more than 15 percent of the value
of the Fund's total assets would be committed to such transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds purchase securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
When-issued securities may include bonds purchased on a "when, and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Commitment of a Fund's assets to the purchase of securities
on a when-issued or forward commitment basis will tend to increase the
volatility of the Fund's net asset value per share.
Dollar Roll Transactions - Balanced Funds, Fixed Income Funds. A Fund may enter
into dollar roll transactions wherein the Fund sells fixed income securities,
typically mortgage-backed securities, and makes a commitment to purchase
similar, but not identical, securities at a later date from the same party.
Like a forward commitment, during the roll period no payment is made for the
securities purchased and no interest or principal payments on the security
accrue to the purchaser, but the Fund assumes the risk of ownership. A Fund is
compensated for entering into dollar roll transactions by the difference
between the current sales price and the forward price for the future purchase,
as well as by the interest earned on the cash proceeds of the initial sale.
Like other when-issued securities or firm commitment agreements, dollar roll
transactions involve the risk that the market value of the securities sold by
the Fund may decline below the price at which a Fund is committed to purchase
similar securities. In the event the buyer of securities under a dollar roll
transaction becomes insolvent, the Fund's use of the proceeds of the
transaction may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. The Funds will engage in roll transactions for the purpose of
acquiring securities for its portfolio and not for investment leverage. Each
Fund will limit its obligations on dollar roll transactions to 35 percent of
the Fund's net assets.
Swap Agreements
Balanced Funds, Intermediate U.S. Government Fund, Managed Fixed Income Fund,
Stable Income Fund. To manage its exposure to different types of investments, a
Fund may enter into interest rate, currency and mortgage (or other asset) swap
agreements and may purchase and sell interest rate "caps," "floors" and
"collars." In a typical interest rate swap agreement, one party agrees to make
regular payments equal to a floating interest rate on a specified amount (the
"notional principal amount") in return for payments equal to a fixed interest
rate on the same amount for a specified period. If a swap agreement provides for
payment in different currencies, the parties may also agree to exchange the
notional principal amount. Mortgage swap agreements are similar to interest rate
swap agreements, except that the notional principal amount is tied to a
reference pool of mortgages. In a cap or floor, one party agrees, usually in
return for a fee, to make payments under particular circumstances. For example,
the purchaser of an interest rate cap has the right to receive payments to the
extent a specified interest rate exceeds an agreed upon level; the purchaser of
an interest rate floor has the right to receive payments to the extent a
specified interest rate falls below an agreed upon level. A collar entitles the
purchaser to receive payments to the extent a specified interest rate falls
outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Fund's
performance. See "Appendix A - Techniques Involving Leverage." Swap agreements
involve risks depending upon the counterparties creditworthiness and ability to
perform as well as the Fund's ability to terminate its swap agreements or reduce
its exposure through offsetting transactions. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income expected to be earned from the transaction
justifies the attendant risks.
Short Sales
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Intermediate U.S. Government Fund. The Fund is authorized to make short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (referred to as short sales
"against the box") and to make short sales of securities which it does not own
or have the right to acquire. A short sale that is not made "against the box" is
a transaction in which a Fund sells a security it does not own in anticipation
of a decline in the market price for the security. When the Fund makes a short
sale, the proceeds it receives are retained by the broker until the Fund
replaces the borrowed security. In order to deliver the security to the buyer,
the Fund must arrange through a broker to borrow the security and, in so doing,
the Fund becomes obligated to replace the security borrowed at its market price
at the time of replacement, whatever that price may be.
Short sales that are not made "against the box" create opportunities to increase
the Fund's return but, at the same time, involve special risk considerations and
may be considered a speculative technique. Since the Fund in effect profits from
a decline in the price of the securities sold short without the need to invest
the full purchase price of the securities on the date of the short sale, the
Fund's net asset value per share, will tend to increase more when the securities
it has sold short decrease in value, and to decrease more when the securities it
has sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. Short sales theoretically involve unlimited loss
potential, as the market price of securities sold short may continuously
increase, although a Fund may mitigate such losses by replacing the securities
sold short before the market price has increased significantly. Under adverse
market conditions a Fund might have difficulty purchasing securities to meet its
short sale delivery obligations and might have to sell portfolio securities to
raise the capital necessary to meet its short sale obligations at a time when
fundamental investment considerations would not favor those sales. See "Appendix
A - Techniques Involving Leverage."
If the Fund makes a short sale "against the box", the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Adviser believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund or a security convertible into or exchangeable for such security. In
such case, any future losses in the Fund's long position would be reduced by an
offsetting future gain in the short position. The Fund's ability to enter into
short sales transactions is limited by certain tax requirements. See "Dividends,
Distributions and Taxes" in the SAI.
Mortgage-Backed Securities
Fixed Income Funds, Balanced Funds. Mortgage-backed securities represent an
interest in a pool of mortgages originated by lenders such as commercial banks,
savings associations and mortgage bankers and brokers. Mortgage-backed
securities may be issued by governmental or government-related entities or by
non-governmental entities such as special purpose trusts created by banks,
savings associations, private mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
Underlying Mortgages. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
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Liquidity and Marketability. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged.
However, the market for conventional pools is smaller and less liquid than the
market for government and government-related mortgage pools.
Average Life and Prepayments. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to a Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of fixed-
rate 30-year mortgages, common industry practice is to assume that prepayments
will result in a 12-year average life. Pools of mortgages with other maturities
or different characteristics will have varying assumptions for average life. The
assumed average life of pools of mortgages having terms of less than 30 years is
less than 12 years, but typically not less than 5 years.
Yield Calculations. Yields on pass-through securities are typically quoted by
investment dealers based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgages. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of a
Fund.
Government and Government-Related Guarantors. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"), a wholly-owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller-servicers. The Federal Home
Loan Mortgage Association ("FHLMC") is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMC's
national portfolio. FNMA and FHLMC each guarantee the payment of principal and
interest on the securities they issue. These securities, however, are not backed
by the full faith and credit of the United States Government.
Privately Issued Mortgage-backed securities. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a higher
rate of interest than securities issued by government issuers because of the
absence of direct or indirect government guarantees of payment. Many non-
governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
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Adjustable Rate Mortgage-backed securities. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly rising
rates, but they may also have less potential for capital appreciation than other
debt securities of comparable maturities due to the periodic adjustment of the
interest rate on the underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore, during periods
of declining interest rates, income to a Fund will decrease as the coupon rate
resets to reflect the decline in interest rates. During periods of rising
interest rates, changes in the coupon rates of the mortgages underlying a Fund's
ARMs may lag behind changes in market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus,
investors could suffer some principal loss if they sold Fund Shares before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates.
Collateralized Mortgage Obligations. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule as they are
received, although, certain classes (often referred to as tranches) of CMOs have
priority over other classes with respect to the receipt of payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide funds to pay debt service on the CMOs or to make scheduled distributions
on the multi-class mortgage pass-through securities. Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as with
other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. Planned amortization class
mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO. PAC
Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a Z-tranche). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
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Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class). Currently, no fund may
purchase IOs or POs.
Asset-Backed Securities
Balanced Funds, Intermediate U.S. Government Fund, Managed Fixed Income Fund.
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, assets other than mortgage-backed assets such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. No Fund may invest more than 10 percent of its
net assets in asset-backed securities that are backed by a particular type of
credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-backed securities and, accordingly, are subject to
many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution. Asset-
backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
Foreign Exchange Contracts and Foreign Currency Forward Contracts
Small Company Growth Fund, Large Company Growth Fund, International Fund,
Balanced Funds, Managed Fixed Income Fund. Changes in foreign currency exchange
rates will affect the U.S. dollar values of securities denominated in currencies
other than the U.S. dollar. The rate of exchange between the U.S. dollar and
other currencies fluctuates in response to forces of supply and demand in the
foreign exchange markets. These forces are affected by the international balance
of payments and other economic and financial conditions, government
intervention, speculation and other factors. When investing in foreign
securities a Fund usually effects currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign exchange market.
The Fund incurs foreign exchange expenses in converting assets from one currency
to another.
A Fund may enter into foreign currency forward contracts or currency futures or
options contracts for the purchase or sale of foreign currency to "lock in" the
U.S. dollar price of the securities denominated in a foreign currency or the
U.S. dollar value of interest and dividends to be paid on such securities, or to
hedge against the possibility that the currency of a foreign country in which a
Fund has investments may suffer a decline against the U.S. dollar. The Funds
have no present intention to enter into currency futures or options contracts
but may do so in the future. A forward currency contract is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. This method of attempting to hedge the
value of a Fund's portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. Although the strategy of engaging in foreign currency transactions
could reduce the risk of loss due to a decline in the value of the hedged
currency, it could also limit the potential gain from an increase in the value
of the currency. The Funds do not intend to maintain a net exposure to such
contracts where the fulfillment of the Fund's obligations under such contracts
would obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities or other assets denominated in that
currency. A Fund will not enter into these contracts for speculative purposes
and will not enter into non-hedging currency contracts. These contracts involve
a risk of loss if the Adviser fails to predict currency values correctly.
Futures Contracts and Options
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Balanced Funds, Intermediate U.S. Government Fund, Managed Fixed Income Fund,
Stable Income Fund, Index Fund. A Fund may seek to enhance its return through
the writing (selling) and purchasing of exchange-traded and over-the-counter
options on fixed income securities or indices. A Fund may also to attempt to
hedge against a decline in the value of securities owned by it or an increase in
the price of securities which it plans to purchase through the use of those
options and the purchase and sale of interest rate futures contracts and options
on those futures contracts. A Fund may only write options that are covered. An
option is covered if, so long as the Fund is obligated under the option, it owns
an offsetting position in the underlying security or futures contract or
maintains cash, U.S. Government Securities or other liquid, high-grade debt
securities in a segregated account with a value at all times sufficient to cover
the Fund's obligation under the option. Certain futures strategies employed by a
Balanced Fund in making temporary allocations may not be deemed to be for bona
fide hedging purposes, as defined by the Commodity Futures Trading Commission. A
Fund may enter into these futures contracts only if the aggregate of initial
margin deposits for open futures contract positions does not exceed 5 percent of
the Fund's total assets.
Risk Considerations. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on the Adviser's
ability to predict movements in the prices of individual securities and
fluctuations in the general securities markets; (2) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time, which, among other things, may hinder a Fund's ability to limit exposures
by closing its positions; (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences; and (6) the potential for unlimited loss when investing in futures
contracts or writing options for which an offsetting position is not held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above
the exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an over-the-
counter option transaction will be able to perform its obligations. There are a
limited number of options on interest rate futures contracts and exchange traded
options contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, the Adviser may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
Limitations. Except for the futures contracts strategies of the Balanced Funds
used for making temporary allocations among fixed-income and equity securities,
the Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Fund may purchase any call
or put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5 percent of the Fund's total assets as of
the date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50 percent of the
Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50 percent of its total assets.
Options on Securities. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option
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gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying
security, upon exercise at the exercise price during the option period. The
amount of premium received or paid is based upon certain factors, including the
market price of the underlying security or index, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying security or index, the option period, supply and demand and interest
rates.
Options on Stock Indexes. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
Index Futures Contracts. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the securities comprising the index is made. Generally, these futures
contracts are closed out prior to the expiration date of the contract.
Options on Futures Contracts. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF FUND SHARES,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
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NORWEST ADVANTAGE FUNDS
Proxy for the Special Meeting of Shareholders
of the Adjustable U.S. Government Reserve
Fund, Government Income Fund and Income
Stock Fund of the Norwest Advantage Funds
[ ], 1996
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints each of David I. Goldstein and
Thomas G. Sheehan as proxies, each with the power to appoint his
substitute, and authorizes each of them to represent and to vote,
as designated on the reverse hereof all the Shares of beneficial
interest of Adjustable U.S. Government Reserve Fund, Government
Income Fund and Income Stock Fund (collectively, the "Transferor
Funds") held of record by the undersigned on February 29, 1996 at
the Special Meeting of Shareholders of the Transferor Funds to be
held at the offices of Forum Financial Services, Inc. at Two
Portland Square, Portland, Maine 04101, at [ ] [a].m., Eastern
Standard Time, on [ ], 1996.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned shareholder. If no direction
is made, this proxy will be voted for Proposals 1 and 2.
(Continued and to be signed on the reverse side)
Norwest Advantage Funds
Two Portland Square,
Portland, Maine 04101
1. To approve a Plan of Reorganization and Liquidation providing
for:
PROPOSAL FOR SHAREHOLDERS OF ADJUSTABLE U.S. GOVERNMENT RESERVE
FUND
(a) the transfer of all the assets of Adjustable U.S.
Government Reserve Fund in exchange for shares of Stable Income
Fund of the Trust and the assumption by Stable Income Fund of all
the liabilities of Adjustable U.S. Government Reserve Fund, the
distribution of such shares to shareholders of Adjustable U.S.
<PAGE>
Government Reserve Fund in liquidation of Adjustable U.S.
Government Reserve Fund; and
ADJUSTABLE RESERVE FUND
FOR AGAINST ABSTAIN
/ / / / / /
PROPOSAL FOR SHAREHOLDERS OF GOVERNMENT INCOME FUND
(b) the transfer of all the assets of Government Income
Fund in exchange for shares of Intermediate U.S. Government Fund
of the Trust and the assumption by Intermediate U.S. Government
Fund of all the liabilities of Government Income Fund, the
distribution of such shares to shareholders of Government Income
Fund in liquidation of Government Income Fund; and
GOVERNMENT INCOME FUND
FOR AGAINST ABSTAIN
/ / / / / /
PROPOSAL FOR SHAREHOLDERS OF INCOME STOCK FUND
(c) the transfer of all the assets of Income Stock Fund
in exchange for shares of Income Equity Fund of the Trust and the
assumption by Income Equity Fund of all the liabilities of Income
Stock Fund, the distribution of such shares to shareholders of
Income Stock Fund in liquidation of Income Stock Fund;
INCOME STOCK FUND
FOR AGAINST ABSTAIN
/ / / / / /
OTHER MATTERS
2. To transact such other business as may properly come before
the Meeting or any adjournment or adjournments thereof.
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND
FOR AGAINST ABSTAIN
/ / / / / /
2
<PAGE>
GOVERNMENT INCOME FUND
FOR AGAINST ABSTAIN
/ / / / / /
INCOME STOCK FUND
FOR AGAINST ABSTAIN
/ / / / / /
Change of Address or
Comments Mark Here / /
Please sign and date this proxy in the space provided below.
Execution by shareholders who are not individuals must be made by
an authorized signatory.
Dated: , 1996
____________________________________
Name of Shareholder
____________________________________
Signature
Votes must be indicated (x) in black or blue ink.
Please Sign, Date and Return Promptly in the Enclosed Envelope -
No Postage is Required.
3
47180012.AC6
<PAGE>
NORWEST ADVANTAGE FUNDS
Form N-14
Part B - Statement of Additional Information
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Transfer of the assets of
Adjustable U.S. Government Reserve Fund,
Government Income Fund and
Income Stock Fund of
Norwest Advantage Funds
Two Portland Square
Portland, Maine 04101
Telephone 207-879-1900
by and in exchange for shares of
Stable Income Fund,
Intermediate U.S. Government Fund
and Income Equity Fund of
Norwest Advantage Funds
This Statement of Additional Information relating to the
proposed transfer of the assets of Adjustable U.S. Government
Reserve Fund, Government Income Fund and Income Stock Fund (the
"Transferor Funds") to Stable Income Fund, Intermediate U.S.
Government Fund and Income Equity Fund (the "Acquiring Funds"),
respectively, in exchange for shares of the Acquiring Funds (the
"Transaction") consists of this cover page and the following
described documents, each of which is attached hereto:
(1) Statement of Additional Information of the
Acquiring Funds offering A Shares and B Shares
dated March 1, 1996 and Statement of
Additional Information of the Acquiring Funds
offering I Shares dated March 1, 1996.
(2) Report of Independent Auditors and financial
statements of the Acquiring Funds for the
period ended October 31, 1995, incorporated by
reference from the Annual Report to
Shareholders of Norwest Advantage Funds (the
"Trust") for the period ended October 31, 1995
filed on January 31, 1996, accession no.
0000912057-96-001085, File Nos. 33-0645, 811-
4881.
(3) Unaudited financial statements of the
Transferor Funds for the period ended
November 30, 1995, incorporated by reference
from the Semi-Annual Report to Shareholders of
the Trust for the period ended November 30,
1995 filed on January 31, 1996, accession no.
0000912057-96-001084, File Nos. 33-0645, 811-
4881.
<PAGE>
(4) Report of Independent Auditors and financial
statements of the Transferor Funds for the
year ended May 31, 1995, incorporated by
reference from the Annual Report to
Shareholders of the Trust for the year ended
May 31, 1995 filed on February 14, 1996,
accession no. 0000912057-96-002500, File Nos.
33-0645, 811-4881.
(5) Unaudited pro forma combined financial
information for the period ended October 31,
1995. The pro forma financial statements give
effect to the Transaction as if it had
occurred on November 11, 1994.
This Statement of Additional Information is not a
prospectus. A Prospectus/Proxy Statement dated March [ ],
1996 relating to the above referenced matter may be obtained
without charge by writing to Forum Financial Group, Two
Portland Square, Portland, Maine 04101 or by calling 207-
879-1900. This Statement of Additional Information relates
to, and should be read in conjunction with, such
Prospectus/Proxy Statement.
This Statement of Additional Information is dated
March 7, 1996.
<PAGE>
<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
EQUITY FUNDS
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
INCOME EQUITY FUND
FIXED INCOME FUNDS
INTERMEDIATE U.S. GOVERNMENT FUND
STABLE INCOME FUND
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<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
This Statement of Additional Information ("SAI") supplements the Prospectus
offering A Shares and B Shares (collectively the "Shares") of Diversified Equity
Fund, Growth Equity Fund, Income Equity Fund, Intermediate U.S. Government Fund
and Stable Income Fund (each a "Fund" and collectively the "Funds"). Each Fund
is a diversified series of Norwest Advantage Funds, a registered open-end,
management investment company (the "Trust"). This SAI should be read only in
conjunction with the Funds' Prospectus, copies of which may be obtained without
charge.
TABLE OF CONTENTS
Page
----
1. Norwest Advantage Funds . . . . . . . . . . . .
2. Investment Policies . . . . . . . . . . . . . .
3. Investment Limitations. . . . . . . . . . . . .
4. Performance Data and Advertising. . . . . . . .
5. Management. . . . . . . . . . . . . . . . . . .
6. Other Information . . . . . . . . . . . . . . .
Appendix A - Description of Securities Ratings . . . A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED BY AN INVESTOR WITHOUT CHARGE BY
CONTACTING THE TRUST'S DISTRIBUTOR, FORUM FINANCIAL SERVICES, INC., 61 BROADWAY,
NEW YORK, NEW YORK 10006.
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<PAGE>
1. NORWEST ADVANTAGE FUNDS
DEFINITIONS
The Trust was originally organized under the name Prime Value Funds, Inc. as a
Maryland corporation on August 29, 1986. On July 30, 1993, pursuant to a
shareholder vote, the Trust was reorganized as a Delaware business trust. On
October 1, 1995, the Trust's name was changed from "Norwest Funds." As used in
this SAI, the following terms shall have the meanings listed:
"Adviser" shall mean each Fund's investment adviser, Norwest Investment
Management, a part of Norwest. "Advisers" shall mean, collectively, the Adviser
and Schroder.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Core Trust" shall mean Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Forum" shall mean Forum Financial Services, Inc., the Trust's
administrator and distributor of the Trust's shares.
"FFC" shall mean Forum Financial Corp., the Trust's fund accountant.
"Fund" shall mean each of the thirteen separate portfolios of the Trust to
which this Statement of Additional Information relates as identified on the
cover page.
"Norwest" shall mean Norwest Bank Minnesota, N.A., a subsidiary of Norwest
Corporation.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Portfolio" shall mean International Portfolio II, Small Company Portfolio
and Index Portfolio, three separate portfolios of Core Trust.
"Schroder" shall mean Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund and Growth Equity Fund.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Transfer Agent" shall mean Norwest acting in its capacity as transfer and
dividend disbursing agent of the Trust.
"Trust" shall mean Norwest Advantage Funds, an open-end management
investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
2. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning the Funds' investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any
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investment or employ any investment technique or strategy not referenced in the
Prospectus as relates to that Fund. For example, while the SAI describes "swap"
transactions below, only those Funds whose investment policies, as described in
the Prospectus, allow the Fund to invest in swap transactions may do so.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc., Standard & Poor's Corporation and other NRSROs
are private services that provide ratings of the credit quality of debt
obligations, including convertible securities. A description of the range of
ratings assigned to various types of bonds and other securities by several
NRSROs is included in Appendix A to this SAI. The Funds may use these ratings
to determine whether to purchase, sell or hold a security. However, ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, interest rate and rating may have different market
prices. If an issue of securities ceases to be rated or if its rating is
reduced after it is purchased by a Fund, the investment adviser or investment
subadviser of the Fund will determine whether the Fund should continue to hold
the obligation. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings. An
issuer's current financial condition may be better or worse than a rating
indicates.
CONVERTIBLE SECURITIES
A Fund may invest in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Although no
securities investment is without some risk, investment in convertible securities
generally entails less risk than in the issuer's common stock. However, the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
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Equity-linked securities are securities that are convertible into or based upon
the value of, equity securities upon certain terms and conditions. The following
are three examples of equity-linked securities. A fund may invest in the
securities described below or other similar equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer at any time or if the issuer's common stock
is trading at a specified price level or better. The redemption price starts at
the beginning of the PERCS' duration period at a price that is above the cap by
the amount of the extra dividends the PERCS holder is entitled to receive
relative to the common stock over the duration of the PERCS and declines to the
cap price shortly before maturity of the PERCS. In exchange for having the cap
on capital gains and giving the issuer the option to redeem the PERCS at any
time or at the specified common stock price level, a Fund may be compensated
with a substantially higher dividend yield than that on the underlying common
stock. Funds that seek current income find PERCS attractive because a PERCS
provides a higher dividend income than that paid with respect to a company's
common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At
maturity, the holder of ELKS will be entitled to receive a principal amount
equal to the lesser of a cap amount, commonly in the range of 30% to 55%
greater than the current price of the issuer's common stock, or the average
closing price per share of the issuer's common stock, subject to adjustment as a
result of certain dilution events, for the 10 trading days immediately prior to
maturity. Unlike PERCS, ELKS are commonly not subject to redemption prior to
maturity. ELKS usually bear interest during the three-year term at a
substantially higher rate than the dividend yield on the underlying common
stock. In exchange for having the cap on the return that might have been
received as capital gains on the underlying common stock, the Investment Fund
may be compensated with the higher yield, contingent on how well the underlying
common stock does. Funds that seek current income find ELKS attractive because
ELKS provide a higher dividend income than that paid with respect to a company's
common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities, in
that the amount received prior to maturity is not fixed but is based on the
price of the issuer's common stock. LYONs are zero-coupon notes that sell at a
large discount from face value. For an investment in LYONs, a Fund will not
receive any interest payments until the notes mature, typically in 15 or 20
years, when the notes are redeemed at face, or par, value. The yield on LYONs,
typically, is lower-than-market rate for debt securities of the same maturity,
due in part to the fact that the LYONs are convertible into common stock of the
issuer at any time at the option of the holder of the LYON. Commonly, LYONs are
redeemable by the issuer at any time after an initial period or if the issuer's
common stock is trading at a specified price level or better, or, at the option
of the holder, upon certain fixed dates. The redemption price typically is the
purchase price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Fund will receive
only the lower-than-market yield unless the underlying common stock increases in
value at a substantial rate. LYONs are attractive to investors when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
WARRANTS
Warrants are options to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. To the extent that the market value of the
security that may be purchased upon exercise of the warrant rises above the
exercise price, the value of the warrant will tend to rise. To the extent that
the exercise price equals or exceeds the market value of such security, the
warrants will have little or no market value. If a warrant is not exercised
within the specified time period, it will become worthless and the Fund will
lose the purchase price paid for the warrant and the right to purchase the
underlying security. The Fund may not invest more than 2% of its net assets in
warrants not traded on the American or New York Stock Exchange.
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MORTGAGE BACKED AND ASSET BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets (as defined in
the Prospectus) to make payments, mortgage-backed securities may contain
elements of credit enhancement. Credit enhancement falls into two categories:
(1) liquidity protection; and (2) protection against losses resulting after
default by an obligor on the underlying assets and collection of all amounts
recoverable directly from the obligor and through liquidation of the collateral.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets (usually the bank, savings association
or mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion of
the assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Funds will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of security.
Examples of credit enhancement arising out of the structure of the transaction
include (i) "senior-subordinated securities" (multiple class securities with one
or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), (ii) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses) and (iii) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
OTHER GOVERNMENTAL RELATED MORTGAGE-BACKED SECURITIES
The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
Government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These
assets include, among other things, single family and multi-family mortgage
loans, as well as commercial mortgage loans. In order to dispose of such assets
in an orderly manner, RTC has established a vehicle registered with the SEC
through which it sells mortgage-backed securities. RTC mortgage-backed
securities represent pro rata interests in pools of mortgage loans that RTC
holds or has acquired, as described above, and are supported by one or more of
the types of private credit enhancements used by Private Mortgage Lenders.
It is anticipated that in the future the Federal Deposit Insurance Corporation
(which also holds mortgage loans as a conservator or receiver of insolvent banks
or in its corporate capacity) or other governmental agencies or
instrumentalities may establish vehicles for the issuance of mortgage-backed
securities that are similar in structure and in types of credit enhancements to
RTC securities.
ASSET-BACKED SECURITIES
A Fund may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
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Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Fund may invest.
Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only ("POs") securities usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand,
if rates rise and prepayments slow, the value of the PO will drop.
Interest only ("IOs") securities result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount
to their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as
the notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Fund may receive less cash back than
it initially invested.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Funds invest (including mortgage-backed securities)
may have variable or floating rates of interest. These securities pay interest
at rates that are adjusted periodically according to a specified formula,
usually with reference to some interest rate index or market interest rate (the
"underlying index"). The interest paid on these securities is a function
primarily of the underlying index upon which the interest rate adjustments are
based. Such adjustments minimize changes in the market value of the obligation
and, accordingly, enhance the ability of the Fund to maintain a stable net
asset value. Similar to fixed rate debt instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities purchased by a Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-backed
securities) pay interest at a rate that that varies inversely to prevailing
short-term interest rates (sometimes referred to as inverse floaters). For
instance, upon reset the interest rate payable on a security may go down when
the underlying index has risen. During times when short-term interest rates are
relatively low as compared to long-term interest rates a Fund may attempt to
enhance its yield by purchasing inverse floaters. Certain inverse floaters may
have an interest rate mechanism that multiplies the effects of changes in the
underlying index. This form of leverage may have the effect of increasing the
volatility of the security's market value while increasing the security's, and
thus the Fund's, yield.
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There may not be an active secondary market for any particular floating or
variable rate instrument (particularly inverse floaters) which could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
repayment obligation during periods that the Fund is not entitled to exercise
any demand rights it may have. A Fund could, for this or other reasons, suffer
a loss with respect to an instrument. The Adviser monitors the liquidity of the
Fund's investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Funds may enter into interest rate protection transactions, including
interest rate swaps, caps, collars and floors. Interest rate swap transactions
involve an agreement between two parties to exchange interest payment streams
that are based, for example, on variable and fixed rates that are calculated on
the basis of a specified amount of principal (the "notional principal amount")
for a specified period of time. Interest rate cap and floor transactions
involve an agreement between two parties in which the first party agrees to make
payments to the counterparty when a designated market interest rate goes above
(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which the payments are
made when a designated market interest rate either goes above a designated
ceiling or goes below a designated floor on predetermined dates or during a
specified time period.
A Fund expects to enter into interest rate protection transactions to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities it anticipates
purchasing at a later date. The Funds intend to use these transactions as a
hedge and not as a speculative investment.
A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these interest
rate protection transactions are entered into for good faith hedging purposes,
and inasmuch as segregated accounts will be established with respect to such
transactions, the Funds believe such obligations do not constitute senior
securities. The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account by a custodian
that satisfies the requirements of the 1940 Act. The Funds also will establish
and maintain such segregated accounts with respect to its total obligations
under any interest rate swaps that are not entered into on a net basis and with
respect to any interest rate caps, collars and floors that are written by the
Fund.
A Fund will enter into interest rate protection transactions only with banks and
other institutions believed by the investment adviser to the Fund to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, they are less liquid than swaps.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve the currencies of foreign
countries. In addition, a Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of certain investment programs.
Accordingly, the value of the assets of a Fund, as measured in United States
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, the Fund may incur costs in
connection with conversions between various currencies. A Fund may conduct
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or by entering
into foreign currency forward contracts ("forward contracts") to purchase or
sell foreign currencies. A forward contract involves an
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obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (usually less than one year) from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers and
involve the risk that the other party to the contract may fail to deliver
currency when due, which could result in losses to the Fund. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. Foreign exchange dealers realize a profit based on the
difference between the price at which they buy and sell various currencies.
A Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, a Fund may enter into forward currency contracts in connection with
existing portfolio positions. For example, when an investment adviser believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar, the Fund may enter into a forward contract to
sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward contracts involve the risk
of inaccurate predictions of currency price movements, which may cause the Fund
to incur losses on these contracts and transaction costs. The investment
advisers do not intend to enter into forward contracts on a regular or
continuous basis, and will not do so if, as a result, a Fund will have more than
25 percent of the value of its total assets committed to such contracts or the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency.
At or before the settlement of a forward currency contract, a Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency.
The Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a global,
around-the-clock market.
When required by applicable regulatory guidelines, a Fund will set aside cash,
U.S. Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
HEDGING AND OPTION INCOME STRATEGIES
Certain Funds may engage in certain options strategies in order to enhance the
Fund's income and may engage in certain options and futures strategies to
attempt to hedge the Fund's portfolio. The instruments in which the Funds may
invest include (i) options on fixed income securities, fixed income securities
indexes and foreign currencies, (ii)
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index, interest rate and foreign currency futures contracts ("futures
contracts"), and (iii) options on futures contracts. Use of these instruments
is subject to regulation by the SEC, the several options and futures exchanges
upon which options and futures are traded, and the CFTC.
The various strategies referred to herein and in the Prospectus are intended to
illustrate the type of strategies that are available to, and may be used by, an
investment adviser in managing a Fund's portfolio. No assurance can be given,
however, that any strategies will succeed.
The Funds will not use leverage in their option income and hedging strategies.
In the case of transactions entered into as a hedge, a Fund will hold
securities, currencies or other options or futures positions whose values are
expected to offset ("cover") its obligations thereunder. A Fund will not enter
into a hedging strategy that exposes the Fund to an obligation to another party
unless it owns either (1) an offsetting ("covered") position or (2) cash, U.S.
Government Securities or other liquid, high-grade debt securities with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Fund will set aside cash, U.S. Government
Securities or other liquid, high-grade debt securities in a segregated account
with its custodian in the prescribed amount. Any assets used for cover or held
in a segregated account cannot be sold or closed out while the hedging or option
income strategy is outstanding, unless they are replaced with similar assets.
As a result, there is a possibility that the use of cover or segregation
involving a large percentage of a Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and write (sell) put
and call options covering specified securities, stock index-related amounts or
currencies. A put option (sometimes called a "standby commitment") gives the
buyer of the option, upon payment of a premium, the right to deliver a specified
amount of a security or currency to the writer of the option on or before a
fixed date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. A Fund may buy or sell both exchange-traded
and over-the-counter ("OTC") options. A Fund will purchase or write an option
only if that option is traded on a recognized U.S. options exchange or if an
investment adviser believes that a liquid secondary market for the option
exists. When a Fund purchases an OTC option, it relies on the dealer from which
it has purchased the OTC option to make or take delivery of the securities or
currency underlying the option. Failure by the dealer to do so would result in
the loss of the premium paid by the Fund as well as the loss of the expected
benefit of the transaction. OTC options and the securities underlying these
options currently are treated as illiquid securities by the Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon
certain factors, including the market price of the underlying securities index,
the relationship of the exercise price to the market price, the historical price
volatility of the underlying securities index, the option period, supply and
demand and interest rates.
A Fund may purchase call options on debt securities that an investment adviser
intends to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. A Fund may similarly purchase put options
in order to hedge against a decline in market value of securities held in its
portfolio. The put enables the Fund to sell the underlying security at the
predetermined exercise price; thus the potential for loss to the Fund is limited
to the option premium paid. If the market price of the underlying security is
lower than the exercise price of the put, any profit the Fund realizes on the
sale of the security would be reduced by the premium paid for the put option
less any amount for which the put may be sold.
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An investment adviser may write call options when it believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs.
A Fund may purchase and write put and call options on fixed income security
indexes in much the same manner as the options discussed above, except that
index options may serve as a hedge against overall fluctuations in the fixed
income securities markets (or market sectors) or as a means of participating in
an anticipated price increase in those markets. The effectiveness of hedging
techniques using index options will depend on the extent to which price
movements in the index selected correlate with price movements of the securities
which are being hedged. Index options are settled exclusively in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Fund may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange fluctuation on foreign securities the Fund
holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Options Strategies" above
and "Foreign Currency Forward Transactions" which influence foreign exchange
sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, the Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the investment adviser's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option,
fluctuations in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with respect
to that position, a loss will be realized in the amount of the premium
paid.
(3) A position in an exchange-listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange-
listed options relate to equity securities. Exchange markets for options
on foreign currencies are relatively new and the ability to establish and
close out positions on the exchanges is subject to the maintenance of a
liquid secondary market. Closing transactions may be effected with respect
to options traded in the over-the-counter markets (currently the primary
markets for options on foreign currencies) only by negotiating directly
with the other party to the option contract or in a secondary market for
the option if such market exists. There is no assurance that a liquid
secondary market will exist for any particular option at any specific time.
If it is not possible to effect a closing transaction, a Fund would
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have to exercise the option which it purchased in order to realize any
profit. The inability to effect a closing transaction on an option written
by a Fund may result in material losses to the Fund.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. A futures contract is a bilateral agreement wherein one
party agrees to accept, and the other party agrees to make, delivery of cash, an
underlying debt security or the currency as called for in the contract at a
specified future date and at a specified price. For futures contracts with
respect to an index, delivery is of an amount of cash equal to a specified
dollar amount times the difference between the index value at the time of the
contract and the close of trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
A Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, a Fund may sell foreign currency futures contracts when
the Adviser anticipates a general weakening of foreign currency exchange rates
that could adversely affect the market values of the Fund's foreign securities
holdings. A Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. A Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. A Fund may write call options on foreign currency futures
contracts as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING. No
price is paid upon entering into futures contracts, rather, a Fund is required
to deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash or U.S. Government Securities generally equal to 5% or
less of the contract value. This amount is known as initial margin. Subsequent
payments, called variation margin, to and from the broker, would be made on a
daily basis as the value of the futures position varies. When writing a call on
a futures contract, variation margin must be deposited in accordance with
applicable exchange rules. The initial margin in futures transactions is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In such event, it may not be possible for a Fund to close a
position, and in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin. In addition:
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(1) Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different
skills and techniques than predicting changes in the prices of individual
securities. Moreover, futures contracts relate not to the current level of
the underlying instrument but to the anticipated levels at some point in
the future; thus, for example, trading of stock index futures may not
reflect the trading of the securities which are used to formulate an index
or even actual fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several
reasons unrelated to the value of the underlying securities or currencies
which causes this situation to occur. As a result, a correct forecast of
general market trends may still not result in successful hedging through
the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not
be possible to close a position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash
payments of variation margin.
(4) Like other options, options on futures contracts have a limited life.
A Fund will not trade options on futures contracts on any exchange or board
of trade unless and until, in the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with
options on futures transactions are not greater than the risks in
connection with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is
at risk. Sellers of options on futures contracts, however, must post an
initial margin and are subject to additional margin calls which could be
substantial in the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency
futures contracts and their use as a hedging device similar to those
associated with options on foreign currencies described above. In
addition, settlement of foreign currency futures contracts must occur
within the country issuing that currency. Thus, a Fund must accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign restrictions or regulations regarding the maintenance of foreign
banking arrangements by U.S. residents, and the Fund may be required to pay
any fees, taxes or charges associated with such delivery which are assessed
in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however that in addition,
with respect to positions in commodity futures and option contracts not for bona
fide hedging purposes the Fund represents that the aggregate initial margin and
premiums required to establish these positions (subject to certain exclusions)
will not exceed 5% of the liquidation value of the Fund's assets after taking
into account unrealized profits and losses on any such contract the Fund has
entered into.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a
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reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables a Fund to recover for the term
of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed delivery basis.
In those cases, the purchase price and the interest rate payable on the
securities are fixed on the transaction date and delivery and payment may take
place a month or more after the date of the transaction. At the time a Fund
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
A Fund will make commitments for such when-issued transactions only when it has
the intention of actually acquiring the securities. To facilitate such
acquisitions, the Fund will maintain with its custodian a separate account with
portfolio securities in an amount at least equal to such commitments. On
delivery dates for such transactions, the Fund will meet its obligations from
maturities, sales of the securities held in the separate account or from other
available sources of cash. If a Fund chooses to dispose of the right to acquire
a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation.
DOMESTIC AND FOREIGN BANK OBLIGATIONS
A Fund may invest in fixed-time deposits, which are payable at their stated
maturity date and bear a fixed rate of interest, generally may be withdrawn on
demand by the Fund but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation
and could reduce the Fund's yield. Although fixed-time deposits do not in all
cases have a secondary market, there are no contractual restrictions on the
Fund's right to transfer a beneficial interest in the deposits to third parties.
Investments that a Fund may make in securities of foreign branches of domestic
banks and domestic and foreign branches of foreign banks may involve certain
risks, including future political and economic developments, the possible
imposition of foreign withholding taxes on interest income payable on such
securities, the possible seizure or nationalization of foreign deposits,
differences from domestic banks in applicable accounting, auditing and financial
reporting standards, and the possible establishment of exchange controls or
other foreign governmental laws or restrictions applicable to the payment of
certificates of deposit or time deposits which might affect adversely the
payment of principal and interest on such securities held by the Fund.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
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The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the investment adviser of each
Fund, pursuant to guidelines approved by the Board. The investment adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer. The investment
adviser monitors the liquidity of the securities in each Fund's portfolio and
reports periodically on such decisions to the Board.
TEMPORARY DEFENSIVE POSITION
When a Fund assumes a temporary defensive position, it may invest in (i) short-
term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation, (iii) commercial paper of prime quality rated Prime-2 or
higher by Moody's or A-2 or higher by S&P or, if not rated, determined by the
Adviser to be of comparable quality, (iv) repurchase agreements covering any of
the securities in which the Fund may invest directly and (v) money market mutual
funds.
The Funds may invest in the securities of other investment companies within the
limits prescribed by the 1940 Act. Under normal circumstances, each Fund
intends to invest less than 5% of the value of its net assets in the securities
of other investment companies. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).
3. INVESTMENT LIMITATIONS
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of a
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund and cannot be changed without the affirmative vote of a
majority of the Fund's outstanding voting securities (as defined in the
Prospectus). A Fund may not:
(1) Diversification: With respect to 75 percent of its assets, the Fund
may not purchase a security other than a U.S. Government Security if, as a
result, more than five percent of the Fund's total assets would be invested
in the securities of a single issuer or the Fund would own more than ten
percent of the outstanding voting securities of any single issuer;
provided, however, that each Fund may invest all or a portion of its assets
in another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions as
the Fund.
(2) Concentration: The Fund may not purchase securities if, immediately
after the purchase, more than 25 percent of the value of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in the same industry; provided, however, that
there is no limit on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, foreign government
securities, mortgage related or housing-related securities, municipal
securities, and issuers domiciled in a single country; that financial
service companies are classified according to the end users of their
services (for example, automobile finance, bank finance and diversified
finance); that utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric and
telephone); that will each invest more than 25 percent of the value of the
Fund's total assets in obligations of
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domestic and foreign financial institutions and their holding companies;
and that each Fund may invest all of a portion of its assets in another
diversified, open-end management investment company with substantially the
same investment objective, policies and restrictions as the Fund.
(3) Borrowing: Each Fund may borrow money for temporary or emergency
purposes, including the meeting of redemption requests; but not in excess
of 33 1/3 percent of the value of the Fund's total assets (as computed
immediately after the borrowing).
(4) Issuance of Senior Securities: The Fund may not issue senior
securities except to the extent permitted by the 1940 Act.
(5) Underwriting Activities: The Fund may not underwrite securities of
other issuers, except to the extent that the Fund may be considered to be
acting as an underwriter in connection with the disposition of portfolio
securities.
(6) Making Loans: The Fund may not make loans, except the Funds may enter
into repurchase agreements, purchase debt securities that are otherwise
permitted investments and lend portfolio securities.
(7) Purchases and Sales of Real Estate: The Fund may not purchase or sell
real estate, any interest therein or real estate limited partnership
interests, except that the Fund may invest in debt obligations secured by
real estate or interests therein or securities issued by companies that
invest in real estate or interests therein.
(8) Purchases and Sales of Commodities: The Fund may not purchase or sell
physical commodities or contracts, options or options on contracts to
purchase or sell physical commodities, provided that currencies and
currency-related contracts and contracts on indices are not deemed to be
physical commodities.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund and may be changed by the Board.
(1) Borrowing: Borrowing for other than temporary or emergency purposes
or meeting redemption requests is limited to five percent of the value of
each Funds total assets except in the case of Intermediate U.S. Government
Fund, and Managed Fixed Income Fund. Where a Fund establishes a segregated
account to limit the amount of leveraging of the Fund with respect to
certain investment techniques, the Fund does not treat those techniques as
involving borrowings fro purposes of this limitation.
(2) Illiquid Securities: No Fund may acquire securities or invest in
repurchase agreements with respect to any securities if, as a result, more
than (i) fifteen percent of the Fund's net assets (taken at current value)
would be invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in securities which are not
readily marketable, including securities that are not readily marketable by
virtue of restrictions on the sale of such securities to the public without
registration under the Securities Act of 1933 ("Restricted Securities") or
(ii) ten percent of the Fund's total assets would be invested in Restricted
Securities.
(3) Other Investment Companies: The Fund may not invest in securities of
another investment company, except to the extent permitted by the 1940 Act.
(4) Margin and Short Sales: Except for Intermediate U.S. Government Fund,
a Fund may not purchase securities on margin or make short sales of
securities (except short sales against the box) except for the use of
short-term credit necessary for the clearance of purchases and sales of
portfolio securities. A Fund may make margin deposits in connection with
permitted transactions in options and futures contracts. A Fund may not
enter short sales if, as a result, more that 25% of the value of the Fund's
total assets would be so invested, or
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such a position would represent more than 2% of the outstanding voting
securities of any single issuer or class of an issuer.
(5) Unseasoned Issuers: The Fund may not invest in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including the
operations of predecessors, unless guaranteed as to principal and interest
by an issuer in whose securities the Fund could invest, if, as a result,
more than five percent of the value of the Fund's total assets would be so
invested; provided, that the Fund may invest all of a portion of its assets
in another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions as
the Fund.
(6) Pledging: The Fund may not pledge, mortgage, hypothecate or encumber
any of its assets except to secure permitted borrowings.
(7) Investments by Officers and Trustees: The Fund may not invest in or
hold securities of any issuer if, to the Trust's knowledge, officers and
trustees of the Trust or an investment adviser to the Fund, individually
owning beneficially more than one-half of one percent of the securities of
the issuer, in the aggregate own more than five percent of the issuer's
securities.
(8) Oil, Gas and Mineral Investments: The Fund may not invest in
interests in oil and gas or interests in other mineral exploration or
development programs, including oil, gas and other mineral leases and the
Fund may not invest in real estate limited partnerships.
(9) Securities With Voting Rights: No Fixed Income Fund may purchase
securities having voting rights, except securities of other investment
companies.
(10) Warrants: Each Fund may not purchase warrants if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
(11) Options: Each Fund may not purchase an option if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
4. PERFORMANCE DATA AND ADVERTISING
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. Each Fund's yield and
total return fluctuate in response to market conditions and other factors. The
value of a Fund's shares when redeemed may be more or less than their original
cost.
In performance advertising the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Fund Tracking Companies").
Each Fund may also compare any of its performance information with the
performance of recognized stock, bond and other indexes, including but not
limited to Standard & Poor's 500 Composite Stock Index, Russell 2000 Index,
Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, Salomon Brothers Bond Index, Shearson Lehman Bond Index, the Dow Jones
Industrial Average, U.S. Treasury bonds, bills or notes and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The Funds
may refer to general market performances over past time periods such as those
published by Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and
Inflation Yearbook"). In addition, the Funds may refer in such materials to
mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of the Funds
and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
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SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Also, Norwest and others may charge the various retirement
plans or other shareholders that invest in a Fund fees in connection with an
investment in a Fund, which will have the effect of reducing the Fund's net
yield to those shareholders. The yields of a Fund are not fixed or guaranteed,
and an investment in a Fund is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of a Fund with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to
compare a Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's interest income (in accordance with specific standardized rules) for a
given 30 days or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income in accordance with specific
standardized rules) in order to arrive at an annual percentage rate. In
general, interest income is reduced with respect to municipal securities
purchased at a premium over their par value by subtracting a portion of the
premium from income on a daily basis. In general, interest income is increased
with respect to municipal securities purchased at original issue at a discount
by adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from these calculations.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
For the 30-day period ended October 31, 1995 the annualized yield of each of the
Fixed Income Funds was as follows.
[Yield Table]
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in a Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at the
beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average annual total return
above.
The average annual total return of each class of each Fund for the periods ended
October 31, 1995 was as follows. The actual dates of the commencement of each
Fund's operations is listed in the Fund's financial statements.
[Total Return Table]
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge; excluding sales charges from a total return calculation produces a
higher return figure.
The Funds may also include various information in their advertisements.
Information included in a Fund's advertisements may include, but is not limited
to (i) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity, (ii) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents, (iv)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quartile or daily), (v) information
relating to inflation and its effects on the dollar; for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively, (vi) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principle of dollar cost
averaging, (vii) descriptions of the Funds' portfolio managers and the portfolio
management staff of the Advisers or summaries of the views of the portfolio
managers with respect to the financial markets, (viii) the results of a
hypothetical investment in a Fund over a given number of years, including the
amount that the investment would be at the end of the period, (ix) the effects
of earning Federally and, if applicable, state tax-exempt income from a Fund or
investing in a tax-deferred account, such as an individual retirement account or
Section 401(k) pension plan and (x) the net asset value, net assets or number of
shareholders of a Fund as of one or more dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the
$90 interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
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The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principle of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not ensure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has more than 60 years been
committed to quality products and outstanding service in order to assist its
customers in meeting their financial goals and the reasons Norwest believes that
it has been successful as a national financial service firm.
5. MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer and David R. Keffer are brothers.
John Y. Keffer, Chairman and President.*
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent), Forum
Advisors, Inc. (a registered investment adviser). Mr. Keffer is a
Director, Trustee and officer of various registered investment companies
for which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is 61 Broadway, New York, New York 10006.
Robert C. Brown, Trustee.*
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corp. Prior thereto, he was Manager of the
Capital Markets Group, Norwest Corporation (a multi-bank holding company
and parent of Norwest) until 1991. His address is 1431 Landings Place,
Sarasota, Florida 34231.
Donald H. Burkhardt, Trustee.
Principal, The Burkhardt Law Firm. His address is 777 South Steele Street,
Denver, Colorado 80209.
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James C. Harris, Trustee.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating Trustee and former
Director of First Midwest Corporation, a small business investment company.
His address is 6950 France Avenue South, Minneapolis, Minnesota 55435.
Richard M. Leach, Trustee.
Chief Executive Officer, Tee Box Company (a golf equipment manufacturer),
since January 1994 and President of Richard M. Leach Associates (a
financial consulting firm) since 1992. Prior thereto, Mr. Leach was Senior
Adviser of Taylor Investments (a registered investment adviser), a Director
of Mountainview Broadcasting (a radio station) and Managing Director,
Digital Techniques, Inc. (an interactive video design and manufacturing
company). His address is P.O. Box 1888, New London, New Hampshire 03257.
Donald C. Willeke, Trustee
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
Michael D. Martins, Vice President and Treasurer
Fund Accounting Manager, Forum Financial Corp., with which he has been
associated since 1995. Prior thereto, Mr. Martins was at the audit firm of
Deloitte & Touche LLP. Mr. Martins is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David I. Goldstein, Vice President and Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
Chief Financial Officer, Forum Financial Services, Inc. Mr. Keffer is also
an officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is 61 Broadway, New York, New York 10006.
Sara M. Clark, Vice President and Assistant Treasurer.
Managing Director, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, from 1991 to 1994 Ms. Clark was
Controller of Wright Express Corporation (a national credit card company)
and for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Clark is also an officer of various registered investment
companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland Square,
Portland, Maine 04101.
Thomas G. Sheehan, Vice President and Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1993. Prior thereto, Mr. Sheehan was Special Counsel to the
Division of Investment Management of the SEC. Mr. Sheehan is also an
officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
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Renee A. Walker, Assistant Secretary.
Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, Ms. Walker was an administrator at
Longwood Partners (the manager of a hedge fund partnership) for a year.
After graduating for college, from 1991 to 1993 Ms. Walker was a sales
representative assistant at PaineWebber Incorporated (a broker-dealer).
Her address is Two Portland Square, Portland, Maine 04101.
COMPENSATION OF TRUSTEES AND OFFICERS
Effective June 1, 1995 each Trustee of the Trust is paid a quarterly retained
fee for the Trustee's service to the Trust and to Norwest Select Funds, a
separate registered open-end management investment company for which each
Trustee serves as trustee. of $4,000. In addition, each Trustee is paid $3,000
for each Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year and no
officer of the Trust is compensated by the Trust. Prior to June 1, 1995 Trustee
of the Trust was paid $1,000 for each Board meeting attended (whether in person
or by electronic communication) plus $100 per active portfolio of the Trust and
was paid $1,000 for each Committee meeting attended on a date when a Board
meeting is not held.
Mr. Burkhart, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $5,000 from the Trust and $1,000
form Norwest Select Funds for his services as Chairman. Mr. Willeke was
appointed a Trustee in July 1995 and, accordingly, was not paid any compensation
during the Trust's last fiscal year
As of October 1, 1995, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Fund.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Information is
presented for the year ended May 31, 1995, which was the fiscal year end of 18
of the Trust's portfolios. The Funds have an October 31 fiscal year end.
Total Compensation From
Total Compensation the Trust and Norwest
from the Trust Select Funds
-------------- ------------
Mr. Brown $13,647 $18,847
Mr. Burkhart $16,581 $25,047
Mr. Harris $13,647 $18,847
Mr. Leach $13,647 $18,847
Neither the Trust or Norwest Select Funds has adopted any from of retirement
plan covering Trustees or officers. For the Trust's fiscal year ended May 31,
1995 total expenses of the Trustees (other than Mr. Keffer) was $8,795 and total
expenses of the trustees of Norwest Select Funds was $4,030. Mr. Keffer
currently is not reimbursed for his expenses in serving as Trustee.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of Core Trust is indicated by an asterisk.
Mr. John Y. Keffer, Mr. David R. Keffer and Messrs. Goldstein, Martins and
Sheehan, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Trustees and Officers of the Trust" above.
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John Y. Keffer*, Chairman and President.
Costas Azariadis, Trustee.
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
James C. Cheng, Trustee.
Managing Director, Forum Financial Services, Inc. since September 1991.
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is Two Portland Square, Portland, Maine
04101.
J. Michael Parish, Trustee.
Partner at the law firm of Winthrop Stimson Putnam & Roberts since 1989.
Prior thereto, he was a partner at LeBoeuf, Lamb, Leiby & MacRae, a law
firm of which he was a member from 1974 to 1989. His address is 40 Wall
Street, New York, New York 10005.
Michael D. Martins, Treasurer
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
David I. Goldstein, Secretary.
Thomas G. Sheehan, Assistant Secretary.
Max Berueffy, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since May 1994. For seven years prior to that, Mr. Berueffy held various
positions on the staff of the U.S. Securities and Exchange Commission. His
last position was Senior Special Counsel in the Division of Investment
Management. Mr. Berueffy is also an officer of various registered invest-
ment companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine 04101.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT
Norwest Investment Management, a part of Norwest Bank Minnesota, N.A., is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. Under its advisory agreements, Norwest
may delegate its responsibilities to any investment subadviser approved by the
Board with respect to all or a portion of the assets of a Fund.
The Advisory Agreement between each Fund and Norwest will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by vote of the shareholders of the Fund, and in either case by a majority of
the Trustees who are not parties to the Advisory Agreement or interested persons
of any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement with respect to a Fund is terminable without penalty by
the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
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Board, or by the Adviser on not more than 60 days nor less than 30 days written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreements also provide that, with respect to each Fund, neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any act or omission in the performance of its or their duties to
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's or their duties or by reason of reckless disregard
of its or their obligations and duties under the Advisory Agreement. The
Advisory Agreements provide that the Adviser may render service to others.
In addition to receiving its advisory fee from the Funds, Norwest may also act
and be compensated as investment manager for its clients with respect to assets
which are invested in a Fund. In some instances Norwest may elect to credit
against any investment management, custodial or other fee received from, or
rebate to, a client who is also a shareholder in the Fund an amount equal to all
or a portion of the fees received by Norwest or any affiliate of Norwest from a
Fund with respect to the client's assets invested in the Fund.
The advisory fees are accrued daily and paid monthly. Norwest, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
each Fund. Norwest has agreed to reimburse the Trust for certain of each Fund's
operating expenses (exclusive of interest, taxes and brokerage fees,
organization expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) which in any year exceed
the limits prescribed by any state in which the Fund's shares are qualified for
sale. The Trust may elect not to qualify its shares for sale in every state.
For the purpose of this obligation to reimburse expenses, a Fund's annual
expenses are estimated and accrued daily, and any appropriate estimated payments
will be made by Norwest monthly. Subject to these obligations, the Trust pays
for all of its expenses.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under the Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(i) interest charges, taxes, brokerage fees and commissions; (ii) certain
insurance premiums; (iii) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (iv) fees of pricing,
interest, dividend, credit and other reporting services; (v) costs of membership
in trade associations; (vi) telecommunications expenses; (vii) auditing, legal
and compliance expenses; (viii) costs of the Trust's formation and maintaining
its existence; (ix) costs of preparing and printing the Trust's prospectuses,
statements of additional information, account application forms and shareholder
reports and delivering them to existing and prospective shareholders; (x) costs
of maintaining books of original entry for portfolio and fund accounting and
other required books and accounts and of calculating the net asset value of
shares of the Trust; (xi) costs of reproduction, stationery and supplies; (xii)
compensation of the Trust's trustees, officers and employees who are not
employees of the Adviser, Forum Financial Services, Inc. or affiliated persons
of the Adviser or Forum Financial Services, Inc. and costs of other personnel
performing services for the Trust; (xiii) costs of corporate meetings; (xiv)
registration fees and related expenses for registration with the SEC and the
securities regulatory authorities of other countries in which the Trust's shares
are sold; (xv) state securities law registration fees and related expenses;
(xvi) fees and out-of-pocket expenses payable to Forum Financial Services, Inc.
under any distribution, management or similar agreement; (xvii) and all other
fees and expenses paid by the Trust pursuant to any distribution or shareholder
service plan adopted pursuant to Rule 12b-1 under the Act.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Norwest and the Trust with respect to each Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. The data is for the past fiscal year.
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
-------- ------ ---------
Diversified Equity Fund 3,737,147 0 3,737,147
Growth Equity Fund 3,961,897 0 3,961,897
Income Equity Fund 187,584 0 187,584
Intermediate U.S. Government Fund 160,764 0 160,764
Stable Income Fund 114,429 0 114,429
SUBADVISORY ARRANGEMENTS
With respect to each of, Diversified Equity Fund and Growth Equity Fund (the
Funds that may invest in international securities), Norwest and the Trust have
entered into Subadvisory Agreements with Schroder.
Schroder makes investment decisions for each of the Funds listed above and
continuously reviews, supervises and administers each Fund's investment program
with respect to that portion, if any, of the respective Fund's portfolio that
Norwest has so delegated. Schroder is required to furnish at its own expense
all services, facilities and personnel
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necessary in connection with managing of each Fund's investments and effecting
portfolio transactions for each Fund (to the extent of Norwest's delegation).
The Subadvisory Agreements among those Funds, Norwest and the Subadviser will
continue in effect only if such continuance is specifically approved at least
annually by the Board or by vote of the shareholders of the Fund, and in either
case by a majority of the Trustees who are not parties to the Subadvisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Subadvisory Agreement.
The Subadvisory Agreement with respect to a Fund is terminable without penalty
by the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
Board, or by the Subadviser on not more than 60 days nor less than 30 days
written notice, and will automatically terminate in the event of its assignment.
The Subadvisory Agreements also provide that, with respect to each Fund, neither
the Subadviser nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the performance of its or their
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Subadvisory Agreement. The Subadvisory Agreements provide that the Subadviser
may render services to others.
The Subadvisory fees are accrued daily and paid monthly. Each Subadviser, in
its sole discretion, may waive all or any portion of its subadvisory fee with
respect to each Fund.
ADMINISTRATION
Forum supervises the overall management of the Trust (which includes, among
other responsibilities, negotiation of contracts and fees with, and monitoring
of performance and billing of, the Trust's transfer agent and custodian and
arranging for maintenance of books and records of the Trust) and provides the
Trust with general office facilities pursuant to a Management Agreement.
The Management Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by the shareholders
and, in either case, by a majority of the Trustees who are not parties to the
Management Agreement or interested persons of any such party.
The Management Agreement terminates automatically if it is assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that, with respect to
each Fund, neither Forum nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
or their duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's or their duties or by reason of
reckless disregard of its or their obligations and duties under the Management
Agreement.
The following table shows the dollar amount of fees payable under the Management
Agreement between Forum and the Trust with respect to each Fund, the amount of
fee that was waived by Forum, if any, and the actual fee received by Forum. The
data is for the past fiscal year.
Management Fee Management Fee Management Fee
Payable Waived Retained
------- ------ --------
Diversified Equity Fund 574,946 287,473 287,473
Growth Equity Fund 440,211 286,137 154,074
Income Equity Fund 37,517 37,517 0
Intermediate U.S. Government Fund 48,717 48,717 0
Stable Income Fund 38,143 38,143 0
DISTRIBUTION
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Forum also acts as distributor of the shares of the Fund. Forum acts as
distributor of the Funds pursuant to a Distribution Services Agreement with the
Trust. Forum distributes shares of each Fund on a "best efforts" basis under
which it is required to take and pay for only such shares as may be sold.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party and, with respect to each class of a Fund
for which there is an effective plan of distribution adopted pursuant to Rule
12b-1, who do not have any direct or indirect financial interest in any
distribution plan of the Fund or in any agreement related to the distribution
plan cast in person at a meeting called for the purpose of voting on such
approval.
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty (i) by the Board or by a vote of the
Fund's shareholders or, with respect to each class of a Fund for which there is
an effective plan of distribution adopted pursuant to Rule 12b-1, a majority of
Trustees who do not have any direct or indirect financial interest in any such
plan or in any agreements related to the plan, on 60 days' written notice to
Forum or (ii) by Forum on 60 days' written notice to the Trust.
Under the Distribution Services Agreement, Forum receives, and may reallow to
certain financial institutions, the initial sales charges assessed on purchases
of A Shares of the Funds. With respect to B Shares of each Fund, the Funds have
adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan") which authorizes the payment to Forum under the Distribution Services
Agreement of a distribution services fee, which may not exceed an annual rate of
0.75%, and a maintenance fee in an amount equal to 0.25%, of the average daily
net assets of the Fund attributable to the B Shares.
The Plan provides that all written agreements relating to the Plan must be in a
form satisfactory to the Board. In addition, the Plan requires the Trust and
Forum to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Funds and Forum pursuant to the Plan
and identifying the distribution activities for which those expenditures were
made.
The Plan provides that, with respect to each class of each Fund to which it
applies, it will remain in effect for one year from the date of its adoption and
thereafter may continue in effect for successive annual periods provided it is
approved by the shareholders of the respective class or by the Board, including
a majority of trustees who are not interested persons of the Trust and who have
no direct or indirect interest in the operation of the Plan, the Distribution
Services Agreement or any agreement related to the Plan. The Plan further
provides that it may not be amended to increase materially the costs which may
be borne by the Trust for distribution pursuant to the Plan without shareholder
approval and that other material amendments to the Plan must be approved by the
trustees in the manner described in the preceding sentence. The Plan may be
terminated at any time by a vote of the Board or by the shareholders of the
respective classes.
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As of the date hereof, the Trust had not yet commenced operations with respect
to A Shares and B Shares of the Funds. Thus, Forum had not yet received any fee
for its distribution services with respect to each Fund's B Shares nor any sales
charges with respect to sales of each Fund's A Shares.
TRANSFER AGENT
Norwest acts as Transfer Agent of the Trust pursuant to a Transfer Agency
Agreement. The Transfer Agency Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Transfer Agency Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of the Transfer Agent as agent for the Trust are:
(1) answering customer inquiries regarding account status and history, the
manner in which purchases and redemptions of shares of the Fund may be effected
and certain other matters pertaining to the Fund; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, (4) assisting in processing purchase and redemption
transactions and receiving wired funds; (5) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (6) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (7) furnishing periodic statements and confirmations of
purchases and redemptions; (8) transmitting proxy statements, annual reports,
prospectuses and other communications from the Trust to its shareholders; (9)
receiving, tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the Trust; and (10)
providing such other related services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives from the Trust, with respect to
each Fund a fee computed and paid monthly at the annual rate of 0.25% of the
Fund's average daily net assets (or, in those Funds with more than one class,
the Fund's average daily net assets attributable to the class).
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest acts as the custodian of the Trust's
assets. The custodian's responsibilities include safeguarding and controlling
the Trust's cash and securities, determining income and collecting interest on
Fund investments. For these services, the custodian receives no fee. The
custodian receives a separate fee for performing certain functions in connection
with loans of portfolio securities.
Pursuant to rules adopted under the 1940 Act, each Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and financial stability of the
institution; the ability of the institution to perform capably custodial
services for the Fund; the reputation of the institution in its national market;
the political and economic stability of the country in which the institution is
located; and further risks of potential nationalization or expropriation of Fund
assets. The custodian employs qualified foreign subcustodians to provide
custody of the Funds' foreign assets in accordance with applicable regulations.
A Fund will not pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Where the Fund's investments consists
solely of such shares, the Fund will pay no custodian fees directly
The Chase Manhattan Bank, N.A. serves as custodian to International Portfolio II
of Core Trust and is compensated by Core Trust with respect to that Portfolio.
Norwest serves as custodian of Small Company Portfolio and Index Portfolio of
Core Trust and receives no compensation for its services to those Portfolios.
PORTFOLIO ACCOUNTING
Forum Financial Corp., an affiliate of Forum, performs portfolio accounting
services for each Fund pursuant to a Fund Accounting Agreement with the Trust.
The Fund Accounting Agreement will continue in effect only if such
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continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Fund Accounting Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Fund Accounting Agreement.
Under its agreement, FFC prepares maintains books and records of each Fund on
behalf of the Trust that are required to be maintained under the 1940 Act,
calculates the net asset value per share of each Fund (and class thereof) and
dividends and capital gain distributions and prepares periodic reports to
shareholders and the SEC. For its services, FFC receives from the Trust with
respect to each Fund a fee of $36,000 per year plus, for each class of the Fund
above one, $6,000 per year. In addition, FFC is paid an additional $12,000 per
year with respect to tax-free money market Funds, global and international Funds
and Funds with more than 25% of their total assets invested in asset backed
securities, that have more than 100 security positions or that have a monthly
portfolio turnover rate of 10% or greater.
FFC is required to use its best judgment and efforts in rendering fund
accounting services and is not be liable to the Trust for any action or inaction
in the absence of bad faith, willful misconduct or gross negligence. FFC is not
responsible or liable for any failure or delay in performance of its fund
accounting obligations arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control and the Trust has agreed to
indemnify and hold harmless FFC, its employees, agents, officers and directors
against and from any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way related to FFC's actions
taken or failures to act with respect to a Fund or based, if applicable, upon
information, instructions or requests with respect to a Fund given or made to
FFC by an officer of the Trust duly authorized. This indemnification does not
apply to FFC's actions taken or failures to act in cases of FFC's own bad faith,
willful misconduct or gross negligence.
The following table shows the dollar amount of fees payable to FFC for its
portfolio accounting services with respect to each Fund, the amount of fee that
was waived by FFC, if any, and the actual fee received by FFC. The data is for
the past fiscal year.
Portfolio Portfolio Portfolio
Accounting Accounting Accounting
Fee Fee Fee
Payable Waived Retained
-------- ------ --------
Diversified Equity Fund 34,700 0 34,700
Growth Equity Fund 34,700 0 34,700
Income Equity Fund 34,700 0 34,700
Intermediate U.S. Government Fund 52,700 0 52,700
Stable Income Fund 51,700 0 51,700
FFC performs similar services for each Portfolio and, in addition, acts as each
Portfolio's transfer agent.
EXPENSES
The Trust may elect not to qualify its shares for sale in every state. The
Adviser has agreed to reimburse the Trust for certain of the operating expenses
of the Funds (exclusive of interest, taxes, brokerage, fees and organization
expenses, all to the extent permitted by applicable state law or regulation)
which in any year exceed the limits prescribed by any state in which the Fund's
shares are qualified for sale. Forum believes that currently the most
restrictive expense ratio limitation imposed by any state is 2-1/2% of the first
$30 million of each Fund's average net assets, 2% of the next $70 million of its
average net assets and 1-1/2% of its average net assets in excess of $100
million. For the purpose of this obligation to reimburse expenses, a Fund's
annual expenses are estimated and accrued daily, and any appropriate estimated
payments will be made by the Adviser or the manager and distributor monthly.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under the Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(i) interest charges, taxes, brokerage fees and commissions; (ii) certain
insurance premiums; (iii) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (iv) telecommunications
expenses; (v) auditing, legal and compliance expenses; (vi) costs of the Trust's
formation and maintaining its existence; (vii) costs of preparing and printing
the Trust's prospectuses, statements of additional information, account
application forms and shareholder reports and delivering them to existing and
prospective shareholders; (viii) costs of maintaining books of original entry
for portfolio and fund accounting and other required books and accounts and of
calculating the net asset value of shares of the Trust; (ix) costs of
reproduction, stationery and supplies; (x) compensation of the Trust's trustees,
officers and employees and costs of other personnel performing services for the
Trust who are not officers of the Adviser, Forum Financial Services, Inc. or
affiliated persons of the Adviser or Forum Financial Services, Inc.; (xi) costs
of corporate meetings; (xii) registration fees and related expenses for
registration with the SEC and the securities regulatory authorities of other
countries in which the Trust's shares are sold; (xiii) state securities law
registration fees
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and related expenses; (xiv) fees and out-of-pocket expenses payable to Forum
Financial Services, Inc. under any distribution, management or similar
agreement; (xv) and all other fees and expenses paid by the Trust pursuant to
any distribution or shareholder service plan adopted pursuant to Rule 12b-1
under the Act.
6. OTHER INFORMATION
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of all Funds are sold on a continuous basis by the distributor.
Set forth below is an example of the method of computing the offering price of
the Funds' A Shares. All other shares of the Trust are offered at their next
determined net asset value. The example assumes a purchase of A Shares of a
hypothetical fund ("Fund Q") in an amount such that the purchase would be
subject to the fund's maximum sales charge (in this case, 4.5%) at a price based
on a hypothetical net asset value per share of A Shares of the fund. Offering
price is determined as follows: Net asset value per share times the sum of one
(1) plus the sales charge expressed as a percentage (for example 4.5% would
equal 0.045).
Net Asset Offering
Value Per Share Price
--------------- -----
Fund Q 11.49 12.00
STATEMENT OF INTENTION
As more fully described in the Prospectus, investors may obtain reduced sales
charges with respect to the purchase of A Shares of the Funds by means of a
written Statement of Intention, which expresses the investor's intention to
invest not less than $100,000 within a period of 13 months in A Shares of a
Fund. The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. A Shares purchased with the first 5% of
such amount will be held subject to a registered pledge (while remaining
registered in the name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full amount indicated
is not purchased, and such pledged shares will be involuntarily redeemed to pay
the additional sales charge, if necessary. When the full amount indicated has
been purchased, the shares will be released from pledge.
EXCHANGES
By making an exchange, the investor authorizes the Trust's transfer agent to act
on telephonic instructions from any person representing himself or herself to be
the investor and believed by the Trust's transfer agent to be genuine. The
records of the Trust's transfer agent of such instructions are binding. The
exchange procedures may be modified or terminated at any time upon appropriate
notice to shareholders. For Federal income tax purposes, exchanges are treated
as sales on which a purchaser will realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than his basis in such
shares at the time of such transaction.
Shareholders of A Shares may purchase, with the proceeds from a redemption of
all or part of their shares, A Shares of the other funds of the Trust that offer
A Shares or Investor class shares ("Investor Shares") of Ready Cash Investment
Fund or Municipal Money Market Fund, two money market portfolios of the Trust.
Shareholders of B Shares may purchase, with the proceeds from a redemption of
all or part of their shares, B Shares of the other funds of the Trust that offer
B Shares or Exchange class shares ("Exchange Shares") of Ready Cash Investment
Fund.
Shareholders of Investor Shares of Ready Cash Investment Fund and Municipal
Money Market Fund may purchase, with the proceeds from a redemption of all or
part of their shares, Investor Shares of the other Fund or A Shares of the funds
of the Trust that offer A Shares. Shareholders of Exchange Shares of Ready Cash
Investment Fund may purchase, with the proceeds from a redemption of all or part
of their shares, B Shares of the funds of the Trust that offer B Shares.
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Shareholders of A Shares or Investor Shares making an exchange will be subject
to the applicable sales charge of any A Shares acquired in the exchange;
provided, that the sales charge charged with respect to the acquired shares will
be assessed at a rate that is equal to the excess (if any) of the rate of the
sales charge that would be applicable to the acquired shares in the absence of
an exchange over the rate of the sales charge previously paid on the exchanged
shares. For purposes of the preceding sentence, A Shares acquired through the
reinvestment of dividends or distributions are deemed to have been acquired with
a sales charge rate equal to that paid on the shares on which the dividend or
distribution was paid.
In addition, A Shares and Investor Shares acquired by a previous exchange
transaction involving shares on which a sales charge has directly or indirectly
been paid (e.g., shares purchased with a sales charge or issued in connection
with an exchange transaction involving shares that had been purchased with a
sales charge), as well as additional shares acquired through reinvestment of
dividends or distributions on such shares will be treated as if they had been
acquired subject to that sales charge.
B Shares may be exchanged without the payment of any contingent deferred sales
charge; however, B Shares or Exchange Shares acquired as a result of such
exchange and subsequently redeemed will nonetheless be subject to the contingent
deferred sales charge applicable to the original B Shares as if those shares
were being redeemed at that time. Exchange Shares may be exchanged without the
payment of any contingent deferred sales charge; however, B Shares acquired as a
result of such exchange and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Exchange Shares as if
those shares were being redeemed at that time.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of the Fund. If
payment for shares redeemed is made wholly or partially in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Trust has filed a formal election with the SEC pursuant to which a
Fund will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES)
Certain A Shares of the Funds on which no initial sales charge was assessed,
that are redeemed within specified periods after the purchase date will be
subject to a contingent deferred sales charge upon redemption.
RIGHT OF ACCUMULATION. Contingent deferred sales charges may be charged on
redemptions of A Shares purchased pursuant to the Cumulative Quantity Discount
(Right of Accumulation). The contingent deferred sales charge will apply to A
Shares purchased if the value of those shares on the date of purchase plus the
net asset value of any Investor Shares held by the shareholder (as of the close
of business on the previous Fund Business Day) of all A Shares held by the
shareholder exceed $1,000,000. For example, if a shareholder has made prior
purchases of A Shares which now have a value of $900,000, the purchase of
$150,000 of A Shares will not be subject to an initial sales charge but will be
subject to the contingent deferred sales charge. The $900,000 of A Shares is
not subject to the contingent deferred sales charge.
STATEMENT OF INTENTION. Contingent deferred sales charges may be charged on
redemptions of A Shares purchased pursuant to a Statement of Intention ("SOI").
The contingent deferred sales charge will not apply to SOIs of under $1,000,000
and will not be applied to SOIs for a greater amount if the shareholder never
purchases $1,000,000 or more of A Shares under the SOI. If a shareholder
purchases $1,000,000 or more under an SOI, the contingent deferred sales charge
will apply with respect to the entire amount purchased. The holding period for
each A Share, however, shall be determined from the date the share was
purchased. If the shareholder redeems A Shares during the period that the SOI
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is in effect, a contingent deferred sales charge will be charged at the time the
shareholder has purchased $1,000,000 or more worth of A Shares pursuant to the
SOI and will be assessed at the rate applicable in the case of a single purchase
of the minimum amount specified in the SOI. If the shareholder purchases less
than the amount specified under the SOI, an additional contingent deferred sales
charge may be assessed in respect of A Shares previously redeemed based on the
amount actually purchased pursuant to the SOI.
A Shares purchased by a shareholder within 60 days following the redemption by
the shareholder of A Shares in the same Fund with a value at least equal to the
A Shares being purchased will not be subject to a contingent deferred sales
charge; provided, however, that this exemption is not applicable to more than
two purchases within a 12-month period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES AND B SHARES)
With respect to A Shares and B Shares of the Funds, certain redemptions are not
subject to any contingent deferred sales charge. No contingent deferred sales
charge is imposed on (i) redemptions of shares acquired through the reinvestment
of dividends and distributions, (ii) involuntary redemptions by a Fund of
shareholder accounts with low account balances, (iii) redemptions of shares
following the death or disability of a shareholder if the Fund is notified
within one year of the shareholder's death or disability, (iv) redemptions to
effect a distribution (other than a lump sum distribution) from an IRA, Keogh
plan or Section 403(b) custodial account or from a qualified retirement plan.
For these purposes, the term disability shall have the meaning ascribed thereto
in Section 72(m)(7) of the Code. Under that provision, a person is considered
disabled if the person is unable to engage in any substantial activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration.
Appropriate documentation satisfactory to the Fund is required to substantiate
any shareholder death or disability.
CONVERSION OF B SHARES
The conversion of Exchange Shares to Investor Shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the distribution services fee with respect to the Exchange Shares
does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) the conversion of Exchange
Shares to Investor Shares does not constitute a taxable event under Federal
income tax law. The conversion of Exchange Shares to Investor Shares may be
suspended if such an opinion is no longer available at the time the conversion
is to occur. In that event, no further conversions of Exchange Shares would
occur, and shares might continue to be subject to a distribution services fee
for an indefinite period, which may extend beyond the specified number of years
for conversion of the original B Shares.
DETERMINATION OF NET ASSET VALUE
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. The Funds value their securities as follows. A
security listed or traded on an exchange is valued at its last sale price (prior
to the time as of which assets are valued) on the exchange where it is
principally traded. Lacking any such sales on the day of valuation, the
security is valued at the mean of the last bid and asked prices. All other
securities for which over-the-counter market quotations are readily available
generally are valued at the mean of the current bid and asked prices. When
market quotations are not readily available, securities are valued at fair value
as determined in good faith by the Board. Debt securities may be valued on the
basis of valuations furnished by pricing services which utilize electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value of
such securities. All assets and liabilities of a Fund denominated in foreign
currencies are converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar last quoted by
a major bank.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original net asset value and the recalculated net
asset value divided by the recalculated net asset value is 0.005 (1/2 of 1%) or
less or shareholder transactions are otherwise insubstantially affected, further
action is not required.
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PORTFOLIO TRANSACTIONS
Investment decisions for the Funds will be made independently from those for any
other client account or investment company that is or may in the future become
managed by the Adviser or its affiliates. Investment decisions are the product
of many factors including basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the respective Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients. In addition, when purchases or sales of the
same security for the Fund and other client accounts managed by the Advisers
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
There usually are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and ask prices. In the case of
securities traded in the foreign and domestic over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed
commission or markup. In underwritten offerings, the price includes a disclosed
fixed commission or discount.
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions. Allocations of transactions to brokers
and dealers and the frequency of transactions are determined by the Advisers in
their best judgment and in a manner deemed to be in the best interest of
shareholders of the Funds rather than by any formula. The primary consideration
is prompt execution of orders in an effective manner and at the most favorable
price available to the Fund. In transactions on stock exchanges in the United
States, these commissions are negotiated, whereas on foreign stock exchanges
these commissions are generally fixed. Where transactions are executed in the
over-the-counter market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, it will utilize
the services of others. In all cases the Fund will attempt to negotiate best
execution. No Fixed Income Fund paid any brokerage commissions during the
fiscal year ended October 31, 1995.
The following table shows the aggregate brokerage commissions with respect to
each Equity Fund with respect to each Fund's investment in equity securities.
The data is for the past fiscal year.
Aggregate
Commissions Paid
Diversified Equity Fund 180,093
Growth Equity Fund 115,993
Income Equity Fund 25,321
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with securities transactions, the Advisers take into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Advisers may also take into account
payments made by brokers effecting transactions for a Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Fund to pay these
brokers a higher amount of commission than may be charged by other brokers.
Such research and analysis may be used by the Advisers in connection with
services to clients other than the Funds, and the Advisers' fees are not reduced
by reason of the Advisers' receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine,
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an Adviser may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute portfolio transactions for the Funds.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Advisers to employ their
respective affiliates to effect securities transactions of the Funds, provided
certain other conditions are satisfied. Payment of brokerage commissions to an
affiliate of an Adviser for effecting such transactions is subject to Section
17(e) of the 1940 Act, which requires, among other things, that commissions for
transactions on securities exchanges paid by a registered investment company to
a broker which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. It is the Funds' policy
that commissions paid to Schroder Securities Limited, Norwest Investment
Management, Inc. and other affiliates of an Adviser will, in the judgment of the
Adviser responsible for making portfolio decisions and selecting brokers, be (i)
at least as favorable as commissions contemporaneously charged by the affiliate
on comparable transactions for its most favored unaffiliated customers and (ii)
at least as favorable as those which would be charged on comparable transactions
by other qualified brokers having comparable execution capability. The Board,
including a majority of the non-interested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of an Adviser by the Funds satisfy
the foregoing standards.
The Fund has no understanding or arrangement to direct any specific portion of
its brokerage to Schroder Securities, and will not direct brokerage to Schroder
Securities in recognition of research services.
TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements each
Fund must meet to qualify for such treatment, and of the application of state
and local tax laws to his or her particular situation.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered a 60 percent long-term and 40
percent short-term capital gain or loss. Each Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as described below)
from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund upon the lapse or sale of such options held by such Fund will be either
long-term or short-term capital gain or loss depending upon the Fund's holding
period with respect to such option. However, gain or loss realized upon the
lapse or closing out of such options that are written by a Fund will be treated
as short-term capital gain or loss. In general, if a Fund exercises an option,
or an option that a Fund has written is exercised, gain or loss on the option
will not be separately recognized but the premium received or paid will be
included in the calculation of gain or loss upon disposition of the property
underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund may constitute a
"straddle" for Federal income tax purposes. A straddle of which at least one,
but not all, the positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that (i) loss realized on
disposition of one position of a straddle not be recognized to the extent that a
Fund has unrealized gains with respect to the other position in such straddle;
(ii) a Fund's holding period in straddle positions be suspended while the
straddle exists (possibly resulting in any gain being treated as short-term
capital gain rather than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-section 1256 positions be treated as 60 percent long-term and 40
percent short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Fund which may
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mitigate the effects of the straddle rules, particularly with respect to mixed
straddles. In general, the straddle rules described above do not apply to any
straddles held by a Fund if all of the offsetting positions consist of section
1256 contracts.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, New York 10004.
__________, independent auditors, acts as auditors for the Trust.
OWNERSHIP OF FUND SHARES
Prior to the public issuance of shares of the Funds, due to its initial
investment, Forum owned all outstanding shares of each Fund and, accordingly,
may be deemed to be a controlling person of each Fund. Upon the investment in
each Fund by public shareholders, Forum ceased to be a controlling person of any
Fund. As of February ___, 1995, the Trustees and officers of the Trust in the
aggregate owned less than one percent of the outstanding shares of each Fund.
The following persons owned of record 5% or more of the outstanding shares of a
Fund, or any class thereof, as of February ___, 1995:
[5% Shareholder Table]
ADDITIONAL INFORMATION ABOUT THE TRUST
Currently, the Trust is divided into thirty-one separate series representing
shares of each of the five Funds and shares of Cash Investment Fund, Ready Cash
Investment Fund, U.S. Government Fund, Treasury Fund, Municipal Money Market
Fund, Adjustable U.S. Government Reserve Fund, Government Income Fund, Income
Fund, Total Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free Fund,
Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Stock Fund, ValuGrowth
Stock Fund, Small Company Stock Fund, Contrarian Stock Fund, Large Company
Growth Fund, Small Company Growth Fund, International Fund, Index Fund,
Conservative Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund,
Managed Fixed Income Fund and Short Maturity Investment Fund. The Trust has
received an order from the SEC permitting the issuance and sale of separate
classes of shares representing interests in each of the Trust's portfolios. It
is anticipated, however, that the Trust will operate the classes of each Fund in
accordance with rules of the SEC adopted after the Trust obtained its exemptive
order.
The Board determined that currently no conflict of interest exists between or
among each Fund's A Shares, B Shares, and other classes, if any. On an ongoing
basis, the Board, pursuant to its fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states,
including Texas. As a result, to the extent that the Trust or a shareholder is
subject to the jurisdiction of courts in those states, the courts may not apply
Delaware law, and may thereby subject the Trust shareholders to liability. To
guard against this risk, the Trust Instrument of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation and instrument entered into by
the Trust or its Trustees, and provides for indemnification out of Trust
property of any shareholder held personally liable for the obligations of the
Trust. Thus, the risk of a shareholder incurring financial loss beyond his
investment because of shareholder liability is limited to circumstances in which
(1) a court refuses to apply Delaware law, (2) no contractual limitation of
liability is in effect, and (3) the Trust itself is unable to meet its
obligations. In light of Delaware law, the nature of the Trust's business, and
the nature of its assets, the Board believes that the risk of personal liability
to a Trust shareholder is extremely remote.
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FINANCIAL STATEMENTS
The financial statements of each Fund for the year ended October 31, 1995 (which
include statements of assets and liabilities, statements of operations,
statements of changes in net assets, notes to financial statements, financial
highlights, statements of investments and the auditors' report thereon) are
included in the Annual Report to Shareholders of the Trust delivered along with
this SAI and are incorporated herein by reference.
[To be included in subsequent amendment to Trust's registration statement, filed
pursuant to Rule 485(b), to become effective on same day as this amendment]
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Funds' registration statement filed with the SEC under the Securities Act of
1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract of other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
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Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
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A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present
but may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
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An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of
the issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
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COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an
A rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues
with an A-2 designation is strong. However, the relative degree of safety is
not as high as for issues designated A-1. A-3 issues have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
FITCH INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
COMPONENT EQUITY FUNDS
DIVERSIFIED EQUITY FUND
GROWTH EQUITY FUND
EQUITY FUNDS
LARGE COMPANY GROWTH FUND
SMALL COMPANY GROWTH FUND
INTERNATIONAL FUND
INTERNATIONAL PORTFOLIO
INCOME EQUITY FUND
INDEX FUND
BALANCED FUNDS
CONSERVATIVE BALANCED FUND
MODERATE BALANCED FUND
GROWTH BALANCED FUND
FIXED INCOME FUNDS
INTERMEDIATE U.S. GOVERNMENT FUND
MANAGED FIXED INCOME FUND
STABLE INCOME FUND
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
This Statement of Additional Information ("SAI") supplements the Prospectus
offering I Shares (the "Shares") of Diversified Equity Fund, Growth Equity Fund,
Large Company Growth Fund, Small Company Growth Fund, International Fund, Income
Equity Fund, Index Fund, Conservative Balanced Fund, Moderate Balanced Fund,
Growth Balanced Fund, Intermediate U.S. Government Fund, Managed Fixed Income
Fund and Stable Income Fund (each a "Fund" and collectively the "Funds"). Each
Fund is a diversified series of Norwest Advantage Funds, a registered open-end,
management investment company (the "Trust"). International Fund currently
invests all of its investable assets in the International Portfolio of Core
Trust (Delaware) ("International Portfolio"), a registered open-end, management
investment company. This SAI should be read only in conjunction with the Funds'
Prospectus, copies of which may be obtained without charge.
TABLE OF CONTENTS
Page
----
1. Norwest Advantage Funds . . . . . . . . . . . .
2. Investment Policies . . . . . . . . . . . . . .
3. Investment Limitations. . . . . . . . . . . . .
4. Performance Data and Advertising. . . . . . . .
5. Management. . . . . . . . . . . . . . . . . . .
6. Other Information . . . . . . . . . . . . . . .
Appendix A - Description of Securities Ratings . . . A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED BY AN INVESTOR WITHOUT CHARGE BY
CONTACTING THE TRUST'S DISTRIBUTOR, FORUM FINANCIAL SERVICES, INC., 61 BROADWAY,
NEW YORK, NEW YORK 10006.
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1. NORWEST ADVANTAGE FUNDS
DEFINITIONS
The Trust was originally organized under the name Prime Value Funds, Inc. as a
Maryland corporation on August 29, 1986. On July 30, 1993, pursuant to a
shareholder vote, the Trust was reorganized as a Delaware business trust. On
October 1, 1995, the Trust's name was changed from "Norwest Funds." As used in
this SAI, the following terms shall have the meanings listed:
"Adviser" shall mean each Fund's investment adviser, Norwest Investment
Management, a part of Norwest. "Advisers" shall mean, collectively, the Adviser
and Schroder.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Core Trust" shall mean Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Forum" shall mean Forum Financial Services, Inc., the Trust's
administrator and distributor of the Trust's shares.
"FFC" shall mean Forum Financial Corp., the Trust's fund accountant.
"Fund" shall mean each of the thirteen separate portfolios of the Trust to
which this Statement of Additional Information relates as identified on the
cover page.
"Norwest" shall mean Norwest Bank Minnesota, N.A., a subsidiary of Norwest
Corporation.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Portfolio" shall mean International Portfolio, International Portfolio II,
Small Company Portfolio and Index Portfolio, four separate portfolios of Core
Trust.
"Schroder" shall mean Schroder Capital Management Inc., the investment
subadviser to Diversified Equity Fund, Growth Equity Fund, International Fund,
Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Transfer Agent" shall mean Norwest acting in its capacity as transfer and
dividend disbursing agent of the Trust.
"Trust" shall mean Norwest Advantage Funds, an open-end management
investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
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2. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning the Funds' investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any investment
or employ any investment technique or strategy not referenced in the Prospectus
as relates to that Fund. For example, while the SAI describes "swap"
transactions below, only those Funds whose investment policies, as described in
the Prospectus, allow the Fund to invest in swap transactions may do so.
Reference to the investment policies and investment limitations of International
Fund also pertain to the International Portfolio, in which that Fund currently
invests all of its assets.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc., Standard & Poor's Corporation and other NRSROs
are private services that provide ratings of the credit quality of debt
obligations, including convertible securities. A description of the range of
ratings assigned to various types of bonds and other securities by several
NRSROs is included in Appendix A to this SAI. The Funds may use these ratings
to determine whether to purchase, sell or hold a security. However, ratings are
general and are not absolute standards of quality. Consequently, securities
with the same maturity, interest rate and rating may have different market
prices. If an issue of securities ceases to be rated or if its rating is
reduced after it is purchased by a Fund, the investment adviser or investment
subadviser of the Fund will determine whether the Fund should continue to hold
the obligation. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings. An
issuer's current financial condition may be better or worse than a rating
indicates.
CONVERTIBLE SECURITIES
A Fund may invest in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Although no
securities investment is without some risk, investment in convertible securities
generally entails less risk than in the issuer's common stock. However, the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by a comparison of its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
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A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
Equity-linked securities are securities that are convertible into or based upon
the value of, equity securities upon certain terms and conditions. The following
are three examples of equity-linked securities. A fund may invest in the
securities described below or other similar equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer at any time or if the issuer's common stock
is trading at a specified price level or better. The redemption price starts at
the beginning of the PERCS' duration period at a price that is above the cap by
the amount of the extra dividends the PERCS holder is entitled to receive
relative to the common stock over the duration of the PERCS and declines to the
cap price shortly before maturity of the PERCS. In exchange for having the cap
on capital gains and giving the issuer the option to redeem the PERCS at any
time or at the specified common stock price level, a Fund may be compensated
with a substantially higher dividend yield than that on the underlying common
stock. Funds that seek current income find PERCS attractive because a PERCS
provides a higher dividend income than that paid with respect to a company's
common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the
price of the issuer's common stock. ELKS are debt securities commonly issued in
fully registered form for a term of three years under an indenture trust. At
maturity, the holder of ELKS will be entitled to receive a principal amount
equal to the lesser of a cap amount, commonly in the range of 30% to 55% greater
than the current price of the issuer's common stock, or the average closing
price per share of the issuer's common stock, subject to adjustment as a result
of certain dilution events, for the 10 trading days immediately prior to
maturity. Unlike PERCS, ELKS are commonly not subject to redemption prior to
maturity. ELKS usually bear interest during the three-year term at a
substantially higher rate than the dividend yield on the underlying common
stock. In exchange for having the cap on the return that might have been
received as capital gains on the underlying common stock, the Investment Fund
may be compensated with the higher yield, contingent on how well the underlying
common stock does. Funds that seek current income find ELKS attractive because
ELKS provide a higher dividend income than that paid with respect to a company's
common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities, in
that the amount received prior to maturity is not fixed but is based on the
price of the issuer's common stock. LYONs are zero-coupon notes that sell at a
large discount from face value. For an investment in LYONs, a Fund will not
receive any interest payments until the notes mature, typically in 15 or 20
years, when the notes are redeemed at face, or par, value. The yield on LYONs,
typically, is lower-than-market rate for debt securities of the same maturity,
due in part to the fact that the LYONs are convertible into common stock of the
issuer at any time at the option of the holder of the LYON. Commonly, LYONs are
redeemable by the issuer at any time after an initial period or if the issuer's
common stock is trading at a specified price level or better, or, at the option
of the holder, upon certain fixed dates. The redemption price typically is the
purchase price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Fund will receive
only the lower-than-market yield unless the underlying common stock increases in
value at a substantial rate. LYONs are attractive to investors when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
WARRANTS
Warrants are options to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. To the extent that the market value of the
security that may be purchased upon exercise of the warrant rises above the
exercise price, the value of the warrant will tend to rise. To the extent that
the exercise price
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equals or exceeds the market value of such security, the warrants will have
little or no market value. If a warrant is not exercised within the specified
time period, it will become worthless and the Fund will lose the purchase price
paid for the warrant and the right to purchase the underlying security. The
Fund may not invest more than 2% of its net assets in warrants not traded on the
American or New York Stock Exchange.
MORTGAGE BACKED AND ASSET BACKED SECURITIES
TYPES OF CREDIT ENHANCEMENT
To lessen the effect of failures by obligors on Mortgage Assets (as defined in
the Prospectus) to make payments, mortgage-backed securities may contain
elements of credit enhancement. Credit enhancement falls into two categories:
(1) liquidity protection; and (2) protection against losses resulting after
default by an obligor on the underlying assets and collection of all amounts
recoverable directly from the obligor and through liquidation of the collateral.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets (usually the bank, savings association
or mortgage banker that transferred the underlying loans to the issuer of the
security), to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting after default and
liquidation ensures ultimate payment of the obligations on at least a portion of
the assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Funds will not pay any additional fees for
such credit enhancement, although the existence of credit enhancement may
increase the price of security.
Examples of credit enhancement arising out of the structure of the transaction
include (i) "senior-subordinated securities" (multiple class securities with one
or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), (ii) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses) and (iii) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
OTHER GOVERNMENTAL RELATED MORTGAGE-BACKED SECURITIES
The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
Government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These
assets include, among other things, single family and multi-family mortgage
loans, as well as commercial mortgage loans. In order to dispose of such assets
in an orderly manner, RTC has established a vehicle registered with the SEC
through which it sells mortgage-backed securities. RTC mortgage-backed
securities represent pro rata interests in pools of mortgage loans that RTC
holds or has acquired, as described above, and are supported by one or more of
the types of private credit enhancements used by Private Mortgage Lenders.
It is anticipated that in the future the Federal Deposit Insurance Corporation
(which also holds mortgage loans as a conservator or receiver of insolvent banks
or in its corporate capacity) or other governmental agencies or
instrumentalities may establish vehicles for the issuance of mortgage-backed
securities that are similar in structure and in types of credit enhancements to
RTC securities.
ASSET-BACKED SECURITIES
A Fund may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and
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receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts and special purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-backed debt securities or other securities in which a Fund may invest.
Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only ("POs") securities usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand,
if rates rise and prepayments slow, the value of the PO will drop.
Interest only ("IOs") securities result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount
to their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as
the notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Fund may receive less cash back than
it initially invested.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Funds invest (including mortgage-backed securities)
may have variable or floating rates of interest. These securities pay interest
at rates that are adjusted periodically according to a specified formula,
usually with reference to some interest rate index or market interest rate (the
"underlying index"). The interest paid on these securities is a function
primarily of the underlying index upon which the interest rate adjustments are
based. Such adjustments minimize changes in the market value of the obligation
and, accordingly, enhance the ability of the Fund to maintain a stable net asset
value. Similar to fixed rate debt instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities purchased by a Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-backed
securities) pay interest at a rate that that varies inversely to prevailing
short-term interest rates (sometimes referred to as inverse floaters). For
instance, upon reset the interest rate payable on a security may go down when
the underlying index has risen. During times when short-term interest rates are
relatively low as compared to long-term interest rates a Fund may attempt to
enhance its yield by purchasing inverse floaters. Certain inverse floaters may
have
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an interest rate mechanism that multiplies the effects of changes in the
underlying index. This form of leverage may have the effect of increasing the
volatility of the security's market value while increasing the security's, and
thus the Fund's, yield.
There may not be an active secondary market for any particular floating or
variable rate instrument (particularly inverse floaters) which could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
repayment obligation during periods that the Fund is not entitled to exercise
any demand rights it may have. A Fund could, for this or other reasons, suffer
a loss with respect to an instrument. The Adviser monitors the liquidity of the
Fund's investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
INTEREST RATE PROTECTION TRANSACTIONS
Certain Funds may enter into interest rate protection transactions, including
interest rate swaps, caps, collars and floors. Interest rate swap transactions
involve an agreement between two parties to exchange interest payment streams
that are based, for example, on variable and fixed rates that are calculated on
the basis of a specified amount of principal (the "notional principal amount")
for a specified period of time. Interest rate cap and floor transactions
involve an agreement between two parties in which the first party agrees to make
payments to the counterparty when a designated market interest rate goes above
(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. Interest rate collar
transactions involve an agreement between two parties in which the payments are
made when a designated market interest rate either goes above a designated
ceiling or goes below a designated floor on predetermined dates or during a
specified time period.
A Fund expects to enter into interest rate protection transactions to preserve a
return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities it anticipates
purchasing at a later date. The Funds intend to use these transactions as a
hedge and not as a speculative investment.
A Fund may enter into interest rate protection transactions on an asset-based
basis, depending on whether it is hedging its assets or its liabilities, and
will usually enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these interest
rate protection transactions are entered into for good faith hedging purposes,
and inasmuch as segregated accounts will be established with respect to such
transactions, the Funds believe such obligations do not constitute senior
securities. The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash, U.S. Government Securities or other liquid
high grade debt obligations having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account by a custodian
that satisfies the requirements of the 1940 Act. The Funds also will establish
and maintain such segregated accounts with respect to its total obligations
under any interest rate swaps that are not entered into on a net basis and with
respect to any interest rate caps, collars and floors that are written by the
Fund.
A Fund will enter into interest rate protection transactions only with banks and
other institutions believed by the investment adviser to the Fund to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, they are less liquid than swaps.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve the currencies of foreign
countries. In addition, a Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of certain investment programs.
Accordingly, the value of the assets of a Fund, as measured in United States
dollars, may be affected by changes in foreign currency exchange rates and
exchange control regulations. In addition, the Fund may incur costs in
connection
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with conversions between various currencies. A Fund may conduct foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or by entering into
foreign currency forward contracts ("forward contracts") to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers and involve the risk that the other
party to the contract may fail to deliver currency when due, which could result
in losses to the Fund. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. Foreign exchange
dealers realize a profit based on the difference between the price at which they
buy and sell various currencies.
A Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, a Fund may enter into forward currency contracts in connection with
existing portfolio positions. For example, when an investment adviser believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar, the Fund may enter into a forward contract to
sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward contracts involve the risk
of inaccurate predictions of currency price movements, which may cause the Fund
to incur losses on these contracts and transaction costs. The investment
advisers do not intend to enter into forward contracts on a regular or
continuous basis, and will not do so if, as a result, a Fund will have more than
25 percent of the value of its total assets committed to such contracts or the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency.
At or before the settlement of a forward currency contract, a Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency.
The Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a global,
around-the-clock market.
When required by applicable regulatory guidelines, a Fund will set aside cash,
U.S. Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
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HEDGING AND OPTION INCOME STRATEGIES
Certain Funds may engage in certain options strategies in order to enhance the
Fund's income and may engage in certain options and futures strategies to
attempt to hedge the Fund's portfolio. The instruments in which the Funds may
invest include (i) options on fixed income securities, fixed income securities
indexes and foreign currencies, (ii) index, interest rate and foreign currency
futures contracts ("futures contracts"), and (iii) options on futures contracts.
Use of these instruments is subject to regulation by the SEC, the several
options and futures exchanges upon which options and futures are traded, and the
CFTC.
The various strategies referred to herein and in the Prospectus are intended to
illustrate the type of strategies that are available to, and may be used by, an
investment adviser in managing a Fund's portfolio. No assurance can be given,
however, that any strategies will succeed.
The Funds will not use leverage in their option income and hedging strategies.
In the case of transactions entered into as a hedge, a Fund will hold
securities, currencies or other options or futures positions whose values are
expected to offset ("cover") its obligations thereunder. A Fund will not enter
into a hedging strategy that exposes the Fund to an obligation to another party
unless it owns either (1) an offsetting ("covered") position or (2) cash, U.S.
Government Securities or other liquid, high-grade debt securities with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Fund will set aside cash, U.S. Government
Securities or other liquid, high-grade debt securities in a segregated account
with its custodian in the prescribed amount. Any assets used for cover or held
in a segregated account cannot be sold or closed out while the hedging or option
income strategy is outstanding, unless they are replaced with similar assets.
As a result, there is a possibility that the use of cover or segregation
involving a large percentage of a Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and write (sell) put
and call options covering specified securities, stock index-related amounts or
currencies. A put option (sometimes called a "standby commitment") gives the
buyer of the option, upon payment of a premium, the right to deliver a specified
amount of a security or currency to the writer of the option on or before a
fixed date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. A Fund may buy or sell both exchange-traded
and over-the-counter ("OTC") options. A Fund will purchase or write an option
only if that option is traded on a recognized U.S. options exchange or if an
investment adviser believes that a liquid secondary market for the option
exists. When a Fund purchases an OTC option, it relies on the dealer from which
it has purchased the OTC option to make or take delivery of the securities or
currency underlying the option. Failure by the dealer to do so would result in
the loss of the premium paid by the Fund as well as the loss of the expected
benefit of the transaction. OTC options and the securities underlying these
options currently are treated as illiquid securities by the Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon
certain factors, including the market price of the underlying securities index,
the relationship of the exercise price to the market price, the historical price
volatility of the underlying securities index, the option period, supply and
demand and interest rates.
A Fund may purchase call options on debt securities that an investment adviser
intends to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. A Fund may similarly purchase put options
in order to hedge against a decline in
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market value of securities held in its portfolio. The put enables the Fund to
sell the underlying security at the predetermined exercise price; thus the
potential for loss to the Fund is limited to the option premium paid. If the
market price of the underlying security is lower than the exercise price of the
put, any profit the Fund realizes on the sale of the security would be reduced
by the premium paid for the put option less any amount for which the put may be
sold.
An investment adviser may write call options when it believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs.
A Fund may purchase and write put and call options on fixed income security
indexes in much the same manner as the options discussed above, except that
index options may serve as a hedge against overall fluctuations in the fixed
income securities markets (or market sectors) or as a means of participating in
an anticipated price increase in those markets. The effectiveness of hedging
techniques using index options will depend on the extent to which price
movements in the index selected correlate with price movements of the securities
which are being hedged. Index options are settled exclusively in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
A Fund may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange fluctuation on foreign securities the Fund
holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Options Strategies" above
and "Foreign Currency Forward Transactions" which influence foreign exchange
sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, the Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the investment adviser's
ability to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option,
fluctuations in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with respect
to that position, a loss will be realized in the amount of the premium
paid.
(3) A position in an exchange-listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange-
listed options relate to equity securities. Exchange markets for options
on foreign currencies are relatively new and the ability to establish and
close out positions on the exchanges is subject to the maintenance of a
liquid secondary market. Closing transactions may be effected
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with respect to options traded in the over-the-counter markets (currently
the primary markets for options on foreign currencies) only by negotiating
directly with the other party to the option contract or in a secondary
market for the option if such market exists. There is no assurance that a
liquid secondary market will exist for any particular option at any
specific time. If it is not possible to effect a closing transaction, a
Fund would have to exercise the option which it purchased in order to
realize any profit. The inability to effect a closing transaction on an
option written by a Fund may result in material losses to the Fund.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. A futures contract is a bilateral agreement wherein one
party agrees to accept, and the other party agrees to make, delivery of cash, an
underlying debt security or the currency as called for in the contract at a
specified future date and at a specified price. For futures contracts with
respect to an index, delivery is of an amount of cash equal to a specified
dollar amount times the difference between the index value at the time of the
contract and the close of trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
A Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, a Fund may sell foreign currency futures contracts when
the Adviser anticipates a general weakening of foreign currency exchange rates
that could adversely affect the market values of the Fund's foreign securities
holdings. A Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. A Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. A Fund may write call options on foreign currency futures
contracts as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING. No
price is paid upon entering into futures contracts, rather, a Fund is required
to deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash or U.S. Government Securities generally equal to 5% or
less of the contract value. This amount is known as initial margin. Subsequent
payments, called variation margin, to and from the broker, would be made on a
daily basis as the value of the futures position varies. When writing a call on
a futures contract, variation margin must be deposited in accordance with
applicable exchange rules. The initial margin in futures transactions is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to
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the daily limit for several consecutive trading days with little or no trading
and thereby prevent prompt liquidation of positions. In such event, it may not
be possible for a Fund to close a position, and in the event of adverse price
movements, the Fund would have to make daily cash payments of variation margin.
In addition:
(1) Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different
skills and techniques than predicting changes in the prices of individual
securities. Moreover, futures contracts relate not to the current level of
the underlying instrument but to the anticipated levels at some point in
the future; thus, for example, trading of stock index futures may not
reflect the trading of the securities which are used to formulate an index
or even actual fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several
reasons unrelated to the value of the underlying securities or currencies
which causes this situation to occur. As a result, a correct forecast of
general market trends may still not result in successful hedging through
the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not
be possible to close a position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash
payments of variation margin.
(4) Like other options, options on futures contracts have a limited life.
A Fund will not trade options on futures contracts on any exchange or board
of trade unless and until, in the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with
options on futures transactions are not greater than the risks in
connection with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is
at risk. Sellers of options on futures contracts, however, must post an
initial margin and are subject to additional margin calls which could be
substantial in the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency
futures contracts and their use as a hedging device similar to those
associated with options on foreign currencies described above. In
addition, settlement of foreign currency futures contracts must occur
within the country issuing that currency. Thus, a Fund must accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign restrictions or regulations regarding the maintenance of foreign
banking arrangements by U.S. residents, and the Fund may be required to pay
any fees, taxes or charges associated with such delivery which are assessed
in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however that in addition,
with respect to positions in commodity futures and option contracts not for bona
fide hedging purposes the Fund represents that the aggregate initial margin and
premiums required to establish these positions (subject to certain exclusions)
will not exceed 5% of the liquidation value of the Fund's assets after taking
into account unrealized profits and losses on any such contract the Fund has
entered into.
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GUARANTEED INVESTMENT CONTRACTS
A Fund may invest in guaranteed investment contracts ("GICs") issued by
insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest at a rate based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. The insurance company
may assess periodic charges against a GIC for expense and service costs
allocable to it, and these charges will be deducted from the value of the
deposit fund. A Fund will purchase a GIC only when the Adviser has determined
that the GIC presents minimal credit risks to the Fund and is of comparable
quality to instruments that are rated high quality by an NRSRO having the
characteristics described above. Because a Fund may not receive the principal
amount of a GIC from the insurance company on seven days' notice or less, a GIC
may be considered an illiquid investment. The term of a GIC will be one year or
less. In determining the average weighted portfolio maturity of a Fund, a GIC
will be deemed to have a maturity equal to the period of time remaining until
the next readjustment of the guaranteed interest rate.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables a Fund to recover for the term
of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed delivery basis.
In those cases, the purchase price and the interest rate payable on the
securities are fixed on the transaction date and delivery and payment may take
place a month or more after the date of the transaction. At the time a Fund
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
A Fund will make commitments for such when-issued transactions only when it has
the intention of actually acquiring the securities. To facilitate such
acquisitions, the Fund will maintain with its custodian a separate account with
portfolio securities in an amount at least equal to such commitments. On
delivery dates for such transactions, the Fund will meet its obligations from
maturities, sales of the securities held in the separate account or from other
available sources of cash. If a Fund chooses to dispose of the right to acquire
a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation.
DOMESTIC AND FOREIGN BANK OBLIGATIONS
A Fund may invest in fixed-time deposits, which are payable at their stated
maturity date and bear a fixed rate of interest, generally may be withdrawn on
demand by the Fund but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation
and could reduce the Fund's yield. Although fixed-time deposits do not in all
cases have a secondary market, there are no contractual restrictions on the
Fund's right to transfer a beneficial interest in the deposits to third parties.
Investments that a Fund may make in securities of foreign branches of domestic
banks and domestic and foreign branches of foreign banks may involve certain
risks, including future political and economic developments, the possible
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imposition of foreign withholding taxes on interest income payable on such
securities, the possible seizure or nationalization of foreign deposits,
differences from domestic banks in applicable accounting, auditing and financial
reporting standards, and the possible establishment of exchange controls or
other foreign governmental laws or restrictions applicable to the payment of
certificates of deposit or time deposits which might affect adversely the
payment of principal and interest on such securities held by the Fund.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the investment adviser of each
Fund, pursuant to guidelines approved by the Board. The investment adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer. The investment
adviser monitors the liquidity of the securities in each Fund's portfolio and
reports periodically on such decisions to the Board.
TEMPORARY DEFENSIVE POSITION
When a Fund assumes a temporary defensive position, it may invest in (i) short-
term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation, (iii) commercial paper of prime quality rated Prime-2 or
higher by Moody's or A-2 or higher by S&P or, if not rated, determined by the
Adviser to be of comparable quality, (iv) repurchase agreements covering any of
the securities in which the Fund may invest directly and (v) money market mutual
funds.
The Funds may invest in the securities of other investment companies within the
limits prescribed by the 1940 Act. Under normal circumstances, each Fund
intends to invest less than 5% of the value of its net assets in the securities
of other investment companies. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).
3. INVESTMENT LIMITATIONS
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of a
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund and cannot be changed without the affirmative vote of a
majority of the Fund's outstanding voting securities (as defined in the
Prospectus). A Fund may not:
(1) Diversification: With respect to 75 percent of its assets, the Fund
may not purchase a security other than a U.S. Government Security if, as a
result, more than five percent of the Fund's total assets would be invested
in the securities of a single issuer or the Fund would own more than ten
percent of the outstanding
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voting securities of any single issuer; provided, however, that each Fund
may invest all or a portion of its assets in another diversified, open-end
management investment company with substantially the same investment
objective, policies and restrictions as the Fund.
(2) Concentration: The Fund may not purchase securities if, immediately
after the purchase, more than 25 percent of the value of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in the same industry; provided, however, that
there is no limit on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, foreign government
securities, mortgage related or housing-related securities, municipal
securities, and issuers domiciled in a single country; that financial
service companies are classified according to the end users of their
services (for example, automobile finance, bank finance and diversified
finance); that utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric and
telephone); that will each invest more than 25 percent of the value of the
Fund's total assets in obligations of domestic and foreign financial
institutions and their holding companies; and that each Fund may invest all
of a portion of its assets in another diversified, open-end management
investment company with substantially the same investment objective,
policies and restrictions as the Fund.
(3) Borrowing: Each Fund may borrow money for temporary or emergency
purposes, including the meeting of redemption requests; but not in excess
of 33 1/3 percent of the value of the Fund's total assets (as computed
immediately after the borrowing).
(4) Issuance of Senior Securities: The Fund may not issue senior
securities except to the extent permitted by the 1940 Act.
(5) Underwriting Activities: The Fund may not underwrite securities of
other issuers, except to the extent that the Fund may be considered to be
acting as an underwriter in connection with the disposition of portfolio
securities.
(6) Making Loans: The Fund may not make loans, except the Funds may enter
into repurchase agreements, purchase debt securities that are otherwise
permitted investments and lend portfolio securities.
(7) Purchases and Sales of Real Estate: The Fund may not purchase or sell
real estate, any interest therein or real estate limited partnership
interests, except that the Fund may invest in debt obligations secured by
real estate or interests therein or securities issued by companies that
invest in real estate or interests therein.
(8) Purchases and Sales of Commodities: The Fund may not purchase or sell
physical commodities or contracts, options or options on contracts to
purchase or sell physical commodities, provided that currencies and
currency-related contracts and contracts on indices are not deemed to be
physical commodities.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund and may be changed by the Board.
(1) Borrowing: Borrowing for other than temporary or emergency purposes
or meeting redemption requests is limited to five percent of the value of
each Funds total assets except in the case of Intermediate U.S. Government
Fund, and Managed Fixed Income Fund. Where a Fund establishes a segregated
account to limit the amount of leveraging of the Fund with respect to
certain investment techniques, the Fund does not treat those techniques as
involving borrowings fro purposes of this limitation.
(2) Illiquid Securities: No Fund may acquire securities or invest in
repurchase agreements with respect to any securities if, as a result, more
than (i) fifteen percent of the Fund's net assets (taken at current value)
would be invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in securities which are not
readily marketable, including securities that are not readily marketable by
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virtue of restrictions on the sale of such securities to the public without
registration under the Securities Act of 1933 ("Restricted Securities") or
(ii) ten percent of the Fund's total assets would be invested in Restricted
Securities.
(3) Other Investment Companies: The Fund may not invest in securities of
another investment company, except to the extent permitted by the 1940 Act.
(4) Margin and Short Sales: Except for Intermediate U.S. Government Fund,
a Fund may not purchase securities on margin or make short sales of
securities (except short sales against the box) except for the use of
short-term credit necessary for the clearance of purchases and sales of
portfolio securities. A Fund may make margin deposits in connection with
permitted transactions in options and futures contracts. A Fund may not
enter short sales if, as a result, more that 25% of the value of the Fund's
total assets would be so invested, or such a position would represent more
than 2% of the outstanding voting securities of any single issuer or class
of an issuer.
(5) Unseasoned Issuers: The Fund may not invest in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including the
operations of predecessors, unless guaranteed as to principal and interest
by an issuer in whose securities the Fund could invest, if, as a result,
more than five percent of the value of the Fund's total assets would be so
invested; provided, that the Fund may invest all of a portion of its assets
in another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions as
the Fund.
(6) Pledging: The Fund may not pledge, mortgage, hypothecate or encumber
any of its assets except to secure permitted borrowings.
(7) Investments by Officers and Trustees: The Fund may not invest in or
hold securities of any issuer if, to the Trust's knowledge, officers and
trustees of the Trust or an investment adviser to the Fund, individually
owning beneficially more than one-half of one percent of the securities of
the issuer, in the aggregate own more than five percent of the issuer's
securities.
(8) Oil, Gas and Mineral Investments: The Fund may not invest in
interests in oil and gas or interests in other mineral exploration or
development programs, including oil, gas and other mineral leases and the
Fund may not invest in real estate limited partnerships.
(9) Securities With Voting Rights: No Fixed Income Fund may purchase
securities having voting rights, except securities of other investment
companies.
(10) Warrants: Each Fund may not purchase warrants if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
(11) Options: Each Fund may not purchase an option if, as a result, more
that 5% of the value of the Fund's total assets would be so invested.
4. PERFORMANCE DATA AND ADVERTISING
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. Each Fund's yield and
total return fluctuate in response to market conditions and other factors. The
value of a Fund's shares when redeemed may be more or less than their original
cost.
In performance advertising the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
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investment performance of investment companies ("Fund Tracking Companies").
Each Fund may also compare any of its performance information with the
performance of recognized stock, bond and other indexes, including but not
limited to Standard & Poor's 500 Composite Stock Index, Russell 2000 Index,
Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, Salomon Brothers Bond Index, Shearson Lehman Bond Index, the Dow Jones
Industrial Average, U.S. Treasury bonds, bills or notes and changes in the
Consumer Price Index as published by the U.S. Department of Commerce. The Funds
may refer to general market performances over past time periods such as those
published by Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and
Inflation Yearbook"). In addition, the Funds may refer in such materials to
mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of the Funds
and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Also, Norwest and others may charge the various retirement
plans or other shareholders that invest in a Fund fees in connection with an
investment in a Fund, which will have the effect of reducing the Fund's net
yield to those shareholders. The yields of a Fund are not fixed or guaranteed,
and an investment in a Fund is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of a Fund with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to
compare a Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
FIXED INCOME AND EQUITY FUNDS. Standardized yields for the Funds used in
advertising are computed by dividing a Fund's interest income (in accordance
with specific standardized rules) for a given 30 days or one month period, net
of expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period and annualizing the result (assuming compounding of
income in accordance with specific standardized rules) in order to arrive at an
annual percentage rate. In general, interest income is reduced with respect to
municipal securities purchased at a premium over their par value by subtracting
a portion of the premium from income on a daily basis. In general, interest
income is increased with respect to municipal securities purchased at original
issue at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
For the 30-day period ended October 31, 1995 the annualized yield of I Shares of
each of the Fixed Income Funds was as follows.
[Yield Table]
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in a Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
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constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at the
beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Period total return
is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average annual total return
above.
For the 30-day period ended October 31, 1995 the annualized yield of I Shares of
each of the Fixed Income Funds was as follows.
The average annual total return of each class of each Fixed Income and Equity
Fund for the periods ended October 31, 1995 was as follows. The actual dates
of the commencement of each Fund's operations is listed in the Fund's financial
statements.
[Total Return Table]
OTHER ADVERTISEMENT MATTERS
The Funds may advertise other forms of performance. For example, the Funds may
quote unaveraged or cumulative total returns reflecting the change in the value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge; excluding sales charges from a total return calculation produces a
higher return figure.
The Funds may also include various information in their advertisements.
Information included in a Fund's advertisements may include, but is not limited
to (i) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity, (ii) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents, (iv)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quartile or daily), (v) information
relating to inflation and its effects on the dollar; for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968,
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$13,465 and $12,100, respectively, if the annual rates of inflation were 4%, 5%,
6% and 7%, respectively, (vi) information regarding the effects of automatic
investment and systematic withdrawal plans, including the principle of dollar
cost averaging, (vii) descriptions of the Funds' portfolio managers and the
portfolio management staff of the Advisers or summaries of the views of the
portfolio managers with respect to the financial markets, (viii) the results of
a hypothetical investment in a Fund over a given number of years, including the
amount that the investment would be at the end of the period, (ix) the effects
of earning Federally and, if applicable, state tax-exempt income from a Fund or
investing in a tax-deferred account, such as an individual retirement account or
Section 401(k) pension plan and (x) the net asset value, net assets or number of
shareholders of a Fund as of one or more dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the
$90 interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of any Fund's performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principle of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not ensure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- -----
Total Invested $600 Average Price $15.17 Total Shares 41.81
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has more than 60 years been
committed to quality products and outstanding service in order to assist its
customers in meeting their financial goals and the reasons Norwest believes that
it has been successful as a national financial service firm.
5. MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer and David R. Keffer are brothers.
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John Y. Keffer, Chairman and President.*
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent), Forum
Advisors, Inc. (a registered investment adviser). Mr. Keffer is a
Director, Trustee and officer of various registered investment companies
for which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is 61 Broadway, New York, New York 10006.
Robert C. Brown, Trustee.*
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corp. Prior thereto, he was Manager of the
Capital Markets Group, Norwest Corporation (a multi-bank holding company
and parent of Norwest) until 1991. His address is 1431 Landings Place,
Sarasota, Florida 34231.
Donald H. Burkhardt, Trustee.
Principal, The Burkhardt Law Firm. His address is 777 South Steele Street,
Denver, Colorado 80209.
James C. Harris, Trustee.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating Trustee and former
Director of First Midwest Corporation, a small business investment company.
His address is 6950 France Avenue South, Minneapolis, Minnesota 55435.
Richard M. Leach, Trustee.
Chief Executive Officer, Tee Box Company (a golf equipment manufacturer),
since January 1994 and President of Richard M. Leach Associates (a
financial consulting firm) since 1992. Prior thereto, Mr. Leach was Senior
Adviser of Taylor Investments (a registered investment adviser), a Director
of Mountainview Broadcasting (a radio station) and Managing Director,
Digital Techniques, Inc. (an interactive video design and manufacturing
company). His address is P.O. Box 1888, New London, New Hampshire 03257.
Donald C. Willeke, Trustee
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
Michael D. Martins, Vice President and Treasurer
Fund Accounting Manager, Forum Financial Corp., with which he has been
associated since 1995. Prior thereto, Mr. Martins was at the audit firm of
Deloitte & Touche LLP. Mr. Martins is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
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David I. Goldstein, Vice President and Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
Chief Financial Officer, Forum Financial Services, Inc. Mr. Keffer is also
an officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is 61 Broadway, New York, New York 10006.
Sara M. Clark, Vice President and Assistant Treasurer.
Managing Director, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, from 1991 to 1994 Ms. Clark was
Controller of Wright Express Corporation (a national credit card company)
and for six years prior thereto was employed at Deloitte & Touche LLP as an
accountant. Ms. Clark is also an officer of various registered investment
companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland Square,
Portland, Maine 04101.
Thomas G. Sheehan, Vice President and Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1993. Prior thereto, Mr. Sheehan was Special Counsel to the Division
of Investment Management of the SEC. Mr. Sheehan is also an officer of
various registered investment companies for which Forum Financial Services,
Inc. serves as manager, administrator and/or distributor. His address is
Two Portland Square, Portland, Maine 04101.
Renee A. Walker, Assistant Secretary.
Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, Ms. Walker was an administrator at
Longwood Partners (the manager of a hedge fund partnership) for a year.
After graduating for college, from 1991 to 1993 Ms. Walker was a sales
representative assistant at PaineWebber Incorporated (a broker-dealer).
Her address is Two Portland Square, Portland, Maine 04101.
COMPENSATION OF TRUSTEES AND OFFICERS
Effective June 1, 1995 each Trustee of the Trust is paid a quarterly retained
fee for the Trustee's service to the Trust and to Norwest Select Funds, a
separate registered open-end management investment company for which each
Trustee serves as trustee. of $4,000. In addition, each Trustee is paid $3,000
for each Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year and no
officer of the Trust is compensated by the Trust. Prior to June 1, 1995 Trustee
of the Trust was paid $1,000 for each Board meeting attended (whether in person
or by electronic communication) plus $100 per active portfolio of the Trust and
was paid $1,000 for each Committee meeting attended on a date when a Board
meeting is not held.
Mr. Burkhart, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $5,000 from the Trust and $1,000
form Norwest Select Funds for his services as Chairman. Mr. Willeke was
appointed a Trustee in July 1995 and, accordingly, was not paid any compensation
during the Trust's last fiscal year
As of October 1, 1995, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Fund.
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The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Information is
presented for the year ended May 31, 1995, which was the fiscal year end of 18
of the Trust's portfolios. The Funds have an October 31 fiscal year end.
Total Compensation From
Total Compensation the Trust and Norwest
from the Trust Select Funds
-------------- ------------
Mr. Brown $13,647 $18,847
Mr. Burkhart $16,581 $25,047
Mr. Harris $13,647 $18,847
Mr. Leach $13,647 $18,847
Neither the Trust or Norwest Select Funds has adopted any from of retirement
plan covering Trustees or officers. For the Trust's fiscal year ended May 31,
1995 total expenses of the Trustees (other than Mr. Keffer) was $8,795 and total
expenses of the trustees of Norwest Select Funds was $4,030. Mr. Keffer
currently is not reimbursed for his expenses in serving as Trustee.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of Core Trust is indicated by an asterisk.
Mr. John Y. Keffer, Mr. David R. Keffer and Messrs. Goldstein, Martins and
Sheehan, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Trustees and Officers of the Trust" above.
John Y. Keffer*, Chairman and President.
Costas Azariadis, Trustee.
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
James C. Cheng, Trustee.
Managing Director, Forum Financial Services, Inc. since September 1991.
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is Two Portland Square, Portland, Maine
04101.
J. Michael Parish, Trustee.
Partner at the law firm of Winthrop Stimson Putnam & Roberts since 1989.
Prior thereto, he was a partner at LeBoeuf, Lamb, Leiby & MacRae, a law
firm of which he was a member from 1974 to 1989. His address is 40 Wall
Street, New York, New York 10005.
Michael D. Martins, Treasurer
David R. Keffer, Vice President, Assistant Secretary and Assistant Treasurer.
David I. Goldstein, Secretary.
Thomas G. Sheehan, Assistant Secretary.
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Max Berueffy, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since May 1994. For seven years prior to that, Mr. Berueffy held various
positions on the staff of the U.S. Securities and Exchange Commission. His
last position was Senior Special Counsel in the Division of Investment
Management. Mr. Berueffy is also an officer of various registered invest-
ment companies for which Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine 04101.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT
Norwest Investment Management, a part of Norwest Bank Minnesota, N.A., is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. With respect to the Adviser's services
for International Fund, see "International Fund" below. Under its advisory
agreements, Norwest may delegate its responsibilities to any investment
subadviser approved by the Board with respect to all or a portion of the assets
of a Fund.
The Advisory Agreement between each Fund and Norwest will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by vote of the shareholders of the Fund, and in either case by a majority of
the Trustees who are not parties to the Advisory Agreement or interested persons
of any such party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement with respect to a Fund is terminable without penalty by
the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
Board, or by the Adviser on not more than 60 days nor less than 30 days written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreements also provide that, with respect to each Fund, neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any act or omission in the performance of its or their duties to
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's or their duties or by reason of reckless disregard
of its or their obligations and duties under the Advisory Agreement. The
Advisory Agreements provide that the Adviser may render service to others.
In addition to receiving its advisory fee from the Funds, Norwest may also act
and be compensated as investment manager for its clients with respect to assets
which are invested in a Fund. In some instances Norwest may elect to credit
against any investment management, custodial or other fee received from, or
rebate to, a client who is also a shareholder in the Fund an amount equal to all
or a portion of the fees received by Norwest or any affiliate of Norwest from a
Fund with respect to the client's assets invested in the Fund.
The advisory fees are accrued daily and paid monthly. Norwest, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
each Fund. Norwest has agreed to reimburse the Trust for certain of each Fund's
operating expenses (exclusive of interest, taxes and brokerage fees,
organization expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) which in any year exceed
the limits prescribed by any state in which the Fund's shares are qualified for
sale. The Trust may elect not to qualify its shares for sale in every state.
For the purpose of this obligation to reimburse expenses, a Fund's annual
expenses are estimated and accrued daily, and any appropriate estimated payments
will be made by Norwest monthly. Subject to these obligations, the Trust pays
for all of its expenses.
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under the Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(i) interest charges, taxes, brokerage fees and commissions; (ii) certain
insurance premiums; (iii) fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent; (iv) fees of pricing,
interest, dividend, credit and other reporting services; (v) costs of membership
in trade associations; (vi) telecommunications expenses; (vii) auditing, legal
and compliance expenses; (viii) costs of the Trust's formation and maintaining
its existence; (ix) costs of preparing and printing the Trust's prospectuses,
statements of additional information, account application
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forms and shareholder reports and delivering them to existing and prospective
shareholders; (x) costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of shares of the Trust; (xi) costs of reproduction, stationery and
supplies; (xii) compensation of the Trust's trustees, officers and employees who
are not employees of the Adviser, Forum Financial Services, Inc. or affiliated
persons of the Adviser or Forum Financial Services, Inc. and costs of other
personnel performing services for the Trust; (xiii) costs of corporate meetings;
(xiv) registration fees and related expenses for registration with the SEC and
the securities regulatory authorities of other countries in which the Trust's
shares are sold; (xv) state securities law registration fees and related
expenses; (xvi) fees and out-of-pocket expenses payable to Forum Financial
Services, Inc. under any distribution, management or similar agreement; (xvii)
and all other fees and expenses paid by the Trust pursuant to any distribution
or shareholder service plan adopted pursuant to Rule 12b-1 under the Act.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Norwest and the Trust with respect to each Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. The data is for the past fiscal year.
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
------- ------ --------
Diversified Equity Fund 3,737,147 0 3,737,147
Growth Equity Fund 3,961,897 0 3,961,897
Large Company Growth Fund 362,480 0 362,480
Small Company Growth Fund 1,984,348 0 1,984,348
International Fund - - -
Income Equity Fund 187,584 0 187,584
Index Fund 212,875 0 212,875
Conservative Balanced Fund 547,353 0 547,353
Moderate Balanced Fund 1,722,174 0 1,722,174
Growth Balanced Fund 1,849,672 0 1,849,672
Intermediate U.S. Government Fund 160,764 0 160,764
Managed Fixed Income Fund 607,061 0 607,061
Stable Income Fund 114,429 0 114,429
SUBADVISORY ARRANGEMENTS
With respect to each of International Fund, Diversified Equity Fund, Growth
Equity Fund, Conservative Balanced Fund, Moderate Balanced Fund and Growth
Balanced Fund (the Funds that may invest in international securities), Norwest
and the Trust have entered into Subadvisory Agreements with Schroder.
Schroder makes investment decisions for each of the Funds listed above and
continuously reviews, supervises and administers each Fund's investment program
with respect to that portion, if any, of the respective Fund's portfolio that
Norwest has so delegated. Schroder is required to furnish at its own expense
all services, facilities and personnel necessary in connection with managing of
each Fund's investments and effecting portfolio transactions for each Fund (to
the extent of Norwest's delegation).
The Subadvisory Agreements among those Funds, Norwest and the Subadviser will
continue in effect only if such continuance is specifically approved at least
annually by the Board or by vote of the shareholders of the Fund, and in either
case by a majority of the Trustees who are not parties to the Subadvisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Subadvisory Agreement.
The Subadvisory Agreement with respect to a Fund is terminable without penalty
by the Fund with respect to that Fund on 60 days written notice when authorized
either by vote of the Fund's shareholders or by a vote of a majority of the
Board, or by the Subadviser on not more than 60 days nor less than 30 days
written notice, and will automatically terminate in the event of its assignment.
The Subadvisory Agreements also provide that, with respect to each Fund, neither
the Subadviser nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the performance of its or their
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Subadvisory Agreement. The Subadvisory Agreements provide that the Subadviser
may render services to others.
The Subadvisory fees are accrued daily and paid monthly. Each Subadviser, in
its sole discretion, may waive all or any portion of its subadvisory fee with
respect to each Fund.
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INTERNATIONAL FUND
The Advisory Agreement and Subadvisory Agreement with respect to International
Fund are identical to the Advisory Agreement and Subadvisory Agreement of each
other Fund for which Schroder acts as investment subadviser, except for the fees
payable thereunder and as follows. No payments will be made under International
Fund's Advisory Agreement or Subadvisory Agreement so long as all of the Fund's
investments consist solely of the International Portfolio or any other
registered investment company.
Schroder acts as investment adviser to the International Portfolio and is
required to furnish at its expense all services, facilities and personnel
necessary in connection with managing the International Portfolio's investments
and effecting portfolio transactions for the International Portfolio. The
Advisory Agreement between the International Portfolio and Schroder will
continue in effect only if such continuance is specifically approved at least
annually by the Board of Trustees of Core Trust or by vote of the holders of
beneficial interest of the International Portfolio, and in either case by a
majority of the Trustees of Core Trust who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Advisory Agreement.
The Advisory Agreement with respect to the International Portfolio is terminable
without penalty by the International Portfolio on 60 days written notice when
authorized either by vote of the International Portfolio's shareholders or by a
vote of a majority of the Board of Trustees of Core Trust, or by Schroder on not
more than 60 days nor less than 30 days written notice, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to the International Portfolio, neither Schroder nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the International
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of Schroder's or their duties or by reason of reckless disregard of
its or their obligations and duties under the Advisory Agreement. The Advisory
Agreement provides that Schroder may render service to others.
The advisory fees are accrued daily and paid monthly. Schroder, in its sole
discretion, may waive all or any portion of its advisory fee with respect to
International Portfolio. For the Fund's fiscal year ended October 31, 1995, the
Adviser did not pay Schroder any investment advisory fee pursuant to its
Advisory Agreement with respect to the Fund.
ADMINISTRATION AND DISTRIBUTION
Forum supervises the overall management of the Trust (which includes, among
other responsibilities, negotiation of contracts and fees with, and monitoring
of performance and billing of, the Trust's transfer agent and custodian and
arranging for maintenance of books and records of the Trust) and provides the
Trust with general office facilities pursuant to a Management Agreement.
The Management Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by the shareholders and,
in either case, by a majority of the Trustees who are not parties to the
Management Agreement or interested persons of any such party.
The Management Agreement terminates automatically if it is assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that, with respect to
each Fund, neither Forum nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
or their duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's or their duties or by reason of
reckless disregard of its or their obligations and duties under the Management
Agreement.
The following table shows the dollar amount of fees payable under the Management
Agreement between Forum and the Trust with respect to each Fund, the amount of
fee that was waived by Forum, if any, and the actual fee received by Forum. The
data is for the past fiscal year.
Management Fee Management Fee Management Fee
Payable Waived Retained
------- ------ --------
Diversified Equity Fund 574,946 287,473 287,473
Growth Equity Fund 440,211 286,137 154,074
Large Company Growth Fund 55,766 55,766 0
Small Company Growth Fund 220,483 177,287 43,196
International Fund 287,210 41,566 245,644
Income Equity Fund 37,517 37,517 0
Index Fund 141,917 141,917 0
Conservative Balanced Fund 121,634 121,634 0
Moderate Balanced Fund 324,938 212,921 112,017
Growth Balanced Fund 318,909 209,411 109,498
Intermediate U.S. Government Fund 48,717 48,717 0
Managed Fixed Income Fund 173,446 147,461 25,985
Stable Income Fund 38,143 38,143 0
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The Manager is also the Trust's Distributor and acts as the agent of the Trust
in connection with the offering of I Shares of each Fund on a "best efforts"
basis pursuant to a Distribution Agreement. Under a servicing agreement between
the Trust and Norwest with respect to International Fund, Norwest performs
ministerial, administrative and oversight functions for the Fund and undertakes
to reimburse certain excess expenses of the Fund. Among other things, Norwest
gathers performance and other data from the adviser of the International
Portfolio and from other sources, formats the data and prepares reports to the
Fund's shareholders and the Trustees. Norwest also ensures that the adviser to
the International Portfolio is aware of pending net purchases or redemptions of
Fund shares and other matters that may affect the adviser's performance of its
duties. Lastly, Norwest has agreed to reimburse the Fund for any amounts by
which its operating expenses (exclusive of interest, taxes and brokerage fees,
organization expenses and, if applicable, distribution expenses, all to the
extent permitted by applicable state law or regulation) exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale. No
fees will be paid to Norwest under the Servicing Agreement unless the Fund's
assets are invested solely in the International Portfolio or in a portfolio of
another registered investment company. This agreement will continue in effect
only if such continuance is specifically approved at least annually by the Board
or by the shareholders and, in either case, by a majority of the Trustees who
are not parties to the Management Agreement or interested persons of any such
party.
The agreement provides that neither Norwest nor its personnel shall be liable
for any error of judgment or mistake of law or for any act or omission in the
performance of its or their duties to the Fund, except for willful misfeasance,
bad faith or gross negligence in the performance of Forum's or their duties or
by reason of reckless disregard of its or their obligations and duties under the
agreement.
TRANSFER AGENT
Norwest acts as Transfer Agent of the Trust pursuant to a Transfer Agency
Agreement. The Transfer Agency Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Transfer Agency Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of the Transfer Agent as agent for the Trust are:
(1) answering customer inquiries regarding account status and history, the
manner in which purchases and redemptions of shares of the Fund may be effected
and certain other matters pertaining to the Fund; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, (4) assisting in processing purchase and redemption
transactions and receiving wired funds; (5) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (6) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (7) furnishing periodic statements and confirmations of
purchases and redemptions; (8) transmitting proxy statements, annual reports,
prospectuses and other communications from the Trust to its shareholders; (9)
receiving, tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the Trust; and (10)
providing such other related services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives from the Trust, with respect to
each Fund a fee computed and paid monthly at the annual rate of 0.25% of the
Fund's average daily net assets (or, in those Funds with more than one class,
the Fund's average daily net assets attributable to the class).
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest acts as the custodian of the Trust's
assets. The custodian's responsibilities include safeguarding and controlling
the Trust's cash and securities, determining income and collecting interest on
Fund investments. For these services, the custodian receives no fee. The
custodian receives a separate fee for performing certain functions in connection
with loans of portfolio securities.
Pursuant to rules adopted under the 1940 Act, each Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and
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financial stability of the institution; the ability of the institution to
perform capably custodial services for the Fund; the reputation of the
institution in its national market; the political and economic stability of the
country in which the institution is located; and further risks of potential
nationalization or expropriation of Fund assets. The custodian employs
qualified foreign subcustodians to provide custody of the Funds' foreign assets
in accordance with applicable regulations. The Chase Manhattan Bank, N.A.,
through its Global Securities Services Division located in London, England, acts
as custodian of International Fund's assets, but plays no role in making
decisions as to the purchase or sale of portfolio securities for the Fund.
A Fund will not pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Where the Fund's investments consists
solely of such shares, such as International Fund's investment in shares of the
International Portfolio, the Fund will pay no custodian fees directly
The Chase Manhattan Bank, N.A. serves as custodian to International Portfolio
and International Portfolio II of Core Trust and is compensated by Core Trust
with respect to those Portfolios. Norwest serves as custodian of Small Company
Portfolio and Index Portfolio of Core Trust and receives no compensation for its
services to those Portfolios.
PORTFOLIO ACCOUNTING
Forum Financial Corp., an affiliate of Forum, performs portfolio accounting
services for each Fund pursuant to a Fund Accounting Agreement with the Trust.
The Fund Accounting Agreement will continue in effect only if such continuance
is specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
Under its agreement, FFC prepares maintains books and records of each Fund on
behalf of the Trust that are required to be maintained under the 1940 Act,
calculates the net asset value per share of each Fund (and class thereof) and
dividends and capital gain distributions and prepares periodic reports to
shareholders and the SEC. For its services, FFC receives from the Trust with
respect to each Fund a fee of $36,000 per year plus, for each class of the Fund
above one, $6,000 per year. In addition, FFC is paid an additional $12,000 per
year with respect to tax-free money market Funds, global and international Funds
and Funds with more than 25% of their total assets invested in asset backed
securities, that have more than 100 security positions or that have a monthly
portfolio turnover rate of 10% or greater.
FFC is required to use its best judgment and efforts in rendering fund
accounting services and is not be liable to the Trust for any action or inaction
in the absence of bad faith, willful misconduct or gross negligence. FFC is not
responsible or liable for any failure or delay in performance of its fund
accounting obligations arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control and the Trust has agreed to
indemnify and hold harmless FFC, its employees, agents, officers and directors
against and from any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way related to FFC's actions
taken or failures to act with respect to a Fund or based, if applicable, upon
information, instructions or requests with respect to a Fund given or made to
FFC by an officer of the Trust duly authorized. This indemnification does not
apply to FFC's actions taken or failures to act in cases of FFC's own bad faith,
willful misconduct or gross negligence.
The following table shows the dollar amount of fees payable to FFC for its
portfolio accounting services with respect to each Fund, the amount of fee that
was waived by FFC, if any, and the actual fee received by FFC. The data is for
the past fiscal year.
Portfolio Portfolio Portfolio
Accounting Accounting Accounting
Fee Fee Fee
Payable Waived Retained
------- ------ --------
Diversified Equity Fund 34,700 0 34,700
Growth Equity Fund 34,700 0 34,700
Large Company Growth Fund 34,700 0 34,700
Small Company Growth Fund 36,700 0 36,700
International Fund 51,766 0 51,766
Income Equity Fund 34,700 0 34,700
Index Fund 46,266 0 46,266
Conservative Balanced Fund 54,266 0 54,266
Moderate Balanced Fund 52,266 0 52,266
Growth Balanced Fund 50,833 0 50,833
Intermediate U.S. Government Fund 52,700 0 52,700
Managed Fixed Income Fund 46,700 0 46,700
Stable Income Fund 51,700 0 51,700
FFC performs similar services for each Portfolio and, in addition, acts as each
Portfolio's transfer agent.
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6. OTHER INFORMATION
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis. Proceeds of redemptions
normally are paid in cash. However, payments may be made wholly or partially in
portfolio securities if the Board determines that payment in cash would be
detrimental to the best interests of the Fund. If payment for shares redeemed
is made wholly or partially in portfolio securities, brokerage costs may be
incurred by the shareholder in converting securities to cash. The Trust and
Core Trust have each filed a formal election with the SEC pursuant to which the
Funds and the International Portfolio will only effect a redemption in portfolio
securities if the particular shareholder is redeeming more than $250,000 or one
percent of a Fund's or the International Portfolio's total net assets,
whichever is less, during any 90-day period.
The Trust may redeem shares involuntarily, from time to time, to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to the Fund's shares as provided in the Prospectus.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that (i) are not restricted as to transfer either by law
or liquidity of market and (ii) have a value which is readily ascertainable (and
not established only by valuation procedures).
By use of telephone redemption and exchange privileges, the shareholder
authorizes the Transfer Agent to act upon the instruction of any person
representing himself either to be, or to have the authority to act on behalf of,
the investor and believed by the Transfer Agent to be genuine. The records of
the Transfer Agent of such instructions are binding.
The exchange privilege permits I Shares shareholders to exchange their shares
for I Shares of any other Fund. For Federal income tax purposes, an exchange
transaction is treated as a sale and subsequent purchase on which a purchaser
may realize a capital gain or loss depending on whether the value of the shares
redeemed is more or less than his basis in such shares at the time of the
transaction.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction. The terms of the exchange
privilege are subject to change, and the privilege may be terminated by any of
the Participating Funds or the Company. However the privilege will not be
terminated, and no material change that restricts the availability of the
privilege to shareholders will be implemented, without reasonable advance notice
to shareholders.
DETERMINATION OF NET ASSET VALUE
Securities owned by a Fund for which market quotations are readily available are
valued at current market value. The Funds value their securities as follows. A
security listed or traded on an exchange is valued at its last sale price (prior
to the time as of which assets are valued) on the exchange where it is
principally traded. Lacking any such sales on the day of valuation, the
security is valued at the mean of the last bid and asked prices. All other
securities for which over-the-counter market quotations are readily available
generally are valued at the mean of the current bid and asked prices. When
market quotations are not readily available, securities are valued at fair value
as determined in good faith by the Board. Debt securities may be valued on the
basis of valuations furnished by pricing services which utilize electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value of
such securities. All assets and liabilities of a Fund denominated in foreign
currencies are converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar last quoted by
a major bank.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original net asset value
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and the recalculated net asset value divided by the recalculated net asset value
is 0.005 (1/2 of 1%) or less or shareholder transactions are otherwise
insubstantially affected, further action is not required.
PORTFOLIO TRANSACTIONS
The following discussion concerning portfolio transactions relates to the Funds
and, with respect to International Fund, the International Portfolio.
Investment decisions for the Funds will be made independently from those for any
other client account or investment company that is or may in the future become
managed by the Adviser or its affiliates. Investment decisions are the product
of many factors including basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the respective Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients. In addition, when purchases or sales of the
same security for the Fund and other client accounts managed by the Advisers
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
Purchases and sales of fixed income portfolio securities are generally effected
as principal transactions. These securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
There usually are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and ask prices. In the case of
securities traded in the foreign and domestic over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed
commission or markup. In underwritten offerings, the price includes a disclosed
fixed commission or discount.
Purchases and sales of equity securities on exchanges are generally effected
through brokers who charge commissions. Allocations of transactions to brokers
and dealers and the frequency of transactions are determined by the Advisers in
their best judgment and in a manner deemed to be in the best interest of
shareholders of the Funds (holders of beneficial interest in the case of the
International Portfolio) rather than by any formula. The primary consideration
is prompt execution of orders in an effective manner and at the most favorable
price available to the Fund. In transactions on stock exchanges in the United
States, these commissions are negotiated, whereas on foreign stock exchanges
these commissions are generally fixed. Where transactions are executed in the
over-the-counter market, the Fund will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, it will utilize
the services of others. In all cases the Fund will attempt to negotiate best
execution. No Fixed Income Fund paid any brokerage commissions during the
fiscal year ended October 31, 1995.
The following table shows the aggregate brokerage commissions with respect to
each Equity Fund and Balanced Fund with respect to each Fund's investment in
equity securities. The data is for the past fiscal year.
Aggregate
Commissions Paid
Diversified Equity Fund 180,093
Growth Equity Fund 115,993
Large Company Growth Fund 60,264
Small Company Growth Fund 600,341
International Fund -
Income Equity Fund 25,321
Index Fund 107,332
Conservative Balanced Fund 9,298
Moderate Balanced Fund 57,931
Growth Balanced Fund 66,361
Managed Fixed Income Fund 1,750
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with securities transactions, the Advisers take into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Advisers may also take into account
payments made by brokers effecting transactions for a Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
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In addition, the Advisers may give consideration to research services furnished
by brokers to the Advisers for their use and may cause the Fund to pay these
brokers a higher amount of commission than may be charged by other brokers.
Such research and analysis may be used by the Advisers in connection with
services to clients other than the Funds, and the Advisers' fees are not reduced
by reason of the Advisers' receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, an Adviser may consider sales of shares of the Funds as a factor in
the selection of broker-dealers to execute portfolio transactions for the Funds.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized the Advisers to employ their
respective affiliates to effect securities transactions of the Funds, provided
certain other conditions are satisfied. Payment of brokerage commissions to an
affiliate of an Adviser for effecting such transactions is subject to Section
17(e) of the 1940 Act, which requires, among other things, that commissions for
transactions on securities exchanges paid by a registered investment company to
a broker which is an affiliated person of such investment company, or an
affiliated person of another person so affiliated, not exceed the usual and
customary brokers' commissions for such transactions. It is the Funds' policy
that commissions paid to Schroder Securities Limited, Norwest Investment
Management, Inc. and other affiliates of an Adviser will, in the judgment of the
Adviser responsible for making portfolio decisions and selecting brokers, be (i)
at least as favorable as commissions contemporaneously charged by the affiliate
on comparable transactions for its most favored unaffiliated customers and (ii)
at least as favorable as those which would be charged on comparable transactions
by other qualified brokers having comparable execution capability. The Board,
including a majority of the non-interested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of an Adviser by the Funds satisfy
the foregoing standards.
The Fund has no understanding or arrangement to direct any specific portion of
its brokerage to Schroder Securities, and will not direct brokerage to Schroder
Securities in recognition of research services.
TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements each
Fund must meet to qualify for such treatment, and of the application of state
and local tax laws to his or her particular situation.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered a 60 percent long-term and 40
percent short-term capital gain or loss. Each Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as described below)
from the application of section 1256.
With respect to over-the-counter put and call options, gain or loss realized by
a Fund upon the lapse or sale of such options held by such Fund will be either
long-term or short-term capital gain or loss depending upon the Fund's holding
period with respect to such option. However, gain or loss realized upon the
lapse or closing out of such options that are written by a Fund will be treated
as short-term capital gain or loss. In general, if a Fund exercises an option,
or an option that a Fund has written is exercised, gain or loss on the option
will not be separately recognized but the premium received or paid will be
included in the calculation of gain or loss upon disposition of the property
underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund may constitute a
"straddle" for Federal income tax purposes. A straddle of which at least one,
but not all, the positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that (i) loss realized on
disposition of one position of a straddle not be recognized to the
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extent that a Fund has unrealized gains with respect to the other position in
such straddle; (ii) a Fund's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in any gain being treated as
short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60 percent long-
term and 40 percent short-term capital loss; (iv) losses recognized with respect
to certain straddle positions which would otherwise constitute short-term
capital losses be treated as long-term capital losses; and (v) the deduction of
interest and carrying charges attributable to certain straddle positions may be
deferred. Various elections are available to a Fund which may mitigate the
effects of the straddle rules, particularly with respect to mixed straddles. In
general, the straddle rules described above do not apply to any straddles held
by a Fund if all of the offsetting positions consist of section 1256 contracts.
Each International Fund shareholder should include in the shareholder's report
of gross income in his Federal income tax return both cash dividends received by
the shareholder from the Fund and also the amount which the Fund advises the
shareholder is the shareholder's pro rata portion of foreign income taxes paid
with respect to, or withheld from, dividends and interest paid to the
International Portfolio from its foreign investments. Each shareholder then
would be entitled, subject to certain limitations, to take a foreign tax credit
against the shareholders' Federal income tax liability for the amount of such
foreign taxes or else to deduct such foreign taxes as an itemized deduction from
gross income.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, New York 10004.
__________, independent auditors, acts as auditors for the Trust.
OWNERSHIP OF FUND SHARES
Prior to the public issuance of shares of the Funds, due to its initial
investment, Forum owned all outstanding shares of each Fund and, accordingly,
may be deemed to be a controlling person of each Fund. Upon the investment in
each Fund by public shareholders, Forum ceased to be a controlling person of any
Fund. As of February ___, 1995, the Trustees and officers of the Trust in the
aggregate owned less than one percent of the outstanding shares of each Fund.
The following persons owned of record 5% or more of the outstanding shares of a
Fund or any class thereof, as of February ___, 1995:
[5% Shareholder Table]
ADDITIONAL INFORMATION ABOUT THE TRUST
Currently, the Trust is divided into thirty-one separate series representing
shares of each of the thirteen Funds and shares of Cash Investment Fund, Ready
Cash Investment Fund, U.S. Government Fund, Treasury Fund, Municipal Money
Market Fund, Adjustable U.S. Government Reserve Fund, Government Income Fund,
Income Fund, Total Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free
Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Stock Fund,
ValuGrowth Stock Fund, Small Company Stock Fund, Contrarian Stock Fund and Short
Maturity Investment Fund. The Trust has received an order from the SEC
permitting the issuance and sale of separate classes of shares representing
interests in each of the Trust's portfolios. It is anticipated, however, that
the Trust will operate the classes of each Fund in accordance with rules of the
SEC adopted after the Trust obtained its exemptive order.
The Board determined that currently no conflict of interest exists between or
among each Fund's I Shares and its other classes, if any. On an ongoing basis,
the Board, pursuant to its fiduciary duties under the 1940 Act and state law,
will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
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the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states,
including Texas. As a result, to the extent that the Trust or a shareholder is
subject to the jurisdiction of courts in those states, the courts may not apply
Delaware law, and may thereby subject the Trust shareholders to liability. To
guard against this risk, the Trust Instrument of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation and instrument entered into by
the Trust or its Trustees, and provides for indemnification out of Trust
property of any shareholder held personally liable for the obligations of the
Trust. Thus, the risk of a shareholder incurring financial loss beyond his
investment because of shareholder liability is limited to circumstances in which
(1) a court refuses to apply Delaware law, (2) no contractual limitation of
liability is in effect, and (3) the Trust itself is unable to meet its
obligations. In light of Delaware law, the nature of the Trust's business, and
the nature of its assets, the Board believes that the risk of personal liability
to a Trust shareholder is extremely remote.
FINANCIAL STATEMENTS
The financial statements of each Fund for the year ended October 31, 1995 (which
include statements of assets and liabilities, statements of operations,
statements of changes in net assets, notes to financial statements, financial
highlights, statements of investments and the auditors' report thereon) are
included in the Annual Report to Shareholders of the Trust delivered along with
this SAI and are incorporated herein by reference.
[To be included in subsequent amendment to Trust's registration statement, filed
pursuant to Rule 485(b), to become effective on same day as this amendment]
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Funds' registration statement filed with the SEC under the Securities Act of
1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract of other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
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Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
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A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present
but may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
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An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of
the issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
181
<PAGE>
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A-1 and A-2. Issues assigned an
A rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues
with an A-2 designation is strong. However, the relative degree of safety is
not as high as for issues designated A-1. A-3 issues have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations. Issues rated A-2 are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
FITCH INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
182
<PAGE>
Pro Forma Combined Financial
Information for the year ended October 31, 1995
The following unaudited pro forma combined financial
information relates to the acquisition of all the assets and
liabilities of Adjustable U.S. Government Reserve Fund,
Government Income Fund and Income Stock Fund (the "Transferor
Funds") by and in exchange for shares of Stable Income Fund,
Intermediate U.S. Government Fund and Income Equity Fund,
respectively (the "Acquiring Funds") (the "Transaction"). Each
of the Transferor Funds and Acquiring Funds are portfolios of
Norwest Advantage Funds. The information gives effect to the
Transaction as if it had occurred on November 11, 1994 and
consists of a statement of the pro forma combined portfolio of
investments, a statement of assets and liabilities and a
statement of operations. The pro forma combined results of
operations are not intended as representations of the level of
expenses of the Acquiring Funds following consummation of the
Transaction and are not indicative of future operations or actual
results had the Transaction been consummated on November 11,
1994. This unaudited information should be read in conjunction
with the separate financial statements of the Transferor Funds
and the Acquiring Funds.
<PAGE>
<PAGE>
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Adjustable
US Government Pro Forma Pro Forma
Stable Income Reserve Adjustments Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments, at value * $48,021,487 $61,236,707 $109,258,194
Cash 0 0 0
Collateral for
securities loaned 5,948,625 0 5,948,625
Interest, dividends
and other receivables 375,269 876,588 1,251,857
Receivable for securities
sold 0 903 903
Receivable for fund
shares sold 45,491 0 45,491
Receivable from manager 1,227 0 1,227
Organization costs, net
of amortization 48,111 0 48,111
----------------------------------------------------------------------
Total assets 54,440,210 62,114,198 116,554,408
----------------------------------------------------------------------
Liabilities
Payable for securities
purchased 0 0 0
Payable for securities
loaned 5,948,625 0 5,948,625
Payable for fund
shares redeemed 378,345 0 378,345
Accrued advisory and
management fees 12,219 0 12,219
Accrued transfer
agency fees 10,182 0 10,182
Accrued management fees 0 0 0
Dividends payable 0 271,731 271,731
Other accrued expenses 4,271 46,737 51,008
----------------------------------------------------------------------
Total liabilities 6,353,642 318,468 6,672,110
----------------------------------------------------------------------
Net assets $48,086,568 $61,795,730 $109,882,298
----------------------------------------------------------------------
----------------------------------------------------------------------
Components of net assets
Capital paid in $45,373,286 $69,368,578 $114,741,864
Accumulated undistributed
net investment income 2,247,375 2,247,375
Accumulated undistributed
net realized gain (loss)
from investments 186,598 (7,063,624) (6,877,026)
Net unrealized
appreciation from
investments 279,309 (509,224) (229,915)
----------------------------------------------------------------------
Net assets $48,086,568 $61,795,730 $109,882,298
----------------------------------------------------------------------
----------------------------------------------------------------------
Net Assets by class of shares
I Shares $48,086,568 $20,107,503 $68,194,071
A Shares 41,298,394 $41,298,394
B Shares 389,833 $389,833
----------------------------------------------------------------------
Net Assets $48,086,568 $61,795,730 $109,882,298
----------------------------------------------------------------------
----------------------------------------------------------------------
Shares of beneficial interest,
no par value,
I Shares 4,485,961 2,136,415 (260,601) 6,361,775
A Shares 4,389,151 4,389,151
B Shares 41,603 41,603
Net asset value per share
I Shares $10.72 $9.41 $10.72
A Shares $9.41 $9.41
B Shares $9.37 $9.37
*Investments at cost $47,742,178 $61,745,931 $109,488,109
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
See notes to pro forma financial statements.
<PAGE>
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD NOVEMBER 11, 1994 TO OCTOBER 31, 1995
<TABLE>
<CAPTION>
Adjustable
US Government Pro Forma Pro Forma
Stable Income Reserve Adjustments Combined
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Interest income $2,495,297 $4,401,470 $6,896,767
Expenses
Advisory 114,429 322,992 (128,980) 308,441
Management 38,143 129,256 (64,586) 102,813
Custody 12,920 (12,920) 0
Transfer agent 95,358 161,496 256,854
Distribution 3,961 3,961
Accounting 51,700 61,833 (49,883) 63,650
Legal 2,799 3,339 6,138
Filing 23,256 18,114 41,370
Auditing 14,046 14,311 (14,311) 14,046
Trustees 963 1,471 2,434
Amortization of
organization costs 11,490 0 11,490
Other 14,670 9,434 24,104
------------------------------------------------------------------
Total expenses 366,854 739,127 (270,680) 835,301
Expenses reimbursed
and fees waived (118,932) (188,462) 140,381 (167,013)
------------------------------------------------------------------
Net expenses 247,922 550,665 (130,299) 668,288
------------------------------------------------------------------
Net investment income (loss) 2,247,375 3,850,805 130,299 6,228,479
------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments
Net realized gain (loss)
from Securities 186,598 (2,489,670) (2,303,072)
Net change in unrealized
appreciation
(depreciation) from
Securities 279,309 1,784,323 2,063,632
------------------------------------------------------------------
Net realized and unrealized
gain from investments 465,907 (705,347) (239,440)
------------------------------------------------------------------
Increase in net assets
from operations $2,713,282 $3,145,458 $130,299 $5,989,039
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
See notes to pro forma financial statements.
<PAGE>
Pro Forma Schedule of Investments of Merger Between Stable Income Fund and
Adjustable U.S. Government Reserve Fund (unaudited)
October 31, 1995
<TABLE>
<CAPTION>
Security Description Face Amount Market Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED SECURITIES (17.9%)
Green Tree Financial, Ser 1994-1 A1, 5.6%, due 04/15/19 $1,702,790 $1,694,665
Green Tree Financial, Ser 1994-8 A1, 7.75%, due 04/15/25 1,377,782 1,390,692
Small Business Administration Adj Rate Pool 500025, 8.625%, due 12/25/10 129,988 137,137
Small Business Administration Adj Rate Pool 500124, 9.625%, due 07/25/96 99,879 99,879
Small Business Administration Adj Rate Pool 500276, 10.625, due 05/25/07 126,807 138,537
Small Business Administration Adj Rate Pool 500299, 10.625, due 06/25/07 267,815 292,588
Small Business Administration Adj Rate Pool 500392, 8.625%, due 11/25/12 778,792 835,254
Small Business Administration Adj Rate Pool 500569, 10.625%, due 06/25/08 112,221 122,601
Small Business Administration Adj Rate Pool 501776, 9.5%, due 03/25/17 247,474 270,365
Small Business Administration Adj Rate Pool 500957, 9%, 07/25/14 756,450 816,966
Small Business Administration Adj Rate Pool 501013, 9.625%, 06/25/98 93,308 95,058
Small Business Administration Adj Rate Pool 501224, 7.5%, due 06/25/15 763,602 795,101
Small Business Administration Adj Rate Pool 501267, 10.375%, due 07/25/15 550,872 612,156
Small Business Administration Adj Rate Pool 501563, 10.375%, 07/25/05 245,252 262,726
Small Business Administration Adj Rate Pool 501575, 10.375%, due 06/25/11 349,756 382,983
Small Business Administration Adj Rate Pool 502583, 9.975%, due 09/25/03 687,696 723,800
Small Business Administration Adj Rate Pool 501828, 9.375%, due 09/25/98 195,095 198,509
Small Business Administration Adj Rate Pool 501842, 10.375%, due 04/25/04 564,591 599,878
Small Business Administration Adj Rate Pool 501973, 10.375%, due 12/25/01 220,727 232,039
Small Business Administration Adj Rate Pool 502083, 8.625%, due 11/25/04 608,131 626,375
Small Business Administration Adj Rate Pool 502241, 8.625%, due 04/25/03 345,640 353,417
<PAGE>
Pro Forma Schedule of Investments of Merger Between Stable Income Fund and
Adjustable U.S. Government Reserve Fund (unaudited)
October 31, 1995
Security Description Face Amount Market Value
- --------------------------------------------------------------------------------------------------------------------------------
Small Business Administration Adj Rate Pool 502394, 10.375%, due 06/25/13 $659,613 $731,346
Small Business Administration Adj Rate Pool 502420, 8.625%, due 09/25/18 1,939,523 2,077,714
Small Business Administration Adj Rate Pool 502462, 9.975%, due 11/25/07 1,876,850 2,034,036
Small Business Administration Adj Rate Pool 502501, 9.975%, due 04/25/03 1,690,494 1,777,132
Small Business Administration Adj Rate Pool 502568, 9.975%, due 09/25/03 658,554 693,128
Structured Asset Securities, Ser 1995-C3 A, 6.475%, var rate, due 01/25/10 1,672,821 1,670,730
--------------
19,664,812
--------------
CASH MANAGEMENT ACCOUNTS (0.1%)
Provident Federal Trust, 5.506%, 11/02/95 95,996 95,996
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS (43.0%)
AFC Home Equity Loan Trust 1995-2, 7.556%, var rate, due 07/25/26 4,022,076 4,056,011
Federal Home Loan Bank, Ser DU-98, 4.597%, due 08/03/98 1,750,000 1,688,575
Federal Home Loan Mortgage Corp. G8 SB, 9.6%, due 03/25/23 63,970 55,318
Federal Home Loan Mortgage Corp.-Government National Mortgage Association, Ser 24 ZC 2,372,549 2,286,945
Federal National Mortgage Assoc. 1993-39 FA, 7.306%, due 04/25/23 198,446 202,274
Federal National Mortgage Assoc. 1993-138 FM, 5.42%, due 12/25/21 4,000,000 3,757,556
Federal National Mortgage Assoc. Swap Trust, Ser 1994-1 A1, 6.325%, var rate, due 10 2,900,779 2,894,434
Green Tree Financial 1993-3 A2, 4.9%, due 10/15/18 4,100,000 4,056,823
Green Tree Financial 1995-2 A1, 6.8%, due 06/15/26 2,349,050 2,360,795
Merrill Lynch & Co., 94 B A1, 6.275%, due 12/15/19 2,238,040 2,239,089
Maryland National Bank Mortgage Passthru Certificates, Ser 1990-1A, 9.5%, due 10/15/ 1,498,226 1,501,971
Residential Funding Mortgage Security, 1991-21B A, 7.569%, due 08/25/21 538,227 540,913
Resolution Trust Corp. 1991 6 B4, 8.77%, due 03/25/21 133,906 134,909
Resolution Trust Corp. 1991 M6-A3, 8.391%, due 06/25/21 1,006,654 1,004,137
Resolution Trust Corp. 1992-C2 A2, 6.9375% var rate, due 10/25/21 3,031,926 3,048,208
<PAGE>
Pro Forma Schedule of Investments of Merger Between Stable Income Fund and
Adjustable U.S. Government Reserve Fund (unaudited)
October 31, 1995
Security Description Face Amount Market Value
- --------------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp. 1992-C3 A3, 7.025% var rate, due 08/25/23 $8,001,884 $8,086,654
Resolution Trust Corp. 1992-7 A2D, 8.35%, due 06/25/29 4,250,337 4,299,472
Resolution Trust Corp. 1992-9B4, 7.564%, due 04/25/27 1,488,834 1,532,104
Resolution Trust Corp. 1992-18P A4, 6.825% var rate, due 04/25/28 1,400,048 1,396,114
Resolution Trust Corp. 1992-M3 A4, 8.46% var rate, 07/25/30 2,059,791 2,081,676
Thrift Financing Corp. D-4, 7.125%, due 05/01/16 10,434 10,407
--------------
47,234,385
--------------
CORPORATE BONDS & NOTES (7.0%)
J.C.Penney & Co, 10%, due 10/15/97 2,000,000 2,147,148
Shearson Lehman Bros, 5.25%, due 01/02/96 3,500,000 3,493,885
Shearson Lehman Bros, 9.75%, due 04/01/96 2,000,000 2,028,896
--------------
7,669,929
--------------
GOVERNMENT AGENCY BONDS & NOTES (2.9%)
Federal Home Loan Mortgage Corp., 6.1%, due 06/23/98 3,200,000 3,203,238
--------------
MORTGAGE BACKED SECURITIES (9.9%)
Federal Home Loan Mortgage Corp., 6.223%, due 10/01/25 2,100,000 2,119,782
Federal Home Loan Mortgage Corp. Arm Pool 840087, 6.445%, due 01/01/19 173,268 173,159
Federal National Mortgage Assoc. Arm Pool 60190, 7.75%, due 03/01/18 210,724 217,806
Federal National Mortgage Assoc. Arm Pool 67189, 8%, due 07/01/17 500,663 521,500
Federal National Mortgage Assoc. Arm Pool 220706, 7.94%, due 06/01/23 2,849,530 2,917,206
Federal National Mortgage Assoc. Arm Pool 321051, 6.228%, due 08/01/25 2,826,298 2,883,522
Federal National Mortgage Assoc. Arm Pool 318464, 5.866%, due 04/01/25 2,076,380 2,094,965
--------------
10,927,940
--------------
MUNICIPAL BONDS (0.7%)
LA county California Taxable Pension Obligation Bonds,
Ser D, MBLA County Guaranteed 745,000 745,276
--------------
<PAGE>
Pro Forma Schedule of Investments of Merger Between Stable Income Fund and
Adjustable U.S. Government Reserve Fund (unaudited)
October 31, 1995
Security Description Face Amount Market Value
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM HOLDING (0.8%)
Federal Farm Credit Bank, 5.633%, due 11/02/95 $840,192 $840,192
--------------
U.S. TREASURY OBLIGATIONS (16.1%)
U.S. Treasury Notes, 7.5%, due 11/15/01 2,890,000 3,127,517
U.S. Treasury Notes, 6.375%, due 01/15/00 1,000,000 1,021,250
U.S. Treasury Notes, 6.5%, due 04/30/99 3,000,000 3,071,250
U.S. Treasury Notes, 6.5%, due 11/30/96 2,750,000 2,775,781
U.S. Treasury Notes, 6.25%, due 01/31/97 5,500,000 5,544,689
U.S. Treasury Notes, 6.625%, due 03/31/97 750,000 760,546
U.S. Treasury Notes, 4.75%, due 10/31/98 1,500,000 1,461,090
--------------
17,762,123
--------------
REPURCHASE AGREEMENTS (1.0%)
BA Securities, 5.875%, due 11/01/95, to be repurchased
at $1,114,465. Collateralized by $16,300 Federal Home
Loan Mortgage Corp., 5.875%, due 11/13/95;
$46,000,000 Federal National Mortgage Assoc.,
5.875%, due 02/27/96;
$48,000,000 Federal National Mortgage Assoc.,
5.875%, due 03/29/96; $75,000,000 Federal National
Mortgage Assoc., 5.875%, due 05/02/96; $45,000,000
Federal Home Loan Bank, 5.875%, due 01/30/96;
$22,000,000 Federal Home Loan Bank, 5.875%, due
02/29/96 1,114,303 1,114,303
--------------
TOTAL INVESTMENTS (COST $109,488,109) (99.4%): 109,258,194
OTHER ASSETS & LIABILITIES, NET (0.6%): 754,403
--------------
TOTAL NET ASSETS (100%): $110,012,597
--------------
--------------
</TABLE>
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN STABLE INCOME FUND AND ADJUSTABLE U.S.
GOVERNMENT RESERVE FUND (UNAUDITED)
OCTOBER 31, 1995
1. General
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of Adjustable U.S. Government Reserve Fund by Stable
Income Fund, as if such acquisition had taken place as of November 11, 1994.
Under the terms of the Plan of Reorganization, the combination of Stable Income
Fund and Adjustable U.S. Government Reserve Fund will be taxed as a tax free
business combination and accordingly will be accounted for by a method of
accounting for tax free mergers of investment companies (sometimes referred to
the pooling without restatement method). The acquisition would be accomplished
by an acquisition of the net assets of Adjustable U.S. Government Reserve Fund
in exchange for shares of Stable Income Fund at net asset value. The statements
of assets and liabilities and the related statement of operations of Stable
Income Fund and Adjustable U.S. Government Reserve Fund have been combined as of
and for the period ended October 31, 1995.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of Adjustable U.S.
Government Reserve Fund and Stable Income Fund which are included in their
annual reports dated May 31, 1995 and October 31, 1995, respectively.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned acquisition of Stable Income Fund and Adjustable U.S.
Government Reserve Fund had taken place as of November 11, 1994.
2. Significant Accounting Policies
Stable Income Fund (the "Fund") is a diversified portfolio of the Norwest
Advantage Funds (the "Trust"). The Trust is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The significant accounting policies consistently followed by Stable Income Fund
are as follows:
SECURITY VALUATION -- Securities which mature in 60 days or less are valued at
amortized cost. Securities, for which market quotations are readily available,
are valued using the last reported sales price provided by independent pricing
services. If no sales are reported, the mean of the last bid and ask prices is
used. Other securities traded on an exchange for which market quotations are
readily available, are valued using the mean of the bid and ask prices provided
by independent pricing services. If no mean price is available, the last bid
price is used. In the absence of readily available market quotations,
securities are valued at fair value determined in accordance with procedures
adopted by the Board of Trustees (the "Board).
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN STABLE INCOME FUND AND ADJUSTABLE U.S.
GOVERNMENT RESERVE FUND (UNAUDITED)
OCTOBER 31, 1995 (CONTINUED)
REPURCHASE AGREEMENTS -- The Fund may purchase portfolio securities from
financial institutions deemed to be creditworthy by the Fund's investment
adviser subject to the seller's agreement to repurchase and the Fund's agreement
to resell such securities. Securities received as collateral in connection with
the repurchase agreements are maintained by the Trust and must have, at all
times, an aggregate market value greater than or equal to the repurchase price
plus accrued interest.
REALIZED GAINS AND LOSSES -- Security transactions are recorded on a trade date
basis, and realized gains and losses on investments sold are recorded on the
basis of identified cost.
INTEREST AND DIVIDEND INCOME AND DIVIDENDS TO SHAREHOLDERS -- Interest income is
accrued as earned. Dividends on securities held by Funds are accrued on the ex-
dividend date. Dividends to shareholders of net investment income are declared
and paid at least annually by the Fund. Net capital gain, if any, is
distributed at least annually to shareholders. Distributions from net
investment income and realized capital gain are based on amounts calculated in
accordance with applicable income tax regulations. Any differences between
financial statement amounts available for distribution and distributions made in
accordance with income tax regulations are primarily attributable to deferral of
losses for tax purposes due to wash sales.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION -- If a fixed income investment is
purchased at a premium, the premium is not amortized. If a fixed income
investment is purchased at a discount (other than original issue discount), the
discount is not accreted. Upon disposition, if appropriate, market discount
accretion is calculated on a straight line method and reclassified to investment
income. Original issue discount on fixed income investments is accreted daily
using yield to maturity method.
SECURITY LOANS -- The Fund receives compensation for lending securities in the
form of fees or by retaining a portion of interests on the investment securities
or any cash received as collateral. A Fund also continues to receive interest
or dividends on the securities loaned. Security loans are secured by collateral
equal to at least 102%, at all times, of the market value of the securities
loaned plus accrued interest. Gain or loss in the market price of the
securities loaned that may occur during the term of the loan will be reflected
in the value of the Fund.
ORGANIZATIONAL COSTS -- The costs incurred by the Fund in connection with its
organization, in the amount of $59,601, have been capitalized and are being
amortized using the straight line method over a five year period beginning on
the commencement of the Funds operations.
EXPENSE ALLOCATION -- Each share of each class of the Fund represents an
undivided, proportionate interest in the Fund. Certain expenses are allocated
to the various share classes on the basis of usage services or contractual
differences. Expenses are allocated in accordance with procedures adopted by
the Board of Trustees.
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN STABLE INCOME FUND AND ADJUSTABLE U.S.
GOVERNMENT RESERVE FUND (UNAUDITED)
OCTOBER 31, 1995 (CONTINUED)
FEDERAL INCOME TAX -- The Fund intends to qualify and continue to qualify as a
regulated investment company and distributes all of its taxable income.
Therefore, no Federal income tax provision is required.
3. Pro Forma Adjustments
The accompanying pro forma financial statements reflect changes in fund
shares as if the merger had taken place on October 31, 1995. Adjustments were
made to expenses for duplicated services that would not have been incurred if
the merger took place on November 11, 1994.
<PAGE>
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Intermediate US Government Pro Forma Pro Forma
Government Fund Income Fund Adjustments Combined
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments, at value * $50,428,205 $124,381,918 $174,810,123
Cash 0 9,590 9,590
Collateral for securities
loaned 2,483,213 11,540,640 14,023,853
Interest, dividends and
other receivables 706,202 1,998,156 2,704,358
Receivable for securities
sold 2,056,978 3,118,030 5,175,008
Receivable for fund shares
sold 11,458 9,591 21,049
Receivable from manager 2,308 0 2,308
Organization costs, net of
amortization 48,111 0 48,111
----------------------------------------------------------------------
Total assets 55,736,475 141,057,925 196,794,400
----------------------------------------------------------------------
Liabilities
Payable for securities
purchased 2,999,856 0 2,999,856
Payable for securities
loaned 2,483,213 11,540,640 14,023,853
Payable for fund shares
redeemed 10,084 41,489 51,573
Accrued advisory and
management fees 14,091 0 14,091
Accrued transfer agency fees 10,674 0 10,674
Accrued management fees 0 0 0
Dividends payable 0 652,590 652,590
Other accrued expenses 5,544 98,362 103,906
----------------------------------------------------------------------
Total liabilities 5,523,462 12,333,081 17,856,543
----------------------------------------------------------------------
Net assets $50,213,013 $128,724,844 $178,937,857
----------------------------------------------------------------------
----------------------------------------------------------------------
Components of net assets
Capital paid in $44,802,545 $142,611,698 $187,414,243
Accumulated undistributed
net investment income 3,785,503 3,785,503
Accumulated undistributed
net realized gain (loss)
from investments 849,868 (16,087,173) (15,237,305)
Net unrealized appreciation
from investments 775,097 2,200,319 2,975,416
----------------------------------------------------------------------
Net assets $50,213,013 $128,724,844 $178,937,857
----------------------------------------------------------------------
----------------------------------------------------------------------
Net Assets by class of shares
I Shares $50,213,013 $97,172,850 $147,385,863
A Shares 20,254,633 $20,254,633
B Shares 11,297,361 $11,297,361
----------------------------------------------------------------------
Net Assets $50,213,013 $128,724,844 $178,937,857
----------------------------------------------------------------------
----------------------------------------------------------------------
Shares of beneficial interest, no
par value,
I Shares 810,182 11,070,701 (9,502,827) 2,378,056
A Shares 2,307,078 2,307,078
B Shares 1,288,152 1,288,152
Net asset value per share
I Shares $61.98 $8.78 $61.98
A Shares $8.78 $8.78
B Shares $8.77 $8.77
*Investments at cost $49,653,108 $122,181,599 $171,834,707
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
See notes to pro forma financial statements.
<PAGE>
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD NOVEMBER 11, 1994 TO OCTOBER 31, 1995
<TABLE>
<CAPTION>
Intermediate US Government Pro Forma Pro Forma
Government Fund Income Fund Adjustments Combined
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Interest income $4,116,759 $8,950,174 $13,066,933
Expenses
Advisory 160,764 477,229 (83,033) 554,960
Management 48,716 238,615 (119,161) 168,170
Custody 22,712 (22,712) 0
Transfer agent 121,791 298,268 420,059
Distribution 101,319 101,319
Accounting 52,700 63,400 (52,449) 63,651
Legal 3,268 6,030 9,298
Filing 23,162 18,760 41,922
Auditing 13,049 13,109 (13,109) 13,049
Trustees 1,055 2,031 3,086
Amortization of
organization costs 11,490 0 11,490
Other 6,191 14,401 20,592
------------------------------------------------------------------
Total expenses 442,186 1,255,874 (290,464) 1,407,596
Expenses reimbursed
and fees waived (110,930) (284,045) 130,935 (264,040)
------------------------------------------------------------------
Net expenses 331,256 971,829 (159,529) 1,143,556
------------------------------------------------------------------
Net investment income (loss) 3,785,503 7,978,345 159,529 11,923,377
------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments
Net realized gain (loss)
from Securities 849,868 (7,587,334) (6,737,466)
Net change in unrealized
appreciation
(depreciation)
from Securities 775,097 13,006,165 13,781,262
------------------------------------------------------------------
Net realized and unrealized
gain from investments 1,624,965 5,418,831 7,043,796
------------------------------------------------------------------
Increase in net assets from
operations $5,410,468 $13,397,176 $159,529 $18,967,173
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
See notes to pro forma financial statements.
<PAGE>
Pro Forma Schedule of Investments of Merger Between Intermediate US Government
Fund and Government Income Fund (unaudited)
October 31, 1995
<TABLE>
<CAPTION>
Security Description Face Amount Market Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (10.0%)
Federal Home Loan Mortgage Corp. 1130J, 7.5%, due 06/19/97 3,868,851 3,916,670
Federal Home Loan Mortgage Corp. 1189F, 7.5%, due 04/08/98 5,000,000 5,097,550
Federal Home Loan Mortgage Corp. Ser 1169C, 7.0%, due 06/05/96 1,440,953 1,441,314
Federal National Mortgage Assoc. 1991 156A, 7.5%, 08/08/99 4,224,743 4,321,362
Federal National Mortgage Assoc. Pool 160159, 7.516%, 07/01/99 2,500,000 2,559,450
Federal National Mortgage Assoc. Pool 160337, 7.025%, due 06/01/97 5,993,644 6,061,012
--------------
23,397,358
--------------
GOVERNMENT AGENCY BONDS & NOTES (16.6%)
Federal Home Loan Bank, 8.25%, due 06/25/96 1,000,000 1,017,450
Federal Home Loan Bank, 6.41%, due 10/11/05 3,000,000 3,029,766
Federal Home Loan Mortgage Corp. 5.905%, due 06/13/00 1,500,000 1,499,589
Student Loan Marketing Assoc., 6.05%, due 09/14/00 17,000,000 9,014,130
Student Loan Marketing Assoc., 8.29%, due 12/22/97 5,000,000 5,016,250
Tennessee Valley Authority, Ser D, 8.375%, due 10/01/99 2,000,000 2,165,000
Tennessee Valley Authority, Ser D, 6%, due 11/01/00 3,000,000 2,998,170
--------------
24,740,355
--------------
U.S. TREASURY OBLIGATIONS (68.8%)
U.S. Treasury Notes, 7.875%, due 04/15/98 7,500,000 7,875,450
U.S. Treasury Notes, 8%, due 05/15/01 7,000,000 7,706,440
U.S. Treasury Notes, 8.25%, due 07/15/98 26,950,000 20,152,554
U.S. Treasury Notes, 7.5%, due 11/15/01 8,500,000 9,196,089
U.S. Treasury Notes, 6.75%, due 02/28/97 6,000,000 6,087,000
U.S. Treasury Notes, 6.375%, due 08/15/02 5,000,000 5,133,500
U.S. Treasury Notes, 6.25%, due 02/15/03 3,000,000 3,054,000
U.S. Treasury Notes, 6.5%, due 04/30/99 5,000,000 5,120,350
U.S. Treasury Notes, 6.875%, due 08/31/99 5,000,000 5,187,050
U.S. Treasury Notes, 7.5% due 10/31/99 5,000,000 5,303,200
U.S. Treasury Notes, 7.75%, due 11/30/99 5,000,000 5,351,200
U.S. Treasury Notes, 7.5%, due 02/15/05 6,000,000 6,619,500
U.S. Treasury Notes, 6.875%, due 02/28/97 5,000,000 5,080,350
<PAGE>
Pro Forma Schedule of Investments of Merger Between Intermediate US Government
Fund and Government Income Fund (unaudited)
October 31, 1995
Security Description Face Amount Market Value
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.5%, due 08/15/05 5,000,000 5,178,650
U.S. Treasury Notes, 6.25%, due 08/31/00 2,000,000 2,035,000
U.S. Treasury Notes, 5.75%, due 10/31/97 6,000,000 6,016,866
U.S. Treasury Notes, 8%, due 01/15/97 3,000,000 3,084,375
U.S. Treasury Notes, 5.625%, due 01/31/98 3,000,000 2,998,125
U.S. Treasury Notes, 4.75%, due 09/30/98 2,500,000 2,437,500
U.S. Treasury Notes, 7.75%, due 01/31/00 2,000,000 2,144,372
U.S. Treasury Notes, 8.5%, due 02/15/00 2,000,000 2,201,872
U.S. Treasury Bonds, 10.75%, due 05/15/03 4,000,000 5,145,000
--------------
123,108,443
--------------
SHORT-TERM HOLDINGS (1.3%)
Federal Farm Credit Bank, 5.633%, due 11/02/95 2,400,215 2,400,215
--------------
REPURCHASE AGREEMENT (0.7%)
BA Securities, 5.875%, due 11/01/95, to be
repurchased at $1,163,941. Collateralized by
$16,300 Federal Home Loan Mortgage Corp.,
5.875%, due 11/13/95; $46,000,000 Federal
National Mortgage Assoc., 5.875%, due 02/27/96;
$48,000,000 Federal National Mortgage Assoc.,
5.875%, due 03/29/96; $75,000,000 Federal
National Mortgage Assoc., 5.875%, due 05/02/96;
$45,000,000 Federal Home Loan Bank, 5.875%,
due 01/30/96; $22,000,000 Federal Home Loan
Bank, 5.875%, due 02/29/96 1,163,752 1,163,752
--------------
TOTAL INVESTMENTS (COST $171,834,707) (97.4%): 174,810,123
OTHER ASSETS & LIABLILTIES, NET (2.6%): 4,287,263
--------------
TOTAL NET ASSETS (100%): 179,097,386
--------------
--------------
</TABLE>
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INTERMEDIATE US GOVERNMENT FUND AND
GOVERNMENT INCOME FUND (UNAUDITED)
OCTOBER 31, 1995
1. General
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of Government Income Fund by Intermediate US
Government Fund, as if such acquisition had taken place as of November 11, 1994.
Under the terms of the Plan of Reorganization, the combination of Intermediate
US Government Fund and Government Income Fund will be taxed as a tax free
business combination and accordingly will be accounted for by a method of
accounting for tax free mergers of investment companies (sometimes referred to
the pooling without restatement method). The acquisition would be accomplished
by an acquisition of the net assets of Government Income Fund in exchange for
shares of Intermediate US Government Fund at net asset value. The statements of
assets and liabilities and the related statement of operations of Intermediate
US Government Fund and Government Income Fund have been combined as of and for
the period ended October 31, 1995.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of Government Income
Fund and Intermediate US Government Fund which are included in their annual
reports dated May 31, 1995 and October 31, 1995, respectively.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned acquisition of Intermediate US Government Fund and
Government Income Fund had taken place as of November 11, 1994.
2. Significant Accounting Policies
Intermediate US Government Fund (the "Fund") is a diversified portfolio of the
Norwest Advantage Funds (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
The significant accounting policies consistently followed by Intermediate US
Government Fund are as follows:
SECURITY VALUATION -- Securities which mature in 60 days or less are valued at
amortized cost. Securities, for which market quotations are readily available,
are valued using the last reported sales price provided by independent pricing
services. If no sales are reported, the mean of the last bid and ask prices is
used. Other securities traded on an exchange for which market quotations are
readily available, are valued using the mean of the bid and ask prices provided
by independent pricing services. If no mean price is available, the last bid
price is used. In the absence of readily available market quotations,
securities are valued at fair value determined in accordance with procedures
adopted by the Board of Trustees (the "Board).
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INTERMEDIATE US GOVERNMENT FUND AND
GOVERNMENT INCOME FUND (UNAUDITED)
OCTOBER 31, 1995 (CONTINUED)
REPURCHASE AGREEMENTS -- The Fund may purchase portfolio securities from
financial institutions deemed to be creditworthy by the Fund's investment
adviser subject to the seller's agreement to repurchase and the Fund's agreement
to resell such securities. Securities received as collateral in connection with
the repurchase agreements are maintained by the Trust and must have, at all
times, an aggregate market value greater than or equal to the repurchase price
plus accrued interest.
REALIZED GAINS AND LOSSES -- Security transactions are recorded on a trade date
basis, and realized gains and losses on investments sold are recorded on the
basis of identified cost.
INTEREST AND DIVIDEND INCOME AND DIVIDENDS TO SHAREHOLDERS -- Interest income is
accrued as earned. Dividends on securities held by Funds are accrued on the ex-
dividend date. Dividends to shareholders of net investment income are declared
and paid at least annually by the Fund. Net capital gain, if any, is
distributed at least annually to shareholders. Distributions from net
investment income and realized capital gain are based on amounts calculated in
accordance with applicable income tax regulations. Any differences between
financial statement amounts available for distribution and distributions made in
accordance with income tax regulations are primarily attributable to deferral of
losses for tax purposes due to wash sales.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION -- If a fixed income investment is
purchased at a premium, the premium is not amortized. If a fixed income
investment is purchased at a discount (other than original issue discount), the
discount is not accreted. Upon disposition, if appropriate, market discount
accretion is calculated on a straight line method and reclassified to investment
income. Original issue discount on fixed income investments is accreted daily
using yield to maturity method.
SECURITY LOANS -- The Fund receives compensation for lending securities in the
form of fees or by retaining a portion of interests on the investment securities
or any cash received as collateral. A Fund also continues to receive interest
or dividends on the securities loaned. Security loans are secured by collateral
equal to at least 102%, at all times, of the market value of the securities
loaned plus accrued interest. Gain or loss in the market price of the
securities loaned that may occur during the term of the loan will be reflected
in the value of the Fund.
ORGANIZATIONAL COSTS -- The costs incurred by the Fund in connection with its
organization, in the amount of $59,601, have been capitalized and are being
amortized using the straight line method over a five year period beginning on
the commencement of the Funds operations.
EXPENSE ALLOCATION -- Each share of each class of the Fund represents an
undivided, proportionate interest in the Fund. Certain expenses are allocated
to the various share classes on the basis of usage services or contractual
differences. Expenses are allocated in accordance with procedures adopted by
the Board of Trustees.
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INTERMEDIATE US GOVERNMENT FUND AND
GOVERNMENT INCOME FUND (UNAUDITED)
OCTOBER 31, 1995 (CONTINUED)
FEDERAL INCOME TAX -- The Fund intends to qualify and continue to qualify as a
regulated investment company and distributes all of its taxable income.
Therefore, no Federal income tax provision is required.
3. Pro Forma Adjustments
The accompanying pro forma financial statements reflect changes in fund shares
as if the merger had taken place on October 31, 1995. Adjustments were made to
expenses for duplicated services that would not have been incurred if the merger
took place on November 11, 1994.
<PAGE>
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Income Equity Income Stock Pro Forma Pro Forma
Fund Fund Adjustments Combined
---------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments, at value * $49,014,761 $113,911,079 $162,925,840
Cash 0 0 0
Collateral for securities loaned 6,259,531 7,456,640 13,716,171
Interest, dividends and other receivables 48,303 119,932 168,235
Receivable for securities sold 0 0 0
Receivable for fund shares sold 15,658 218,919 234,577
Receivable from manager 2,427 0 2,427
Organization costs, net of amortization 48,111 0 48,111
---------------------------------------------------------
Total assets 55,388,791 121,706,570 177,095,361
---------------------------------------------------------
Liabilities
Payable for securities purchased 0 0 0
Payable for securities loaned 6,259,531 7,456,640 13,716,171
Payable for fund shares redeemed 90,865 23,001 113,866
Accrued advisory and management fees 20,687 0 20,687
Accrued transfer agency fees 10,343 0 10,343
Accrued management fees 0 0 0
Dividends payable 0 166,068 166,068
Other accrued expenses 7,361 112,279 119,640
---------------------------------------------------------
Total liabilities 6,388,787 7,757,988 14,146,775
---------------------------------------------------------
Net assets $49,000,004 $113,948,582 $162,948,586
---------------------------------------------------------
---------------------------------------------------------
Components of net assets
Capital paid in $39,815,787 $96,934,426 $136,750,213
Accumulated undistributed net investment income 940,343 (18,413) 921,930
Accumulated undistributed net realized gain (loss)
from investments (25,794) 1,174,304 1,148,510
Net unrealized appreciation from investments 8,269,668 15,858,265 24,127,933
---------------------------------------------------------
Net assets 49,000,004 113,948,582 162,948,586
---------------------------------------------------------
---------------------------------------------------------
Net Assets by class of shares
I Shares 49,000,004 $88,977,495 137,977,499
A Shares 17,815,761 17,815,761
B Shares 7,155,326 7,155,326
---------------------------------------------------------
Net Assets $49,000,004 $113,948,582 $162,948,586
---------------------------------------------------------
---------------------------------------------------------
Shares of beneficial interest, no par value,
I Shares 2,040,062 7,185,782 (3,481,301) 5,744,543
A Shares 1,439,861 1,439,861
B Shares 581,962 581,962
Net asset value per share
I Shares $24.02 $12.38 $24.02
A Shares $12.37 $12.37
B Shares $12.30 $12.30
*Investments at cost $40,745,093 $98,052,813 $138,797,906
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
See notes to pro forma financial statements.
<PAGE>
NORWEST ADVANTAGE FUNDS
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD NOVEMBER 11, 1994 TO OCTOBER 31, 1995
<TABLE>
<CAPTION>
Income Equity Income Stock Pro Forma Pro Forma
Fund Fund Adjustments Combined
---------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Interest income $97,233 $282,096 $379,329
Dividend income 1,162,013 2,108,794 3,270,807
---------------------------------------------------------
Total income 1,259,246 2,390,890 3,650,136
---------------------------------------------------------
Expenses
Advisory 187,584 566,685 (49,244) 705,025
Management 37,517 141,675 (70,727) 108,465
Custody 0 14,093 (14,093) 0
Transfer agent 93,792 177,094 270,886
Distribution 30,567 30,567
Accounting 34,700 46,267 (28,890) 52,077
Legal 2,384 3,284 5,668
Filing 21,346 34,377 55,723
Auditing 14,047 11,636 (11,636) 14,047
Trustees 954 1,619 2,573
Amortization of organization costs 11,490 0 11,490
Other 6,212 7,174 13,386
---------------------------------------------------------
Total expenses 410,026 1,034,471 (174,590) 1,269,907
Expenses reimbursed and fees waived (91,123) (306,580) 212,450 (185,253)
---------------------------------------------------------
Net expenses 318,903 727,891 37,860 1,084,654
---------------------------------------------------------
Net investment income (loss) 940,343 1,662,999 (37,860) 2,565,482
---------------------------------------------------------
Net realized and unrealized gain (loss) from investments
Net realized gain (loss) from Securities (25,794) 1,158,277 1,132,483
Net change in unrealized appreciation (depreciation)
from Securities 8,269,668 14,267,798 22,537,466
---------------------------------------------------------
Net realized and unrealized gain from investments 8,243,874 15,426,075 23,669,949
---------------------------------------------------------
Increase in net assets from operations $9,184,217 $17,089,074 ($37,860) $26,235,431
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
See notes to pro forma financial statements.
<PAGE>
PRO FORMA SCHEDULE OF INVESTMENTS OF MERGER BETWEEN INCOME EQUITY FUND AND
INCOME STOCK FUND (UNAUDITED)
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Security Description Face Amount Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (5.1%)
E.I. du Pont $64,700 $4,035,663
Morton International 141,000 4,300,500
------------
8,336,163
------------
CAPITAL GOODS (13.0%)
Emerson Electric 40,200 2,864,250
General Electric 70,000 4,427,500
Honeywell 125,000 5,250,000
United Technologies 54,500 4,836,875
WMX Technologies 134,000 3,768,751
------------
21,147,376
------------
CONSUMER CYCLICAL (14.6%)
Dayton Hudson Corp. 32,200 2,213,750
Deluxe Corp. 88,900 2,389,188
Dun & Bradstreet Corp. 100,000 5,975,000
Eastman Kodak 79,000 4,947,375
J.C.Penney 63,000 2,653,875
May Department Stores 49,500 1,942,875
McDonald's Corp. 58,400 2,394,400
Sears Roebuck & Co. 35,500 1,207,000
------------
23,723,463
------------
CONSUMER STAPLES (18.3%)
American Brands 100,000 4,287,500
American Home Products 31,900 2,827,138
Johnson & Johnson 39,800 3,243,700
Merck & Co. 48,500 2,788,750
PepsiCo 58,400 3,080,600
Pfizer 52,100 2,989,238
Philip Morris 41,000 3,464,500
Procter & Gamble 52,000 4,212,000
Sara Lee Corp. 98,000 2,878,750
------------
29,772,176
------------
ENERGY (12.7%)
Atlantic Richfield 34,000 3,629,500
Chevron Corp. 79,000 3,693,250
Exxon Corp. 49,200 3,757,650
Mobil Corp. 27,900 2,810,925
Royal Dutch Petroleum 20,000 2,457,501
Schlumberger Ltd. 70,600 4,394,850
------------
20,743,676
------------
</TABLE>
<PAGE>
PRO FORMA SCHEDULE OF INVESTMENTS OF MERGER BETWEEN INCOME EQUITY FUND AND
INCOME STOCK FUND (UNAUDITED)
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Security Description Face Amount Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL (11.1%)
Allstate Corp. $32,909 $1,209,406
American Express 80,600 3,274,375
American General Corp. 82,000 2,695,751
First Bank System 72,700 3,616,825
J.P.Morgan & Co. 51,000 3,933,375
Transamerica Corp. 49,600 3,360,400
------------
18,090,132
------------
MISCELLANEOUS (3.1%)
Minnesota Mining & Manufacturing 90,000 5,118,750
------------
TECHNOLOGY (9.3%)
AT&T Corp. 115,000 7,360,000
Hewlett-Packard 79,000 7,317,375
Pitney Bowes 10,400 453,700
------------
15,131,075
------------
UTILITIES (9.6%)
Consolidated Natural Gas 93,700 3,560,600
FPL Group 20,900 875,188
GTE Corp. 100,900 4,162,125
Pacific Gas & Electric 88,000 2,584,995
Public Service Enterprise Group 81,700 2,399,936
Texas Utilities 55,600 2,043,300
------------
15,626,144
------------
CASH MANAGEMENT ACCOUNTS (2.4%)
IFG TempFund Fund 1,989,135 1,989,137
Dreyfus Cash 1,887,330 1,887,330
------------
3,876,467
------------
REPURCHASE AGREEMENT (0.81%)
BA Securities, 5.875%, due 11/01/95, to be repurchased at
$1,360,640. Collateralized by $16,300 Federal Home Loan
Mortgage Corp., 5.875%, due 11/13/95; $46,000,000
Federal National Mortgage Assoc., 5.875%, due 02/27/96:
$48,000,000 Federal National
Mortgage Assoc., 5.875%, due 03/29/96; $75,000,000
Federal National Mortgage Assoc., 5.875%, due 05/02/96;
$45,000,000 Federal Home Loan Bank, 5.875%, due
01/30/96; $22,000,000 Federal Home Loan Bank, 5.875%
due 02/29/96 1,360,418 1,360,418
------------
<PAGE>
PRO FORMA SCHEDULE OF INVESTMENTS OF MERGER BETWEEN INCOME EQUITY FUND AND
INCOME STOCK FUND (UNAUDITED)
OCTOBER 31, 1995
TOTAL INVESTMENTS (COST $138,797,906) (100.01%): $162,925,840
OTHER ASSETS & LIABILITIES, NET (-0.01%): (15,114)
------------
TOTAL NET ASSETS (100%): $162,910,726
------------
------------
</TABLE>
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INCOME EQUITY FUND AND INCOME STOCK FUND
(UNAUDITED)
OCTOBER 31, 1995
1. General
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of Income Stock Fund by Income Equity Fund, as if
such acquisition had taken place as of November 11, 1994.
Under the terms of the Plan of Reorganization, the combination of Income Equity
Fund and Income Stock Fund will be taxed as a tax free business combination and
accordingly will be accounted for by a method of accounting for tax free mergers
of investment companies (sometimes referred to the pooling without restatement
method). The acquisition would be accomplished by an acquisition of the net
assets of Income Stock Fund in exchange for shares of Income Equity Fund at net
asset value. The statements of assets and liabilities and the related statement
of operations of Income Equity Fund and Income Stock Fund have been combined as
of and for the period ended October 31, 1995.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of Income Stock Fund
and Income Equity Fund which are included in their annual reports dated May 31,
1995 and October 31, 1995, respectively.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned acquisition of Income Equity Fund and Income Stock Fund
had taken place as of November 11, 1994.
2. Significant Accounting Policies
Income Equity Fund (the "Fund") is a diversified portfolio of the Norwest
Advantage Funds (the "Trust"). The Trust is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The significant accounting policies consistently followed by Income Equity Fund
are as follows:
SECURITY VALUATION -- Securities which mature in 60 days or less are valued at
amortized cost. Securities, for which market quotations are readily available,
are valued using the last reported sales price provided by independent pricing
services. If no sales are reported, the mean of the last bid and ask prices is
used. Other securities traded on an exchange for which market quotations are
readily available, are valued using the mean of the bid and ask prices provided
by independent pricing services. If no mean price is available, the last bid
price is used. In the absence of readily available market quotations,
securities are valued at fair value determined in accordance with procedures
adopted by the Board of Trustees (the "Board).
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INCOME EQUITY FUND AND INCOME STOCK FUND
(UNAUDITED)
OCTOBER 31, 1995 (CONTINUED)
REPURCHASE AGREEMENTS -- The Fund may purchase portfolio securities from
financial institutions deemed to be creditworthy by the Fund's investment
adviser subject to the seller's agreement to repurchase and the Fund's agreement
to resell such securities. Securities received as collateral in connection with
the repurchase agreements are maintained by the Trust and must have, at all
times, an aggregate market value greater than or equal to the repurchase price
plus accrued interest.
REALIZED GAINS AND LOSSES -- Security transactions are recorded on a trade date
basis, and realized gains and losses on investments sold are recorded on the
basis of identified cost.
INTEREST AND DIVIDEND INCOME AND DIVIDENDS TO SHAREHOLDERS -- Interest income is
accrued as earned. Dividends on securities held by Funds are accrued on the ex-
dividend date. Dividends to shareholders of net investment income are declared
and paid at least annually by the Fund. Net capital gain, if any, is
distributed at least annually to shareholders. Distributions from net
investment income and realized capital gain are based on amounts calculated in
accordance with applicable income tax regulations. Any differences between
financial statement amounts available for distribution and distributions made in
accordance with income tax regulations are primarily attributable to deferral of
losses for tax purposes due to wash sales.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION -- If a fixed income investment is
purchased at a premium, the premium is not amortized. If a fixed income
investment is purchased at a discount (other than original issue discount), the
discount is not accreted. Upon disposition, if appropriate, market discount
accretion is calculated on a straight line method and reclassified to investment
income. Original issue discount on fixed income investments is accreted daily
using yield to maturity method.
SECURITY LOANS -- The Fund receives compensation for lending securities in the
form of fees or by retaining a portion of interests on the investment securities
or any cash received as collateral. A Fund also continues to receive interest
or dividends on the securities loaned. Security loans are secured by collateral
equal to at least 102%, at all times, of the market value of the securities
loaned plus accrued interest. Gain or loss in the market price of the
securities loaned that may occur during the term of the loan will be reflected
in the value of the Fund.
ORGANIZATIONAL COSTS -- The costs incurred by the Fund in connection with its
organization, in the amount of $59,601, have been capitalized and are being
amortized using the straight line method over a five year period beginning on
the commencement of the Funds operations.
EXPENSE ALLOCATION -- Each share of each class of the Fund represents an
undivided, proportionate interest in the Fund. Certain expenses are allocated
to the various share classes on the basis of usage services or contractual
differences. Expenses are allocated in accordance with procedures adopted by
the Board of Trustees.
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INCOME EQUITY FUND AND INCOME STOCK FUND
(UNAUDITED)
OCTOBER 31, 1995 (CONTINUED)
FEDERAL INCOME TAX -- The Fund intends to qualify and continue to qualify as a
regulated investment company and distributes all of its taxable income.
Therefore, no Federal income tax provision is required.
3. Pro Forma Adjustments
The accompanying pro forma financial statements reflect changes in fund shares
as if the merger had taken place on October 31, 1995. Adjustments were made to
expenses for duplicated services that would not have been incurred if the merger
took place on November 11, 1994.
<PAGE>
PART C
Item 15. Indemnification.
__________________________
Incorporated by reference to Item 27 of Post Effective
Amendment No. 33 to Registrant's Registration Statement on Form
N-1A (File Nos. 811-4881, 33-9645), filed December 29, 1995.
Item 16. Exhibits.
___________________
(1)(a) Copy of Trust Incorporated by reference to
Instrument of Registrant's Registration
the Registrant Statement on Form N-1A, File
as now in effect. Nos. 811-4881, 33-9645 (the
"Registrant's Form N-1A"),
Exhibit 1 to Post-Effective
Amendment ("PEA") No. 20, filed
July 30, 1993.
(2) By-Laws. Incorporated by reference to
Exhibit 2 to PEA No. 20 to the
Registrant's Form N-1A, filed
July 30, 1993.
(3) Not applicable.
(4) Plan of Filed herewith as Exhibit A to
Reorganization and Part A.
Liquidation (the
"Plan").
(5) Specimen of Share Except for the names of the
certificate for classes of shares and cusip
shares of numbers, the certificate of
beneficial interest each class of each portfolio
of each class of of Registrant is sub-
each portfolio of stantially identical to the
Registrant. form of certificate, and
therefore, is omitted pursuant
to Rule 483(d)(2) under the 1933
Act.
(6) Form of Investment Incorporated by reference to
Advisory Agreement Exhibit 5(j) to PEA No. 22 to
between Registrant the Registrant's Form N-1A,
and Norwest, relating filed December 30, 1993.
to Intermediate U.S.
Government Fund,
Stable Income Fund
C-1
<PAGE>
and Income Equity
Fund (the "Acquiring
Funds").
(7)(a) Distribution Services Incorporated by reference to
Agreement between the Exhibit 6 to PEA No. 34 to
Registrant and the Registrant's Form N-1A,
Norwest relating to to be filed on or about
the Acquiring Funds. February 29, 1996
(7)(b) Distribution Agree- Incorporated by reference to
ment between Exhibit 6(e) to PEA No. 32 to
Registrant and Forum the Registrant's Form N-1A,
relating to each filed October 2, 1995.
portfolio of
Registrant
(8) Not applicable.
(9)(a) Custodian Agreement Incorporated by reference to
between the Exhibit 8(a) to PEA No. 22 to
Registrant and the Registrant's Form N-1A,
Norwest. filed December 30, 1993.
(9)(b) Form of Transfer Incorporated by reference to
Agency Agreement Exhibit 8(b) to PEA No. 22 to
between Registrant the Registrant's Form N-1A,
and Norwest. filed December 30, 1993.
(10) Form of Rule 12b-1 Incorporated by reference to
Plan. Exhibit 15 to PEA No. 34 to
the Registrant's Form N-1A, to
be filed on or about February
29, 1996.
(11) Opinion of Seward & Filed herewith.
Kissel as to the
legality of the
securities being
registered.
(12) Opinion of Seward & Filed herewith.
Kissel as to tax
consequences of the
Plan.
(13) Not applicable.
C-2
<PAGE>
(14) Consent of KPMG Filed herewith.
Peat Marwick LLP,
independent
accountants for the
Trust.
(15) Not applicable
(16) Powers of Attorney. Filed herewith.
(17) Copy of the facing Filed herewith.
sheet of Registrant's
Form N-1A, filed
October 21, 1986 (the
Registrant's
declaration to
register an
indefinite number of
shares pursuant to
Rule 24f-2).
C-3
<PAGE>
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act (17
CFR 230.145c), the reoffering prospectus will contain the
information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items
of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part
of an amendment to the Registration Statement and will not
be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-
effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the Registrant in the City
of Portland and State of Maine on the 6th day of February, 1996.
NORWEST ADVANTAGE FUNDS
By: /s/ John Y. Keffer
John Y. Keffer
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
on the 6th day of February, 1996.
Signatures Title
1) Principal
Executive Officer
/s/ John Y. Keffer Chairman and President
John Y. Keffer
2) Principal Financial
and Accounting Officer
/s/ Michael D. Martins Treasurer, Principal Fincancial
Michael D. Martins and Accounting Officer
3) A Majority of the Trustees
/s/ John Y. Keffer Chairman
John Y. Keffer
Robert C. Brown Trustee
Donald H. Burkhardt Trustee
James C. Harris Trustee
Richard M. Leach Trustee
Timothy J. Penny Trustee
Donald C. Willeke Trustee
By: /s/ John Y. Keffer
John Y. Keffer
(Attorney-in-fact)
C-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(11) Opinion of Seward & Kissel
as to the legality of the
securities being
registered.
(12) Opinion of Seward & Kissel
as to tax consequences of
the Plan.
(14) Consent of KPMG Peat
Marwick LLP, independent
accountants for Norwest
Advantage Funds.
(16) Powers of Attorney.
(17) Copy of the facing sheet
of Registrant's Form N-1A,
filed October 21, 1986
(the Registrant's
declaration to register an
indefinite number of
shares pursuant to Rule
24f-2).
C-6
47180012.AC6
<PAGE>
EXHIBIT 11
SEWARD & KISSEL
1200 G Street, N.W.
Washington, DC 20005
Telephone: (202) 737-8833
Facsimile: (202) 737-5184
February 6, 1996
Norwest Advantage Funds
Two Portland Square
Portland, Maine 04101
Ladies and Gentlemen:
We have acted as counsel to the Norwest Advantage
Funds, a Delaware business trust (the "Trust"), in
connection with the following transactions pursuant to a
Plan of Reorganization and Liquidation (the "Plan") approved
by the Board of Trustees of the Trust: (i) the transfer of
all the assets of Adjustable U.S. Government Reserve Fund of
the Trust in exchange for shares of Stable Income Fund of
the Trust and the assumption by Stable Income Fund of all
the liabilities of Adjustable U.S. Government Reserve Fund,
and the distribution of such shares to shareholders of
Adjustable U.S. Government Reserve Fund in liquidation of
Adjustable U.S. Government Reserve Fund; (ii) the transfer
of all the assets of Government Income Fund of the Trust in
exchange for shares of Intermediate U.S. Government Fund of
the Trust and the assumption by Intermediate U.S. Government
Fund of all the liabilities of Government Income Fund, and
the distribution of such shares to shareholders of
Government Income Fund in liquidation of Government Income
Fund; and (iii) the transfer of all the assets of Income
Stock Fund of the Trust in exchange for shares of Income
Equity Fund of the Trust and the assumption by Income Equity
Fund of all the liabilities of Income Stock Fund, and the
distribution of such shares to shareholders of Income Stock
Fund in liquidation of Income Stock Fund.
We have examined the Trust Instrument and Bylaws of
the Trust, its Registration Statement on Form N-14 in which
this opinion letter is included as an exhibit (the
"Registration Statement") and the Plan in the form approved
<PAGE>
by the Board of Trustees of the Trust. We have also
examined and relied upon a certificate of the Secretary of
State of the State of Delaware to the effect that the Trust
is duly formed and existing under the laws of the State of
Delaware and in good standing in the State of Delaware.
In addition, we have examined and relied upon a
certificate of the Secretary of the Trust certifying that
the Plan presented to us is substantially in the form
approved by the Board of Trustees of the Trust and further
certifying the resolutions of the Board of Trustees of the
Trust approving the Plan and authorizing the issuance of the
A Shares, B Shares and I Shares (the "Shares") of Stable
Income Fund, Intermediate U.S. Government Fund and Income
Equity Fund (collectively, the "Acquiring Funds") pursuant
to the Plan. We have also examined and relied upon such
records of the Trust and other documents and certificates
with respect to factual matters as we have deemed necessary
to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all
signatures, the authenticity of all documents submitted to
us as originals, and the conformity with originals of all
documents submitted to us as copies.
Based on such examination, we are of the opinion
and so advise you that:
1. The Trust is validly existing as a business trust
in good standing under the laws of the State of Delaware;
and
2. The Shares of the Acquiring Funds to be issued in
accordance with the terms of the Plan, when so issued, will
constitute validly issued, fully paid and nonassessable
shares under the laws of the State of Delaware.
We hereby consent to the filing of this opinion letter
with the Securities and Exchange Commission as an exhibit to the
Registration Statement and to the reference to our firm under the
captions "Summary - Tax Consequences of the Transaction" and
"Information About the Transaction - Federal Income Tax
Consequences of the Transaction" in the Prospectus/Proxy
Statement included in the Registration Statement, and under the
caption "Other Information - Counsel and Auditors" contained in
both the Statement of Additional Information of the Acquiring
Funds offering A Shares and B Shares dated March 1, 1996 and the
Statement of Additional Information of the Acquiring Funds
offering I Shares dated March 1, 1996, also included in the
Registration Statement.
2
<PAGE>
Please be advised that we are opining as set forth above
as members of the bars of the State of New York and the District
of Columbia. This opinion does not extend to the securities or
"blue sky" laws of any state.
Very truly yours,
/s/ SEWARD & KISSEL
3
47180012.AC1
<PAGE>
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
Telephone (212) 574-1200
Facsimile (212) 480-8421
As of February 9, 1996
Norwest Advantage Funds
Adjustable U.S. Government Reserve Fund
Two Portland Square
Portland, Maine 04101
Norwest Advantage Funds
Stable Income Fund
Two Portland Square
Portland, Maine 04101
Acquisition of the Assets of Adjustable U.S.
Government Reserve Fund by Stable Income Fund
Ladies and Gentlemen:
I. Introduction
We have acted as counsel to Adjustable U.S. Government
Reserve Fund ("Transferor Fund") and Stable Income Fund
("Acquiring Fund"), each a portfolio of Norwest Advantage Funds,
a business trust organized under the laws of the state of
Delaware (the "Trust"), in connection with the Reorganization
provided for in the Plan of Reorganization and Liquidation
adopted by the Board of the Trust (the "Plan") (a copy of the
form of which is included as Exhibit A to the Prospectus/Proxy
Statement filed as Part A to the Registration Statement of the
Trust on Form N-14 relating to the Reorganization (the
"Registration Statement")). Pursuant to Section 3(j) of the
Plan, the Trust, on behalf of Transferor Fund and Acquiring Fund
has requested our opinion as to certain of the federal income tax
consequences to Transferor Fund, Acquiring Fund and the
shareholders of Transferor Fund in connection with the
Reorganization. Each capitalized term not defined herein has the
meaning ascribed to that term in the Plan.
<PAGE>
II. Relevant Facts
The Trust is registered as an open-end, management
investment company under the Investment Company Act of 1940, as
amended (the "Act").
The Plan and the Reorganization have been approved by
the Board. The terms and conditions of the Reorganization are
set forth in the Plan. Pursuant to the Plan, Transferor Fund
shall transfer to Acquiring Fund at the Closing all of the assets
of Transferor Fund to the extent they exist on or after the
Closing. In consideration thereof, at the Closing, Acquiring
Fund shall (A) assume and pay, to the extent that they exist on
or after the Closing, all liabilities of Transferor Fund (the
"Liabilities") and (B) deliver to Transferor Fund the number of
full and fractional Acquiring Fund Shares equal to that number of
full and fractional Transferor Fund Shares determined pursuant to
the exchange ratio described in the Plan. At the Closing,
Transferor Fund shall liquidate and distribute (whether actually
or constructively) to the holders of record of Transferor Fund
Shares as of the Closing a pro rata amount of the Acquiring Fund
Shares received by Transferor Fund pursuant to the Plan. Upon
completion of the Reorganization, each such former shareholder of
Transferor Fund will be the owner of full and fractional
Acquiring Fund Shares equal in net asset value as of the Closing
to the net asset value of the Transferor Fund Shares such
shareholder held prior to the Reorganization.
The investment objectives, policies, and styles of the
Fund are similar, and the Funds invest in many of the same types
of securities. The investment objective of Acquiring Fund is to
maintain safety of principal while providing low-volatility total
return, while Transferor Fund seeks to obtain high current income
consistent with minimal principal fluctuation. Acquiring Fund
seeks to attain its investment objective by investing primarily
in investment grade short-term obligation the Fund invests in a
diversified portfolio of fixed and variable rate United States
dollar denominated fixed income securities of a broad spectrum of
United States and foreign issuers, including United States
Government securities and the debt securities of financial
institutions and corporations, as well as mortgage-backed and
other asset-backed securities. Transferor Fund seeks to attain
its investment objective by investing primarily in a portfolio of
adjustable rate securities, including adjustable rate mortgage-
backed securities that are United States Government Securities.
Each Fund invests (primarily, in the case of Transferor
Fund) in securities with maturities (or average life in the case
of mortgage-backed and similar securities) ranging from short-
term (including overnight) to 12 years and seeks to maintain an
average dollar-weighted portfolio maturity of between two and
2
<PAGE>
five years. Further, each Fund limits its investments to those
securities that are rated, at the time of purchase, within the
three highest long-term or two highest short-term rating
categories assigned by a nationally recognized statistical rating
organization, such as Moody's Investors Service, Inc., Standard &
Poor's Ratings Services or Fitch Investors Service, Inc., or
which are unrated and determined by Norwest to be of comparable
quality.
On or before the Closing, it will be represented to us
by an executive officer of the Trust that (i) following the
Closing, Acquiring Fund will continue to invest its assets in
accordance with the description of its investment objectives and
policies as set forth in the Prospectus, and (ii) as of the
Closing, there will be no plan or intention on the part of
management of Acquiring Fund to sell or otherwise dispose of any
securities Acquiring Fund receives from Transferor Fund pursuant
to the Reorganization, other than in the ordinary course of
Acquiring Fund's business.
III. Opinion
In rendering the opinions set forth below, we have
examined drafts of the Registration Statement, the Plan and such
other documents and materials as we have deemed relevant. For
purposes of rendering our opinions, we have relied exclusively,
as to factual matters, upon the statements made in the
Registration Statement and, with your approval, upon the
following assumptions the correctness of each of which will be
verified (or, in the case of items (vii) and (ix), appropriately
represented) to us by executive officers of each of Transferor
Fund and Acquiring Fund:
(i) the Plan will be duly approved by the
shareholders of Transferor Fund;
(ii) Transferor Fund and Acquiring Fund will each
qualify as a "regulated investment company" for federal
income tax purposes as of the Closing;
(iii) following the Closing, Acquiring Fund will
continue in the same business as it conducted prior to
the Closing;
(iv) the shareholders of Transferor Fund will
receive no consideration from Acquiring Fund pursuant to
the Reorganization other than Acquiring Fund Shares;
(v) there will be no plan or intention on the part
of management of Acquiring Fund to sell or otherwise
dispose of any securities Acquiring Fund receives from
3
<PAGE>
Transferor Fund pursuant to the Reorganization, other
than in the ordinary course of Acquiring Fund's
business;
(vi) Transferor Fund will not dispose of any of its
assets prior to the Closing other than in the ordinary
course of Transferor Fund's business;
(vii) the shareholders of Transferor Fund will pay
any expenses incurred by them in connection with the
Reorganization;
(viii) the Liabilities will have been incurred in the
ordinary course of business of Transferor Fund or
incurred by Transferor Fund solely and directly in
connection with the Reorganization;
(ix) as of the Closing there will be no plan or
intention on the part of shareholders of Transferor Fund
to redeem, sell, exchange, transfer by gift, or
otherwise dispose of, more than 50 percent of the
Acquiring Fund Shares that they receive in the
Reorganization;
(x) as of the Closing there will be no pending or
threatened claims or assessments that will have been
asserted by or against Transferor Fund (other than those
disclosed and reflected in the net asset value of
Transferor Fund);
(xi) as of the Closing there will be no unasserted
claims or assessments against Transferor Fund that are
probable of assertion;
(xii) the Liabilities will not exceed 20 percent of
the fair market value of the assets of Transferor Fund
transferred to Acquiring Fund pursuant to the
Reorganization; and
(xiii) the Acquiring Fund Shares to be received by
the former shareholders of Transferor Fund pursuant to
the Plan will constitute more than 50 percent of the
Acquiring Fund Shares outstanding immediately following
the Reorganization.
Based upon the foregoing and upon our consideration of
the Code, the Treasury Regulations promulgated under the Code,
published Revenue Rulings and Revenue Procedures, other published
pronouncements of the Internal Revenue Service, the published
opinions of the United States Tax Court and other United States
federal courts, and such other authorities as we consider
4
<PAGE>
relevant, each as they exist as of the date hereof, we are of the
opinion that, for federal income tax purposes:
(i) the Reorganization will constitute a
"reorganization" within the meaning of section 368
(a)(1) of the Code, and, with respect to the
Reorganization, Transferor Fund and Acquiring Fund will
each be "a party to a reorganization" within the meaning
of section 368(b) of the Code;
(ii) neither Transferor Fund nor Acquiring Fund
will recognize any gain or loss upon (a) the transfer of
all the assets of Transferor Fund to Acquiring Fund in
exchange for Acquiring Fund Shares and the assumption by
Acquiring Fund of the Liabilities, or (b) the
distribution of Acquiring Fund Shares to shareholders of
Transferor Fund in exchange for their Transferor Fund
Shares;
(iii) the shareholders of Transferor Fund who
receive Acquiring Fund Shares in connection with the
Reorganization will not recognize any gain or loss upon
the exchange of their shares in Transferor Fund for
Acquiring Fund Shares (including any fractional share
interests) they receive (or are deemed to receive) in
the Reorganization;
(iv) the aggregate tax basis of the Acquiring Fund
Shares received in connection with the Reorganization by
each shareholder of Transferor Fund will be the same as
the aggregate basis of the Transferor Fund Shares
surrendered in exchange therefor;
(v) the holding period of Acquiring Fund Shares
received in connection with the Reorganization by each
shareholder of Transferor Fund will include the holding
period of the Transferor Fund Shares that are
surrendered in exchange therefor, provided that such
Transferor Fund Shares constitute capital assets in the
hands of the shareholder as of the Closing;
(vi) the holding period and tax basis of Acquiring
Fund in the assets it acquires from Transferor Fund in
the Reorganization will be the same as the holding
period and basis that Transferor Fund has in such assets
immediately prior to the Reorganization; and
(vii) following the Reorganization, the use by
Acquiring Fund of capital loss carryovers, if any,
attributable to periods preceding the Closing may be
5
<PAGE>
subject to limitation under section 383 of the Code as a
result of the Reorganization.
Very truly yours,
/s/ SEWARD & KISSEL
6
47180012.AB6
<PAGE>
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
Telephone (212) 574-1200
Facsimile (212) 480-8421
As of February 9, 1996
Norwest Advantage Funds
Income Stock Fund
Two Portland Square
Portland, Maine 04101
Norwest Advantage Funds
Income Equity Fund
Two Portland Square
Portland, Maine 04101
Acquisition of the Assets of Income
Stock Fund by Income Equity Fund
Ladies and Gentlemen:
I. Introduction
We have acted as counsel to Income Stock Fund
("Transferor Fund") and Income Equity Fund ("Acquiring Fund"),
each a portfolio of Norwest Advantage Funds, a business trust
organized under the laws of the state of Delaware (the "Trust"),
in connection with the Reorganization provided for in the Plan of
Reorganization and Liquidation adopted by the Board of the Trust
(the "Plan") (a copy of the form of which is included as
Exhibit A to the Prospectus/Proxy Statement filed as Part A to
the Registration Statement of the Trust on Form N-14 relating to
the Reorganization (the "Registration Statement")). Pursuant to
Section 3(j) of the Plan, the Trust, on behalf of Transferor Fund
and Acquiring Fund, has requested our opinion as to certain of
the federal income tax consequences to Transferor Fund, Acquiring
Fund and the shareholders of Transferor Fund in connection with
the Reorganization. Each capitalized term not defined herein has
the meaning ascribed to that term in the Plan.
<PAGE>
II. Relevant Facts
The Trust is registered as an open-end, management
investment company under the Investment Company Act of 1940, as
amended (the "Act").
The Plan and the Reorganization have been approved by
the Board. The terms and conditions of the Reorganization are
set forth in the Plan. Pursuant to the Plan, Transferor Fund
shall transfer to Acquiring Fund at the Closing all of the assets
of Transferor Fund to the extent they exist on or after the
Closing. In consideration thereof, at the Closing, Acquiring
Fund shall (A) assume and pay, to the extent that they exist on
or after the Closing, all liabilities of Transferor Fund (the
"Liabilities") and (B) deliver to Transferor Fund the number of
full and fractional Acquiring Fund Shares equal to that number of
full and fractional Transferor Fund Shares determined pursuant to
the exchange ratio described in the Plan. At the Closing,
Transferor Fund shall liquidate and distribute (whether actually
or constructively) to the holders of record of Transferor Fund
Shares as of the Closing a pro rata amount of the Acquiring Fund
Shares received by Transferor Fund pursuant to the Plan. Upon
completion of the Reorganization, each such former shareholder of
Transferor Fund will be the owner of full and fractional
Acquiring Fund Shares equal in net asset value as of the Closing
to the net asset value of the Transferor Fund Shares such
shareholder held prior to the Reorganization.
The investment objectives, policies, and styles of the
Fund are substantially similar, and the Funds invest in many of
the same types of securities. The investment objective of
Acquiring Fund is to provide both long-term capital appreciation
in line with that of the overall equity securities markets and
above-average dividend income, while Transferor Fund seeks
current income and growth of income and, consistent with those
objectives, long-term capital growth.
Acquiring Fund invests primarily in the common stock of
large, high-quality domestic companies that have above-average
return potential based on current market valuations. Primary
emphasis is placed on investing in securities of companies with
above-average dividend income. Transferor Fund pursues its
investment objective by investing primarily in equity securities
of companies that, in the view of Norwest, offer earnings growth
potential while paying current dividends. Transferor Fund
invests primarily in equity securities of companies that, in the
view of Norwest, offer earnings growth potential and also paying
current dividends.
Each Fund may invest in common and preferred stock and
securities convertible into common stock and may purchase
2
<PAGE>
American Depository Receipts, European Depository Receipts and
other similar securities of foreign issuers. Transferor Fund may
also invest in fixed income securities, including corporate debt
obligations, that are rated in one of the three highest rating
categories by a nationally recognized statistical rating
organization ("NSRO") or, if unrated by any NRSRO, judged by
Norwest to be of comparable quality. However, under normal
market conditions, Transferor Fund's fixed income positions (not
including convertible securities) will not exceed 20 percent of
the Fund's total assets. Acquiring Fund has not adopted an
investment policy with respect to, and therefore does not
currently intend to invest in, fixed income securities (other
than convertible securities).
On or before the Closing, it will be represented to us
by an executive officer of the Trust that (i) following the
Closing, Acquiring Fund will continue to invest its assets in
accordance with the description of its investment objectives and
policies as set forth in the Prospectus, and (ii) as of the
Closing, there will be no plan or intention on the part of
management of Acquiring Fund to sell or otherwise dispose of any
securities Acquiring Fund receives from Transferor Fund pursuant
to the Reorganization, other than in the ordinary course of
Acquiring Fund's business.
III. Opinion
In rendering the opinions set forth below, we have
examined drafts of the Registration Statement, the Plan and such
other documents and materials as we have deemed relevant. For
purposes of rendering our opinions, we have relied exclusively,
as to factual matters, upon the statements made in the
Registration Statement and, with your approval, upon the
following assumptions the correctness of each of which will be
verified (or, in the case of items (vii) and (ix), appropriately
represented) to us by executive officers of each of Transferor
Fund and Acquiring Fund:
(i) the Plan will be duly approved by the
shareholders of Transferor Fund;
(ii) Transferor Fund and Acquiring Fund will each
qualify as a "regulated investment company" for federal
income tax purposes as of the Closing;
(iii) following the Closing, Acquiring Fund will
continue in the same business as it conducted prior to
the Closing;
3
<PAGE>
(iv) the shareholders of Transferor Fund will
receive no consideration from Acquiring Fund pursuant to
the Reorganization other than Acquiring Fund Shares;
(v) there will be no plan or intention on the part
of management of Acquiring Fund to sell or otherwise
dispose of any securities Acquiring Fund receives from
Transferor Fund pursuant to the Reorganization, other
than in the ordinary course of Acquiring Fund's
business;
(vi) Transferor Fund will not dispose of any of its
assets prior to the Closing other than in the ordinary
course of Transferor Fund's business;
(vii) the shareholders of Transferor Fund will pay
any expenses incurred by them in connection with the
Reorganization;
(viii) the Liabilities will have been incurred in the
ordinary course of business of Transferor Fund or
incurred by Transferor Fund solely and directly in
connection with the Reorganization;
(ix) as of the Closing there will be no plan or
intention on the part of shareholders of Transferor Fund
to redeem, sell, exchange, transfer by gift, or
otherwise dispose of, more than 50 percent of the
Acquiring Fund Shares that they receive in the
Reorganization;
(x) as of the Closing there will be no pending or
threatened claims or assessments that will have been
asserted by or against Transferor Fund (other than those
disclosed and reflected in the net asset value of
Transferor Fund);
(xi) as of the Closing there will be no unasserted
claims or assessments against Transferor Fund that are
probable of assertion;
(xii) the Liabilities will not exceed 20 percent of
the fair market value of the assets of Transferor Fund
transferred to Acquiring Fund pursuant to the
Reorganization; and
(xiii) the Acquiring Fund Shares to be received by
the former shareholders of Transferor Fund pursuant to
the Plan will constitute more than 50 percent of the
Acquiring Fund Shares outstanding immediately following
the Reorganization.
4
<PAGE>
Based upon the foregoing and upon our consideration of
the Code, the Treasury Regulations promulgated under the Code,
published Revenue Rulings and Revenue Procedures, other published
pronouncements of the Internal Revenue Service, the published
opinions of the United States Tax Court and other United States
federal courts, and such other authorities as we consider
relevant, each as they exist as of the date hereof, we are of the
opinion that, for federal income tax purposes:
(i) the Reorganization will constitute a
"reorganization" within the meaning of section 368
(a)(1) of the Code, and, with respect to the
Reorganization, Transferor Fund and Acquiring Fund will
each be "a party to a reorganization" within the meaning
of section 368(b) of the Code;
(ii) neither Transferor Fund nor Acquiring Fund
will recognize any gain or loss upon (a) the transfer of
all the assets of Transferor Fund to Acquiring Fund in
exchange for Acquiring Fund Shares and the assumption by
Acquiring Fund of the Liabilities, or (b) the
distribution of Acquiring Fund Shares to shareholders of
Transferor Fund in exchange for their Transferor Fund
Shares;
(iii) the shareholders of Transferor Fund who
receive Acquiring Fund Shares in connection with the
Reorganization will not recognize any gain or loss upon
the exchange of their shares in Transferor Fund for
Acquiring Fund Shares (including any fractional share
interests) they receive (or are deemed to receive) in
the Reorganization;
(iv) the aggregate tax basis of the Acquiring Fund
Shares received in connection with the Reorganization by
each shareholder of Transferor Fund will be the same as
the aggregate basis of the Transferor Fund Shares
surrendered in exchange therefor;
(v) the holding period of Acquiring Fund Shares
received in connection with the Reorganization by each
shareholder of Transferor Fund will include the holding
period of the Transferor Fund Shares that are
surrendered in exchange therefor, provided that such
Transferor Fund Shares constitute capital assets in the
hands of the shareholder as of the Closing;
(vi) the holding period and tax basis of Acquiring
Fund in the assets it acquires from Transferor Fund in
the Reorganization will be the same as the holding
5
<PAGE>
period and basis that Transferor Fund has in such assets
immediately prior to the Reorganization; and
(vii) following the Reorganization, the use by
Acquiring Fund of capital loss carryovers, if any,
attributable to periods preceding the Closing may be
subject to limitation under section 383 of the Code as a
result of the Reorganization.
Very truly yours,
/s/ SEWARD & KISSEL
6
47180012.AB6
<PAGE>
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
Telephone (212) 574-1200
Facsimile (212) 480-8421
As of February 9, 1996
Norwest Advantage Funds
Government Income Fund
Two Portland Square
Portland, Maine 04101
Norwest Advantage Funds
Intermediate U.S. Government Fund
Two Portland Square
Portland, Maine 04101
Acquisition of the Assets of Government
Income Fund by Intermediate U.S. Government Fund
Ladies and Gentlemen:
I. Introduction
We have acted as counsel to Government Income Fund
("Transferor Fund") and Intermediate U.S. Government Fund
("Acquiring Fund"), each a portfolio of Norwest Advantage Funds,
a business trust organized under the laws of the state of
Delaware (the "Trust"), in connection with the Reorganization
provided for in the Plan of Reorganization and Liquidation
adopted by the Board of the Trust (the "Plan") (a copy of the
form of which is included as Exhibit A to the Prospectus/Proxy
Statement filed as Part A to the Registration Statement of the
Trust on Form N-14 relating to the Reorganization (the
"Registration Statement")). Pursuant to Section 3(j) of the
Plan, the Trust, on behalf of Transferor Fund and Acquiring Fund,
has requested our opinion as to certain of the federal income tax
consequences to Transferor Fund, Acquiring Fund and the
shareholders of Transferor Fund in connection with the
Reorganization. Each capitalized term not defined herein has the
meaning ascribed to that term in the Plan.
<PAGE>
II. Relevant Facts
The Trust is registered as an open-end, management
investment company under the Investment Company Act of 1940, as
amended (the "Act").
The Plan and the Reorganization have been approved by
the Board. The terms and conditions of the Reorganization are
set forth in the Plan. Pursuant to the Plan, Transferor Fund
shall transfer to Acquiring Fund at the Closing all of the assets
of Transferor Fund to the extent they exist on or after the
Closing. In consideration thereof, at the Closing, Acquiring
Fund shall (A) assume and pay, to the extent that they exist on
or after the Closing, all liabilities of Transferor Fund (the
"Liabilities") and (B) deliver to Transferor Fund the number of
full and fractional Acquiring Fund Shares equal to that number of
full and fractional Transferor Fund Shares determined pursuant to
the exchange ratio described in the Plan. At the Closing,
Transferor Fund shall liquidate and distribute (whether actually
or constructively) to the holders of record of Transferor Fund
Shares as of the Closing a pro rata amount of the Acquiring Fund
Shares received by Transferor Fund pursuant to the Plan. Upon
completion of the Reorganization, each such former shareholder of
Transferor Fund will be the owner of full and fractional
Acquiring Fund Shares equal in net asset value as of the Closing
to the net asset value of the Transferor Fund Shares such
shareholder held prior to the Reorganization.
The investment objectives, policies, and styles of the
Fund are substantially similar, and the Funds invest in many of
the same types of securities. The investment objective of
Acquiring Fund is to provide income and safety of principal by
investing primarily in United States Government Securities.
Transferor Fund seeks maximum income as a primary investment
objective and preservation of capital as a secondary investment
objective. Each of the Funds pursue their investment objectives
primarily by investing in United States Government Securities.
Under normal circumstances, each Fund invests at least 65 percent
of its assets in United States Government Securities. However,
Acquiring Fund may invest up to 35 percent of its assets in fixed
income securities that are not United States Government
Securities and Transferor Fund may invest up to 20 percent of its
assets in mortgage-backed securities that are not United States
Government Securities. In addition, Acquiring Fund may not
invest more than 25 percent of its total assets in securities
issued or guaranteed by any single agency or instrumentality of
the United States Government, except the United States Treasury.
Acquiring Fund invests in mortgage-backed and other
asset-backed securities, although the Fund limits these
investments to not more than 50 percent and 25 percent,
2
<PAGE>
respectively, of its total assets. Transferor Fund seeks to
attain its investment objective by investing in United States
Government securities, including mortgage-backed securities, and
repurchase agreements pertaining to United States Government
Securities. Transferor Fund may not invest more than 10 percent
of its net assets in asset-backed securities that are backed by a
particular type of credit, for instance, credit card receivables.
Each Fund invests in debt obligations with maturities
(or average life in the case of mortgage-backed and similar
securities) ranging from short-term (including overnight) to 12
years, and normally seeks to maintain an average dollar-weighted
maturity of between three and seven years. Generally, neither
Fund purchases securities that are rated (at the time of
purchase) below the three highest rating categories assigned by a
nationally recognized statistical rating organization, such as
Moody's Investors Service, Inc., Standard & Poor's Ratings
Services or Fitch Investors Service, Inc. although each Fund may
invest in securities which are unrated but determined by the
Adviser to be of comparable quality.
On or before the Closing, it will be represented to us
by an executive officer of the Trust that (i) following the
Closing, Acquiring Fund will continue to invest its assets in
accordance with the description of its investment objectives and
policies as set forth in the Prospectus, and (ii) as of the
Closing, there will be no plan or intention on the part of
management of Acquiring Fund to sell or otherwise dispose of any
securities Acquiring Fund receives from Transferor Fund pursuant
to the Reorganization, other than in the ordinary course of
Acquiring Fund's business.
III. Opinion
In rendering the opinions set forth below, we have
examined drafts of the Registration Statement, the Plan and such
other documents and materials as we have deemed relevant. For
purposes of rendering our opinions, we have relied exclusively,
as to factual matters, upon the statements made in the
Registration Statement and, with your approval, upon the
following assumptions the correctness of each of which will be
verified (or, in the case of items (vii) and (ix), appropriately
represented) to us by executive officers of each of Transferor
Fund and Acquiring Fund:
(i) the Plan will be duly approved by the
shareholders of Transferor Fund;
(ii) Transferor Fund and Acquiring Fund will each
qualify as a "regulated investment company" for federal
income tax purposes as of the Closing;
3
<PAGE>
(iii) following the Closing, Acquiring Fund will
continue in the same business as it conducted prior to
the Closing;
(iv) the shareholders of Transferor Fund will
receive no consideration from Acquiring Fund pursuant to
the Reorganization other than Acquiring Fund Shares;
(v) there will be no plan or intention on the part
of management of Acquiring Fund to sell or otherwise
dispose of any securities Acquiring Fund receives from
Transferor Fund pursuant to the Reorganization, other
than in the ordinary course of Acquiring Fund's
business;
(vi) Transferor Fund will not dispose of any of its
assets prior to the Closing other than in the ordinary
course of Transferor Fund's business;
(vii) the shareholders of Transferor Fund will pay
any expenses incurred by them in connection with the
Reorganization;
(viii) the Liabilities will have been incurred in the
ordinary course of business of Transferor Fund or
incurred by Transferor Fund solely and directly in
connection with the Reorganization;
(ix) as of the Closing there will be no plan or
intention on the part of shareholders of Transferor Fund
to redeem, sell, exchange, transfer by gift, or
otherwise dispose of, more than 50 percent of the
Acquiring Fund Shares that they receive in the
Reorganization;
(x) as of the Closing there will be no pending or
threatened claims or assessments that will have been
asserted by or against Transferor Fund (other than those
disclosed and reflected in the net asset value of
Transferor Fund);
(xi) as of the Closing there will be no unasserted
claims or assessments against Transferor Fund that are
probable of assertion;
(xii) the Liabilities will not exceed 20 percent of
the fair market value of the assets of Transferor Fund
transferred to Acquiring Fund pursuant to the
Reorganization; and
4
<PAGE>
(xiii) the Acquiring Fund Shares to be received by
the former shareholders of Transferor Fund pursuant to
the Plan will constitute more than 50 percent of the
Acquiring Fund Shares outstanding immediately following
the Reorganization.
Based upon the foregoing and upon our consideration of
the Code, the Treasury Regulations promulgated under the Code,
published Revenue Rulings and Revenue Procedures, other published
pronouncements of the Internal Revenue Service, the published
opinions of the United States Tax Court and other United States
federal courts, and such other authorities as we consider
relevant, each as they exist as of the date hereof, we are of the
opinion that, for federal income tax purposes:
(i) the Reorganization will constitute a
"reorganization" within the meaning of section 368
(a)(1) of the Code, and, with respect to the
Reorganization, Transferor Fund and Acquiring Fund will
each be "a party to a reorganization" within the meaning
of section 368(b) of the Code;
(ii) neither Transferor Fund nor Acquiring Fund
will recognize any gain or loss upon (a) the transfer of
all the assets of Transferor Fund to Acquiring Fund in
exchange for Acquiring Fund Shares and the assumption by
Acquiring Fund of the Liabilities, or (b) the
distribution of Acquiring Fund Shares to shareholders of
Transferor Fund in exchange for their Transferor Fund
Shares;
(iii) the shareholders of Transferor Fund who
receive Acquiring Fund Shares in connection with the
Reorganization will not recognize any gain or loss upon
the exchange of their shares in Transferor Fund for
Acquiring Fund Shares (including any fractional share
interests) they receive (or are deemed to receive) in
the Reorganization;
(iv) the aggregate tax basis of the Acquiring Fund
Shares received in connection with the Reorganization by
each shareholder of Transferor Fund will be the same as
the aggregate basis of the Transferor Fund Shares
surrendered in exchange therefor;
(v) the holding period of Acquiring Fund Shares
received in connection with the Reorganization by each
shareholder of Transferor Fund will include the holding
period of the Transferor Fund Shares that are
surrendered in exchange therefor, provided that such
5
<PAGE>
Transferor Fund Shares constitute capital assets in the
hands of the shareholder as of the Closing;
(vi) the holding period and tax basis of Acquiring
Fund in the assets it acquires from Transferor Fund in
the Reorganization will be the same as the holding
period and basis that Transferor Fund has in such assets
immediately prior to the Reorganization; and
(vii) following the Reorganization, the use by
Acquiring Fund of capital loss carryovers, if any,
attributable to periods preceding the Closing may be
subject to limitation under section 383 of the Code as a
result of the Reorganization.
Very truly yours,
/s/ SEWARD & KISSEL
6
47180012.AB6
<PAGE>
Exhibit 14
Consent of Independent Accountants
The Board of Trustees
Norwest Advantage Funds:
We consent to the use of our reports dated July 21, 1995 and
December 29, 1995, incorporated by reference herein, and to the
references to our Firm under the headings "Financial Highlights"
in the I Share Prospectus and "Counsel and Auditors" in the A and
B Share and I Share Statements of Additional Information.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 9, 1996
47180012.AD3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Timothy J. Penny
constitutes and appoints John Y. Keffer, David I. Goldstein,
Thomas G. Sheehan and Anthony C.J. Nuland and each of them,
to act severally as attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the
undersigned in any and all capacities to sign the
Registration Statement and any amendments thereto, on Form
N-14 of Norwest Advantage Funds and to file the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, and their substitute or substitutes, may do or cause
to be done by virtue hereof.
/s/ Timothy J. Penny
______________________
Timothy J. Penny
Dated: January 24, 1996
47180012.AD0[1]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that James C. Harris
constitutes and appoints John Y. Keffer, David I. Goldstein,
Thomas G. Sheehan and Anthony C.J. Nuland and each of them,
to act severally as attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the
undersigned in any and all capacities to sign the
Registration Statement and any amendments thereto, on Form
N-14 of Norwest Advantage Funds and to file the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, and their substitute or substitutes, may do or cause
to be done by virtue hereof.
/s/ James C. Harris
_________________________
James C. Harris
Dated: January 24, 1996
47180012.AD0[2]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Donald C. Willeke
constitutes and appoints John Y. Keffer, David I. Goldstein,
Thomas G. Sheehan and Anthony C.J. Nuland and each of them,
to act severally as attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the
undersigned in any and all capacities to sign the
Registration Statement and any amendments thereto, on Form
N-14 of Norwest Advantage Funds and to file the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, and their substitute or substitutes, may do or cause
to be done by virtue hereof.
/s/ Donald C. Willeke
_________________________
Donald C. Willeke
Dated: January 24, 1996
47180012.AD0[3]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John Y. Keffer
constitutes and appoints David I. Goldstein, Thomas G.
Sheehan and Anthony C.J. Nuland and each of them, to act
severally as attorneys-in-fact and agents, with full power
of substitution and resubstitution, for the undersigned in
any and all capacities to sign the Registration Statement
and any amendments thereto, on Form N-14 of Norwest
Advantage Funds and to file the same, with exhibits thereto,
and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, and their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ John Y. Keffer
_________________________
John Y. Keffer
Dated: January 24, 1996
47180012.AD0[4]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Donald C. Burkhardt
constitutes and appoints John Y. Keffer, David I. Goldstein,
Thomas G. Sheehan and Anthony C.J. Nuland and each of them,
to act severally as attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the
undersigned in any and all capacities to sign the
Registration Statement and any amendments thereto, on Form
N-14 of Norwest Advantage Funds and to file the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, and their substitute or substitutes, may do or cause
to be done by virtue hereof.
/s/ Donald H. Burkhardt
_________________________
Donald H. Burkhardt
Dated: January 24, 1996
47180012.AD0[5]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Robert C. Brown
constitutes and appoints John Y. Keffer, David I. Goldstein,
Thomas G. Sheehan and Anthony C.J. Nuland and each of them,
to act severally as attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the
undersigned in any and all capacities to sign the
Registration Statement and any amendments thereto, on Form
N-14 of Norwest Advantage Funds and to file the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, and their substitute or substitutes, may do or cause
to be done by virtue hereof.
/s/ Robert C. Brown
_________________________
Robert C. Brown
Dated: January 24, 1996
47180012.AD0[6]
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Richard M. Leach
constitutes and appoints John Y. Keffer, David I. Goldstein,
Thomas G. Sheehan and Anthony C.J. Nuland and each of them,
to act severally as attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the
undersigned in any and all capacities to sign the
Registration Statement and any amendments thereto, on Form
N-14 of Norwest Advantage Funds and to file the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, and their substitute or substitutes, may do or cause
to be done by virtue hereof.
/s/ Richard M. Leach
_________________________
Richard M. Leach
Dated: January 24, 1996
47180012.AD0[7]
<PAGE>
As filed with the Securities and Exchange Commission on 10/21/86
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
Pre-Effective Amendment No. ___
/ /
Post-Effective Amendment No. ___
/ /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
Amendment No. ___
/ /
_________________________________
PRIME VALUE FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
61 Broadway, New York, New York 10006
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 363-
3000
_________________________________
John Y. Keffer
Keffer Capital Management Inc.
61 Broadway
New York, New York 10006
(Name and address of agent for service)
Copies of communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
818 Connecticut Avenue, N.W.
Washington, D.C. 20006
_________________________________
<PAGE>
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485.
Registrant declares that an indefinite number of its
shares of its stock, par value $.001 per share, are being
registered by this Registration Statement.
The Registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effecitve on such date as the Commission acting
pursuant to said Section 8(a), may determine.
47180012.AC9
<PAGE>
The documents identified below are incorporated by
reference into and, in accordance with Instruction G of Form N-14
under the Securities Act of 1933, accompany the Registration
Statement on Form N-14 of Norwest Advantage Funds filed with the
Securities and Exchange Commission on February 13, 1996. These
documents were previously filed on paper with the Commission and
have not been independently filed electronically. These
documents are not filed as part of the Registration Statement.
1. Prospectus dated October 1, 1995 offering I Shares of
Adjustable U.S. Government Reserve Fund, Government Income
Fund and Income Stock Fund (the "Transferor Funds").
2. Prospectus dated October 1, 1995 offering A Shares and B
Shares of Adjustable U.S. Government Reserve Fund and
Government Income Fund.
3. Prospectus dated October 1, 1995 offering A and B Shares of
Income Stock Fund.
4. Report of Independent Auditors and Financial Statements of
the Transferor Funds for the year ended May 31, 1995.
END OF REGISTRATION STATEMENT ON FORM N-14
OF NORWEST ADVANTAGE FUNDS
47180012.AD5
<PAGE>
<PAGE>
PROSPECTUS - I SHARES
October 1, 1995
Norwest Advantage Funds (the "Trust") is registered as an open-end management
investment company (a mutual fund). This Prospectus offers I Shares (the
"Shares") of twelve portfolios of the Trust: Adjustable U.S. Government Reserve
Fund, Government Income Fund, Income Fund and Total Return Bond Fund (each a
fixed-income fund); Tax-Free Income Fund, Colorado Tax-Free Fund and Minnesota
Tax-Free Fund (each a tax-free fixed-income fund); and Income Stock Fund,
ValuGrowth Stock Fund, Small Company Stock Fund, Contrarian Stock Fund and
International Fund (each an equity fund) (each of the twelve a "Fund" and
collectively the "Funds").
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated October 1, 1995, as amended from time to
time, which contains more detailed information about the Trust and each of the
Funds and is incorporated into this Prospectus by reference. An investor may
obtain a copy of the SAI without charge by contacting the Trust. Investors
should read this Prospectus and retain it for future reference.
International Fund seeks to achieve its investment objective by investing all of
its investable assets in International Portfolio (the "Portfolio"), a separate
portfolio of a registered open-end management investment company with an
identical investment objective. See "Prospectus Summary" and "Other Information
- - Core Trust Structure."
Shares of Colorado and Minnesota Tax-Free Funds are offered solely to residents
of Colorado and Minnesota, respectively.
NORWEST ADVANTAGE FUNDS IS A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER
GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF,
OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OTHER BANK OR
BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1. SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
WHO SHOULD INVEST
I Shares are offered to fiduciary, agency and custodial clients of bank trust
departments, trust companies and their affiliates. See "Purchases and
Redemptions of Shares." While no single Fund is intended to
page 1 of 47
<PAGE>
provide a complete or balanced investment program, each can serve as a component
of an investor's investment program.
THE FUNDS
Shares of twelve portfolios are offered by this Prospectus: (a) four Fixed
Income Funds - Adjustable U.S. Government Reserve Fund, Government Income Fund,
Income Fund, Total Return Bond Fund (the "Fixed Income Funds"); (b) three Tax-
Exempt Fixed-Income Funds - Tax-Free Income Fund, Colorado Tax-Free Fund and
Minnesota Tax-Free Fund (the "Tax-Exempt Fixed-Income Funds"); and (c) five
Equity Funds - Income Stock Fund, ValuGrowth Stock Fund, Small Company Stock
Fund, Contrarian Stock Fund and International Fund (the "Equity Funds"). Only I
Shares (formerly, prior to October 1, 1995, Trust Shares) are offered by this
Prospectus. Other classes of the Funds, which are designed for retail investors
and charge a sales load or incur additional expenses, are offered by separate
prospectuses that may be obtained by contacting the Trust. Shares of each class
of a Fund have identical interests in the investment portfolio of the Fund and,
with certain exceptions, have the same rights. See "Other Information - The
Trust and Its Shares."
Fixed-Income Funds
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND seeks high current income consistent
with minimal principal fluctuation. This objective is pursued primarily by
investing in a portfolio of adjustable rate securities including mortgage-backed
securities, that are U.S. Government securities. GOVERNMENT INCOME FUND seeks
maximum income and, secondarily, preservation of capital by primarily investing
in a portfolio of U.S. Government securities, including mortgage-backed
securities. INCOME FUND seeks current income and, secondarily, growth of
capital. This objective is pursued by investing in a portfolio of fixed income
securities issued by domestic and foreign issuers. TOTAL RETURN BOND FUND seeks
total return. This objective is pursued by investing in a portfolio of U.S.
Government and investment-grade corporate fixed income securities.
Tax-Exempt Fixed-Income Funds
TAX-FREE INCOME FUND seeks to produce current income exempt from Federal income
taxes by investing primarily in a portfolio of investment grade municipal
securities, the interest on which is free from Federal income tax. COLORADO
TAX-FREE FUND seeks to provide shareholders with a high level of current income
exempt from both Federal and Colorado state income taxes (including the
alternative minimum tax) consistent with preservation of capital. This objective
is pursued by investing primarily in a portfolio of investment grade municipal
securities of Colorado issuers. MINNESOTA TAX-FREE FUND seeks to provide
shareholders with a high level of current income exempt from both Federal and
Minnesota state income taxes (including the alternative minimum tax) without
assuming undue risk. This objective is pursued by investing primarily in a
portfolio of investment grade municipal securities of Minnesota issuers.
Equity Funds
INCOME STOCK FUND seeks current income and growth of income and, consistent with
those objectives, long-term capital growth. This objective is pursued by
investing primarily in equity securities of companies that, in the view of the
Fund's investment adviser, offer earnings growth potential while paying current
dividends. VALUGROWTH STOCK FUND seeks capital appreciation. This objective is
pursued by investing in a diversified portfolio of common stock and securities
convertible into common stock. The Fund invests primarily in medium - and large
- - capitalization companies that, in the view of the Fund's investment adviser,
possess above average growth prospects and appear to be undervalued. SMALL
COMPANY STOCK FUND seeks long-term capital appreciation. This objective is
pursued by investing primarily in the common stock of small-and-medium size
domestic companies that have a market capitalization well below that of the
average company in the Standard & Poor's 500 Composite Stock Price Index.
CONTRARIAN STOCK FUND seeks capital appreciation. This objective is pursued by
investing primarily in common stocks for which the Fund's investment adviser
believes there is significant potential for price appreciation. INTERNATIONAL
FUND seeks long-term capital appreciation. This objective is pursued by
investing, directly or indirectly, in high quality companies based outside the
United States. The Fund currently seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, a series of Core
page 2 of 47
<PAGE>
Trust (Delaware) ("Core Trust"), itself a registered open-end management
investment company. Accordingly, the investment experience of the Fund will
correspond directly with the investment experience of the Portfolio. See "Other
Information - Core Trust Structure." The Portfolio has the same investment
objective and policies as the Fund.
MANAGEMENT OF THE FUNDS
The investment adviser to each Fund (the "Adviser") is Norwest Investment
Management, a part of Norwest Bank Minnesota, N.A. ("Norwest"). Norwest is a
subsidiary of Norwest Corporation, which is a multi-bank holding company that
was incorporated under the laws of Delaware in 1929. As of June 30, 1995,
Norwest Corporation was the 13th 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 $16 billion.
The Adviser makes investment decisions for the Funds and continuously reviews,
supervises and administers each Fund's investment program. Norwest serves as
the Trust's transfer agent, dividend disbursing agent, custodian and provides
certain administrative services to International Fund. Subject to the Adviser's
general oversight, Crestone Capital Management, Inc., an investment advisory
subsidiary of Norwest, serves as investment subadviser to Small Company Stock
Fund. The investment adviser to the Portfolio is Schroder Capital Management
International Inc. ("Schroder"). Schroder makes investment decisions for the
Portfolio and continuously reviews, supervises and administers the Portfolio's
investment program. The manager of the Trust and distributor of its shares is
Forum Financial Services, Inc. ("Forum"). Forum also serves as administrator of
Core Trust. See "Management of the Funds," for information on Norwest,
Crestone, Schroder and Forum, including their fees.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Fund may be purchased or redeemed without a sales or other
charge. The minimum initial investment in each Fund is $1,000, except that the
minimum initial investment in Adjustable U.S. Government Reserve Fund is $5,000.
The minimum subsequent investment in each Fund is $100. See "Purchases and
Redemptions of Shares."
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income are declared daily and paid monthly by the
Fixed Income Funds and the Tax-Exempt Fixed Income Funds and are declared and
paid monthly by the Equity Funds (except International Fund). Dividends of
International Fund's net investment income are declared and paid annually. Each
Fund's net capital gain, if any, is distributed annually. See "Dividends,
Distributions and Tax Matters."
CERTAIN RISK FACTORS
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Upon redemption, an investment in a
Fund may be worth more or less than its original value. All investments made by
the Funds entail some risk. Certain investments and investment techniques,
however, entail additional risks, such as the potential use of leverage by
certain Funds through borrowings, securities lending, swap transactions and
other investment techniques. See "Investment Objectives and Policies" and
"Additional Investment Policies."
Normally, the values of the FIXED INCOME FUNDS' and the TAX-EXEMPT FIXED INCOME
FUNDS' investments vary inversely with changes in interest rates. The Fixed
Income Funds' and Tax-Exempt Fixed Income Funds' investments are subject to
"credit risk" relating to the financial condition of the issuers of the
securities that each Fund holds. Each Fund (other than Minnesota Tax-Free
Fund), however, invests only in investment grade securities (those rated in the
top four grades by a nationally recognized statistical rating organization
("NRSRO") such as Standard & Poor's Corporation. Minnesota Tax-Free Fund may
invest in non-investment grade municipal securities, which may entail certain
risks. See "Investment Objectives and Policies - Tax-Exempt Fixed Income Funds -
Minnesota Tax-Free Fund - Non-
page 3 of 47
<PAGE>
Investment Grade Securities." In addition, with respect to the Fixed Income
Funds, the potential for appreciation in the event of a decline in interest
rates may be limited or negated by increased principal repayments on certain
mortgage- and asset-backed securities held by a Fund. The Fixed Income Funds'
use of these securities entails certain risks. See "Additional Investment
Policies - Fixed Income Investments - Mortgage-Backed and Asset-Backed
Securities."
Each of COLORADO TAX-FREE FUND and MINNESOTA TAX-FREE FUND invests principally
in securities issued by the government of and municipalities in the State of
Colorado or Minnesota, respectively, and is therefore more susceptible to
factors adversely affecting issuers of those states than would be a comparable
municipal securities portfolio having a greater degree of geographic
concentration. Each of these Funds is non-diversified, which means they have
greater latitude than a diversified Fund to invest in fewer issuers and to
invest more of their assets in any one issuer. Non-diversified funds may
present greater risks than a diversified fund. See "Investment Objectives and
Policies - Tax-Exempt Fixed Income Funds - Investment Considerations and Risk
Factors."
SMALL COMPANY STOCK FUND'S policy of investing in smaller companies and
CONTRARIAN STOCK FUND'S policy of investing in securities that may be out of
favor with many institutional investors entail certain risks in addition to
those normally associated with investments in equity securities. INTERNATIONAL
FUND'S policy of investing directly or indirectly in foreign issuers entails
certain risks in addition to those normally associated with investments in
equity securities. See "Investment Objectives and Policies - Equity Funds." By
investing solely in the Portfolio, International Fund may achieve certain
efficiencies and economies of scale. Nonetheless, this investment could also
have potential adverse effects on the Fund. Investors in the Fund should
consider these risks, as described under "Other Information- -Core Trust
Structure."
EXPENSES OF INVESTING IN THE FUNDS
The purpose of the following table is to assist investors in understanding the
expenses that an investor in I Shares of a Fund will bear directly or
indirectly. There are no transaction charges in connection with purchases,
redemptions or exchanges of Fund shares. None of the Funds has adopted a Rule
12b-1 plan with respect to I Shares and, accordingly, no Fund incurs
distribution expenses with respect to I Shares.
Annual Operating Expenses
(as a percentage of average net assets after applicable fee waivers and expense
reimbursements)(1):
<TABLE>
<CAPTION>
Investment Rule Total
Advisory 12b-1 Other Operating
Fees Fees Expenses(3) Expenses
<S> <C> <C> <C> <C>
Fixed Income Funds
Adjustable U.S. Government
Reserve Fund 0.43% None 0.42% 0.85%
Government Income Fund 0.36% None 0.38% 0.75%
Income Fund 0.37% None 0.38% 0.75%
Total Return Bond Fund 0.10% None 0.61% 0.71%
Tax-Exempt Fixed Income Funds
Tax-Free Income Fund 0.27% None 0.33% 0.60%
Colorado Tax-Free Fund 0.00% None 0.30% 0.30%
Minnesota Tax-Free Fund 0.00% None 0.48% 0.48%
Equity Funds
Income Stock Fund 0.37% None 0.63% 1.00%
ValuGrowth Stock Fund 0.80% None 0.40% 1.20%
Small Company Stock Fund 0.00% None 0.52% 0.52%
Contrarian Stock Fund 0.40% None 0.72% 1.12%
International Fund(2) 0.45% None 1.05% 1.50%
</TABLE>
(1) For a further description of the various expenses incurred in the operation
of the Funds, see "Management of the Funds." Expenses associated with A and B
Shares of the Funds differ from those of I Shares listed in the table. The
amounts of expenses for each Fund, except International Fund, are based on
amounts incurred during the Funds' most recent fiscal year ended May 31,
page 4 of 47
<PAGE>
1995. The amounts of expenses for International Fund are based on estimated
amounts for the Fund's first fiscal year of operations ending October 31, 1995.
Absent actual expense reimbursements and fee waivers, the Investment Advisory
Fees, Other Expenses, and Total Operating Expenses of each Fund would be,
respectively: Adjustable U.S. Government Reserve Fund: 0.50%, 0.59%, and 1.09%;
Government Income Fund: 0.40%, 0.53%, and 0.93%; Income Fund: 0.50%, 0.56%, and
1.06%; Total Return Bond Fund: 0.50%, 0.67%, and 1.17%; Tax-Free Income Fund:
0.50%, 0.55%, and 1.05; Colorado Tax-Free Fund: 0.50%, 0.66%, and 1.16%;
Minnesota Tax-Free Fund: 0.50%, 1.08%, and 1.58%; Income Stock Fund: 0.80%,
0.67%, and 1.47%; ValuGrowth Stock Fund: 0.80%, 0.53%, and 1.33%; Small Company
Stock Fund: 1.00%, 0.81%, and 1.81%.; and Contrarian Stock Fund: 0.80%, 0.77%,
and 1.57%. Absent estimated expense reimbursements and fee waivers Other
Expenses and Total Operating Expenses of International Fund would be 1.10% and
1.55%, respectively.
(2) The expenses for International Fund as listed above include the Fund's pro
rata portion of all operating expenses of the Portfolio, which will be borne
indirectly by Fund shareholders. The Trust's Board of Trustees believes that
the aggregate per share expenses of International Fund and the Portfolio will be
approximately equal to the expenses the Fund would incur if its assets were
invested directly in foreign securities. Investment Advisory Fees are those
incurred by the Portfolio; as long as its assets are invested in the Portfolio,
International Fund pays no investment advisory fees directly.
(3) Other Expenses for all funds except International Fund include transfer
agency and custodial fees payable to Norwest at a combined annual rate of up to
0.30% of each Fund's average daily net assets attributable to I Shares. Other
Expenses for International Fund includes transfer agency fees payable to Norwest
at an annual rate of 0.25% of the Fund's average daily net assets attributable
to I Shares and administrative service fees payable to Norwest of 0.25%.
Example
Following is a hypothetical example that indicates the dollar amount of expenses
that an investor would pay, assuming a $1,000 investment in I Shares of each
Fund, a 5% annual return, reinvestment of all dividends and distributions and
full redemption at the end of each period:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
<S> <C> <C> <C> <C>
Fixed Income Funds
Adjustable U.S. Government
Reserve Fund 9 27 47 105
Government Income Fund 8 24 41 92
Income Fund 8 24 41 93
Total Return Bond Fund 7 23 40 88
Tax-Exempt Fixed Income Funds
Tax-Free Income Fund 6 19 33 75
Colorado Tax-Free Fund 3 10 17 38
Minnesota Tax-Free Fund 5 15 27 61
Equity Funds
Income Stock Fund 10 32 55 122
ValuGrowth Stock Fund 12 38 66 145
Small Company Stock Fund 5 17 29 65
Contrarian Stock Fund 11 36 62 136
International Fund 15 47 82 179
</TABLE>
The example is based on the expenses listed in the "Annual Operating Expenses"
table above. The 5% annual return is not predictive of and does not represent
the Funds' projected returns; rather, it is required by government regulation.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.
2. FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for each Fund. This
information represents selected data for a single outstanding share of each Fund
for the periods shown. Information for the years ended May 31, 1994, and May
31, 1995, was audited by KPMG Peat Marwick LLP, independent auditors. The
Funds' (other than International Fund's) financial statements for the fiscal
year ended May 31, 1995, and independent auditors' report thereon are contained
in the Annual Report of the Funds, and are incorporated by reference into the
SAI. Further information about each Fund's performance is contained in the
Annual Report which may be obtained from the Trust without charge. Information
for the period ended April 30, 1995 for International Fund is unaudited.
International Funds' financial statements for the semi-annual period ended April
30, 1995, are contatined in the Semi-Annual Report of International Fund and are
incorporated by reference into the SAI.
page 5 of 47
<PAGE>
<TABLE>
<CAPTION>
Adjustable U.S.
Government Government
Reserve Income Income
Fund Fund Fund
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
May 31 May 31 May 31 May 31 May 31 May 31
1995 1994(a) 1995 1994(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $ 9.67 $ 10.14 $ 9.04 $ 9.89 $ 9.51 $ 10.68
Net Investment Income 0.55 0.40 0.63 0.55 0.65 0.58
Net Realized and Unrealized
Gain (Loss) on Investments (0.29) (0.44) (0.20) (0.85) 0.11 (0.91)
Dividends from Net
Investment Income (0.55) (0.40) (0.63) (0.55) (0.65) (0.58)
Distributions from Net
Realized Gains -- (0.03) (0.08) -- -- (0.26)
Ending Net Asset Value per Share $ 9.38 $ 9.67 $ 8.76 $ 9.04 $ 9.62 $ 9.51
Ratios to Average Net Assets
Expenses(b) 0.85% 0.85%(c) 0.75% 0.61%(c) 0.75% 0.61%(c)
Net Investment Income 5.72% 4.77%(c) 7.30% 6.86%(c) 7.02% 6.75%(c)
Total Return 2.76% (0.58%)(c) 5.21% (3.78%)(c) 8.49% (4.04%)(c)
Portfolio Turnover Rate 86.05% 149.00% 125.34% 24.70% 98.83% 26.67%
Net Assets at End of
Period (000's omitted) $ 21,515 $ 25,678 $ 94,328 $ 120,830 $ 109,994 $ 93,665
(a) Adjustable U.S. Government Reserve Fund, Government Income Fund and Income Fund commenced the offering of I Shares (formerly
Trust Shares) on August 2, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.09% 1.13%(c) 0.93% 0.97%(c) 1.06% 1.09%(c)
(c) Annualized.
</TABLE>
<TABLE>
<CAPTION>
Total Return Tax-Free Colorado
Bond Income Tax-Free
Fund Fund Fund
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
May 31 May 31 May 31 May 31 May 31 May 31
1995 1994(a) 1995 1994(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $ 9.54 $ 10.00 $ 9.60 $ 10.14 $ 9.69 $ 10.22
Net Investment Income 0.67 0.27 0.55 0.47 0.48 0.39
Net Realized and Unrealized
Gain (Loss) on Investments 0.19 (0.46) 0.22 (0.47) 0.21 (0.52)
Dividends from Net
Investment Income (0.67) (0.27) (0.55) (0.47) (0.48) (0.39)
Distributions from Net
Realized Gains -- -- -- (0.07) -- (0.01)
Ending Net Asset Value per Share $ 9.73 $ 9.54 $ 9.82 $ 9.60 $ 9.90 $ 9.69
Ratios to Average Net Assets
Expenses(b) 0.71% 0.46%(c) 0.60% 0.60%(c) 0.30% 0.11%(c)
Net Investment Income 7.04% 6.81%(c) 5.84% 5.71%(c) 5.08% 5.03%(c)
Total Return 9.43% (4.62%)(c) 8.42% (0.21%)(c) 7.47% 0.90%(c)
Portfolio Turnover Rate 35.19% 37.50% 130.90% 116.54% 47.88% 40.92%
Net Assets at End of
Period (000's omitted) $ 96,199 $ 11,694 $ 94,454 $ 102,084 $ 24,539 $ 15,153
(a) Total Return Bond Fund, Tax-Free Income Fund and Colorado Tax-Free Fund commenced the offering of I Shares (formerly Trust
Shares) on December 31, 1993, August 2, 1993 and August 23, 1993, respectfuly.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
occurred, the ratio of expenses to average net assets would have been:
Expenses 1.17% 2.10%(c) 1.05% 1.10%(c) 1.16% 1.21%(c)
(c) Annualized.
</TABLE>
page 6 of 47
<PAGE>
<TABLE>
<CAPTION>
Minnesota Income ValuGrowth
Tax-Free Stock Stock
Fund Fund Fund
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
May 31 May 31 May 31 May 31 May 31 May 31
1995 1994(a) 1995 1994(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $ 10.16 $ 10.74 $ 9.54 $ 9.61 $ 17.16 $ 16.91
Net Investment Income 0.53 0.43 0.27 0.25 0.18 0.13
Net Realized and Unrealized
Gain (Loss) on Investments 0.29 (0.39) 1.97 (0.06) 1.64 0.46
Dividends from Net
Investment Income (0.53) (0.43) (0.27) (0.26) (0.18) (0.12)
Distributions from Net
Realized Gains -- (0.19) (0.01) -- -- (0.22)
Ending Net Asset Value per Share $ 10.45 $ 10.16 $ 11.50 $ 9.54 $ 18.80 $ 17.16
Ratios to Average Net Assets
Expenses(b) 0.48% 0.61%(c) 1.00% 0.86%(c) 1.20% 1.20%(c)
Net Investment Income 5.29% 4.90%(c) 2.77% 3.20%(c) 1.02% 0.92%(c)
Total Return 8.44% 0.29%(c) 23.85% 1.73%(c) 10.67% 2.99%(c)
Portfolio Turnover Rate 139.33% 84.23% 8.93% 51.50% 63.82% 86.07%
Net Assets at End of
Period (000's omitted) $ 1,799 $ 872 $ 58,927 $ 15,237 $ 136,589 $ 113,061
(a) Minnesota Tax-Free Fund, Income Stock Fund and ValuGrowth Stock Fund commenced the offering of I Shares (formerly Trust Shares)
on August 2, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.58% 1.54%(c) 1.47% 1.62%(c) 1.33% 1.39%(c)
(c) Annualized.
</TABLE>
<TABLE>
<CAPTION>
Small Contrarian
Company Stock International
Stock Fund Fund Fund
Year Ended Year Ended Year Ended Year Ended Period Ended
May 31 May 31 May 31 May 31 April 30
1995 1994(a) 1995 1994(a) 1995(a)
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $ 9.80 $ 10.00 $ 9.71 $ 10.00 $ 17.28
Net Investment Income 0.12 0.08 0.11 0.07 0.01
Net Realized and Unrealized
Gain (Loss) on Investments 0.87 (0.20) 1.19 (0.29) (0.15)
Dividends from Net
Investment Income (0.12) (0.08) (0.11) (0.07) --
Distributions from Net
Realized Gains (0.08) -- (0.003) -- --
Ending Net Asset Value per Share $ 10.59 $ 9.80 $ 10.90 $ 9.71 $ 17.14
Ratios to Average Net Assets
Expenses(b) 0.52% 0.20%(d) 1.12% 0.62%(d) 1.50%(c)(d)
Net Investment Income 1.14% 2.03%(d) 0.91% 1.82%(d) 0.08%(d)
Total Return 10.13% (2.93%)(d) 13.52% (5.35%)(d) (1.72%)(d)
Portfolio Turnover Rate 68.09% 14.98% 30.32% 2.67% 21.25%
Net Assets at End of
Period (000's omitted) $ 54,240 $ 9,251 $ 45,832 $ 4,548 $ 83,222
(a) Small Company Stock Fund and Contrarian Stock Fund commenced the offering of I Shares (formerly Trust Shares) on December 31,
1993. International Fund commenced the offering of I Shares (formerly Advantage Shares) on November 11, 1994.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.82% 4.33%(d) 1.57% 3.52%(d) 1.63%(d)
(c) Includes expenses allocated from International Portfollio of Core Trust (Delaware) of 0.80%, net of waviers of 0.08%, and
reflects International Fund fee waivers of 0.05%.
(d) Annualized.
</TABLE>
page 7 of 47
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
Set forth below are the investment objectives and investment policies of each of
the Funds. There can be no assurance that any Fund will achieve its investment
objective. For a further description of each Fund's investments and investment
techniques see "Additional Investment Policies." For a detailed description of
fixed income securities, see "Additional Investment Policies - Fixed Income
Investments." Additional information concerning the Funds' investment policies,
including additional fundamental policies, is contained in the Funds' SAI.
FIXED INCOME FUNDS
Adjustable U.S. Government Reserve Fund
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek high
current income consistent with minimal principal fluctuation. There can be no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Fund seeks to attain its investment objective
primarily by investing in a portfolio of adjustable rate securities, including
adjustable rate mortgage-backed securities ("ARMS"), that are U.S. Government
Securities. Under normal circumstances, the Fund will, invest at least 65% of
its total assets in adjustable rate U.S. Government Securities. The Adviser
currently anticipates that a substantial amount of the adjustable rate U.S.
Government Securities purchased by the Fund will be ARMS. The Adviser actively
manages the Fund and focuses on high quality, short and intermediate maturity
instruments. Adjustable rate instruments are emphasized to attempt to control
principal fluctuation. Investment return is enhanced through the application of
disciplined fixed income management techniques combined with fundamental
economic, credit and market analysis.
The Fund may invest up to 35% of its total assets in fixed rate U.S. Government
Securities or corporate securities and in mortgage- and asset-backed securities
that are not U.S. Government Securities. The Fund may invest also in securities
that are restricted as to disposition under the Federal securities laws
(sometimes referred to as "private placement" or "restricted securities").
To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the three highest long-term or two highest short-
term rating categories assigned by an NRSRO, such as Moody's Investors Service,
Inc., Standard & Poor's Corporation or Fitch Investors Services, Inc., or which
are unrated and determined by the Adviser to be of comparable quality. A
description of the rating categories of various NRSROs is contained in the SAI.
The Fund will invest primarily in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 12 years and seeks to maintain an average dollar-
weighted portfolio maturity of between 2 and 5 years. Under normal
circumstances, the Fund's portfolio of securities will have a duration of no
more than 1.75 years. Duration is a measure of a debt security's average life
that reflects the present value of the security's cash flow and, accordingly, is
a measure of price sensitivity to interest rate changes ("duration risk").
Because earlier payments on a debt security have a higher present value,
duration of a security, except a zero-coupon security, will be less than the
security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase interest
rate caps, floors and collars. The Fund may also engage in certain strategies
involving options (both exchange-traded and over-the-counter) to attempt to
enhance the Fund's income and may attempt to reduce the overall risk of its
investments (hedge) by using options and futures contracts . The Fund may write
covered call and put options, buy put and call options, buy and sell interest
rate futures contracts and buy options and write covered options on those
futures contracts. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting
page 8 of 47
<PAGE>
position in the underlying security or futures contract or maintains a
segregated account of liquid, high-grade debt instruments with a value at all
times sufficient to cover the Fund's obligations under the option.
Government Income Fund
INVESTMENT OBJECTIVES. The primary investment objective of the Fund is to seek
maximum income. The Fund pursues this objective by investing in a portfolio of
U.S. Government Securities, repurchase agreements pertaining to U.S. Government
Securities, mortgage-backed securities and options and financial futures
transactions which relate to those securities. The Fund's secondary objective is
preservation of capital. There can be no assurance that the Fund will achieve
its investment objective.
INVESTMENT POLICIES. The Fund seeks to attain its investment objectives
primarily by investing in a portfolio of U.S. Government Securities, including
mortgage-backed securities, and repurchase agreements pertaining to U.S.
Government Securities. The Adviser actively manages the Fund and attempts to
structure the Fund to benefit from the attractive risk/return characteristics of
intermediate maturity issues. The Adviser attempts to enhance the Fund's income
through ownership of mortgage-backed and asset-backed securities. While the Fund
may engage in options and financial futures transactions, it is not currently
contemplated that the Fund will engage in these transactions to any material
extent. As a fundamental investment policy, the Fund will invest at least 65% of
its total assets in U.S. Government Securities. The Fund may invest up to 20% of
its total assets in mortgage-backed securities that are not U.S. Government
Securities.
To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the three highest rating categories assigned by an
NRSRO, such as Moody's Investors Service, Inc., Standard & Poor's Corporation or
Fitch Investors Services, Inc., or which are unrated and determined by the
Adviser to be of comparable quality. A description of the rating categories of
various NRSROs is contained in the SAI.
The Fund primarily will invest in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 12 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 7 years. The Fund's portfolio of securities normally will have a duration
of between 75% and 125% of the duration of the Lehman Brothers Intermediate
Government Bond Index, an unmanaged index of fixed income securities. Duration
is a measure of a debt security's average life that reflects the present value
of the security's cash flow and, accordingly, is a measure of price sensitivity
to interest rate changes ("duration risk"). Because earlier payments on a debt
security have a higher present value, duration of a security, except a zero-
coupon security, will be less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase interest
rate caps, floors and collars. The Fund's ability to use these strategies may be
limited by market considerations, regulatory limits and tax considerations.
Income Fund
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek current
income and, secondarily, growth of capital. The Fund pursues this objective by
investing in a portfolio of fixed income securities issued by domestic and
foreign issuers. There can be no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES. The Fund seeks to attain its investment objective by
investing in a diversified portfolio of fixed and variable rate U.S. dollar
denominated fixed income securities. These securities cover a broad spectrum of
United States issuers, including U.S. Government Securities, mortgage- and
asset-backed securities and the debt securities of financial institutions,
corporations, and others. The Adviser attempts to increase the Fund's
performance by applying various fixed income management techniques combined with
fundamental economic, credit and market analysis while at the same time
controlling total return volatility by targeting the Fund's duration within a
narrow band around the Lehman Brothers Aggregate Index, an unmanaged index of
fixed income securities.
The Fund may invest any amount of its assets, and normally will invest at least
50% of its total assets in U.S. Government Securities. The fixed income
securities in which the Fund invests also include mortgage-
page 9 of 47
<PAGE>
backed and other asset-backed securities, although the Fund limits these
investments to not more than 50% and 25%, respectively, of its total assets. The
Fund may invest up to 30% of its total assets in corporate securities, such as
bonds, debentures and notes and fixed income securities that can be converted
into or exchanged for common stocks ("convertible securities") and may invest in
guaranteed investment contracts. The Fund may invest in securities that are
restricted as to disposition under the Federal securities laws (sometimes
referred to as "private placement" or "restricted securities").
To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the four highest rating categories assigned by an
NRSRO, such as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation or Fitch Investors Services, Inc., or which are unrated and
determined by the Adviser to be of comparable quality. Securities rated in these
categories are generally considered to be investment grade securities, although
Moody's indicates that securities rated Baa (the fourth highest category) have
speculative characteristics. A description of the rating categories of various
NRSROs is contained in the SAI.
The Fund will invest primarily in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 30 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 12 years. The Fund's portfolio of securities will normally have a duration
of between 75% and 125% of the duration of the Lehman Brothers Aggregate Index.
Duration is a measure of a debt security's average life that reflects the
present value of the security's cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because earlier
payments on a debt security have a higher present value, duration of a security,
except a zero-coupon security, will be less than the security's stated maturity.
FOREIGN SECURITIES AND THEIR RISKS. The Fund may invest in debt securities
registered and sold in the United States by foreign issuers (Yankee Bonds) and
debt securities sold outside the United States by foreign or U.S. issuers (Euro-
bonds). The Fund intends to restrict its purchases of debt securities to issues
denominated and payable in United States dollars. For a description of the risks
involved in investments in foreign securities, see "Investment Objectives and
Policies - Equity Funds - International Fund - Investment Policies - Foreign
Investment Considerations and Risk Factors."
Total Return Bond Fund
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek total
return. The Fund pursues this objective by investing in a portfolio of U.S.
Government and investment grade corporate fixed income investments. There can be
no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Fund invests primarily in U.S. Government Securities,
including mortgage-backed securities and investment grade corporate fixed income
securities, although the Fund may invest an unlimited amount of its assets in
either corporate securities or U.S. Government Securities.
The Adviser's investment decisions are based on its analysis of major changes in
the direction of interest rates rather than an attempt by the Adviser to predict
short-term interest rate fluctuations. The Adviser also applies a contrarian
perspective by looking for undervalued segments of the fixed income market which
the Adviser believes offer opportunities for increased returns.
The average maturity of the Fund's portfolio will vary, generally, from 1 to 30
years. In making its investment decisions for the Fund, the Adviser focuses on
the maturity structure and quality structure of the fund's portfolio. When the
Adviser's outlook is for rising interest rates and falling bond values, the
majority of the Fund's investment portfolio will be invested in securities with
short-term maturities in an effort to ride interest rates up while minimizing
the negative effect of falling bond prices. When the Adviser anticipates
interest rates to fall and bond prices increase, the Fund generally will be
invested in securities with long-term maturities in an attempt to lock in high
interest rates and capitalize on bond price appreciation.
The Fund will be invested to a greater degree in corporate securities, however,
as the spread between corporate and U.S. Government issues offers potential for
incremental returns. The corporate securities in which the Fund may invest
include debt securities (corporate bonds, debentures and notes), preferred stock
and convertible securities (convertible debt and convertible preferred stock).
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To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the four highest rating categories assigned by an
NRSRO, such as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation or Fitch Investors Services, Inc., or which are unrated and
determined by the Adviser to be of comparable quality. Securities rated in these
categories are generally considered to be investment grade securities, although
Moody's indicates that securities rated Baa (the fourth highest category) have
speculative characteristics. A description of the rating categories of various
NRSROs is contained in the SAI.
TAX-EXEMPT FIXED INCOME FUNDS
For a detailed description of the fixed income investments, including municipal
securities and related investments in which the Tax-Exempt Fixed Income Funds
invest, see "Additional Investment Policies - Fixed Income Investments". Under
certain circumstances the Tax-Exempt Fixed Income Funds may invest in taxable
investments. See "Taxable Investments" below.
Tax-Free Income Fund
INVESTMENT OBJECTIVE. The investment objective of Tax-Free Income 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.
INVESTMENT POLICIES. 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 - Common
Policies of the Funds - 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 10 and 20 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, Inc. ("Moody's") and AAA, AA, A and BBB in
the case of Standard & Poor's Corporation and Fitch Investors Services, Inc.
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.
Colorado Tax-Free Fund
INVESTMENT OBJECTIVE. The investment objective of Colorado Tax-Free Fund is to
seek to provide shareholders with a high level of current income exempt from
both Federal and Colorado state income taxes (including the alternative minimum
tax) consistent with the preservation of capital. Shares of the Fund are offered
only to residents of the State of Colorado.
INVESTMENT POLICIES. Substantially all the Fund's total assets normally will be
invested in investment grade municipal securities, which are debt obligations
issued by the state of Colorado and its political subdivisions, various
authorities, instrumentalities, public corporations and special districts
("municipal
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securities"). Municipal securities also include the securities issued by the
various territories and possessions of the United States, such as Puerto Rico.
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
taxation. See "Taxable Investments" below, "Additional Investment Policies -
Common Policies of the Funds - Temporary Defensive Position" and "Dividends,
Distributions and Tax Matters." As a fundamental 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 both Federal and
Colorado state income taxes (including the alternative minimum tax).
The yields of Colorado municipal securities depend on, among other things,
conditions in the Colorado municipal bond market and fixed income markets
generally, the size of a particular offering, the maturity of the obligation and
the rating of the issue. In some cases, Colorado issues may have yields that are
slightly less than the yields of municipal obligations of issuers located in
other states because of the favorable Colorado state tax exemption on Colorado
issues.
There are no restrictions on the Fund's average portfolio maturity, but the
average portfolio maturity is currently expected to be greater than 10 years.
Average portfolio maturity may reach or exceed 20 years in the future. In
general, the longer the maturity of a municipal security, the higher the rate of
interest it pays. However, a longer average 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 maintaining a stable
net asset value. However, the Fund attempts to limit net asset value
fluctuations.
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, Inc. ("Moody's") and AAA, AA, A and BBB in
the case of Standard & Poor's Corporation and Fitch Investors Services, Inc.
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.
Minnesota Tax-Free Fund
INVESTMENT OBJECTIVE. The investment objective of Minnesota Tax-Free Fund is to
provide shareholders with a high level of current income exempt from both
Federal and Minnesota state income taxes (including the alternative minimum tax)
without assuming undue risk. Shares of the Fund are offered only to residents of
the State of Minnesota.
INVESTMENT POLICIES. Substantially all the Fund's total assets normally will be
invested in investment grade municipal securities, which are debt obligations
issued by the state of Minnesota and its political subdivisions, duly
constituted authorities and corporations ("municipal securities"). Municipal
securities also include the securities issued by the various territories and
possessions of the United States, such as Puerto Rico. 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 taxation. See "Taxable
Investments" below, "Additional Investment Policies - Common Policies of the
Funds - Temporary Defensive Position" and "Dividends, Distributions and Tax
Matters." As a fundamental 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 both Federal and Minnesota state income taxes
(including the alternative minimum tax).
The yields of Minnesota municipal securities depend on, among other things,
conditions in the Minnesota municipal bond market and fixed income markets
generally, the maturity of the obligation, the rating of the issue and the size
of a particular offering. In some cases, Minnesota issues may have yields that
are slightly less than the yields of municipal obligations of issuers located in
other states because of the favorable Minnesota state tax exemption on Minnesota
issues. See "Dividends, Distributions and Tax Matters - Tax-Exempt Distributions
- - Minnesota Tax-Free Fund" for a description of certain tax matters that may
effect the Fund and its shareholders.
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There are no restrictions on the Fund's average portfolio maturity, but the
average dollar-weighted maturity is currently expected to be greater than 10
years. Average portfolio maturity may reach or exceed 20 years in the future.
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 average
maturity is generally associated with a higher level of volatility in the market
value of a municipal 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.
Normally, at least 75% 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, Inc. ("Moody's") and AAA, AA, A and
BBB in the case of Standard & Poor's Corporation ("S&P") and Fitch Investors
Services, Inc. ("Fitch"). 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.
NON-INVESTMENT GRADE SECURITIES. Minnesota Tax-Free Fund may invest up to 25%
of its total assets in municipal bonds rated in the fifth highest rating
category of an NRSRO (Ba by Moody's or BB by S&P or Fitch), or which are unrated
and judged by the Adviser to be of comparable quality to securities rated in the
fifth highest category. Such securities (commonly referred to as "junk bonds")
are not considered to be investment grade and have speculative or predominantly
speculative characteristics. Non-investment grade, high risk securities provide
poor protection for payment of principal and interest but may have greater
potential for capital appreciation than do higher quality securities. These
lower rated securities involve greater risk of default or price changes due to
changes in the issuer's creditworthiness than do higher quality securities. The
market for these securities may be thinner and less active than that for higher
quality securities, which may affect the price at which the lower rated
securities can be sold. In addition, the market prices of lower rated securities
may fluctuate more than the market prices of higher quality securities and may
decline significantly in periods of general economic difficulty or rising
interest rates.
During its most recent fiscal year ended May 31, 1995, the Fund had 93.0% of its
average annual assets in municipal securities rated by Moody's or S&P and 7.0%
of its average annual assets in unrated investments, including cash and short-
term cash equivalents which are typically unrated. During that year, the Fund
had the following percentages of its average annual net assets invested in rated
securities: Aaa/AAA-37.0%, Aa/AA-26.0%, A/A-24.0%, Baa/BBB-6.0% and Ba/BB and
below-0.0%. For this purpose, securities with different ratings from Moody's and
S&P were assigned the higher rating. This information reflects the average
composition of the Fund's assets for the Fund's last fiscal year and is not
necessarily representative of the Fund as of the current fiscal year or any
other time.
Taxable Investments
Apart from temporary defensive purposes, each 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, Distributions and Tax Matters." In
addition, the Funds may hold a portion of their assets in cash and cash-
equivalents pending investment in municipal securities, to meet requests for
redemptions or to assume a temporary defensive position. With respect to Tax-
Free Income Fund, these securities include debt securities of corporate issuers
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.
Investment Considerations and Risk Factors
GEOGRAPHIC CONCENTRATION. Because Colorado Tax-Free Fund and Minnesota Tax-Free
Fund invest principally in municipal securities issued by issuers within a
particular state and the state's political subdivisions, those Funds are more
susceptible to factors adversely affecting issuers of those municipal securities
than would be a comparable municipal securities portfolio having a lesser degree
of geographic
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concentration. In addition, to the extent it may concentrate its investments in
a particular jurisdiction, Tax-Free Income Fund will be subject to similar
risks. These risks arise from the financial condition of the state and its
political subdivisions. To the extent state or local governmental entities are
unable to meet their financial obligations, the income derived by a Fund, its
ability to preserve or realize appreciation of its portfolio assets or its
liquidity could be impaired.
To the extent a Fund's investments are primarily concentrated in issuers located
in a particular state, the value of the Fund's shares may be especially affected
by factors pertaining to that state's economy and other factors specifically
affecting the ability of issuers of that state to meet their obligations. As a
result, the value of the Fund's assets may fluctuate more widely than the value
of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county or local governments and quasi-
government agencies to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amounts of tax and other revenues available to
governmental issuers may be affected from time to time by economic, political
and demographic conditions within their state. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of Federal, state and local aid to governmental
issuers may also affect their ability to meet obligations. Payments of principal
of and interest on private activity securities will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political or
demographic conditions in the state.
The Colorado constitution restricts the ability of the state and local
governments to increase taxes, revenues, debt and spending. Prior voter approval
is required to impose any new tax or tax rate increase or to issue any
"multiple-fiscal year" debt. The future impact on the financial operations and
obligations of the state and local governments cannot be determined at this
time. The Adviser will continue to monitor the situation closely and will, if
necessary, seek the advice of counsel concerning its effect on instruments being
considered for purchase by the Fund. A further discussion of potential risks of
investment in Colorado municipal securities is contained in the SAI.
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. Except as otherwise noted, each 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.).
DIVERSIFICATION MATTERS. Each of Colorado Tax-Free Fund and Minnesota Tax-Free
Fund is non-diversified, which means that it has greater latitude than a
diversified fund with respect to the investment of its assets in the securities
of a relatively few municipal issuers. As non-diversified portfolios, these
Funds may present greater risks than a diversified fund. However, each Fund
intends to comply with applicable diversification requirements of the Internal
Revenue Code. These requirements provide that, as of the last day of each fiscal
quarter, with respect to 50% of its assets, a Fund may not (i) own the
securities of a single issuer, other than a U.S. Government security, with a
value of more than 5% of the Fund's total assets or (ii) own more than 10% of
the outstanding voting securities of a single issuer.
Except for investment in U.S. Government Securities, no more than 25% of the
total assets of Colorado Tax-Free Fund, and no more than 20% of the total assets
of Minnesota Tax-Free Fund, may be invested in securities of any one issuer.
These limitations do not apply to securities of an issuer payable solely from
the proceeds of escrowed U.S. Government Securities.
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.
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EQUITY FUNDS
Income Stock Fund
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek current
income and growth of income and, consistent with those objectives, long-term
capital growth. The Fund pursues this objective by investing primarily in equity
securities of companies that, in the view of the Adviser, offer earnings growth
potential while paying current dividends. Over time, continued earnings growth
in a company leads to higher dividends and strengthened capital value of the
company's stock. There can be no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES. The Fund expects to invest primarily in equity securities
paying current dividends although it may purchase securities that are not paying
dividends but offer prospects for growth of capital or future income. The Fund
may invest in any combination of common stock, securities convertible into
common stock, preferred stock and fixed income securities. However, under normal
market conditions the Fund's fixed income positions (not including convertible
securities) will not exceed 20% of the Fund's total assets.
The Fund seeks to achieve its investment objective by investing in a broadly
diversified portfolio which offers above average dividend and earnings growth
potential. The Fund's emphasis on current yield and dividend and earnings growth
potential is based upon the investment philosophy that long-term performance is
based upon both current yield and capital appreciation derived from earnings and
dividend growth. Dividend income is generally a significant contributor to the
returns available from investing in stocks over the long-term, and the Adviser
believes that dividend income is often more consistent as a source of investment
return than capital appreciation. Moreover, the price volatility of stocks with
relatively higher yields tends to be less than stocks that pay out little
dividend income, affording the Fund the potential for greater principal
stability. While current yield is an important factor in selecting stocks, the
Adviser believes that long-term capital appreciation is generally associated
with the stocks of companies whose dividend income and earnings are growing. The
Fund, therefore, seeks to identify and purchase stocks with above average
earnings and dividend growth potential.
In selecting investments for the Fund, the Adviser will emphasize fundamental
analysis of company operating trends, balance sheet developments and industry
conditions. Valuation, yield, dividend and earnings growth potential and
portfolio diversification will all be factors in purchase decisions. The
decision to sell a security will be based upon valuation, deterioration of
fundamental investment characteristics or the opportunity to purchase another
stock judged to have better fundamental investment characteristics.
ValuGrowth Stock Fund
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek capital
appreciation by investing in a diversified portfolio of common stock and
securities convertible into common stock which may be rated or unrated. There
can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Fund invests primarily in medium- and large-
capitalization companies (companies with a market capitalization of greater than
$500 million) that, in the view of the Adviser, possess above average growth
characteristics and appear to be undervalued. Stock market capitalizations are
calculated by multiplying the total number of common shares outstanding by the
market price per share of the stock.
The Fund seeks to identify and invest in companies whose earnings and dividends
the Adviser believes will grow both faster than inflation and faster than the
economy in general and whose growth the Adviser believes has not yet been fully
reflected in the market price of the companies' shares. In seeking these
investments, the Adviser relies primarily on a company by company analysis
(rather than on a broader analysis of industry or economic sector trends) and
considers such matters as the quality of a company's management, the existence
of a leading or dominant position in a major product line or market, the
soundness of the company's financial position, and the maintenance of a
relatively high rate of return on invested capital and shareholder's equity.
Once companies are identified as possible investments, the
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<PAGE>
Adviser applies a number of valuation measures to determine the relative
attractiveness of each company and selects those companies whose shares are most
attractively priced.
The Fund may also invest in selected companies that the Adviser regards as
"special situations." Special situation companies often have the potential for
significant future earnings growth but have not performed well in the recent
past. These situations may include management turnarounds, corporate or asset
restructurings, or significantly undervalued assets. Such investments are the
exception, not the rule, and must satisfy the Adviser's valuation parameters.
Small Company Stock Fund
INVESTMENT OBJECTIVE. The Fund's investment objective is long-term capital
appreciation. There can be no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES. The Fund invests primarily in the common stock of small
and medium-size domestic companies which have a market capitalization well below
that of the average company in the Standard & Poor's 500 Composite Stock Price
Index. Small - and medium companies are those whose market capitalization is
less than $1 billion at the time of the Fund's purchase, although it is
anticipated that investments primarily will be in companies with capitalization
of less than $750 million. Market capitalization refers to the total market
value of a Company's outstanding shares of common stock, calculated by
multiplying the market value of the Company's shares by the total number of
shares outstanding.
In selecting securities for the Fund, the Adviser seeks securities with
significant price appreciation potential, and attempts to identify companies
that show above average growth, as compared to long-term overall market growth.
The companies in which the Fund invests may be in a relatively early stage of
development or may produce goods and services which have favorable prospects for
growth due to increasing demand or developing markets. Frequently, such
companies have a small management group and single product or product line
expertise that, in the view of the Adviser, may result in an enhanced
entrepreneurial spirit and greater focus which may allow the firms to be
successful. The Adviser believes that such companies may develop into
significant business enterprises and that an investment in such companies offers
a greater opportunity for capital appreciation than an investment in larger more
established entities. Small companies frequently retain a large part of their
earnings for research, development and investment in capital assets, however, so
that the prospects for immediate dividend income are limited.
The securities in which the Fund invests may be listed on a securities exchange,
included in the National Association of Securities Dealers Automated Quotation
(NASDAQ) National Market System, or traded in the over-the-counter securities
market. Equity securities owned by the Fund that are traded in the over-the-
counter market or on a regional securities exchange may not be traded every day
or in the volume typical of securities trading on a national securities
exchange. As a result, disposition by the Fund of a portfolio security, to meet
redemption requests by shareholders or otherwise, may require the Fund to sell
these securities at a discount from market prices, to sell during periods when
disposition is not desirable, or to make many small sales over a lengthy period
of time.
ADDITIONAL INVESTMENT CONSIDERATIONS AND RISK FACTORS. Investments in smaller
companies generally involve greater risks than investments in larger companies
due to the small size of the issuer and the fact that the issuer may have
limited product lines, less access to financial markets and less management
depth. In addition, many of the securities of these firms trade less frequently
and in lower volumes than securities issued by larger firms. The result is that
the short-term price volatility of those small company securities is greater
than the price volatility of the securities of larger, more established
companies that are widely held. The securities of small companies may also be
more sensitive to market changes generally than the securities of large
companies.
Contrarian Stock Fund
INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek capital
appreciation by investing primarily in common stocks for which the Adviser
believes there is significant potential for price appreciation. There can be no
assurance that the Fund will achieve its investment objective.
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INVESTMENT POLICIES. The basic premise of the Adviser's "Contrarian" investment
approach is to purchase stocks whose prices are temporarily depressed, either
because they are out-of-favor with, or simply ignored by, the investment
community. The Adviser believes that security prices change more than
fundamental investment values, as consensus thinking often results in severe
undervaluation of securities whose immediate problems are obvious and whose
longer term prospects are, therefore, viewed too negatively. This consensus
pessimism can create investment opportunity.
The basis of the Adviser's contrarian investment approach is the comparison of
the value and the price of a security. The Adviser generally analyzes a
Security's value in terms of recovery earnings and potential share price over a
three-year investment time horizon. Typically, stocks that the Adviser considers
for purchase will tend to have significantly depressed prices and relatively low
price/book value ratios.
ADDITIONAL INVESTMENT CONSIDERATIONS AND RISK FACTORS. The Fund's policy of
investing in securities that may be temporarily out of favor differs from the
investment approach followed by many other mutual funds with a similar
investment objective. Such mutual funds typically do not invest in securities
that have declined sharply in price, are not widely followed, or are issued by
companies that may have reported poor earnings or that may have suffered a
cyclical downturn in business. The Adviser believes, however, that purchasing
securities depressed by temporary factors may provide investment returns
superior to those obtained when premium prices are paid for issues currently in
favor.
International Fund
The Fund is designed for investors who desire to achieve international
diversification of their investments by participating in foreign securities
markets. Because international investments generally involve risks in addition
to those risks associated with investments in the United States, the Fund should
be considered only as a vehicle for international diversification and not as a
complete investment program. The following investment objective and policies are
those of the Fund and of the Portfolio. As the Fund has the same investment
policies as the Portfolio and currently invests all of its assets in the
Portfolio, investment policies are discussed with respect to the Portfolio only.
INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide long-
term capital appreciation by investing directly or indirectly in high quality
companies based outside the United States. The Fund currently pursues its
investment objective by investing all of its investable assets in the Portfolio,
which has the same investment objective. There can be no assurance that the Fund
or the Portfolio will achieve its investment objective.
INVESTMENT POLICIES. Under normal circumstances, the Portfolio will invest
substantially all of its assets, but not less than 65% of its net assets, in
equity securities of companies domiciled outside the United States. The
Portfolio selects its investments on the basis of their potential for capital
appreciation without regard to current income. The Portfolio may also invest in
the securities of domestic closed-end investment companies investing primarily
in foreign securities and may invest in debt obligations of foreign governments
or their political subdivisions, agencies or instrumentalities, of supranational
organizations and of foreign corporations. The Portfolio's investments will be
diversified among securities of issuers in foreign countries including, but not
limited to, Japan, Germany, the United Kingdom, France, the Netherlands, Hong
Kong, Singapore and Australia. In general, the Portfolio will invest only in
securities of companies and governments in countries that Schroder, in its
judgment, considers both politically and economically stable. The Portfolio has
no limit on the amount of its assets which may be invested in any one type of
foreign instrument or in any foreign country; however, to the extent the
Portfolio concentrates its assets in a foreign country, it will incur greater
risks.
The Portfolio may purchase preferred stock and convertible debt securities,
including convertible preferred stock, and may purchase American Depository
Receipts, European Depository Receipts or other similar securities of foreign
issuers. The Portfolio may also enter into foreign exchange contracts, including
forward contracts to purchase or sell foreign currencies, in anticipation of its
currency requirements and to protect against possible adverse movements in
foreign exchange rates. Although such contracts may reduce the risk of loss to
the Portfolio from adverse movements in currency values, the contracts also
limit possible gains from favorable movements.
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FOREIGN EXCHANGE CONTRACTS. Changes in foreign currency exchange rates will
affect the U.S. dollar values of securities denominated in currencies other than
the U.S. dollar. The rate of exchange between the U.S. dollar and other
currencies fluctuates in response to forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. When investing in foreign securities, the
Portfolio usually effects currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange market. The Portfolio
incurs foreign exchange expenses in converting assets from one currency to
another.
The Portfolio may enter into foreign currency forward contracts or currency
futures or options contracts for the purchase or sale of foreign currency to
"lock in" the U.S. dollar price of the securities denominated in a foreign
currency or the U.S. dollar value of interest and dividends to be paid on such
securities, or to hedge against the possibility that the currency of a foreign
country in which the Portfolio has investments may suffer a decline against the
U.S. dollar. A forward currency contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. This method of attempting to hedge the value of portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. Although the strategy
of engaging in foreign currency transactions could reduce the risk of loss due
to a decline in the value of the hedged currency, it could also limit the
potential gain from an increase in the value of the currency. The Portfolio does
not intend to maintain a net exposure to such contracts where the fulfillment of
the portfolio's obligations under such contracts would obligate the Portfolio to
deliver an amount of foreign currency in excess of the value of the portfolio's
portfolio securities or other assets denominated in the currency. The Portfolio
will not enter into these contracts for speculative purposes and will not enter
into non-hedging currency contracts. These contracts involve a risk of loss if
Schroder fails to predict currency values correctly. The Portfolio has no
present intention to enter into currency futures or options contracts but may do
so in the future.
FOREIGN INVESTMENT CONSIDERATIONS AND RISK FACTORS. All investments, domestic
and foreign, involve certain risks. Investments in the securities of foreign
issuers may involve risks in addition to those normally associated with
investments in the securities of U.S. issuers. All foreign investments are
subject to risks of foreign political and economic instability, adverse
movements in foreign exchange rates, the imposition or tightening of exchange
controls or other limitations on repatriation of foreign capital, and changes in
foreign governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to the
portfolio's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
available about issuers of comparable securities in the United States; and
foreign securities may trade less frequently and with lower volume and may
exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Portfolio. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and the Portfolio is required to compute and distribute income in
U.S. dollars. Accordingly, a decline in the value of a particular foreign
currency against the U.S. dollar occurring after the portfolio's income has been
earned and computed in U.S. dollars may require the Portfolio to liquidate
portfolio securities to acquire sufficient U.S. dollars to make a distribution.
Similarly, if the exchange rate declines between the time the Portfolio incurs
expenses in U.S. dollars and the time such expenses are paid, the Portfolio may
be required to liquidate additional foreign securities to purchase the U.S.
dollars required to meet such expenses.
Foreign, Debt and Convertible Securities
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FOREIGN SECURITIES. Each Equity Fund may invest up to 20% of its assets (and
the Portfolio may invest without limit) in securities of foreign issuers and in
sponsored and unsponsored American Depository Receipts. For a description of
the investment considerations and risk factors of investing in foreign
securities, see ""Equity Funds - International Fund - Investment Policies -
Foreign Investment Considerations and Risk Factors" above.
DEBT SECURITIES. Income Stock Fund, Small Company Stock Fund and Contrarian
Stock Fund may invest in corporate debt obligations and U.S. Government
Securities. These instruments may have fixed, floating or variable rates of
interest. These debt securities must be rated in one of the three highest
rating categories by an NRSRO or, if unrated by any NRSRO, judged by the Adviser
(or Crestone, as appropriate) to be of comparable quality. See "Additional
Investment Policies - Fixed Income Investments."
CONVERTIBLE SECURITIES. Each Equity Fund may invest in convertible securities,
including convertible debt and convertible preferred stock, which may be rated
in any category by an NRSRO or may be unrated.
4. ADDITIONAL INVESTMENT POLICIES AND
RISK CONSIDERATIONS
Each Fund's and the Portfolio's investment objective and all investment policies
of the Funds (and the Portfolio) that are designated as fundamental may not be
changed without approval of the holders of a majority of the outstanding voting
securities of the Fund (or the Portfolio). A majority of outstanding voting
securities means the lesser of 67% of the shares present or represented at a
shareholder's meeting at which the holders of more than 50% of the outstanding
shares are present or represented, or more than 50% of the outstanding shares.
Except as otherwise indicated, investment policies of the Funds are not deemed
to be fundamental and may be changed by the Trust's Board of Trustees (the
"Board") without shareholder approval. Likewise, non-fundamental investment
policies of the Portfolio may be changed by Core Trust's board of trustees
without shareholder approval. Unless otherwise indicated below, the discussion
below of the investment policies of the Funds refers, in the case of
International Fund, to the investment policies of the Portfolio (and reference
to the Portfolio refers to International Fund). For more information concerning
shareholder voting, see "Other Information - The Trust and Its Shares -
Shareholder Voting and Other Rights" and "Other Information - Core Trust
Structure". A further description of the Funds investment policies, including
additional fundamental policies, is contained in the SAI.
Each investment adviser monitors the creditworthiness of counterparties to the
Funds' transactions and intends to enter into a transaction only when it
believes that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks. 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.
Each of Total Return Bond Fund, Small Company Stock Fund and Contrarian Stock
Fund reserves the right to invest through a structure similar to that of
International Fund - to invest all or a portion of its assets in shares of a
diversified, open-end, management investment company with an investment
objective and investment policies substantially similar to its own.
COMMON POLICIES OF THE FUNDS
Borrowing
As a fundamental policy, each Fund (other than the Portfolio) 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. As a fundamental policy, the Portfolio may borrow money for temporary or
emergency purposes, including the meeting of redemption requests, and will limit
borrowings to amounts not in excess of 33 1/3% of the value of the Portfolio'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.
Each Fund may enter reverse repurchase agreements (which are considered
borrowings by
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each Fund but not the Portfolio), transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date.
Diversification and Concentration
Each Fund (other than Colorado Tax-Free Fund and Minnesota Tax-Free Fund) is
diversified as that term is defined in the Investment Company Act of 1940 (the
"1940 Act"). As a fundamental policy, with respect to 75% of its assets, none of
these Funds may purchase a security (other than a U.S. Government Security or
shares of investment companies) if, as a result, (i) more than 5% of the Fund's
total assets would be invested in the securities of a single issuer or (ii) the
Fund would own more than 10% of the outstanding voting securities of any single
issuer. Each Fund is prohibited from concentrating its assets in the securities
of issuers in any industry. As a fundamental policy, no Fund may purchase
securities if, immediately after the purchase, more than 25% of the value of the
Fund's total assets would be invested in the securities of issuers conducting
their principal business activities in the same industry. This limit does not
apply to investments in U.S. Government Securities, foreign government
securities or repurchase agreements covering U.S. Government Securities.
Illiquid Securities
No Fund may invest more than 15% of its net assets in illiquid securities.
Illiquid securities are securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the amount at which the Fund
has valued the securities and includes, among other things, repurchase
agreements not entitling the holder to payment within seven days and restricted
securities (other than those determined to be liquid pursuant to guidelines
established by the Board or, in the case of the Portfolio, Core Trust's board of
trustees). Limitations on resale may have an adverse effect on the marketability
of portfolio securities, and, to the extent it may invest in restricted
securities, a Fund might also have to register those securities in order to
dispose of them, resulting in expense and delay. A Fund might not be able to
dispose of restricted or other securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions. There can be no
assurance that a liquid market will exist for any security at any particular
time.
A domestic institutional market has developed for certain securities that are
not registered under the Securities Act of 1933 (the "1933 Act"), including
repurchase agreements and foreign securities. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on the issuer's ability to honor a demand for repayment of the
unregistered security. A security's contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act, the
investment advisers may determine that such securities are not illiquid
securities under guidelines adopted by the Board (or, in the case of the
Portfolio, Core Trust's board of trustees). These guidelines take into account
trading activity in the securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, a Fund's holdings of that security may be
illiquid.
Repurchase Agreements and Lending of Portfolio Securities
Each Fund may seek additional income by entering into repurchase agreements or
by lending securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to
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arrange securities loans and each Fund will, as a fundamental policy, limit
securities lending to not more than 33 1/3% of the value of its total assets.
When-Issued Securities and Forward Commitments
Each Fund may purchase securities offered on a "when-issued" basis and may
purchase securities on a "forward commitment" basis. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date. Normally, the
settlement date occurs within three months after the transaction, but delayed
settlements beyond three months may be negotiated.
During the period between a commitment and settlement, no payment is made for
the securities purchased and, thus, no interest accrues to the Fund. At the time
a Fund makes a commitment to purchase securities in this manner, however, the
Fund immediately assumes the risk of ownership, including price fluctuation.
Failure by the other party to deliver or pay for a security purchased or sold by
the Fund may result in a loss or a missed opportunity to make an alternative
investment. Any significant commitment of a Fund's assets committed to the
purchase of securities on a when-issued or forward commitment basis may increase
the volatility of its net asset value. Total Return Bond Fund limits its
investments in when-issued and forward commitment securities to 35% of the value
of the Fund's total assets.
The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values. The Funds enter into when-issued
and forward commitments only with the intention of actually receiving the
securities, but a Fund may sell the securities before the settlement date if
deemed advisable. If a Fund chooses to dispose of the right to acquire a when-
issued security prior to its acquisition or to dispose of its right to deliver
or receive against a forward commitment, it can incur a gain or loss. 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.
Portfolio Transactions
The investment advisers place orders for the purchase and sale of assets they
manage with brokers and dealers selected by and in the discretion of the
respective adviser. The investment advisers seek "best execution" for all
portfolio transactions, but a Fund may pay higher than the lowest available
commission rates when an investment adviser believes it is reasonable to do so
in light of the value of the brokerage and research services provided by the
broker effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on United States securities exchanges.
Subject to the Funds' policy of obtaining "best execution" each investment
adviser and, in the case of Small Company Stock Fund, Crestone, may employ
broker-dealer affiliates of the investment adviser (collectively "Affiliated
Brokers") to effect brokerage transactions for the Funds. The Funds' payment of
commissions to Affiliated Brokers is subject to procedures adopted by the Board
and, with respect to the Portfolio, Core Trust's board of trustees, to provide
that the commissions will not exceed the usual and customary broker's
commissions charged by unaffiliated brokers. No specific portion of a Fund's
brokerage will be directed to Affiliated Brokers and in no event will a broker
affiliated with the investment adviser directing the transaction receive
brokerage transactions in recognition of research services provided to the
adviser. The investment advisers may effect transactions for the Funds (or the
portfolio) through brokers who sell Fund shares. The Funds have no obligation to
deal with any specific broker or dealer in the execution of portfolio
transactions.
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fixed
Income Fund or Tax-Exempt Fixed Income Fund may engage in active short-term
trading to take advantage of price movements affecting individual issues, groups
of issues or markets. The Funds' portfolio turnover is reported under "Financial
Highlights." Schroder anticipates that the annual portfolio turnover rate in
the Portfolio will be less than 100%. An
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annual portfolio turnover rate of 100% would occur if all of the securities in
the Portfolio were replaced once in a period of one year. Higher portfolio
turnover rates may result in increased brokerage costs to a Fund or the
Portfolio and a possible increase in short-term capital gains or losses.
Temporary Defensive Position
When business or financial conditions warrant, each Fund may assume a temporary
defensive position and invest without limit in cash or prime quality cash
equivalents, including (i) short-term U.S. Government Securities, (ii)
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States, (iii)
commercial paper, (iv) repurchase agreements and (v) shares of "money market
funds' registered under the 1940 Act within the limits specified therein. During
periods when and to the extent that a Fund has assumed a temporary defensive
position, it may not be pursuing its investment objective. Prime quality
instruments are those that are rated in one of the two highest short-term rating
categories by an NRSRO or, if not rated, determined by the investment adviser to
be of comparable quality. Apart from temporary defensive purposes, a Fund may at
any time invest a portion of its assets in cash and cash equivalents as
described above. Except during periods when ValuGrowth Stock Fund, Small Company
Stock Fund or Contrarian Stock Fund assumes a temporary defensive position, each
Fund will have at least 65% of its total assets invested in common stock. The
Portfolio may hold cash and bank instruments denominated in any major foreign
currency.
For the Tax-Exempt Fixed Income Funds, when a Fund assumes a temporary defensive
position, it is likely that its shareholders will be subject to Federal and
applicable state income taxes on a greater portion of their income dividends
received from the Fund.
EQUITY AND CONVERTIBLE SECURITIES
Common and Preferred Stock
The Equity Funds invest in common and preferred stock and Total Return Bond Fund
may invest in preferred stock. Common stockholders are the owners of the company
issuing the stock and, accordingly, vote on various corporate governance matters
such as mergers. They are not creditors of the company, but rather, upon
liquidation of the company, are entitled to their pro rata share of the
company's assets after creditors (including fixed income security holders) and,
if applicable, preferred stockholders are paid. Preferred stock is a class of
stock having a preference over common stock as to dividends and as to the
recovery of investment. A preferred stockholder is a shareholder in the company
and not a creditor of the company as is a holder of the company's fixed income
securities. Dividends paid to common and preferred stockholders are
distributions of the earnings of the company and not interest payments, which
are expenses of the company. Equity securities owned by a Fund may be traded in
the over-the-counter market or on a securities exchange and may not be traded
every day or in the volume typical of securities traded on a major U.S. national
securities exchange. As a result, disposition by a Fund of a portfolio security
to meet redemptions by interest holders or otherwise may require the Fund to
sell these securities at a discount from market prices, to sell during periods
when disposition is not desirable, or to make many small sales over a lengthy
period of time. The market value of all securities, including equity securities,
is based upon the market's perception of value and not necessarily the book
value of an issuer or other objective measure of a company's worth. The Funds
may invest in warrants, which are options to purchase an equity security at a
specified price (usually representing a premium over the applicable market value
of the underlying equity security at the time of the warrant's issuance) and
usually during a specified period of time.
Convertible Securities
The Equity Funds, Income Fund and Total Return Bond Fund may invest in
convertible securities, including convertible debt and convertible preferred
stock, which may be rated by an NRSRO or may be unrated. A Fixed Income Fund
may not own the common stock into which a convertible security converts.
Convertible securities are fixed income securities which may be converted at a
stated price within a specific amount of time into a specified number of shares
of common stock. A convertible security entitles the holder to receive interest
paid or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they ordinarily provide a
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stream of income with generally higher yields than those of common stocks of the
same or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinate to comparable
nonconvertible securities. In general, the value of a convertible security is
the higher of its investment value (its value as a fixed income security) and
its conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of convertible securities, however, is also
influenced by the value of the underlying common stock.
The rating categories for convertible securities range from Aaa to C, in the
case of Moody's Investors Service, Inc. ("Moody's"), and from AAA to D, in the
case of Standard & Poor's Corporation ("S&P"), and for preferred stock range
from aaa to c, in the case of Moody's, and from AAA to D, in the case of S&P.
Income Fund and Total Return Bond Fund may only invest in securities within the
four highest rating categories. Securities in the lowest rating categories are
characterized by Moody's as having extremely poor prospects of ever attaining
any real investment standing and by S&P as being in default, in the case of
debt, and non-paying with debt in default, in the case of preferred stock.
Unrated securities may not be as actively traded as rated securities. A further
description of the ratings used by Moody's, S&P and certain other NRSROs is
contained in the SAI.
American Depository Receipts; European Depository Receipts
The Equity Funds may invest in sponsored and unsponsored American Depository
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depository of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Portfolio may also invest in
European Depository Receipts ("EDRs"), which are receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, and in
other similar instruments representing securities of foreign companies. EDRs, in
bearer form, are designed for use in European securities markets.
FIXED-INCOME INVESTMENTS
Although each Fund (other than Minnesota Tax-Free Fund) only invests in
investment grade fixed income securities, including money market instruments, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's portfolio are paid in full at maturity. All fixed income securities,
including U.S. Government Securities, can change in value when there is a change
in interest rates or the issuer's actual or perceived creditworthiness or
ability to meet its obligations.
The market value of the interest-bearing debt securities held by the Funds ,
including municipal securities, will be affected by changes in interest rates.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
Moreover, the longer the remaining maturity (and duration) of a security, the
greater will be the effect of interest rate changes on the market value of that
security. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. 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.
Rating Matters
The Funds' investments are subject to "credit risk" relating to the financial
condition of the issuers of the securities that each Fund holds. To limit credit
risk, each Fund (other than Minnesota Tax-Free Fund) will
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generally buy debt securities that are rated in the top four long-term rating
categories by an NRSRO or in the top two short-term rating categories by an
NRSRO, although certain Funds have greater restrictions. Accordingly, the lowest
permissible long-term investment grades for corporate bonds, including
convertible bonds, are Baa in the case of Moody's Investor Services, Inc.
("Moody's") and BBB in the case of Standard & Poor's Corporation ("S&P)") and
Fitch Investors Service, Inc. ("Fitch"); the lowest permissible long-term
investment grades for preferred stock are Baa in the case of Moody's and BBB in
the case of S&P and Fitch; and the lowest permissible short-term investment
grades for short-term debt, including commercial paper, are Prime-2 (P-2) in the
case of Moody's, A-2 in the case of S&P and F-2 in the case of Fitch.
The Funds also may purchase unrated securities if the Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Each Fund may retain a security whose rating has been lowered below the Fund's
lowest permissible rating category (or that are unrated and determined by the
Adviser to be of comparable quality to securities whose rating has been lowered
below the Fund's lowest permissible rating category) if the Adviser determines
that retaining the security is in the best interests of the Fund. Because a
downgrade often results in a reduction in the market price of the security, sale
of a downgraded security may result in a loss.
Variable and Floating Rate Securities
The securities in which the Funds invest (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 a Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. Certain variable rate securities (including mortgage-related
securities) pay interest at a rate that varies inversely to prevailing short-
term interest rates (sometimes referred to as inverse floaters). For instance,
upon reset the interest rate payable on a security may go down when the
underlying index has risen. During times when short-term interest rates are
relatively low as compared to long-term interest rates a Fund may attempt to
enhance its yield by purchasing inverse floaters. Certain inverse floaters may
have an interest rate reset mechanism that multiplies the effects of changes in
the underlying index. This form of leverage may have the effect of increasing
the volatility of the security's market value while increasing the security's,
and thus the Fund's, yield. Total Return Bond Fund limits its investment in
variable and floating rate securities to 5% of its assets.
There may not be an active secondary market for certain floating or variable
rate instruments (particularly inverse floaters and similar instruments) which
could make it difficult for a Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights (such as puts) it
may have. A Fund could, for this or other reasons, suffer a loss with respect to
an instrument. The Adviser monitors the liquidity of each Fund's investment in
variable and floating rate instruments, but there can be no guarantee that an
active secondary market will exist.
U.S. Government Securities
As used in this Prospectus, the term U.S. Government Securities means
obligations issued or guaranteed as to principal and interest by the United
States Government, its agencies or instrumentalities. The U.S. Government
Securities in which a Fund may invest include U.S. Treasury securities and
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and backed by the full faith and credit of the U.S.
Government, such as those guaranteed by the Small Business Administration or
issued by the Government National Mortgage Association ("Ginnie Mae"). In
addition, the U.S. Government Securities in which the Funds may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association ("Fannie Mae"),
the Federal
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Home Loan Mortgage Corporation ("Freddie Mac") and the Tennessee Valley
Authority. There is no guarantee that the U.S. Government will support
securities not backed by its full faith and credit. Accordingly, although these
securities have historically involved little risk of loss of principal if held
to maturity, they may involve more risk than securities backed by the U.S.
Government's full faith and credit.
Zero Coupon Securities
Each Fixed Income and Tax-Exempt Fixed Income Fund may invest in zero coupon
securities. Zero-coupon securities are sold at original issue discount and pay
no interest to holders prior to maturity, but a Fund holding a zero-coupon
security must include 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 Funds distribute
all of their net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a time when the Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss.
Each Fixed Income Fund may invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury. These
components are traded independently under the Treasury's Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program or as Coupons
Under Book Entry Safekeeping ("CUBES"). The Funds may invest in other types of
related zero-coupon securities. For instance, a number of banks and brokerage
firms separate the principal and interest portions of U.S. Treasury securities
and sell them separately in the form of receipts or certificates representing
undivided interests in these instruments. These instruments are generally held
by a bank in a custodial or trust account on behalf of the owners of the
securities and are known by various names, including Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS"). Zero-coupon securities also may be issued by
corporations and municipalities.
Demand Notes
The Fixed Income Funds may purchase variable and floating rate demand notes of
corporations, which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement with the issuer of the instrument. The issuers of these
obligations often have the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Although a Fund would generally not be able to resell a master demand note to a
third party, the Fund is entitled to demand payment from the issuer at any time.
The Adviser continuously monitors the financial condition of the issuer to
determine the issuer's likely ability to make payment on demand.
Guaranteed Investment Contracts
Income Fund may invest in guaranteed investment contracts ("GICs"). A GIC is an
arrangement with an insurance company under which the Fund contributes cash to
the insurance company's general account and the insurance company credits the
contribution with interest on a monthly basis. The interest rate is tied to a
specified market index and is guaranteed by the insurance company not to be less
than a certain minimum rate. The Fund will purchase a GIC only when the Adviser
has determined that the GIC presents minimal credit risks to the Fund and is of
comparable quality to instruments that the Fund may purchase.
Mortgage-Backed and Asset-Backed Securities
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
governmental or government-related entities or by non-governmental entities such
as special purpose trusts created by banks, savings associations, private
mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call
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dates. In contrast, mortgage-backed securities provide monthly payments which
consist of interest and, in most cases, principal. In effect, these payments are
a "pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. Generally, government and government-related pass-
through pools are highly liquid. While private conventional pools of mortgages
(pooled by non-government-related entities) have also achieved broad market
acceptance and an active secondary market has emerged, the market for
conventional pools is smaller and less liquid than the market for government and
government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of the
Fund and may even result in losses to the Fund if the securities were acquired
at a premium. The occurrence of mortgage prepayments is affected by various
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. The assumed average
life of pools of mortgages having terms of 30 years or less is typically between
five and 12 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. In periods of falling interest rates the rate of prepayment
tends to increase, thereby shortening the actual average life of a pool of
mortgages. Conversely, in periods of rising rates the rate of prepayment tends
to decrease, thereby lengthening the actual average life of the pool. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of the Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government
guarantor of mortgage-backed securities is Ginnie Mae, a wholly-owned United
States Government corporation within the Department of Housing and Urban
Development. Mortgage-backed securities are also issued by Fannie Mae, a
government-sponsored corporation owned entirely by private stockholders that is
subject to general regulation by the Secretary of Housing and Urban Development,
and Freddie Mac, a corporate instrumentality of the United States Government.
While Fannie Mae and Freddie Mac each guarantee the payment of principal and
interest on the securities they issue, unlike Ginnie Mae securities, their
securities are not backed by the full faith and credit of the United States
Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds (which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans); and collateralized mortgage obligations
("CMOs"). Mortgage-backed securities issued by non-governmental issuers may
offer a higher rate of interest than securities issued by government issuers
because of the absence of direct or indirect government guarantees of payment.
Many non-governmental issuers or servicers of mortgage-backed securities,
however, guarantee timely payment
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of interest and principal on these securities. Timely payment of interest and
principal may also be supported by various forms of insurance, including
individual loan, title, pool and hazard policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities. ARMs may have less risk of a decline in value during periods of
rapidly rising rates, but they may also have less potential for capital
appreciation than other debt securities of comparable maturities due to the
periodic adjustment of the interest rate on the underlying mortgages and due to
the likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to the Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a lower value until the interest rate resets to market
rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations collateralized
by mortgages or mortgage pass-through securities issued by Ginnie Mae, Freddie
Mac or Fannie Mae or by pools of conventional mortgages ("Mortgage Assets").
CMOs may be privately issued or U.S. Government Securities. Payments of
principal and interest on the Mortgage Assets are passed through to the holders
of the CMOs on the same schedule as they are received, although, certain classes
(often referred to as tranches) of CMOs have priority over other classes with
respect to the receipt of payments. Multi-class mortgage pass-through securities
are interests in trusts that hold Mortgage Assets and that have multiple classes
similar to those of CMOs. Unless the context indicates otherwise, references to
CMOs include multi-class mortgage pass-through securities. Payments of principal
of and interest on the underlying Mortgage Assets (and in the case of CMOs, any
reinvestment income thereon) provide funds to pay debt service on the CMOs or to
make scheduled distributions on the multi-class mortgage pass-through
securities. Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier.
Planned amortization class mortgage-based securities ("PAC Bonds") are a form of
parallel pay CMO. PAC Bonds are designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a contemplated range.
If the actual prepayment experience on the underlying mortgage loans is at a
rate faster or slower than the contemplated range, or if deviations from other
assumptions occur, principal payments on a PAC Bond may be greater or smaller
than predicted. The magnitude of the contemplated range varies from one PAC Bond
to another; a narrower range increases the risk that prepayments will be greater
or smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-related securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a Z-tranche). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increase the face amount of the security at a
compounded rate, but are not actually paid to the bond holder. After all
previous tranches are retired, accrual bond holders start receiving cash
payments that include both principal and continuing interest. The market value
of accrual bonds can fluctuate widely and their average life depends on the
other aspects of the CMO offering. Interest on accrual bonds is taxable when
accrued even though the holders receive no accrual payment. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed
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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.
ASSET-BACKED SECURITIES. Each Fixed Income Fund may invest in asset-backed
securities. Asset-backed securities represent direct or indirect participations
in, or are secured by and payable from, assets other than mortgage-related
assets such as motor vehicle installment sales contracts, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. No Fund may invest more than 10%
of its net assets in asset-backed securities that are backed by a particular
type of credit, for instance, credit card receivables. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-related securities and, accordingly, are subject to
many of the same risks.
Dollar Roll Transactions
A Fixed Income Fund may enter into dollar roll transactions wherein the Fund
sells fixed income securities, typically mortgage-backed securities, and makes a
commitment to purchase similar, but not identical, securities at a later date
from the same party. Like a forward commitment, during the roll period no
payment is made for the securities purchased and no interest or principal
payments on the security accrue to the purchaser, but the Fund assumes the risk
of ownership. A Fund is compensated for entering into dollar roll transactions
by the difference between the current sales price and the forward price for the
future purchase, as well as by the interest earned on the cash proceeds of the
initial sale. Like other when-issued securities or firm commitment agreements,
dollar roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the price at which a Fund is
committed to purchase similar securities. In the event the buyer of securities
under a dollar roll transaction becomes insolvent, the Fund's use of the
proceeds of the transaction may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. The Funds will engage in roll
transactions for the purpose of acquiring securities for its portfolio and not
for investment leverage.
Swap Agreements
To manage their exposure to different types of investments, Adjustable U.S.
Government Reserve Fund and Government Income Fund may enter into interest rate
and mortgage (or other asset) swap agreements and may purchase interest rate
caps, floors and collars. In a typical interest rate swap agreement, one party
agrees to make regular payments equal to a floating interest rate on a specified
amount (the "notional principal amount") in return for payments equal to a fixed
interest rate on the same amount for a specified period. Mortgage swap
agreements are similar to interest rate swap agreements, except that the
notional principal amount is tied to a reference pool of mortgages. In a cap or
floor, one party agrees, usually in return for a fee, to make payments under
particular circumstances. For example, the purchaser of an interest rate cap has
the right to receive payments to the extent a specified interest rate exceeds an
agreed upon level; the purchaser of an interest rate floor has the right to
receive payments to the extent a specified interest rate falls below an agreed
upon level. A collar entitles the purchaser to receive payments to the extent a
specified interest rate falls outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Fund's
performance. Swap agreements involve risks depending upon the counterparty's
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
Municipal Securities
The municipal securities in which the Tax-Exempt Fixed Income Funds 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 a
Fund's investment objective is dependent in part on the continuing ability of
the issuers of municipal securities in which the Fund invests to meet their
obligations for the payment of principal and interest when due.
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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 Funds 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 Funds may purchase participation interests in
municipal securities that are held by banks or other financial institutions.
Participation interests usually carry a demand feature backed by a letter of
credit or guarantee of the bank or other financial institution permitting the
holder to tender them back to the bank or other financial institution. Prior to
purchasing any participation interest, each 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
and, in the case of Colorado Tax-Free Fund and Minnesota Tax-Free Fund,
applicable state income tax.
STAND-BY COMMITMENTS. The Funds may purchase municipal securities together with
the right to resell them to the seller or a third party at an agreed-upon price
or yield within specified periods prior to their maturity dates. Such a right to
resell is commonly known as a "stand-by commitment," and the aggregate price
which a Fund pays for securities with a stand-by commitment may be higher than
the price which otherwise would be paid. The primary purpose of this practice is
to permit a Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, a Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences between the maturity of the underlying security and
the maturity of the commitment. The Funds' 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 Funds 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.
FUTURES CONTRACTS AND OPTIONS
Adjustable U.S. Government Reserve Fund may (and the other Funds may in the
future) seek to enhance its return through the writing (selling) and purchasing
exchange-traded and over-the-counter options on fixed income securities or
indices. The Fund may also to attempt to hedge against a decline in the value of
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securities owned by it or an increase in the price of securities which it plans
to purchase through the use of those options and the purchase and sale of
interest rate futures contracts and options on those futures contracts. The Fund
may only write options that are covered. An option is covered if, so long as the
Fund is obligated under the option, it owns an offsetting position in the
underlying security or futures contract or maintains cash, U.S. Government
Securities or other liquid, high-grade debt securities in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option. A Fund may enter into these futures contracts only if the aggregate of
initial deposits for open futures contract positions does not exceed 5% of the
Fund's total assets.
Risk Considerations
The Fund's use of options and futures contracts subjects the Fund to certain
investment risks and transaction costs to which it might not otherwise be
subject. These risks include: (1) dependence on the Adviser's ability to predict
movements in the prices of individual securities and fluctuations in the general
securities markets; (2) imperfect correlations between movements in the prices
of options or futures contracts and movements in the price of the securities
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the other securities in
which the Fund invests; (4) lack of assurance that a liquid secondary market
will exist for any particular instrument at any particular time, which, among
other things, may limit a Fund's ability to limit exposures by closing its
positions; (5) the possible need to defer closing out of certain options,
futures contracts and related options to avoid adverse tax consequences; and (6)
the potential for unlimited loss when investing in futures contracts or writing
options for which an offsetting position is not held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an over-the-
counter option transaction will be able to perform its obligations. There are a
limited number of options on interest rate futures contracts and exchange traded
options contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, the Adviser may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
Limitations
The Fund has no current intention of investing in futures contracts and options
thereon for purposes other than hedging. The Fund may not purchase any call or
put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5% of the Fund's total assets as of the
date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50% of the Fund's
total assets or sell a call option if the exercise value of all call options
written by the Fund would exceed the value of the Fund's assets. In addition,
the current market value of all open futures positions held by a Fund will not
exceed 50% of its total assets.
Options on Securities
A call option is a contract pursuant to which the purchaser of the call option,
in return for a premium paid, has the right to buy the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium, has the obligation upon
exercise of the option to deliver the underlying security against payment of the
exercise price during the option period. A put option gives its purchaser, in
return for a premium, the right to sell the underlying security at a specified
price during the term of the option. The writer of the put, who receives the
premium,
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has the obligation to buy the underlying security, upon exercise at the exercise
price during the option period. The amount of premium received or paid is based
upon certain factors, including the market price of the underlying security or
index, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security or index, the option
period, supply and demand and interest rates.
Options on Stock Indexes
A stock index assigns relative values to the stock included in the index, and
the index fluctuates with changes in the market values of the stocks included in
the index. Stock index options operate in the same way as the more traditional
stock options except that exercises of stock index options are effected with
cash payments and do not involve delivery of securities. Thus, upon exercise of
a stock index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the stock index.
Index Futures Contracts
Bond and stock index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the fixed income or
equity securities comprising the index is made. Generally, futures contracts are
closed out prior to the expiration date of the contract.
Options on Futures Contracts
Options on futures contracts are similar to stock options except that an option
on a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract rather than to purchase or sell
stock, at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position to the
holder of the option will be accompanied by transfer to the holder of an
accumulated balance representing the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the future.
5. MANAGEMENT OF THE FUNDS
The business of the Trust is managed under the direction of the Board of
Trustees (the "Board"), and the business of Core Trust is managed under the
direction of Core Trust's board of trustees. The Board formulates the general
policies of the Funds and meets periodically to review the results of the Funds,
monitor investment activities and practices and discuss other matters affecting
the Funds and the Trust. The SAI contains general background information about
the Trustees and Officers of the Trust and of Core Trust. The Board consists of
six persons.
INVESTMENT ADVISORY SERVICES
Norwest Investment Management
Subject to the general supervision of the Board, Norwest Investment Management
makes investment decisions for the Funds (except International Fund) and
continuously reviews, supervises and administers each Fund's investment program
or oversees the investment decisions of the investment subadviser, as
applicable. The Adviser is a part of Norwest, a subsidiary of Norwest
Corporation, which is a multi-bank holding company that was incorporated under
the laws of Delaware in 1929. As of June 30, 1995, Norwest Corporation was the
13th 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 $16 billion.
Small Company Stock Fund
To assist Norwest in carrying out its obligations with respect to Small Company
Stock Fund, Norwest has entered into an investment subadvisory agreement among
the Trust, Norwest and Crestone. Crestone, which is located at 7720 East
Belleview Avenue, Suite 220, Englewood Colorado 80111, is a subsidiary of
Norwest and is registered with the SEC as an investment adviser. Crestone
provides investment advice
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regarding companies with small capitalization to various clients, including
institutional investors. As of the date of this Prospectus, Crestone managed
assets with a value of approximately $296 million.
Pursuant to the investment subadvisory agreement, Crestone makes investment
decisions for the Small Company Stock Fund and continuously reviews, supervises
and administers the Fund's investment program with respect to that portion, if
any, of the Fund's portfolio that Norwest believes should be invested using
Crestone as investment subadviser. Currently, Crestone manages the entire
portfolio of the Fund and has since the Fund's inception. The Adviser supervises
the performance of Crestone, including Crestone's adherence to the Fund's
investment objective and policies and pays Crestone a fee for its investment
subadvisory services. This compensation does not increase the amount paid by the
Trust to the Adviser pursuant to the Adviser's investment advisory agreement.
International Fund
International Fund currently invests all of its assets in the Portfolio. The
Fund may withdraw its investment from the Portfolio, for which Schroder serves
as investment adviser, at any time if the Board determines that it is in the
best interests of the Fund and its shareholders to do so. See "Other Information
- - Core Trust Structure." Accordingly, the Fund has retained the Adviser as its
investment adviser and Schroder as its investment subadviser to manage the
Fund's assets in the event the Fund so withdraws its investment. Neither the
Adviser nor Schroder will receive any advisory or subadvisory fees with respect
to the Fund as long as the Fund remains completely invested in the Portfolio or
any other investment company.
Schroder acts as investment adviser to the Portfolio pursuant to an advisory
agreement with Core Trust. Subject to the general control of Core Trust's board
of trustees, Schroder makes investment decisions for the Portfolio and
continuously reviews, supervises and administers the Portfolio's investment
program. Schroder also assists the Adviser in carrying out the Adviser's
obligations under the investment advisory agreement pursuant to an investment
subadvisory agreement among the Trust, Norwest and Schroder. The investment
advisory agreement between Schroder and Core Trust with respect to the Portfolio
is the same in all material respects as the Fund's investment subadvisory
agreement except as to the parties, the circumstances under which fees will be
paid and the jurisdiction whose laws govern the agreement.
Schroder, whose principal business address is 787 Seventh Avenue, New York, New
York 10019, is a wholly-owned U.S. subsidiary of Schroders Incorporated, the
wholly-owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large worldwide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in seventeen countries
worldwide. The Schroder Group specializes in providing investment management
services and as of June 30, 1995, had assets under management in excess of $90
billion.
Portfolio Managers
Many persons on the advisory staff of Adviser, Crestone and Schroder contribute
to the investment services provided to the Funds. The following persons,
however, are primarily responsible for the day-to-day management of the Funds:
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND - Mr. Karl P. Tourville. Mr. Tourville,
a Vice President of Norwest since 1989, has served as portfolio manager for the
Fund since May 25, 1995, and has been associated with Norwest since 1986. As of
June 30, 1995, Mr. Tourville was responsible for the management of over $1.4
billion in pooled fixed income assets.
GOVERNMENT INCOME FUND and INCOME FUND - Ms. Marjorie H. Grace and Mr. Mark
Karstrom. Ms. Grace, a Vice President of Norwest since 1992, has served as a
portfolio manager for the Fund since May 25, 1995. Ms. Grace was a portfolio
manager of Norwest from 1992-1993; an Institutional Salesperson with Norwest
Investment Services, Inc. from 1991-1992; a portfolio manager with United Bank
of Colorado from 1989-1991; and Vice President and portfolio manager with
Colombia Savings and Loan from 1987-1989. Mr. Karstrom, a Vice President of
Norwest since 1992, has been associated with Norwest since 1985. Mr. Karstrom
has been the portfolio manager for Government Income Fund and its predecessor
fund since 1988 and for Income Fund since 1987.
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TOTAL RETURN BOND FUND - Mr. David B. Kinney. Mr. Kinney, a Vice President and
Senior Portfolio Manager at Norwest, has been associated with Norwest since
1981. He has served as the Fund's portfolio manager since its inception.
TAX-FREE INCOME FUND - Mr. William T. Jackson. Mr. Jackson, a Vice President of
Norwest since 1993, has served as portfolio manager of the Fund since 1993.
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.
COLORADO TAX-FREE FUND - Mr. William T. Jackson. Mr. Jackson, a Vice President
of Norwest since 1993, has served as portfolio manager of the Fund since July
1995. 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.
MINNESOTA TAX-FREE FUND - Ms. Patricia D. Hovanetz, CFA. Ms. Hovanetz, a Vice
President of Norwest where she has been a municipal bond fund portfolio manager
since 1988, has served as portfolio manager of the Fund since 1991. Ms. Hovanetz
has been associated with Norwest for more than 25 years in various capacities
related to municipal bond investments.
INCOME STOCK FUND - Mr. David L. Roberts and Mr. Gary J. Dunn, CFA. Mr. Roberts,
a Senior Vice President of Norwest since 1991, has been associated with Norwest
for 22 years in various investment related capacities. Mr. Roberts has served as
portfolio manager of the Fund since its inception. Mr. Dunn, a Vice President of
Norwest since 1993, has been associated with Norwest since 1979 in various
investment related capacities. Mr. Dunn has served as portfolio manager of the
Fund since 1995.
VALUGROWTH STOCK FUND - Mr. David A. Beeck, CFA and Ms. Anne C. Whitin, CFA. Mr.
Beeck, a Vice President of Norwest since 1981, has served as portfolio manager
of the Fund since its inception. Ms. Whitin, a Vice President of Norwest since
1990, has served as portfolio manager of the Fund since 1990. From 1987-1989,
Ms. Whitin was a Vice President and portfolio manager with Delafield, Harvey,
Tabell, Inc.
SMALL COMPANY STOCK FUND - Kirk McCown, CFA. Mr. McCown, founder, President and
a Director of Crestone, which was incorporated in 1990, has served as portfolio
manager for the Fund since its inception. Prior to 1990, Mr. McCown was Senior
Vice President of Reich & Tang, L.P.
CONTRARIAN STOCK FUND - Mr. W. Lon Schreur, CFA. Mr. Schreur, a Vice President
of Norwest since 1993, is also President of United Capital Management, a part of
Norwest Bank Colorado, N.A., a position which he has held for sixteen years. Mr.
Schreur has served as portfolio manager of the Fund since its inception.
INTERNATIONAL FUND/INTERNATIONAL PORTFOLIO - International Fund invests all of
its assets in the Portfolio and, accordingly, there is currently no portfolio
manager for the Fund. The investment management team of Mark J. Smith, a First
Vice President of Schroder since April 1990 and a Director thereof since April
1993, and Laura Luckyn-Malone, a Senior Vice President and Director of Schroder
since 1990, with the assistance of an investment committee, is primarily
responsible for managing the day-to-day operations of the Portfolio. Mr. Smith
has been employed by various Schroder Group companies in the investment research
and portfolio management areas since 1983. Prior to joining the Schroder Group,
Ms. Luckyn-Malone was a Principal of Scudder, Stevens & Clark, Inc. Mr. Smith
has served as portfolio manager of the Portfolio since its inception and Ms.
Luckyn-Malone joined the Portfolio's investment management team in 1995.
Advisory Fees
The Adviser provides investment management services to each Fund pursuant to
investment advisory agreements between Norwest and the Trust. For the Adviser's
services, Norwest receives an advisory fee with respect to each Fund (except
International Fund) based on the average daily net assets of the respective Fund
at the following annual rates:
Fund Advisory Fee Rate
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Adjustable U.S. Government Reserve Fund 0.50%
Government Income Fund 0.40%
Income Fund 0.50%
Total Return Bond Fund 0.50%
Tax-Free Income Fund 0.50%
Colorado Tax Free Fund and 0.50% (first $300 million of assets)
Minnesota Tax Free Fund 0.46% (next $400 million of assets)
0.42% (remaining assets)
Income Stock Fund, 0.80% (first $300 million of assets)
ValuGrowth Stock Fund and 0.76% (next $400 million of assets)
Contrarian Stock Fund 0.72% (remaining assets)
Small Company Stock Fund 1.00% (first $300 million of assets)
0.96% (next $400 million of assets)
0.92% (remaining assets)
International Fund 0.45%
The advisory fees for each Equity Fund (other than International Fund) are
higher than those paid by most investment companies of all types to their
advisers, but the Board believes that the fees are appropriate for equity funds.
Schroder receives an advisory fee from Core Trust with respect to the Portfolio
at an annual rate of 0.45% of the average daily net assets of the Portfolio. The
investment advisory agreement for International Fund provides for an investment
advisory fee payable to Norwest by the Trust at an annual rate of 0.85% of the
average daily net assets of the Fund in the event that the Fund is not
completely invested in the Portfolio or another investment company. Pursuant to
the investment subadvisory agreement with respect to International Fund, the
Adviser (and not the Trust) pays Schroder a fee for its investment subadvisory
services. This compensation would not increase the amount paid by the Trust to
the Adviser pursuant to the Adviser's investment advisory agreement.
MANAGEMENT AND DISTRIBUTION SERVICES
Forum supervises the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay) and provides the
Trust with general office facilities pursuant to a Management Agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers, as well as certain other officers and Trustees of the
Trust, may be directors, officers or employees of (and persons providing
services to the Trust may include) Forum, its affiliates or certain non-banking
affiliates of Norwest. As of the date of this Prospectus, Forum provided
management and administrative services to registered investment companies and
collective investment funds with assets of approximately $11 billion. Forum is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. As of the date of this Prospectus, Forum
is controlled by John Y. Keffer, President and Chairman of the Trust.
For its services and facilities, Forum receives from each Fund (other than
International Fund) a management fee at an annual rate of 0.20% of the average
daily net assets attributable to each class of the Fund. From its own
resources, Forum may pay a fee to broker-dealers or other persons for
distribution or other services related to the Funds.
For its services and facilities, Forum receives from International Fund a
management fee at an annual rate of 0.10% of the average daily net assets
attributable to each class of the Fund. Forum also serves as administrator of
Core Trust and provides administrative services for the Portfolio that are
similar to those provided to the Fund. For its administrative services Forum is
compensated by Core Trust with respect to the Portfolio at an annual rate of
0.15% of the average daily net assets of the Portfolio. In addition, pursuant to
a separate services agreement, Norwest receives a fee at an annual rate of 0.25%
of the average daily net assets of the Fund. Under this agreement, Norwest is
responsible for compiling data and preparing communications between the Fund and
its shareholders, maintaining requisite information flows between
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the Fund and Schroder, as investment adviser to the Portfolio, monitoring and
reporting to the Board on the performance of the Portfolio and reimbursing the
Fund for certain excess expenses. No fees are payable under this service
agreement in the event that the Fund is not completely invested in the Portfolio
or another investment company. The International Fund incurs total management
and administrative fees at a higher rate than many other mutual funds, including
other funds of the Trust, due in part to the nature of the Fund's structure and
the Fund's investment policies.
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 Funds.
Forum receives no payments for its services as distributor. In addition, none
of the Funds has adopted a Rule 12b-1 Plan applicable to the I Shares and,
accordingly, no Fund incurs any distribution expenses. Pursuant to a separate
agreement with the Trust, Forum also provides portfolio accounting services to
the each Fund and the Portfolios.
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 each Fund a fee at an annual rate of 0.25% of the average daily
net assets attributable to I Shares.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. For its
custodial services, Norwest is compensated at an annual rate of up to 0.05% of
each Fund's (other than International Fund's) average daily net assets. Norwest
currently receives no fee for its custodial services to International Fund, but
the Fund will incur the expenses and costs of any subcustodian. In addition,
International Fund incurs its pro rata portion of the custody fees of the
Portfolio.
EXPENSES OF THE FUNDS
The Funds' expenses include Trust expenses attributable to the Funds, which are
allocated to each Fund, and expenses not specifically attributable to any Fund
of the Trust, which are allocated among the Funds and all other funds of the
Trust in proportion to their average net assets. Each investment adviser, Forum
and the Transfer Agent may each elect to waive (or continue to waive) all or a
portion of their fees, which are accrued daily and paid monthly. Any such
waivers will have the effect of increasing a Fund's performance for the period
during which the waiver is in effect. No fee waivers may be recouped at a later
date.
Norwest and Forum and their agents and affiliates may also act in various
capacities for, and receive compensation from, their customers who are
shareholders of a Fund. Under agreements with those customers, Norwest and Forum
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in a Fund.
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Subject to the obligation of Norwest to reimburse the Trust for certain
expenses, the Trust has confirmed its obligation to pay all the Trust's
expenses, including: interest charges, taxes, brokerage fees and commissions;
certain insurance premiums; fees, interest charges and expenses of the Trust's
custodian, transfer agent and dividend disbursing agent and providers of
pricing, credit analysis and dividend services; telecommunications expenses;
auditing, legal and compliance expenses; costs of maintaining corporate
existence; costs of preparing and printing the Funds' prospectuses, SAIs,
account application forms and shareholder reports and delivering them to
existing shareholders; costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts and of
calculating the net asset value of shares of the Funds; costs of reproduction,
stationery and supplies; compensation of trustees, officers and employees of the
Funds or the Trust who are not employees of Norwest, Forum or their affiliates
and costs of other personnel performing services for the Fund; costs of meetings
of the Trust; SEC registration fees and related expenses; state securities laws
registration fees and expenses; fees and out of pocket expenses payable to
Norwest, Schroder and Forum; and fees and expenses paid by the Funds pursuant to
any distribution plan.
6. PURCHASES AND REDEMPTIONS OF SHARES
I Shares are offered to fiduciary, agency and custodial clients of bank trust
departments, trust companies and their affiliates. Shares are continuously sold
and redeemed at a price equal to their net asset value next-determined after
acceptance of an order on every weekday except customary national holidays and
Good Friday ("Fund Business Day").
GENERAL PURCHASE INFORMATION
Investments in the Funds may be made either through certain financial
institutions or by an investor directly. An investor who invests in a Fund
directly will be the shareholder of record. All transactions in the Fund's
shares are effected through the Transfer Agent which accepts orders for
redemptions and for subsequent purchases only from shareholders of record.
Shareholders of record will receive from the Trust periodic statements listing
all account activity during the statement period.
Shares of each Fund are offered without a sales charge and may be redeemed
without charge. The minimum investment in I Shares is $1,000, except for I
Shares of Adjustable U.S. Government Reserve Fund, for which the investment
minimum is $5,000; the minimum subsequent investment in I Shares 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 - Shareholder Services - Automatic Investment Plan" and
"Dividends, Distributions and Tax Matters."
Except as set forth below with respect to purchases through financial
institutions, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of immediately available funds.
Shares of the Funds become entitled to receive dividends and distributions on
the next Fund Business Day after the order is accepted. The Funds reserve the
right to reject any subscription for the purchase of their shares. Share
certificates are issued only to shareholders of record upon their written
request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
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To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
By Mail
Investors may send a check made payable to the Trust along with a completed
account application form to the Trust at the address listed above. Checks are
accepted at full value subject to collection. Payment by a check drawn on any
member of the Federal Reserve System can normally be converted into Federal
funds within two business days after receipt of the check. Checks drawn on some
non-member banks may take longer.
By Bank Wire
To make an initial investment in a Fund using the wire system for transmittal of
money among banks, an investor should first telephone the Transfer Agent at 612-
667-8833 or 800-338-1348 to obtain an account number. The investor should then
instruct a bank to wire the investor's money immediately to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund], I Shares
Account Number:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money
by bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
Through Financial Institutions
Shares may be purchased and redeemed through certain broker-dealers, banks and
other financial institutions ("Processing Organizations"). The Transfer Agent,
Forum or their affiliates may be Processing Organizations. Financial
institutions, including Processing Organizations, may charge their customers a
fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Funds' procedures, may have
Fund shares transferred into their name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with confirmations and periodic statements. The Trust is not
responsible for the failure of any Processing Organization to carry out its
obligations to its customer. Certain states, such as Texas, permit shares of the
Funds to be purchased and redeemed only through registered broker-dealers,
including the Fund's distributor.
Subsequent Purchases of Shares
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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.
GENERAL REDEMPTION INFORMATION
Fund shares may be redeemed at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends after the day
on which the redemption is effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days, following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days after
the tender of the shares to the Fund except when the New York Stock Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings, for any period during which an emergency
exists as a result of which disposal by the Fund of its portfolio securities or
determination by the Fund of the value of its net assets is not reasonably
practicable and for such other periods as the SEC may permit.
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 exchange option election or any other
option election in connection with the shareholder's account. Signature
guarantees may be provided by any bank, broker-dealer, national securities
exchange, credit union, savings association or other eligible institution that
is authorized to guarantee signatures, and is acceptable to the Transfer Agent.
Whenever a signature guarantee is required, the signature of each person
required to sign for the account must be guaranteed.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust will employ reasonable procedures in order to
verify that telephone requests are genuine, including recording telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Trust did not employ such procedures, it could
be liable for losses arising from unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt of confirmation statements. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach the
Transfer Agent by telephone, requests may be mailed or hand-delivered to the
Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 ($5,000 in
the case of Adjustable U.S. Government Reserve Fund) immediately following any
redemption.
REDEMPTION PROCEDURES
Shareholders who have invested directly in a Fund may redeem their shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described above. Shareholders 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
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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
Redemption Information."
By Telephone
A shareholder who has elected telephone redemption privileges may make a
telephone redemption request by calling the Transfer Agent at 800-338-1348 or
612-667-8833 and providing the shareholder's account number, the exact name in
which the shares are registered and the shareholder's social security or
taxpayer identification number. In response to the telephone redemption
instruction, the Trust will mail a check to the shareholder's record address or,
if the shareholder has elected wire redemption privileges, wire the proceeds.
See "Purchases and Redemptions of Shares - General Redemption Information."
By Bank Wire
For redemptions of more than $5,000, a shareholder who has elected wire
redemption privileges may request a Fund to transmit the redemption proceeds by
Federal funds wire to a bank account designated in writing by the shareholder.
To request bank wire redemptions by telephone, the shareholder also must have
elected the telephone redemption privilege. Redemption proceeds are transmitted
by wire on the day after a redemption request in proper form is received by the
Transfer Agent.
EXCHANGES
Shareholders of I Shares may exchange their shares for I Shares of the other
Funds and for Institutional Shares of the other funds of the Trust that offer
Institutional Shares and for shares of U.S. Government Fund and Treasury Fund,
money market portfolios of the Trust. It is anticipated that the Trust may in
the future create additional funds that will offer I Shares, Institutional
Shares, or other shares which will be exchangeable with I Shares of the Funds.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make; the Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees charged by, and the limitations (including minimum investment
restrictions) of, the Fund into which a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account
through an exchange if the new account will not have an identical registration
and the same shareholder privileges as the account from which the exchange is
being made. Shareholders may only exchange into a fund if that fund's shares
may legally be sold in the shareholder's state of residence.
The Funds and Federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in the shares at the time of the exchange transaction. Exchange
procedures may be 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
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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 Redemption Information."
SHAREHOLDER SERVICES
Automatic Investment Plan
Under the Automatic Investment Plan which is available to shareholders that
invest in I Shares of a Fund, shareholders may authorize monthly amounts of $50
or more to be withdrawn automatically from the shareholder's designated bank
account (other than passbook savings) and sent to the Transfer Agent for
investment in a Fund. Shareholders wishing to use this plan must complete an
application which may be obtained by writing or calling the Transfer Agent. The
Trust may modify or terminate the Automatic Investment Plan with respect to any
shareholder in the event that the Trust is unable to settle any transaction with
the shareholder's bank. If the Automatic Investment Plan is terminated before
the shareholder's account totals $1,000, the Trust reserves the right to close
the account in accordance with the procedures described under "General
Redemption Information."
Individual Retirement Accounts
Except for the Tax-Exempt Fixed Income Funds, the Funds may be a suitable
investment vehicle for part or all of the assets held in individual retirement
accounts ("IRAs"). An IRA account application form may be obtained by
contacting the Trust at 800-338-1348 or 612-667-8833. Individuals may make tax-
deductible IRA contributions of up to a maximum of $2,000 annually. However,
the deduction will be reduced if the individual or, in the case of a married
individual filing jointly, either the individual or the individual's spouse is
an active participant in an employer-sponsored retirement plan and has adjusted
gross income above certain levels.
Automatic Withdrawal Plan
A shareholder of a Fund whose shares in a single account total $1,000 or more
may establish a withdrawal plan to provide for the preauthorized payment from
the shareholder's account of $250 or more on a monthly, quarterly, semi-annual
or annual basis. Under the withdrawal plan, sufficient shares in the
shareholder's account are redeemed to provide the amount of the periodic payment
and any taxable gain or loss is recognized by the shareholder upon redemption of
the shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than the required minimum amount at any time.
Reopening Accounts
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
7. DIVIDENDS, DISTRIBUTIONS AND
TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Dividends of each Fixed Income Fund's and Tax-Exempt Fixed Income Fund's net
investment income are declared daily and paid monthly. Dividends of each Equity
Fund's (other than International Fund's) net investment income are declared and
paid monthly. Dividends of International Fund's net investment income are
declared and paid annually. Distributions of net capital gain, if any, realized
by a Fund are distributed annually.
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Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for Federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
TAX MATTERS
Each Fund intends to continue to qualify (and International Fund intends to
qualify) for each fiscal year to be taxed as a "regulated investment company"
under the Internal Revenue Code of 1986 (the "Code"). As such, the Funds will
not be liable for Federal income and excise taxes on the net investment income
and capital gain distributed to their shareholders. Because each Fund intends to
distribute all of its net investment income and net capital gain each year, each
Fund should thereby avoid all Federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including realized
net short-term capital gain) are taxable to shareholders of the Fund as ordinary
income notwithstanding that the dividends are reinvested in additional shares of
the Fund.
Distributions of net long-term capital gain, if any, realized by a Fund are
taxable to shareholders of the Fund as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If a shareholder holds shares for six months or less and during
that period receives a distribution taxable to the shareholder as long-term
capital gain, any loss realized on the sale of the shares during that six-month
period would be a long-term capital loss to the extent of the distribution.
Similarly, any dividend or distribution received by a shareholder on shares of
an Equity Fund will have the effect of reducing the net asset value of the
shares by the amount of the dividend or distribution. Furthermore, a dividend
(with respect to an Equity Fund) or distribution (for any Fund) made shortly
after the purchase of shares by a shareholder, although in effect a return of
capital to that particular shareholder, would be taxable to the shareholder as
described above.
It is expected that a portion of each Equity Fund's dividends from net
investment income will be eligible for the dividends received deduction for
corporations.
International Fund
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 income
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.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income or other taxes. The Fund intends to elect, if
eligible to do so, to permit its shareholders to take a credit (or a deduction)
for foreign income and other taxes paid by the Portfolio. Shareholders of the
Fund will be notified of their share of those taxes and will be required to
include that amount as income. In that event, the shareholder may be entitled to
claim a credit or deduction for those taxes.
Tax Exempt Distributions
page 41 of 47
<PAGE>
Dividends paid by a Tax-Exempt Fixed Income Fund out of tax-exempt interest
income earned by the Fund ("exempt-interest dividends") generally will not be
subject to Federal income tax in the hands of the Fund's shareholders. However,
persons who are "substantial users" or "related persons" thereof of facilities
financed by private activity bonds held by a Fund may be subject to Federal
income tax on their pro rata share of the interest income from such bonds and
should consult their tax advisers before purchasing shares of such Fund.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Fund generally is not deductible for Federal income tax purposes. Under rules
of the Internal Revenue Service for determining when borrowed funds are used for
purchasing or carrying particular assets, shares of a Fund may be considered to
have been purchased or carried with borrowed funds even though those funds are
not directly linked to the shares.
Substantially all of the dividends paid by each Tax-Exempt Fixed Income Fund are
anticipated to be exempt from Federal income taxes.
TAX-FREE INCOME FUND. Shareholders of the Fund may be exempt from state and
local taxes on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in which they reside
but may be subject to tax on income derived from the municipal securities of
other jurisdictions. Shareholders are advised to consult with their tax advisers
concerning the application of state and local taxes to investments in the Fund
which may differ from the Federal income tax consequences described above.
COLORADO TAX-FREE FUND. It is anticipated that substantially all of the
dividends paid by the Fund to individuals will be exempt from Colorado personal
income tax. Dividends and distributions made by the Fund to Colorado
individuals, trusts, estates and corporations subject to the Colorado income tax
generally will be treated for Colorado income tax purposes in the same manner as
they are treated under the Code for Federal income tax purposes. Some
differences may arise for taxpayers subject to the alternative minimum tax,
because interest on Colorado private activity bonds is not a preference item for
Colorado income tax purposes. Further, Colorado has no corporate alternative
minimum tax. Because the Fund may, except as indicated, purchase only Colorado
municipal securities, none of the exempt interest dividends paid by the Fund
will be subject to Colorado income tax.
MINNESOTA TAX-FREE FUND. It is anticipated that substantially all of the
dividends paid by the Fund to individuals will be exempt from Minnesota personal
income tax. Interest earned on Minnesota municipal securities is generally
excluded from gross income for Minnesota state income tax purposes, while
interest earned on bonds issued by municipal issuers from other states is not
excluded. At least 95% of the exempt-interest dividends paid by the Fund must be
derived from Minnesota municipal securities in order for any portion of the
exempt-interest dividends paid by the Fund to be exempt from the Minnesota
personal income tax. Exempt-interest dividends paid by the Fund to shareholders
that are corporations are subject to Minnesota franchise tax.
Under Minnesota law, if the difference in state income tax treatment between
Minnesota municipal securities and the municipal securities of issuers in other
states should be judicially determined to discriminate against interstate
commerce, the Minnesota legislature has expressed its intention that the
discrimination be remedied by adding interest on Minnesota municipal securities
to the taxable income of Minnesota residents. Such treatment would begin with
the taxable years that begin during the calendar year in which the court's
decision is final. If the interest on Minnesota municipal securities is
determined in general to be taxable income for Minnesota income tax, the Fund
will consider what actions are to be taken, in light of its current investment
objectives and investment policies.
The Minnesota alternative minimum tax on resident individuals is based in part
on their Federal alternative minimum taxable income. Accordingly, individual
shareholders of the Fund may be subject to the Minnesota alternative minimum tax
on exempt-interest dividends paid by the Fund which are attributable to interest
received by the Fund on certain private activity bonds issued after August 7,
1986, even though such dividends are exempt from the regular Minnesota personal
income tax.
Miscellaneous
page 42 of 47
<PAGE>
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders. Shortly after the close of each calendar year, a
statement is sent to each shareholder of each Fund advising the shareholder of
the total dividends paid into the shareholder's account for the year and the
portion of such total derived form municipal or other securities that may be
exempt is exempt from Federal and state income taxes. These portions are
determined by the ratio of the income derived from a particular instrument to
the total income realized by each Fund for the entire year or month and, thus,
is an annual or monthly average, rather than a day-by-day determination for each
shareholder.
8. OTHER INFORMATION
BANKING LAW MATTERS
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent, or custodian to an investment
company and to purchase shares of the investment company as agent for and upon
the order of a customer and, in connection therewith, to retain a sales charge
or similar payment. Counsel to the Trust believes that Norwest and any other
bank or bank affiliate that may serve as a Processing Organization or perform
sub-transfer agent or similar services or purchase shares as agent for its
customers may perform the services described in this Prospectus for the Trust
and its shareholders without violating applicable Federal banking laws or
regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If a
bank or bank affiliate were prohibited from so acting, changes in the operation
of the Trust could occur and a shareholder serviced by a bank or bank affiliate
may no longer be able to avail itself of those services. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of each Fund as of 4:00 p.m.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's net
assets (i.e., the value of its securities and other assets less its liabilities)
by the number of shares outstanding at the time the determination is made.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value or, in their absence, at fair value as determined
by the Board. The Trust does not determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas.
International Fund's trading in securities on European, Far Eastern and other
international securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund Business Day. In
addition, trading in foreign securities generally or in a particular country or
countries may not take place on all Fund Business Days. Trading does take place
in various foreign markets, however, on days on which the Fund's net asset value
is not calculated. Calculation of the net asset value per share of the Fund may
not occur contemporaneously with the determination of the prices of the foreign
securities used in the calculation. Events affecting the values of foreign
securities that occur after the time their prices are determined and before the
Fund's determination of net asset value will not be reflected in the Fund's
calculation of net asset value unless the Adviser or Schroder determines that
the particular event would materially affect net asset value, in which case an
adjustment will be made.
page 43 of 47
<PAGE>
All assets and liabilities of the International Fund denominated in foreign
currencies are converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar last quoted by
a major bank prior to the time of conversion.
PERFORMANCE INFORMATION
A Fund's performance may be quoted in advertising in terms of yield or total
return. All performance information is based on historical results and is not
intended to indicate future performance. A Fund's yield is a way of showing the
rate of income the Fund earns on its investments as a percentage of the Fund's
share price. To calculate standardized yield, a Fund takes the interest income
it earned from its investments for a 30-day period (net of expenses), divides it
by the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. The Tax-Exempt Fixed Income Funds may also quote tax
equivalent yields, which show the taxable yields a shareholder would have to
earn to equal the Fund's tax-free yield after taxes. A tax equivalent yield is
calculated by dividing the Fund's tax-free yield by one minus a stated Federal,
state or combined Federal and state tax rate.
A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and distributions are
reinvested. A cumulative total return reflects a Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same cumulative total
return if the Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the Funds'
returns, shareholders should recognize that they are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its cumulative and average annual returns into income results
and capital gain or loss. Published yield quotations are, and total return
figures may be, based on amounts actually invested in a Fund net of sales loads
that may be paid by an investor. A computation of yield or total return that
does not take into account the sales load paid by an investor will be higher
than a computation based on the public offering price of shares purchased that
take into account payment of the sales load.
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Funds may be compared to recognized indices of market performance. The
comparative material found in the Funds' advertisements, sales literature or
reports to shareholders may contain performance ratings. This material is not to
be considered representative or indicative of future performance. All
performance information for a Fund is calculated on a class basis.
THE TRUST AND ITS SHARES
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust with 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 Funds) and may divide
portfolios or series into classes of shares (such as I Shares), and the costs of
doing so will be borne by the Trust. Currently the authorized shares of the
Trust are divided into thirty-one separate series.
Other Classes of Shares
In addition to the Shares, each Fund may create and issue shares of other
classes of securities. Each Fund currently offers three classes of shares: A
Shares; B Shares; and I Shares. A Shares are each sold with a maximum sales
charge of 4.5% in the case of the Equity Funds and 3.75% in the case of the
Fixed Income and Tax-Exempt Fixed Income Funds (1.50% in the case of Adjustable
U.S. Government Reserve Fund) imposed at the time of purchase or, in some cases,
a maximum contingent deferred sales charge of 1.0% imposed on redemptions made
within two years of purchase. B Shares are sold with a maximum contingent
deferred sales charge of 4.0% in the case of the Equity Funds and 3.0% in the
case of the Fixed Income and Tax-Exempt Fixed Income Funds (1.50% in the case of
Adjustable U.S. Government Reserve
page 44 of 47
<PAGE>
Fund) and imposed on most redemptions made within a specified period after their
purchase (two to six years depending upon the Fund). Pursuant to a distribution
plan, B Shares of each Fund pay a distribution services fee at an annual rate
not to exceed 0.75% and a maintenance fee in an amount equal to 0.25% of the B
Shares' average daily net assets.
Each class of a Fund may have a different expense ratio and different sales
charges (including distribution fees) and each class' performance will be
affected by its expenses and sales charges. For more information on any other
class of shares of the Funds investors may contact the Transfer Agent at 612-
667-8833 or 800-338-1348. Investors may also contact their Norwest sales
representative or the Funds' distributor to obtain information about the other
classes. Sales personnel of broker-dealers and other financial institutions
selling the Fund's shares may receive differing compensation for selling A, B
and I Shares of the Funds.
Shareholder Voting and Other Rights
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
The Portfolio normally will not hold meetings of investors except as required by
the 1940 Act. Each investor in the Portfolio, such as International Fund, will
be entitled to vote in proportion to its relative beneficial interest in the
Portfolio. On most issues subject to a vote of investors, as required by the
1940 Act and other applicable law, the Fund will solicit proxies from
shareholders of the Fund and will vote its interest in the Portfolio in
proportion to the votes cast by its shareholders. If there are other investors
in the Portfolio, there can be no assurance that any issue that receives a
majority of the votes cast by Fund shareholders will receive a majority of votes
cast by all investors in the Portfolio; indeed, if other investors hold a
majority interest in the Portfolio, they could hold have voting control of the
Portfolio.
CORE TRUST STRUCTURE
International Fund invests all of its assets in the Portfolio, a separate series
of Core Trust, a business trust organized under the laws of the State of
Delaware in September 1994. Accordingly, the Portfolio directly acquires its own
investment securities and the Fund acquires an indirect interest in those
securities. Core Trust is registered under the 1940 Act as an open-end
management investment company and currently has seven separate portfolios. The
assets of the Portfolio, a diversified portfolio, belong only to, and the
liabilities of the Portfolio are borne solely by, the Portfolio and no other
portfolio of Core Trust.
The Portfolio
The investment objective and fundamental investment policies of International
Fund and the Portfolio can be changed only with shareholder approval. See
"Prospectus Summary," Investment Objectives and Policies," and "Management of
the Funds" for a complete description of the Portfolio's investment objective,
policies, restrictions, management, and expenses.
page 45 of 47
<PAGE>
International Fund's investment in the Portfolio is in the form of a non-
transferable beneficial interest. As of the date of this Prospectus, the Fund is
the only institutional investor that has invested all of its assets in the
Portfolio. The Portfolio may permit other investment companies or institutional
investors to invest in it. All investors in the Portfolio will invest on the
same terms and conditions as the Fund and will pay a proportionate share of the
Portfolio's expenses.
The Portfolio will not sell its shares directly to members of the general
public. Another investor in the Portfolio, such as an investment company, that
might sell its shares to members of the general public would not be required to
sell its shares at the same public offering price as the Fund, could have
different advisory and other fees and expenses than the Fund. Therefore, Fund
shareholders may have different returns than shareholders in another investment
company that invests exclusively in the Portfolio. There is currently no such
other investment company that offers its shares to members of the general
public. Information regarding any such funds in the future will be available
from Core Trust by calling 212-363-3300.
Certain Risks of Investing in the Portfolio
The Fund's investment in the Portfolio may be affected by the actions of other
large investors in the Portfolio, if any. For example, if the Portfolio had a
large investor other than the Fund that redeemed its interest in the Portfolio,
the Portfolio's remaining investors (including the Fund) might, as a result,
experience higher pro rata operating expenses, thereby producing lower returns.
The Fund may withdraw its entire investment from the Portfolio at any time, if
the Board determines that it is in the best interests of the Fund and its
shareholders to do so. The Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Board.
A withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio. That distribution could result
in a less diversified portfolio of investments for the Fund and could affect
adversely the liquidity of the Fund's portfolio. If the Fund decided to convert
those securities to cash, it usually would incur brokerage fees or other
transaction costs. If the Fund withdrew its investment from the Portfolio, the
Board would consider what action might be taken, including the management of the
Fund's assets in accordance with its investment objective and policies by the
Adviser and Schroder, the Fund's investment adviser and subadviser,
respectively, or the investment of all of the Fund's investable assets in
another pooled investment entity having substantially the same investment
objective as the Fund. The inability of the Fund to find a suitable replacement
investment, in the event the Board decided not to permit the Adviser and
Schroder to manage the Fund's assets, could have a significant impact on
shareholders of the Fund.
Each investor in the Portfolio, including the Fund, will be liable for all
obligations of the Portfolio, but not any other portfolio of Core Trust. The
risk to an investor in the Portfolio of incurring financial loss on account of
such liability, however, would be limited to circumstances in which the
Portfolio was unable to meet its obligations. Upon liquidation of the Portfolio,
investors would be entitled to share pro rata in the net assets of the Portfolio
available for distribution to investors.
page 46 of 47
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUNDS' SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
page 47 of 47
<PAGE>
Prospectus
October 1, 1995
This prospectus offers A Shares and B Shares of Adjustable U.S. Government
Reserve Fund, Government Income Fund, Income Fund and Total Return Bond Fund
(each a "Fund" and collectively the "Funds"). The Funds are separate diversified
fixed income portfolios of Norwest Advantage Funds (the "Trust"), which is a
registered open-end management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated October 1, 1995, as amended from time to
time, which contains more detailed information about the Trust and each of the
Funds and is incorporated into this Prospectus by reference. An investor may
obtain a copy of the SAI without charge by contacting the Trust's distributor,
Forum Financial Services, Inc., at 61 Broadway, New York, New York 10006 or by
calling 212-363-3300. Investors should read this Prospectus and retain it for
future reference.
NORWEST ADVANTAGE FUNDS IS A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER
GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF,
OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OTHER BANK OR
BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1. Prospectus Summary
Highlights of the Funds
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
Investment Objectives and Policies
Adjustable U.S. Government Reserve Fund seeks high current income consistent
with minimal principal fluctuation. This objective is pursued primarily by
investing in a portfolio of adjustable rate securities including
mortgage-related securities, that are U.S. Government securities.
Government Income Fund seeks maximum income and, secondarily, preservation of
capital by primarily investing in a portfolio of U.S. Government securities,
including mortgage-backed securities.
Income Fund seeks current income and, secondarily, growth of capital. This
objective is pursued by investing in a portfolio of fixed income securities
issued by domestic and foreign issuers.
page 1 of 35
<PAGE>
Total Return Bond Fund seeks total return. This objective is pursued by
investing in a portfolio of U.S. Government and investment-grade corporate fixed
income securities.
Investment Adviser
The Funds' investment adviser (the "Adviser") is Norwest Investment Management,
a part of Norwest Bank Minnesota, N.A. ("Norwest"). The Adviser provides
investment advice to various institutions, pension plans and other accounts and,
as of June 30, 1995, managed assets totaling approximately $16 billion. See
"Management - Investment Advisory Services." Norwest serves as the Trust's
transfer agent, dividend disbursing agent and custodian. See "Management -
Shareholder Servicing and Custody."
Fund Management
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"), a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. See "Management - Management and
Distribution Services."
Shares of the Funds
Each Fund currently offers three separate classes of shares: A class ("A
Shares"), B class ("B Shares") and I class ("I Shares"). A Shares and B Shares
are sold through this Prospectus and are collectively referred to as the
"Shares."
A Shares. A Shares are offered at a price equal to their net asset value
plus a sales charge imposed at the time of purchase or, in some cases, a
contingent deferred sales charge imposed on redemptions made within two years of
purchase.
B Shares. B Shares are offered at a price equal to their net asset value
plus a contingent deferred sales charge imposed on most redemptions made within
four years (two years in the case of Adjustable U.S. Government Reserve Fund) of
purchase. B Shares pay a distribution services fee at an annual rate of up to
0.75%, and a maintenance fee in an amount equal to 0.25%, of the B Shares'
average daily net assets. B Shares automatically convert to A Shares of the same
Fund six years (four years in the case of Adjustable U.S. Government Reserve
Fund) after the end of the calendar month in which the B Shares were originally
purchased.
The choice of A Shares or B Shares permits each investor to purchase those
shares that the investor believes to be most beneficial given the amount
purchased, the length of time the investor expects to hold the shares and other
circumstances. A Shares will normally be more beneficial to the investor who
qualifies for reduced initial sales charges as described below. See "How to Buy
Shares - Alternative Distribution Arrangements."
I Shares are offered by a separate prospectus to fiduciary, agency and custodial
clients of bank trust departments, trust companies and their affiliates. Shares
of each class of a Fund have identical interests in the investment portfolio of
the Fund and, with certain exceptions, have the same rights. See "Other
Information - The Trust and Its Shares."
How to Buy and Sell Shares
Shares may be purchased or redeemed by mail, by bank wire and through an
investor's broker-dealer or other financial institution. The minimum initial
investment in Shares is $1,000 ($5,000 in the case of Adjustable U.S. Government
Reserve Fund). The minimum subsequent investment is $100. See "How to Buy
Shares" and "How to Sell Shares."
Exchanges
Shareholders may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of certain other funds of the Trust. In addition, A Shares may be
exchanged for investor class shares of certain money market funds of the Trust
and B Shares may be exchanged for exchange class shares of Ready Cash Investment
Fund of the Trust. See "Other Shareholder Services - Exchanges."
Shareholder Features
page 2 of 35
<PAGE>
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. Purchases of A Shares may be subject to Rights of
Accumulation, Cumulative Quantity Discounts or a Reinstatement Privilege. See
"Other Shareholder Services" and "How to Buy Shares - Alternative Distribution
Arrangements."
Dividends
Dividends of each Fund's net investment income are declared daily and paid
monthly. Each Fund's net capital gain, if any, is distributed annually. All
dividends and distributions are reinvested in additional Fund shares unless the
shareholder elects to have them paid in cash. See "Dividends and Tax Matters."
Certain Investment Considerations and Risk Factors
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Normally, the value of a Fund's
investments varies inversely with changes in interest rates. Upon redemption, an
investment in a Fund may be worth more or less than its original value. The
Funds' investments are subject to "credit risk" relating to the financial
condition of the issuers of the securities that each Fund holds. Each Fund,
however, invests only in investment grade securities (those rated in the top
four grades by a nationally recognized statistical rating organization ("NRSRO")
such as Standard & Poor's Corporation.
All investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending, swap
transactions and other investment techniques. See "Investment Objectives and
Policies - Additional Investment Policies and Risk Considerations." Similarly, a
Fund's use of mortgage- and asset-backed securities entails certain risks. See
"Investment Objectives and Policies - Additional Investment Policies and Risk
Considerations - Mortgage-Backed Securities" and "- Asset-Backed Securities."
Expense Information
The purpose of the following tables is to assist investors in understanding the
expenses that an investor in Shares of a Fund will bear directly or indirectly.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
(applicable to each Fund)
Adjustable Government Income Fund,
U.S. Government Income Fund and
Reserve Fund Total Return Bond Fund
A B A B
Shares(1) Shares(2) Shares(1) Shares(2)
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of public offering price)
1.5% Zero 3.75% Zero
Maximum deferred sales charge (as a percentage of the lesser of original purchase price or redemption proceeds)
Zero 1.5% Zero 3.0%
Exchange Fee Zero Zero Zero Zero
Annual Operating Expenses(3)
(as a percentage of average daily net assets after applicable fee waivers and expense reimbursements)
Adjustable
U.S. Government
Reserve Fund Government Income Fund Income Fund Total Return Bond Fund
A B A B A B A B
Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.43% 0.43% 0.37% 0.37% 0.37% 0.37% 0.10% 0.10%
Rule 12b-1 Fees(4) None 0.75% None 0.75% None 0.75% None 0.75%
page 3 of 35
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses 0.42% 0.41% 0.38% 0.38% 0.38% 0.38% 0.54% 0.56%
Total Operating Expenses 0.85% 1.59% 0.75% 1.50% 0.75% 1.50% 0.64% 1.41%
(1) Sales charge waivers and reduced sales charge plans are available for A Shares. If A Shares of a Fund purchased without an
initial sales charge (purchases of $1,000,000 or more) are redeemed within two years after purchase, a contingent deferred sales
charge of up to 0.75% (0.50% in the case of Adjustable U.S. Government Fund) will be applied to the redemption. See "How To Buy
Shares - Alternative Distribution Arrangements."
(2) The maximum 3.0% contingent deferred sales charge on B Shares of Government Income Fund, Total Return Bond Fund, and Income
Fund applies to redemptions during the first year after purchase; the charge declines thereafter, becoming 2.0% during the second
and third years, 1.0% during the fourth year, and reaches zero the following year. With respect to Adjustable U.S. Government
Reserve Fund, the maximum 1.5% contingent deferred sales charge on B Shares applies to redemptions during the first year after
purchase; the charge declines thereafter, becoming 0.75% during the second year, and reaches zero thereafter. See "How To Buy Shares
- - Alternative Distribution Arrangements."
(3) For a further description of the various expenses associated with the Shares, see "Management." Expenses associated with I
Shares of a Fund differ from those of the Shares listed in the table. The amounts of expenses for each Fund are based on amounts
incurred during the Funds' most recent fiscal year ended May 31, 1995. Absent waivers, the Investment Advisory Fee for A Shares and
B Shares of each Fund would be 0.50% except in the case of Government Income Fund, for which it would be 0.40%. With respect to A
Shares, absent expense reimbursements and fee waivers, the expenses of Adjustable U.S. Government Reserve Fund, Government Income
Fund, Income Fund and Total Return Bond Fund would be: Other Expenses, 0.65%, 0.61%, 0.74% and 1.88%, respectively; and Total
Operating Expenses, 1.15%, 1.01%, 1.24% and 2.38%, respectively. With respect to B Shares, absent expense reimbursements and fee
waivers, the expenses of Adjustable U.S. Government Reserve Fund, Government Income Fund, Income Fund and Total Return Bond Fund
would be: Other Expenses, 1.57%, 0.60%, 0.71% and 1.59%, respectively; and Total Operating Expenses, 3.07%, 2.00%, 2.21% and 3.09%,
respectively. Other Expenses include transfer agency and custodial fees payable to Norwest at a combined annual rate of up to 0.30%
of each Fund's average daily net assets attributable to A Shares and B Shares.
(4) Absent waivers, the Rule 12b-1 Fees would be 1.00% for B Shares of each Fund. Long-term shareholders of B Shares may pay
aggregate sales charges totaling more than the economic equivalent of the maximum front-end sales charges permitted by the Rules of
Fair Practice of National Association of Securities Dealers, Inc.
</TABLE>
Example
At right is a hypothetical example that indicates the dollar amount
of expenses that an investor would pay assuming a $1,000 investment in a
Fund's Shares, a 5% annual return and reinvestment of all dividends and
distributions.
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 Funds' projected returns; rather, it is required by government
regulation. The example assumes deduction of the maximum initial sales charge
for A Shares, deduction of the contingent deferred sales charge for B Shares
applicable to a redemption at the end of the period and the conversion of B
Shares to A Shares at the end of six years (four years in the case of
Adjustable U.S. Government Reserve Fund). 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.
<TABLE>
<CAPTION>
Hypothetical Expense Example
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Adjustable U.S. Government Reserve Fund
A Shares 24 42 61 118
B Shares
Assuming redemption at the end of the period 31 50 - -
Assuming no redemption 16 50 - -
page 4 of 35
<PAGE>
<S> <C> <C> <C> <C>
Government Income Fund
A Shares 45 60 77 127
B Shares
Assuming redemption at the end of the period 45 67 82 -
Assuming no redemption 15 47 82 -
Income Fund
A Shares 45 60 77 127
B Shares
Assuming redemption at the end of the period 45 67 82 -
Assuming no redemption 15 47 82 -
Total Return Bond Fund
A Shares 44 57 72 115
B Shares
Assuming redemption at the end of the period 44 65 77 -
Assuming no redemption 14 45 77 -
</TABLE>
2. Financial Highlights
The following tables provide financial highlights for each Fund. This
information represents selected data for a single outstanding A and B Share of
each Fund for the periods shown. Information for the years ended May 31, 1994,
and May 31, 1995, was audited by KPMG Peat Marwick LLP, independent auditors.
The information for prior periods was audited by Deloitte & Touche LLP,
independent auditors, except that, with respect to Income Fund, the information
for the periods prior to 1992 was audited in conjunction with an audit of the
financial statements of that Fund's predecessor by Coopers & Lybrand LLP,
independent auditors. The Funds' financial statements for the fiscal year ended
May 31, 1995, and independent auditors' report thereon are contained in the
Annual Report of the Funds and are incorporated by reference into the SAI.
Further information about each Fund's performance is contained in the Annual
Report, which may be obtained from the Trust without charge. Effective May 31,
1992, Government Income Fund changed its fiscal year end to May 31. Prior
thereto, the fiscal year end was November 30.
<TABLE>
<CAPTION>
Government Income Fund
A Shares B Shares
Six
Months
Ended
Year Ended May 31 May 31 Year Ended November 30 Year Ended May 31
1995 1994 1993 1992 1991 1990 1989(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $9.04 $9.82 $9.60 $9.70 $9.73 $9.96 $10.00 $9.03 $9.89
Net Investment Income 0.63 0.67 0.71 0.37 0.90 0.96 1.01 0.56 0.48
Net Realized and Unrealized Gain
(Loss) on Investments (0.20) (0.78) 0.29 (0.10) (0.03) (0.23) (0.04) (0.20) (0.86)
Dividends from Net Investment Income (0.63) (0.67) (0.71) (0.37) (0.90) (0.96) (1.01) (0.56) (0.48)
Distributions from Net Realized Gains (0.08) - (0.07) - - - - (0.08) -
Ending Net Asset Value per Share $8.76 $9.04 $9.82 $9.60 $9.70 $9.73 $9.96 $8.75 $9.03
Ratios to Average Net Assets:
page 5 of 35
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses(b) 0.75% 0.60% 0.60% 0.60%(c) 0.60% 0.60% 0.62%(c) 1.50% 1.31%(c)
Net Investment Income 7.30% 6.77% 7.21% 7.19%(c) 9.25% 9.80% 9.60%(c) 6.51% 5.89%(c)
Total Return 5.20% (1.42%) 10.71% 5.58%(c) 9.37% 7.77% 10.22%(c) 4.41% (4.61%)(c)
Portfolio Turnover Rate 125.34% 24.70% 31.61% 4.41% 25.05% 18.48% 12.43% 125.34% 24.70%
Net Assets at the End of Period
(000's omitted) $18,332 $20,860 $131,722 $79,533 $8,615 $4,840 $4,786 $10,667 $9,655
(a) The Fund commenced operations on December 1, 1988 and commenced the offering of B Shares on August 2, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.01% 0.99% 0.99% 1.03%(c) 1.71% 2.04% 2.24%(c) 2.00% 2.00%(c)
(c) Annualized.
</TABLE>
<TABLE>
<CAPTION>
Adjustable U.S. Government Reserve Fund Total Return Bond Fund
A Shares B Shares A Shares B Shares
Year Ended May 31 Year Ended May 31 Year Ended May 31 Year Ended May 31
1995 1994 1993(a) 1995 1994(a) 1995 1994(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $9.66 $10.12 $10.00 $9.62 $10.14 $9.54 $10.00 $9.54 $10.00
Net Investment Income 0.55 0.48 0.47 0.47 0.32 0.67 0.27 0.59 0.24
Net Realized and Unrealized Gain
(Loss) on Investments (0.28) (0.43) 0.13 (0.28) (0.49) 0.19 (0.46) 0.19 (0.46)
Dividends from Net Investment Income (0.55) (0.48) (0.47) (0.47) (0.32) (0.67) (0.27) (0.59) (0.24)
Distributions from Net Realized Gains - (0.03) (0.01) - (0.03) - - - -
Ending Net Asset Value per Share $9.38 $9.66 $10.12 $9.34 $9.62 $9.73 $9.54 $9.73 $9.54
Ratios to Average Net Assets:
Expenses(b) 0.85% 0.82% 0.38%(c) 1.59% 1.51%(c) 0.64% 0.37%(c) 1.41% 1.11%(c)
Net Investment Income 5.75% 4.73% 4.77%(c) 5.05% 3.82%(c) 6.94% 6.04%(c) 6.17% 5.40%(c)
Total Return 2.87% 0.40% 6.33%(c) 2.10% (1.92%)(c) 9.42% (4.64%)(c) 8.59% (5.23%)(c)
Portfolio Turnover Rate 86.05% 149.00% 61.55% 86.05% 149.00% 35.19% 37.50% 35.19% 37.50%
Net Assets at the End of Period
(000's omitted) $41,656 $79,378 $77,367 $405 $374 $599 $150 $919 $186
(a) Adjustable U.S. Government Reserve Fund commenced operations on June 16, 1992 and commenced the offering of B Shares on
August 6, 1993. Total Return Bond Fund commenced operations on December 31, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
page 6 or 35
<PAGE>
Expenses 1.15% 1.14% 1.15%(c) 3.07% 2.10%(c) 2.38% 13.29%(c) 3.09% 8.29%(c)
(c) Annualized.
</TABLE>
<TABLE>
<CAPTION>
Income Fund
A Shares B Shares
Year Ended May 31 Year Ended May 31
1995 1994 1993 1992 1991 1990 1989 1988(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Net Asset
Value per Share $9.52 $10.61 $10.52 $10.23 $9.94 $10.00 $9.95 $10.00 $9.51 $10.67
Net Investment Income 0.65 0.70 0.77 0.82 0.89 0.90 0.79 0.66 0.58 0.50
Net Realized and Unrealized
Gain (Loss) on Investments 0.11 (0.83) 0.39 0.53 0.29 (0.06) 0.05 0.05 0.10 (0.90)
Dividends from Net
Investment Income (0.65) (0.70) (0.77) (0.82) (0.89) (0.90) (0.79) (0.66) (0.58) (0.50)
Distributions from Net
Realized Gains - (0.26) (0.30) (0.24) - - - - - (0.26)
Ending Net Asset Value
per Share $9.63 $9.52 $10.61 $10.52 $10.23 $9.94 $10.00 $9.95 $9.61 $9.51
Ratios to Average Net
Assets:
Expenses(b) 0.75% 0.60% 0.60% 0.31% 0.16% 0.19% 0.07% 0.70%(c) 1.50% 1.33%(c)
Net Investment Income 7.02% 6.72% 7.18% 7.80% 8.82% 8.98% 8.62% 6.92%(c) 6.24% 5.82%(c)
Total Return 8.49% (1.58%) 11.46% 13.58% 12.38% 8.71% 8.78% 6.45%(c) 7.57% (4.82%)(c)
Portfolio Turnover Rate 98.83% 26.67% 87.98% 84.24% 61.33% 43.81% 48.08% 0.00% 98.83% 26.67%
Net Assets at the End of
Period (000's omitted) $6,231 $6,177 $85,252 $63,973 $50,138 $37,932 $27,939 $2,279 $3,296 $2,605
(a) The Fund commenced operations on June 9, 1987 and commenced the offering of B Shares on August 5, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.24% 1.16% 1.10% 1.08% 1.11% 1.13% 1.10% 2.28%(c) 2.21% 2.08%(c)
(c) Annualized.
</TABLE>
3. Investment Objectives and Policies
Adjustable U.S. Government Reserve Fund
Investment Objective. The investment objective of the Fund is to seek high
current income consistent with minimal principal fluctuation. There can be no
assurance that the Fund will achieve its investment objective.
page 7 of 35
<PAGE>
Investment Policies. The Fund seeks to attain its investment objective
primarily by investing in a portfolio of adjustable rate securities, including
adjustable rate mortgage-backed securities ("ARMS"), that are U.S. Government
Securities. Under normal circumstances, the Fund will, invest at least 65% of
its total assets in adjustable rate U.S. Government Securities. The Adviser
currently anticipates that a substantial amount of the adjustable rate U.S.
Government Securities purchased by the Fund will be ARMS. The Adviser actively
manages the Fund and focuses on high quality, short and intermediate maturity
instruments. Adjustable rate instruments are emphasized to attempt to control
principal fluctuation. Investment return is enhanced through the application of
disciplined fixed income management techniques combined with fundamental
economic, credit and market analysis.
The Fund may invest up to 35% of its total assets in fixed rate U.S. Government
Securities or corporate securities and in mortgage- and asset-backed securities
that are not U.S. Government Securities. The Fund may invest also in securities
that are restricted as to disposition under the Federal securities laws
(sometimes referred to as "private placement" or "restricted securities").
To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the three highest long-term or two highest
short-term rating categories assigned by an NRSRO, such as Moody's Investors
Service, Inc., Standard & Poor's Corporation or Fitch Investors Services, Inc.,
or which are unrated and determined by the Adviser to be of comparable quality.
A description of the rating categories of various NRSROs is contained in the
SAI.
The Fund will invest primarily in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 12 years and seeks to maintain an average
dollar-weighted portfolio maturity of between 2 and 5 years. Under normal
circumstances, the Fund's portfolio of securities will have a duration of no
more than 1.75 years. Duration is a measure of a debt security's average life
that reflects the present value of the security's cash flow and, accordingly, is
a measure of price sensitivity to interest rate changes ("duration risk").
Because earlier payments on a debt security have a higher present value,
duration of a security, except a zero-coupon security, will be less than the
security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase interest
rate caps, floors and collars. The Fund may also engage in certain strategies
involving options (both exchange-traded and over-the-counter) to attempt to
enhance the Fund's income and may attempt to reduce the overall risk of its
investments or limit the uncertainty in the level of future foreign exchange
rates (hedge) by using options and futures contracts and foreign currency
forward contracts. The Fund may write covered call and put options, buy put and
call options, buy and sell interest rate and foreign currency futures contracts
and buy options and write covered options on those futures contracts. An option
is covered if, so long as the Fund is obligated under the option, it owns an
offsetting position in the underlying security or futures contract or maintains
a segregated account of liquid, high-grade debt instruments with a value at all
times sufficient to cover the Fund's obligations under the option.
Government Income Fund
Investment Objectives. The primary investment objective of the Fund is to seek
maximum income. The Fund pursues this objective by investing in a portfolio of
U.S. Government Securities, repurchase agreements pertaining to U.S. Government
Securities, mortgage-backed securities and options and financial futures
transactions which relate to those securities. The Fund's secondary objective is
preservation of capital. There can be no assurance that the Fund will achieve
its investment objective.
Investment Policies. The Fund seeks to attain its investment objectives
primarily by investing in a portfolio of U.S. Government Securities, including
mortgage-backed securities, and repurchase agreements pertaining to U.S.
Government Securities. The Adviser actively manages the Fund and attempts to
structure the Fund to benefit from the attractive risk/return characteristics of
intermediate maturity issues. The Adviser attempts to enhance the Fund's income
through ownership of mortgage-backed and asset-backed securities. While the Fund
may engage in options and financial futures transactions, it is not currently
contemplated that the Fund will engage in these transactions to
page 8 of 35
<PAGE>
any material extent. As a fundamental investment policy, the Fund will invest at
least 65% of its total assets in U.S. Government Securities. The Fund may invest
up to 20% of its total assets in mortgage-backed securities that are not U.S.
Government Securities.
To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the three highest rating categories assigned by an
NRSRO, such as Moody's Investors Service, Inc., Standard & Poor's Corporation or
Fitch Investors Services, Inc., or which are unrated and determined by the
Adviser to be of comparable quality. A description of the rating categories of
various NRSROs is contained in the SAI.
The Fund primarily will invest in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 12 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 7 years. The Fund's portfolio of securities normally will have a duration
of between 75% and 125% of the duration of the Lehman Brothers Intermediate
Government Bond Index, an unmanaged index of fixed income securities. Duration
is a measure of a debt security's average life that reflects the present value
of the security's cash flow and, accordingly, is a measure of price sensitivity
to interest rate changes ("duration risk"). Because earlier payments on a debt
security have a higher present value, duration of a security, except a
zero-coupon security, will be less than the security's stated maturity.
In order to manage its exposure to different types of investments, the Fund may
enter into interest rate and mortgage swap agreements and may purchase interest
rate caps, floors and collars. The Fund's ability to use these strategies may be
limited by market considerations, regulatory limits and tax considerations.
Income Fund
Investment Objective. The investment objective of the Fund is to seek current
income and, secondarily, growth of capital. The Fund pursues this objective by
investing in a portfolio of fixed income securities issued by domestic and
foreign issuers. There can be no assurance that the Fund will achieve its
investment objective.
Investment Policies. The Fund seeks to attain its investment objective by
investing in a diversified portfolio of fixed and variable rate U.S. dollar
denominated fixed income securities. These securities cover a broad spectrum of
United States issuers, including U.S. Government Securities, mortgage- and
asset-backed securities and the debt securities of financial institutions,
corporations, and others. The Adviser attempts to increase the Fund's
performance by applying various fixed income management techniques combined with
fundamental economic, credit and market analysis while at the same time
controlling total return volatility by targeting the Fund's duration within a
narrow band around the Lehman Brothers Aggregate Index, an unmanaged index of
fixed income securities.
The Fund may invest any amount of its assets, and normally will invest at least
50% of its total assets in U.S. Government Securities. The fixed income
securities in which the Fund invests also include mortgage-backed and other
asset-backed securities, although the Fund limits these investments to not more
than 50% and 25%, respectively, of its total assets. The Fund may invest up to
30% of its total assets in corporate securities, such as bonds, debentures and
notes and fixed income securities that can be converted into or exchanged for
common stocks ("convertible stock") and may invest in guaranteed investment
contracts. The Fund may invest in securities that are restricted as to
disposition under the Federal securities laws (sometimes referred to as "private
placement" or "restricted securities").
To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the four highest rating categories assigned by an
NRSRO, such as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation or Fitch Investors Services, Inc., or which are unrated and
determined by the Adviser to be of comparable quality. Securities rated in these
categories are generally considered to be investment grade securities, although
Moody's indicates that securities rated Baa (the fourth highest category) have
speculative characteristics. A description of the rating categories of various
NRSROs is contained in the SAI.
page 9 of 35
<PAGE>
The Fund will invest primarily in securities with maturities (or average life in
the case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 30 years, and it is anticipated that the Fund's
portfolio of securities will have an average dollar-weighted maturity of between
3 and 12 years. The Fund's portfolio of securities will normally have a duration
of between 75% and 125% of the duration of the Lehman Brothers Aggregate Index.
Duration is a measure of a debt security's average life that reflects the
present value of the security's cash flow and, accordingly, is a measure of
price sensitivity to interest rate changes ("duration risk"). Because earlier
payments on a debt security have a higher present value, duration of a security,
except a zero-coupon security, will be less than the security's stated maturity.
Foreign Securities and Their Risks. The Fund may invest in debt securities
registered and sold in the United States by foreign issuers (Yankee Bonds) and
debt securities sold outside the United States by foreign or U.S. issuers
(Euro-bonds). The Fund intends to restrict its purchases of debt securities to
issues denominated and payable in United States dollars. Investments in foreign
companies involve certain risks, such as exchange rate fluctuations, political
or economic instability of the issuer or the country of issue and the possible
imposition of exchange controls, withholding taxes on interest payments,
confiscatory taxes or expropriation. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations
denominated in U.S. dollars. Foreign securities and their markets may not be as
liquid as domestic securities and their markets, and foreign brokerage
commissions and custody fees are generally higher than those in the United
States. In addition, less information may be publicly available about a foreign
company than about a domestic company, and foreign companies may not be subject
to uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies.
Total Return Bond Fund
Investment Objective. The investment objective of the Fund is to seek total
return. The Fund pursues this objective by investing in a portfolio of U.S.
Government and investment grade corporate fixed income investments. There can be
no assurance that the Fund will achieve its investment objective.
Investment Policies. The Fund invests primarily in U.S. Government Securities,
including mortgage-backed securities and investment grade corporate fixed income
securities, although the Fund may invest an unlimited amount of its assets in
either corporate securities or U.S. Government Securities.
The Adviser's investment decisions are based on its analysis of major changes in
the direction of interest rates rather than an attempt by the Adviser to predict
short-term interest rate fluctuations. The Adviser also applies a contrarian
perspective by looking for undervalued segments of the fixed income market which
the Adviser believes offer opportunities for increased returns.
The average maturity of the Fund's portfolio will vary, generally, from 1 to 30
years. In making its investment decisions for the Fund, the Adviser focuses on
the maturity structure and quality structure of the Fund's portfolio. When the
Adviser's outlook is for rising interest rates and falling bond values, the
majority of the Fund's portfolio will be invested in securities with short-term
maturities in an effort to ride interest rates up while minimizing the negative
effect of falling bond prices. When the Adviser anticipates interest rates to
fall and bond prices increase, the Fund generally will be invested in securities
with long-term maturities in an attempt to lock in high interest rates and
capitalize on bond price appreciation.
The Fund will be invested to a greater degree in corporate securities, however,
as the spread between corporate and U.S. Government issues offers potential for
incremental returns. The corporate securities in which the Fund may invest
include debt securities (corporate bonds, debentures and notes), preferred stock
and convertible securities (convertible debt and convertible preferred stock).
To limit credit risk, the Fund will only purchase securities that are rated, at
the time of purchase, within the four highest rating categories assigned by an
NRSRO, such as Moody's Investors Service, Inc. ("Moody's"), Standard &
page 10 of 35
<PAGE>
Poor's Corporation or Fitch Investors Services, Inc., or which are unrated and
determined by the Adviser to be of comparable quality. Securities rated in these
categories are generally considered to be investment grade securities, although
Moody's indicates that securities rated Baa (the fourth highest category) have
speculative characteristics. A description of the rating categories of various
NRSROs is contained in the SAI.
The Fund reserves the right, upon notice to shareholders, to invest all or a
portion of its assets in shares of another diversified, open-end management
investment company that has an investment objective and investment policies
substantially similar to its own.
Additional Investment Policies and Risk Considerations
Each Fund's investment objective and all investment policies of the Funds that
are designated as fundamental may not be changed without approval of the holders
of a majority of that Fund's outstanding voting securities. A majority of a
Fund's outstanding voting securities means the lesser of 67% of the shares of a
Fund present or represented at a shareholders' meeting at which the holders of
more than 50% of the shares are present or represented, or more than 50% of the
outstanding shares of a Fund. Except as otherwise indicated, investment policies
of the Funds are not deemed to be fundamental and may be changed by the Board of
Trustees of the Trust (the "Board") without shareholder approval. A further
description of the Funds' investment policies, including additional fundamental
policies, is contained in the SAI.
The Adviser monitors the creditworthiness of counterparties to the Funds'
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal credit risks and the benefits from the
transaction justify the attendant risks. No Fund may invest more than 15% of its
net assets in illiquid securities, including repurchase agreements not entitling
the Fund to payment within seven days. As used herein, the term U.S. Government
Securities means obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities.
Borrowing. As a fundamental policy, each Fund may borrow money from banks or by
entering into reverse repurchase agreements and will limit borrowings to amounts
not in excess of 331/3% of the value of the Fund's total assets. Borrowings for
other than temporary or emergency purposes or meeting redemption requests may
not exceed 5% of the value of any Fund's assets. Each Fund may enter into
reverse repurchase agreements, transactions in which a Fund sells a security and
simultaneously commits to repurchase that security from the buyer at an agreed
upon price on an agreed upon future date.
Diversification and Concentration. Each Fund is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, no Fund may purchase a security
(other than a U.S. Government Security or shares of investment companies) if, as
a result, (i) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer or (ii) the Fund would own more than 10% of the
outstanding voting securities of any single issuer. Each Fund is prohibited from
concentrating its assets in the securities of issuers in any industry. As a
fundamental policy, each Fund may not purchase securities if, immediately after
the purchase, more than 25% of the value of the Fund's total assets would be
invested in the securities of issuers conducting their principal business
activities in the same industry. This limit does not apply to investments in
U.S. Government Securities, foreign government securities or repurchase
agreements covering U.S. Government Securities.
Fixed Income Securities and Their Characteristics. Although each Fund only
invests in investment grade fixed income securities, including money market
instruments, an investment in a Fund is subject to risk even if all fixed income
securities in the Fund's portfolio are paid in full at maturity. All fixed
income securities, including U.S. Government Securities, can change in value
when there is a change in interest rates or the issuer's actual or perceived
creditworthiness or ability to meet its obligations.
The market value of the interest-bearing debt securities held by the Funds will
be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest
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rates and actual changes in interest rates. In other words, an increase in
interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity (and duration) of a security, the greater will be the effect
of interest rate changes on the market value of that security. Changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. The possibility exists that, the
ability of any issuer to pay, when due, the principal of and interest on its
debt securities may become impaired.
Rating Matters. The Funds' investments are subject to "credit risk" relating to
the financial condition of the issuers of the securities that each Fund holds.
To limit credit risk, each Fund will generally buy securities that are rated in
the top four long-term rating categories by an NRSRO or in the top two
short-term rating categories by an NRSRO, although certain Funds have greater
restrictions. Accordingly, the lowest permissible long-term investment grades
for corporate bonds, including convertible bonds, are Baa in the case of Moody's
Investor Services, Inc. ("Moody's") and BBB in the case of Standard & Poor's
Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch"); the lowest
permissible long-term investment grades for preferred stock are Baa in the case
of Moody's and BBB in the case of S&P and Fitch; and the lowest permissible
short-term investment grades for short-term debt, including commercial paper,
are Prime-2 (P-2) in the case of Moody's, A-2 in the case of S&P and F-2 in the
case of Fitch.
The Funds also may purchase unrated securities if the Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Each Fund may retain a security whose rating has been lowered below the Fund's
lowest permissible rating category (or that are unrated and determined by the
Adviser to be of comparable quality to securities whose rating has been lowered
below the Fund's lowest permissible rating category) if the Adviser determines
that retaining the security is in the best interests of the Fund. Because a
downgrade often results in a reduction in the market price of the security, sale
of a downgraded security may result in a loss.
Variable and Floating Rate Securities. The securities in which the Funds invest
(including mortgage-backed securities) may have variable or floating rates of
interest. These securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some interest rate
index or market interest rate (the "underlying index"). The interest paid on
these securities is a function primarily of the underlying index upon which the
interest rate adjustments are based. Such adjustments minimize changes in the
market value of the obligation and, accordingly, enhance the ability of the Fund
to maintain a stable net asset value. Similar to fixed rate debt instruments,
variable and floating rate instruments are subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
The rate of interest on securities purchased by a Fund may be tied to various
rates of interest or indices. Certain variable rate securities (including
mortgage-related securities) pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For instance, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During times when short-term
interest rates are relatively low as compared to long-term interest rates a Fund
may attempt to enhance its yield by purchasing inverse floaters. Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This form of leverage may have the effect of
increasing the volatility of the security's market value while increasing the
security's, and thus the Fund's, yield. Total Return Bond Fund limits its
investment in variable and floating rate securities to 5% of its assets.
There may not be an active secondary market for certain floating or variable
rate instruments (particularly inverse floaters and similar instruments) which
could make it difficult for a Fund to dispose of the instrument during periods
that the Fund is not entitled to exercise any demand rights it may have. A Fund
could, for this or other reasons, suffer a loss with respect to an instrument.
The Adviser monitors the liquidity of each Funds' investment in variable and
floating rate instruments, but there can be no guarantee that an active
secondary market will exist.
U.S. Government Securities. As used in this Prospectus, the term U.S.
Government Securities means obligations issued or guaranteed as to principal and
interest by the United States Government, its agencies or instrumentalities. The
U.S. Government Securities in which a Fund may invest include U.S. Treasury
securities and obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and backed by the full faith and credit of the U.S.
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Government, such as those guaranteed by the Small Business Administration or
issued by the Government National Mortgage Association ("Ginnie Mae"). In
addition, the U.S. Government Securities in which the Funds may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association ("Fannie Mae"),
the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Tennessee
Valley Authority. There is no guarantee that the U.S. Government will support
securities not backed by its full faith and credit. Accordingly, although these
securities have historically involved little risk of loss of principal if held
to maturity, they may involve more risk than securities backed by the U.S.
Government's full faith and credit.
Zero-Coupon Securities. A Fund may invest in separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury.
These components are traded independently under the Treasury's Separate Trading
of Registered Interest and Principal of Securities ("STRIPS") program or as
Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may invest in other
types of related zero-coupon securities. For instance, a number of banks and
brokerage firms separate the principal and interest portions of U.S. Treasury
securities and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments. These instruments are
generally held by a bank in a custodial or trust account on behalf of the owners
of the securities and are known by various names, including Treasury Receipts
("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasury Securities ("CATS"). Zero-coupon securities also may be
issued by corporations and municipalities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Demand Notes. The Funds may purchase variable and floating rate demand notes of
corporations, which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement with the issuer of the instrument. The issuers of these
obligations often have the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Although a Fund would generally not be able to resell a master demand note to a
third party, the Fund is entitled to demand payment from the issuer at any time.
The Adviser continuously monitors the financial condition of the issuer to
determine the issuer's likely ability to make payment on demand.
Guaranteed Investment Contracts. Income Fund may invest in guaranteed
investment contracts ("GICs"). A GIC is an arrangement with an insurance company
under which the Fund contributes cash to the insurance company's general account
and the insurance company credits the contribution with interest on a monthly
basis. The interest rate is tied to a specified market index and is guaranteed
by the insurance company not to be less than a certain minimum rate. The Fund
will purchase a GIC only when the Adviser has determined that the GIC presents
minimal credit risks to the Fund and is of comparable quality to instruments
that the Fund may purchase.
Temporary Defensive Position. When business or financial conditions warrant,
the Funds may assume a temporary defensive position and invest without limit in
cash or prime quality cash equivalents, including (i) short-term U.S. Government
Securities, (ii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States, (iii) commercial paper, (iv) repurchase agreements and (v) shares
of "money market funds" registered under the Investment Company Act of 1940 (the
"1940 Act") within the limits specified therein. Prime quality instruments are
those that are rated in one of the two highest short-term rating categories by
an NRSRO or, if not rated, determined by the Adviser to be of comparable
quality. During periods when and to the extent that a Fund has assumed a
temporary defensive position, it may not be pursuing its
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investment objective. Apart from temporary defensive purposes, a Fund may at any
time invest a portion of its assets in cash and cash equivalents as described
above.
Portfolio Transactions. The frequency of portfolio transactions of each Fund
(the portfolio turnover rate) will vary from year to year depending on many
factors. From time to time a Fund may engage in active short-term trading to
take advantage of price movements affecting individual issues, groups of issues
or markets. The Funds' portfolio turnover is reported under "Financial
Highlights." It is each Fund's policy to obtain best net results in effecting
portfolio transactions. The Adviser may effect transactions for the Funds
through brokers who sell Fund shares. The Funds have no obligation to deal with
any specific broker or dealer in the execution of portfolio transactions.
Convertible Securities and Preferred Stock. Convertible securities, which
include convertible debt, convertible preferred stock and other securities
exchangeable under certain circumstances for shares of common stock, are fixed
income securities or preferred stock which generally may be converted at a
stated price within a specific amount of time into a specified number of shares
of common stock. A convertible security entitles the holder to receive interest
paid or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they normally provide a stream of income
with generally higher yields than those of common stocks of the same or similar
issuers. These securities are usually senior to common stock in a company's
capital structure, but usually are subordinated to non-convertible debt
securities. In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
Preferred stock is a class of stock having priority over common stock as to
dividends or the recovery of investment or both. The owner of preferred stock is
a shareholder in a business and not, like a bondholder, a creditor. Dividends
paid to preferred stockholders are distributions of earnings of a business in
contrast to interest payments to bondholders which are expenses of a business.
Repurchase Agreements and Lending of Portfolio Securities. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 331/3% of the value of its total assets.
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities offered on a "when-issued" basis and may purchase securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction, but delayed settlements beyond three
months may be negotiated.
During the period between a commitment and settlement, no payment is made for
the securities purchased and, thus, no interest accrues to the Fund. At the time
a Fund makes a commitment to purchase securities in this manner, however, the
Fund immediately assumes the risk of ownership, including price fluctuation.
Failure by the other
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party to deliver or pay for a security purchased or sold by the Fund may result
in a loss or a missed opportunity to make an alternative investment. Any
significant commitment of a Fund's assets committed to the purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of its net asset value. Total Return Bond Fund limits its investments
in when-issued and forward commitment securities to 35% of the value of the
Fund's total assets.
The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
were to forecast incorrectly the direction of interest rate movements, however,
a Fund might be required to complete when-issued or forward transactions at
prices inferior to the current market values. The Funds enter into when-issued
and forward commitments only with the intention of actually receiving the
securities, but a Fund may sell the securities before the settlement date if
deemed advisable. If a Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
deliver or receive against a forward commitment, it can incur a gain or loss.
Dollar Roll Transactions. A Fund may enter into dollar roll transactions
wherein the Fund sells fixed income securities, typically mortgage-backed
securities, and makes a commitment to purchase similar, but not identical,
securities at a later date from the same party. Like a forward commitment,
during the roll period no payment is made for the securities purchased and no
interest or principal payments on the security accrue to the purchaser, but the
Fund assumes the risk of ownership. A Fund is compensated for entering into
dollar roll transactions by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. Like other when-issued securities or firm
commitment agreements, dollar roll transactions involve the risk that the market
value of the securities sold by the Fund may decline below the price at which a
Fund is committed to purchase similar securities. In the event the buyer of
securities under a dollar roll transaction becomes insolvent, the Fund's use of
the proceeds of the transaction may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. The Funds will engage in roll
transactions for the purpose of acquiring securities for its portfolio and not
for investment leverage.
Swap Agreements. To manage their exposure to different types of investments,
Adjustable U.S. Government Reserve Fund and Government Income Fund may enter
into interest rate and mortgage (or other asset) swap agreements and may
purchase interest rate caps, floors and collars. In a typical interest rate swap
agreement, one party agrees to make regular payments equal to a floating
interest rate on a specified amount (the "notional principal amount") in return
for payments equal to a fixed interest rate on the same amount for a specified
period. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Fund's
performance. Swap agreements involve risks depending upon the counterparty's
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
Mortgage-Backed Securities. Mortgage-backed securities represent an interest in
a pool of mortgages originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-backed securities may be
issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by banks, savings associations,
private mortgage insurance companies or mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases,
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principal. In effect, these payments are a "pass-through" of the monthly
payments made by the individual borrowers on their mortgage loans, net of any
fees paid to the issuer or guarantor of the securities or a mortgage loan
servicer. Additional payments to holders of these securities are caused by
prepayments resulting from the sale or foreclosure of the underlying property or
refinancing of the underlying loans.
Underlying Mortgages. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
Liquidity and Marketability. Generally, government and government-related
pass-through pools are highly liquid. While private conventional pools of
mortgages (pooled by non-government-related entities) have also achieved broad
market acceptance and an active secondary market has emerged, the market for
conventional pools is smaller and less liquid than the market for government and
government-related mortgage pools.
Average Life and Prepayments. The average life of a pass-through pool varies
with the maturities of the underlying mortgage instruments. In addition, a
pool's terms may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of the
Fund and may even result in losses to the Fund if the securities were acquired
at a premium. The occurrence of mortgage prepayments is affected by various
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. The assumed average
life of pools of mortgages having terms of 30 years or less is typically between
five and 12 years.
Yield Calculations. Yields on pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. In periods of falling interest rates the rate of prepayment
tends to increase, thereby shortening the actual average life of a pool of
mortgages. Conversely, in periods of rising rates the rate of prepayment tends
to decrease, thereby lengthening the actual average life of the pool. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of the Fund.
Government and Government-Related Guarantors. The principal government
guarantor of mortgage-backed securities is Ginnie Mae, a wholly-owned United
States Government corporation within the Department of Housing and Urban
Development. Mortgage-backed securities are also issued by Fannie Mae, a
government-sponsored corporation owned entirely by private stockholders that is
subject to general regulation by the Secretary of Housing and Urban Development,
and Freddie Mac, a corporate instrumentality of the United States Government.
While Fannie Mae and Freddie Mac each guarantee the payment of principal and
interest on the securities they issue, unlike Ginnie Mae securities, their
securities are not backed by the full faith and credit of the United States
Government.
Privately Issued Mortgage-Backed securities. Mortgage-backed securities offered
by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds (which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans); and collateralized mortgage obligations
("CMOs"). Mortgage-backed securities issued by non-governmental issuers may
offer a higher rate of interest than securities issued by government issuers
because of the absence of direct or indirect government guarantees of payment.
Many non-governmental issuers or servicers of mortgage-backed securities,
however, guarantee timely payment of interest and principal on these securities.
Timely payment
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of interest and principal may also be supported by various forms of insurance,
including individual loan, title, pool and hazard policies.
Adjustable Rate Mortgage-Backed securities. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term, fixed-rate debt
securities. ARMs may have less risk of a decline in value during periods of
rapidly rising rates, but they may also have less potential for capital
appreciation than other debt securities of comparable maturities due to the
periodic adjustment of the interest rate on the underlying mortgages and due to
the likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to the Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a lower value until the interest rate resets to market
rates.
Collateralized Mortgage Obligations. CMOs are debt obligations collateralized
by mortgages or mortgage pass-through securities issued by Ginnie Mae, Freddie
Mac or Fannie Mae or by pools of conventional mortgages ("Mortgage Assets").
CMOs may be privately issued or U.S. Government Securities. Payments of
principal and interest on the Mortgage Assets are passed through to the holders
of the CMOs on the same schedule as they are received, although, certain classes
(often referred to as tranches) of CMOs have priority over other classes with
respect to the receipt of payments. Multi-class mortgage pass-through securities
are interests in trusts that hold Mortgage Assets and that have multiple classes
similar to those of CMOs. Unless the context indicates otherwise, references to
CMOs include multi-class mortgage pass-through securities. Payments of principal
of and interest on the underlying Mortgage Assets (and in the case of CMOs, any
reinvestment income thereon) provide funds to pay debt service on the CMOs or to
make scheduled distributions on the multi-class mortgage pass-through
securities. Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier.
Planned amortization class mortgage-based securities ("PAC Bonds") are a form of
parallel pay CMO. PAC Bonds are designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a contemplated range.
If the actual prepayment experience on the underlying mortgage loans is at a
rate faster or slower than the contemplated range, or if deviations from other
assumptions occur, principal payments on a PAC Bond may be greater or smaller
than predicted. The magnitude of the contemplated range varies from one PAC Bond
to another; a narrower range increases the risk that prepayments will be greater
or smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-related securities.
Asset-Backed Securities. Asset-backed securities represent direct or indirect
participations in, or are secured by and payable from, assets other than
mortgage-related assets such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. No Fund
may invest more than 10% of its net assets in asset-backed securities that are
backed by a particular type of credit, for instance, credit card receivables.
Asset-backed securities, including adjustable rate asset-backed securities, have
yield characteristics similar to those of mortgage-related securities and,
accordingly, are subject to many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a
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financial institution. Asset-backed securities do not always have the benefit of
a security interest in collateral comparable to the security interests
associated with mortgage-related securities. As a result, the risk that recovery
on repossessed collateral might be unavailable or inadequate to support payments
on asset-backed securities is greater for asset-backed securities than for
mortgage-related securities. In addition, because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of an interest rate or
economic cycle has not been tested.
Futures Contracts and Options. Adjustable U.S. Government Reserve Fund may (and
the other Funds may in the future) seek to enhance its return through the
writing (selling) and purchasing exchange-traded and over-the-counter options on
fixed income securities or indices. The Fund may also to attempt to hedge
against a decline in the value of securities owned by it or an increase in the
price of securities which it plans to purchase through the use of those options
and the purchase and sale of interest rate futures contracts and options on
those futures contracts. The Fund may only write options that are covered. An
option is covered if, so long as the Fund is obligated under the option, it owns
an offsetting position in the underlying security or futures contract or
maintains cash, U.S. Government Securities or other liquid, high-grade debt
securities in a segregated account with a value at all times sufficient to cover
the Fund's obligation under the option. A Fund may enter into these futures
contracts only if the aggregate of initial deposits for open futures contract
positions does not exceed 5% of the Fund's total assets.
Risk Considerations. The Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on the Adviser's
ability to predict movements in the prices of individual securities and
fluctuations in the general securities markets; (2) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time, which, among other things, may limit a Fund's ability to limit exposures
by closing its positions; (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences; and (6) the potential for unlimited loss when investing in futures
contracts or writing options for which an offsetting position is not held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an
over-the-counter option transaction will be able to perform its obligations.
There are a limited number of options on interest rate futures contracts and
exchange traded options contracts on fixed income securities. Accordingly,
hedging transactions involving these instruments may entail "cross-hedging." As
an example, a Fund may wish to hedge existing holdings of mortgage-backed
securities, but no listed options may exist on those securities. In that event,
the Adviser may attempt to hedge the Fund's securities by the use of options
with respect to similar fixed income securities. The Fund may use various
futures contracts that are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an active secondary
market in those contracts will develop or continue to exist.
Limitations. The Fund has no current intention of investing in futures
contracts and options thereon for purposes other than hedging. The Fund may not
purchase any call or put option on a futures contract if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased. No Fund may sell a put option if
the exercise value of all put options written by the Fund would exceed 50% of
the Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50% of its total assets.
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Options on Securities. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
Options on Stock Indexes. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
Index Futures Contracts. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the fixed income or equity securities comprising the index is made.
Generally, futures contracts are closed out prior to the expiration date of the
contract.
Options on Futures Contracts. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
4. Management
The business of the Trust is managed under the direction of the Board of
Trustees (the "Board"). The Board formulates the general policies of the Funds
and meets periodically to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. The Board consists of six persons.
Investment Advisory Services
Norwest Investment Management. Subject to the general supervision of the Board,
Norwest Investment Management makes investment decisions for the Funds and
continuously reviews, supervises and administers each Fund's investment program.
The Adviser is a part of Norwest, a subsidiary of Norwest Corporation, which is
a multi-bank holding company that was incorporated under the laws of Delaware in
1929. As of June 30, 1995, Norwest Corporation was the 13th 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 $16 billion.
The Adviser provides investment management services to each Fund pursuant to
investment advisory agreements between Norwest and the Trust. For the Adviser's
services, Norwest receives an advisory fee with respect to
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Government Income Fund at an annual rate of 0.40% of the Fund's average daily
net assets and with respect to each other Fund at an annual rate of 0.50% of the
Fund's average daily net assets.
Portfolio Managers. Many persons on the advisory staff of the Adviser
contribute to the investment services provided to the Funds. The following
persons, however, are primarily responsible for the day-to-day management of the
Funds:
Adjustable U.S. Government Reserve Fund - Mr. Karl P. Tourville. Mr. Tourville,
a Vice President of Norwest since 1989, has served as portfolio manager for the
Fund since May 25, 1995, and has been associated with Norwest since 1986. As of
June 30 , 1995, Mr. Tourville was responsible for the management of over $1.4
billion in pooled fixed income assets.
Government Income Fund and Income Fund - Ms. Marjorie H. Grace and Mr. Mark
Karstrom. Ms. Grace, a Vice President of Norwest since 1992, has served as a
portfolio manager for the Fund since May 25, 1995. Ms. Grace was a portfolio
manager of Norwest from 1992-1993; an Institutional Salesperson with Norwest
Investment Services, Inc. from 1991-1992; a portfolio manager with United Bank
of Colorado from 1989-1991; and Vice President and portfolio manager with
Colombia Savings and Loan from 1987-1989. Mr. Karstrom, a Vice President of
Norwest since 1992, has been associated with Norwest since 1985. Mr. Karstrom
has been the portfolio manager for Government Income Fund and its predecessor
fund since 1988 and for Income Fund since 1987.
Total Return Bond Fund - Mr. David B. Kinney. Mr. Kinney, a Vice President and
Senior Portfolio Manager at Norwest, has been associated with Norwest since
1981. He has served as the Fund's portfolio manager since its inception.
Management and Distribution Services
Forum supervises the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay) and provides the
Trust with general office facilities pursuant to a Management Agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers, as well as certain other officers and Trustees of the
Trust, may be directors, officers or employees of (and persons providing
services to the Trust may include) Forum, its affiliates or certain non-banking
affiliates of Norwest. As of the date of this Prospectus, Forum provided
management and administrative services to registered investment companies and
collective investment funds with assets of approximately $11 billion. Forum is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. As of the date of this Prospectus, Forum
is controlled by John Y. Keffer, President and Chairman of the Trust. For its
services and facilities, Forum receives from each Fund a management fee at an
annual rate of 0.20% of the average daily net assets attributable to each class
of the Fund. From its own resources, Forum may pay a fee to broker-dealers or
other persons for distribution or other services related to the Funds.
Forum also acts as the distributor of the Shares pursuant to a distribution
services agreement with the Trust and in accordance therewith receives and may
reallow the initial sales charge assessed on purchases of A Shares of a Fund. As
authorized by a distribution plan with respect to B Shares of each Fund and
pursuant to the distribution services agreement, Forum receives a distribution
services fee as compensation for its distribution expenses with respect to B
Shares and a maintenance fee for its or certain broker-dealer's shareholder
services with respect to B Shares. For further information about the
distribution services agreement and the distribution plan, including the fees
payable thereunder, see "How to Buy Shares - Alternative Distribution
Arrangements." Pursuant to a separate agreement, Forum also provides portfolio
accounting services to each Fund.
Shareholder Servicing and Custody
Norwest serves as transfer agent and dividend disbursing agent for the Trust (in
this capacity, the "Transfer Agent") pursuant to a Transfer Agency Agreement
with the Trust. The Transfer Agent maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents or
processing agents), performs other transfer agency functions and acts as
dividend disbursing agent for the Trust. The Transfer Agent is permitted to
subcontract any or all of its functions with respect to all or any portion of
the Trust's shareholders to one or more
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<PAGE>
qualified sub-transfer agents or processing agents, which may be affiliates of
the Transfer Agent or Forum, who agree to comply with the terms of the Transfer
Agency Agreement. Sub-transfer agents and processing agents may be "Processing
Organizations" as described under "How to Buy Shares - Purchase Procedures." The
Transfer Agent is permitted to compensate those agents for their services;
however, that compensation may not increase the aggregate amount of payments by
the Trust to the Transfer Agent. For its transfer agency services, the Transfer
Agent receives from each Fund a fee at an annual rate of 0.25% of the average
daily net assets attributable to each class of the Fund. The Transfer Agent also
serves as the Trust's custodian and, for its custodial services, is compensated
at an annual rate of up to 0.05% of each Fund's average daily net assets.
Expenses of the Funds
Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Funds, the Trust has confirmed its obligation to pay all the Trust's
expenses. The Funds' expenses include Trust expenses attributable to the Funds,
which are allocated to each Fund, and expenses not specifically attributable to
the Funds, which are allocated among the Funds and all other funds of the Trust
in proportion to their average net assets. Norwest, Forum and the Transfer Agent
may each elect to waive (or continue to waive) all or a portion of their fees,
which are accrued daily and paid monthly. Any such waivers will have the effect
of increasing a Fund's performance for the period during which the waiver is in
effect. No fee waivers may be recouped at a later date.
Norwest and Forum and their agents and affiliates may also act in various
capacities for, and receive compensation from, their customers who are
shareholders of a Fund. Under agreements with those customers, Norwest and Forum
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in a Fund.
5. How to Buy Shares
Minimum Investment
There is a $1,000 minimum for initial purchases ($5,000 in the case of
Adjustable U.S. Government Reserve Fund) and a $100 minimum for subsequent
purchases of Shares of the Funds. A Fund may in its discretion waive the
investment minimums. Shareholders who elect electronic share purchase privileges
such as the Automatic Investment Plan or the Directed Dividend Option are not
subject to the initial investment minimum. See "Other Shareholder Services -
Automatic Investment Plan" and "Dividends and Tax Matters."
Except as set forth below with respect to purchases through Processing
Organizations, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of Federal funds. Fund shares become
entitled to receive dividends and distributions on the next Fund Business Day
after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
Purchase Procedures
Initial Purchases
There are three ways to purchase shares initially.
1. By Mail. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed under
"Account Application" on page 45. Checks are accepted at full value subject to
collection. Payment by a check drawn on any member of the Federal Reserve System
can
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<PAGE>
normally be converted into Federal funds within two business days after receipt
of the check. Checks drawn on some non-member banks may take longer.
2. By Bank Wire. Investors may make an initial investment in a Fund using the
wire system for transmittal of money among banks. The investor should first
telephone the Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an
account number. The investor should then instruct a bank to wire the investor's
money immediately to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Advantage Funds
0844-131
Re: [Name of Fund]
[Designate A Shares or B Shares]
Account No.:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
3. Through Financial Institutions. Shares may be purchased and redeemed
through certain broker-dealers, banks and other financial institutions
("Processing Organizations"). The Transfer Agent, Forum and their affiliates may
be Processing Organizations. Processing Organizations may receive as a
broker-dealer's reallowance a portion of the sales charge paid by their
customers who purchase A Shares of a Fund, may receive payments from Forum with
respect to sales of B Shares and may receive payments as a processing agent from
the Transfer Agent. In addition, financial institutions, including Processing
Organizations, may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase a Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Funds' procedures, may have
Fund shares transferred into their name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with confirmations and periodic statements. The Trust is not
responsible for the failure of any Processing Organization to carry out its
obligations to its customer. Certain states, such as Texas, permit shares of the
Funds to be purchased and redeemed only through registered broker-dealers,
including the Funds' distributor.
Subsequent Purchases
Subsequent purchases may be made by mailing a check, by sending a bank wire or
through a shareholder's Processing Organization as indicated above. All payments
should clearly indicate the shareholder's name and account number.
Account Application
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<PAGE>
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
General Information
Fund shares are continuously sold on every weekday except customary national
business holidays and Good Friday ("Fund Business Day"). The purchase price for
Fund shares equals their net asset value next-determined after acceptance of an
order plus, in the case of the A Shares, any applicable sales charge imposed at
the time of purchase.
Investments in the Funds may be made either through certain financial
institutions or by an investor directly. An investor who invests in a Fund
directly will be the shareholder of record. All transactions in Fund shares are
effected through the Transfer Agent which accepts orders for redemptions and for
subsequent purchases only from shareholders of record. Shareholders of record
will receive from the Trust periodic statements listing all account activity
during the statement period.
Alternative Distribution Arrangements
Investors should compare sales charges and fees before selecting a particular
class of shares. Investors should consider whether, during the anticipated life
of their investment in a Fund, the accumulated distribution services fee and
maintenance fee and contingent deferred sales charges on B Shares prior to
conversion would be less than the initial sales charge on A Shares purchased at
the same time and whether that differential would be offset by the higher yield
of A Shares. A summary of the charges applicable to shares of each Fund is
listed under "Prospectus Summary - Expense Information." Sales personnel of
selected broker-dealers distributing a Fund's shares may receive differing
compensation for selling A Shares and B Shares.
Because initial sales charges are deducted at the time of purchase, investors
purchasing a Fund's A Shares receive fewer shares than if the sales charge were
not deducted and, accordingly, do not have the entire purchase price invested.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time should consider
whether, in light of the initial sales charge and its effect on the amount of
the purchase price invested, purchases of A Shares are more or less advantageous
than purchases of B Shares with their associated accumulated continuing
distribution and maintenance charges. For example, based on estimated current
fees and expenses, an investor in each Fund other than Adjustable U.S.
Government Reserve Fund subject to the 3.75% initial sales charge who elects to
reinvest all dividends and distributions would have to hold the shareholder's
investment approximately five years for the B Shares' distribution services fee
and maintenance fee to exceed the initial sales charge. An investor in
Adjustable U.S. Government Reserve Fund subject to the 1.50% initial sales
charge who elects to reinvest all dividends and distributions would have to hold
the shareholder's investment approximately two years for the B Shares'
distribution services fee and maintenance fee to exceed the
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<PAGE>
initial sales charge. The foregoing examples do not take into account the time
value of money, fluctuations in net asset value or the effects of different
performance assumptions.
A Shares
The public offering price of A Shares is their next-determined net asset value
plus an initial sales charge assessed as follows (no sales charge is assessed on
the reinvestment of dividends or distributions):
Adjustable U.S. Government Reserve Fund
Broker-Dealers'
Reallowance
Sales Charge As a As a
Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
Less than $50,000 1.50% 1.52% 1.35%
$50,000 to $99,999 1.00 1.01 0.90
$100,000 to $499,000 0.75 0.76 0.70
$500,000 to $999,000 0.50 0.50 0.45
$1,000,000 and over None None None
* Rounded to the nearest one-hundredth percent
Government Income Fund, Income Fund and Total Return Bond Fund
Broker-Dealers'
Reallowance
Sales Charge As a As a
Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
Less than $50,000 3.75% 3.90% 3.40%
$50,000 to $99,999 3.25 3.36 2.95
$100,000 to $499,000 2.25 2.30 2.05
$500,000 to $999,000 1.75 1.78 1.60
$1,000,000 and over None None None
* Rounded to the nearest one-hundredth percent
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations. Normally, Forum will reallow discounts
to selected broker-dealers in the amounts indicated in the table above. In
addition, Forum may elect to reallow the entire sales charge to selected
broker-dealers for all sales with respect to which orders are placed with Forum.
The broker-dealers' reallowance may be changed from time to time. Forum may make
additional payments (out of its own resources) to selected broker-dealers of up
to 0.75% (0.50% in the case of Adjustable U.S. Government Reserve Fund) of the
value of Fund shares purchased at net asset value.
No sales charge is assessed on purchases by: (a) any bank, trust company or
other institution acting on behalf of its fiduciary customer accounts or any
other account maintained by its trust department (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended) and (b)
trustees and officers of the Trust; directors, officers and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor or direct descendant (collectively, "relatives") of any such
person; any trust or individual retirement account or self-employed retirement
plan for the benefit of any such person or relative; or the estate of any such
person or relative. These shares may not be resold except to the Funds and share
purchases under clause (b) must be made for investment purposes.
page 24 or 35
<PAGE>
In addition, no sales charge is assessed on purchases (a) by any registered
investment adviser with whom Forum has entered into a Share purchase agreement
and which is acting on behalf of its fiduciary customer accounts, or (b) of A
Shares of a Fund made through the Directed Dividend Option from a fund that
charges a front-end sales charge. See "Dividends and Tax Matters."
Reinstatement Privilege. An investor who has redeemed A Shares of a Fund may,
within 60 days following the redemption, purchase without a sales charge A
Shares in an amount up to the amount of the redemption. Investors who desire to
exercise this "Reinstatement Privilege" should contact the Trust for further
information.
Investors in Other Fund Families. No sales charge is assessed on purchases of A
Shares of a Fund with the proceeds of a redemption at net asset value, within
the preceding 60 days, of shares of a mutual fund that does not impose on the
redeemed shares at the time of their purchase a sales charge equal to or greater
than that applicable to the A Shares of that Fund. Investors should contact the
Trust for further information and to obtain the necessary forms.
Reduced Initial Sales Charges. To qualify for a reduced sales charge, an
investor or the investor's Processing Organization must notify the Transfer
Agent at the time of purchase of the investor's intention to qualify and must
provide the Transfer Agent with sufficient information to verify that the
purchase qualifies for the reduced sales charge. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. Further information about reduced sales charges is
contained in the SAI.
Self-Directed 401(k) Programs. Purchases of A Shares of a Fund through
self-directed 401(k) programs and other qualified retirement plans offered by
Norwest, Forum or their affiliates in accumulated amounts of less than $100,000
are subject to a reduced sales charge applicable to a single purchase of
$100,000.
Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of
additional A Shares of a Fund may qualify for rights of accumulation ("ROA")
under which the applicable sales charge will be based on the total of the
investor's current purchase and the net asset value (at the end of the previous
Fund Business Day) of all A Shares of that Fund held by the investor. For
example, if an investor in Government Income Fund, Income Fund or Total Return
Bond Fund owned A Shares of the Fund worth $500,000 at the then current net
asset value and purchased A Shares of that Fund worth an additional $50,000, the
sales charge for the $50,000 purchase would be at the 1.75% rate applicable to a
$550,000 purchase, rather than at the 3.25% rate applicable to a $50,000
purchase.
In addition, an investor in a Fund that has previously purchased A Shares of any
other fund of the Trust that is sold with a sales charge equal to or greater
than the sales charge imposed on the A Shares of the Fund ("Eligible Fund") may
also qualify for ROA and may aggregate existing investments in A Shares of
Eligible Funds with current purchases of A Shares of the Fund to determine the
applicable sales charge. In addition, purchases of A Shares of a Fund by an
investor and the investor's spouse, direct ancestor or direct descendant may be
combined for purposes of ROA.
Statement of Intention. A Shares investors may also obtain reduced sales
charges based on cumulative purchases by means of a written Statement of
Intention, expressing the investor's intention to invest $50,000 or more in A
Shares of a Fund within a period of 13 months. Each purchase of shares under a
Statement of Intention will be made at net asset value plus the sales charge
applicable at the time of the purchase to a single transaction of the dollar
amount indicated in the Statement.
Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a Fund should complete the appropriate
portion to the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
Contingent Deferred Sales Charge. A Shares of a Fund on which no initial sales
charge was assessed due to the amount purchased in a single transaction or
pursuant to the Cumulative Quantity Discount or a Statement of Intention and
that are redeemed (including certain redemptions in connection with an exchange)
within specified periods after the purchase date of the shares will be subject
to contingent deferred sales charges equal to the
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<PAGE>
percentages set forth below of the dollar amount subject to the charge. The
charge will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed and their net asset value at the time of redemption.
Accordingly, no sales charge will be imposed on increases in net asset value
above the initial purchase price. In addition, no charge will be assessed on
shares derived from the reinvestment of dividends and distributions.
Adjustable U.S. Government Reserve Fund
Contingent Deferred Sales
Charge as a % of Dollar
Amount of Purchase Period Shares Held Amount Subject to Charge
$1,000,000 to $4,999,999 Less than one year 0.50%
One to two years 0.25%
Over $5,000,000 Less than one year 0.25%
Government Income Fund, Income Fund and Total Return Bond Fund
Contingent Deferred Sales
Charge as a % of Dollar
Amount of Purchase Period Shares Held Amount Subject to Charge
$1,000,000 to $2,499,999 Less than one year 0.75%
One to two years 0.50%
$2,500,000 to $4,999,999 Less than one year 0.50%
Over $5,000,000 Less than one year 0.25%
No contingent deferred sales charge is charged on redemptions to the same extent
as described under "B Shares - Contingent Deferred Sales Charge" below. The
contingent deferred sales charge on shares purchased through an exchange from
another fund of the Trust is based upon the original purchase date and price of
the other fund's shares. For A shareholders with a Statement of Intention that
do not purchase $1,000,000 of a Fund's A Shares pursuant to their Statement, no
contingent deferred sales charge is imposed. The Statement of Intention provides
for a contingent deferred sales charge in certain other cases. Further
information about the contingent deferred sales charge is contained in the SAI.
B Shares
Distribution Plan. B Shares are sold at their net asset value per share without
the imposition of a sales charge at the time of purchase. With respect to B
Shares, each Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act providing for distribution payments, at an annual
rate of up to 0.75% of the average daily net assets of the Fund attributable to
B Shares (the "distribution services fee"), by each Fund to Forum, to compensate
Forum for its distribution activities. The distribution payments due to Forum
from each Fund comprise (i) sales commissions at levels set from time to time by
the Board ("sales commissions") and (ii) an interest fee calculated by applying
the rate of 1% over the prime rate to the outstanding balance of uncovered
distribution charges (as described below). The current sales commission rate is
3% (1.5% in the case of Adjustable U.S. Government Reserve Fund) and Forum
currently expects to pay sales commissions to each broker-dealer at the time of
sale of up to 3% (1.5% in the case of Adjustable U.S. Government Reserve Fund)
of the purchase price of B Shares of each Fund sold by the broker-dealer.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares. The combined contingent
deferred sales charge and distribution services fee on B Shares are intended to
finance the distribution of those shares by permitting an investor to purchase
shares through broker-dealers without the assessment of an initial sales charge
and, at the same time, permitting Forum to compensate broker-dealers in
connection with the sales of the shares. Proceeds from the contingent deferred
sales charge with respect to a Fund are paid to Forum to defray the expenses
related to providing distribution-related services in connection with the sales
of B Shares, such as the payment of compensation to broker-dealers selling B
Shares. Forum may spend the distribution services fees it receives as it deems
appropriate on any activities primarily intended to result in the sale of those
shares.
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Under the Plan, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to that Fund. Uncovered distribution charges are equivalent
to all sales commissions previously due (plus interest), less amounts received
pursuant to the Plan and all contingent deferred sales charges previously paid
to Forum. At May 31, 1995, unrecovered distribution expenses for Adjustable U.S.
Government Reserve Fund, Government Income Fund, Income Fund and Total Return
Bond Fund were $6,576, $283,839, $84,881 and $20,863, respectively, or
approximately 1.62%, 2.66%, 2..58%, and 2.27% of each respective Fund's net
assets attributable to B Shares as of the same date.
The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to a Fund is not related directly to the
amount of expenses incurred by Forum in connection with providing distribution
services to the B Shares and may be higher or lower than those expenses. Forum
may be considered to have realized a profit under the Plan if, at any time, the
aggregate amounts of all distribution services fees and contingent deferred
sales charge payments previously made to Forum exceed the total expenses
incurred by Forum in distributing B Shares.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
in an amount equal to 0.25% of the average daily net assets of the Fund
attributable to the B Shares for providing personal services to shareholder
accounts. The maintenance fee may be paid by Forum to broker-dealers in an
amount not to exceed 0.25% of the value of B Shares held by the customers of the
broker-dealers. The distribution services fee and the maintenance fee are each
accrued daily and paid monthly and will cause a Fund's B Shares to have a higher
expense ratio and to pay lower dividends than A Shares of that Fund.
Notwithstanding the discontinuation of distribution services fees with respect
to a Fund, the Fund may continue to pay maintenance fees.
A Fund does not accrue future distribution services fees as a liability of the
Fund with respect to the B Shares or reduce the Fund's current net assets in
respect of distribution services fees which may become payable under the Plan in
the future.
In the event that the Plan is terminated or not continued with respect to a
Fund, the Fund will continue to pay distribution services fees to Forum (but
only with respect to sales that occurred prior to the termination or
discontinuance of the Plan) until the earlier of (a) four years after the date
of termination or discontinuance or (b) such time as there exist no uncovered
distribution charges attributable to that Fund under the Plan. In deciding
whether to purchase B Shares of a Fund, investors should consider that payments
of distribution services fees could continue until such time as there are no
uncovered distribution charges under the Plan attributable to that Fund. In
approving the Plan, the Board determined that there was a reasonable likelihood
that the Plan would benefit each Fund and its B shareholders.
Periods with a high level of sales of B Shares of a Fund accompanied by a low
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of B Shares of a Fund accompanied by a high
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to reduce uncovered distribution charges. A high level
of sales of B Shares during the first few years of operations, coupled with the
limitation on the amount of distribution services fees payable by a Fund with
respect to B Shares during any fiscal year, would cause a large portion of the
distribution services fees attributable to a sale of the B Shares to be accrued
and paid by the Fund to Forum with respect to those shares in fiscal years
subsequent to the years in which those shares were sold. The payment delay would
in turn result in the incurrence and payment of increased interest fees under
the Plan.
Contingent Deferred Sales Charge. B Shares of a Fund which are redeemed within
four years of purchase (two years of purchase in the case of the Adjustable U.S.
Government Reserve Fund) will be subject to contingent deferred sales charges
equal to the percentages set forth below of the dollar amount subject to the
charge. The amount of the contingent deferred sales charge, if any, will vary
depending on the number of years between the payment for the purchase of B
Shares of a Fund and their redemption.
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The contingent deferred sales charge will be assessed on an amount equal to the
lesser of the cost of the shares being redeemed and their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed on increases in
net asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from the reinvestment of dividends and distributions.
Contingent Deferred Sales Charge as a % of Dollar Amount Subject to Charge
Adjustable Government Income Fund,
U.S. Government Income Fund and
Year Since Purchase Reserve Fund Total Return Bond Fund
First 1.5% 3.0%
Second 0.75% 2.0%
Third None 2.0%
Fourth None 1.0%
Fifth None None
Sixth None None
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in a Fund will automatically be made first from any A
Shares in the Fund, second from B Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for over four years (two years in the case of the Adjustable U.S.
Government Reserve Fund), and fourth from the longest outstanding B Shares of
the Fund held for less than four years (two years in the case of the Adjustable
U.S. Government Reserve Fund).
No contingent deferred sales charge is imposed on (i) redemptions of shares
acquired through the reinvestment of dividends and distributions, (ii)
involuntary redemptions by a Fund of shareholder accounts with low account
balances, (iii) redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability and (iv) redemptions to effect a distribution (other than a lump
sum distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan. See the SAI for further information.
Conversion Feature. After six years (four years in the case of Adjustable U.S.
Government Reserve Fund) from the end of the calendar month in which the
shareholder's purchase order for B shares was accepted, the Shares will
automatically convert to A Shares of that Fund. The conversion will be on the
basis of the relative net asset values of the Shares, without the imposition of
any sales load, fee or other charge. For purposes of conversion, B Shares of a
Fund purchased by a shareholder through the reinvestment of dividends and
distributions will be considered to be held in a separate sub-account. Each time
any B Shares in the shareholder's account (other than those in the sub-account)
convert, an equal pro rata portion of those shares in the sub-account will also
convert. The conversion of B Shares to A Shares is subject to the continuing
availability of certain opinions of counsel and the conversion of a Fund's B
Shares to A Shares may be suspended if such an opinion is no longer available at
the time the conversion is to occur. In that event, no further conversions of
the Fund's B Shares would occur, and shares might continue to be subject to a
distribution services and maintenance fee for an indefinite period.
6. How to Sell Shares
General Information
Fund Shares may be sold (redeemed) at their net asset value on any Fund Business
Day subject to a contingent deferred sales charge imposed, in the case of A
Shares, on some redemptions made within two years of purchase and, in the case
of B Shares, on most redemptions made within four years of purchase (two in the
case of Adjustable U.S. Government Reserve Fund). There is no minimum period of
investment and no restriction on the frequency of redemptions.
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<PAGE>
Fund shares are redeemed as of the next determination of the Fund's net asset
value following acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends declared after
the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days after
the tender of the shares to a Fund except when the New York Stock Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings, for any period during which an emergency
exists as a result of which disposal by the Fund of its portfolio securities or
determination by the Fund of the value of its net assets is not reasonably
practicable and for such other periods as the SEC may permit.
Redemption Procedures
Shareholders who have invested directly in a Fund may redeem their Shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described above. Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be available until several weeks after a shareholder's application is
received. Shares for which certificates have been issued may not be redeemed by
telephone.
1. By Mail. Shareholders may redeem shares by sending a written request to
the Transfer Agent accompanied by any share certificate that may have been
issued to the shareholder to evidence the shares being redeemed. All written
requests for redemption must be signed by the shareholder with signature
guaranteed, and all certificates submitted for redemption must be endorsed by
the shareholder with signature guaranteed. See "How to Sell Shares - Other
Redemption Matters."
2. By Telephone. A shareholder who has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. See "How to Sell Shares - Other Redemption Matters."
3. By Bank Wire. For redemptions of more than $5,000, a shareholder who has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
Other Redemption Matters
Signature Guarantee. A signature guarantee is required for the following: any
endorsement on a share certificate and for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions, Automatic Investment or Withdrawal Plan, dividend election,
telephone redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any bank, broker-dealer, national securities exchange, credit union, savings
association or other
page 29 of 35
<PAGE>
eligible institution that is authorized to guarantee signatures, and is
acceptable to the Transfer Agent. Whenever a signature guarantee is required,
the signature of each person required to sign for the account must be
guaranteed.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust will employ reasonable procedures in order to
verify that telephone requests are genuine, including recording telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Trust did not employ such procedures, it could
be liable for losses arising from unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt of confirmation statements. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach the
Transfer Agent by telephone, requests may be mailed or hand-delivered to the
Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 ($5,000 in
the case of Adjustable U.S. Government Reserve Fund) immediately following any
redemption.
7. Other Shareholder Services
Exchanges
Shareholders of A Shares and B Shares may exchange their shares for A Shares and
B Shares, respectively, of the other funds of the Trust that offer those shares.
As of the date of this Prospectus, the funds of the Trust that offer A Shares
and B Shares, which are offered through separate prospectuses, are Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Stock Fund,
ValuGrowthSM Stock Fund, Small Company Stock Fund, Contrarian Stock Fund and
International Fund. It is anticipated that the Trust may in the future create
additional funds that will offer Shares which will be exchangeable with the
Funds' Shares. In addition, A Shares may be exchanged for Investor Shares of
Ready Cash Investment Fund and Municipal Money Market Fund of the Trust. B
Shares may be exchanged for Exchange Shares of Ready Cash Investment Fund.
Prospectuses for the shares of the funds listed above, as well as a current list
of the funds of the Trust that offer shares exchangeable with the Shares of the
Funds, can be obtained through Forum by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make. The Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees (other than contingent deferred sales charges) charged by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence.
The Funds and Federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in the shares at the time of the exchange transaction. Exchange procedures
may be amended materially or terminated by the Trust at any time upon 60 days'
notice to shareholders. See "Additional Purchase and Redemption Information" in
the SAI.
Sales Charges. The exchange of A Shares may result in additional sales charges.
If an exchange of A Shares is made into a fund that imposes an initial sales
charge, the shareholder is required to pay an amount equal to any excess of that
fund's initial sales charge attributable to the number of shares being acquired
in the exchange over any
page 30 of 35
<PAGE>
initial sales charge paid by the shareholder for the shares being exchanged. For
example, if a shareholder paid a 2% initial sales charge in connection with a
purchase of shares and then exchanged those shares into A Shares of another fund
with a 3% initial sales charge, the shareholder would pay an additional 1% sales
charge on the exchange. A Shares acquired through the reinvestment of dividends
or distributions are deemed to have been acquired with a sales charge rate equal
to that applicable to the shares on which the dividends or distributions were
paid.
Shares of a Fund ("Original Shares") may be exchanged without the payment of any
contingent deferred sales charge. A and B Shares acquired as a result of such
exchange ("New Shares") and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Original Shares as if
those shares were being redeemed at that time. For purposes of computing both
the contingent deferred sales charge payable upon redemption of the New Shares
and, in the case of B Shares, the time remaining before the New B Shares convert
to A Shares of that Fund, the deferred sales charge and the time remaining
applicable to the Original Shares will apply to the New Shares rather than the
deferred sales charge and time remaining that would otherwise apply. The
deferred sales charge and time remaining applicable to Shares first purchased by
a shareholder will apply to New Shares resulting from both an initial and any
subsequent exchanges.
1. Exchanges By Mail. Exchanges may be made by sending a written request to
the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. Exchanges By Telephone. A shareholder who has elected telephone exchange
privileges may make a telephone exchange request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See "How to
Sell Shares - Other Redemption Matters."
Automatic Investment Plan
Under the Funds' Automatic Investment Plan, shareholders may authorize monthly
amounts of $50 or more to be withdrawn automatically from the shareholder's
designated bank account (other than passbook savings) and sent to the Transfer
Agent for investment in either A or B Shares of a Fund. Shareholders wishing to
use this plan must complete an application which may be obtained by writing or
calling the Transfer Agent. The Trust may modify or terminate the automatic
investment plan with respect to any shareholder in the event that the Trust is
unable to settle any transaction with the shareholder's bank. If the Automatic
Investment Plan is terminated before the shareholder's account totals $1,000,
the Trust reserves the right to close the account in accordance with the
procedures described under "How to Sell Sharess - Other Redemption Matters."
Individual Retirement Accounts
The Funds may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). An IRA account application form
may be obtained by contacting the Trust at 800-338-1348 or 612-667-8833.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, the deduction will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
Automatic Withdrawal Plan
A shareholder whose Shares in a single account total $1,000 or more may
establish a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
page 31 or 35
<PAGE>
annual basis. Under the withdrawal plan, sufficient shares in the shareholder's
account are redeemed to provide the amount of the periodic payment and any
taxable gain or loss is recognized by the shareholder upon redemption of the
shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than $1,000 at any time.
Reopening Accounts
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
8. Dividends and Tax Matters
Dividends
Dividends of the Funds' net investment income are declared and paid monthly.
Distributions of net capital gain, if any, realized by a Fund are distributed
annually. Dividends paid by a Fund with respect to each class of shares of the
Fund will be calculated in the same manner at the same time on the same day. The
per share dividends on a Fund's B Shares will be lower than the per share
dividends on A Shares as a result of the distribution services fees and
maintenance fees applicable to B Shares.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for Federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
Taxes
Each Fund intends to continue to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986 (the
"Code"). As such, the Funds will not be liable for Federal income and excise
taxes on the net investment income and capital gain distributed to their
shareholders. Because each Fund intends to distribute all of its net investment
income and net capital gain each year, each Fund should thereby avoid all
Federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including realized
net short-term capital gain) are taxable to shareholders of the Fund as ordinary
income notwithstanding that the dividends are reinvested in additional shares of
the Fund.
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<PAGE>
Distributions of net long-term capital gain, if any, realized by a Fund are
taxable to shareholders of the Fund as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If a shareholder holds shares for six months or less and during
that period receives a distribution taxable to the shareholder as long-term
capital gain, any loss realized on the sale of the shares during that six-month
period would be a long-term capital loss to the extent of the distribution. Any
distribution of capital gain received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of the shares by the amount of
the distribution. Furthermore, a distribution made shortly after the purchase of
shares by a shareholder, although in affect a return of capital to that
particular shareholder, would be taxable to the shareholder as described above.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each year.
9. Other Information
Banking Law Matters
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent, and custodian to an investment
company and to purchase shares of the investment company as agent for and upon
the order of a customer and, in connection therewith, to retain a sales charge
or similar payment. Counsel to the Trust believes that Norwest and any other
bank or bank affiliate that may serve as a Processing Organization or perform
sub-transfer agent or similar services or purchase shares as agent for its
customers may perform the services described in this Prospectus for the Trust
and its shareholders without violating applicable Federal banking laws or
regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If a
bank or bank affiliate were prohibited from so acting, changes in the operation
of the Trust could occur and a shareholder serviced by a bank or bank affiliate
may no longer be able to avail itself of those services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
Determination of Net Asset Value
The Trust determines the net asset value per share of each Fund as of 4:00 P.M.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's net
assets (i.e., the value of its securities and other assets less its liabilities)
by the number of shares outstanding at the time the determination is made.
Securities owned by a Fund for which market quotations are readily available are
valued at current market value or, in their absence, at fair value as determined
by the Board. The Trust does not determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary.
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<PAGE>
Performance Information
A Fund's performance may be quoted in advertising in terms of yield or total
return. All performance information is based on historical results and is not
intended to indicate future performance. A Fund's yield is a way of showing the
rate of income the Fund earns on its investments as a percentage of the Fund's
share price. To calculate standardized yield, a Fund takes the interest income
it earned from its investments for a 30-day period (net of expenses), divides it
by the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. A Fund's total return shows its overall change in
value, including changes in share price and assuming all the Fund's dividends
and distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gain or loss. Published yield quotations
are, and total return figures may be, based on amounts actually invested in a
Fund net of sales loads that may be paid by an investor. A computation of yield
or total return that does not take into account the sales load paid by an
investor will be higher than a computation based on the public offering price of
shares purchased that take into account payment of the sales load.
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Funds may be compared to recognized indices of market performance. The
comparative material found in the Funds' advertisements, sales literature or
reports to shareholders may contain performance ratings. This material is not to
be considered representative or indicative of future performance. All
performance information for a Fund is calculated on a class basis.
The Trust and Its Shares
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust. The Trust has an unlimited number of authorized
shares of beneficial interest. The Board may, without shareholder approval,
divide the authorized shares into an unlimited number of separate portfolios or
series (such as the Funds) and may divide portfolios or series into classes of
shares (such as A and B Shares), and the costs of doing so will be borne by the
Trust. Currently the authorized shares of the Trust are divided into thirty-one
separate series.
Other Classes of Shares. In addition to the Shares, each Fund may create and
issue shares of other classes of securities. Each Fund currently offers three
classes of shares: A Shares; B Shares; and I Shares. I Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates without any sales charges or distribution service
or maintenance fees. Each class of a Fund may have a different expense ratio and
different sales charges (including distribution fees) and each class'
performance will be affected by its expenses and sales charges. For more
information on any other class of shares of the Funds investors may contact the
Transfer Agent at 612-667-8833 or 800-338-1348. Investors may also contact their
Norwest sales representative or the Funds' distributor to obtain information
about the other classes. Sales personnel of broker-dealers and other financial
institutions selling the Fund's shares may receive differing compensation for
selling A, B and I Shares of the Funds.
Shareholder Voting and Other Rights. Each share of each fund of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertain to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular
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<PAGE>
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio or class, as appropriate. Delaware law does not
require the Trust to hold annual meetings of shareholders, and it is anticipated
that shareholder meetings will be held only when specifically required by
Federal or state law. Shareholders have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the Shares
of a Fund. Accordingly, these shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement of
Additional Information and the Funds' official sales literature in connection
with the offering of the Funds' shares, and if given or made, such information
or representations must not be relied upon as having been authorized by the
Trust. This Prospectus does not constitute an offer in any state in which, or to
any person to whom, such offer may not lawfully be made.
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<PAGE>
Prospectus
October 1, 1995
This prospectus offers A Shares and B Shares of Income Stock Fund, ValuGrowthSM
Stock Fund, Small Company Stock Fund, Contrarian Stock Fund and International
Fund (each a "Fund" and collectively the "Funds"). The Funds are separate
diversified equity portfolios of Norwest Advantage Funds (the "Trust"), which is
a registered open-end management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated October 1, 1995, as amended from time to
time, which contains more detailed information about the Trust and each of the
Funds and is incorporated into this Prospectus by reference. An investor may
obtain a copy of the SAI without charge by contacting the Trust's distributor,
Forum Financial Services, Inc., at 61 Broadway, New York, New York 10006 or by
calling 212-363-3300. Investors should read this Prospectus and retain it for
future reference.
International Fund seeks to achieve its investment objective by investing all of
its investable assets in International Portfolio (the "Portfolio"), a separate
portfolio of a registered open-end management investment company with an
identical investment objective. See "Prospectus Summary" and "Other Information
- - Core Trust Structure."
NORWEST ADVANTAGE FUNDS IS A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER
GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF,
OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA, N.A. OR ANY OTHER BANK OR
BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1. Prospectus Summary
Highlights of the Funds
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
Investment Objectives and Policies
Income Stock Fund seeks current income and growth of income and, consistent with
those objectives, long-term capital growth. This objective is pursued by
investing primarily in equity securities of companies that, in the view of the
Fund's investment adviser, offer earnings growth potential while paying current
dividends.
ValuGrowth Stock Fund seeks capital appreciation. This objective is pursued by
investing in a diversified portfolio of common stock and securities convertible
into common stock. The Fund invests primarily in medium- and large-
page 1 of 35
<PAGE>
capitalization companies that, in the view of the Fund's investment adviser,
possess above average growth prospects and appear to be undervalued.
Small Company Stock Fund seeks long-term capital appreciation. This objective is
pursued by investing primarily in the common stock of small-and-medium size
domestic companies that have a market capitalization well below that of the
average company in the Standard & Poor's 500 Composite Stock Price Index.
Contrarian Stock Fund seeks capital appreciation. This objective is pursued by
investing primarily in common stocks for which the Fund's investment adviser
believes there is significant potential for price appreciation.
International Fund seeks long-term capital appreciation. This objective is
pursued by investing, directly or indirectly, in high quality companies based
outside the United States. The Fund currently seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio, a series
of Core Trust (Delaware) ("Core Trust"), itself a registered open-end management
investment company. Accordingly, the investment experience of the Fund will
correspond directly with the investment experience of the Portfolio. See "Other
Information - Core Trust Structure." The Portfolio has the same investment
objective and policies as the Fund.
Investment Advisers
The Funds' investment adviser (the "Adviser") is Norwest Investment Management,
a part of Norwest Bank Minnesota, N.A. ("Norwest"). The Adviser provides
investment advice to various institutions, pension plans and other accounts and,
as of June 30, 1995, managed assets totaling approximately $16 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."
Small Company Stock Fund. Crestone Capital Management, Inc. ("Crestone"), an
investment advisory subsidiary of Norwest, is the investment subadviser of Small
Company Stock Fund. Crestone provides investment advice regarding companies with
small capitalization to various clients, including institutional investors. See
"Management - Investment Advisory Services."
International Fund. As International Fund invests all of its assets in the
Portfolio, the Fund does not actively employ the Adviser to manage an investment
portfolio. Rather, all investment advisory services are conducted for the
Portfolio by Schroder Capital Management International Inc. ("Schroder"), the
Portfolio's investment adviser. Schroder, a registered investment adviser under
the Investment Advisers Act of 1940, specializes in providing international
investment advice to various clients. See "Management - Investment Advisory
Services."
Fund Management
The manager of the Trust and distributor of its shares is Forum Financial
Services, Inc. ("Forum"), a registered broker-dealer and member of the National
Association of Securities Dealers, Inc. Forum also serves as administrator of
Core Trust. Norwest provides certain administrative services to International
Fund. See "Management - Management and Distribution Services."
Shares of the Funds
Each Fund currently offers three separate classes of shares: A class ("A
Shares"), B class ("B Shares") and I class ("I Shares"). A Shares and B Shares
are sold through this Prospectus and are collectively referred to as the
"Shares."
A Shares. A Shares are offered at a price equal to their net asset value
plus a sales charge imposed at the time of purchase or, in some cases, a
contingent deferred sales charge imposed on redemptions made within two years of
purchase.
B Shares. B Shares are offered at a price equal to their net asset value
plus a contingent deferred sales charge imposed on most redemptions made within
six years of purchase. B Shares pay a distribution services fee at an annual
rate of up to 0.75%, and a maintenance fee in an amount equal to 0.25%, of the B
Shares' average daily net assets. B Shares automatically convert to A Shares of
the same Fund seven years after the end of the calendar month in which the B
Shares were originally purchased.
page 2 of 35
<PAGE>
The choice of A Shares or B Shares permits each investor to purchase those
shares that the investor believes to be most beneficial given the amount
purchased, the length of time the investor expects to hold the shares and other
circumstances. A Shares will normally be more beneficial to the investor who
qualifies for reduced initial sales charges as described below. See "How to Buy
Shares - Alternative Distribution Arrangements."
I Shares are offered by a separate prospectus to fiduciary, agency and custodial
clients of bank trust departments, trust companies and their affiliates. Shares
of each class of a Fund have identical interests in the investment portfolio of
the Fund and, with certain exceptions, have the same rights. See "Other
Information - The Trust and Its Shares."
How to Buy and Sell Shares
Shares may be purchased or redeemed by mail, by bank wire and through an
investor's broker-dealer or other financial institution. The minimum initial
investment in Shares is $1,000. The minimum subsequent investment is $100. See
"How to Buy Shares" and "How to Sell Shares."
Exchanges
Shareholders may exchange A Shares and B Shares for A Shares and B Shares,
respectively, of certain other funds of the Trust. In addition, A Shares may be
exchanged for investor class shares of certain money market funds of the Trust
and B Shares may be exchanged for exchange class shares of Ready Cash Investment
Fund of the Trust. See "Other Shareholder Services - Exchanges."
Shareholder Features
Each Fund offers an Automatic Investment Plan, Automatic Withdrawal Plan and
Directed Dividend Option. Purchases of A Shares may be subject to Rights of
Accumulation, Cumulative Quantity Discounts or a Reinstatement Privilege. See
"Other Shareholder Services" and "How to Buy Shares - Alternative Distribution
Arrangements."
Dividends
Dividends of International Fund's net investment income are declared and paid
annually. Dividends of each of the other Fund's net investment income are
declared and paid monthly. Each Fund's net capital gain, if any, is distributed
annually. All dividends and distributions are reinvested in additional Fund
shares unless the shareholder elects to have them paid in cash. See "Dividends
and Tax Matters."
Certain Investment Considerations and Risk Factors
There can be no assurance that any Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Upon redemption, an investment in a
Fund may be worth more or less than its original value.
All investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending and
other investment techniques. See "Investment Objectives and Policies -
Additional Investment Policies and Risk Considerations." Small Company Stock
Fund's policy of investing in smaller companies and Contrarian Stock Fund's
policy of investing in securities that may be out of favor with many
institutional investors entail certain risks in addition to those normally
associated with investments in equity securities. See "Investment Objectives and
Policies - Small Company Stock Fund" and " - Contrarian Stock Fund."
International Fund's policy of investing directly or indirectly in foreign
issuers entails certain risks in addition to those normally associated with
investments in equity securities. See "Investment Objectives and Policies -
International Fund - Foreign Investment Considerations and Risk Factors." By
investing solely in the Portfolio, International Fund may achieve certain
efficiencies and economies of scale. Nonetheless, this investment could also
have potential adverse effects on the Fund. Investors in the Fund should
consider these risks, as described under "Other Information - Core Trust
Structure."
page 3 of 35
<PAGE>
Expense Information
The purpose of the table below and the table to the right is to assist investors
in understanding the expenses that an investor in Shares of a Fund will bear
directly or indirectly.
Shareholder Transaction Expenses
(applicable to each Fund)
A B
Shares(1) Shares(2)
Maximum sales charge imposed on purchases (as a percentage of public offering
price) 4.5% Zero
Maximum deferred sales charge (as a percentage of the lesser of original
purchase price or redemption proceeds) Zero 4.0%
Exchange Fee Zero Zero
Annual Operating Expenses(3)
(as a percentage of average daily net assets after applicable fee waivers and
expense reimbursements)
<TABLE>
<CAPTION>
Income Stock ValuGrowth Stock Small Company Contrarian Stock International
Fund Fund Stock Fund Fund Fund(4)
A B A B A B A B A B
Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.37% 0.37% 0.80% 0.80% 0.00% 0.00% 0.40% 0.40% 0.45% 0.45%
Rule 12b-1 Fees(5) None 0.75% None 0.75% None 0.61% None 0.75% Zero 0.75%
Other Expenses 0.63% 0.63% 0.40% 0.40% 0.53% 0.66% 0.61% 0.63% 1.05% 1.05%
Total Operating Expenses 1.00% 1.75% 1.20% 1.95% 0.53% 1.27% 1.01% 1.78% 1.50% 2.25%
</TABLE>
(1) Sales charge waivers and reduced sales charge plans are available for A
Shares. If A Shares purchased without an initial sales charge (purchases of
$1,000,000 or more) are redeemed within two years after purchase, a contingent
deferred sales charge of up to 1.0% will be applied to the redemption. See "How
to Buy Shares - Alternative Distribution Arrangements."
(2) The maximum 4.0% contingent deferred sales charge on B Shares applies to
redemptions during the first year after purchase; the charge declines
thereafter, becoming 3.0% during the second and third years, 2.0% during the
fourth and fifth years, 1.0% during the sixth year and reaches zero the
following year. See "How to Buy Shares - Alternative Distribution Arrangements."
(3) For a further description of the various expenses associated with the
Shares, see "Management." Expenses associated with the I Shares of a Fund differ
from those of the Shares listed in the table shown above. The amounts of
expenses for Income Stock Fund, ValuGrowth Stock Fund, Small Company Stock Fund,
and Contrarian Stock Fund are based on amounts incurred during the Funds' most
recent fiscal year ended May 31, 1995. The amounts of expenses for International
Fund are based on estimated amounts for the Fund's first fiscal year of
operations ending October 31, 1995. Absent waivers, the Investment Advisory Fee
for A Shares and B Shares of Income Stock Fund, ValuGrowth Stock Fund and
Contrarian Stock Fund would be 0.80% and for A Shares and B Shares of Small
Company Stock Fund would be 1.00%.
With respect to A Shares, absent expense reimbursements and fee waivers
(and estimated expense reimbursements and fee waivers in the case of
International Fund) the expenses of Income Stock Fund, ValuGrowth Stock Fund,
Small Company Stock Fund, Contrarian Stock and International Fund would be:
Other Expenses, 0.71%, 0.63%, 1.32%, 2.16% and 1.10%, respectively; and Total
Operating Expenses, 1.51%, 1.43%, 2.32%, 2.96% and 1.55%, respectively. With
respect to B Shares, absent expense reimbursements and fee waivers the expenses
of Income Stock Fund, ValuGrowth Stock Fund, Small Company Stock Fund,
Contrarian Stock Fund and International
page 4 of 35
<PAGE>
Fund would be: Other Expenses, 1.02%, 0.71%, 1.56%, 3.12% and 1.10%,
respectively; and Total Operating Expenses, 2.82%, 2.51%, 3.56%, 4.92% and
2.55%, respectively. Other Expenses include transfer agency and custodial fees
payable to Norwest at a combined annual rate of up to 0.30% of each Fund's
average daily net assets attributable to A Shares and B Shares.
(4) The expenses for International Fund as listed above include the Fund's pro
rata portion of all operating expenses of the Portfolio, which will be borne
indirectly by Fund shareholders. The Trust's Board of Trustees believes that the
aggregate per share expenses of International Fund and the Portfolio will be
approximately equal to the expenses the Fund would incur if its assets were
invested directly in foreign securities. Investment Advisory Fees are those
incurred by the Portfolio; as long as its assets are invested in the Portfolio,
the Fund pays no investment advisory fees directly.
(5) Absent waivers, the Rule 12b-1 Fees would be 1.00% for B Shares of each
Fund. Long-term shareholders of B Shares may pay aggregate sales charges
totaling more than the economic equivalent of the maximum front-end sales
charges permitted by the Rules of Fair Practice of National Association of
Securities Dealers, Inc.
Example
At right is a hypothetical example that indicates the dollar amount of expenses
that an investor would pay, assuming a $1,000 investment in a Fund's Shares, a
5% annual return and reinvestment of all dividends and distributions.
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
Funds' projected returns; rather, it is required by government regulation. The
example assumes deduction of the maximum initial sales charge for A Shares,
deduction of the contingent deferred sales charge for B Shares applicable to a
redemption at the end of the period and the conversion of B Shares to A Shares
at the end of seven years. The example should not be considered a representation
of past or future expenses or return. Actual expenses and return may be greater
or less than indicated.
Hypothetical Expense Example
1 Year 3 Years 5 Years 10 Years
Income Stock Fund
A Shares 55 75 98 162
B Shares
Assuming redemption at the end
of the period 58 85 115 -
Assuming no redemption 18 55 95 -
ValuGrowth Stock Fund
A Shares 57 81 108 184
B Shares
Assuming redemption at the end
of the period 60 91 125 -
Assuming no redemption 20 61 105 -
Small Company Stock Fund
A Shares 50 61 73 108
B Shares
Assuming redemption at the end
of the period 53 70 90 -
Assuming no redemption 13 40 70 -
Contrarian Stock Fund
A Shares 55 76 98 163
B Shares
Assuming redemption at the end
of the period 58 86 116 -
Assuming no redemption 18 56 96 -
International Fund
A Shares 60 90 123 216
B Shares
page 5 of 35
<PAGE>
Assuming redemption at the end
of the period 63 100 140 -
Assuming no redemption 23 70 120 -
2. Financial Highlights
The following tables provide financial highlights for each Fund. This
information represents selected data for a single outstanding A and B Share of
each Fund for the periods shown. Information for the years ended May 31, 1994,
and May 31, 1995, was audited by KPMG Peat Marwick LLP, independent auditors.
The information for prior periods was audited by Deloitte & Touche LLP,
independent auditors. Information for International Fund's semi-annual period
ended April 30, 1995, is unaudited. The Funds' financial statements for the
fiscal year ended May 31, 1995, (except International Fund) and independent
auditors' report thereon are contained in the Annual Report of the Funds and are
incorporated by reference into the SAI. Further information about each Fund's
(other than International Fund's) performance is contained in the Annual Report,
which may be obtained from the Trust without charge. International Funds'
financial statements for the semi-annual period ended April 30, 1995, are
contained in the Semi-Annual Report of International Fund and are incorporated
by reference into the SAI. Effective May 31, 1992, ValuGrowth Stock Fund changed
its fiscal year end to May 31. Prior thereto, the fiscal year end was November
30.
<TABLE>
<CAPTION>
ValuGrowth Stock Fund
A Shares B Shares
Six
Months
Ended
Year Ended May 31 May 31 Year Ended November 30 Year Ended May 31
1995 1994 1993 1992 1991 1990 1989 1988(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value
per Share $17.17 $17.27 $16.30 $14.48 $11.67 $12.67 $10.03 $10.00 $17.10 $17.12
Net Investment Income 0.17 0.10 0.17 0.09 0.18 0.21 0.18 0.15 0.07 0.07
Net Realized and Unrealized
Gain (Loss) on Investments 1.66 0.19 1.34 1.83 2.82 (0.55) 2.61 0.03 1.61 0.23
Dividends from Net Investment
Income (0.18) (0.17) (0.17) (0.10) (0.19) (0.21) (0.15) (0.15) (0.13) (0.10)
Distributions from Net Realized
Gains - (0.22) (0.37) - - (0.45) - - - (0.22)
Ending Net Asset Value per Share $18.82 $17.17 $17.27 $16.30 $14.48 $11.67 $12.67 $10.03 $18.65 $17.10
Ratios to Average Net Assets:
Expenses(b) 1.20% 1.20% 1.20% 1.19%(c) 1.19% 1.20% 1.20% 1.19%(c) 1.95% 1.95%(c)
Net Investment Income 1.01% 1.06% 1.02% 1.34%(c) 1.57% 1.88% 1.58% 1.84%(c) 0.28% 0.25%(c)
Total Return 10.72% 1.68% 9.32% 26.46%(c) 25.84% (2.91%) 28.00% 2.04%(c) 9.88% 2.36%(c)
Portfolio Turnover Rate 63.82% 86.07% 57.34% 29.50% 31.17% 38.67% 65.89% 30.90% 63.82% 86.07%
Net Assets at the End of
Period (000's omitted) $12,138 $12,922 $109,669 $68,659 $4,853 $750 $411 $281 $3,569 $2,218
page 6 of 35
<PAGE>
(a) The Fund commenced operations on January 8, 1988 and commenced the offering of B Shares on August 5, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.43% 1.43% 1.42% 1.64%(c) 4.33% 11.73% 8.38% 2.50%(c) 2.51% 2.55%(c)
(c) Annualized.
</TABLE>
<TABLE>
<CAPTION>
Income Stock Fund Small Company Stock Fund
A Shares B Shares A Shares B Shares
Year Ended May 31 Year Ended May 31 Year Ended May 31 Year Ended May 31
1995 1994(a) 1995 1994(a) 1995 1994(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value
per Share $9.53 $10.00 $9.51 $9.66 $9.84 $10.00 $9.82 $10.00
Net Investment Income 0.27 0.28 0.21 0.20 0.12 0.07 0.07 0.06
Net Realized and Unrealized
Gain (Loss) on Investments 1.97 (0.47) 1.96 (0.13) 0.87 (0.15) 0.84 (0.17)
Dividends from Net Investment
Income (0.27) (0.28) (0.22) (0.22) (0.11) (0.08) (0.09) (0.07)
Distributions from Net Realized
Gains (0.01) - (0.01) - (0.08) - (0.08) -
Ending Net Asset Value per Share $11.49 $9.53 $11.45 $9.51 $10.64 $9.84 $10.56 $9.82
Ratios to Average Net Assets:
Expenses(b) 1.00% 0.67% 1.75% 1.65%(c) 0.53% 0.22%(c) 1.27% 0.98%(c)
Net Investment Income 2.66% 3.15% 2.08% 2.37%(c) 1.14% 1.95%(c) 0.38% 1.27%(c)
Total Return 23.87% (1.92%) 23.12% 0.87%(c) 10.19% (1.98%)(c)9.31% (2.77%)(c)
Portfolio Turnover Rate 8.93% 57.50% 8.93% 57.50% 68.09% 14.98% 68.09% 14.98%
Net Assets at the End of Period
(000's omitted) $14,292 $11,668 $3,115 $802 $1,540 $265 $963 $195
(a) Income Stock Fund commenced operations on June 1, 1993 and commenced the offering of B Shares on August 4, 1993. Small
Company Stock Fund commenced operations on December 31, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.51% 1.83% 2.82% 2.99%(c) 2.32% 7.22%(c) 3.56% 9.09%(c)
(c) Annualized.
</TABLE>
<TABLE>
<CAPTION>
International Fund Contrarian Stock Fund
A Shares A Shares B Shares
April 12, 1995 to Year Ended May 31 Year Ended May 31
April 30, 1995(a) 1995 1994(a) 1995 1994(a)
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value
per Share $16.68 $9.71 $10.00 $9.69 $10.00
Net Investment Income 0.01 0.11 0.06 0.07 0.05
Net Realized and Unrealized Gain
(Loss) on Investments 0.44 1.19 (0.28) 1.16 (0.30)
page 7 of 35
<PAGE>
Dividends from Net Investment
Income - (0.11) (0.07) (0.08) (0.06)
Distributions from Net Realized
Gains - (0.003) - (0.003) -
Ending Net Asset Value per Share $17.13 $10.90 $9.71 $10.84 $9.69
Ratios to Average Net Assets:
Expenses(b) 1.62%(c)(d) 1.01% 0.61%(d) 1.78% 1.28%(d)
Net Investment Income 1.50%(d) 1.05% 1.77%(d) 0.35% 1.14%(d)
Total Return (33.32%)(d) 13.52% (5.35%)(d) 12.78% (6.05%)(d)
Portfolio Turnover Rate 3.03% 30.32% 2.67% 30.32% 2.67%
Net Assets at the End of Period
(000's omitted) $12 $572 $144 $463 $75
(a) International Fund, the fiscal year end of which is October 31, commenced operations on November 12, 1994 and commenced to
offering of A Shares on April 12, 1995. As of April 30, 1995, International Fund had not yet commenced the offering of B Shares.
Contrarian Stock Fund commenced operations on December 31, 1993.
(b) During the periods, various fees and expenses were waived and reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would have been:
Expenses 1.46%(d) 2.96% 10.66%(d) 4.92% 20.87%(d)
(c) Includes expenses allocated from International Portfolio of Core Trust (Delaware) of 0.80%, net of waivers of 0.08%, and
reflects International Fund fee waivers of 0.05%.
(d) Annualized.
</TABLE>
3. Investment Objectives and Policies
Income Stock Fund
Investment Objective. The investment objective of the Fund is to seek current
income and growth of income and, consistent with those objectives, long-term
capital growth. The Fund pursues this objective by investing primarily in equity
securities of companies that, in the view of the Adviser, offer earnings growth
potential while paying current dividends. Over time, continued earnings growth
in a company leads to higher dividends and strengthened capital value of the
company's stock. There can be no assurance that the Fund will achieve its
investment objective.
Investment Policies. The Fund expects to invest primarily in equity securities
paying current dividends although it may purchase securities that are not paying
dividends but offer prospects for growth of capital or future income. The Fund
may invest in any combination of common stock, securities convertible into
common stock, preferred stock and fixed income securities. However, under normal
market conditions the Fund's fixed income positions (not including convertible
securities) will not exceed 20% of the Fund's total assets.
The Fund seeks to achieve its investment objective by investing in a broadly
diversified portfolio which offers above average dividend and earnings growth
potential. The Fund's emphasis on current yield and dividend and earnings growth
potential is based upon the investment philosophy that long-term performance is
based upon both current yield and capital appreciation derived from earnings and
dividend growth. Dividend income is generally a significant contributor to the
returns available from investing in stocks over the long-term, and the Adviser
believes that dividend income is often more consistent as a source of investment
return than capital appreciation. Moreover, the price volatility of stocks with
relatively higher yields tends to be less than stocks that pay out little
dividend income, affording the Fund the potential for greater principal
stability. While current yield is an important factor in selecting stocks, the
Adviser believes that long-term capital appreciation is generally associated
with the stocks of companies whose dividend income and earnings are growing. The
Fund, therefore, seeks to identify and purchase stocks with above average
earnings and dividend growth potential.
page 8 of 35
<PAGE>
In selecting investments for the Fund, the Adviser will emphasize fundamental
analysis of company operating trends, balance sheet developments and industry
conditions. Valuation, yield, dividend and earnings growth potential and
portfolio diversification will all be factors in purchase decisions. The
decision to sell a security will be based upon valuation, deterioration of
fundamental investment characteristics or the opportunity to purchase another
stock judged to have better fundamental investment characteristics.
ValuGrowth Stock Fund
Investment Objective. The investment objective of the Fund is to seek capital
appreciation by investing in a diversified portfolio of common stock and
securities convertible into common stock which may be rated or unrated. There
can be no assurance that the Fund will achieve its investment objective.
Investment Policies. The Fund invests primarily in medium- and large-
capitalization companies (companies with a market capitalization of greater than
$500 million) that, in the view of the Adviser, possess above average growth
characteristics and appear to be undervalued. Stock market capitalizations are
calculated by multiplying the total number of common shares outstanding by the
market price per share of the stock.
The Fund seeks to identify and invest in companies whose earnings and dividends
the Adviser believes will grow both faster than inflation and faster than the
economy in general and whose growth the Adviser believes has not yet been fully
reflected in the market price of the companies' shares. In seeking these
investments, the Adviser relies primarily on a company by company analysis
(rather than on a broader analysis of industry or economic sector trends) and
considers such matters as the quality of a company's management, the existence
of a leading or dominant position in a major product line or market, the
soundness of the company's financial position, and the maintenance of a
relatively high rate of return on invested capital and shareholder's equity.
Once companies are identified as possible investments, the Adviser applies a
number of valuation measures to determine the relative attractiveness of each
company and selects those companies whose shares are most attractively priced.
The Fund may also invest in selected companies that the Adviser regards as
"special situations." Special situation companies often have the potential for
significant future earnings growth but have not performed well in the recent
past. These situations may include management turnarounds, corporate or asset
restructurings, or significantly undervalued assets. Such investments are the
exception, not the rule, and must satisfy the Adviser's valuation parameters.
Small Company Stock Fund
Investment Objective. The Fund's investment objective is long-term capital
appreciation. There can be no assurance that the Fund will achieve its
investment objective.
Investment Policies. The Fund invests primarily in the common stock of small-
and medium-size domestic companies which have a market capitalization well below
that of the average company in the Standard & Poor's 500 Composite Stock Price
Index. Small and medium companies are those whose market capitalization is less
than $1 billion at the time of the Fund's purchase, although it is anticipated
that investments primarily will be in companies with capitalization of less than
$750 million. Market capitalization refers to the total market value of a
company's outstanding shares of common stock, calculated by multiplying the
market value of the company's shares by the total number of shares outstanding.
In selecting securities for the Fund, the Adviser seeks securities with
significant price appreciation potential, and attempts to identify companies
that show above average growth, as compared to long-term overall market growth.
The companies in which the Fund invests may be in a relatively early stage of
development or may produce goods and services which have favorable prospects for
growth due to increasing demand or developing markets. Frequently, such
companies have a small management group and single product or product line
expertise that, in the view of the Adviser, may result in an enhanced
entrepreneurial spirit and greater focus which may allow the firms to
page 9 of 35
<PAGE>
be successful. The Adviser believes that such companies may develop into
significant business enterprises and that an investment in such companies offers
a greater opportunity for capital appreciation than an investment in larger more
established entities. Small companies frequently retain a large part of their
earnings for research, development and investment in capital assets, however, so
that the prospects for immediate dividend income are limited.
The securities in which the Fund invests may be listed on a securities exchange,
included in the National Association of Securities Dealers Automated Quotation
(NASDAQ) National Market System, or traded in the over-the-counter securities
market. Equity securities owned by the Fund that are traded in the over-the-
counter market or on a regional securities exchange may not be traded every day
or in the volume typical of securities trading on a national securities
exchange. As a result, disposition by the Fund of a portfolio security, to meet
redemption requests by shareholders or otherwise, may require the Fund to sell
these securities at a discount from market prices, to sell during periods when
disposition is not desirable, or to make many small sales over a lengthy period
of time.
Additional Investment Considerations and Risk Factors. Investments in smaller
companies generally involve greater risks than investments in larger companies
due to the small size of the issuer and the fact that the issuer may have
limited product lines, less access to financial markets and less management
depth. In addition, many of the securities of these firms trade less frequently
and in lower volumes than securities issued by larger firms. The result is that
the short-term price volatility of those small company securities is greater
than the price volatility of the securities of larger, more established
companies that are widely held. The securities of small companies may also be
more sensitive to market changes generally than the securities of large
companies.
Contrarian Stock Fund
Investment Objective. The investment objective of the Fund is to seek capital
appreciation by investing primarily in common stocks for which the Adviser
believes there is significant potential for price appreciation. There can be no
assurance that the Fund will achieve its investment objective.
Investment Policies. The basic premise of the Adviser's "Contrarian" investment
approach is to purchase stocks whose prices are temporarily depressed, either
because they are out-of-favor with, or simply ignored by, the investment
community. The Adviser believes that security prices change more than
fundamental investment values, as consensus thinking often results in severe
undervaluation of securities whose immediate problems are obvious and whose
longer term prospects are, therefore, viewed too negatively. This consensus
pessimism can create investment opportunity.
The basis of the Adviser's contrarian investment approach is the comparison of
the value and the price of a security. The Adviser generally analyzes a
security's value in terms of recovery earnings and potential share price over a
three-year investment time horizon. Typically, stocks that the Adviser considers
for purchase will tend to have significantly depressed prices and relatively low
price/book value ratios.
Additional Investment Considerations and Risk Factors. The Fund's policy of
investing in securities that may be temporarily out of favor differs from the
investment approach followed by many other mutual funds with a similar
investment objective. Such mutual funds typically do not invest in securities
that have declined sharply in price, are not widely followed, or are issued by
companies that may have reported poor earnings or that may have suffered a
cyclical downturn in business. The Adviser believes, however, that purchasing
securities depressed by temporary factors may provide investment returns
superior to those obtained when premium prices are paid for issues currently in
favor.
International Fund
The Fund is designed for investors who desire to achieve international
diversification of their investments by participating in foreign securities
markets. Because international investments generally involve risks in addition
to those risks associated with investments in the United States, the Fund should
be considered only as a vehicle for
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international diversification and not as a complete investment program. The
following investment objective and policies are those of the Fund and of the
Portfolio. As the Fund has the same investment policies as the Portfolio and
currently invests all of its assets in the Portfolio, investment policies are
discussed with respect to the Portfolio only.
Investment Objective. The investment objective of the Fund is to provide long-
term capital appreciation by investing directly or indirectly in high quality
companies based outside the United States. The Fund currently pursues its
investment objective by investing all of its investable assets in the Portfolio,
which has the same investment objective. There can be no assurance that the Fund
or the Portfolio will achieve its investment objective.
Investment Policies. Under normal circumstances, the Portfolio will invest
substantially all of its assets, but not less than 65% of its net assets, in
equity securities of companies domiciled outside the United States. The
Portfolio selects its investments on the basis of their potential for capital
appreciation without regard to current income. The Portfolio may also invest in
the securities of domestic closed-end investment companies investing primarily
in foreign securities and may invest in debt obligations of foreign governments
or their political subdivisions, agencies or instrumentalities, of supranational
organizations and of foreign corporations. The Portfolio's investments will be
diversified among securities of issuers in foreign countries including, but not
limited to, Japan, Germany, the United Kingdom, France, the Netherlands, Hong
Kong, Singapore and Australia. In general, the Portfolio will invest only in
securities of companies and governments in countries that Schroder, in its
judgment, considers both politically and economically stable. The Portfolio has
no limit on the amount of its assets which may be invested in any one type of
foreign instrument or in any foreign country; however, to the extent the
Portfolio concentrates its assets in a foreign country, it will incur greater
risks.
The Portfolio may purchase preferred stock and convertible debt securities,
including convertible preferred stock, and may purchase American Depository
Receipts, European Depository Receipts or other similar securities of foreign
issuers. The Portfolio may also enter into foreign exchange contracts, including
forward contracts to purchase or sell foreign currencies, in anticipation of its
currency requirements and to protect against possible adverse movements in
foreign exchange rates. Although such contracts may reduce the risk of loss to
the Portfolio from adverse movements in currency values, the contracts also
limit possible gains from favorable movements.
Foreign Exchange Contracts. Changes in foreign currency exchange rates will
affect the U.S. dollar values of securities denominated in currencies other than
the U.S. dollar. The rate of exchange between the U.S. dollar and other
currencies fluctuates in response to forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. When investing in foreign securities, the
Portfolio usually effects currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange market. The Portfolio
incurs foreign exchange expenses in converting assets from one currency to
another.
The Portfolio may enter into foreign currency forward contracts or currency
futures or options contracts for the purchase or sale of foreign currency to
"lock in" the U.S. dollar price of the securities denominated in a foreign
currency or the U.S. dollar value of interest and dividends to be paid on such
securities, or to hedge against the possibility that the currency of a foreign
country in which the Portfolio has investments may suffer a decline against the
U.S. dollar. A forward currency contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. This method of attempting to hedge the value of portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. Although the strategy
of engaging in foreign currency transactions could reduce the risk of loss due
to a decline in the value of the hedged currency, it could also limit the
potential gain from an increase in the value of the currency. The Portfolio does
not intend to maintain a net exposure to such contracts where the fulfillment of
the Portfolio's obligations under such contracts would obligate the Portfolio to
deliver an amount of foreign currency in excess of the value of the Portfolio's
portfolio securities or other assets denominated in the currency. The Portfolio
will not enter into these contracts for speculative purposes and will not enter
into non-hedging currency contracts. These contracts involve a risk of loss if
Schroder fails to predict currency values correctly. The Portfolio has no
present intention to enter into currency futures or options contracts but may do
so in the future.
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Foreign Investment Considerations and Risk Factors. All investments, domestic
and foreign, involve certain risks. Investments in the securities of foreign
issuers may involve risks in addition to those normally associated with
investments in the securities of U.S. issuers. All foreign investments are
subject to risks of foreign political and economic instability, adverse
movements in foreign exchange rates, the imposition or tightening of exchange
controls or other limitations on repatriation of foreign capital, and changes in
foreign governmental attitudes towards private investment, possibly leading to
nationalization, increased taxation or confiscation of foreign investors'
assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to the
Portfolio's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
available about issuers of comparable securities in the United States; and
foreign securities may trade less frequently and with lower volume and may
exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Portfolio. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and the Portfolio is required to compute and distribute income in
U.S. dollars. Accordingly, a decline in the value of a particular foreign
currency against the U.S. dollar occurring after the Portfolio's income has been
earned and computed in U.S. dollars may require the Portfolio to liquidate
portfolio securities to acquire sufficient U.S. dollars to make a distribution.
Similarly, if the exchange rate declines between the time the Portfolio incurs
expenses in U.S. dollars and the time such expenses are paid, the Portfolio may
be required to liquidate additional foreign securities to purchase the U.S.
dollars required to meet such expenses.
Additional Investment Policies and Risk Considerations
Each Fund's investment objective and all investment policies of the Funds (and
the Portfolio) that are designated as fundamental may not be changed without
approval of the holders of a majority of the outstanding voting securities of
the Fund (or the Portfolio). A majority of outstanding voting securities means
the lesser of 67% of the shares present or represented at a shareholders'
meeting at which the holders of more than 50% of the outstanding shares are
present or represented, or more than 50% of the outstanding shares. Except as
otherwise indicated, investment policies of the Fund's are not deemed to be
fundamental and may be changed by the Board of Trustees of the Trust (the
"Board") without shareholder approval. Likewise, nonfundamental investment
policies of the Portfolio may be changed by Core Trust's board of trustees
without shareholder approval. Unless otherwise indicated below, the discussion
below of the investment policies of the Funds refers, in the case of
International Fund, to the investment policies of the Portfolio. For more
information concerning shareholder voting, see "Other Information - The Trust
and Its Shares - Shareholder Voting and Other Rights" and "Other Information -
Core Trust Structure." A further description of the Funds' investment policies,
including additional fundamental policies, is contained in the SAI.
Each investment adviser monitors the creditworthiness of counterparties to the
Funds' transactions and intends to enter into a transaction only when it
believes that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks. As used herein, the term U.S.
Government Securities means obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities.
Borrowing. As a fundamental policy, each Fund (other than the Portfolio) may
borrow money from banks or by entering into reverse repurchase agreements and
will limit borrowings to amounts not in excess of 331/3% of the value of the
Fund's total assets. As a fundamental policy, the Portfolio may borrow money for
temporary or emergency purposes, including the meeting of redemption requests,
and will limit borrowings to amounts not in
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excess of 331/3% of the value of the Portfolio'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. Each Fund may enter reverse
repurchase agreements (which are considered borrowings by each Fund but not the
Portfolio), transactions in which a Fund sells a security and simultaneously
commits to repurchase that security from the buyer at an agreed upon price on an
agreed upon future date.
Diversification and Concentration. Each Fund is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, no Fund may purchase a security
(other than a U.S. Government Security or shares of investment companies) if, as
a result, (i) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer or (ii) the Fund would own more than 10% of the
outstanding voting securities of any single issuer. Each Fund is prohibited from
concentrating its assets in the securities of issuers in any industry. As a
fundamental policy, each Fund may not purchase securities if, immediately after
the purchase, more than 25% of the value of the Fund's total assets would be
invested in the securities of issuers conducting their principal business
activities in the same industry. This limit does not apply to investments in
U.S. Government Securities, foreign government securities or repurchase
agreements covering U.S. Government Securities.
Common and Preferred Stock. The Funds may invest in common and preferred stock.
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company,
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in the alternative, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Fund may be traded in the over-the-counter
market or on a securities exchange and may not be traded every day or in the
volume typical of securities traded on a major U.S. national securities
exchange. As a result, disposition by a Fund of a portfolio security to meet
redemptions by interest holders or otherwise may require the Fund to sell these
securities at a discount from market prices, to sell during periods when
disposition is not desirable, or to make many small sales over a lengthy period
of time. The market value of all securities, including equity securities, is
based upon the market's perception of value and not necessarily the book value
of an issuer or other objective measure of a company's worth. The Funds may
invest in warrants, which are options to purchase an equity security at a
specified price (usually representing a premium over the applicable market value
of the underlying equity security at the time of the warrant's issuance) and
usually during a specified period of time.
Convertible Securities. The Funds may invest in convertible securities,
including convertible debt and convertible preferred stock, which may be rated
by a nationally recognized statistical rating organization ("NRSRO") or may be
unrated. Convertible securities are fixed income securities which may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible debt securities in that they ordinarily provide a stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinate to comparable
nonconvertible securities. In general, the value of a convertible security is
the higher of its investment value (its value as a fixed income security) and
its conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of convertible securities, however, is also
influenced by the value of the underlying common stock.
The rating categories for convertible securities range from Aaa to C, in the
case of Moody's Investors Service, Inc. ("Moody's'), and from AAA to D, in the
case of Standard & Poor's Corporation ("S&P"), and for preferred stock range
from aaa to c, in the case of Moody's, and from AAA to D, in the case of S&P.
Securities in the lowest rating
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categories are characterized by Moody's as having extremely poor prospects of
ever attaining any real investment standing and by S&P as being in default, in
the case of debt, and non-paying with debt in default, in the case of preferred
stock. Unrated securities may not be as actively traded as rated securities. A
further description of the ratings used by Moody's, S&P and certain other NRSROs
is contained in the SAI.
Foreign Securities. Each Fund may invest up to 20% of its assets (and the
Portfolio may invest without limit) in securities of foreign issuers and in
sponsored and unsponsored American Depository Receipts. For a description of the
investment considerations and risk factors of investing in foreign securities,
see "Investment Objectives and Policies - International Fund - Foreign
Investment Considerations and Risk Factors."
American Depository Receipts; European Depository Receipts. The Funds may
invest in sponsored and unsponsored American Depository Receipts ("ADRs"), which
are receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets. Unsponsored ADRs may be created
without the participation of the foreign issuer. Holders of these ADRs generally
bear all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights. The Portfolio may also invest in European Depository Receipts ("EDRs"),
which are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs, and in other similar instruments
representing securities of foreign companies. EDRs, in bearer form, are designed
for use in European securities markets.
Debt Securities. Income Stock Fund, Contrarian Stock Fund and Small Company
Stock Fund may invest in corporate debt obligations and U.S. Government
Securities. These instruments may have fixed, floating or variable rates of
interest. These debt securities must be rated in one of the three highest rating
categories by an NRSRO or, if unrated by any NRSRO, judged by the Adviser (or
Crestone, as appropriate) to be of comparable quality.
Repurchase Agreements and Lending of Portfolio Securities. Each Fund may seek
additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Trust maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 331/3% of the value of its total assets.
When-Issued Securities and Forward Commitments. Each of the Funds may purchase
securities offered on a "when-issued" basis and may purchase securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction, but delayed settlements beyond three
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased and, thus, no interest accrues
to the Fund. At the time a Fund makes a commitment to purchase securities in
this manner, however, the Fund immediately assumes the risk of ownership,
including price fluctuation.
Illiquid Securities. No Fund may not invest more than 15% of its net assets in
illiquid securities. Illiquid securities are securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities and includes, among other
things, repurchase agreements not
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entitling the holder to payment within seven days and restricted securities
(other than those determined to be liquid pursuant to guidelines established by
the Board or, in the case of the Portfolio, Core Trust's board of trustees).
Limitations on resale may have an adverse effect on the marketability of
portfolio securities, and a Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
A domestic institutional market has developed for certain securities that are
not registered under the Securities Act of 1933 (the "1933 Act"), including
repurchase agreements and foreign securities. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on the issuer's ability to honor a demand for repayment of the
unregistered security. A security's contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of the security. If such securities are eligible for purchase by
institutional buyers in accordance with Rule 144A under the 1933 Act, the
investment advisers may determine that such securities are not illiquid
securities under guidelines adopted by the Board (or, in the case of the
Portfolio, Core Trust's board of trustees). These guidelines take into account
trading activity in the securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, a Fund's holdings of that security may be
illiquid.
Temporary Defensive Position. When business or financial conditions warrant,
each Fund may assume a temporary defensive position and invest without limit in
cash or prime quality cash equivalents, including (i) short-term U.S. Government
Securities, (ii) certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of commercial banks doing business in the United
States, (iii) commercial paper, (iv) repurchase agreements and (v) shares of
"money market funds" registered under the 1940 Act within the limits specified
therein. During periods when and to the extent that a Fund has assumed a
temporary defensive position, it may not be pursuing its investment objective.
Prime quality instruments are those that are rated in one of the two highest
short-term rating categories by an NRSRO or, if not rated, determined by the
Adviser to be of comparable quality. Apart from temporary defensive purposes, a
Fund may at any time invest a portion of its assets in cash and cash equivalents
as described above. Except during periods when a Fund assumes a temporary
defensive position, each Fund will have at least 65% of its total assets
invested in common stock. The Portfolio may hold cash and bank instruments
denominated in any major foreign currency.
Portfolio Transactions. The investment advisers place orders for the purchase
and sale of assets they manage with brokers and dealers selected by and in the
discretion of the respective adviser. The investment advisers seek "best
execution" for all portfolio transactions, but a Fund may pay higher than the
lowest available commission rates when an investment adviser believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on United States securities exchanges.
Subject to the Funds' policy of obtaining "best execution" each investment
adviser may employ broker-dealer affiliates of the investment adviser
(collectively "Affiliated Brokers") to effect brokerage transactions for the
Funds. The Funds' payment of commissions to Affiliated Brokers is subject to
procedures adopted by the Board and, with respect to the Portfolio, Core Trust's
board of trustees, to provide that the commissions will not exceed the usual and
customary broker's commissions charged by unaffiliated brokers. No specific
portion of a Fund's brokerage will be directed to Affiliated Brokers and in no
event will a broker affiliated with the investment adviser directing the
transaction receive brokerage transactions in recognition of research services
provided to the adviser.
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. The Funds' portfolio
turnover is reported under "Financial Highlights." Schroder anticipates that the
annual portfolio turnover rate in the Portfolio will be less than 100%. An
annual portfolio turnover rate of 100% would occur if all of the securities in
the Portfolio were replaced once in a period of one year. Higher portfolio
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turnover rates may result in increased brokerage costs to the Portfolio and a
possible increase in short-term capital gains or losses.
4. Management
The business of the Trust is managed under the direction of the Board of
Trustees (the "Board"), and the business of Core Trust is managed under the
direction of Core Trust's Board of Trustees. The Board formulates the general
policies of the Funds and meets periodically to review the results of the Funds,
monitor investment activities and practices and discuss other matters affecting
the Funds and the Trust. The SAI contains general background information about
the Trustees and Officers of the Trust and of Core Trust. The Board consists of
six persons.
Investment Advisory Services
Norwest Investment Management. Subject to the general supervision of the Board,
Norwest Investment Management makes investment decisions for the Funds (except
International Fund) and continuously reviews, supervises and administers each
Fund's investment program or oversees the investment decisions of the investment
subadviser, as applicable. The Adviser is a part of Norwest, a subsidiary of
Norwest Corporation, which is a multi-bank holding company that was incorporated
under the laws of Delaware in 1929. As of June 30, 1995, Norwest Corporation was
the 13th 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 $16 billion.
The Adviser provides investment management services to each Fund pursuant to
investment advisory agreements between Norwest and the Trust. For the Adviser's
services, Norwest receives an advisory fee with respect to Income Stock Fund,
ValuGrowth Stock Fund and Contrarian Stock Fund at an annual rate of 0.80% of
the average daily net assets for the first $300 million of the Fund's net
assets, 0.76% of the average daily net assets for the next $400 million of the
Fund's net assets and 0.72% of the average daily net assets for the Fund's
remaining net assets. With respect to the Small Company Stock Fund, Norwest
receives an advisory fee at an annual rate of 1.00% of the average daily net
assets for the first $300 million of the Fund's net assets, 0.96% of the average
daily net assets for the next $400 million of the Fund's net assets and 0.92% of
the average daily net assets for the Fund's remaining net assets. The advisory
fees for the Funds are higher than those paid by most investment companies of
all types to their advisers, but the Board believes that the fees are
appropriate for equity funds.
Small Company Stock Fund. To assist Norwest in carrying out its obligations
with respect to Small Company Stock Fund, Norwest has entered into an investment
subadvisory agreement among the Trust, Norwest and Crestone. Crestone, which is
located at 7720 East Belleview Avenue, Suite 220, Englewood Colorado 80111, is a
subsidiary of Norwest and is registered with the SEC as an investment adviser.
Crestone provides investment advice regarding companies with small
capitalization to various clients, including institutional investors. As of the
date of this Prospectus, Crestone managed assets with a value of approximately
$296 million.
Pursuant to the investment subadvisory agreement, Crestone makes investment
decisions for the Small Company Stock Fund and continuously reviews, supervises
and administers the Fund's investment program with respect to that portion, if
any, of the Fund's portfolio that Norwest believes should be invested using
Crestone as investment subadviser. Currently, Crestone manages the entire
portfolio of the Fund and has since the Fund's inception. The Adviser supervises
the performance of Crestone, including Crestone's adherence to the Fund's
investment objective and policies and pays Crestone a fee for its investment
subadvisory services. This compensation does not increase the amount paid by the
Trust to the Adviser pursuant to the Adviser's investment advisory agreement.
International Fund. International Fund currently invests all of its assets in
the Portfolio. The Fund may withdraw its investment from the Portfolio, for
which Schroder serves as investment adviser, at any time if the Board determines
that it is in the best interests of the Fund and its shareholders to do so. See
"Other Information - Core Trust
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Structure." Accordingly, the Fund has retained the Adviser as its investment
adviser and Schroder as its investment subadviser to manage the Fund's assets in
the event the Fund so withdraws its investment. Neither the Adviser nor Schroder
will receive any advisory or subadvisory fees with respect to the Fund as long
as the Fund remains completely invested in the Portfolio or any other investment
company.
Schroder acts as investment adviser to the Portfolio pursuant to an advisory
agreement with Core Trust. Subject to the general control of Core Trust's board
of trustees, Schroder makes investment decisions for the Portfolio and
continuously reviews, supervises and administers the Portfolio's investment
program. Schroder also assists the Adviser in carrying out the Adviser's
obligations under the investment advisory agreement pursuant to an investment
subadvisory agreement among the Trust, Norwest and Schroder. The investment
advisory agreement between Schroder and Core Trust with respect to the Portfolio
is the same in all material respects as the Fund's investment subadvisory
agreement except as to the parties, the circumstances under which fees will be
paid and the jurisdiction whose laws govern the agreement.
Schroder, whose principal business address is 787 Seventh Avenue, New York, New
York 10019, is a wholly-owned U.S. subsidiary of Schroders Incorporated, the
wholly-owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large worldwide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in seventeen countries
worldwide. The Schroder Group specializes in providing investment management
services and as of June 30, 1995, had assets under management in excess of $90
billion.
Schroder receives an advisory fee from Core Trust with respect to the Portfolio
at an annual rate of 0.45% of the average daily net assets of the Portfolio. The
investment advisory agreement for the Fund provides for an investment advisory
fee payable to Norwest by the Trust at an annual rate of 0.85% of the average
daily net assets of the Fund in the event that the Fund is not completely
invested in the Portfolio or another investment company. Pursuant to the Fund's
investment subadvisory agreement, the Adviser (and not the Trust) pays Schroder
a fee for its investment subadvisory services. This compensation does not
increase the amount paid by the Trust to the Adviser pursuant to the Adviser's
investment advisory agreement.
Portfolio Managers. Many persons on the advisory staff of Adviser, Crestone and
Schroder contribute to the investment services provided to the Funds. The
following persons, however, are primarily responsible for the day-to-day
management of the Funds:
Income Stock Fund - Mr. David L. Roberts and Mr. Gary J. Dunn, CFA. Mr. Roberts,
a Senior Vice President of Norwest since 1991, has been associated with Norwest
for 22 years in various investment related capacities. Mr. Roberts has served as
portfolio manager of the Fund since its inception. Mr. Dunn, a Vice President of
Norwest since 1993, has been associated with Norwest since 1979 in various
investment related capacities. Mr. Dunn has served as portfolio manager of the
Fund since 1995.
ValuGrowth Stock Fund - Mr. David A. Beeck, CFA and Ms. Anne C. Whitin, CFA. Mr.
Beeck, a Vice President of Norwest since 1981, has served as portfolio manager
of the Fund since its inception. Ms. Whitin, a Vice President of Norwest since
1990, has served as portfolio manager of the Fund since 1990. From 1987 to 1989,
Ms. Whitin was a Vice President and portfolio manager with Delafield, Harvey,
Tabell, Inc.
Small Company Stock Fund - Mr. Kirk McCown, CFA. Mr. McCown, founder, President
and a Director of Crestone, which was incorporated in 1990, has served as
portfolio manager for the Fund since its inception. Prior to 1990, Mr. McCown
was Senior Vice President of Reich & Tang, L.P.
Contrarian Stock Fund - Mr. W. Lon Schreur, CFA. Mr. Schreur, a Vice President
of Norwest since 1993, is also President of United Capital Management, a part of
Norwest Bank Colorado, N.A., a position which he has held for sixteen years. Mr.
Schreur has served as portfolio manager of the Fund since its inception.
International Fund/International Portfolio - International Fund invests all of
its assets in the Portfolio and, accordingly, there is currently no portfolio
manager for the Fund. The investment management team of Mark J.
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<PAGE>
Smith, a First Vice President of Schroder since April 1990 and a Director
thereof since April 1993, and Laura Luckyn-Malone, a Senior Vice President and
Director of Schroder since 1990, with the assistance of an investment committee,
is primarily responsible for managing the day-to-day operations of the
Portfolio. Mr. Smith has been employed by various Schroder Group companies in
the investment research and portfolio management areas since 1983. Prior to
joining the Schroder Group, Ms. Luckyn-Malone was a Principal of Scudder,
Stevens & Clark, Inc. Mr. Smith has served as portfolio manager of the Portfolio
since its inception and Ms. Luckyn-Malone joined the Portfolio's investment
management team in 1995.
Management and Distribution Services
Forum supervises the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay) and provides the
Trust with general office facilities pursuant to a Management Agreement with the
Trust. Forum provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers, as well as certain other officers and Trustees of the
Trust, may be directors, officers or employees of (and persons providing
services to the Trust may include) Forum, its affiliates or certain non-banking
affiliates of Norwest. As of the date of this Prospectus, Forum provided
management and administrative services to registered investment companies and
collective investment funds with assets of approximately $11 billion. Forum is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. As of the date of this Prospectus, Forum
is controlled by John Y. Keffer, President and Chairman of the Trust. For its
services and facilities, Forum receives from each Fund (other than International
Fund) a management fee at an annual rate of 0.20% of the average daily net
assets attributable to each class of the Fund. From its own resources, Forum may
pay a fee to broker-dealers or other persons for distribution or other services
related to the Funds.
For its services and facilities, Forum receives from International Fund a
management fee at an annual rate of 0.10% of the average daily net assets
attributable to each class of the Fund. Forum also serves as administrator of
Core Trust and provides administrative services for the Portfolio that are
similar to those provided to the Fund. For its administrative services Forum is
compensated by Core Trust with respect to the Portfolio at an annual rate of
0.15% of the average daily net assets of the Portfolio. In addition, pursuant to
a separate services agreement, Norwest receives a fee at an annual rate of 0.25%
of the average daily net assets of the Fund. Under this agreement, Norwest is
responsible for compiling data and preparing communications between the Fund and
its shareholders, maintaining requisite information flows between the Fund and
Schroder, as investment adviser to the Portfolio, monitoring and reporting to
the Board on the performance of the Portfolio and reimbursing the Fund for
certain excess expenses. No fees are payable under this service agreement in the
event that the Fund is not completely invested in the Portfolio or another
investment company. The Fund incurs total management and administrative fees at
a higher rate than many other mutual funds, including other funds of the Trust,
due in part to the nature of the Fund's structure and the Fund's investment
policies.
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.
Forum also acts as the distributor of the Shares pursuant to a distribution
services agreement with the Trust and in accordance therewith receives and may
reallow the initial sales charge assessed on purchases of A Shares of a Fund. As
authorized by a distribution plan with respect to B Shares of each Fund and
pursuant to the distribution services agreement, Forum receives a distribution
services fee as compensation for its distribution expenses with respect to B
Shares and a maintenance fee for its or certain broker-dealer's shareholder
services with respect to B Shares. For further information about the
distribution services agreement and the distribution plan, including the fees
payable thereunder, see "How to Buy Shares - Alternative Distribution
Arrangements." Pursuant to separate agreements, Forum also provides portfolio
accounting services to each Fund and to the Portfolio.
Shareholder Servicing and Custody
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Norwest serves as transfer agent and dividend disbursing agent for the Trust (in
this capacity, the "Transfer Agent") pursuant to a Transfer Agency Agreement
with the Trust. The Transfer Agent maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents or
processing agents), performs other transfer agency functions and acts as
dividend disbursing agent for the Trust. The Transfer Agent is permitted to
subcontract any or all of its functions with respect to all or any portion of
the Trust's shareholders to one or more qualified sub-transfer agents or
processing agents, which may be affiliates of the Transfer Agent or Forum, who
agree to comply with the terms of the Transfer Agency Agreement. Sub-transfer
agents and processing agents may be "Processing Organizations" as described
under "How to Buy Shares - Purchase Procedures." The Transfer Agent is permitted
to compensate those agents for their services; however, that compensation may
not increase the aggregate amount of payments by the Trust to the Transfer
Agent. For its transfer agency services, the Transfer Agent receives from each
Fund a fee at an annual rate of 0.25% of the average daily net assets
attributable to each class of the Fund.
Norwest also serves as the Trust's custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. For its
custodial services, Norwest is compensated at an annual rate of up to 0.05% of
each Fund's (other than International Fund's) average daily net assets. Norwest
currently receives no fee for its custodial services to International Fund, but
the Fund will incur the expenses and costs of any subcustodian. In addition,
International Fund incurs its pro rata portion of the custody fees of the
Portfolio.
Expenses of the Funds
The Funds' expenses include Trust expenses attributable to the Funds, which are
allocated to each Fund, and expenses not specifically attributable to any Fund
of the Trust, which are allocated among the Funds and all other funds of the
Trust in proportion to their average net assets. Each investment adviser, Forum
and the Transfer Agent may each elect to waive (or continue to waive) all or a
portion of their fees, which are accrued daily and paid monthly. Any such
waivers will have the effect of increasing a Fund's performance for the period
during which the waiver is in effect. No fee waivers may be recouped at a later
date.
Norwest and Forum and their agents and affiliates may also act in various
capacities for, and receive compensation from, their customers who are
shareholders of a Fund. Under agreements with those customers, Norwest and Forum
may elect to credit against the fees payable to them by their customers or to
rebate to customers all or a portion of any fee received from the Trust with
respect to assets of those customers invested in a Fund.
Subject to the obligation of Norwest to reimburse the Trust for certain
expenses, under the Investment Advisory Agreements, the Trust has confirmed its
obligation to pay all the Trust's expenses, including: interest charges, taxes,
brokerage fees and commissions; certain insurance premiums; fees, interest
charges and expenses of the Trust's custodian, transfer agent and dividend
disbursing agent and providers of pricing, credit analysis and dividend
services; telecommunications expenses; auditing, legal and compliance expenses;
costs of maintaining corporate existence; costs of preparing and printing the
Funds' prospectuses, SAIs, account application forms and shareholder reports and
delivering them to existing shareholders; costs of maintaining books of original
entry for portfolio and fund accounting and other required books and accounts
and of calculating the net asset value of shares of the Funds; costs of
reproduction, stationery and supplies; compensation of trustees, officers and
employees of the Funds or the Trust who are not employees of Norwest, Forum or
their affiliates and costs of other personnel performing services for the Fund;
costs of meetings of the Trust; SEC registration fees and related expenses;
state securities laws registration fees and expenses; fees and out of pocket
expenses payable to Norwest, Schroder and Forum; and fees and expenses paid by
the Funds pursuant to the distribution plan.
5. How to Buy Shares
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Minimum Investment
There is a $1,000 minimum for initial purchases and a $100 minimum for
subsequent purchases of Shares of the Funds. A Fund may in its discretion waive
the investment minimums. Shareholders who elect electronic share purchase
privileges such as the Automatic Investment Plan or the Directed Dividend Option
are not subject to the initial investment minimum. See "Other Shareholder
Services - Automatic Investment Plan" and "Dividends and Tax Matters."
Except as set forth below with respect to purchases through Processing
Organizations, an investor's order will not be accepted or invested by a Fund
during the period before the Fund's receipt of Federal funds. Fund shares become
entitled to receive dividends and distributions on the next Fund Business Day
after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of their
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
Purchase Procedures
Initial Purchases
There are three ways to purchase shares initially.
1. By Mail. Investors may send a check made payable to the Trust along with a
completed account application form to the Trust at the address listed under
"Account Application" on page 41. Checks are accepted at full value subject to
collection. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal funds within two business days after
receipt of the check. Checks drawn on some non-member banks may take longer.
2. By Bank Wire. Investors may make an initial investment in a Fund using the
wire system for transmittal of money among banks. The investor should first
telephone the Transfer Agent at 612-667-8833 or 800-338-1348 to obtain an
account number. The investor should then instruct a bank to wire the investor's
money immediately to:
Norwest Bank Minnesota, N.A.
ABA 091 000 019
For Credit to: Norwest Advantage Funds
0844-131
Re: [Name of Fund]
[Designate A Shares or B Shares]
Account No.:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be a charge by the investor's bank for transmitting the money by
bank wire, and there also may be a charge for the use of Federal funds. The
Trust does not charge investors for the receipt of wire transfers. Payment by
bank wire is treated as a Federal funds payment when received.
3. Through Financial Institutions. Shares may be purchased and redeemed
through certain broker-dealers, banks and other financial institutions
("Processing Organizations"). The Transfer Agent, Forum and their affiliates may
be Processing Organizations. Processing Organizations may receive as a broker-
dealer's reallowance a portion of the sales charge paid by their customers who
purchase A Shares of a Fund, may receive payments from Forum with respect to
sales of B Shares and may receive payments as a processing agent from the
Transfer Agent. In addition, financial institutions, including Processing
Organizations, may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and
page 20 of 35
<PAGE>
restrictions in addition to, or different from, those applicable to shareholders
who invest in a Fund directly. These investors should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. Customers who
purchase a Fund's shares through a Processing Organization may or may not be the
shareholder of record and, subject to their institution's and the Funds'
procedures, may have Fund shares transferred into their name. There is typically
a three-day settlement period for purchases and redemptions through broker-
dealers. Certain Processing Organizations may also enter purchase orders with
payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with confirmations and periodic statements. The Trust is not
responsible for the failure of any Processing Organization to carry out its
obligations to its customer. Certain states, such as Texas, permit shares of the
Funds to be purchased and redeemed only through registered broker-dealers,
including the Funds' distributor.
Subsequent Purchases
Subsequent purchases may be made by mailing a check, by sending a bank wire or
through the shareholder's Processing Organization as indicated above. All
payments should clearly indicate the shareholder's name and account number.
Account Application
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
[Name of Fund]
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
General Information
Fund shares are continuously sold on every weekday except customary national
business holidays and Good Friday ("Fund Business Day"). The purchase price for
Fund shares equals their net asset value next-determined after acceptance of an
order plus, in the case of the A Shares, any applicable sales charge imposed at
the time of purchase.
Investments in a Fund may be made either through certain financial institutions
or by an investor directly. An investor who invests in a Fund directly will be
the shareholder of record. All transactions in Fund shares are effected through
the Transfer Agent which accepts orders for redemptions and for subsequent
purchases only from shareholders of record. Shareholders of record will receive
from the Trust periodic statements listing all account activity during the
statement period.
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<PAGE>
Alternative Distribution Arrangements
Investors should compare sales charges and fees before selecting a particular
class of shares. Investors should consider whether, during the anticipated life
of their investment in a Fund, the accumulated distribution services fee and
maintenance fee and contingent deferred sales charges on B Shares prior to
conversion would be less than the initial sales charge on A Shares purchased at
the same time and whether that differential would be offset by the higher yield
of A Shares. A summary of the charges applicable to shares of each Fund is
listed under "Prospectus Summary - Expense Information." Sales personnel of
selected broker-dealers distributing a Fund's shares may receive differing
compensation for selling A Shares and B Shares.
Because initial sales charges are deducted at the time of purchase, investors
purchasing a Fund's A Shares receive fewer shares than if the sales charge were
not deducted and, accordingly, do not have the entire purchase price invested.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time should consider
whether, in light of the initial sales charge and its effect on the amount of
the purchase price invested, purchases of A Shares are more or less advantageous
than purchases of B Shares with their associated accumulated continuing
distribution and maintenance charges. For example, based on estimated current
fees and expenses, an investor subject to the 4.5% initial sales charge who
elects to reinvest all dividends and distributions would have to hold the
shareholder's investment approximately six years for the B Shares' distribution
services fee and maintenance fee to exceed the initial sales charge. The
foregoing example does not take into account the time value of money,
fluctuations in net asset value or the effects of different performance
assumptions.
A Shares
The public offering price of each Fund's A Shares is their next-determined net
asset value plus an initial sales charge assessed as follows (no sales charge is
assessed on the reinvestment of dividends or distributions):
Broker-Dealers'
Reallowance
Sales Charge As a As a
Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
Less than $50,000 4.50% 4.71% 4.05%
$50,000 to $99,999 3.50 3.63 3.15
$100,000 to $499,000 2.50 2.56 2.25
$500,000 to $999,000 2.00 2.04 1.80
$1,000,000 and over None None None
* Rounded to the nearest one-hundredth percent
Forum may pay a broker-dealers' reallowance to selected broker-dealers
purchasing shares as principal or agent, which may include banks, bank
affiliates and Processing Organizations. Normally, Forum will reallow discounts
to selected broker-dealers in the amounts indicated in the table above. In
addition, Forum may elect to reallow the entire sales charge to selected broker-
dealers for all sales with respect to which orders are placed with Forum. The
broker-dealers' reallowance may be changed from time to time. Forum may make
additional payments (out of its own resources) to selected broker-dealers of up
to 1.00% of the value of Fund shares purchased at net asset value.
No sales charge is assessed on purchases by: (a) any bank, trust company or
other institution acting on behalf of its fiduciary customer accounts or any
other account maintained by its trust department (including a pension, profit
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended) and (b)
trustees and officers of the Trust; directors, officers and full-time employees
of Forum, of Norwest Corporation or of any of their affiliates; the spouse,
direct ancestor or direct
page 22 of 35
<PAGE>
descendant (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the benefit
of any such person or relative; or the estate of any such person or relative.
These shares may not be resold except to the Funds and share purchases under
clause (b) must be made for investment purposes.
In addition, no sales charge is assessed on purchases (a) by any registered
investment adviser with whom Forum has entered into a Share purchase agreement
and which is acting on behalf of its fiduciary customer accounts, or (b) of A
Shares of a Fund made through the Directed Dividend Option from a fund that
charges a front-end sales charge. See "Dividends and Tax Matters."
Reinstatement Privilege. An investor who has redeemed A Shares of a Fund may,
within 60 days following the redemption, purchase without a sales charge A
Shares in an amount up to the amount of the redemption. Investors who desire to
exercise this "Reinstatement Privilege" should contact the Trust for further
information.
Investors in Other Fund Families. No sales charge is assessed on purchases of A
Shares of a Fund with the proceeds of a redemption at net asset value, within
the preceding 60 days, of shares of a mutual fund that does not impose on the
redeemed shares at the time of their purchase a sales charge equal to or greater
than that applicable to the A Shares of that Fund. Investors should contact the
Trust for further information and to obtain the necessary forms.
Reduced Initial Sales Charges. To qualify for a reduced sales charge, an
investor or the investor's Processing Organization must notify the Transfer
Agent at the time of purchase of the investor's intention to qualify and must
provide the Transfer Agent with sufficient information to verify that the
purchase qualifies for the reduced sales charge. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. Further information about reduced sales charges is
contained in the SAI.
Self-Directed 401(k) Programs. Purchases of A Shares of a Fund through self-
directed 401(k) programs and other qualified retirement plans offered by
Norwest, Forum or their affiliates in accumulated amounts of less than $100,000
are subject to a reduced sales charge applicable to a single purchase of
$100,000.
Cumulative Quantity Discount (Right of Accumulation). An investor's purchase of
additional A Shares of a Fund may qualify for rights of accumulation ("ROA")
under which the applicable sales charge will be based on the total of the
investor's current purchase and the net asset value (at the end of the previous
Fund Business Day) of all A Shares of that Fund held by the investor. For
example, if an investor owned A Shares of a Fund worth $500,000 at the then
current net asset value and purchased A Shares of that Fund worth an additional
$50,000, the sales charge for the $50,000 purchase would be at the 2.0% rate
applicable to a $550,000 purchase, rather than at the 3.5% rate applicable to a
$50,000 purchase.
In addition, an investor in a Fund that has previously purchased A Shares of any
other fund of the Trust that is sold with a sales charge equal to or greater
than the sales charge imposed on the A Shares of the Fund ("Eligible Fund") may
also qualify for ROA and may aggregate existing investments in A Shares of
Eligible Funds with current purchases of A Shares of the Fund to determine the
applicable sales charge. In addition, purchases of A Shares of a Fund by an
investor and the investor's spouse, direct ancestor or direct descendant may be
combined for purposes of ROA.
Statement of Intention. A Shares investors may also obtain reduced sales
charges based on cumulative purchases by means of a written Statement of
Intention, expressing the investor's intention to invest $50,000 or more in A
Shares of a Fund within a period of 13 months. Each purchase of shares under a
Statement of Intention will be made at net asset value plus the sales charge
applicable at the time of the purchase to a single transaction of the dollar
amount indicated in the Statement.
Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a Fund should complete the appropriate
portion to the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
page 23 of 35
<PAGE>
Contingent Deferred Sales Charge. A Shares of a Fund on which no initial sales
charge was assessed due to the amount purchased in a single transaction or
pursuant to the Cumulative Quantity Discount or a Statement of Intention and
that are redeemed (including certain redemptions in connection with an exchange)
within specified periods after the purchase date of the shares will be subject
to contingent deferred sales charges equal to the percentages set forth below of
the dollar amount subject to the charge. The charge will be assessed on an
amount equal to the lesser of the cost of the shares being redeemed and their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from the reinvestment of
dividends and distributions.
Contingent Deferred Sales
Charge as a % of Dollar
Amount of Purchase Period Shares Held Amount Subject to Charge
$1,000,000 to $2,499,999 Less than one year 1.00%
One to two years 0.75%
$2,500,000 to $4,999,999 Less than one year 0.50%
Over $5,000,000 Less than one year 0.25%
No contingent deferred sales charge is charged on redemptions to the same extent
as described under "B Shares - Contingent Deferred Sales Charge" below. The
contingent deferred sales charge on shares purchased through an exchange from
another fund of the Trust is based upon the original purchase date and price of
the other Fund's shares. For A shareholders with a Statement of Intention that
do not purchase $1,000,000 of a Fund's A Shares pursuant to their Statement, no
contingent deferred sales charge is imposed. The Statement of Intention provides
for a contingent deferred sales charge in certain other cases. Further
information about the contingent deferred sales charge is contained in the SAI.
B Shares
Distribution Plan. B Shares of a Fund are sold at their net asset value per
share without the imposition of a sales charge at the time of purchase. With
respect to B Shares, each Fund has adopted a distribution plan pursuant to Rule
12b-1 (the "Plan") under the 1940 Act providing for distribution payments, at an
annual rate of up to 0.75% of the average daily net assets of the Fund
attributable to the B Shares (the "distribution services fee"), by each Fund to
Forum, to compensate Forum for its distribution activities. The distribution
payments due to Forum from each Fund comprise (i) sales commissions at levels
set from time to time by the Board ("sales commissions") and (ii) an interest
fee calculated by applying the rate of 1% over the prime rate to the outstanding
balance of uncovered distribution charges (as described below). The current
sales commission rate is 4.0% and Forum currently expects to pay sales
commissions to each broker-dealer at the time of sale of up to 4.0% of the
purchase price of B Shares of each Fund sold by the broker-dealer.
Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of B Shares. The combined contingent
deferred sales charge and distribution services fee on B Shares are intended to
finance the distribution of those shares by permitting an investor to purchase
shares through broker-dealers without the assessment of an initial sales charge
and, at the same time, permitting Forum to compensate broker-dealers in
connection with the sales of the shares. Proceeds from the contingent deferred
sales charge with respect to a Fund are paid to Forum to defray the expenses
related to providing distribution-related services in connection with the sales
of B Shares, such as the payment of compensation to broker-dealers selling B
Shares. Forum may spend the distribution services fees it receives as it deems
appropriate on any activities primarily intended to result in the sale of those
shares.
Under the Plan, a Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to that Fund. Uncovered distribution charges are equivalent
to all sales commissions previously due (plus interest), less amounts received
pursuant to the Plan and all contingent deferred sales charges previously paid
to Forum. At May 31, 1995, unrecovered distribution expenses for Income Stock
Fund, ValuGrowth Stock Fund, Small Company Stock Fund and Contrarian Stock Fund,
were
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<PAGE>
$103,456, $120,114, $33,652 and $16,433, respectively, or approximately 3.32%,
3.37%, 3.49% and 3.55% of each respective Fund's net assets attributable to B
Shares as of the same date.
The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to a Fund is not related directly to the
amount of expenses incurred by Forum in connection with providing distribution
services to the B Shares and may be higher or lower than those expenses. Forum
may be considered to have realized a profit under the Plan if, at any time, the
aggregate amounts of all distribution services fees and contingent deferred
sales charge payments previously made to Forum exceed the total expenses
incurred by Forum in distributing B Shares.
Pursuant to the Plan, each Fund has agreed also to pay Forum a maintenance fee
in an amount equal to 0.25% of the average daily net assets of the Fund
attributable to B Shares for providing personal services to shareholder
accounts. The maintenance fee may be paid by Forum to broker-dealers in an
amount not to exceed 0.25% of the value of the B Shares held by the customers of
the broker-dealers. The distribution services fee and the maintenance fee are
each accrued daily and paid monthly and will cause a Fund's B Shares to have a
higher expense ratio and to pay lower dividends than A Shares of that Fund.
Notwithstanding the discontinuation of distribution services fees with respect
to a Fund, the Fund may continue to pay maintenance fees.
The distribution services fees payable to Forum by a Fund with respect to each
day are accrued on that day as a liability of the Fund with respect to the B
Shares and as a result of the accrual reduce the net assets of the B Shares.
However, a Fund does not accrue future distribution services fees as a liability
of the Fund with respect to the B Shares or reduce the Fund's current net assets
in respect of distribution services fees which may become payable under the Plan
in the future.
In the event that the Plan is terminated or not continued with respect to a
Fund, the Fund will continue to pay distribution services fees to Forum (but
only with respect to sales that occurred prior to the termination or
discontinuance of the Plan) until the earlier of (a) four years after the date
of termination or discontinuance or (b) such time as there exist no uncovered
distribution charges attributable to that Fund under the Plan. In deciding
whether to purchase B Shares of a Fund, investors should consider that payments
of distribution services fees could continue until such time as there are no
uncovered distribution charges under the Plan attributable to that Fund. In
approving the Plan, the Board determined that there was a reasonable likelihood
that the Plan would benefit each Fund and its B shareholders.
Periods with a high level of sales of B Shares of a Fund accompanied by a low
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of B Shares of a Fund accompanied by a high
level of redemptions of those shares that are subject to contingent deferred
sales charges will tend to reduce uncovered distribution charges. A high level
of sales of B Shares during the first few years of operations, coupled with the
limitation on the amount of distribution services fees payable by a Fund with
respect to B Shares during any fiscal year, would cause a large portion of the
distribution services fees attributable to a sale of the B Shares to be accrued
and paid by the Fund to Forum with respect to those shares in fiscal years
subsequent to the years in which those shares were sold. The payment delay would
in turn result in the incurrence and payment of increased interest fees under
the Plan.
Contingent Deferred Sales Charge. B Shares of a Fund which are redeemed within
six years of purchase will be subject to contingent deferred sales charges equal
to the percentages set forth below of the dollar amount subject to the charge.
The amount of the contingent deferred sales charge, if any, will vary depending
on the number of years between the payment for the purchase of B Shares of a
Fund and their redemption.
The contingent deferred sales charge will be assessed on an amount equal to the
lesser of the cost of the shares being redeemed and their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed on increases in
net asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from the reinvestment of dividends and distributions.
Contingent Deferred Sales
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<PAGE>
Charge as a % of Dollar
Year Since Purchase Amount Subject to Charge
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh None
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in a Fund will automatically be made first from any A
Shares in the Fund, second from B Shares of the Fund acquired pursuant to
reinvestment of dividends and distributions, third from B Shares of the Fund
held for over six years and fourth from the longest outstanding B Shares of the
Fund held for less than six years.
No contingent deferred sales charge is imposed on (i) redemptions of shares
acquired through the reinvestment of dividends and distributions, (ii)
involuntary redemptions by a Fund of shareholder accounts with low account
balances, (iii) redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability and (iv) redemptions to effect a distribution (other than a lump
sum distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan. See the SAI for further information.
Conversion Feature. After seven years from the end of the calendar month in
which the shareholder's purchase order for B shares was accepted, the Shares
will automatically convert to A Shares of that Fund. The conversion will be on
the basis of the relative net asset values of the Shares, without the imposition
of any sales load, fee or other charge. For purposes of conversion, B Shares of
a Fund purchased by a shareholder through the reinvestment of dividends and
distributions will be considered to be held in a separate sub-account. Each time
any B Shares in the shareholder's account (other than those in the sub-account)
convert, an equal pro rata portion of those shares in the sub-account will also
convert. The conversion of B Shares to A Shares is subject to the continuing
availability of certain opinions of counsel and the conversion of a Fund's B
Shares to A Shares may be suspended if such an opinion is no longer available at
the time the conversion is to occur. In that event, no further conversions of
the Fund's B Shares would occur, and shares might continue to be subject to a
distribution services and maintenance fee for an indefinite period.
6. How to Sell Shares
General Information
Fund Shares may be sold (redeemed) at their net asset value on any Fund Business
Day subject to a contingent deferred sales charge imposed, in the case of A
Shares, on some redemptions made within two years of purchase and, in the case
of B Shares, on most redemptions made within six years of purchase. There is no
minimum period of investment and no restriction on the frequency of redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). Redeemed shares are not entitled to receive dividends declared after
the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check
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to purchase the shares being redeemed has been cleared by the shareholder's
bank, which may take up to 15 days. This delay may be avoided by paying for
shares through wire transfers. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to the shareholder's record address. The right
of redemption may not be suspended nor the payment date postponed for more than
seven days after the tender of the shares to a Fund except when the New York
Stock Exchange is closed (or when trading thereon is restricted) for any reason
other than its customary weekend or holiday closings, for any period during
which an emergency exists as a result of which disposal by the Fund of its
portfolio securities or determination by the Fund of the value of its net assets
is not reasonably practicable and for such other periods as the SEC may permit.
Redemption Procedures
Shareholders who have invested directly in a Fund may redeem their Shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described above. Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be available until several weeks after a shareholder's application is
received. Shares for which certificates have been issued may not be redeemed by
telephone.
1. By Mail. Shareholders may redeem shares by sending a written request to
the Transfer Agent accompanied by any share certificate that may have been
issued to the shareholder to evidence the shares being redeemed. All written
requests for redemption must be signed by the shareholder with signature
guaranteed, and all certificates submitted for redemption must be endorsed by
the shareholder with signature guaranteed. See "How to Sell Shares - Other
Redemption Matters."
2. By Telephone. A shareholder who has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. See "How to Sell Shares - Other Redemption Matters."
3. By Bank Wire. For redemptions of more than $5,000, a shareholder who has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
Other Redemption Matters
Signature Guarantee. A signature guarantee is required for the following: any
endorsement on a share certificate and for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions, Automatic Investment or Withdrawal Plan, dividend election,
telephone redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any bank, broker-dealer, national securities exchange, credit union, savings
association or other eligible institution that is authorized to guarantee
signatures, and is acceptable to the Transfer Agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed.
Shareholders who wish to accomplish redemptions or exchanges by telephone must
elect those privileges. The Trust will employ reasonable procedures in order to
verify that telephone requests are genuine, including recording telephone
instructions and causing written confirmations of the resulting transactions to
be sent to shareholders. If the Trust did not employ such procedures, it could
be liable for losses arising from unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt
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<PAGE>
of confirmation statements. During times of drastic economic or market changes,
telephone redemption and exchange privileges may be difficult to implement. In
the event that a shareholder is unable to reach the Transfer Agent by telephone,
requests may be mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 immediately
following any redemption.
7. Other Shareholder Services
Exchanges
Shareholders of A Shares and B Shares may exchange their shares for A Shares and
B Shares, respectively, of the other funds of the Trust that offer those shares.
As of the date of this Prospectus, the funds of the Trust that offer A Shares
and B Shares, which are offered through separate prospectuses, are Adjustable
U.S. Government Reserve Fund, Government Income Fund, Income Fund, Total Return
Bond Fund, Tax-Free Income Fund, Colorado Tax-Free Fund and Minnesota Tax-Free
Fund. It is anticipated that the Trust may in the future create additional funds
that will offer Shares which will be exchangeable with the Funds' Shares. In
addition, A Shares may be exchanged for Investor Shares of Ready Cash Investment
Fund and Municipal Money Market Fund of the Trust. B Shares may be exchanged for
Exchange Shares of Ready Cash Investment Fund. Prospectuses for the shares of
the funds listed above, as well as a current list of the funds of the Trust that
offer shares exchangeable with the Shares of the Funds, can be obtained through
Forum by contacting the Transfer Agent.
The Funds do not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make. The Funds reserve the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees (other than contingent deferred sales charges) charged by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if that fund's shares may
legally be sold in the shareholder's state of residence.
The Funds and Federal tax law treat an exchange as a redemption and a purchase.
Accordingly, a shareholder may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in the shares at the time of the exchange transaction. Exchange procedures
may be amended materially or terminated by the Trust at any time upon 60 days'
notice to shareholders. See "Additional Purchase and Redemption Information" in
the SAI.
Sales Charges. The exchange of A Shares may result in additional sales charges.
If an exchange of A Shares is made into a fund that imposes an initial sales
charge, the shareholder is required to pay an amount equal to any excess of that
Fund's initial sales charge attributable to the number of shares being acquired
in the exchange over any initial sales charge paid by the shareholder for the
shares being exchanged. For example, if a shareholder paid a 2% initial sales
charge in connection with a purchase of shares and then exchanged those shares
into A Shares of another fund with a 3% initial sales charge, the shareholder
would pay an additional 1% sales charge on the exchange. A Shares acquired
through the reinvestment of dividends or distributions are deemed to have been
acquired with a sales charge rate equal to that applicable to the shares on
which the dividends or distributions were paid.
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<PAGE>
Shares of a Fund ("Original Shares") may be exchanged without the payment of any
contingent deferred sales charge. A and B Shares acquired as a result of such
exchange ("New Shares") and subsequently redeemed will nonetheless be subject to
the contingent deferred sales charge applicable to the Original Shares as if
those shares were being redeemed at that time. For purposes of computing both
the contingent deferred sales charge payable upon redemption of the New Shares
and, in the case of B Shares, the time remaining before the New B Shares convert
to A Shares of that Fund, the deferred sales charge and the time remaining
applicable to the Original Shares will apply to the New Shares rather than the
deferred sales charge and time remaining that would otherwise apply. The
deferred sales charge and time remaining applicable to Shares first purchased by
a shareholder will apply to New Shares resulting from both an initial and any
subsequent exchanges.
1. Exchanges By Mail. Exchanges may be made by sending a written request to
the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. See "How to Sell Shares - Other Redemption Matters."
2. Exchanges By Telephone. A shareholder who has elected telephone exchange
privileges may make a telephone exchange request by calling the Transfer Agent
at 800-338-1348 or 612-667-8833 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See "How to
Sell Shares - Other Redemption Matters."
Automatic Investment Plan
Under the Funds' Automatic Investment Plan, shareholders may authorize monthly
amounts of $50 or more to be withdrawn automatically from the shareholder's
designated bank account (other than passbook savings) and sent to the Transfer
Agent for investment in either A or B Shares of a Fund. Shareholders wishing to
use this plan must complete an application which may be obtained by writing or
calling the Transfer Agent. The Trust may modify or terminate the automatic
investment plan with respect to any shareholder in the event that the Trust is
unable to settle any transaction with the shareholder's bank. If the Automatic
Investment Plan is terminated before the shareholder's account totals $1,000,
the Trust reserves the right to close the account in accordance with the
procedures described under "How to Sell Shares - Other Redemption Matters."
Individual Retirement Accounts
The Funds may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). An IRA account application form
may be obtained by contacting the Trust at 800-338-1348 or 612-667-8833.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, the deduction will be reduced if the individual or, in
the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
Automatic Withdrawal Plan
A shareholder whose Shares in a single account total $1,000 or more may
establish a withdrawal plan to provide for the preauthorized payment from the
shareholder's account of $250 or more on a monthly, quarterly, semi-annual or
annual basis. Under the withdrawal plan, sufficient shares in the shareholder's
account are redeemed to provide the amount of the periodic payment and any
taxable gain or loss is recognized by the shareholder upon redemption of the
shares. Shareholders wishing to utilize the withdrawal plan may do so by
completing an application which may be obtained by writing or calling the
Transfer Agent. The Trust may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or if
the account balance is less than $1,000 at any time.
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<PAGE>
Reopening Accounts
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
8. Dividends and Tax Matters
Dividends
Dividends of Income Stock Fund's, ValuGrowth Stock Fund's, Small Company Stock
Fund's, and Contrarian Stock Fund's net investment income are declared and paid
monthly. Dividends of International Fund's net investment income are declared
and paid annually. Distributions of net capital gain, if any, realized by a Fund
are distributed annually. Dividends paid by a Fund with respect to each class of
shares of the Fund will be calculated in the same manner at the same time on the
same day. The per share dividends on a Fund's B Shares will be lower than the
per share dividends on A Shares as a result of the distribution services fees
and maintenance fees applicable to B Shares.
Shareholders may choose to have dividends and distributions of a Fund reinvested
in shares of that Fund (the "Reinvestment Option"), to receive dividends and
distributions in cash (the "Cash Option") or to direct dividends and
distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for Federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of a Fund are
automatically invested in additional shares of that Fund. All dividends and
distributions are reinvested at a Fund's net asset value as of the payment date
of the dividend or distribution. Shareholders are assigned this option unless
one of the other two options is selected. Under the Cash Option, all dividends
and distributions are paid to the shareholder in cash. Under the Directed
Dividend Option, shareholders of a Fund whose shares in a single account of that
Fund total $10,000 or more may elect to have all dividends and distributions
reinvested in shares of another fund of the Trust, provided that those shares
are eligible for sale in the shareholder's state of residence. For further
information concerning the Directed Dividend Option, shareholders should contact
the Transfer Agent.
Taxes
Each Fund intends to continue to qualify (and International Fund intends to
qualify) for each fiscal year to be taxed as a "regulated investment company"
under the Internal Revenue Code of 1986 (the "Code"). As such, the Funds will
not be liable for Federal income and excise taxes on the net investment income
and capital gain distributed to their shareholders. Because each Fund intends to
distribute all of its net investment income and net capital gain each year, each
Fund should thereby avoid all Federal income and excise taxes.
Dividends paid by a Fund out of its net investment income (including realized
net short-term capital gain) are taxable to shareholders of the Fund as ordinary
income notwithstanding that the dividends are reinvested in additional shares of
the Fund.
Distributions of net long-term capital gain, if any, realized by a Fund are
taxable to shareholders of the Fund as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund at the time of
distribution. If a shareholder holds shares for six months or less and during
that period receives a distribution taxable to the shareholder as long-term
capital gain, any loss realized on the sale of the shares during that six-month
period would be a long-term capital loss to the extent of the distribution.
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<PAGE>
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of the shares by the amount of
the dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to the
shareholder as described above.
It is expected that a portion of each Fund's dividends from net investment
income will be eligible for the dividends received deduction for corporations.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by each Fund will
be mailed to shareholders shortly after the close of each year.
International Fund/International 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 income 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. Investment income
received by the Fund from sources within foreign countries may be subject to
foreign income or other taxes. The Fund intends to elect, if eligible to do so,
to permit its shareholders to take a credit (or a deduction) for foreign income
and other taxes paid by the Portfolio. Shareholders of the Fund will be notified
of their share of those taxes and will be required to include that amount as
income. In that event, the shareholder may be entitled to claim a credit or
deduction for those taxes.
9. Other Information
Banking Law Matters
Federal banking laws and regulations generally permit a bank or bank affiliate
to act as investment adviser, transfer agent, or custodian to an investment
company and to purchase shares of the investment company as agent for and upon
the order of a customer and, in connection therewith, to retain a sales charge
or similar payment. Counsel to the Trust believes that Norwest and any other
bank or bank affiliate that may serve as a Processing Organization or perform
sub-transfer agent or similar services or purchase shares as agent for its
customers may perform the services described in this Prospectus for the Trust
and its shareholders without violating applicable Federal banking laws or
regulations.
Federal or state statutes or regulations and judicial or administrative
decisions or interpretations relating to the activities of banks and their
affiliates, however, could prevent a bank or bank affiliate from continuing to
perform all or a part of the activities contemplated by this Prospectus. If a
bank or bank affiliate were prohibited from so acting, changes in the operation
of the Trust could occur and a shareholder serviced by a bank or bank affiliate
may no longer be able to avail itself of those services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
Determination of Net Asset Value
The Trust determines the net asset value per share of each Fund as of 4:00 P.M.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's net
assets (i.e., the value of its securities and other assets less its liabilities)
by the number of shares outstanding at the time the determination is made.
Securities owned by a Fund
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for which market quotations are readily available are valued at current market
value or, in their absence, at fair value as determined by the Board. The Trust
does not determine net asset value on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary. Due to the higher expenses of B Shares,
the net asset value of B Shares will generally be lower than the net asset value
of the other classes. The per share net asset value of each class of a Fund
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes.
International Fund's trading in securities on European, Far Eastern and other
international securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund Business Day. In
addition, trading in foreign securities generally or in a particular country or
countries may not take place on all Fund Business Days. Trading does take place
in various foreign markets, however, on days on which the Fund's net asset value
is not calculated. Calculation of the net asset value per share of the Fund may
not occur contemporaneously with the determination of the prices of the foreign
securities used in the calculation. Events affecting the values of foreign
securities that occur after the time their prices are determined and before the
Fund's determination of net asset value will not be reflected in the Fund's
calculation of net asset value unless the Adviser or Schroder determines that
the particular event would materially affect net asset value, in which case an
adjustment will be made.
All assets and liabilities of the International Fund denominated in foreign
currencies are converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar last quoted by
a major bank prior to the time of conversion.
Performance Information
A Fund's performance may be quoted in advertising in terms of yield or total
return. All performance information is based on historical results and is not
intended to indicate future performance. A Fund's yield is a way of showing the
rate of income the Fund earns on its investments as a percentage of the Fund's
share price. To calculate standardized yield, a Fund takes the interest income
it earned from its investments for a 30-day period (net of expenses), divides it
by the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. A Fund's total return shows its overall change in
value, including changes in share price and assuming all the Fund's dividends
and distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Funds' returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gain or loss. Published yield quotations
are, and total return figures may be, based on amounts actually invested in a
Fund net of sales loads that may be paid by an investor. A computation of yield
or total return that does not take into account the sales load paid by an
investor will be higher than a computation based on the public offering price of
shares purchased that take into account payment of the sales load.
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Funds may be compared to recognized indices of market performance. The
comparative material found in the Funds' advertisements, sales literature or
reports to shareholders may contain performance ratings. This material is not to
be considered representative or indicative of future performance. All
performance information for a Fund is calculated on a class basis.
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The Trust and Its Shares
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust. The Trust has an unlimited number of authorized
shares of beneficial interest. The Board may, without shareholder approval,
divide the authorized shares into an unlimited number of separate portfolios or
series (such as the Funds) and may divide portfolios or series into classes of
shares (such as A and B Shares), and the costs of doing so will be borne by the
Trust. Currently the authorized shares of the Trust are divided into thirty-one
separate series.
Other Classes of Shares. In addition to the Shares, each Fund may create and
issue shares of other classes of securities. Each Fund currently offers three
classes of shares: A Shares; B Shares; and I Shares. I Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates without any sales charges or distribution service
or maintenance fees. Each class of a Fund may have a different expense ratio and
different sales charges (including distribution fees) and each class'
performance will be affected by its expenses and sales charges. For more
information on any other class of shares of the Funds investors may contact the
Transfer Agent at 612-667-8833 or 800-338-1348. Investors may also contact their
Norwest sales representative or the Funds' distributor to obtain information
about the other classes. Sales personnel of broker-dealers and other financial
institutions selling the Fund's shares may receive differing compensation for
selling A, B and I Shares of the Funds.
Shareholder Voting and Other Rights. Each share of each fund of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertain to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio or class, as appropriate. Delaware law does not
require the Trust to hold annual meetings of shareholders, and it is anticipated
that shareholder meetings will be held only when specifically required by
Federal or state law. Shareholders have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
The Portfolio normally will not hold meetings of investors except as required by
the 1940 Act. Each investor in the Portfolio, such as International Fund, will
be entitled to vote in proportion to its relative beneficial interest in the
Portfolio. On most issues subject to a vote of investors, as required by the
1940 Act and other applicable law, the Fund will solicit proxies from
shareholders of the Fund and will vote its interest in the Portfolio in
proportion to the votes cast by its shareholders. If there are other investors
in the Portfolio, there can be no assurance that any issue that receives a
majority of the votes cast by Fund shareholders will receive a majority of votes
cast by all investors in the Portfolio; indeed, if other investors hold a
majority interest in the Portfolio, they could hold have voting control of the
Portfolio.
Core Trust Structure
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International Fund invests all of its assets in the Portfolio, a separate series
of Core Trust, a business trust organized under the laws of the State of
Delaware in September 1994. Accordingly, the Portfolio directly acquires its own
investment securities and the Fund acquires an indirect interest in those
securities. Core Trust is registered under the 1940 Act as an open-end
management investment company and currently has seven separate portfolios. The
assets of the Portfolio, a diversified portfolio, belong only to, and the
liabilities of the Portfolio are borne solely by, the Portfolio and no other
portfolio of Core Trust.
The Portfolio. The investment objective and fundamental investment policies of
International Fund and the Portfolio can be changed only with shareholder
approval. See "Prospectus Summary," "Investment Objectives and Policies," and
"Management" for a complete description of the Portfolio's investment objective,
policies, restrictions, management, and expenses.
International Fund's investment in the Portfolio is in the form of a non-
transferable beneficial interest. As of the date of this Prospectus, the Fund is
the only institutional investor that has invested all of its assets in the
Portfolio. The Portfolio may permit other investment companies or institutional
investors to invest in it. All investors in the Portfolio will invest on the
same terms and conditions as the Fund and will pay a proportionate share of the
Portfolio's expenses.
The Portfolio will not sell its shares directly to members of the general
public. Another investor in the Portfolio, such as an investment company, that
might sell its shares to members of the general public would not be required to
sell its shares at the same public offering price as the Fund, could have
different advisory and other fees and expenses than the Fund. Therefore, Fund
shareholders may have different returns than shareholders in another investment
company that invests exclusively in the Portfolio. There is currently no such
other investment company that offers its shares to members of the general
public. Information regarding any such funds in the future will be available
from Core Trust by calling 212-363-3300.
Certain Risks of Investing in the Portfolio. The Fund's investment in the
Portfolio may be affected by the actions of other large investors in the
Portfolio, if any. For example, if the Portfolio had a large investor other than
the Fund that redeemed its interest in the Portfolio, the Portfolio's remaining
investors (including the Fund) might, as a result, experience higher pro rata
operating expenses, thereby producing lower returns.
The Fund may withdraw its entire investment from the Portfolio at any time, if
the Board determines that it is in the best interests of the Fund and its
shareholders to do so. The Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Board.
A withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio. That distribution could result
in a less diversified portfolio of investments for the Fund and could affect
adversely the liquidity of the Fund's portfolio. If the Fund decided to convert
those securities to cash, it usually would incur brokerage fees or other
transaction costs. If the Fund withdrew its investment from the Portfolio, the
Board would consider what action might be taken, including the management of the
Fund's assets in accordance with its investment objective and policies by the
Adviser and Schroder, the Fund's investment adviser and subadviser,
respectively, or the investment of all of the Fund's investable assets in
another pooled investment entity having substantially the same investment
objective as the Fund. The inability of the Fund to find a suitable replacement
investment, in the event the Board decided not to permit the Adviser and
Schroder to manage the Fund's assets, could have a significant impact on
shareholders of the Fund.
Each investor in the Portfolio, including the Fund, will be liable for all
obligations of the Portfolio, but not any other portfolio of Core Trust. The
risk to an investor in the Portfolio of incurring financial loss on account of
such liability, however, would be limited to circumstances in which the
Portfolio was unable to meet its obligations. Upon liquidation of the Portfolio,
investors would be entitled to share pro rata in the net assets of the Portfolio
available for distribution to investors.
page 34 of 35
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement of
Additional Information and the Funds' official sales literature in connection
with the offering of the Funds' shares, and if given or made, such information
or representations must not be relied upon as having been authorized by the
Trust. This Prospectus does not constitute an offer in any state in which, or to
any person to whom, such offer may not lawfully be made.
page 35 of 35
<PAGE>
<PAGE>
NORWEST FUNDS MAY 31, 1995
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
Norwest Funds
We have audited the accompanying statements of assets and liabilities,
including the schedule of investments of the Cash Investment Fund, U.S.
Government Fund, Treasury Fund, Ready Cash Investment Fund, Municipal Money
Market Fund, Adjustable U.S. Government Reserve Fund, Government Income Fund,
Income Fund, Total Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free
Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Income Stock Fund,
ValuGrowth Stock Fund, Small Company Stock Fund and Contrarian Stock Fund,
portfolios of Norwest Funds (the Funds) as of May 31, 1995, and the related
statements of operations for the year then ended and changes in net assets and
financial highlights for the year ended May 31, 1995 and the periods specified
in the first footnote on pages 17, 43, and 74 herein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the years or periods ended before May 31, 1994 were
audited by other auditors whose report dated July 20, 1993 expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 1995 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of the Cash
Investment Fund, U.S. Government Fund, Treasury Fund, Ready Cash Investment
Fund, Municipal Money Market Fund, Adjustable U.S. Government Reserve Fund,
Government Income Fund, Income Fund, Total Return Bond Fund, Tax-Free Income
Fund, Arizona Tax-Free Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund,
Income Stock Fund, ValuGrowth Stock Fund, Small Company Stock Fund and
Contrarian Stock Fund, portfolios of the Norwest Funds at May 31, 1995, and
the results of their operations for the year then ended, and the changes in
their net assets and the financial highlights for the year ended May 31, 1995
and the periods specified in the first footnote on pages 17, 43, and 74 herein
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 21, 1995
2
<PAGE>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT (continued)
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (May 31, 1995)
MUNICIPAL
CASH U.S. READY CASH MONEY
INVESTMENT GOVERNMENT TREASURY INVESTMENT MARKET
FUND FUND FUND FUND FUND
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value(a)................ $1,486,347,412 $1,161,449,078 $663,284,495 $787,334,738 $328,422,515
Cash.................................... 27,685 158,362 4,899 8,490 820
Interest, dividends and other
receivables........................... 4,889,821 3,475,244 1,216,962 1,830,759 2,271,107
Receivable for securities sold.......... -- -- -- -- 5,502,637
Receivable for principal paydowns....... 831,725 -- -- 17,395 --
-------------- -------------- ------------ ------------ -----------
Total assets............................. 1,492,096,643 1,165,082,684 664,506,356 789,191,382 336,197,079
-------------- -------------- ------------ ------------ -----------
LIABILITIES:
Payable for securities purchased........ 20,336,087 -- -- 10,000,000 8,543,954
Investment advisory, transfer agency and
custodial fees payable................ 475,095 379,016 230,830 295,435 139,831
Management fee payable.................. 138,267 106,295 30,013 92,230 22,255
Accrued expenses........................ 82,620 47,482 77,842 113,271 67,006
Dividends payable....................... 6,760,673 5,128,538 3,070,104 3,684,293 1,046,977
-------------- -------------- ------------ ------------ -----------
Total liabilities........................ 27,792,742 5,661,331 3,408,789 14,185,229 9,820,023
-------------- -------------- ------------ ------------ -----------
NET ASSETS............................... $1,464,303,901 $1,159,421,353 $661,097,567 $775,006,153 $326,377,056
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
COMPONENTS OF NET ASSETS:
Capital paid in......................... $1,466,471,190 $1,159,948,039 $661,279,204 $775,075,763 $327,668,720
Unrealized depreciation................. -- -- -- -- (1,200,000)
Accumulated net realized losses......... (2,167,289) (526,686) (181,637) (69,610) (91,664)
-------------- -------------- ------------ ------------ -----------
NET ASSETS............................... $1,464,303,901 $1,159,421,353 $661,097,567 $775,006,153 $326,377,056
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
NET ASSETS BY CLASS OF SHARES:
Single class funds...................... $1,464,303,901 $1,159,421,353 $661,097,567 -- --
Investor shares......................... -- -- -- $268,603,111 $ 47,424,321
Exchange shares......................... -- -- -- 159,630 --
Institutional shares.................... -- -- -- 506,243,412 278,952,735
-------------- -------------- ------------ ------------ -----------
NET ASSETS............................... $1,464,303,901 $1,159,421,353 $661,097,567 $775,006,153 $326,377,056
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
SHARES OUTSTANDING:
Single class funds...................... 1,466,543,690 1,160,048,039 661,279,204 -- --
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
Investor shares......................... -- -- -- 268,624,589 47,439,025
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
Exchange shares......................... -- -- -- 159,667 --
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
Institutional shares.................... -- -- -- 506,303,859 279,039,496
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
NET ASSET VALUE PER SHARE:
Single class funds...................... $ 1.00 $ 1.00 $ 1.00 -- --
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
Investor shares......................... -- -- -- $ 1.00 $ 1.00
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
Exchange shares......................... -- -- -- $ 1.00 --
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
Institutional shares.................... -- -- -- $ 1.00 $ 1.00
-------------- -------------- ------------ ------------ -----------
-------------- -------------- ------------ ------------ -----------
(a) Cost of investments.................. $1,486,347,412 $1,161,449,078 $663,284,495 $787,334,738 $329,622,515
</TABLE>
See notes to financial statements.
14
<PAGE>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (Year Ended May 31, 1995)
<TABLE>
<CAPTION>
MUNICIPAL
CASH U.S. READY CASH MONEY
INVESTMENT GOVERNMENT TREASURY INVESTMENT MARKET
FUND FUND FUND FUND FUND
----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................ $74,320,816 $55,614,019 $32,835,734 $30,865,512 $10,750,630
----------- ----------- ----------- ----------- -----------
EXPENSES:
Advisory................................... 2,067,323 1,687,958 1,152,801 2,153,906 987,273
Management................................. 944,718 786,649 558,734 1,131,676 564,156
Transfer agent............................. 3,473,590 2,694,186 1,617,670 859,749 344,150
Custodian.................................. 154,105 112,293 79,988 71,562 43,208
Legal...................................... 92,874 73,715 34,173 32,460 29,705
Filing..................................... 74,266 49,724 91,341 114,751 57,431
Accounting................................. 36,000 36,000 36,000 48,000 60,000
Auditing................................... 25,039 21,496 17,110 15,896 15,327
Trustees................................... 17,455 13,571 8,851 8,007 3,983
Distribution............................... -- -- -- 2,050 --
Other...................................... 96,131 119,182 64,344 45,009 57,910
----------- ----------- ----------- ----------- -----------
Total expenses.............................. 6,981,501 5,594,774 3,661,012 4,483,066 2,163,143
Expenses reimbursed and fees waived........ (311,233) (228,133) (684,440) (1,099,225) (802,385)
----------- ----------- ----------- ----------- -----------
Net expenses................................ 6,670,268 5,366,641 2,976,572 3,383,841 1,360,758
----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME....................... 67,650,548 50,247,378 29,859,162 27,481,671 9,389,872
----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) on investments........ (889,228) (526,904) 163,786 (69,633) (39,388)
Change in unrealized depreciation.......... -- -- -- -- (1,200,000)
----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments.............. (889,228) (526,904) 163,786 (69,633) (1,239,388)
----------- ----------- ----------- ----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS...... $66,761,320 $49,720,474 $30,022,948 $27,412,038 $ 8,150,484
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
15
<PAGE>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Years Ended May 31, 1994 and 1995)
<TABLE>
<CAPTION>
MUNICIPAL
CASH U.S. READY CASH MONEY
INVESTMENT GOVERNMENT TREASURY INVESTMENT MARKET
FUND FUND FUND FUND(a) FUND(a)
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSETS -- May 31, 1993............... $ 1,944,947,626 $ 903,274,352 $ 384,750,960 $ 162,584,989 $ 75,520,718
OPERATIONS:
Net investment income................... 57,836,923 30,616,105 11,712,068 8,607,475 3,061,933
Realized gain (loss) on investments..... (656,452) 192,941 (179,841) 48,956 (47,246)
---------------- --------------- ---------------- --------------- ---------------
57,180,471 30,809,046 11,532,227 8,656,431 3,014,687
---------------- --------------- ---------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................... (57,836,923) -- -- -- --
Net investment income -- Investor
shares................................. -- (30,616,105) (11,712,068) (4,538,890) (912,874)
Net investment income -- Exchange
shares................................. -- -- -- (154) --
Net investment income -- Institutional
shares................................. -- -- -- (4,068,431) (2,149,059)
Realized gain on investments............ -- (165,997) -- -- --
Realized gain on investments -- Investor
shares................................. -- -- -- -- (2,460)
Realized gain on investments -- Exchange
shares................................. -- -- -- -- --
Realized gain on
investments -- Institutional shares.... -- -- -- -- (6,007)
---------------- --------------- ---------------- --------------- ---------------
(57,836,923) (30,782,102) (11,712,068) (8,607,475) (3,070,400)
---------------- --------------- ---------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS:(b)
Sale of shares.......................... 13,878,424,527 6,289,972,316 2,189,718,680 -- --
Sale of shares -- Investor shares....... -- -- -- 362,083,813 151,955,586
Sale of shares -- Exchange shares....... -- -- -- 150,750 --
Sale of shares -- Institutional
shares................................. -- -- -- 945,240,427 830,040,269
Reinvested dividends.................... 38,508,275 9,097,290 6,460,581 -- --
Reinvested dividends -- Investor
shares................................. -- -- -- 4,443,988 691,125
Reinvested dividends -- Exchange
shares................................. -- -- -- -- --
Reinvested dividends -- Institutional
shares................................. -- -- -- 1,431 636,832
Cost of shares repurchased.............. (14,479,822,134) (6,111,230,162) (2,054,267,612) -- --
Cost of shares repurchased -- Investor
shares................................. -- -- -- (365,023,775) (194,612,409)
Cost of shares repurchased -- Exchange
shares................................. -- -- -- -- --
Cost of shares
repurchased -- Institutional shares.... -- -- -- (611,778,016) (640,266,897)
---------------- --------------- ---------------- --------------- ---------------
(562,889,332) 187,839,444 141,911,649 335,118,618 148,444,506
---------------- --------------- ---------------- --------------- ---------------
---------------- --------------- ---------------- --------------- ---------------
NET ASSETS -- May 31, 1994............... 1,381,401,842 1,091,140,740 526,482,768 497,752,563 223,909,511
---------------- --------------- ---------------- --------------- ---------------
OPERATIONS:
Net investment income................... 67,650,548 50,247,378 29,859,162 27,481,671 9,389,872
Realized gain (loss) on investments..... (889,228) (526,904) 163,786 (69,633) (39,388)
Change in unrealized depreciation....... -- -- -- -- (1,200,000)
---------------- --------------- ---------------- --------------- ---------------
66,761,320 49,720,474 30,022,948 27,412,038 8,150,484
---------------- --------------- ---------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................... (67,650,548) (50,247,378) (29,859,162) -- --
Net investment income -- Investor
shares................................. -- -- -- (9,075,639) (1,283,965)
Net investment income -- Exchange
shares................................. -- -- -- (7,558) --
Net investment income -- Institutional
shares................................. -- -- -- (18,398,474) (8,105,907)
Realized gain on investments............ -- (173,918) -- -- --
Realized gain on investments -- Investor
shares................................. -- -- -- (7,537) --
Realized gain on investments -- Exchange
shares................................. -- -- -- (6) --
Realized gain on
investments -- Institutional shares.... -- -- -- (13,874) --
---------------- --------------- ---------------- --------------- ---------------
(67,650,548) (50,421,296) (29,859,162) (27,503,088) (9,389,872)
---------------- --------------- ---------------- --------------- ---------------
CAPITAL SHARE TRANSACTIONS:(b)
Sale of shares.......................... 12,602,596,403 5,940,912,543 3,390,161,959 -- --
Sale of shares -- Investor shares....... -- -- -- 599,200,073 140,791,278
Sale of shares -- Exchange shares....... -- -- -- 229,572 --
Sale of shares -- Institutional
shares................................. -- -- -- 1,465,894,906 1,449,036,966
Reinvested dividends.................... 44,264,813 13,709,922 12,227,733 -- --
Reinvested dividends -- Investor
shares................................. -- -- -- 8,269,655 1,206,491
Reinvested dividends -- Exchange
shares................................. -- -- -- 7,094 --
Reinvested dividends -- Institutional
shares................................. -- -- -- 35,387 2,619,533
Cost of shares repurchased.............. (12,563,069,929) (5,885,641,030) (3,267,938,679) -- --
Cost of shares repurchased -- Investor
shares................................. -- -- -- (502,974,022) (128,120,128)
Cost of shares repurchased -- Exchange
shares................................. -- -- -- (227,749) --
Cost of shares
repurchased -- Institutional shares.... -- -- -- (1,293,090,276) (1,363,027,207)
Capital contribution from Adviser....... -- -- -- -- 1,200,000
---------------- --------------- ---------------- --------------- ---------------
83,791,287 68,981,435 134,451,013 277,344,640 103,706,933
---------------- --------------- ---------------- --------------- ---------------
NET ASSETS -- May 31, 1995............... $ 1,464,303,901 $ 1,159,421,353 $ 661,097,567 $ 775,006,153 $ 326,377,056
---------------- --------------- ---------------- --------------- ---------------
---------------- --------------- ---------------- --------------- ---------------
</TABLE>
(a) See note 1 of notes to financial statements for periods covered.
(b) Share transactions at net asset value of $1.00 per share.
See notes to financial statements.
16
<PAGE>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Norwest Funds (the 'Trust') is registered as an open-end management
investment company. The Trust currently has five money market investment
portfolios (each a 'Fund'). The classes of each Fund commenced operations on
the following dates:
<TABLE>
<S> <C>
Cash Investment Fund.................................................... October 14, 1987
U.S. Government Fund.................................................... November 16, 1987
Treasury Fund........................................................... December 3, 1990
Ready Cash Investment Fund (Investor Shares)............................ January 20, 1988
Ready Cash Investment Fund (Exchange Shares)............................ May 9, 1994
Ready Cash Investment Fund (Institutional Shares)....................... January 4, 1994
Municipal Money Market Fund (Investor Shares)........................... January 7, 1988
Municipal Money Market Fund (Institutional Shares)...................... August 3, 1993
</TABLE>
Exchange shares are sold only through the exchange privilege available to
shareholders of Investor B shares of the Norwest Fixed Income and Equity Funds
and are subject to a contingent deferred sales charge upon redemption.
Institutional shares and Investor shares shareholders incur neither a
front-end nor contingent deferred sales charge. The difference between these
two share types is the minimum investment required and the level of
shareholder service expenses.
Each Fund is diversified. Prior to July 31, 1993, the Trust's operation was
conducted as Prime Value Funds, Inc., a Maryland Corporation. The Funds'
financial statements are prepared in accordance with generally accepted
accounting principles. The Trust Instrument authorizes the issuance of an
unlimited number of shares of beneficial interest without par value.
Financial Statement Periods and Change of Fiscal Year -- Funds or share
classes which commenced operations during the fiscal year ended May 31, 1994
have had less than a full year of operations. As a result, the financial
highlights and amounts reflected in the statements of changes in net assets
and footnotes to financial statements for such Funds or share classes, present
results of operations from the commencement date shown above, through May 31,
1994.
For Treasury Fund, the earliest period presented in the financial
highlights reflects operaions for the period beginning with the commencement
date above through the date of its then fiscal year end.
Effective May 31, 1992, the Funds elected to change their fiscal year end
to May 31. Prior to May 31, 1992, the fiscal year end was November 30.
Security Valuation -- The Funds value securities utilizing the amortized
cost method. Under this method all investments purchased at a discount or
premium are valued by accreting or amortizing, respectively, the difference
between the original purchase price and maturity value of the issue over the
period to maturity.
Realized gains and losses on investments sold are recorded on the basis of
identified cost.
Security transactions are accounted for on a trade date basis.
The cost basis for federal income tax purposes is the same as for financial
accounting purposes.
Delivery and payment for securities which have been purchased by the Funds
on a forward commitment or when issued basis take place after normal
settlement dates. During this period, the Funds are subject to market
fluctuations in the price of the purchased securities.
Repurchase Agreements -- Each Fund may purchase portfolio securities from
financial institutions deemed to be creditworthy by the investment adviser
subject to the seller's agreement to repurchase and the Fund's agreement to
resell such securities. Securities purchased subject to repurchase agreements
are maintained by the Trust and must have, at all times, an aggregate market
value greater than or equal to the repurchase price plus accrued interest. If
the value of the underlying security falls below the value of the repurchase
price plus accrued interest, the Funds require the seller to deposit
additional collateral by the next business day. In the event that the seller
under the agreement defaults on its repurchase obligation or fails to deposit
sufficient collateral, the Funds have the contractual right, subject to the
requirements of applicable bankruptcy and insolvency laws, to sell the
underlying securities at market value and may claim any resulting loss from
the seller. 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.
Variable Rate Securities -- For variable rate securities, the interest rate
varies to reflect current market conditions. The rate shown is the effective
rate on May 31, 1995. The maturity date shown represents the final maturity.
For purposes of Rule 2a-7, securities generally are deemed to have a maturity
of the date noted on the face of the instrument, except that certain variable
rate government and short-term corporate securities are deemed to have a
maturity of the period remaining until the next readjustment of the interest
rate and certain securities with demand features are deemed to have a maturity
of the longer of the demand period and the period remaining until the next
readjustment of the interest rate.
17
<PAGE>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Interest Income and Dividends to Shareholders -- Interest income is accrued
as earned. Dividends to shareholders of net investment income are declared
daily and paid monthly by each Fund. Net capital gain, unless offset by any
available capital loss carryforwards, is distributed to shareholders at least
annually.
Expense Allocation -- Each share of each class represents an undivided,
proportionate interest in the Fund. The Funds' class specific expenses include
distribution expenses, if any, transfer agent fees and expenses and certain
other expenses that can be solely attributable to a class.
Federal Income Tax -- Each Fund has qualified, and intends to continue to
qualify, as a regulated investment company and distributes all of its taxable
income. Therefore, no Federal income tax provision is required. As of May 31,
1995 certain of the Funds have capital loss carryovers available to offset
future capital gains as follows:
Year of Expiration
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002 2003 Total
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Investment
Fund............... $ 28,879 -- $ 2,444 $ 14,264 $ 261,844 $ 313,995 $ 656,453 $ 889,228 $2,167,107
U.S. Government
Fund............... -- -- -- -- -- -- -- 526,903 526,903
Treasury Fund....... -- -- -- -- -- 1,796 179,842 -- 181,638
Ready Cash
Investment Fund.... -- -- -- -- -- -- -- 69,632 69,632
Municipal Money
Market Fund........ -- -- -- -- -- -- 47,246 39,388 86,634
</TABLE>
2. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of each Fund is Norwest Investment Management, a
part of Norwest Bank Minnesota, N.A. (the 'Adviser'). Norwest Bank Minnesota,
N.A. is a subsidiary of Norwest Corporation. The Adviser receives an advisory
fee from Cash Investment Fund, U.S. Government Fund, Treasury Fund and Ready
Cash Investment Fund at annual rates of 0.20%, 0.20%, 0.20% and 0.40%,
respectively, of the average daily net assets for the first $300 million of
net assets of each Fund, declining to 0.12%, 0.12%, 0.12% and 0.32%,
respectively, of the average daily net assets of each Fund's net assets in
excess of $700 million. The Adviser receives an advisory fee from Municipal
Money Market Fund at an annual rate of 0.35% of the average daily net assets
for the first $500 million of net assets of the Fund, declining to 0.30% of
the average daily net assets of the Fund's net assets in excess of $1 billion.
The Adviser has agreed to reimburse each Fund for certain operating
expenses (exclusive of interest, taxes, brokerage fees, fees and other
expenses paid pursuant to any distribution plan and organization expenses, all
to the extent permitted by applicable state law or regulation) which in any
year exceed the limits prescribed by any state in which a Fund's shares are
qualified for sale. A Fund's annual expenses are estimated and accrued daily,
and any related reimbursements are made monthly by the Adviser.
The Municipal Money Market Fund obtained a $8,500,000 non-transferable
Letter of Credit (LOC) from Trust Company Bank which supports the payment of
principal and interest on the Orange County Bond, expiring on August 31, 1995.
The Adviser has agreed to reimburse Trust Company Bank for any Payments made
by them to the Fund. As of May 31, 1995, no payments were received from Trust
Company Bank in connection with this LOC.
Norwest Bank Minnesota, N.A. serves as the Trust's transfer agent, dividend
disbursing agent and custodian, and is compensated for those services at an
aggregate annual rate of up to 0.28% of the average daily net assets of Cash
Investment Fund, U.S. Government Fund and Treasury Fund, of up to 0.10% of the
average daily net assets of Ready Cash Investment Fund and Municipal Money
Market Fund attributable to Institutional Shares, and of up to 0.30% of the
average daily net assets attributable to the other classes of Ready Cash
Investment Fund and Municipal Money Market Fund.
The manager of the Trust is Forum Financial Services, Inc. ('Forum'), a
registered broker-dealer and a member of the National Association of
Securities Dealers, Inc. Forum receives a management fee for its services from
Cash Investment Fund, U.S. Government Fund and Treasury Fund at an annual rate
of 0.10% of the average daily net assets for the first $300 million of each
Fund's net assets, declining to 0.05% of the average daily net assets for each
Fund's net assets in excess of $700 million. Forum receives a management fee
from Ready Cash Investment Fund and Municipal Money Market Fund at an annual
rate of 0.20% of the average daily net assets of each Fund attributable to
each class of each Fund's shares. In addition, certain legal expenses were
charged to the Trust by Forum. The respective amounts of legal expenses for
Cash Investment Fund, U.S. Government Fund, Treasury Fund, Ready Cash
Investment Fund and Municipal Money Market Fund were: $37,522, $28,893,
$16,818, $14,133, $7,101.
Forum Financial Corp. ('FFC'), an affiliate of Forum, provides fund
accounting services to the Funds. For these services, FFC receives a fee of
$36,000 per year per Fund plus certain amounts based upon the number of
classes and number and types of portfolio transactions within each Fund.
18
<PAGE>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
The Trust has adopted a Distribution Plan (the 'Plan') with respect to
Exchange Shares of Ready Cash Investment Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The Plan authorizes the payment to Forum of a
distribution services fee of 0.75% of the average daily net assets, and a
maintenance fee of 0.25% of the average daily net assets, of Ready Cash
Investment Fund attributable to Exchange Shares. No maintenance fees were
incurred by the Fund during the year ended May 31, 1995. The distribution
payments are used to reimburse the distributor for (i) sales commissions at
levels set from time to time by the Board not to exceed 6.25% of the amount
received by the Fund for each Exchange Share sold (excluding reinvestment of
dividends and distributions) and (ii) interest calculated by applying the rate
of 1% over the prime rate to the outstanding balance of unreimbursed
distribution charges. The current sales commission rate is based upon that
rate in effect for the Fixed Income or Equity Fund from which the Shareholder
exchanged its shares.
In the event that the Plan is terminated or not continued, the Fund will
continue to pay distribution service fees to Forum (but only with respect to
sales that occurred prior to the termination or discontinuance of the Plan)
until the earlier of (a) four years after the date of termination or
discontinuance or (b) such time as there exist no unreimbursed distribution
charges attributable to that Fund under the Plan, as calculated pursuant to
the Plan.
Unreimbursed distribution charges at May 31, 1995 for Ready Cash Investment
Fund were $51.
For the year ended May 31, 1995, fees waived and expenses reimbursed by the
Trust's custodian and transfer agent, investment advisor, and manager and
distributor were as follows:
<TABLE>
<CAPTION>
Fees Waived
----------------------------------- Expenses
Custodian and Reimbursed
Transfer -----------
Agent Adviser Forum Forum
------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Cash Investment Fund.......................... $ 48,161 $ -- $ 263,072 $ --
U.S. Government Fund.......................... 93,006 -- 135,127 --
Treasury Fund................................. 216,462 -- 467,978 --
Ready Cash Investment Fund.................... 276,116 71,093 740,081 11,935
Municipal Money Market Fund................... 157,425 175,377 469,583 --
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales (including maturities) of
securities during the year ended May 31,1995 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
------------- -------------
<S> <C> <C>
Cash Investment Fund......................................... $87,166,573,444 $87,020,349,169
U.S. Government Fund......................................... 95,246,213,004 95,185,976,812
Treasury Fund................................................ 12,259,922,298 12,147,997,822
Ready Cash Investment Fund................................... 34,308,639,049 34,025,410,343
Municipal Money Market Fund.................................. 1,528,689,936 1,425,721,410
</TABLE>
4. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR (unaudited)
Income Dividends -- All of the income dividends paid by Municipal Money
Market Fund were of exempt interest.
All income dividends of Cash Investment Fund, U.S. Government Fund,
Treasury Fund and Ready Cash Investment Fund were ordinary income for federal
income tax purposes.
Capital Gain Dividends -- U.S. Government fund declared long term capital
gain dividends of $0.000166 per share in December 1994.
19
<PAGE>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD
<TABLE>
<CAPTION>
Ratios to
Net
Realized Average
and Net Assets
Beginning Unrealized Dividends Distributions Capital -----------
Net Asset Net Gain from Net from Net Contribution Ending Net
Value Per Investment (Loss) on Investment Realized from Asset Value
Share Income Investments Income Gains Adviser Per Share Expenses(a)
----------- ----------- --------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH INVESTMENT FUND
Year Ended May 31,
1995................. $ 1.00 $ 0.049 -- $ (0.049) -- -- $ 1.00 0.48%
1994................. 1.00 0.031 -- (0.031) -- -- 1.00 0.49%
1993................. 1.00 0.033 -- (0.033) -- -- 1.00 0.50%
Six Months Ended May
31,
1992(d).............. 1.00 0.021 -- (0.021) -- -- 1.00 0.50%(b)
Year Ended November
30,
1991................. 1.00 0.061 -- (0.061) -- -- 1.00 0.51%
1990................. 1.00 0.079 -- (0.079) -- -- 1.00 0.45%
U.S. GOVERNMENT FUND
Year Ended May 31,
1995................. 1.00 0.047 -- (0.047) -- -- 1.00 0.50%
1994................. 1.00 0.030 -- (0.030) -- -- 1.00 0.47%
1993................. 1.00 0.030 -- (0.030) -- -- 1.00 0.45%
Six Months Ended May
31,
1992(d).............. 1.00 0.020 -- (0.020) -- -- 1.00 0.45%(b)
Year Ended November
30,
1991................. 1.00 0.058 -- (0.058) -- -- 1.00 0.45%
1990................. 1.00 0.077 -- (0.077) -- -- 1.00 0.45%
TREASURY FUND
Year Ended May 31,
1995................. 1.00 0.046 -- (0.046) -- -- 1.00 0.46%
1994................. 1.00 0.028 -- (0.028) -- -- 1.00 0.46%
1993................. 1.00 0.029 -- (0.029) -- -- 1.00 0.47%
Six Months Ended May
31,
1992(d).............. 1.00 0.020 -- (0.020) -- -- 1.00 0.47%(b)
Period Ended November
30,
1991(c).............. 1.00 0.058 -- (0.058) -- -- 1.00 0.31%(b)
READY CASH INVESTMENT FUND
Investor shares
Year Ended May 31,
1995................. 1.00 0.045 -- (0.045) -- -- 1.00 0.82%
1994................. 1.00 0.027 -- (0.027) -- -- 1.00 0.82%
1993................. 1.00 0.030 -- (0.030) -- -- 1.00 0.82%
Six Months Ended May
31,
1992(d).............. 1.00 0.020 -- (0.020) -- -- 1.00 0.82%(b)
Year Ended November
30,
1991................. 1.00 0.058 -- (0.058) -- -- 1.00 0.82%
1990................. 1.00 0.076 -- (0.076) -- -- 1.00 0.82%
Exchange shares
Year Ended May 31,
1995................. 1.00 0.038 -- (0.038) -- -- 1.00 1.57%
Period Ended May 31,
1994(c).............. 1.00 0.001 -- (0.001) -- -- 1.00 1.53%(b)
Institutional shares
Year Ended May 31,
1995............... 1.00 0.049 -- (0.049) -- -- 1.00 0.48%
Period Ended May 31,
1994(c).............. 1.00 0.013 -- (0.013) -- -- 1.00 0.43%(b)
<CAPTION>
Net
Assets at
End of
Net Period
Investment Total (000's
Income Return Omitted)
----------- ----------- ---------
<S> <C> <C> <C>
CASH INVESTMENT FUND
Year Ended May 31,
1995................. 4.87% 4.96% $1,464,304
1994................. 3.11% 3.16% 1,381,402
1993................. 3.29% 3.36% 1,944,948
Six Months Ended May
31,
1992(d).............. 4.23%(b) 4.29%(b) 1,292,196
Year Ended November
30,
1991................. 6.11% 6.31% 1,004,979
1990................. 7.92% 8.22% 747,744
U.S. GOVERNMENT FUND
Year Ended May 31,
1995................. 4.68% 4.81% 1,159,421
1994................. 3.02% 3.07% 1,091,141
1993................. 3.00% 3.06% 903,274
Six Months Ended May
31,
1992(d).............. 3.99%(b) 4.07%(b) 623,685
Year Ended November
30,
1991................. 5.84% 6.00% 469,487
1990................. 7.66% 7.94% 500,794
TREASURY FUND
Year Ended May 31,
1995................. 4.62% 4.65% 661,098
1994................. 2.81% 2.83% 526,483
1993................. 2.93% 2.98% 384,751
Six Months Ended May
31,
1992(d).............. 4.01%(b) 4.07%(b) 374,492
Period Ended November
30,
1991(c).............. 5.62%(b) 6.02%(b) 354,200
READY CASH INVESTMENT
Investor shares
Year Ended May 31,
1995................. 4.64% 4.62% 268,603
1994................. 2.70% 2.74% 164,138
1993................. 3.04% 3.08% 162,585
Six Months Ended May
31,
1992(d).............. 4.01%(b) 4.05%(b) 176,378
Year Ended November
30,
1991................. 5.81% 5.98% 183,775
1990................. 7.56% 7.83% 166,911
Exchange shares
Year Ended May 31,
1995................. 3.62% 3.69% 160
Period Ended May 31,
1994(c).............. 2.48%(b) 2.51%(b) 151
Institutional shares
Year Ended May 31,
1995............... 4.97% 4.98% 506,243
Period Ended May 31,
1994(c).............. 3.12%(b) 3.17%(b) 333,464
</TABLE>
See notes to financial statements.
20
<PAGE>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD
<TABLE>
<CAPTION>
Ratios to
Net
Realized Average
and Net Assets
Beginning Unrealized Dividends Distributions Capital -----------
Net Asset Net Gain from Net from Net Contribution Ending Net
Value Per Investment (Loss) on Investment Realized from Asset Value
Share Income Investments Income Gains Adviser Per Share Expenses(a)
----------- ----------- --------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL MONEY MARKET FUND
Investor shares
1995................. $ 1.00 $ 0.031 $(0.004) $ (0.031) -- $0.004 $ 1.00 0.65%
1994................. 1.00 0.021 -- (0.021) -- -- 1.00 0.65%
1993................. 1.00 0.021 -- (0.021) -- -- 1.00 0.65%
Six Months Ended May
31,
1992(d).............. 1.00 0.014 -- (0.014) -- -- 1.00 0.63%(b)
Year Ended November
30,
1991................. 1.00 0.042 -- (0.042) -- -- 1.00 0.64%
1990................. 1.00 0.053 -- (0.053) -- -- 1.00 0.64%
Institutional shares
Year Ended May 31,
1995............... 1.00 0.033 (0.004) (0.033) -- 0.004 1.00 0.45%
Period Ended May 31,
1994(c)............ 1.00 0.019 -- (0.019) -- -- 1.00 0.45%(b)
<CAPTION>
Net
Assets at
End of
Net Period
Investment Total (000's
Income Return Omitted)
----------- ----------- ---------
<S> <C> <C> <C>
MUNICIPAL MONEY MARKET
Investor shares
1995................. 3.10% 3.13%(e) $ 47,424
1994................. 2.03% 2.09% 33,554
1993................. 2.13% 2.18% 75,521
Six Months Ended May
31,
1992(d).............. 2.81%(b) 2.89%(b) 82,678
Year Ended November
30,
1991................. 4.10% 4.26% 66,327
1990................. 5.34% 5.48% 29,801
Institutional shares
Year Ended May 31,
1995............... 3.37% 3.33%(e) 278,953
Period Ended May 31,
1994(c)............ 2.33%(b) 2.34%(b) 190,356
</TABLE>
(a) During certain periods, various fees and expenses were waived and
reimbursed. Had such waivers and reimbursements not occured, the ratio of
expenses to average net assets would have been:
<TABLE>
<CAPTION>
Six
Months Year Ended November
Year Ended May 31, Ended May 30,
--------------------------------- 31, --------------------
1995 1994 1993 1992(b)(d) 1991 1990
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash Investment Fund................................... 0.50% 0.49% 0.51% 0.56% 0.54% 0.57%
U.S. Government Fund................................... 0.52% 0.53% 0.57% 0.61% 0.60% 0.61%
Treasury Fund.......................................... 0.57% 0.58% 0.58% 0.59% 0.66% --
Ready Cash Investment Fund
Investor shares..................................... 0.91% 0.92% 0.94% 0.93% 0.96% 0.97%
Exchange shares..................................... 6.32% 1.85%(b) -- -- -- --
Institutional shares................................ 0.73% 0.81%(b) -- -- -- --
Municipal Money Market Fund
Investor shares..................................... 0.93% 0.99% 0.97% 0.96% 1.08% 1.16%
Institutional shares................................ 0.74% 0.77%(b) -- -- -- --
</TABLE>
(b) Annualized
(c) See Note 1 of notes to financial statements for periods covered.
(d) See Note 1 of notes to financial statements regarding change of fiscal
year.
(e) The total return for 1995 includes the effect of a capital contribution
from the adviser. Without the capital contribution, the total return would
have been 2.59% for Investor shares and 2.79% for Institutional shares.
See notes to financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
CASH INVESTMENT FUND
Agency Notes (6.5%):
$ 25,000,000 Federal Farm Credit Bank, 6.02% variable rate, due 8/15/95........................... $ 25,065,867
25,000,000 Federal Home Loan Bank, 4.457% variable rate, due 7/19/95............................ 25,000,000
20,000,000 Federal Home Loan Bank, 6.105%, due 5/16/96.......................................... 19,979,727
21,000,000 Federal Home Loan Mortgage Corporation, 8.70%, due 7/6/95............................ 21,034,763
5,000,000 Student Loan Marketing Association, 6.355% variable rate, due 9/13/95................ 4,997,772
--------------
Total Agency Notes 96,078,129
--------------
Asset Backed Securities (5.6%):
25,000,000 Money Market Auto Loan Trust 1990-1, 6.255% variable rate, due 4/30/97............... 25,000,000
3,181,818 Money Market Credit Card Trust 1989-1, Union Bank of Switzerland LOC, 6.15% variable
rate, due 6/12/95................................................................... 3,181,818
2,528,399 Small Business Administration
Guaranteed Loan Pool 502339, 6.875% variable rate, due 1/25/03...................... 2,528,399
5,019,973 Small Business Administration
Guaranteed Loan Pool 501694, 7.125% variable rate, due 11/25/16..................... 5,088,419
19,449,329 Small Business Administration
Guaranteed Loan Pool 501669, 7.125% variable rate, due 3/25/17...................... 19,690,455
9,108,473 Small Business Administration
Guaranteed Loan Pool 501813, 7.125% variable rate, due 4/25/17...................... 9,233,076
6,099,321 Small Business Administration
Guaranteed Loan Pool 502144, 7.00% variable rate, due 12/25/17...................... 6,099,321
6,001,647 Small Business Administration
Guaranteed Loan Pool 502171, 7.00% variable rate, due 12/25/17...................... 6,001,647
Asset Backed Securities, continued:
$ 6,048,963 Small Business Administration
Guaranteed Loan Pool 502199, 7.00% variable rate, due 3/25/18....................... $ 6,048,962
--------------
Total Asset Backed Securities 82,872,097
--------------
Bank Notes (3.4%):
25,000,000 American Express Centurion Bank, 6.082% variable rate, due 12/1/95................... 25,000,000
15,000,000 First National Bank of Chicago, 6.25%, due 6/3/96.................................... 15,000,000
10,000,000 Shizuoka Bank Ltd., 6.062% variable rate, due 3/6/96................................. 9,997,713
--------------
Total Bank Notes 49,997,713
--------------
Certificates Of Deposit (6.6%):
20,000,000 Australia & New Zealand Banking Group Ltd., 6.50%, due 8/17/95....................... 20,000,000
25,000,000 Compagnie Financiere de CIC et de l'Union Europeenne, New York Branch, 6.50%, due
9/26/95............................................................................. 25,000,000
10,000,000 Lloyds Bank PLC, 6.37%, due 8/17/95.................................................. 10,002,769
10,000,000 Mitsubishi Bank Ltd., New York Branch, 6.45%, due 5/24/96............................ 10,003,292
8,000,000 Old Kent Bank & Trust Co., 5.39%, due 6/16/95........................................ 7,998,901
25,000,000 Toronto-Dominion Bank, London Branch, 6.33%, due 9/6/95.............................. 24,992,677
--------------
Total Certificates Of Deposit 97,997,639
--------------
Commercial Paper (52.5%):
16,000,000 ABS Commercial Paper Incorporated, 6.09% yield, due 6/23/95.......................... 15,941,040
6,000,000 Allianz of America Finance Corporation, 6.33% yield, due 10/2/95(a).................. 5,874,130
16,215,000 Arena Funding Corporation, 6.04% yield, due 7/25/95(a)............................... 16,069,552
15,162,000 Atlantic Asset Securitization Corporation, 6.062% yield, due 6/13/95(a).............. 15,131,524
15,300,000 Atlas Funding Corporation, 6.08% yield, due 6/21/95(a)............................... 15,248,575
10,000,000 BICC Cables Corporation, 6.30% yield, due 10/16/95................................... 9,767,862
</TABLE>
See notes to financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
CASH INVESTMENT FUND (continued)
Commercial Paper, continued:
$ 8,000,000 BICC Cables Corporation, 6.26% yield, due 10/24/95................................... $ 7,804,412
19,000,000 Creative Capital Corporation, 6.086% yield, due 8/23/95(a)........................... 18,737,167
6,000,000 Daewoo International (America) Corporation, 6.185% yield, due 7/25/95................ 5,945,190
16,500,000 Daewoo International (America) Corporation, 6.14% yield, due 8/10/95................. 16,305,896
4,000,000 Dealers Capital Access Trust, 6.101% yield, due 7/13/95.............................. 3,971,767
5,000,000 Dean Witter Discover & Company, 6.501% yield, due 12/15/95........................... 4,830,361
22,500,000 Diamond Asset Funding Corporation, 6.14% yield, due 7/31/95(a)....................... 22,273,125
5,000,000 Dynamic Funding Corporation, Series B, 6.29% yield, due 7/14/95(a)................... 4,963,092
5,152,000 Enterprise Funding Corporation, 6.25% yield, due 10/24/95(a)......................... 5,026,249
15,000,000 Galicia Funding Corporation, Bayerische Vereinsbank, A.G. LOC, 6.267% yield, due
9/22/95(a).......................................................................... 14,712,792
12,532,000 Holland Limited Securitization,
Incorporated, 6.028% yield, due 6/29/95(a).......................................... 12,473,513
15,000,000 IMI Funding Corporation (USA), 6.70% yield, due 7/3/95............................... 14,913,333
10,000,000 JAL Capital Corporation, 6.30% yield, due 6/9/95(a).................................. 9,986,222
10,000,000 JAL Capital Corporation, 6.05% yield, due 7/20/95(a)................................. 9,918,334
5,000,000 JAL Capital Corporation, 6.078% yield, due 8/25/95(a)................................ 4,929,285
30,000,000 Jet Funding Corporation, 6.24% yield, due 6/30/95.................................... 29,851,375
10,000,000 Jet Funding Corporation, 6.232% yield, due 8/31/95................................... 9,845,806
10,000,000 Merrill Lynch & Company, Incorporated, 6.15% yield, due 9/18/95...................... 9,813,792
10,000,000 Monte Blanc Capital Corporation, 6.028% yield, due 6/7/95(a)......................... 9,990,000
Commercial Paper, continued:
$ 7,000,000 ORIX America, Incorporated, Sanwa Bank Ltd. LOC, 6.31% yield, due 11/1/95(a)......... $ 6,818,228
15,073,000 Pooled Accounts Receivable Capital Corporation, 6.029% yield, due 6/29/95(a)......... 15,002,660
10,096,000 Pooled Accounts Receivable Capital Corporation, 6.03% yield, due 6/29/95(a).......... 10,048,886
8,400,000 Progress Funding Corporation, Series A, 6.165% yield, due 7/31/95(a)................. 8,315,020
10,000,000 Progress Funding Corporation,
Series A, 6.166% yield, due 8/1/95(a)............................................... 9,897,147
21,400,000 Quebec (Province of), Canada, 6.317% yield, due 12/12/95............................. 20,699,996
25,000,000 SFC (USA), Incorporated, 6.142% yield, due 7/31/95(a)................................ 24,747,917
20,000,000 SFC (USA), Incorporated, 6.165% yield, due 7/31/95(a)................................ 19,797,667
5,000,000 Seiko Corporation of America, Dai-Ichi Kangyo Bank Ltd. LOC, 6.83% yield, due
6/5/95.............................................................................. 4,996,333
5,000,000 Seiko Corporation of America, Dai-Ichi Kangyo Bank Ltd. LOC, 6.63% yield, due
8/11/95............................................................................. 4,936,692
15,606,000 Seven Hills Funding Corporation, 6.06% yield, due 6/23/95(a)......................... 15,548,587
13,132,000 Seven Hills Funding Corporation, 6.08% yield, due 6/30/95(a)......................... 13,068,000
12,596,000 Sierra Funding Corporation, 6.22% yield, due 6/26/95(a).............................. 12,542,292
12,500,000 Sigma Capital Corporation, 6.087% yield, due 11/13/95(a)............................. 12,161,979
14,500,000 Southern California Gas Company, 6.516% yield, due 8/16/95........................... 14,307,150
20,000,000 Stellar Capital Corporation, 6.054% yield, due 6/8/95(a)............................. 19,976,550
15,000,000 Stellar Capital Corporation, 6.057% yield, due 7/25/95(a)............................ 14,865,000
</TABLE>
See notes to financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
CASH INVESTMENT FUND (continued)
Commercial Paper, continued:
$ 15,000,000 Stellar Capital Corporation, 6.239% yield, due 10/5/95(a)............................ $ 14,681,326
20,000,000 Stellar Capital Corporation, 6.092% yield, due 10/18/95(a)........................... 19,542,073
23,500,000 Sweden (Kingdom of), 6.494% yield, due 9/8/95........................................ 23,094,802
21,000,000 Thames Funding, Incorporated, 6.05% yield, due 6/2/95(a)............................. 20,996,471
25,000,000 Thames Funding, Incorporated, 6.128% yield, due 6/2/95(a)............................ 24,995,785
10,000,000 Thames Funding, Incorporated, 6.108% yield, due 6/16/95(a)........................... 9,974,792
13,600,000 Toshiba International Finance (UK) PLC, 6.36% yield, due 7/13/95..................... 13,501,310
15,000,000 Tri-Lateral Capital, Incorporated, 6.24% yield, due 6/5/95(a)........................ 14,989,767
5,496,000 Tri-Lateral Capital, Incorporated, 6.199% yield, due 6/12/95(a)...................... 5,485,722
21,400,000 Tri-Lateral Capital, Incorporated, 6.13% yield, due 7/21/95(a)....................... 21,220,478
5,000,000 Tri-Lateral Capital,
Incorporated, 6.107% yield,
due 8/18/95(a)...................................................................... 4,934,783
15,000,000 Vesey Street Short Term Income I Corporation, 6.145% yield, due 7/11/95(a)........... 14,898,667
15,000,000 Vesey Street Short Term Income I Corporation, 6.20% yield, due 7/13/95(a)............ 14,892,900
10,000,000 Vesey Street Short Term Income I Corporation, 6.176% yield, due 7/14/95(a)........... 9,926,841
5,000,000 Vesey Street Short Term Income I Corporation, 6.15% yield, due 7/28/95(a)............ 4,951,313
25,000,000 Working Capital Management Company L.P., 6.217% yield, due 6/1/95.................... 25,000,000
Commercial Paper, continued:
$ 15,000,000 Yamaha Motor Owner Trust, 6.065% yield, due 6/15/95(a)............................... $ 14,964,825
--------------
Total Commercial Paper 780,106,353
--------------
Corporate Notes (5.1%):
12,000,000 Bear, Stearns & Company, Incorporated, 6.162% variable rate, due 1/11/96............. 12,000,000
10,000,000 Ciesco L.P., 6.57%, due 1/22/96...................................................... 9,996,846
14,490,000 Dean Witter Discover & Company, 6.311% variable rate, due 12/15/95................... 14,503,231
10,500,000 Georgia Power Company, First Mortgage Bonds Remarketed, Series A, 6.03%, due
7/5/95.............................................................................. 10,493,154
18,000,000 Merrill Lynch & Company, Incorporated, 0.00%, due 7/18/95............................ 17,853,840
5,900,000 Norinchunkin Bank, Ltd., 7.80%, due 8/21/95.......................................... 5,906,828
5,000,000 The Potomac Edison Company, 9.625%, due 6/16/95...................................... 5,334,750
--------------
Total Corporate Notes 76,088,649
--------------
Municipal Demand Notes (0.4%):
6,300,000 Durham, N.C., Certificates, Series B, 6.16% variable rate, due 7/1/03................ 6,300,000
--------------
Repurchase Agreements (6.0%):
45,000,000 Goldman Sachs & Co., 6.17%, due 6/1/95, $45,007,712.50 to be collected at maturity,
(Collateralized by $70,000,000 Oesterreichische Kontrollbank Aktiengesellschaft,
Republic of Austria, 5.97%, due 6/9/95); $500,000 Maguire/Thomas Partners,
Westlake/Southlake
Partnership, Sumitomo Bank LOC, 6.00%, due 6/5/95; $32,000,000 Federal Business
Development Bank, 5.88%, due 6/30/95)............................................... 45,000,000
</TABLE>
See notes to financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
CASH INVESTMENT FUND (continued)
Repurchase Agreements, continued:
$ 45,000,000 Merrill Lynch Government Securities, Incorporated, 6.15%, due 6/1/95, $45,007,687.50
to be collected at maturity, (Collateralized by $50,000,000 Omnibus Funding
Corporation, 5.95%, due 6/30/95; $2,933,000 Dean Witter Discover & Co., 5.90%, due
8/11/95; $50,000,000 Dean Witter Discover & Co., 5.90%, due 8/18/95.)............... $ 45,000,000
--------------
Total Repurchase Agreements 90,000,000
--------------
Time Deposits (13.9%):
45,000,000 First Union National Bank, Nassau Branch, 6.125%, due 6/1/95......................... 45,000,000
49,906,832 Fuji Bank Ltd., Cayman Branch, 6.156%, due 6/1/95.................................... 49,906,832
45,000,000 Hong Kong Bank of Canada, Toronto, 6.125%, due 6/1/95................................ 45,000,000
22,000,000 Midland Bank PLC, Grand Cayman Bank, 6.156%, due 6/1/95.............................. 22,000,000
45,000,000 Society National Bank, Cayman Branch, 6.125%, due 6/1/95............................. 45,000,000
--------------
Total Time Deposits 206,906,832
--------------
Total Investments (100.0%) $1,486,347,412
--------------
--------------
- ----------------------------------------------
U.S. GOVERNMENT FUND
Agency Notes (19.7%):
$ 22,500,000 Federal Home Loan Bank, 4.457% variable rate, due 7/19/95............................ $ 22,500,000
13,000,000 Federal Home Loan Bank, Series HN-1996, 6.64% variable rate, due 4/4/96.............. 13,046,262
41,695,000 Federal Home Loan Mortgage Corporation, 8.70%, due 7/6/95............................ 41,779,039
15,000,000 Federal National Mortgage Association, 6.25% variable rate, due 8/24/95.............. 14,853,654
Agency Notes, continued:
$ 25,000,000 Federal National Mortgage Association, 5.913% variable rate, due 10/30/95............ $ 24,997,944
25,000,000 Federal National Mortgage Association, 5.913% variable rate, due 1/19/96............. 24,994,293
4,500,000 Federal National Mortgage Association, 6.90%, due 11/12/96........................... 4,500,551
25,000,000 Student Loan Marketing Association, 6.20% variable rate, due 6/2/95.................. 25,000,149
25,000,000 Student Loan Marketing Association, 6.59% variable rate, due 8/25/95................. 25,005,474
25,000,000 Student Loan Marketing Association, 5.48% variable rate, due 7/1/96.................. 24,991,543
7,570,000 Tennessee Valley Authority, 3.995%, due 7/20/95...................................... 7,540,885
--------------
Total Agency Notes 229,209,794
--------------
Commercial Paper (2.1%):
25,000,000 Downey Savings & Loan, Federal Home Loan Bank of San Francisco LOC, 6.301% yield, due
8/31/95............................................................................. 24,614,514
--------------
Discount Notes (23.3%):
5,000,000 Federal Farm Credit Bank, 5.949% yield, due 6/12/95.................................. 4,991,001
30,000,000 Federal Home Loan Bank, 5.989% yield, due 6/2/95..................................... 29,995,067
15,900,000 Federal Home Loan Bank, 6.083% yield, due 6/7/95..................................... 15,884,127
25,000,000 Federal Home Loan Bank, 5.971% yield, due 6/13/95.................................... 24,951,083
25,000,000 Federal Home Loan Bank, 6.072% yield, due 7/3/95..................................... 24,867,111
7,200,000 Federal National Mortgage Association, 6.197% yield, due 6/15/95..................... 7,183,004
17,300,000 Federal National Mortgage Association, 5.995% yield, due 7/18/95..................... 17,167,646
25,000,000 Federal National Mortgage Association, 6.025% yield, due 8/17/95..................... 24,686,653
7,000,000 Federal National Mortgage Association, 6.242% yield, due 10/6/95..................... 6,850,600
39,700,000 Federal National Mortgage Association, 6.058% yield, due 11/14/95.................... 38,638,246
35,000,000 Tennessee Valley Authority, 5.975% yield, due 6/19/95................................ 34,897,450
</TABLE>
See notes to financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
U.S. GOVERNMENT FUND (continued)
Discount Notes, continued:
$ 25,000,000 Tennessee Valley Authority, 5.86% yield, due 6/20/95................................. $ 24,922,681
15,000,000 Tennessee Valley Authority, 5.70% yield, due 7/10/95................................. 14,904,613
--------------
Total Discount Notes 269,939,282
--------------
Repurchase Agreements (54.9%):
50,000,000 BA Securities, Incorporated, 6.10%, due 6/1/95, $50,008,472.22 to be collected at
maturity, (collateralized by $24,000,000 Federal Home Loan Mortage Corporation
Discount Notes, 5.82%, due 11/28/95 and $29,045,000, 5.81%, due 12/7/95)............ 50,000,000
685,488 Bear, Stearns & Company, Incorporated, 6.10%, due 6/1/95, $685,604.15 to be collected
at maturity, (collateralized by $45,380,000 U.S. Treasury Strip Notes, due 11/15/95;
$35,841,000 U.S. Treasury Strip Notes, due 2/15/96; $40,870,000 U.S. Treasury Strip
Notes, due 5/15/96)................................................................. 685,488
150,000,000 Bear, Stearns & Company, Incorporated, 6.185% variable rate, available on demand at
$150,000,000 plus accrued interest, (collateralized by $94,379,000 U.S. Treasury
Strip Notes, due 8/15/95; $64,750,000 U.S. Treasury Strip Notes, due 11/15/95)...... 150,000,000
200,000,000 Chemical Securities, Incorporated, 6.125%, due 6/1/95, $200,034,027.78 to be
collected at maturity, (collateralized by various Federal Home Loan Mortage
Corporation Discount Notes with an aggregate market value of $205,915,000).......... 200,000,000
Repurchase Agreements, continued:
$ 50,000,000 Chemical Securities, Incorporated, 6.15%, due 6/1/95, $50,008,541.67 to be collected
at maturity, (collateralized by $51,750,000 Federal National Mortage Association
Discount Notes, due 8/25/95)........................................................ $ 50,000,000
50,000,000 First Boston Corporation, 5.94%, due 6/7/95, $50,008,250.00 to be collected at
maturity, (collateralized by $61,181,000 U.S. Treasury Notes, due 1/31/96).......... 50,000,000
37,000,000 First National Bank Chicago, 6.10%, due 6/1/95, $37,006,269.44 to be collected at
maturity, (collateralized by $25,000,000 U.S. Treasury Bills, due 9/28/95;
$13,935,000 U.S. Treasury Bills, due 5/2/96)........................................ 37,000,000
50,000,000 First National Bank Chicago, 6.10%, due 6/1/95, $50,008,472.22 to be collected at
maturity, (collateralized by $9,270,000 U.S. Treasury Notes, due 6/1/95; $50,000,000
U.S. Treasury Notes, due 9/30/95; $13,720,000 U.S. Treasury Notes, due 12/31/95;
$50,000,000 U.S. Treasury Notes, due 4/15/96; $23,500,000 U.S. Treasury Notes, due
5/31/96)............................................................................ 50,000,000
50,000,000 Goldman Sachs, 6.10%, due 6/1/95, $50, 008,472.22 to be collected at maturity
(collateralized by $53,395,000 U.S. Treasury Bills, due 3/7/96)..................... 50,000,000
--------------
Total Repurchase Agreements 637,685,488
--------------
Total Investments (100.0%) $1,161,449,078
--------------
--------------
- ----------------------------------------------
TREASURY FUND
U.S. Treasury Bills (86.8%):
$ 50,000,000 U.S. Treasury, 5.656% yield, due 6/1/95.............................................. $ 50,000,000
</TABLE>
See notes to financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
TREASURY FUND (continued)
U.S. Treasury Bills, continued:
$ 4,775,000 U.S. Treasury, 5.903% yield, due 6/1/95.............................................. $ 4,775,000
16,260,000 U.S. Treasury, 6.00% yield, due 6/1/95............................................... 16,260,000
25,000,000 U.S. Treasury, 5.60% yield, due 6/8/95............................................... 24,973,361
50,000,000 U.S. Treasury, 5.705% yield, due 6/22/95............................................. 49,836,958
25,000,000 U.S. Treasury, 5.857% yield, due 6/22/95............................................. 24,916,874
6,190,000 U.S. Treasury, 5.913% yield, due 6/22/95............................................. 6,169,274
10,000,000 U.S. Treasury, 5.847% yield, due 6/29/95............................................. 9,955,784
25,000,000 U.S. Treasury, 5.63% yield, due 7/6/95............................................... 24,866,320
20,265,000 U.S. Treasury, 5.668% yield, due 7/6/95.............................................. 20,155,457
25,000,000 U.S. Treasury, 5.844% yield, due 7/6/95.............................................. 24,861,823
50,000,000 U.S. Treasury, 5.718% yield, due 7/13/95............................................. 49,675,667
11,000,000 U.S. Treasury, 5.743% yield, due 7/13/95............................................. 10,928,262
25,000,000 U.S. Treasury, 5.674% yield, due 7/20/95............................................. 24,811,827
50,000,000 U.S. Treasury, 5.822% yield, due 7/27/95............................................. 49,559,390
11,650,000 U.S. Treasury, 5.842% yield, due 7/27/95............................................. 11,547,066
25,000,000 U.S. Treasury, 5.704% yield, due 8/3/95.............................................. 24,756,313
50,000,000 U.S. Treasury, 5.86% yield, due 8/10/95.............................................. 49,445,833
25,000,000 U.S. Treasury, 5.781% yield, due 8/24/95............................................. 24,671,875
25,000,000 U.S. Treasury, 5.859% yield, due 9/21/95............................................. 24,559,000
25,000,000 U.S. Treasury, 5.916% yield, due 10/26/95............................................ 24,419,147
25,000,000 U.S. Treasury, 5.828% yield, due 11/2/95............................................. 24,400,042
--------------
Total U.S. Treasury Bills 575,545,273
--------------
U.S. Treasury Notes (13.2%):
38,000,000 U.S. Treasury, 4.25%, due 7/31/95.................................................... 37,885,742
U.S. Treasury Notes, continued:
$ 50,000,000 U.S. Treasury, 4.625%, due 8/15/95................................................... $ 49,853,480
--------------
Total U.S. Treasury Notes 87,739,222
--------------
Total Investments (100.0%) $ 663,284,495
--------------
--------------
- ----------------------------------------------
READY CASH INVESTMENT FUND
Agency Notes (4.9%):
$ 10,000,000 Federal Home Loan Bank, .10% variable rate, due 11/15/95............................. $ 9,725,981
10,000,000 Federal Home Loan Bank, Series HN-1996, 6.64% variable rate, due 4/4/96.............. 10,035,586
11,000,000 Federal Home Loan Bank, 6.105%, due 5/16/96.......................................... 10,988,850
8,000,000 Federal Home Loan Mortgage Corporation, 8.70%, due 7/6/95............................ 8,013,243
--------------
Total Agency Notes 38,763,660
--------------
Asset Backed Securities (4.2%):
25,000,000 Medium Term Structured Enhanced Return Trusts, Series 1994-A-05, 6.112% variable
rate, due 1/25/96(a)................................................................ 25,000,000
5,000,000 Money Market Auto Loan Trust 1990-1, 6.255% variable rate, due 4/30/97............... 5,000,000
454,546 Money Market Credit Card Trust 1989-1, 6.15% variable rate, due 6/12/95.............. 454,546
2,463,216 Small Business Administration
Guaranteed Loan Pool 502524, 6.75% variable rate, due 2/25/04....................... 2,463,216
--------------
Total Asset Backed Securities 32,917,762
--------------
Bank Notes (4.8%):
15,000,000 American Express Centurion Bank, 6.062% variable rate, due 6/14/95................... 15,000,000
10,000,000 American Express Centurion Bank, 6.062% variable rate, due 10/20/95.................. 10,000,000
3,170,000 Bank of New York, 6.00% variable rate, due 1/12/96................................... 3,169,456
10,000,000 First National Bank of Chicago, 6.25%, due 6/3/96.................................... 10,000,000
--------------
Total Bank Notes 38,169,456
--------------
</TABLE>
See notes to financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
READY CASH INVESTMENT FUND (continued)
Certificates of Deposit (4.3%):
$ 5,000,000 Australia & New Zealand Banking Group Ltd., 6.50%, due 8/17/95....................... $ 5,000,000
15,000,000 Compagnie Financiere de CIC et de l'Union Europeene, New York Branch, 6.50%, due
9/26/95............................................................................. 15,000,000
5,000,000 Lloyds Bank PLC, 6.37%, due 8/17/95.................................................. 5,001,385
5,000,000 Mitsubishi Bank Ltd., New York Branch, 7.70%, due 12/18/95........................... 5,028,274
4,000,000 Mitsubishi Bank Ltd., New York Branch, 6.45%, due 5/24/96............................ 4,001,316
--------------
Total Certificates of Deposit 34,030,975
--------------
Commercial Paper (56.3%):
7,000,000 ABS Commercial Paper, Incorporated, 6.09% yield, due 6/23/95......................... 6,974,205
8,900,000 ABS Commercial Paper, Incorporated, 6.078% yield, due 7/11/95........................ 8,840,469
10,000,000 Arena Funding Corporation, 6.04% yield, due 7/25/95(a)............................... 9,910,300
6,000,000 Atlas Funding Corporation, 6.08% yield, due 6/21/95(a)............................... 5,979,833
5,000,000 Banca CRT Financial Corporation, 6.18% yield, due 8/25/95............................ 4,927,042
9,000,000 Creative Capital Corporation, 6.086% yield, due 8/23/95(a)........................... 8,875,500
6,400,000 Dealers Capital Access Trust, 6.077% yield, due 6/19/95.............................. 6,380,640
15,000,000 Diamond Asset Funding Corporation, 6.14% yield, due 7/31/95(a)....................... 14,848,750
14,905,000 Freedom Asset Funding Corporation, 6.042% yield, due 6/5/95.......................... 14,895,047
2,600,000 GTE Hawaiian Telephone Company, Incorporated, 6.056% yield, due 6/1/95............... 2,600,000
13,000,000 Holland Limited Securitization,
Incorporated, 6.07% yield, due 6/12/95(a)........................................... 12,975,968
5,500,000 Holland Limited Securitization,
Incorporated, 6.078% yield, due 6/19/95(a).......................................... 5,483,363
Commercial Paper, continued:
$ 24,900,000 Industrial Funding Corporation, 6.060% yield, due 7/18/95............................ $ 24,704,950
5,750,000 JAL Capital Corporation, 6.222% yield, due 6/21/95(a)................................ 5,730,450
5,000,000 JAL Capital Corporation, 6.078% yield, due 8/25/95(a)................................ 4,929,285
10,000,000 Jet Funding Corporation, 6.24% yield, due 6/30/95.................................... 9,950,458
15,000,000 Jet Funding Corporation, 6.232% yield, due 8/31/95................................... 14,768,709
12,000,000 McKenna Triangle National Corporation, 6.503% yield, due 8/31/95(a).................. 11,809,507
5,000,000 Merrill Lynch & Company, Incorporated, 6.15% yield, due 9/18/95...................... 4,906,897
15,000,000 Monte Blanc Capital Corporation, 6.028% yield, due 6/7/95(a)......................... 14,985,000
20,000,000 Oak Funding Corporation, 6.092% yield, due 8/17/95................................... 19,743,334
10,000,000 Old Line Funding Corporation, 6.056% yield, due 6/13/95(a)........................... 9,979,933
8,000,000 Old Line Funding Corporation, 6.058% yield, due 6/16/95(a)........................... 7,979,933
10,000,000 Pacific Dunlop Holdings, Incorporated, 6.324% yield, due 10/10/95(a)................. 9,776,937
10,000,000 Quebec (Province of), Canada, 6.319% yield, due 12/14/95............................. 9,669,522
5,500,000 SFC (USA) Incorporated, 6.10% yield, due 7/5/95(a)................................... 5,468,314
20,000,000 SFC (USA) Incorporated, 6.142% yield, due 7/31/95(a)................................. 19,798,333
7,000,000 Seven Hills Funding Corporation, 6.08% yield, due 6/30/95(a)......................... 6,965,885
15,000,000 Stellar Capital Corporation, 6.057% yield, due 7/25/95(a)............................ 14,865,000
15,000,000 Stellar Capital Corporation, 6.239% yield, due 10/5/95(a)............................ 14,681,326
5,000,000 Stellar Capital Corporation, 6.092% yield, due 10/18/95(a)........................... 4,885,518
10,000,000 Sumitomo Corporation of America, 7.308% yield, due 10/6/95........................... 9,755,525
</TABLE>
See notes to financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
READY CASH INVESTMENT FUND (continued)
Commercial Paper, continued:
$ 15,000,000 Sweden (Kingdom of), 6.34% yield, due 11/1/95........................................ $ 14,609,850
15,000,000 Thames Funding Incorporated, 6.108% yield, due 6/16/95(a)............................ 14,962,188
10,816,000 Tri-Lateral Capital Incorporated, 6.24% yield, due 6/5/95(a)......................... 10,808,621
20,000,000 Tri-Lateral Capital
Incorporated, 6.199% yield,
due 6/12/95(a)...................................................................... 19,962,600
13,000,000 Vattenfall Treasury Incorporated, 6.323% yield, due 10/18/95......................... 12,692,810
5,000,000 Vesey Street Short Term Income I Corporation, 6.20% yield, due 7/13/95(a)............ 4,964,300
10,000,000 Vesey Street Short Term Income I Corporation, 6.176% yield, due 7/14/95(a)........... 9,926,841
2,500,000 Vesey Street Short Term Income I Corporation, 6.15% yield, due 7/28/95(a)............ 2,475,657
14,471,000 Working Capital Management Company L.P., 6.217% yield, due 6/1/95.................... 14,471,000
10,000,000 Yamaha Motor Owner Trust, 6.065% yield, due 6/15/95(a)............................... 9,976,550
--------------
Total Commercial Paper 442,896,350
--------------
Corporate Notes (7.0%):
5,000,000 Abbey National Treasury Services PLC, 7.05%, due 3/1/96.............................. 5,000,000
4,000,000 Bear, Stearns & Company, Incorporated, 6.375% variable rate, due 7/20/95............. 4,001,049
10,000,000 Bear, Stearns & Company, Incorporated, 5.83% variable rate, due 12/29/95............. 9,984,882
8,000,000 Bear, Stearns & Company, Incorporated, 6.162% variable rate, due 1/11/96............. 8,000,000
10,000,000 Dean Witter Discover & Company, 6.311% variable rate, due 12/15/95................... 10,012,313
Corporate Notes, continued:
$ 8,000,000 Merrill Lynch & Company, Incorporated, 0.00% (6.375% effective yield), due 7/18/95... $ 7,935,040
10,000,000 Sanwa Business Credit Corporation, 6.30% variable rate, due 12/1/95(a)............... 9,990,008
--------------
Total Corporate Notes 54,923,292
--------------
Medium Term Notes (.6%):
5,000,000 Compagnie Bancaire (USA) Funding Corporation, 6.312% variable rate, due 6/12/95(a)... 5,000,217
--------------
Repurchase Agreements (5.6%):
22,000,000 Goldman Sachs & Co., 6.17%, due 6/1/95, $22,003,770.56 to be collected at maturity,
(Collateralized by $500,000 Maguire/Thomas Partners, Westlake/Southlake Partnership,
Sumitomo Bank LOC, 6.00%, due 6/5/95; $70,000,000 Oesterreichische Kontrollbank
Aktiengesellschaft, Republic of Austria, 5.97%, due 6/9/95; $32,000,000 Federal
Business Development Bank, 5.88%, due 6/30/95)...................................... 22,000,000
22,000,000 Merrill Lynch Government Securities, Incorporated, 6.15%, due 6/1/95, $22,003,758.33
to be collected at maturity, (Collateralized by $50,000,000 Omnibus Funding
Corporation, 5.95%, due 6/30/95; $2,933,000 Dean Witter Discover & Co., 5.90%, due
8/11/95; $50,000,000 Dean Witter Discover & Co., 5.90%, due 8/18/95)................ 22,000,000
--------------
Total Repurchase Agreements 44,000,000
--------------
Time Deposits (12.3%):
22,000,000 First Union National Bank, Nassau Branch, 6.125%, due 6/1/95......................... 22,000,000
19,633,026 Fuji Bank Ltd., Cayman Branch, 6.156%, due 6/1/95.................................... 19,633,026
</TABLE>
See notes to financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
READY CASH INVESTMENT FUND (continued)
Time Deposits, continued:
$ 22,000,000 Hong Kong Bank of Canada, Toronto, 6.125%, due 6/1/95................................ $ 22,000,000
11,000,000 Midland Bank PLC, Grand Cayman Branch, 6.156%, due 6/1/95............................ 11,000,000
22,000,000 Society National Bank, Cayman Branch, 6.125%, due 6/1/95............................. 22,000,000
--------------
Total Time Deposits 96,633,026
--------------
Total Investments (100.0%) $ 787,334,738
--------------
--------------
- ----------------------------------------------
MUNICIPAL MONEY MARKET FUND
Municipal Bonds & Notes (97.8%):
Alaska (0.3%):
$ 1,000,000 North Slope Boro, AK, General Obligation Bonds, Series B, 4.75%, due 6/30/95......... $ 1,000,000
--------------
Arizona (1.8%):
4,400,000 Chandler, AZ, Industrial Development Authority, Industrial Development Revenue Bonds,
Parsons Municipal Services, Incorporated, National Westminster Bank, USA LOC, 4.55%
variable rate, due 12/15/09......................................................... 4,400,000
1,400,000 Phoenix, AZ, General Obligation Bonds, Series 1, 4.10% variable rate, due 6/1/19..... 1,400,000
--------------
5,800,000
--------------
California (7.3%):
5,000,000 California State Tax and Revenue Anticipation Notes, 4.365% variable rate, due
6/28/95............................................................................. 4,999,730
5,750,000 Indio, CA, Multi-Family Housing Revenue Bonds, Western Federal Savings Project,
Western Federal Savings LOC, 4.75% variable rate, due 6/1/05........................ 5,750,000
8,000,000 Orange County, CA, Tax & Revenue Anticipation Notes, Series B, 4.244% variable rate,
due 8/10/95......................................................................... 6,320,000
California, continued:
LOC Agreement with Trust Company Bank................................................ $ 1,680,000
--------------
8,000,000
$ 5,290,000 Pomona, CA, Redevelopment Agency, Multi-Family Housing Revenue Bonds, Mercury Savings
& Loan LOC, 4.60% variable rate, due 12/1/07........................................ 5,290,000
--------------
24,039,730
--------------
Colorado (4.5%):
1,210,000 Adams County, CO, Industrial Development Revenue Bonds, Yellow Freight Systems,
Incorporated, Union Bank of Switzerland LOC, 3.90% variable rate, due 12/1/03....... 1,210,000
1,110,000 Auroro, CO, Multi-Family Housing Revenue Bonds, Laredo Apartments Project, First Bank
LOC, 4.25% variable rate, due 10/1/18............................................... 1,110,000
3,330,000 Colorado Health Facilities Authority Revenue Bonds, Valley View Hospital Association
Project, Fuji Bank Ltd. LOC, 3.70% variable rate, due 10/1/12....................... 3,330,000
3,500,000 Denver, CO, City & County Multi-Family Housing Revenue Bonds, Cottonwood Creek,
Series A, General Electric Credit Corporation LOC, 4.15% variable rate, due
4/15/14............................................................................. 3,500,000
5,500,000 Lakewood, CO, Multi-Family Housing Revenue Bonds, St. Moritz & Diamondhead Project,
Dai-Ichi Kango Bank Ltd. LOC, 4.15% variable rate, due 10/1/07...................... 5,500,000
--------------
14,650,000
--------------
Florida (10.2%):
2,075,000 Brevard County, FL, Housing Finance Authority, Multi-Family Housing Revenue Bonds,
Malabar Lakes & Parks Village, Series A, First Bank LOC, 3.90% variable rate, due
12/1/10............................................................................. 2,075,000
</TABLE>
See notes to financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MUNICIPAL MONEY MARKET FUND (continued)
Florida, continued:
$ 5,170,000 Dade County, FL, Housing Finance Authority, Multi-Family Mortgage Revenue Bonds,
Cutler Club Apartment Project, Series J, guaranteed by John Hancock Mutual Life,
4.00% variable rate, due 2/1/05..................................................... $ 5,170,000
1,500,000 Dade County, FL, Multi-Family Housing Revenue Bonds, Mayan Tower & Villa, Series M,
guaranteed by John Hancock Mutual Life, 4.00% variable rate, due 12/1/29............ 1,500,000
1,530,000 Florida Housing Finance Agency, Multi-Family Mortgage Revenue Bonds, Series 1983 I,
Connecticut General Life Insurance Company LOC, 3.95% variable rate, due 12/1/05.... 1,530,000
1,200,000 Florida Housing Finance Agency, Multi-Family Housing Revenue Bonds, 1984 Project,
Series A, Wells Fargo Bank LOC, 4.20% variable rate, due 4/1/07..................... 1,200,000
2,300,000 Florida Housing Finance Agency, Multi-Family Housing Revenue Bonds, Webb Road Project
#1, Series 1984 B, Wells Fargo Bank LOC, 4.20% variable rate, due 4/1/07............ 2,300,000
1,150,000 Florida Housing Finance Agency, Multi-Family Housing Revenue Bonds, Buena Vista
Project, guaranteed by New England Mutual Life, 4.05% variable rate, due 11/1/07.... 1,150,000
6,600,000 Florida Housing Finance Agency, Multi-Family Housing Revenue Bonds, Country Club
Project, Bankers Trust LOC, 4.60% variable rate, due 12/1/07........................ 6,600,000
Florida, continued:
$ 3,300,000 Florida Housing Finance Agency, Multi-Family Housing Revenue Bonds, Windwood Oaks
Project, Wells Fargo Bank LOC, 4.20% variable rate, due 5/1/08...................... $ 3,300,000
1,800,000 Florida Housing Finance Agency, Multi-Family Housing Revenue Bonds, Carlton Project,
Sumitomo Bank LOC, 3.90% variable rate, due 12/1/08................................. 1,800,000
1,600,000 Hillsborough County, FL, Industrial Development Authority, Port Facilities Revenue
Bonds, Seaboard System Railroad, Incorporated Project, National Bank Detroit LOC,
4.55% variable rate, due 10/15/99................................................... 1,600,000
2,400,000 Indian River County, FL, District Hospital Revenue Bonds, Kredietbank LOC, 3.90%
variable rate, due 10/1/15, crossover refunded 5/2/10 at 100........................ 2,400,000
3,000,000 Orange County, FL, Housing Finance Authority, Multi-Family Housing Revenue Bonds, Sun
Lake Apartments Project, Dai-Ichi Kangyo, NY LOC, 4.50% variable rate, due 11/1/97,
mandatory put 11/1/95 at 100........................................................ 3,000,000
--------------
33,625,000
--------------
Georgia (2.9%):
8,000,000 Municipal Electric Authority of Georgia, Adjustable Rate Subordinated General
Resolution Bonds, Series 1985 C, 4.90% variable rate, due 3/1/96.................... 8,000,000
1,600,000 Municipal Electric Authority of Georgia, Money Market Municipal Subordinated General
Resolution Bonds, Series 1985 A, 4.10% variable rate, due 6/22/95................... 1,600,000
--------------
9,600,000
--------------
</TABLE>
See notes to financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MUNICIPAL MONEY MARKET FUND (continued)
Hawaii (0.9%):
$ 3,000,000 Hawaii State Department of Budget & Finance, Special Purpose Mortgage Revenue Bonds,
G.N. Wilcox Memorial Hospital Project, Fuji Bank Ltd. NY LOC, 4.30% variable rate,
due 7/1/18.......................................................................... $ 3,000,000
--------------
Illinois (16.2%):
1,500,000 Cook County, IL, General Obligation Tender Notes, Public Safety Project, Series A,
Northern Trust and First Chicago LOC's, 3.95% variable rate, due 3/1/00............. 1,500,000
2,015,000 Des Plaines, IL, Industrial Development Revenue Bonds, Oakton Partners Project, 4.50%
variable rate, due 12/1/15.......................................................... 2,015,000
2,500,000 Illinois Development Finance Authority, Industrial Development Revenue Bonds,
Supervalu Incorporated Project, Wachovia Corporation LOC, 4.00% variable rate, due
2/1/01.............................................................................. 2,500,000
13,610,000 Illinois Development Finance Authority, Multi-Family Housing Revenue Bonds, Garden
Glen Apartments, guaranteed by CNA Insurance, 4.50% variable rate, due 12/1/13...... 13,610,000
3,500,000 Illinois Development Financial Authority, Multi-Family Housing Revenue Bonds, Council
Jewish Elderly Project, La Salle Bank LOC, 4.20% variable rate, due 3/1/15.......... 3,500,000
960,000 Illinois Development Finance Authority, Industrial Development Revenue Bonds, North
Wacker Drive, 4.50% variable rate, due 12/1/15...................................... 960,000
Illinois, continued:
$ 2,000,000 Illinois Development Finance Authority, Industrial Development Revenue Bonds,
Webster-Wayne Shopping Project, 4.50% variable rate, due 12/1/15.................... $ 2,000,000
5,500,000 Illinois Educational Facilities Revenue Bonds, Illinois Institute of Technology,
Series A, Northern Trust LOC, 3.80% variable rate, due 9/1/25....................... 5,500,000
7,000,000 Illinois Health Facilities Authority Revenue Bonds, Resurrection Health Care System,
4.25% variable rate, due 5/1/11..................................................... 7,000,000
6,800,000 Lombard, IL, Industrial Development Revenue Refunding Bonds, 2500 Highland Avenue,
Mid-America Federal Savings & Loan LOC, 4.40% variable rate, due 12/1/06............ 6,800,000
2,975,000 Orland Hills, IL, Multi-Family Mortgage Revenue Bonds, 88th Avenue Project, Series A,
Home Savings & Loan LOC, 4.50% variable rate, due 12/1/07........................... 2,975,000
4,855,000 Palatine, IL, Multi-Family Housing Revenue Bonds, Hamilton Place Project, Concordia &
Elmhurst Federal Savings & Loan LOC, 4.50% variable rate, due 12/1/08............... 4,855,000
--------------
53,215,000
--------------
Indiana (4.2%):
6,000,000 Indiana Bond Bank Notes, Advance Funding Program, Series A-3, 4.123% variable rate,
due 1/10/96......................................................................... 6,000,000
2,825,000 Indiana Health Facilities Financing Authority, Health Care Revenue Bonds, Capital
Access Pooled Program, Comerica Bank LOC, 3.75% variable rate, due 8/1/06........... 2,825,000
5,000,000 Indiana Health Facilities Financing Authority, Health Care Revenue Bonds, St. Anthony
Medical Center Project, Sanwa Bank Ltd. LOC, 4.10% variable rate, due 12/1/14....... 5,000,000
--------------
13,825,000
--------------
</TABLE>
See notes to financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MUNICIPAL MONEY MARKET FUND (continued)
Iowa (6.7%):
$ 4,000,000 Council Bluffs, IA, Health Care Revenue Bonds, Catholic Health-Mercy Hospital
Project, Fuji Bank Ltd. LOC, 4.30%, due 10/1/95..................................... $ 4,000,000
5,000,000 Louisa County, IA, Pollution Control Revenue Bonds, Iowa-Illinois Gas & Electric
Company Project, Series A, Rabobank Nederland LOC, 3.90% variable rate, due
9/1/16.............................................................................. 5,000,000
1,800,000 University of Iowa, Corporate Facilities Revenue Bonds, Human Biology Research,
Series A, Bank of Tokyo, Ltd. LOC, 3.75% variable rate, due 6/1/05.................. 1,800,000
6,000,000 Urbandale, IA, Industrial Development Revenue Bonds, Interstate Acres L.P. Project,
guaranteed by Principal Mutual Life Insurance, 4.30% variable rate, due 12/1/14..... 6,000,000
4,000,000 Urbandale, IA, Industrial Development Revenue Bonds, Aurora Business Park Association
Project, guaranteed by Principal Mutual Life Insurance, 4.35% variable rate, due
10/1/15............................................................................. 4,000,000
1,100,000 Urbandale, IA, Industrial Development Revenue Bonds, Meredith Drive Association
Project, guaranteed by Principal Mutual Life Insurance, 4.35% variable rate, due
11/1/15............................................................................. 1,100,000
--------------
21,900,000
--------------
Kansas (1.8%):
2,200,000 Lawrence, KS, Commercial Development Revenue Bonds, Kandel Hotel Investment Project,
4.50% variable rate, due 7/1/16, mandatory put 7/1/95 at 100........................ 2,200,000
Kansas, continued:
$ 3,800,000 Manhattan, KS, Commercial Development Revenue Bonds, Del Hotel Investment, guaranteed
by Lehman Holding Company, 5.00% variable rate, due 8/1/16, mandatory put 8/1/95 at
100................................................................................. $ 3,800,000
--------------
6,000,000
--------------
Kentucky (0.3%):
1,000,000 Kentucky Association of Counties, Reinsurance Trust Revenue Bonds, Hong Kong Shanghai
& Marine Midland Bank LOC's, 3.75% variable rate, due 9/1/15........................ 1,000,000
--------------
Louisiana (2.8%):
3,040,000 Bossier Parish, LA, Industrial Development Board, Incorporated, Economic Development
Revenue Bonds, H.J. Wilson, Incorporated Project, Industrial Bank of Japan, NY LOC,
4.40% variable rate, due 12/1/07, mandatory put 12/1/95 at 100...................... 3,025,953
2,000,000 Caddo Parish, LA, Industrial Development Board, Pollution Control Revenue Bonds,
Pennzoil Company Project, Mellon Bank LOC, 4.55% variable rate, due 12/1/12......... 2,000,000
1,200,000 Louisiana Public Facilities Authority, Hospital Equipment Revenue Refunding Bonds,
Series A, Sumitomo Bank LOC, 3.90% variable rate, due 12/1/05....................... 1,200,000
3,000,000 Louisiana Public Facilities Authority, Pollution Control Revenue Bonds, Allied
Signal, Incorporated Project, guaranteed by Allied Signal, Incorporated, 3.90%
variable rate, due 8/1/17........................................................... 3,000,000
--------------
9,225,953
--------------
</TABLE>
See notes to financial statements.
33
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MUNICIPAL MONEY MARKET FUND (continued)
Maryland (1.3%):
$ 4,200,000 Montgomery County, MD, Housing Opportunities Commission, Multi-Family Housing Revenue
Refunding Bonds, Issue I, guaranteed by Commonwealth Life, 4.05% variable rate, due
11/1/20............................................................................. $ 4,200,000
--------------
Michigan (1.5%):
4,950,000 Flint, MI, Hospital Building Authority, Health Care Revenue Bonds, Comerica Bank,
Detroit LOC, 4.20% variable rate, due 7/1/00........................................ 4,950,000
--------------
Minnesota (7.3%):
4,700,000 Blaine, MN, Industrial Development Revenue Bonds, Supervalu Incorporated Project,
Wachovia Corporation LOC, 4.00% variable rate, due 11/1/13.......................... 4,700,000
4,300,000 Bloomington, MN, Multi-Family Housing Revenue Bonds, Hampshire Apartments Project,
Phoenix Mutual Life insured, 4.29% variable rate, due 12/1/05....................... 4,300,000
2,350,000 Cottage Grove, MN, Industrial Development Revenue Bonds, SuperValu Incorporated
Project, 4.00% variable rate, due 10/1/05........................................... 2,350,000
2,180,000 Lakeville, MN, Independent School District, General Obligation Certificates of
Anticipation, 4.19%, due 9/30/95.................................................... 2,174,354
3,195,000 Osseo, MN Independent School District, General Obligation School District Trust
Certificates, 4.25% variable rate, due 2/1/14....................................... 3,195,000
1,510,000 Richfield, MN, Independent School District, General Obligation School District Trust
Certificates, FGIC insured, 4.25% variable rate, due 2/1/12......................... 1,510,000
Minnesota, continued:
$ 1,000,000 Richfield, MN, Independent School District, General Obligation School District Trust
Certificates, FGIC insured, 4.25% variable rate, due 2/1/15......................... $ 1,000,000
4,600,000 St. Louis Park, MN, Industrial Development Revenue Bonds, Unicare Homes, Incorporated
Project, Banque Paribas LOC, 4.15% variable rate, due 8/1/14........................ 4,600,000
--------------
23,829,354
--------------
Missouri (3.6%):
2,855,000 Dunklin County, MO, Industrial Development Authority, Industrial Development Revenue
Refunding Bonds, National HealthCorp Project, Bank of Tokyo Ltd. LOC, 4.25% variable
rate, due 12/1/10................................................................... 2,855,000
2,200,000 Kansas City, MO, Industrial Development Authority, Multi-Family Housing Revenue
Bonds, JC Nichols Company Project, guaranteed by Principal Financial Group, 4.35%
variable rate, due 5/1/15........................................................... 2,200,000
3,700,000 Kansas City, MO, Industrial Development Authority, Multi-Family Housing Revenue
Bonds, Coach House II Project, guaranteed by Principal Financial Group, 4.35%
variable rate, due 12/1/15.......................................................... 3,700,000
3,000,000 Missouri State Environmental Improvement & Energy Resources Authority, Pollution
Control Revenue Bonds, Noranda Aluminum, Incorporated, Project, Sanwa Bank LOC,
3.75% variable rate, due 10/1/02.................................................... 3,000,000
--------------
11,755,000
--------------
Nevada (1.6%):
5,100,000 Clark County, NV, Industrial Development Revenue Bonds, Nevada Power Company Project,
Fuji Bank Ltd. LOC, 4.30% variable rate, due 12/1/15................................ 5,100,000
--------------
</TABLE>
See notes to financial statements.
34
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MUNICIPAL MONEY MARKET FUND (continued)
New Jersey (0.9%):
$ 2,965,000 Newark, NJ, Health Care Facilities Revenue Bonds, New Community Facility, Series A,
Sumitomo Bank LOC, 4.40%, due 8/3/95................................................ $ 2,965,000
--------------
North Carolina (1.5%):
5,000,000 Person County, NC, Industrial Facilities & Pollution Control Financing Authority,
Pollution Control Revenue Bonds, 3.75% variable rate, due 11/1/19................... 5,000,000
--------------
Ohio (3.5%):
5,200,000 Hamilton County, OH, Industrial Development Revenue Bonds, Community Urban
Redevelopment Project, National Westminster LOC, 4.55% variable rate, due
10/15/12............................................................................ 5,200,000
1,575,000 Ohio State University, Educational Facilities Revenue Bonds, General Receipts, 4.10%
variable rate, due 12/1/06.......................................................... 1,575,000
4,800,000 Stark County, OH, Industrial Development Revenue Bonds, CR/PL, Incorporated Project,
American National Bank & Trust LOC, 4.30% variable rate, due 9/1/01................. 4,800,000
--------------
11,575,000
--------------
Oregon (0.9%):
1,100,000 Jackson County, OR, Pollution Control Revenue Bonds, guaranteed by Minnesota Mining &
Manufacturing, 4.10% variable rate, due 8/1/22...................................... 1,100,000
1,900,000 Port Morrow, OR, Transportation Revenue Bonds, Boardman Project, Industrial Bank of
Japan LOC, 4.10% variable rate, due 10/1/13......................................... 1,900,000
--------------
3,000,000
--------------
Pennsylvania (1.3%):
$ 300,000 Butler County, PA, Industrial Development Authority, Pollution Control Revenue Bonds,
Pennzoil Company Project, Mellon Bank LOC, 4.55% variable rate, due 12/1/12......... $ 300,000
4,100,000 Chartiers Valley, PA, Industrial & Commercial Development Authority, Industrial
Development Revenue Bonds, guaranteed by ADP Incorporated, 4.76% variable rate, due
11/15/17............................................................................ 4,100,000
--------------
4,400,000
--------------
Rhode Island (2.0%):
6,490,000 Rhode Island Housing & Mortgage Finance Corporation, Multi-Family Housing Revenue
Bonds, AMBAC insured, 5.00% variable rate, due 7/1/96............................... 6,502,201
--------------
South Carolina (1.1%):
2,495,000 Georgetown County, SC, Jail Facilities Certificates of Participation, Sumitomo Bank
LOC, 4.45% variable, due 4/15/96.................................................... 2,495,000
1,000,000 York County, SC, Pollution Control Revenue Bonds, North Carolina Electric Project,
CFC insured, 4.30%, due 9/15/95..................................................... 1,000,125
--------------
3,495,125
--------------
Texas (5.5%):
4,950,000 Bexar County, TX, Housing Finance Corporation, Multi-Family Housing Revenue Bonds,
Park Hill Development Project, Series B, guaranteed by New England Mutual Life
Insurance Company, 4.20% variable rate, due 6/1/05.................................. 4,950,000
3,100,000 Bexar County, TX, Housing Finance Corporation, Multi-Family Housing Revenue Bonds,
Series 1984 A, 4.00% variable rate, due 11/1/06..................................... 3,100,000
</TABLE>
See notes to financial statements.
35
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- MONEY MARKET FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MUNICIPAL MONEY MARKET FUND (continued)
Texas, continued:
$ 1,065,000 San Antonio, TX, Higher Education Authority, Educational Facilities Revenue Bonds,
Lloyds Bank LOC, 4.15% variable rate, due 12/1/15................................... $ 1,065,000
9,000,000 State of Texas, Tax & Revenue Anticipation Notes, 4.37% variable rate, due 8/31/95... 9,000,000
--------------
18,115,000
--------------
Utah (1.3%):
4,100,000 Intermountain Power Agency, UT, Power Supply Revenue Refunding Bonds, Series H,
9.00%, due 7/1/19, crossover refunded 7/1/95 at 101.50.............................. 4,174,141
--------------
Virginia (1.2%):
4,000,000 Louisa, VA, Tax-Exempt Commercial Paper, guaranteed by Virginia Electric Power
Company, 4.00% variable rate, due 7/27/95........................................... 4,000,000
--------------
Washington (0.5%):
1,400,000 Washington State Housing Finance Commission, Multi-Family Mortgage Revenue Bonds,
Pacific First Federal, Series B, Federal Home Loan Bank of Seattle LOC, 3.95%
variable rate, due 10/1/20.......................................................... 1,400,000
100,000 Washington State Housing Finance Commission, Nonprofit Housing Revenue Bonds, Emerald
Heights Project, Banque Paribas LOC, 4.30% variable rate, due 1/1/21................ 100,000
--------------
1,500,000
--------------
Washington, D.C. (1.7%):
2,100,000 District of Columbia, Educational Facilities Revenue Bonds, Georgetown University,
Series D, Sanwa Bank LOC, 3.75% variable rate, due 4/1/17........................... 2,100,000
Washington, D.C., continued:
$ 2,400,000 District of Columbia, Educational Facilities Revenue Bonds, American Association of
Advancement for Science, NationsBank of Maryland LOC, 4.25% variable rate, due
10/1/22............................................................................. $ 2,400,000
1,000,000 District of Columbia, Supplemental Student Loan Revenue Bonds, CONSERN Loan Program,
Mitsubishi Bank LOC, 4.05% variable rate, due 7/1/01................................ 1,000,000
--------------
5,500,000
--------------
Wisconsin (0.9%):
1,115,000 Milwaukee, WI, Pollution Control Revenue Bonds, guaranteed by Johnson Controls
Incorporated, 4.00% variable rate, due 12/1/97...................................... 1,115,000
1,990,000 Waukesha, WI, Housing Authority Revenue Bonds, Caroline Apartments Project, Community
Savings & Loan LOC, 4.65% variable rate, due 5/1/16................................. 1,990,000
--------------
3,105,000
--------------
Wyoming (0.3%):
1,000,000 Green River, WY, Pollution Control Revenue Bonds, Allied Corporation Project,
guaranteed by Allied Signal Corporation, 5.26% variable rate, due 12/1/12........... 1,000,000
--------------
Total Municipal Bonds & Notes 321,046,504
--------------
Short-Term Holdings (2.2%):
7,376,011 Federated Tax Free Obligations Money Market Fund..................................... 7,376,011
--------------
Total Investments (100.0%) $ 328,422,515
--------------
--------------
</TABLE>
(a) Securities that may be resold to 'qualified institutional buyers' under
Rule 144A, or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
See notes to financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (May 31, 1995)
ADJUSTABLE
U.S.
GOVERNMENT GOVERNMENT TOTAL
RESERVE INCOME INCOME RETURN BOND
FUND FUND FUND FUND
-------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value(a)................... $63,282,709 $122,607,634 $118,766,756 $96,801,247
Cash....................................... -- 873 349 624
Interest, dividends and other
receivables.............................. 557,677 1,337,725 1,552,287 1,542,223
Receivable for shares issued............... -- 107,434 26,440 57,068
Receivable for principal paydowns.......... 132,672 91,734 -- --
Organization costs, net of amortization.... -- -- -- 23,431
-------------- ----------- ---------- -----------
Total assets................................ 63,973,058 124,145,400 120,345,832 98,424,593
-------------- ----------- ---------- -----------
LIABILITIES:
Payable for shares redeemed................ 19 15,565 63,774 250
Investment advisory, transfer agency and
custodial fees payable................... 35,646 65,806 63,572 32,940
Management fee payable..................... -- 28,514 15,936 38,291
Accrued expenses........................... 30,109 25,529 31,281 38,830
Dividends payable.......................... 330,929 682,651 650,284 598,414
-------------- ----------- ---------- -----------
Total liabilities........................... 396,703 818,065 824,847 708,725
-------------- ----------- ---------- -----------
NET ASSETS.................................. $63,576,355 $123,327,335 $119,520,985 $97,715,868
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
COMPONENTS OF NET ASSETS:
Capital paid in............................ $71,371,378 $137,479,065 $126,966,899 $95,067,577
Unrealized appreciation (depreciation)..... (667,188) 2,713,940 2,638,047 2,409,119
Accumulated net realized gains (losses).... (7,127,835) (16,865,670) (10,083,961) 239,172
-------------- ----------- ---------- -----------
NET ASSETS.................................. $63,576,355 $123,327,335 $119,520,985 $97,715,868
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
NET ASSETS BY CLASS OF SHARES:
Investor A shares.......................... $41,656,019 $18,332,079 $6,231,401 $ 598,615
Investor B shares.......................... 405,153 10,666,953 3,295,621 918,511
Trust shares............................... 21,515,183 94,328,303 109,993,963 96,198,742
-------------- ----------- ---------- -----------
NET ASSETS.................................. $63,576,355 $123,327,335 $119,520,985 $97,715,868
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
SHARES OUTSTANDING:
Investor A shares.......................... 4,442,779 2,092,605 647,015 61,550
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
Investor B shares.......................... 43,391 1,218,853 342,759 94,380
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
Trust shares............................... 2,294,042 10,769,663 11,433,548 9,888,894
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
NET ASSET VALUE PER SHARE:
Investor A shares.......................... $ 9.38 $ 8.76 $ 9.63 $ 9.73
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
Investor B shares.......................... $ 9.34 $ 8.75 $ 9.61 $ 9.73
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
Trust shares............................... $ 9.38 $ 8.76 $ 9.62 $ 9.73
-------------- ----------- ---------- -----------
-------------- ----------- ---------- -----------
(a) Cost of Investments..................... $63,949,897 $119,893,694 $116,128,709 $94,392,128
</TABLE>
See notes to financial statements.
37
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (May 31, 1995)
TAX-FREE ARIZONA COLORADO MINNESOTA
INCOME TAX-FREE TAX-FREE TAX-FREE
FUND FUND FUND FUND
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value(a)............................. $126,944,924 $3,653,251 $54,959,228 $24,001,517
Cash................................................. -- 4,398 7,088 --
Interest, dividends and other receivables............ 2,625,462 79,678 1,035,691 432,533
Receivable for securities sold....................... 1,955,916 -- 15,000 --
Receivable for shares issued......................... 88,178 33,701 19,256 1,096,800
Organization costs, net of amortization.............. -- 23,431 -- --
---------- --------- --------- ---------
Total assets.......................................... 131,614,480 3,794,459 56,036,263 25,530,850
---------- --------- --------- ---------
LIABILITIES:
Payable for securities purchased..................... 1,907,492 -- -- 2,969,210
Payable for shares redeemed.......................... 11,045 -- 29,862 --
Investment advisory, transfer agency and custodial
fees payable....................................... 48,024 61 4,920 --
Management fee payable............................... 16,697 205 2,854 --
Accrued expenses..................................... 40,190 -- 24,895 19,588
Dividends payable.................................... 621,651 11,301 239,719 93,989
---------- --------- --------- ---------
Total liabilities..................................... 2,645,099 11,567 302,250 3,082,787
---------- --------- --------- ---------
NET ASSETS............................................ $128,969,381 $3,782,892 $55,734,013 $22,448,063
---------- --------- --------- ---------
---------- --------- --------- ---------
COMPONENTS OF NET ASSETS:
Capital paid in...................................... $133,531,094 $3,785,314 $56,636,434 $22,273,209
Unrealized appreciation.............................. 6,101,352 92,768 961,663 698,388
Accumulated net realized losses...................... (10,663,065) (95,190) (1,864,084) (523,534)
---------- --------- --------- ---------
NET ASSETS............................................ $128,969,381 $3,782,892 $55,734,013 $22,448,063
---------- --------- --------- ---------
---------- --------- --------- ---------
NET ASSETS BY CLASS OF SHARES:
Investor A shares.................................... $30,786,440 $2,781,511 $25,996,568 $15,559,173
Investor B shares.................................... 3,729,296 343,619 5,198,276 5,090,296
Trust shares......................................... 94,453,645 657,762 24,539,169 1,798,594
---------- --------- --------- ---------
NET ASSETS............................................ $128,969,381 $3,782,892 $55,734,013 $22,448,063
---------- --------- --------- ---------
---------- --------- --------- ---------
SHARES OUTSTANDING:
Investor A shares.................................... 3,136,604 282,010 2,625,556 1,489,390
---------- --------- --------- ---------
---------- --------- --------- ---------
Investor B shares.................................... 379,947 34,833 524,375 487,345
---------- --------- --------- ---------
---------- --------- --------- ---------
Trust shares......................................... 9,618,986 66,726 2,478,036 172,133
---------- --------- --------- ---------
---------- --------- --------- ---------
NET ASSET VALUE PER SHARE:
Investor A shares.................................... $ 9.82 $ 9.86 $ 9.90 $ 10.45
---------- --------- --------- ---------
---------- --------- --------- ---------
Investor B shares.................................... $ 9.82 $ 9.86 $ 9.91 $ 10.44
---------- --------- --------- ---------
---------- --------- --------- ---------
Trust shares......................................... $ 9.82 $ 9.86 $ 9.90 $ 10.45
---------- --------- --------- ---------
---------- --------- --------- ---------
(a) Cost of Investments............................... $120,843,572 $3,560,483 $53,997,565 $23,303,129
</TABLE>
See notes to financial statements.
38
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (Year Ended May 31, 1995)
ADJUSTABLE
U.S.
GOVERNMENT GOVERNMENT TOTAL
RESERVE INCOME INCOME RETURN BOND
FUND FUND FUND FUND
-------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................. $5,402,466 $10,661,529 $8,704,272 $4,731,513
-------------- ----------- --------- -----------
EXPENSES:
Advisory.................................... 410,092 530,069 560,463 305,161
Management.................................. 164,036 265,034 224,185 122,065
Transfer agent.............................. 205,046 331,293 280,232 152,581
Custodian................................... 16,075 24,843 21,814 12,239
Legal....................................... 4,504 7,325 6,243 4,551
Filing...................................... 34,324 15,935 13,170 36,897
Accounting.................................. 68,704 52,269 64,000 50,000
Auditing.................................... 14,704 13,740 13,440 14,293
Trustees.................................... 1,599 2,277 1,930 1,005
Distribution................................ 4,031 100,479 27,796 4,612
Amortization of organization costs.......... -- -- -- 6,538
Other....................................... 13,267 13,283 16,730 15,810
-------------- ----------- --------- -----------
Total expenses............................... 936,382 1,356,547 1,230,003 725,752
Expenses reimbursed and fees waived......... (236,100) (293,342) (372,805) (288,875)
-------------- ----------- --------- -----------
Net expenses................................. 700,282 1,063,205 857,198 436,877
-------------- ----------- --------- -----------
NET INVESTMENT INCOME........................ 4,702,184 9,598,324 7,847,074 4,294,636
-------------- ----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) on investments......... (5,258,816) (16,865,669) (9,293,991) 371,411
Change in unrealized appreciation........... 2,450,212 12,436,464 10,595,038 2,735,355
-------------- ----------- --------- -----------
Net gain (loss) on investments............... (2,808,604) (4,429,205) 1,301,047 3,106,766
-------------- ----------- --------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS....... $1,893,580 $5,169,119 $9,148,121 $7,401,402
-------------- ----------- --------- -----------
-------------- ----------- --------- -----------
</TABLE>
See notes to financial statements.
39
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (Year Ended May 31, 1995)
TAX-FREE ARIZONA COLORADO MINNESOTA
INCOME TAX-FREE TAX-FREE TAX-FREE
FUND FUND FUND FUND
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income....................................... $8,658,668 $ 170,082 $2,771,274 $ 774,923
--------- --------- ----------- -----------
EXPENSES:
Advisory.............................................. 671,570 16,315 257,147 67,504
Management............................................ 268,628 6,526 102,859 26,992
Transfer agent........................................ 335,785 8,158 128,574 33,752
Custodian............................................. 25,395 650 10,231 2,706
Legal................................................. 7,529 1,643 6,364 4,245
Filing................................................ 23,456 1,091 4,092 3,930
Accounting............................................ 62,000 53,000 55,000 55,270
Auditing.............................................. 15,017 9,296 10,216 13,952
Trustees.............................................. 2,284 444 1,097 577
Distribution.......................................... 31,738 2,535 47,144 30,386
Amortization of organization costs.................... -- 6,538 -- --
Other................................................. 23,300 5,609 18,315 7,721
--------- --------- ----------- -----------
Total expenses......................................... 1,466,702 111,805 641,039 247,035
Expenses reimbursed and fees waived................... (637,090) (105,001) (451,415) (159,621)
--------- --------- ----------- -----------
Net expenses........................................... 829,612 6,804 189,624 87,414
--------- --------- ----------- -----------
NET INVESTMENT INCOME.................................. 7,829,056 163,278 2,581,650 687,509
--------- --------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss on investments.......................... (7,290,713) (83,783) (1,388,271) (447,743)
Change in unrealized appreciation..................... 8,986,928 218,866 2,551,346 928,665
--------- --------- ----------- -----------
Net gain on investments................................ 1,696,215 135,083 1,163,075 480,922
--------- --------- ----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS................. $9,525,271 $ 298,361 $3,744,725 $1,168,431
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See notes to financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Years Ended May 31, 1994 and 1995)
ADJUSTABLE
U.S.
GOVERNMENT GOVERNMENT TOTAL
RESERVE INCOME INCOME RETURN BOND
FUND(a) FUND(a) FUND(a) FUND(a)
-------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
NET ASSETS -- May 31, 1993................... $77,367,360 $131,722,228 $85,252,405 $ --
-------------- ----------- --------- -----------
OPERATIONS:
Net investment income....................... 5,220,413 10,334,285 6,748,878 251,738
Realized gain (loss) on investments......... (1,697,917) 1,010,364 71,361 (132,239)
Change in unrealized depreciation........... (3,383,593) (14,352,487) (9,105,907) (326,236)
-------------- ----------- --------- -----------
138,903 (3,007,838) (2,285,668) (206,737)
-------------- ----------- --------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- Investor A
shares..................................... (4,235,924) (3,266,014) (1,691,890) (814)
Net investment income -- Investor B
shares..................................... (7,196) (288,329) (81,417) (1,607)
Net investment income -- Trust shares....... (977,298) (6,779,952) (4,975,571) (249,317)
Realized gain on investments -- Investor A
shares..................................... (269,160) -- (158,183) --
Realized gain on investments -- Investor B
shares..................................... (453) -- (39,348) --
Realized gain on investments -- Trust
shares..................................... (83,888) -- (2,358,157) --
-------------- ----------- --------- -----------
(5,573,919) (10,334,295) (9,304,566) (251,738)
-------------- ----------- --------- -----------
CAPITAL SHARE TRANSACTIONS:
Sale of shares -- Investor A shares......... 57,711,535 19,083,907 14,257,031 152,560
Sale of shares -- Investor B shares......... 440,286 11,365,658 3,085,570 189,039
Sale of shares -- Trust shares.............. 36,154,481 152,380,312 117,987,397 14,373,829
Reinvested dividends -- Investor A shares... 3,858,013 1,406,993 453,253 343
Reinvested dividends -- Investor B shares... 3,778 160,257 90,816 839
Reinvested dividends -- Trust shares........ 108,500 1,050,192 264,386 19,911
Cost of shares repurchased -- Investor A
shares..................................... (55,510,168) (130,840,562) (94,450,688) (978)
Cost of shares repurchased -- Investor B
shares..................................... (52,633) (1,020,264) (296,585) (977)
Cost of shares repurchased -- Trust
shares..................................... (9,216,595) (20,611,459) (12,606,786) (2,245,675)
-------------- ----------- --------- -----------
33,497,197 32,975,034 28,784,394 12,488,891
-------------- ----------- --------- -----------
NET ASSETS -- May 31, 1994................... 105,429,541 151,355,129 102,446,565 12,030,416
-------------- ----------- --------- -----------
OPERATIONS:
Net investment income....................... 4,702,184 9,598,324 7,847,074 4,294,636
Realized gain (loss) on investments......... (5,258,816) (16,865,669) (9,293,991) 371,411
Change in unrealized appreciation........... 2,450,212 12,436,464 10,595,038 2,735,355
-------------- ----------- --------- -----------
1,893,580 5,169,119 9,148,121 7,401,402
-------------- ----------- --------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- Investor A
shares..................................... (3,211,903) (1,350,486) (428,762) (23,376)
Net investment income -- Investor B
shares..................................... (20,359) (653,750) (173,377) (28,451)
Net investment income -- Trust shares....... (1,469,922) (7,594,090) (7,244,935) (4,242,809)
Realized gain on investments -- Investor A
shares..................................... -- (162,923) -- --
Realized gain on investments -- Investor B
shares..................................... -- (94,024) -- --
Realized gain on investments -- Trust
shares..................................... -- (881,368) -- --
-------------- ----------- --------- -----------
(4,702,184) (10,736,641) (7,847,074) (4,294,636)
-------------- ----------- --------- -----------
CAPITAL SHARE TRANSACTIONS:
Sale of shares -- Investor A shares......... 581,563 4,123,373 1,669,466 469,528
Sale of shares -- Investor B shares......... 67,603 2,473,014 857,395 725,150
Sale of shares -- Trust shares.............. 13,184,845 22,434,407 40,750,927 89,397,922
Reinvested dividends -- Investor A shares... 2,782,079 1,068,588 354,261 20,425
Reinvested dividends -- Investor B shares... 8,957 486,400 130,689 22,759
Reinvested dividends -- Trust shares........ 139,688 876,145 373,375 2,572,353
Cost of shares repurchased -- Investor A
shares..................................... (39,149,472) (7,086,770) (2,020,650) (54,585)
Cost of shares repurchased -- Investor B
shares..................................... (33,051) (1,653,843) (355,303) (39,734)
Cost of shares repurchased -- Trust
shares..................................... (16,626,794) (45,181,586) (25,986,787) (10,535,132)
-------------- ----------- --------- -----------
(39,044,582) (22,460,272) 15,773,373 82,578,686
-------------- ----------- --------- -----------
NET ASSETS -- May 31, 1995................... $63,576,355 $123,327,335 $119,520,985 $97,715,868
-------------- ----------- --------- -----------
-------------- ----------- --------- -----------
</TABLE>
(a) See note 1 of notes to financial statements for periods covered.
See notes to financial statements.
41
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Years Ended May 31, 1994 AND 1995)
TAX-FREE ARIZONA COLORADO MINNESOTA
INCOME TAX-FREE TAX-FREE TAX-FREE
FUND(a) FUND(a) FUND(a) FUND(a)
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
NET ASSETS -- May 31, 1993............................. $109,983,390 $ -- $ -- $10,852,136
--------- --------- ----------- -----------
OPERATIONS:
Net investment income................................. 7,560,571 45,421 1,970,286 619,792
Realized gain (loss) on investments................... (2,374,197) (11,407) (432,732) 80,552
Change in unrealized depreciation..................... (3,820,860) (126,098) (1,589,683) (551,585)
--------- --------- ----------- -----------
1,365,514 (92,084) (52,129) 148,759
--------- --------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- Investor A shares............ (3,291,120) (42,042) (1,526,669) (534,141)
Net investment income -- Investor B shares............ (59,358) (1,794) (88,546) (48,739)
Net investment income -- Trust shares................. (4,210,093) (1,607) (355,071) (36,912)
Realized gain on investments -- Investor A shares..... (206,422) -- (33,589) (199,894)
Realized gain on investments -- Investor B shares..... (7,281) -- (2,316) (26,159)
Realized gain on investments -- Trust shares.......... (670,064) -- (7,176) (23,362)
--------- --------- ----------- -----------
(8,444,338) (45,443) (2,013,367) (869,207)
--------- --------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Sale of shares -- Investor A shares................... 29,334,428 3,341,711 43,414,898 2,953,967
Sale of shares -- Investor B shares................... 3,006,821 254,970 4,831,163 2,751,786
Sale of shares -- Trust shares........................ 121,243,348 142,921 16,984,336 1,890,647
Reinvested dividends -- Investor A shares............. 925,879 28,330 1,189,251 633,499
Reinvested dividends -- Investor B shares............. 35,207 910 49,988 56,329
Reinvested dividends -- Trust shares.................. 66,771 712 8,245 23,816
Cost of shares repurchased -- Investor A shares....... (106,952,780) (530,822) (11,701,308) (3,919,009)
Cost of shares repurchased -- Investor B shares....... (217,297) (50,844) (142,431) (170,300)
Cost of shares repurchased -- Trust shares............ (11,162,266) (1,445) (1,198,478) (987,096)
--------- --------- ----------- -----------
36,280,111 3,186,443 53,435,664 3,233,639
--------- --------- ----------- -----------
NET ASSETS -- May 31, 1994............................. 139,184,677 3,048,916 51,370,168 13,365,327
--------- --------- ----------- -----------
OPERATIONS:
Net investment income................................. 7,829,056 163,278 2,581,650 687,509
Realized loss on investments.......................... (7,290,713) (83,783) (1,388,271) (447,743)
Change in unrealized appreciation..................... 8,986,928 218,866 2,551,346 928,665
--------- --------- ----------- -----------
9,525,271 298,361 3,744,725 1,168,431
--------- --------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- Investor A shares............ (1,879,495) (134,353) (1,427,564) (505,288)
Net investment income -- Investor B shares............ (160,249) (10,927) (203,657) (135,131)
Net investment income -- Trust shares................. (5,789,312) (17,976) (950,429) (47,090)
Realized gain on investments -- Investor A shares..... -- -- -- --
Realized gain on investments -- Investor B shares..... -- -- -- --
Realized gain on investments -- Trust shares.......... -- -- -- --
--------- --------- ----------- -----------
(7,829,056) (163,256) (2,581,650) (687,509)
--------- --------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Sale of shares -- Investor A shares................... 4,116,272 726,768 2,283,364 7,975,823
Sale of shares -- Investor B shares................... 1,148,602 250,181 732,184 2,574,142
Sale of shares -- Trust shares........................ 34,208,535 479,752 17,122,451 1,388,340
Reinvested dividends -- Investor A shares............. 1,435,640 129,407 1,158,952 394,894
Reinvested dividends -- Investor B shares............. 93,294 6,853 132,884 101,509
Reinvested dividends -- Trust shares.................. 197,801 749 10,651 15,984
Cost of shares repurchased -- Investor A shares....... (9,708,331) (869,141) (9,483,389) (3,131,320)
Cost of shares repurchased -- Investor B shares....... (276,349) (124,758) (277,123) (208,851)
Cost of shares repurchased -- Trust shares............ (43,126,975) (940) (8,479,204) (508,707)
--------- --------- ----------- -----------
(11,911,511) 598,871 3,200,770 8,601,814
--------- --------- ----------- -----------
NET ASSETS -- May 31, 1995............................. $128,969,381 $3,782,892 $55,734,013 $22,448,063
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
(a) See notes 1 of notes to financial statements for periods covered.
See notes to financial statements.
42
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Norwest Funds (the 'Trust') is registered as an open-end management
investment company. The Trust currently has eight fixed income investment
portfolios (each a 'Fund'). The classes of each Fund commenced operations on
the following dates:
<TABLE>
<S> <C>
Adjustable U.S. Government Reserve Fund (Investor A shares)............. June 16, 1992
Adjustable U.S. Government Reserve Fund (Investor B shares)............. August 6, 1993
Adjustable U.S. Government Reserve Fund (Trust shares).................. August 2, 1993
Government Income Fund (Investor A shares).............................. December 1, 1988
Government Income Fund (Investor B shares).............................. August 2, 1993
Government Income Fund (Trust shares)................................... August 2, 1993
Income Fund (Investor A shares)......................................... June 9, 1987
Income Fund (Investor B shares)......................................... August 5, 1993
Income Fund (Trust shares).............................................. August 2, 1993
December 31,
Total Return Bond Fund (Investor A shares).............................. 1993
December 31,
Total Return Bond Fund (Investor B shares).............................. 1993
December 31,
Total Return Bond Fund (Trust shares)................................... 1993
Tax-Free Income Fund (Investor A shares)................................ August 1, 1989
Tax-Free Income Fund (Investor B shares)................................ August 6, 1993
Tax-Free Income Fund (Trust shares)..................................... August 2, 1993
December 31,
Arizona Tax-Free Fund (Investor A shares)............................... 1993
December 31,
Arizona Tax-Free Fund (Investor B shares)............................... 1993
December 31,
Arizona Tax-Free Fund (Trust shares).................................... 1993
Colorado Tax-Free Fund (Investor A shares).............................. June 1, 1993
Colorado Tax-Free Fund (Investor B shares).............................. August 2, 1993
Colorado Tax-Free Fund (Trust shares)................................... August 23, 1993
Minnesota Tax-Free Fund (Investor A shares)............................. January 12, 1988
Minnesota Tax-Free Fund (Investor B shares)............................. August 6, 1993
Minnesota Tax-Free Fund (Trust shares).................................. August 2, 1993
</TABLE>
Investor A shares are sold with a front-end sales charge. Investor B shares
are subject to a contingent deferred sales charge upon redemption and, after a
specified number of years, automatically convert to Investor A shares. Trust
shares are offered exclusively to fiduciary and other clients of banks, trust
companies and their affiliates. Trust shares shareholders incur neither a
front-end nor contingent deferred sales charge.
With the exception of Arizona Tax-Free Fund, Colorado Tax-Free Fund and
Minnesota Tax-Free Fund, each Fund is diversified. Prior to July 31, 1993, the
Trust's operation was conducted as Prime Value Funds, Inc., a Maryland
Corporation. The Funds' financial statements are prepared in accordance with
generally accepted accounting principles. The Trust Instrument authorizes the
issuance of an unlimited number of shares of beneficial interest without par
value.
Financial Statement Periods and Change of Fiscal Year -- Funds or share
classes which commenced operations during the fiscal year ended May 31, 1994
have had less than a full year of operations. As a result, the financial
highlights and amounts reflected in the statements of changes in net assets
and footnotes to financial statements for such Funds or share classes, present
results of operations from the commencement date shown above, through May 31,
1994.
For other classes or Funds, the earliest period presented in the financial
highlights reflects operations for the period beginning with the commencement
date above through the date of its then fiscal year end, as noted. Otherwise a
full year is presented.
Effective May 31, 1992, Government Income Fund and Minnesota Tax-Free Fund
elected to change their fiscal year end to May 31. Prior to May 31, 1992,
their fiscal year end was November 30.
Security Valuation -- Securities with a maturity of 60 days or less are
valued at amortized cost. Other securities held by the Funds for which market
quotations are readily available are valued using mean of the bid and ask
prices provided by independent pricing services. If no mean price is
available, the last bid price is used. In the absence of readily available
market quotations,
43
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
securities are valued at fair value determined by the Board of Trustees.
Unrealized appreciation and depreciation based on identified tax cost as of
May 31, 1995 were as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
Appreciation Depreciation
----------- -----------
<S> <C> <C>
Adjustable U.S. Government Reserve Fund............................. $ 184,754 $ 851,942
Government Income Fund.............................................. 3,071,578 357,638
Income Fund......................................................... 3,207,994 569,947
Total Return Bond Fund.............................................. 2,950,905 554,278
Tax-Free Income Fund................................................ 6,098,501 197,372
Arizona Tax-Free Fund............................................... 108,036 15,268
Colorado Tax-Free Fund.............................................. 1,192,413 230,750
Minnesota Tax-Free Fund............................................. 723,744 25,356
</TABLE>
Realized gains and losses on investments sold are recorded on the basis of
identified cost.
The cost basis for federal income tax purposes is the same as for financial
accounting purposes except for Total Return Bond Fund and Tax-Free Income Fund
whose tax cost of securities is $121,043,794 and $94,404,620, respectively.
Delivery and payment for securities which have been purchased by the Funds
on a forward commitment or when-issued basis can take place a month or more
after the transaction date. During this period, the Funds are subject to
market fluctuations in the price of the purchased securities.
The Funds may enter into transactions to sell purchase commitments to third
parties at the current market values and concurrently acquire other purchase
commitments for similar securities at later dates. As an inducement for a Fund
to 'rollover' its purchase commitments, the Fund receives negotiated fees. For
the year ended May 31, 1995, such fees earned by the Adjustable U.S.
Government Reserve Fund amounted to $105,146 and are included in interest
income.
Repurchase Agreements -- Each Fund may purchase portfolio securities from
financial institutions deemed to be creditworthy by the investment adviser
subject to the seller's agreement to repurchase and a Fund's agreement to
resell such securities. Securities purchased subject to repurchase agreements
are maintained by the Trust and must have, at all times, an aggregate market
value greater than or equal to the repurchase price plus accrued interest. If
the value of the underlying security falls below the value of the repurchase
price plus accrued interest, the Funds require the seller to deposit
additional collateral by the next business day. In the event that the seller
under the agreement defaults on its repurchase obligation or fails to deposit
sufficient collateral, the Funds have the contractual right, subject to the
requirements of applicable bankruptcy and insolvency laws, to sell the
underlying securities at market value and may claim any resulting loss from
the seller. 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.
Interest Income and Dividends to Shareholders -- Interest income is accrued
as earned. Dividends to shareholders of net investment income are declared
daily and paid monthly by each Fund. Net capital gain, unless offset by any
available capital loss carryforwards, is distributed to the shareholders at
least annually.
Distributions from net investment income and realized capital gains are
based on their tax basis. The significant difference between financial
statement amounts available for distribution and distributions made in
accordance with income tax regulations are primarily attributable to the
deferral of post-October losses and utilization of capital loss carryforwards.
Expense Allocation -- Each share of each class represents an undivided,
proportionate interest in the Fund. The Funds' class specific expenses include
distribution expenses, if any, transfer agent fees and expenses and certain
other expenses that can be solely attributable to a class.
Organizational Costs -- The costs incurred by Total Return Bond Fund and
Arizona Tax-Free Fund in connection with their organization and registration
of shares, in amounts of $32,694 and $32,694, respectively, have been
capitalized and are being amortized using the straight-line method over a five
year period beginning on the commencement of the Funds' operations. Certain of
these costs were paid by Forum Financial Services, Inc. and will be reimbursed
by the respective Funds.
44
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Federal Income Tax -- Each Fund has qualified, and intends to continue to
qualify, as a regulated investment company and distributes all of its taxable
income. Therefore, no Federal income tax provision is required. As of May 31,
1995 certain of the Funds have capital loss carryovers available to offset
future capital gains as follows:
<TABLE>
<CAPTION>
Year of Expiration
--------------------
2002 2003 Total
--------- --------- ---------
<S> <C> <C> <C>
Adjustable U.S. Government Reserve Fund.................. $1,697,918 $5,258,816 $6,956,734
Government Income Fund................................... -- 16,865,669 16,865,669
Income Fund.............................................. -- 9,293,991 9,293,991
Tax-Free Income Fund..................................... 2,374,196 7,090,490 9,464,686
Arizona Tax-Free Fund.................................... 11,407 83,783 95,190
Colorado Tax-Free Fund................................... 423,732 1,388,271 1,812,003
Minnesota Tax-Free Fund.................................. -- 447,743 447,743
</TABLE>
2. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of each Fund is Norwest Investment Management, a
part of Norwest Bank Minnesota, N.A. (the 'Adviser'). Norwest Bank Minnesota,
N.A. is a subsidiary of Norwest Corporation. The Adviser receives an advisory
fee from Adjustable U.S. Government Reserve Fund, Income Fund, Total Return
Bond Fund and Tax-Free Fund at the annual rate of 0.50% of the average daily
net assets of each Fund and from Government Income Fund at the annual rate of
0.40% of the average daily net assets of that Fund. The Adviser receives an
advisory fee from Arizona Tax-Free Fund, Colorado Tax-Free Fund and Minnesota
Tax-Free Fund at the annual rate of 0.50% of the average daily net assets for
the first $300 million of net assets of each Fund, declining to 0.42% of the
average daily net assets of each Fund's net assets in excess of $700 million.
The Adviser has agreed to reimburse each Fund for certain operating
expenses (exclusive of interest, taxes, brokerage fees, fees and other
expenses paid pursuant to any distribution plan and organization expenses, all
to the extent permitted by applicable state law or regulation) which in any
year exceed the limits prescribed by any state in which the Fund's shares are
qualified for sale. The Funds' annual expenses are estimated and accrued
daily, and any related reimbursements are made monthly by the Adviser.
Norwest Bank Minnesota, N.A. serves as the Trust's transfer agent, dividend
disbursing agent and custodian, and is compensated for those services at an
aggregate annual rate of up to 0.30% of the average daily net assets of each
Fund. Transfer agent fees are based on the average daily net assets
attributable to each class of the Fund's shares.
The manager of the Trust is Forum Financial Services, Inc. ('Forum'), a
registered broker-dealer and a member of the National Association of
Securities Dealers, Inc. Forum receives a management fee from each Fund at an
annual rate of 0.20% of the average daily net assets of the Fund attributable
to each class of the Fund's shares. In addition, certain legal expenses were
charged to the Trust by Forum. The respective amounts of legal expenses for
the Adjustable U.S. Government Reserve Fund, Government Income Fund, Income
Fund, Total Return Bond Fund, Tax-Free Income Fund, Arizona Tax-Free Fund,
Colorado Tax-Free Fund and Minnesota Tax-Free Fund were: $2,380, $3,713,
$2,967, $1,018, $3,698, $31, $1,340, $271.
Forum Financial Corp. ('FFC'), an affiliate of Forum, provides fund
accounting services to the Funds. For these services, FFC receives a fee of
$36,000 per year per Fund plus certain amounts based upon the number of
classes and number and types of portfolio transactions within each Fund.
The Trust has adopted a Distribution Plan (the 'Plan') with respect to
Investor B shares of each Fund pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Plans authorize the payment to Forum of an annual
distribution service fee of 0.75% of the average daily net assets, and a
maintenance fee of 0.25% of the average daily net assets of each Fund
attributable to Investor B shares. No Fund incurred any maintenance fees
during the year ended May 31, 1995. The distribution payments are used to
reimburse the distributor for (i) sales commissions at levels set from time to
time by the Board not to exceed 6.25% of the amount received by the Fund for
each Investor B share sold (excluding reinvestment of dividends and
distributions) and (ii) interest calculated by applying the rate of 1% over
the prime rate to the outstanding balance of unreimbursed distribution
charges. The current sales commission rate is 3.75% for all Fixed Income
Funds, except Adjustable U.S. Government Reserve Fund which is 1.50%.
In the event that the Plan is terminated or not continued, the Fund will
continue to pay distribution service fees to Forum (but only with respect to
sales that occurred prior to the termination or discontinuance of the Plan)
until the earlier of (a) four years after the date of termination or
discontinuance or (b) such time as there exist no unreimbursed distribution
charges attributable to that Fund under the Plan, as calculated pursuant to
the Plan.
45
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Unreimbursed distribution charges at May 31, 1995 were as follows:
<TABLE>
<S> <C>
Adjustable U.S. Government Reserve Fund.................................... $ 6,576
Government Income Fund..................................................... 283,839
Income Fund................................................................ 84,881
Total Return Bond Fund..................................................... 20,863
Tax-Free Income Fund....................................................... 85,520
Arizona Tax-Free Fund...................................................... 7,683
Colorado Tax-Free Fund..................................................... 118,776
Minnesota Tax-Free Fund.................................................... 128,293
</TABLE>
For the year ended May 31, 1995 fees waived by the Trust's custodian and
transfer agent, investment adviser, and manager and distributor were as
follows:
<TABLE>
<CAPTION>
Fees Waived
---------------------------------
Custodian Expenses
and Reimbursed
Transfer -----------
Agent Adviser Forum Forum
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Adjustable U.S. Government Reserve Fund...... $ 67,154 $ 53,730 $ 115,216 $ --
Government Income Fund....................... 116,382 46,319 130,641 --
Income Fund.................................. 76,441 149,529 146,835 --
Total Return Bond Fund....................... 18,204 244,710 20,389 5,572
Tax-Free Income Fund......................... 111,479 306,789 216,809 2,013
Arizona Tax-Free Fund........................ 8,746 16,315 6,955 72,985
Colorado Tax-Free Fund....................... 102,033 257,147 92,235 --
Minnesota Tax-Free Fund...................... 33,826 67,504 35,711 22,580
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales (including maturities) of
securities (excluding short-term investments) during the year ended May
31,1995 were as follows:
<TABLE>
<CAPTION>
Proceeds
Cost of from
Purchases Sales
---------- -----------
<S> <C> <C>
Adjustable U.S. Government Reserve Fund.................... $70,388,328 $114,165,801
Government Income Fund..................................... 159,650,257 163,430,527
Income Fund................................................ 134,600,369 107,268,367
Total Return Bond Fund..................................... 99,295,117 19,906,244
Tax-Free Income Fund....................................... 167,935,826 173,041,582
Arizona Tax-Free Fund...................................... 2,614,019 2,249,635
Colorado Tax-Free Fund..................................... 28,405,981 24,036,518
Minnesota Tax-Free Fund.................................... 27,767,128 18,328,464
</TABLE>
46
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
4. CAPITAL SHARE TRANSACTIONS
Transactions of Fund shares are summarized in the following tables:
Adjustable U.S. Government Reserve Fund
<TABLE>
<CAPTION>
Investor A shares Trust shares
-------------------- Investor B shares ------------------------
-------------------------- Period
Year Ended May 31, Year Ended Period Ended Year Ended Ended May
-------------------- May 31, May 31, May 31, 31,
1995 1994 1995 1994 1995 1994
--------- --------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 61,517 5,718,002 7,145 43,720 1,377,019 3,569,499
Shares repurchased.............. (4,125,264) (5,537,838) (3,550) (5,256) (1,753,915) (924,183)
Shares issued on reinvestment of
dividends...................... 293,394 384,325 952 380 14,779 10,843
--------- --------- ----- ----- ----------- -----------
Net increase (decrease)......... (3,770,353) 564,489 4,547 38,844 (362,117) 2,656,159
--------- --------- ----- ----- ----------- -----------
--------- --------- ----- ----- ----------- -----------
<CAPTION>
Government Income Fund
Investor A shares Investor B shares Trust shares
---------------------- ------------------------ ------------------------
Period Period
Year Ended May 31, Year Ended Ended May Year Ended Ended May
---------------------- May 31, 31, May 31, 31,
1995 1994 1995 1994 1995 1994
----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................... 479,759 1,937,667 284,497 1,161,372 2,594,562 15,392,248
Shares repurchased............. (818,867) (13,191,990) (192,459) (107,918) (5,294,803) (2,131,276)
Shares issued on reinvestment
of dividends.................. 123,896 144,167 56,454 16,907 100,372 108,560
----------- --------- ----------- ----------- ----------- -----------
Net increase (decrease)........ (215,212) (11,110,156) 148,492 1,070,361 (2,599,869) 13,369,532
----------- --------- ----------- ----------- ----------- -----------
----------- --------- ----------- ----------- ----------- -----------
<CAPTION>
Income Fund
Investor A shares Investor B shares Trust shares
---------------------- ------------------------ ------------------------
Period Period
Year Ended May 31, Year Ended Ended Year Ended Ended
---------------------- May 31, May 31, May 31, May 31,
1995 1994 1995 1994 1995 1994
----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 178,942 1,344,329 92,963 294,310 4,383,174 11,051,124
Shares repurchased.............. (218,980) (8,776,837) (38,366) (29,228) (2,837,868) (1,229,304)
Shares issued on reinvestment of
dividends...................... 38,329 43,692 14,153 8,927 40,804 25,618
----------- --------- ----------- ----------- ----------- -----------
Net increase (decrease)......... (1,709) (7,388,816) 68,750 274,009 1,586,110 9,847,438
----------- --------- ----------- ----------- ----------- -----------
----------- --------- ----------- ----------- ----------- -----------
<CAPTION>
Total Return Bond Fund
Trust shares
Investor A shares Investor B shares ------------------------
-------------------------- -------------------------- Period
Year Ended Period Ended Year Ended Period Ended Year Ended Ended May
May 31, May 31, May 31, May 31, May 31, 31,
1995 1994 1995 1994 1995 1994
----------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................. 49,366 15,838 76,640 19,475 9,509,232 1,456,834
Shares repurchased........... (5,757) (102) (4,136) (101) (1,120,809) (232,556)
Shares issued on reinvestment
of dividends................ 2,169 36 2,415 87 274,125 2,068
----- ----- ----- ----- ----------- -----------
Net increase................. 45,778 15,772 74,919 19,461 8,662,548 1,226,346
----- ----- ----- ----- ----------- -----------
----- ----- ----- ----- ----------- -----------
</TABLE>
47
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Tax-Free Income Fund
<TABLE>
<CAPTION>
Investor A shares Investor B shares Trust shares
-------------------- ------------------------ ------------------------
Period Period
Year Ended May 31, Year Ended Ended May Year Ended Ended May
-------------------- May 31, 31, May 31, 31,
1995 1994 1995 1994 1995 1994
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................... 432,472 2,891,527 121,081 297,769 3,617,332 11,738,710
Shares repurchased............. (1,034,258) (10,334,899) (29,621) (22,729) (4,649,999) (1,114,963)
Shares issued on reinvestment
of dividends.................. 152,099 93,430 9,889 3,558 21,238 6,668
--------- --------- ----------- ----------- ----------- -----------
Net increase (decrease)........ (449,687) (7,349,942) 101,349 278,598 (1,011,429) 10,630,415
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
<CAPTION>
Arizona Tax-Free Fund
Investor A shares Investor B shares Trust shares
-------------------------- -------------------------- --------------------------
Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended
May 31, May 31, May 31, May 31, May 31, May 31,
1995 1994 1995 1994 1995 1994
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 76,581 338,711 26,249 26,087 52,199 14,626
Shares repurchased.............. (94,134) (55,908) (13,211) (5,118) (99) (154)
Shares issued on reinvestment of
dividends...................... 13,770 2,990 730 96 79 75
----------- ------ ----------- ----- ----- -----
Net increase (decrease)......... (3,783) 285,793 13,768 21,065 52,179 14,547
----------- ------ ----------- ----- ----- -----
----------- ------ ----------- ----- ----- -----
<CAPTION>
Colorado Tax-Free Fund
Investor A shares Investor B shares Trust shares
---------------------- ------------------------ ------------------------
Period Period
Year Ended May 31, Year Ended Ended May Year Ended Ended May
---------------------- May 31, 31, May 31, 31,
1995 1994 1995 1994 1995 1994
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................... 240,052 4,321,360 76,674 472,069 1,822,348 1,680,587
Shares repurchased............. (1,009,103) (1,160,353) (29,369) (14,015) (908,624) (118,221)
Shares issued on reinvestment
of dividends.................. 121,929 111,671 13,992 5,024 1,121 825
--------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)........ (647,122) 3,272,678 61,297 463,078 914,845 1,563,191
--------- ----------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
Minnesota Tax-Free Fund
Investor A shares Investor B shares Trust shares
------------------------ ------------------------ ------------------------
Period Period
Year Ended May 31, Year Ended Ended May Year Ended Ended May
------------------------ May 31, 31, May 31, 31,
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................... 783,054 275,875 253,488 255,375 136,301 175,241
Shares repurchased............. (318,995) (368,329) (21,120) (15,875) (51,766) (91,584)
Shares issued on reinvestment
of dividends.................. 39,538 59,136 10,155 5,322 1,722 2,219
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)........ 503,597 (33,318) 242,523 244,822 86,257 85,876
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
48
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
5. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR (unaudited)
Income Dividends -- All of the income dividends paid by Tax-Free Income
Fund, Arizona Tax-Free Fund, Colorado Tax-Free Fund and Minnesota Tax-Free
Fund were of exempt interest.
All income dividends of Adjustable U.S. Government Reserve Fund, Government
Income Fund, Income Fund and Total Return Bond Fund were ordinary income for
federal income tax purposes.
Capital Gain Dividends -- The Government Income Fund declared long term
capital gain dividends of .079832 per share in December 1994.
49
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD
Net Realized Ratios to Average
and Net Assets
Beginning Unrealized Dividends Distributions ------------------------
Net Asset Net Gain (Loss) from Net from Net Ending Net Net
Value Per Investment on Investment Realized Asset Value Investment
Share Income Investments Income Gains Per Share Expenses(a) Income
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND
Investor A shares
Year Ended May 31,
1995................ $ 9.66 $ 0.55 $ (0.28) $ (0.55) $ -- $ 9.38 0.85% 5.75%
1994................ 10.12 0.48 (0.43) (0.48) (0.03) 9.66 0.82% 4.73%
Period Ended May 31,
1993(c)............ 10.00 0.47 0.13 (0.47) (0.01) 10.12 0.38%(b) 4.77%(b)
Investor B shares
Year Ended May 31,
1995............... 9.62 0.47 (0.28) (0.47) -- 9.34 1.59% 5.05%
Period Ended May 31,
1994(c)............ 10.14 0.32 (0.49) (0.32) (0.03) 9.62 1.51%(b) 3.82%(b)
Trust shares
Year Ended May 31,
1995............... 9.67 0.55 (0.29) (0.55) -- 9.38 0.85% 5.72%
Period Ended May 31,
1994(c)............ 10.14 0.40 (0.44) (0.40) (0.03) 9.67 0.85%(b) 4.77%(b)
GOVERNMENT INCOME
FUND
Investor A shares
Year Ended May 31,
1995................ 9.04 0.63 (0.20) (0.63) (0.08) 8.76 0.75% 7.30%
1994................ 9.82 0.67 (0.78) (0.67) -- 9.04 0.60% 6.77%
1993................ 9.60 0.71 0.29 (0.71) (0.07) 9.82 0.60% 7.21%
Six Months Ended May
31, 1992(d)........ 9.70 0.37 (0.10) (0.37) -- 9.60 0.60%(b) 7.19%(b)
Year Ended November
30, 1991........... 9.73 0.90 (0.03) (0.90) -- 9.70 0.60% 9.25%
1990................ 9.96 0.96 (0.23) (0.96) -- 9.73 0.60% 9.80%
Investor B shares
Year Ended May 31,
1995............... 9.03 0.56 (0.20) (0.56) (0.08) 8.75 1.50% 6.51%
Period Ended May 31,
1994(c)............ 9.89 0.48 (0.86) (0.48) -- 9.03 1.31%(b) 5.89%(b)
Trust shares
Year Ended May 31,
1995............... 9.04 0.63 (0.20) (0.63) (0.08) 8.76 0.75% 7.30%
Period Ended May 31,
1994(c)............ 9.89 0.55 (0.85) (0.55) -- 9.04 0.61%(b) 6.86%(b)
INCOME FUND
Investor A shares
Year Ended May 31,
1995................ 9.52 0.65 0.11 (0.65) -- 9.63 0.75% 7.02%
1994................ 10.61 0.70 (0.83) (0.70) (0.26) 9.52 0.60% 6.72%
1993................ 10.52 0.77 0.39 (0.77) (0.30) 10.61 0.60% 7.18%
1992................ 10.23 0.82 0.53 (0.82) (0.24) 10.52 0.31% 7.80%
1991................ 9.94 0.89 0.29 (0.89) -- 10.23 0.16% 8.82%
Investor B shares
Year Ended May 31,
1995............... 9.51 0.58 0.10 (0.58) -- 9.61 1.50% 6.24%
Period Ended May 31,
1994(c)............ 10.67 0.50 (0.90) (0.50) (0.26) 9.51 1.33%(b) 5.82%(b)
Trust shares
Year Ended May 31,
1995............... 9.51 0.65 0.11 (0.65) -- 9.62 0.75% 7.02%
Period Ended May 31,
1994(c)............ 10.68 0.58 (0.91) (0.58) (0.26) 9.51 0.61%(b) 6.75%(b)
TOTAL RETURN BOND
FUND
Investor A shares
Year Ended May 31,
1995............... 9.54 0.67 0.19 (0.67) -- 9.73 0.64% 6.94%
Period Ended May 31,
1994(c)............ 10.00 0.27 (0.46) (0.27) -- 9.54 0.37%(b) 6.04%(b)
Investor B shares
Year Ended May 31,
1995............... 9.54 0.59 0.19 (0.59) -- 9.73 1.41% 6.17%
Period Ended May 31,
1994(c)............ 10.00 0.24 (0.46) (0.24) -- 9.54 1.11%(b) 5.40%(b)
Trust shares
Year Ended May 31,
1995............... 9.54 0.67 0.19 (0.67) -- 9.73 0.71% 7.04%
Period Ended May 31,
1994(c)............ 10.00 0.27 (0.46) (0.27) -- 9.54 0.46%(b) 6.81%(b)
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD (continued)
Net
Assets at
End of
Portfolio Period
Total Turnover (000's
Return Rate Omitted)
----------- ----------- ---------
<S> <C> <C> <C>
ADJUSTABLE U.S. GOVER
Investor A shares
Year Ended May 31,
1995................ 2.87% 86.05% $ 41,656
1994................ 0.40% 149.00% 79,378
Period Ended May 31,
1993(c)............ 6.33%(b) 61.55% 77,367
Investor B shares
Year Ended May 31,
1995............... 2.10% 86.05% 405
Period Ended May 31,
1994(c)............ (1.92% (b) 149.00% 374
Trust shares
Year Ended May 31,
1995............... 2.76% 86.05% 21,515
Period Ended May 31,
1994(c)............ (0.58% (b) 149.00% 25,678
GOVERNMENT INCOME
FUND
Investor A shares
Year Ended May 31,
1995................ 5.20% 125.34% 18,332
1994................ (1.42%) 24.70% 20,860
1993................ 10.71% 31.61% 131,722
Six Months Ended May
31, 1992(d)........ 5.58%(b) 4.41% 79,533
Year Ended November
30,
1991................ 9.37% 25.05% 8,615
1990................ 7.77% 18.48% 4,840
Investor B shares
Year Ended May 31,
1995............... 4.41% 125.34% 10,667
Period Ended May 31,
1994(c)............ (4.61% (b) 24.70% 9,665
Trust shares
Year Ended May 31,
1995............... 5.21% 125.34% 94,328
Period Ended May 31,
1994(c)............ (3.78% (b) 24.70% 120,830
INCOME FUND
Investor A shares
Year Ended May 31,
1995................ 8.49% 98.83% 6,231
1994................ (1.58%) 26.67% 6,177
1993................ 11.46% 87.98% 85,252
1992................ 13.58% 84.24% 63,973
1991................ 12.38% 61.33% 50,138
Investor B shares
Year Ended May 31,
1995............... 7.57% 98.83% 3,296
Period Ended May 31,
1994(c)............ (4.82% (b) 26.67% 2,605
Trust shares
Year Ended May 31,
1995............... 8.49% 98.83% 109,994
Period Ended May 31,
1994(c)............ (4.04% (b) 26.67% 93,665
TOTAL RETURN BOND
FUND
Investor A shares
Year Ended May 31,
1995............... 9.42% 35.19% 599
Period Ended May 31,
1994(c)............ (4.64% (b) 37.50% 150
Investor B shares
Year Ended May 31,
1995............... 8.59% 35.19% 919
Period Ended May 31,
1994(c)............ (5.23% (b) 37.50% 186
Trust shares
Year Ended May 31,
1995............... 9.43% 35.19% 96,199
Period Ended May 31,
1994(c)............ (4.62% (b) 37.50% 11,694
</TABLE>
See notes to financial statements.
50
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD
Net
Realized Ratios to Average
and Net Assets
Beginning Unrealized Dividends Distributions ------------------------
Net Asset Net Gain from Net from Net Ending Net Net
Value Per Investment (Loss) on Investment Realized Asset Value Investment
Share Income Investments Income Gains Per Share Expenses(a) Income
----------- ----------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-FREE INCOME FUND
Investor A shares
Year Ended May 31,
1995.................. $ 9.60 $ 0.55 $0.22 $ (0.55) $ -- $ 9.82 0.60% 5.87%
1994.................. 10.06 0.58 (0.39) (0.58) (0.07) 9.60 0.60% 5.77%
1993.................. 9.98 0.66 0.11 (0.66) (0.03) 10.06 0.60% 6.47%
1992.................. 9.95 0.70 0.04 (0.70) (0.01) 9.98 0.34% 7.03%
1991.................. 9.78 0.70 0.17 (0.70) -- 9.95 0.14% 7.09%
Investor B shares
Year Ended May 31,
1995................ 9.60 0.48 0.22 (0.48) -- 9.82 1.35% 5.05%
Period Ended May 31,
1994(c)............. 10.17 0.39 (0.50) (0.39) (0.07) 9.60 1.31%(b) 4.76%(b)
Trust shares
Year Ended May 31,
1995................ 9.60 0.55 0.22 (0.55) -- 9.82 0.60% 5.84%
Period Ended May 31,
1994(c)............. 10.14 0.47 (0.47) (0.47) (0.07) 9.60 0.60%(b) 5.71%(b)
ARIZONA TAX-FREE FUND
Investor A shares
Year Ended May 31,
1995................ 9.49 0.48 0.37 (0.48) -- 9.86 0.15% 5.06%
Period Ended May 31,
1994(c)............. 10.00 0.18 (0.51) (0.18) -- 9.49 0.04%(b) 4.56%(b)
Investor B shares
Year Ended May 31,
1995................ 9.49 0.40 0.37 (0.40) -- 9.86 0.90% 4.31%
Period Ended May 31,
1994(c)............. 10.00 0.16 (0.51) (0.16) -- 9.49 0.71%(b) 3.72%(b)
Trust shares
Year Ended May 31,
1995................ 9.48 0.48 0.38 (0.48) -- 9.86 0.15% 5.10%
Period Ended May 31,
1994(c)............. 10.00 0.18 (0.52) (0.18) -- 9.48 0.06%(b) 4.96%(b)
COLORADO TAX-FREE FUND
Investor A shares
Year Ended May 31,
1995................ 9.69 0.48 0.21 (0.48 ) -- 9.90 0.30 % 5.10%
Period Ended May 31,
1994(c)............. 10.00 0.51 (0.30) (0.51 ) (0.01) 9.69 0.07 (b) 4.94%(b)
Investor B shares
Year Ended May 31,
1995................ 9.70 0.41 0.21 (0.41 ) -- 9.91 1.05 % 4.32%
Period Ended May 31,
1994(c)............. 10.04 0.35 (0.33) (0.35 ) (0.01) 9.70 0.85 (b) 4.08%(b)
Trust shares
Year Ended May 31,
1995................ 9.69 0.48 0.21 (0.48 ) -- 9.90 0.30 % 5.08%
Period Ended May 31,
1994(c)............. 10.22 0.39 (0.52) (0.39 ) (0.01) 9.69 0.11 (b) 5.03%(b)
MINNESOTA TAX-FREE FUND
Investor A shares
Year Ended May 31,
1995.................. 10.15 0.53 0.30 (0.53 ) -- 10.45 0.49 % 5.25%
1994.................. 10.65 0.53 (0.31) (0.53 ) (0.19) 10.15 0.61 % 4.92%
1993.................. 10.27 0.55 0.39 (0.55 ) (0.01) 10.65 0.75 % 5.13%
Six Months Ended May
31, 1992(d)......... 10.20 0.30 0.11 (0.30 ) (0.04) 10.27 0.90 (b) 5.86%(b)
Year Ended November
30, 1991.............. 10.15 0.61 0.12 (0.61 ) (0.07) 10.20 0.90 % 6.01%
1990.................. 10.14 0.62 0.02 (0.62 ) (0.01) 10.15 0.90 % 6.21%
Investor B shares
Year Ended May 31,
1995................ 10.15 0.45 0.29 (0.45 ) -- 10.44 1.21 % 4.52%
Period Ended May 31,
1994(c)............... 10.77 0.35 (0.43) (0.35 ) (0.19) 10.15 1.31 (b) 3.99%(b)
Trust shares
Year Ended May 31,
1995................ 10.16 0.53 0.29 (0.53 ) -- 10.45 0.48 % 5.29%
Period Ended May 31,
1994(c)............. 10.74 0.43 (0.39) (0.43 ) (0.19) 10.16 0.61 (b) 4.90%(b)
<CAPTION>
NORWEST FUNDS -- FIXED
- --------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A S
Net
Assets
at End of
Portfolio Period
Total Turnover (000's
Return Rate Omitted)
--------- --------- ---------
<S> <C> <C> <C>
TAX-FREE INCOME FUND
Investor A shares
Year Ended May 31,
1995.................. 8.42% 130.90% $ 30,786
1994.................. 1.74% 116.54% 34,426
1993.................. 7.86% 42.81% 109,983
1992.................. 7.65% 73.66% 56,250
1991.................. 9.16% 101.11% 35,215
Investor B shares
Year Ended May 31,
1995................ 7.61% 130.90% 3,729
Period Ended May 31,
1994(c)............. (0.98) (b) 116.54% 2,674
Trust shares
Year Ended May 31,
1995................ 8.42% 130.90% 94,454
Period Ended May 31,
1994(c)............. (0.21) (b) 116.54% 102,084
ARIZONA TAX-FREE FUND
Investor A shares
Year Ended May 31,
1995................ 9.27% 72.19% 2,782
Period Ended May 31,
1994(c)............. (7.81) (b) 17.40% 2,711
Investor B shares
Year Ended May 31,
1995................ 8.45% 72.19% 344
Period Ended May 31,
1994(c)............. (8.36) (b) 17.40% 200
Trust shares
Year Ended May 31,
1995................ 9.38% 72.19% 658
Period Ended May 31,
1994(c)............. (8.50) (b) 17.40% 138
COLORADO TAX-FREE FUND
Investor A shares
Year Ended May 31,
1995................ 7.47% 47.88% 25,997
Period Ended May 31,
1994(c)............. 2.02 (b) 40.92% 31,724
Investor B shares
Year Ended May 31,
1995................ 6.67% 47.88% 5,198
Period Ended May 31,
1994(c)............. 0.27 (b) 40.92% 4,494
Trust shares
Year Ended May 31,
1995................ 7.47% 47.88% 24,539
Period Ended May 31,
1994(c)............. 0.90 (b) 40.92% 15,153
MINNESOTA TAX-FREE FUND
Investor A shares
Year Ended May 31,
1995.................. 8.55% 139.33% 15,559
1994.................. 1.94% 84.23% 10,008
1993.................. 9.35% 44.29% 10,852
Six Months Ended May
31, 1992(d)......... 8.10 (b) 6.70% 4,896
Year Ended November
30,
1991.................. 7.40% 37.32% 4,575
1990.................. 6.50% 30.86% 4,243
Investor B shares
Year Ended May 31,
1995................ 7.63% 139.33% 5,090
Period Ended May 31,
1994(c)............... (0.58) (b) 84.23% 2,485
Trust shares
Year Ended May 31,
1995................ 8.44% 139.33% 1,799
Period Ended May 31,
1994(c)............. 0.29 (b) 84.23% 872
</TABLE>
See notes to financial statements.
51
<PAGE>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD
(a) During certain periods, various fees and expenses were waived and
reimbursed, respectively. Had such waivers and reimbursements not occurred,
the ratio of expenses to average net assets would have been:
<TABLE>
<CAPTION>
Six
Months Year Ended November
Year Ended May 31, Ended 30,
------------------------------------- May 31, -----------
1995 1994 1993 1992(b)(d) 1991 1990
----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Adjustable U.S. Government Reserve Fund
Investor A shares...................................... 1.15% 1.14% 1.15% -- -- --
Investor B shares...................................... 3.07% 2.10%(b) -- -- -- --
Trust shares........................................... 1.09% 1.13%(b) -- -- -- --
Government Income Fund
Investor A shares...................................... 1.01% 0.99% 0.99% 1.03% 1.71% 2.04%
Investor B shares...................................... 2.00% 2.00%(b) -- -- -- --
Trust shares........................................... 0.93% 0.97%(b) -- -- -- --
Total Return Bond Fund
Investor A shares...................................... 2.38% 13.29%(b) -- -- -- --
Investor B shares...................................... 3.09% 8.29%(b) -- -- -- --
Trust shares........................................... 1.17% 2.10%(b) -- -- -- --
Arizona Tax-Free Fund
Investor A shares...................................... 3.33% 4.51%(b) -- -- -- --
Investor B shares...................................... 4.42% 8.48%(b) -- -- -- --
Trust shares........................................... 3.42% 8.51%(b) -- -- -- --
Colorado Tax-Free Fund
Investor A shares...................................... 1.15% 1.23%(b) -- -- -- --
Investor B shares...................................... 2.16% 2.24%(b) -- -- -- --
Trust shares........................................... 1.16% 1.21%(b) -- -- -- --
Minnesota Tax-Free Fund
Investor A shares...................................... 1.61% 1.52% 1.79% 2.38% 2.63% 2.37%
Investor B shares...................................... 2.62% 2.45%(b) -- -- -- --
Trust shares........................................... 1.58% 1.54%(b) -- -- -- --
<CAPTION>
Year Ended May 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Fund
Investor A shares...................................... 1.24% 1.16% 1.10% 1.08% 1.11%
Investor B shares...................................... 2.21% 2.08%(b) -- -- --
Trust shares........................................... 1.06% 1.09%(b) -- -- --
Tax-Free Income Fund
Investor A shares...................................... 1.12% 1.14% 1.12% 1.14% 1.08%
Investor B shares...................................... 2.21% 2.24%(b) -- -- --
Trust shares........................................... 1.05% 1.10%(b) -- -- --
</TABLE>
(b) Annualized
(c) See note 1 of notes to financial statements for periods covered
(d) See note 1 of notes to financial statements regarding change of fiscal
year
See notes to financial statements.
52
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND
Asset Backed Securities (26.3%):
$ 131,686 Small Business Administration, Adjustable Rate Pool 500025, 8.875%, due 12/25/10..... $ 136,131
161,274 Small Business Administration, Adjustable Rate Pool 500124, 9.875%, due 7/25/96...... 161,274
133,208 Small Business Administration, Adjustable Rate Pool 500276, 10.875%, due 5/25/07..... 143,698
364,816 Small Business Administration, Adjustable Rate Pool 500299, 10.875%, due 6/25/07..... 393,545
983,760 Small Business Administration, Adjustable Rate Pool 500392, 8.875%, due 11/25/12..... 1,029,258
113,925 Small Business Administration, Adjustable Rate Pool 500569, 10.875%, due 6/25/08..... 123,039
818,710 Small Business Administration, Adjustable Rate Pool 500957, 9.25%, due 7/25/14....... 871,926
106,260 Small Business Administration, Adjustable Rate Pool 501013, 9.875%, due 6/25/98...... 108,173
823,598 Small Business Administration, Adjustable Rate Pool 501224, 7.75%, due 6/25/15....... 835,952
554,307 Small Business Administration, Adjustable Rate Pool 501267, 10.625%, due 7/25/15..... 618,053
279,324 Small Business Administration, Adjustable Rate Pool 501563, 10.625%, due 7/25/05..... 295,734
353,348 Small Business Administration, Adjustable Rate Pool 501575, 10.625%, due 6/25/11..... 391,333
248,909 Small Business Administration, Adjustable Rate Pool 501776, 9.75%, due 3/25/17....... 270,067
Asset Backed Securities, continued:
$ 219,574 Small Business Administration, Adjustable Rate Pool 501828, 9.625%, due 9/25/98...... $ 223,416
638,040 Small Business Administration, Adjustable Rate Pool 501842, 10.625%, due 4/25/04..... 676,322
248,537 Small Business Administration, Adjustable Rate Pool 501973, 10.625%, due 12/25/01.... 260,343
673,760 Small Business Administration, Adjustable Rate Pool 502083, 8.875%, due 11/25/04..... 690,604
359,132 Small Business Administration, Adjustable Rate Pool 502241, 8.875%, due 4/25/03...... 366,315
868,599 Small Business Administration, Adjustable Rate Pool 502394, 10.625%, due 6/25/13..... 964,145
1,950,432 Small Business Administration, Adjustable Rate Pool 502420, 8.875%, due 9/25/18...... 2,028,449
2,019,737 Small Business Administration, Adjustable Rate Pool 502462, 10.225%, due 11/25/07.... 2,181,316
1,925,001 Small Business Administration, Adjustable Rate Pool 502501, 10.225%, due 4/25/03..... 2,030,876
842,059 Small Business Administration, Adjustable Rate Pool 502568, 10.225%, due 9/25/03..... 891,530
906,889 Small Business Administration, Adjustable Rate Pool 502583, 10.225%, due 9/25/03..... 960,169
--------------
Total Asset Backed Securities (cost $17,130,114)
16,651,668
--------------
Collateralized Mortgage Obligations (38.8%):
3,147,343 AFC Home Equity Loan Trust, Series 1995 2 A1, 6.534% variable rate, due 7/25/26...... 3,177,832
88,158 Federal Home Loan Mortgage Corporation, Series 1185 A, 6.75%, due 7/15/06............ 88,470
See notes to financial statements.
53
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND
(continued)
Collateralized Mortgage Obligations, continued:
$ 392,840 Federal Home Loan Mortgage Corporation, Series 1300 F, 6.01% variable rate, due
6/15/07............................................................................. $ 395,786
63,971 Federal Home Loan Mortgage Corporation, Series G8 SB, 9.60% variable rate, due
3/25/23............................................................................. 57,896
500,000 Federal National Mortgage Association, Series 1992 150 EA, 6.50%, due 5/25/17........ 498,670
4,000,000 Federal National Mortgage Association, Series 1993 138 FM, 6.28% variable rate, due
12/25/21............................................................................ 3,793,156
239,913 Federal National Mortgage Association, Series 1993 2 SA, 7.156% variable rate, due
3/25/22............................................................................. 219,070
198,447 Federal National Mortgage Association, Series 1993 39 FA, 7.494% variable rate, due
4/25/23............................................................................. 204,638
3,248,918 Green Tree Financial Corporation, Series 1995 2 A1, 6.80%, due 6/15/26............... 3,263,640
198,116 Kearny Street Real Estate Company L.P., Series 1993 1 A, 6.963% variable rate, due
7/15/00............................................................................. 198,116
2,669,397 Merrill Lynch & Company, Series 1994 B A1, 6.525% variable rate, due 12/15/19........ 2,669,397
646,027 Residential Funding Mortgage Security, Adjustable Rate Mortgage, Series 1991 21 BA,
7.264%, due 8/25/21................................................................. 651,679
426,165 Resolution Trust Corporation, Series 1991 6 Class B 4, 8.772% variable rate, due
3/25/21............................................................................. 430,426
1,550,043 Resolution Trust Corporation, Series 1992 9 Class B4, 7.229% variable rate, due
4/25/27............................................................................. 1,563,122
Collateralized Mortgage Obligations, continued:
$ 1,255,678 Resolution Trust Corporation, Series 1991 M6 A3, 8.667% variable rate, due 6/25/21... $ 1,255,678
6,001,360 Resolution Trust Corporation, Series 1992 C3 A3, 7.275%, variable rate, due
8/25/23............................................................................. 6,068,876
17,094 Thrift Financing Corporation, Series D 4, 7.125%, due 5/1/16......................... 17,033
--------------
Total Collateralized Mortgage Obligations (cost $24,794,298)
24,553,485
--------------
Corporate Bonds & Notes (5.5%):
3,500,000 Lehman Brothers, Incorporated, 5.25%, due 1/2/96 (cost $3,463,461)................... 3,472,105
--------------
Mortgage Backed Securities (13.9%):
3,378,873 Federal Home Loan Mortgage Corporation, Pool G80007, 11.00%, due 7/15/18............. 3,733,654
183,128 Federal Home Loan Mortgage Corporation, Adjustable Rate Mortgage Pool 840087, 5.669%,
due 1/1/19.......................................................................... 182,670
214,258 Federal National Mortgage Association, Adjustable Rate Mortgage Pool 141698, 7.056%,
due 12/1/18......................................................................... 216,801
3,075,087 Federal National Mortgage Association, Adjustable Rate Mortgage Pool 220706, 6.119%,
due 6/1/23.......................................................................... 3,142,340
111,064 Federal National Mortgage Association, Adjustable Rate Mortgage Pool 50469, 8.00%,
due 7/1/98.......................................................................... 113,654
405,977 Federal National Mortgage Association, Adjustable Rate Mortgage Pool 55498, 5.75%,
due 7/1/17.......................................................................... 405,470
174,909 Federal National Mortgage Association, Adjustable Rate Mortgage Pool 58039, 5.172%,
due 8/1/17.......................................................................... 177,605
304,704 Federal National Mortgage Association, Adjustable Rate Mortgage Pool 60190, 7.75%,
due 3/1/18.......................................................................... 319,653
</TABLE>
See notes to financial statements.
54
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
ADJUSTABLE U.S. GOVERNMENT RESERVE FUND
(continued)
Mortgage Backed Securities, continued:
$ 507,094 Federal National Mortgage Association, Adjustable Rate Mortgage Pool 67189, 7.25%,
due 7/1/17.......................................................................... $ 529,228
--------------
Total Mortgage Backed Securities (cost $8,886,032)
8,821,075
--------------
U.S. Treasury Obligations (11.0%):
4,000,000 U.S. Treasury Notes, 5.125%, due 3/31/98............................................. 3,916,800
3,000,000 U.S. Treasury Notes, 6.625%, due 3/31/97............................................. 3,040,307
--------------
Total U.S. Treasury Obligations (cost $6,848,723)
6,957,107
--------------
Short-Term Holdings (4.5%):
2,740,583 Provident Institutional Funds, Federal Trust Fund.................................... 2,740,583
86,686 Federal Farm Credit Bank Master Note FBO............................................. 86,686
--------------
Total Short-Term Holdings (cost $2,827,269) 2,827,269
--------------
Total Investments (100.0%) (cost $63,949,897)
$63,282,709
--------------
--------------
- ----------------------------------------------
GOVERNMENT INCOME FUND
Collateralized Mortgage Obligations (40.7%):
$ 5,000,000 Federal Home Loan Mortgage Corporation, Series 1989 96 D, 7.00%, due 10/3/00......... $ 4,932,650
5,000,000 Federal Home Loan Mortgage Corporation, Series 1989 109 H, 9.00%, due 5/15/20........ 5,199,750
3,863,252 Federal Home Loan Mortgage Corporation, Series 1990 188 F, 7.50%, due 5/15/20........ 3,892,497
4,138,759 Federal Home Loan Mortgage Corporation, Series 1991 1052 E, 7.50%, due 4/15/19....... 4,167,068
4,327,708 Federal Home Loan Mortgage Corporation, Series 1991 1130 J, 7.50%, due 9/15/20....... 4,410,540
1,939,134 Federal Home Loan Mortgage Corporation, Series 1991 1169 C, 7.00%, due 11/15/19...... 1,946,541
Collateralized Mortgage Obligations, continued:
$ 5,000,000 Federal Home Loan Mortgage Corporation, Series 1992 1189 F, 7.50%, due 1/15/21....... $ 5,093,700
2,000,000 Federal National Mortgage Association, Series 1989 96 G, 8.75%, due 5/25/19.......... 2,084,240
3,417,870 Federal National Mortgage Association, Series 1989 101 G, 8.00%, due 3/25/19......... 3,485,168
5,142,000 Federal National Mortgage Association, Series 1991 33 PN, 8.25%, due 5/25/20......... 5,346,189
4,558,765 Federal National Mortgage Association, Series 1991 156 A, 7.50%, due 10/25/21........ 4,623,818
4,731,168 Federal National Mortgage Association, Series 1993 29 A, 6.65%, due 10/25/18......... 4,682,011
--------------
Total Collateralized Mortgage Obligations (cost $49,305,124)
49,864,172
--------------
Government Agency Bonds & Notes (4.9%):
1,000,000 Federal Home Loan Bank, 8.25%, due 6/25/96........................................... 1,023,770
5,000,000 Student Loan Marketing Association, 8.29%, due 12/22/97.............................. 5,047,600
--------------
Total Government Agency Bonds & Notes (cost $6,016,250)
6,071,370
--------------
U.S. Treasury Obligations (53.5%):
5,000,000 U.S. Treasury Notes, 6.875%, due 2/28/97............................................. 5,084,650
7,500,000 U.S. Treasury Notes, 7.875%, due 4/15/98............................................. 7,879,200
3,000,000 U.S. Treasury Notes, 8.25%, due 7/15/98.............................................. 3,193,620
5,000,000 U.S. Treasury Notes, 6.50%, due 4/30/99.............................................. 5,080,450
5,000,000 U.S. Treasury Notes, 6.875%, due 8/31/99............................................. 5,155,700
5,000,000 U.S. Treasury Notes, 7.75%, due 11/30/99............................................. 5,330,250
13,000,000 U.S. Treasury Notes, 7.50%, due 11/15/01............................................. 13,922,870
4,000,000 U.S. Treasury Notes, 6.25%, due 2/15/03.............................................. 3,997,040
5,000,000 U.S. Treasury Notes, 7.25%, due 5/15/04.............................................. 5,310,550
10,000,000 U.S. Treasury Notes, 7.25%, due 8/15/04.............................................. 10,633,000
--------------
Total U.S. Treasury Obligations (cost $63,487,558)
65,587,330
--------------
</TABLE>
See notes to financial statements.
55
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
GOVERNMENT INCOME FUND (continued)
Short-Term Holdings (0.9%):
$ 1,084,762 Federal Farm Credit Bank Master Note FBO (cost $1,084,762)........................... $ 1,084,762
--------------
Total Investments (100.0%) (cost $119,893,694)
$122,607,634
--------------
--------------
- ----------------------------------------------
INCOME FUND
Collateralized Mortgage Obligations (25.8%):
$ 3,341,250 Federal Home Loan Mortgage Corporation, Series 1989 96 D, 7.00%, due 11/15/20........ $ 3,296,243
4,000,000 Federal Home Loan Mortgage Corporation, Series 1992 1189 F, 7.50%, due 1/15/21....... 4,074,960
4,577,874 Federal Home Loan Mortgage Corporation, Series 1992 1419 M, 2.893% variable rate, due
11/15/97............................................................................ 4,153,048
2,000,000 Federal National Mortgage Association, Series 1989 96 G, 8.75%, due 5/25/19.......... 2,084,240
2,563,402 Federal National Mortgage Association, Series 1989 101 G, 8.00%, due 3/25/19......... 2,613,875
4,115,749 Federal National Mortgage Association, Series 1990 31 G, 7.00%, due 2/25/18.......... 4,110,110
4,000,000 Federal National Mortgage Association, Series 1991 33 PN, 8.25%, due 5/25/20......... 4,158,840
3,000,000 Federal National Mortgage Association, Series 1991 59 K, 8.00%, due 5/25/16.......... 3,058,710
3,000,000 Federal National Mortgage Association, Series 1992 G54 C, 7.50%, due 6/25/20......... 3,049,560
--------------
Total Collateralized Mortgage Obligations (cost $30,451,860)
30,599,586
--------------
Corporate Bonds & Notes (28.9%):
4,000,000 Canadian Reynolds Metals, 6.625%, due 7/15/02........................................ 3,980,000
5,500,000 Capital Holdings Aggregate Index Notes, 7.62% variable rate, due 2/7/97(a)........... 5,742,000
2,000,000 Cemex SA, Series 144A, 8.875%, due 6/10/98(b)........................................ 1,700,000
4,000,000 General Motors Corporation, 8.80%, due 3/1/21........................................ 4,700,000
Corporate Bonds & Notes, continued:
$ 5,000,000 Lehman Brothers Holdings, 8.80%, due 3/1/15.......................................... $ 5,337,500
2,500,000 North American Mortgage, 6.53%, due 11/13/00......................................... 2,437,500
5,000,000 PNC Bank Corporation, 7.875%, due 4/15/05............................................ 5,312,500
5,000,000 Pacific Telephone & Telegraph Company, 7.625%, due 6/1/09............................ 5,125,000
--------------
Total Corporate Bonds & Notes (cost $33,155,560)
34,334,500
--------------
Government Agency Bonds & Notes (17.2%):
5,000,000 Federal Home Loan Mortgage Corporation, 7.91%, due 8/22/01........................... 5,126,900
5,000,000 Federal Home Loan Mortgage Corporation, 8.14%, due 9/28/01........................... 5,032,500
5,000,000 Federal National Mortgage Association, 8.05%, due 9/26/01............................ 5,030,600
5,000,000 Federal National Mortgage Association, 8.42%, due 10/20/04........................... 5,260,650
--------------
Total Government Agency Bonds & Notes (cost $20,006,250)
20,450,650
--------------
Receivables Backed Securities (9.6%):
3,000,000 Carco Auto Loan Master Trust, Series 1991 3 A, 7.875%, due 3/15/98................... 3,066,300
3,000,000 Sears Credit Account Master Trust, Series 1995 3 A, 7.00%, due 10/15/04.............. 3,057,600
5,250,000 Spiegel Charge Account Trust, Series 1992 2 A, 6.95%, due 12/17/01................... 5,311,950
--------------
Total Receivables Backed Securities (cost $11,328,035)
11,435,850
--------------
U.S. Treasury Obligations (17.8%):
3,000,000 U.S. Treasury Notes, 6.875%, due 7/31/99............................................. 3,090,690
4,000,000 U.S. Treasury Notes, 7.50%, due 11/15/01............................................. 4,283,960
2,000,000 U.S. Treasury Notes, 7.25%, due 8/15/04.............................................. 2,126,600
11,000,000 U.S. Treasury Notes, 7.25%, due 5/15/16.............................................. 11,598,620
--------------
Total U.S. Treasury Obligations (cost $20,340,704)
21,099,870
--------------
Short-Term Holdings (0.7%):
591,300 Dreyfus Cash Management Fund......................................................... 591,300
</TABLE>
See notes to financial statements.
56
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
INCOME FUND (continued)
Short-Term Holdings, continued:
$ 255,000 Dreyfus Treasury Prime Cash Management Fund.......................................... $ 255,000
--------------
Total Short-Term Holdings (cost $846,300) 846,300
--------------
Total Investments (100.0%) (cost $116,128,709)
118,766,756
--------------
--------------
- ----------------------------------------------
TOTAL RETURN BOND FUND
Corporate Bonds & Notes (27.8%):
$ 1,000,000 CIGNA Corporation, 8.00%, due 9/1/96................................................. $ 1,017,601
1,000,000 Chrysler Financial Corporation, 6.00%, due 4/15/96................................... 997,195
2,000,000 Cleveland Electric Illuminating Company, 8.70%, due 6/3/96........................... 2,020,263
400,000 Cleveland Electric Illuminating Company, 9.10%, due 7/22/96.......................... 406,137
1,150,000 Commonwealth Edison Company, 5.50%, due 7/15/95...................................... 1,148,454
1,100,000 Commonwealth Edison Company, 8.92%, due 8/15/96...................................... 1,127,658
250,000 Detroit Edison Company, 6.00%, due 12/1/96........................................... 248,271
1,000,000 General Motors Acceptance Corporation, 6.30%, due 2/2/96............................. 999,879
700,000 General Motors Acceptance Corporation, 8.65%, due 5/29/96............................ 715,006
1,400,000 General Motors Acceptance Corporation, 8.25%, due 8/29/96............................ 1,430,342
200,000 General Motors Acceptance Corporation, 7.85%, 10/25/96............................... 203,801
1,500,000 Houston Industries, Incorporated, 7.25%, due 12/1/96................................. 1,517,587
2,500,000 Illinois Power Company, 9.25%, due 12/16/96.......................................... 2,601,825
2,350,000 Long Island Lighting Company, 8.75%, due 5/1/96...................................... 2,391,674
Corporate Bonds & Notes, continued:
$ 1,500,000 McDermott International, Incorporated, 10.25%, due 6/1/95............................ $ 1,500,000
1,500,000 Pacificorp, 8.69%, due 7/16/96....................................................... 1,539,963
750,000 Pennsylvania Electric Company, 7.45%, due 10/25/96................................... 761,922
1,205,000 Salomon Brothers, Incorporated, 7.30%, due 6/11/96................................... 1,210,046
1,000,000 USX Corporation, 8.875%, due 9/15/97................................................. 1,045,475
700,000 United Illuminating Company, 7.25%, due 10/2/95...................................... 701,750
2,300,000 Westinghouse Credit Corporation, 8.875%, due 8/1/95.................................. 2,307,279
1,000,000 Westinghouse Credit Corporation, 9.10%, due 8/1/95................................... 1,004,074
--------------
Total Corporate Bonds & Notes (cost $26,853,274)
26,896,202
--------------
U.S. Treasury Obligations (69.5%):
2,500,000 U.S. Treasury Notes, 5.125%, due 11/15/95............................................ 2,492,189
5,625,000 U.S. Treasury Notes, 8.50%, due 11/15/95............................................. 5,691,798
2,300,000 U.S. Treasury Notes, 9.25%, due 1/15/96.............................................. 2,346,715
6,650,000 U.S. Treasury Notes, 7.75%, due 3/31/96.............................................. 6,749,750
700,000 U.S. Treasury Notes, 7.625%, due 5/31/96............................................. 712,030
4,450,000 U.S. Treasury Notes, 7.25%, due 8/31/96.............................................. 4,523,697
5,025,000 U.S. Treasury Notes, 8.00%, due 10/15/96............................................. 5,166,329
3,300,000 U.S. Treasury Notes, 7.25%, due 11/30/96............................................. 3,363,938
4,500,000 U.S. Treasury Notes, 7.50%,
due 12/31/96........................................................................ 4,611,087
2,000,000 U.S. Treasury Notes, 8.00%, due 1/15/97.............................................. 2,066,250
200,000 U.S. Treasury Notes, 8.50%, due 7/15/97.............................................. 210,375
300,000 U.S. Treasury Notes, 5.875%, due 2/15/04............................................. 291,187
700,000 U.S. Treasury Notes, 7.25%, due 5/15/04.............................................. 743,092
4,750,000 U.S. Treasury Notes, 7.25%, due 8/15/04.............................................. 5,048,352
2,675,000 U.S. Treasury Bonds, 11.625%, due 11/15/04........................................... 3,664,750
</TABLE>
See notes to financial statements.
57
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
TOTAL RETURN BOND FUND (continued)
U.S. Treasury Obligations, continued:
$ 7,575,000 U.S. Treasury Bonds, 9.375%, due 2/15/06............................................. $ 9,324,340
415,000 U.S. Treasury Bonds, 11.25%, due 2/15/15............................................. 618,738
3,500,000 U.S. Treasury Bonds, 7.50%, due 11/15/16............................................. 3,787,651
5,050,000 U.S. Treasury Bonds, 8.125%, due 8/15/19............................................. 5,839,062
--------------
Total U.S. Treasury Obligations (cost $64,885,138)
67,251,330
--------------
Short-Term Holdings (2.7%):
1,559,903 Dreyfus Government Cash Management Fund.............................................. 1,559,903
1,093,812 Federal Farm Credit Bank Master Note FBO............................................. 1,093,812
--------------
Total Short-Term Holdings (cost $2,653,715) 2,653,715
--------------
Total Investments (100.0%) (cost $94,392,128)
$96,801,247
--------------
--------------
- ----------------------------------------------
TAX-FREE INCOME FUND
Municipal Bonds (98.9%):
Arizona (7.4%):
$ 3,000,000 Maricopa County, AZ, School District #48, General Obligation Bonds, 9.00%, due
7/1/05.............................................................................. $ 3,906,303
4,000,000 Phoenix, AZ, Street & Highway User Revenue Refunding Bonds, 9.25%, due 7/1/07........ 5,452,720
--------------
9,359,023
--------------
Arkansas (1.9%):
2,230,000 Arkansas State Development Finance Authority, Single Family Mortgage Revenue
Refunding Bonds, Series A, 8.00%, due 8/15/11....................................... 2,438,419
--------------
California (2.4%):
1,005,000 Santa Monica, CA, Wastewater Enterprise Revenue Refunding Bonds, Hyperion Project,
AMBAC insured, 12.00%, due 1/1/04................................................... 1,490,129
California, continued:
$ 1,475,000 Stanislaus, CA, Waste-to-Energy Financing Agency, Solid Waste Facilities Revenue
Refunding Bonds, Odgen Martin Systems, Incorporated Project, 7.625%, due 1/1/10..... $ 1,575,656
--------------
3,065,785
--------------
Colorado (13.8%):
1,000,000 Colorado Housing Finance Authority, General Obligation Refunding Bonds, Series A,
7.40%, due 5/1/11................................................................... 1,074,600
2,995,000 Colorado Housing Finance Authority, Single Family Mortgage Revenue Refunding Bonds,
Series D-II, 8.125%, due 6/1/25..................................................... 3,436,167
1,000,000 Colorado Student Obligation Board Authority, Student Loan Revenue Bonds, Series L,
6.00%, due 9/1/01................................................................... 1,037,813
3,000,000 Denver, CO, Urban Renewal Authority, Tax Increment Revenue Bonds, Series A, 9.125%,
due 9/1/17.......................................................................... 3,400,143
1,050,000 Jefferson County, CO, Single Family Mortgage Revenue Refunding Bonds, Series A,
8.875%, due 10/1/13................................................................. 1,143,250
2,175,000 Larimer County, CO, School District #1, Poudre, General Obligation Refunding Bonds,
8.50%, due 12/15/07................................................................. 2,804,274
1,380,000 Logan County, CO, Single Family Mortgage Revenue Refunding Bonds, Series A, 8.50%,
due 11/1/11......................................................................... 1,491,852
750,000 Mountain Village Metropolitan District, San Miguel County, CO, General Obligation
Refunding Bonds, Series 1992, 7.95%, due 12/1/03.................................... 843,078
600,000 San Miguel County, CO, Housing Authority, Multi-Family Housing Revenue Bonds,
Telluride Village Apartments Project, Series 1993, 6.30%, due 7/1/13................ 591,060
</TABLE>
See notes to financial statements.
58
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
TAX-FREE INCOME FUND (continued)
Colorado, continued:
$ 1,520,000 Vail, CO, Single Family Mortgage Revenue Refunding Bonds, Series 1992 A, 8.125%, due
6/1/10.............................................................................. $ 1,657,472
--------------
17,479,709
--------------
Florida (3.2%):
2,000,000 Florida State Board of Education, General Obligation Bonds, Series B, 5.75%, due
6/1/12.............................................................................. 2,030,943
2,000,000 Florida State Division Board, Finance Department, General Services Revenue Bonds,
Environmental Preservation 2000 Project, Series A, AMBAC insured, 5.70%, due
7/1/09.............................................................................. 2,052,803
--------------
4,083,746
--------------
Hawaii (5.0%):
5,000,000 Hawaii State General Obligation Bonds, Series CA, 8.00%, due 1/1/13.................. 6,416,853
--------------
Illinois (7.7%):
1,100,000 Illinois Health Facilities Authority, Health Care Revenue Bonds, OSF Healthcare
System Project, 6.00%, due 11/15/23................................................. 1,060,766
2,690,000 Illinois Housing Development Authority, Residential Mortgage Revenue Bonds, Series B,
5.00%, due 8/1/95................................................................... 2,694,280
4,350,000 Regional Transportation Authority, IL, Sales Tax Revenue Refunding Bonds, Series D,
FGIC insured, 7.75%, due 6/1/19..................................................... 5,508,408
500,000 Whiteside County, IL, Housing Authority, Multi-Family Housing Revenue Bonds, Civic
Plaza II-A Project, guaranteed by HUD Section 8, 6.95%, due 5/1/11.................. 533,483
--------------
9,796,937
--------------
Indiana (1.2%):
$ 1,285,000 Indiana State Office Building Common, Capital Complex Revenue Bonds, Series C, MBIA
insured, 7.40%, due 7/1/15.......................................................... $ 1,561,715
--------------
Kansas (3.9%):
3,175,000 Kansas State Department of Transportation, Highway Revenue Bonds, Series A, 7.25%,
due 9/1/08.......................................................................... 3,778,792
1,095,000 Reno County, KS, Single Family Mortgage Revenue Bonds, Series B, 8.70%, due 3/1/11... 1,183,568
--------------
4,962,360
--------------
Louisiana (2.1%):
600,000 East Baton Rouge, LA, Mortgage Finance Authority Revenue Bonds, GNMA collateralized,
Series 1988 C, 8.375%, due 2/1/17................................................... 644,732
5,000,000 Rapides Parish, LA, Housing & Mortgage Finance Authority, Capital Appreciation
Residual Revenue Refunding Bonds, Series C, 0.00% (7.45% effective yield), due
7/10/14............................................................................. 1,317,051
2,900,000 St Bernard Parish, LA, Housing Mortgage Agency, Single Family Mortgage Residual
Revenue Bonds, Series 1992 C, 0.00% (7.65% effective yield), due 7/10/14............ 710,240
--------------
2,672,023
--------------
Maryland (0.5%):
3,000,000 Maryland State Community Development Administration, Multi-Family Housing Revenue
Bonds, Series C, 0.00% (9.10% effective yield), due 5/15/11......................... 631,292
--------------
Massachusetts (6.6%):
4,000,000 Massachusetts Municipal Wholesale Electric Company Power Supply System Revenue Bonds,
MBIA insured, 6.50%, due 7/1/05..................................................... 4,436,480
See notes to financial statements.
59
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
TAX-FREE INCOME FUND (continued)
Massachusetts, continued:
$ 2,500,000 Massachusetts State College Building Authority, Educational Facilities Revenue
Refunding Bonds, Series A, State guaranteed 7.50%, due 5/1/14....................... $ 3,063,000
855,000 New Bedford, MA, Industrial Development Revenue Bonds, Aerovox Incorporated Project,
7.42%, due 7/1/02................................................................... 885,960
--------------
8,385,440
--------------
Michigan (5.3%):
3,200,000 Dickinson County, MI, Memorial Hospital System Revenue Bonds, 8.125%, due 11/1/24.... 3,289,475
2,760,000 Wayland, MI, Unified School District, General Obligation Bonds, FGIC insured, 8.00%,
due 5/1/10.......................................................................... 3,485,190
--------------
6,774,665
--------------
Minnesota (2.6%):
1,000,000 Minneapolis, MN, Hospital Revenue Bonds, Children's Medical Center, Series C, 7.00%,
due 12/1/20......................................................................... 1,100,470
2,000,000 Minnesota State Housing Finance Agency, Housing Development Revenue Bonds, Series A,
6.85%, due 2/1/07................................................................... 2,141,940
--------------
3,242,410
--------------
Mississippi (1.3%):
2,000,000 Mississippi Home Corporation, Residual Revenue Capital Appreciation Bonds, Series
1992 II, 0.00% (7.375% effective yield), due 4/15/12................................ 603,980
1,000,000 Mississippi Hospital Equipment & Facilities Authority, Health Care Revenue Bonds,
MBIA insured, 6.00%, due 5/1/13..................................................... 1,026,560
--------------
1,630,540
--------------
Missouri (2.2%):
$ 2,000,000 Ritenour, MO, Consolidated School District, General Obligation Bonds, Series A, FGIC
insured, 9.50%, due 2/1/08.......................................................... $ 2,785,820
--------------
Nevada (1.2%):
1,500,000 Washoe County, NV, Hospital Facilities Revenue Bonds, 6.00%, due 6/1/15.............. 1,472,610
--------------
New York (5.8%):
2,530,000 New York, NY, General Obligation Bonds, Series B, 7.30% due 8/15/10.................. 2,763,139
1,500,000 New York, NY, General Obligation Bonds, Series B, 7.375% due 8/15/13................. 1,640,520
1,500,000 New York State Housing Finance Agency, Health Facilities Revenue Bonds, New York City
Series A, 8.00%, due 11/1/08........................................................ 1,685,339
1,265,000 New York State Thruway Authority, Service Contract Revenue Bonds, Local Highway and
Bridge Project, MBIA insured, 5.125%, due 4/1/07.................................... 1,247,811
--------------
7,336,809
--------------
North Dakota (3.1%):
3,590,000 Ward County, ND, Health Care Facilities Revenue Bonds, St. Joseph Hospital
Corporation Project, 8.875%, due 11/15/14........................................... 3,976,359
--------------
Pennsylvania (3.2%):
3,715,000 Montgomery County, PA, Industrial Development Authority, Resource Recovery Revenue
Refunding Bonds, Banque Paribas LOC, 7.50%, due 1/1/12.............................. 4,008,042
--------------
Puerto Rico (1.7%):
2,000,000 Commonwealth of Puerto Rico, General Obligation Bonds, MBIA insured, 6.25%, due
7/1/11.............................................................................. 2,190,123
--------------
South Dakota (1.4%):
1,750,000 South Dakota State Health & Educational Facilities Authority, Health Care Revenue
Bonds, Huron Regional Medical Center, 7.30%, due 4/1/16............................. 1,830,483
--------------
</TABLE>
See notes to financial statements.
60
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
TAX-FREE INCOME FUND (continued)
Texas (9.5%):
$ 825,000 Baytown, TX, Housing Finance Corporation, Single Family Housing Revenue Refunding
Bonds, Series 1992 A, 8.50%, due 9/1/11............................................. $ 919,334
3,350,000 Beaumont, TX, Housing Finance Corporation Revenue Refunding Bonds, 9.20%, due
3/1/12.............................................................................. 3,780,847
380,000 Corpus Christi, TX, Housing Finance Authority Revenue Bonds, Series A, MBIA insured,
7.70%, due 7/1/11................................................................... 415,340
365,000 El Paso, TX, Housing Finance Corporation, Single Family Mortgage Revenue Bonds,
Series A, 8.75%, due 10/1/11........................................................ 405,788
560,000 Galveston TX, Property Finance Authority, Incorporated, Single Family Mortgage
Revenue Bonds, Series A, 8.50%, due 9/1/11.......................................... 617,876
340,000 Port Arthur, TX, Housing Finance Corporation, Single Family Mortgage Revenue Bonds,
8.70%, due 3/1/12................................................................... 376,505
1,380,000 Tarrant County, TX, Health Facilities Development Corporation, Hospital Revenue
Refunding Bonds, Fort Worth Osteopathic, 7.00%, due 5/15/28......................... 1,386,790
4,000,000 Washington County, TX, Health Facilities Development Corporation Revenue Bonds,
Lutheran Social Services of the South Project, Series 1994, 7.50%, due 8/15/15...... 4,165,520
--------------
12,068,000
--------------
Virginia (1.7%):
2,000,000 Virginia State Housing Development Authority, Commonwealth Single Family Mortgage
Revenue Bonds, Series H, 6.85%, due 1/1/05.......................................... 2,123,160
--------------
Washington (4.2%):
$ 1,880,000 Washington State Public Power Supply System, Power Revenue Bonds, Nuclear Project #1,
Series B, 5.60%, due 7/1/07......................................................... $ 1,888,085
3,000,000 Yakima County, WA, School District #007, General Obligation Refunding Bonds, MBIA
insured, 6.75%, due 12/1/06......................................................... 3,390,360
--------------
5,278,445
--------------
Total Municipal Bonds (cost $119,496,416) 125,570,768
--------------
Short-Term Holdings (1.1%):
1,374,156 Federated Tax Free Obligations Money Market Fund (cost $1,347,156)................... 1,374,156
--------------
Total Investments (100.0%) (cost $120,843,572)
$126,944,924
--------------
--------------
- ----------------------------------------------
ARIZONA TAX-FREE FUND
Municipal Bonds (94.9%):
Education Facilities Revenue (11.0%):
$ 100,000 Arizona State Municipal Financing Program, Certificates of Participation, Series 19,
escrowed to maturity, 7.75%, due 8/1/04............................................. $ 121,163
75,000 Arizona State University Revenue Bonds, Series A, 5.60%, due 7/1/05.................. 76,906
100,000 Arizona State University Revenue Bonds, 6.00%, due 7/1/05............................ 105,422
90,000 University of Arizona Revenue Refunding Bonds, 6.125%, due 6/1/03.................... 96,854
--------------
400,345
--------------
General Obligations -- Political Subdivisions (24.8%):
100,000 Gilbert, AZ, General Obligation Bonds, Projects of 1988, Series C, MBIA insured,
8.50%, due 7/1/03................................................................... 124,313
100,000 Gilbert, AZ, General Obligation Bonds, Projects of 1988, Series C, MBIA insured,
8.50%, due 7/1/04................................................................... 125,880
200,000 Phoenix, AZ, General Obligation Refunding Bonds, 6.375%, due 7/1/07.................. 216,670
</TABLE>
See notes to financial statements
61
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
ARIZONA TAX-FREE FUND (continued)
General Obligations -- Political Subdivisions, continued:
$ 300,000 Phoenix, AZ, General Obligation Refunding Bonds, Series A, 7.50%, due 7/1/08......... $ 361,695
75,000 Mesa, AZ, General Obligation Bonds, Projects of 1987, MBIA insured, 5.70%, due
7/1/08.............................................................................. 77,423
--------------
905,981
--------------
General Obligations -- School Districts (29.7%):
100,000 Maricopa County, AZ, School District #3, Tempe, General Obligation Bonds, Series
1991-C, 6.00%, due 7/1/07........................................................... 107,631
500,000 Maricopa County, AZ, School District #14, Creighton, General Obligation Bonds, School
Improvement Project of 1990, Series C, FGIC insured, 6.50%, due 7/1/07.............. 564,465
100,000 Maricopa County, AZ, School District #31, Balsz, General Obligation Bonds, Series A,
AMBAC insured, 5.90%, due 7/1/07.................................................... 105,638
100,000 Navajo County, AZ, Unified School District #32, Blue Ridge, General Obligation
Improvement Bonds, CGIC insured, 5.80%, due 7/1/07.................................. 102,126
200,000 Yavapai County, AZ, Unified School District #22, Humboldt, General Obligation Bonds,
Series A, FGIC insured, 5.75%, due 7/1/10........................................... 204,430
--------------
1,084,290
--------------
Health Care Revenue (10.5%):
200,000 Maricopa County, AZ, Industrial Development Authority, Health Facilities Revenue
Refunding Bonds, Samaritan Health Services, Series A, MBIA insured, 7.15%, due
12/1/04............................................................................. 233,028
Health Care Revenue, continued:
$ 100,000 Maricopa County, AZ, Industrial Development Authority, Health Facilities Revenue
Refunding Bonds, Catholic Healthcare, Series A, MBIA insured, 5.00%, due 7/1/06..... $ 99,743
50,000 Navapache, AZ, Hospital District, Health Care Revenue Bonds, FGIC insured, 5.40%, due
6/1/12.............................................................................. 49,616
--------------
382,387
--------------
Other Revenue (2.9%):
100,000 Tucson, AZ, Local Business Development Finance Corporation, Lease Revenue Refunding
Bonds, FGIC insured, 6.10%, due 7/1/03.............................................. 106,960
--------------
Sales Tax Revenue (2.9%):
100,000 Casa Grande, AZ, Excise Tax Revenue Bonds, FGIC insured, 5.90%, due 4/1/06........... 106,277
--------------
Transportation Revenue (7.3%):
100,000 Arizona State Transportation Board, Highway Revenue Refunding Bonds, Sub Series A,
6.25%, due 7/1/04................................................................... 107,920
100,000 Arizona State Transportation Board, Highway Revenue Refunding Bonds, Series A, 6.00%,
due 7/1/08.......................................................................... 106,344
50,000 Phoenix, AZ, Street & Highway User Revenue Refunding Bonds, Series A, FGIC insured,
5.80%, due 7/1/05................................................................... 52,406
--------------
266,670
--------------
Utilities Revenue (5.8%):
100,000 Phoenix, AZ, Civic Improvement Corporation, Wastewater System Lease Revenue Bonds,
6.125%, due 7/1/23, prerefunded 7/1/03 at 102....................................... 110,362
100,000 Salt River Project, AZ, Agricultural Improvement & Power District Electric System
Revenue Bonds, 5.80%, due 1/1/05.................................................... 105,094
--------------
215,456
--------------
Total Municipal Bonds (cost $3,375,598) 3,468,366
--------------
</TABLE>
See notes to financial statements.
62
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
ARIZONA TAX-FREE FUND (continued)
Short-Term Holdings (5.1%):
$ 138,988 Federated Tax Free Obligations Money Market Fund..................................... $ 138,988
45,897 Provident Institutional Funds, Municipal Fund for Temporary Investment............... 45,897
--------------
Total Short-Term Holdings (cost $184,885) 184,885
--------------
Total Investments (100.0%) (cost $3,560,483) $ 3,653,251
--------------
--------------
- ----------------------------------------------
COLORADO TAX-FREE FUND
Municipal Bonds (99.1%):
Education Facilities Revenue (3.4%):
$ 500,000 Auraria, CO, Higher Education Center, Parking Facilities Revenue Refunding Bonds, FSA
insured, 5.30%, due 4/1/12.......................................................... $ 491,225
500,000 Colorado State Colleges Board, Educational Facilities Revenue Bonds, Adams State
College, Series A, MBIA insured, 4.70%, due 5/15/00................................. 501,080
600,000 Colorado State Colleges Board, Educational Facilities Revenue Bonds, Western State
College Project, Series A, 6.625%, due 5/1/15, prerefunded 5/1/02 at 102............ 676,200
200,000 University of Colorado Revenue Bonds, 6.80%, Research Building Project, 6.80%, due
6/1/02.............................................................................. 214,096
--------------
1,882,601
--------------
General Obligations -- Political Subdivisions (13.7%):
800,000 Arapahoe County, CO, General Obligation Bonds, Arapahoe Water & Sanitation District,
Series A, First Bank System LOC, 6.00%, due 12/1/10................................. 811,096
500,000 City of Fort Collins, CO, General Obligation Refunding Bonds, Series B, 6.10%, due
12/1/03............................................................................. 540,755
- ----------------------------------------------
COLORADO TAX-FREE FUND (continued)
General Obligations -- Political Subdivisions, continued:
$ 1,000,000 Commonwealth of Puerto Rico, General Obligation Bonds, MBIA insured, 6.25%, due
7/1/08.............................................................................. $ 1,096,710
500,000 Denver, CO, City & County General Obligation Bonds, 6.375%, due 8/1/02............... 546,695
350,000 Denver, CO, City & County General Obligation Bonds, Series A, 6.20%, due 8/1/07...... 367,668
1,000,000 Highlands Ranch Metropolitan District #4, CO, General Obligation Bonds, Swiss Bank,
NY LOC, 5.80%, due 12/1/07.......................................................... 1,036,010
255,000 Piney Creek Metropolitan District, CO, General Obligation Bonds, Asset Guaranty
insured, 5.35%, due 12/1/08......................................................... 253,547
480,000 Poudre Valley, CO, Hospital District, General Obligation Refunding Bonds, 5.375%, due
11/15/07............................................................................ 479,770
750,000 South Suburban Park & Recreation District, CO, General Obligation Refunding Bonds,
AMBAC insured, 6.25%, due 12/15/13.................................................. 791,663
1,000,000 Stonegate Village Metropolitan District, CO, General Obligation Refunding Bonds,
Series A, guaranteed by Mobil Corporation, 6.30%, due 12/1/04....................... 1,075,940
500,000 Thornton, CO, General Obligation Refunding Bonds, FGIC insured, 5.50%, due 12/1/01... 522,465
--------------
7,522,319
--------------
General Obligations -- School Districts (31.0%):
380,000 Adams County, CO, School District #12, General Obligation Refunding Bonds, FGIC
insured, 6.125%, due 12/15/07....................................................... 404,517
</TABLE>
See notes to financial statements.
63
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
COLORADO TAX-FREE FUND (continued)
General Obligations -- School Districts, continued:
$ 1,240,000 Adams County, CO, School District #12, General Obligation Refunding Bonds, FGIC
insured, 6.20%, due 12/15/08........................................................ $ 1,317,561
645,000 Adams County, CO, School District #12, General Obligation Refunding Bonds, FGIC
insured, 6.20%, due 12/15/10........................................................ 681,035
580,000 Arapahoe County, CO, School District #005, Cherry Creek, General Obligation Bonds,
7.00%, due 12/15/04................................................................. 643,620
300,000 Boulder Valley, CO, School District #RE 2, General Obligation Bonds, Series A, 5.35%,
due 12/1/01......................................................................... 310,812
600,000 Denver, CO, City & County School District #1, General Obligation Bonds, Series B,
5.70%, due 12/15/02................................................................. 626,093
750,000 Denver, CO, City & County School District #1, General Obligation Bonds, Series A,
5.20%, due 12/1/03.................................................................. 756,660
500,000 Denver, CO, City & County School District #1, General Obligation Bonds, Series A,
6.50%, due 6/1/10................................................................... 551,160
500,000 Denver, CO, School District #1, General Obligation Bonds, Series A, 7.25%, due
12/15/10, prerefunded 12/15/00 at 101............................................... 567,750
300,000 Denver, CO, City & County School District #1, General Obligation Bonds, Series B,
6.35%, due 12/15/12, prerefunded 12/15/02 at 101.................................... 332,619
1,000,000 Douglas County, CO, School District #RE 1, General Obligation Bonds, Series B, MBIA
insured, 6.15%, due 12/15/08........................................................ 1,069,600
475,000 El Paso County, CO, School District #20, General Obligation Refunding Bonds, Series
1993 A, 5.00%, due 12/15/01......................................................... 468,716
General Obligations -- School Districts, continued:
$ 500,000 El Paso County, CO, School District #20, General Obligation Refunding Bonds, Series
1993 B, 8.25%, due 12/15/04......................................................... $ 618,395
250,000 El Paso & Elbert Counties, CO, Peyton School District #23, General Obligation Bonds,
5.35%, due 12/15/09................................................................. 246,028
500,000 Garfield, Pitkin & Eagle Counties, CO, School District #RE 1, Roaring Fork, General
Obligation Bonds, MBIA insured, 5.40%, due 12/15/00................................. 521,835
1,000,000 Jefferson County, CO, School District #R-001, General Obligation Bonds, 5.50%, due
12/15/01............................................................................ 1,046,020
500,000 La Plata County, CO, School District #9, Durango, General Obligation Bonds, FGIC
insured, 6.40%, due 11/1/07......................................................... 540,240
1,485,000 Larimer County, CO, School District #1, Poudre, General Obligation Refunding Bonds,
8.50%, due 12/15/08................................................................. 1,921,381
500,000 Larimer, Weld & Boulder Counties, CO, School District #R-2J Thompson, General
Obligation Bonds, 5.70%, due 12/15/04............................................... 523,960
400,000 Pueblo County, CO, School District #70, General Obligation Bonds, AMBAC insured,
6.00%, due 12/1/05.................................................................. 432,468
500,000 Pueblo County, CO, School District #70, General Obligation Bonds, AMBAC insured,
6.10%, due 12/1/06.................................................................. 540,795
1,000,000 Pueblo County, CO, School District #70, General Obligation Bonds, AMBAC insured,
6.30%, due 12/1/09.................................................................. 1,073,110
800,000 San Miguel County, CO, School District #R-1, General Obligation Bonds, 7.00%, due
12/1/12............................................................................. 845,280
</TABLE>
See notes to financial statements.
64
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
COLORADO TAX-FREE FUND (continued)
General Obligations -- School Districts, continued:
$ 900,000 Summit County, CO, School District #RE 1, General Obligation Bonds, FGIC insured,
6.50%, due 12/1/03.................................................................. $ 998,469
--------------
17,038,124
--------------
Health Care Revenue (6.2%):
750,000 Boulder County, CO, Hospital Revenue Bonds, Loungmount United Hospital Project,
5.20%, due 12/1/03.................................................................. 736,703
100,000 Colorado Health Facilities Authority Revenue Bonds, Community Provider Pooled Loan
Program A, MBIA insured, 6.70%, due 7/15/95......................................... 100,322
495,000 Colorado Health Facilities Authority Revenue Bonds, Lutheran Medical Center Project,
7.20%, due 10/1/02.................................................................. 531,848
590,000 Colorado Health Facilities Authority Revenue Bonds, Craig Hospital, 4.90%, due
12/1/03............................................................................. 570,878
700,000 Colorado Health Facilities Authority Revenue Refunding Bonds, Rocky Mountain
Adventist Hospital, 6.625%, due 2/1/13.............................................. 691,670
725,000 Logan County, CO, Health Care Facilities Revenue Refunding Bonds, Western Health
Network, Incorporated, MBIA insured, 5.75%, due 1/1/08.............................. 753,645
--------------
3,385,066
--------------
Housing Revenue (9.6%):
300,000 Aurora, CO, Housing Authority Finance Corporation, Multi-Family Housing Mortgage
Revenue Refunding Bonds, Mountainview Place, FHA insured, 7.125%, due 9/1/22........ 315,327
Housing Revenue, continued:
$ 300,000 Colorado Housing Finance Authority, Single Family Housing Refunding Revenue Bonds,
Senior Series D1, 6.25%, due 12/1/01................................................ $ 313,821
300,000 Colorado Housing Finance Authority, Single Family Mortgage Revenue Bonds, Series
D-II, 6.375%, due 12/1/01........................................................... 312,024
215,000 Colorado Housing Finance Authority, Single Family Housing Revenue Bonds, Series 1994
A, 5.00%, due 6/1/04................................................................ 204,076
500,000 Colorado Housing Finance Authority, Single Family Housing Revenue Refunding Bonds,
Senior Series B2, 7.50%, due 12/1/16................................................ 558,665
300,000 Colorado Housing Finance Authority, Multi-Family Insured Mortgage Revenue Bonds,
Series 1993 A, 5.90%, due 10/1/29................................................... 286,419
1,000,000 Fremont County, CO, Single Family Mortgage Revenue Bonds, Series 1979 A, escrowed to
maturity, 8.50%, due 10/1/10........................................................ 1,312,880
2,500,000 Jefferson County, CO, Single Family Mortgage Revenue Bonds, Capital Appreciation
Project, Series 1984 A, escrowed to maturity, MBIA insured, 0.00%, (6.296% effective
yield), due 3/1/16.................................................................. 709,900
2,000,000 Mesa County, CO, Residual Revenue Bonds, escrowed to maturity, 0.00% (6.25% effective
yield), due 12/1/11................................................................. 750,420
500,000 San Miguel County, CO, Housing Authority, Multi-Family Housing Revenue Bonds,
Telluride Village Apartments Project, Series 1993, 6.30%, due 7/1/13................ 492,550
--------------
5,256,082
--------------
</TABLE>
See notes to financial statements.
65
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
COLORADO TAX-FREE FUND (continued)
Industrial Development Revenue (2.8%):
$ 385,000 Denver, CO, City & County Industrial Development Revenue Refunding Bonds, Rollie R.
Kelley Project, Colorado National Bank LOC, 6.90%, due 6/1/02....................... $ 400,901
250,000 Summit County, CO, Sports Facilities Revenue Refunding Bonds, Keystone Resorts
Management Project, guaranteed by Ralston Purina Corporation, 7.125%, due 9/1/02.... 276,508
250,000 Summit County, CO, Sports Facilities Revenue Refunding Bonds, Keystone Resorts
Management Project, guaranteed by Ralston Purina Corporation, 7.75%, due 9/1/06..... 278,225
500,000 Summit County, CO, Sports Facilities Revenue Refunding Bonds, Keystone Resorts
Management Project, guaranteed by Ralston Purina Corporation, 7.375%, due 9/1/10.... 574,800
--------------
1,530,434
--------------
Other Revenue (1.0%):
290,000 Black Hawk, CO, Device Tax Revenue Bonds, 6.40%, due 12/1/07......................... 292,132
250,000 Foothills Metropolitan Recreation & Parks District, CO, Golf Course Revenue Refunding
& Improvement Bonds, Series 1993, 5.375%, due 11/15/08.............................. 248,455
--------------
540,587
--------------
Power Revenue (6.1%):
1,000,000 Platte River Power Authority, CO, Power Revenue Refunding Bonds, Series AA, 6.00%,
due 6/1/98.......................................................................... 1,043,930
1,000,000 Platte River Power Authority, CO, Power Revenue Refunding Bonds, Series CC, 4.75%,
due 6/1/01.......................................................................... 998,450
Power Revenue, continued:
$ 250,000 Platte River Power Authority, CO, Power Revenue Refunding Bonds, Series CC, 5.10%,
due 6/1/04.......................................................................... $ 251,793
1,000,000 Platte River Power Authority, CO, Power Revenue Refunding Bonds, Series BB, 6.125%,
due 6/1/07.......................................................................... 1,058,440
--------------
3,352,613
--------------
Sales Tax Revenue (17.6%):
500,000 City of Fort Collins, CO, Sales & Use Tax Revenue Refunding Bonds, FGIC insured,
5.375%, due 12/1/09................................................................. 503,650
455,000 City of Montrose, CO, Sales & Use Tax Revenue Refunding Bonds, Series 1993, 5.25%,
due 8/15/08......................................................................... 451,114
400,000 Denver, CO, Metropolitan Major League Baseball Stadium District, Sales Tax &
Improvement Revenue Refunding Bonds, FGIC insured, 6.00%, due 10/1/00............... 427,748
1,000,000 Denver, CO, Metropolitan Major League Baseball Stadium District, Sales Tax &
Improvement Revenue Refunding Bonds, Series A, FGIC insured, 6.10%, due 10/1/01..... 1,080,960
500,000 Denver, CO, Metropolitan Major League Baseball Stadium District, Sales Tax &
Improvement Revenue Refunding Bonds, FGIC insured, 4.60%, due 10/1/05............... 477,370
1,370,000 Denver, CO, Metropolitan Major League Baseball Stadium District, Sales Tax &
Improvement Revenue Refunding Bonds, FGIC insured, 6.00%, due 10/1/11............... 1,482,546
500,000 Louisville, CO, Sales Tax Revenue Refunding Bonds, FSA insured, 5.10%, due 12/1/08... 497,105
1,000,000 Pitkin County, CO, Sales Tax Revenue Bonds, 6.10%, due 12/1/14....................... 1,008,190
</TABLE>
See notes to financial statements.
66
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
COLORADO TAX-FREE FUND (continued)
Sales Tax Revenue, continued:
$ 1,000,000 Regional Transportation District, CO, Sales Tax Revenue Refunding Bonds, FGIC
insured, 7.25%, due 11/1/00......................................................... $ 1,129,810
250,000 Regional Transportation District, CO, Sales Tax Revenue Refunding Bonds, Series 1993,
FGIC insured, 5.15%, due 11/1/04.................................................... 255,035
1,000,000 Regional Transportation District, CO, Sales Tax Revenue Refunding Bonds, 6.15%, due
11/1/05............................................................................. 1,073,560
1,300,000 Thornton, CO, Sales & Use Tax Revenue Bonds, Series B, FGIC insured, 5.35%, due
9/1/12.............................................................................. 1,289,756
--------------
9,676,844
--------------
Utilities Revenue (7.7%):
800,000 City of Montrose, CO, Water & Sewer Revenue Refunding Improvement Bonds, Series 1993,
FGIC insured, 5.35%, due 10/1/13.................................................... 788,904
500,000 Colorado Springs, CO, Utility Revenue Refunding Bonds, Series A, 6.40%, due
11/15/02............................................................................ 551,275
500,000 Colorado Water Reserve & Power Development Authority, Clean Water Revenue Bonds,
Series A, 5.60%, due 9/1/04......................................................... 522,335
300,000 Colorado Water Reserve & Power Development Authority, Small Water Reserve Revenue
Bonds, Series B, FGIC insured, 5.80%, due 11/1/04................................... 318,894
500,000 Colorado Water Reserve & Power Development Authority, Small Water Reserve Revenue
Bonds, Series A, FGIC insured, 7.40%, due 11/1/10................................... 567,190
Utilities Revenue, continued:
$ 500,000 South Adams County, CO, Water and Sanitation District, Utilities Revenue Refunding
Bonds, 5.625% due 12/1/10........................................................... $ 491,630
500,000 Squaw Creek Metropolitan District, CO, Utilities Revenue Refunding Bonds, Eagle
County, Berlinger Handels, NY LOC, 5.25%, due 12/1/13............................... 501,855
500,000 Upper Eagle Regional Water Authority, CO, Water Revenue Refunding Bonds, Eagle
County, Series 1994, 6.00%, due 12/1/03............................................. 522,310
--------------
4,264,393
--------------
Total Municipal Bonds (cost $53,487,400) 54,449,063
--------------
Short-Term Holdings (0.9%):
510,165 Federated Tax Free Obligations Money Market Fund (cost $510,165)..................... 510,165
--------------
Total Investments (100.0%) (cost $53,997,565)
$54,959,228
--------------
--------------
- ----------------------------------------------
MINNESOTA TAX-FREE FUND
Municipal Bonds (93.6%):
Education Facilities Revenue (2.1%):
$ 500,000 Minnesota Higher Education Facilities Authority Revenue Bonds, College of St.
Benedict, Series 3 W, 6.00%, due 3/1/07............................................. $ 512,765
--------------
General Obligations -- Political Subdivisions (19.0%):
400,000 Anoka County, MN, General Obligation Bonds, Capital Improvements, Series A, 6.00%,
due 1/1/09.......................................................................... 413,512
765,000 Bayport, MN, General Obligation Refunding Bonds, 5.75%, due 12/1/16.................. 768,695
210,000 Bloomington, MN, Tax Increment General Obligation Bonds, 9.75%, due 2/1/05........... 288,044
</TABLE>
See notes to financial statements.
67
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MINNESOTA TAX-FREE FUND (continued)
General Obligations -- Political Subdivisions, continued:
$ 550,000 Metropolitan Council, MN, Minneapolis-St. Paul Area, General Obligation Bonds, 5.50%,
due 6/1/10.......................................................................... $ 553,361
750,000 Minneapolis, MN, General Obligation Bonds, 6.25%, due 4/1/12......................... 792,630
1,000,000 State of Minnesota, General Obligation Refunding Bonds, 5.40%, due 8/1/09............ 1,005,820
500,000 State of Minnesota, General Obligation Revenue Bonds, 5.30%, due 8/1/11.............. 492,495
245,000 Waconia, MN, General Obligation Water Revenue Bonds, 6.00%, due 6/1/07............... 251,566
--------------
4,566,123
--------------
General Obligations -- School Districts (15.9%):
495,000 Benson, MN, Independent School District, General Obligation Bonds, 6.00%, due
2/1/15.............................................................................. 502,534
500,000 Chaska, MN, Independent School District, General Obligation Bonds, Series B, 6.00%,
due 2/1/13.......................................................................... 511,415
515,000 Faribault, MN, Independent School District #656, General Obligation Bonds, 6.10%, due
6/1/09.............................................................................. 537,444
405,000 Richfield, MN, Independent School District #280, General Obligation Bonds, 5.775%
variable rate, due 2/1/07........................................................... 397,913
500,000 Roseville, MN, Independent School District #623, General Obligation Bonds, Series
1993 A, 6.00%, due 2/1/23........................................................... 509,560
720,000 St. Francis, MN, Independent School District #15, General Obligation Refunding Bonds,
Series D, FGIC insured, 5.80%, due 4/1/09........................................... 739,058
General Obligations -- School Districts, continued:
$ 1,285,000 West St. Paul, MN, Independent School District #197, General Obligation Bonds,
Capital Appreciation-School Building Project, MBIA insured, 0.00%, due 2/1/08....... $ 619,756
--------------
3,817,680
--------------
Health Care Revenue (20.0%):
200,000 Bemidji, MN, Hospital Facilities, First Mortgage Revenue Bonds, North Country Health
Services Project, Series 1991 A, 7.00%, due 9/1/11.................................. 215,642
500,000 Brainerd, MN, Health Care Facilities Revenue Bonds, Benedictine Health-St. Joseph's
Health Center, Series 1993 E, Connie Lee insured, 6.00%, due 2/15/20................ 510,265
500,000 Duluth, MN, Economic Development Authority, Health Care Facilities Revenue Bonds,
Benedictine Health System-St. Mary's Medical Center, Series 1993 C, Connie Lee
insured, 6.00%, due 2/15/12......................................................... 510,265
500,000 Duluth, MN, Economic Development Authority, Hospital Facilities Revenue Bonds, St.
Luke's Hospital of Duluth, Series B, Connie Lee insured, 6.40%, due 5/1/18.......... 524,170
200,000 Edina, MN, Health Care Facilities, Nursing Home Revenue Bonds, Volunteers of America
Care Project, 7.75%, due 3/1/15..................................................... 202,890
1,000,000 Mankato, MN, Hospital Facilities First Mortgage Revenue Bonds, Immanuel-St. Joseph's
Hospital Project, Series A, 6.30%, due 8/1/22....................................... 1,009,580
</TABLE>
See notes to financial statements.
68
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MINNESOTA TAX-FREE FUND (continued)
Health Care Revenue, continued:
$ 500,000 Minneapolis & St. Paul, MN, Housing and Redevelopment Authority, Health Care Revenue
Bonds, Group Health Plan, Incorporated Project, 6.75%, due 12/1/13.................. $ 526,115
600,000 Minneapolis & St. Paul, MN, Housing and Redevelopment Authority Health Care System,
Health Care Revenue Refunding Bonds, Health One Obligated Group Project, Series A,
MBIA insured, 7.40%, due 8/15/11.................................................... 673,026
100,000 Minneapolis, MN, Hospital Revenue Refunding Bonds, Lifespan, Incorporated, Series B,
8.125%, due 8/1/17.................................................................. 110,004
115,000 Red Wing, MN, Health Care Facilities Revenue Refunding Bonds, River Region Obligated
Group, Series 1993 B, 6.35%, due 9/1/07............................................. 117,065
250,000 Rochester, MN, Health Care Revenue Bonds, Mayo Medical Center, 8.30%, due 11/15/07... 286,850
100,000 Rochester, MN, Health Care Revenue Bonds, Mayo Foundation/Mayo Medical Center, Series
D, 6.25%, due 11/15/14.............................................................. 103,604
--------------
4,789,476
--------------
Housing Revenue (19.7%):
500,000 Minneapolis, MN, Community Development Agency, Multi-Family Rental Housing Revenue
Bonds, Laurel Village #2 Project, 7.50%, due 12/1/31, mandatory redemption 12/1/99
at 100.............................................................................. 510,900
550,000 Minnesota State Housing Finance Agency, Housing Development Revenue Bonds, Series A,
6.85%, due 2/1/07................................................................... 589,034
Housing Revenue, continued:
$ 1,000,000 Minnesota State Housing Finance Agency, Single Family Mortage Revenue Bonds, Series
I, 6.25%, due 1/1/15................................................................ $ 1,023,780
640,000 Minnesota State Housing Finance Agency, Housing Development Revenue Bonds, 6.25%, due
2/1/20.............................................................................. 645,997
205,000 Minnesota State Housing Finance Agency, Housing Development Revenue Bonds, 7.125%,
due 2/1/20.......................................................................... 209,168
750,000 Minnesota State Housing Finance Agency, Multi-Family Housing Revenue Bonds, 6.375%,
due 2/1/20.......................................................................... 758,783
300,000 St. Louis Park, MN, Multi-Family Housing Revenue Bonds, Westwind Apartments Project,
Series 1993, GNMA Mortgage Loan, 5.625%, due 7/1/14................................. 284,364
675,000 St. Paul, MN, Housing & Redevelopment Authority, Single Family Mortgage Revenue
Refunding Bonds, FNMA Mortgage Backed Securities Project, 6.25%, due 9/1/14......... 693,590
--------------
4,715,616
--------------
Other Revenue (1.1%):
250,000 Duluth, MN, Gross Revenue Bonds, Spirit Mountain Recreation Area, Series 1992, 6.40%,
due 2/1/03.......................................................................... 261,916
--------------
Pollution Control Revenue (3.9%):
875,000 Minnesota Public Facilities Authority, Water Pollution Control Revenue Bonds, Series
A, 6.50%, due 3/1/14................................................................ 943,021
--------------
Utilities Revenue (11.9%):
1,000,000 Northern Minnesota Municipal Power Agency, Power Revenue Refunding Bonds, Series A,
6.00%, due 1/1/20................................................................... 1,002,480
</TABLE>
See notes to financial statements.
69
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- FIXED INCOME FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
MINNESOTA TAX-FREE FUND (continued)
Utilities Revenue, continued:
$ 1,240,000 Southern Minnesota Municipal Power Agency, Electric Power Revenue Refunding Bonds,
MBIA-IBC insured, 5.75%, due 1/1/18................................................. $ 1,249,920
600,000 Southern Minnesota Municipal Power Agency, Power Revenue Bonds, Series A, 6.00%, due
1/1/13.............................................................................. 609,990
--------------
2,862,390
--------------
Total Municipal Bonds (cost $21,770,599) 22,468,987
--------------
Short-Term Holdings (6.4%):
100,000 Cottage Grove, MN, Environmental Control Revenue Bonds, Minnesota Mining &
Manufacturing, 4.71% variable rate, due 8/1/12...................................... 100,000
Short-Term Holdings, continued:
$ 100,000 Dakota County, MN, Housing & Redevelopment Authority, Multi-Family Mortgage Revenue
Bonds, Westwood Ridge Rental Housing Project, Series A, First Bank, N.A. LOC, 3.80%
variable rate, due 6/1/24........................................................... $ 100,000
1,103,693 Federated Tax Free Obligations Money Market Fund..................................... 1,103,693
128,837 Provident Institutional Funds, Municipal Fund for Temporary Investment............... 128,837
100,000 Saint Cloud, MN, Hospital Facilities Revenue Bonds, Series A, Kredietbank N.V. LOC,
3.80% variable rate, due 7/1/20..................................................... 100,000
--------------
Total Short-Term Holdings (cost $1,532,530) 1,532,530
--------------
Total Investments (100.0%) (cost $23,303,129)
$ 24,001,517
--------------
--------------
</TABLE>
(a) Fair value determined by the Board of Trustees.
(b) Securities that may be resold to 'qualified institutional buyers' under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be
liquid under guidelines established by the Board of Trustees.
See notes to financial statements.
70
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (May 31, 1995)
INCOME VALUGROWTH SMALL COMPANY CONTRARIAN
STOCK STOCK STOCK STOCK
FUND FUND FUND FUND
--------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value(a)..................... $76,051,825 $152,334,144 $57,889,555 $47,086,947
Cash......................................... -- 4,737 1,385,931 --
Interest, dividends and other receivables.... 381,061 478,484 60,194 102,944
Receivable for securities sold............... -- -- -- 24,262
Receivable for shares issued................. 332,847 32,151 3,229 26,876
Organization costs, net of amortization...... -- -- 23,431 23,431
--------- ----------- ------------- -----------
Total assets.................................. 76,765,733 152,849,516 59,362,340 47,264,460
--------- ----------- ------------- -----------
LIABILITIES:
Payable for securities purchased............. -- -- 2,497,860 258,443
Payable for shares redeemed.................. 26,810 24,990 3,178 975
Investment advisory, transfer agency and
custodial fees payable..................... 40,772 134,168 11,400 38,880
Management fee payable....................... 13,080 28,989 29,126 14,065
Accrued expenses............................. 29,719 30,252 30,565 23,388
Dividends payable............................ 320,094 334,989 47,427 61,991
--------- ----------- ------------- -----------
Total liabilities............................. 430,475 553,388 2,619,556 397,742
--------- ----------- ------------- -----------
NET ASSETS.................................... $76,335,258 $152,296,128 $56,742,784 $46,866,718
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
COMPONENTS OF NET ASSETS:
Capital paid in.............................. $66,434,374 $127,533,013 $53,409,796 $44,823,398
Undistributed net investment income.......... -- -- -- 1,079
Unrealized appreciation...................... 8,726,606 27,117,816 2,606,880 862,389
Accumulated net realized gains (losses)...... 1,174,278 (2,354,701) 726,108 1,179,852
--------- ----------- ------------- -----------
NET ASSETS.................................... $76,335,258 $152,296,128 $56,742,784 $46,866,718
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
NET ASSETS BY CLASS OF SHARES:
Investor A Shares............................ $14,292,431 $12,138,435 $1,539,767 $ 572,115
Investor B Shares............................ 3,115,470 3,569,157 962,881 462,656
Trust Shares................................. 58,927,357 136,588,536 54,240,136 45,831,947
--------- ----------- ------------- -----------
NET ASSETS.................................... $76,335,258 $152,296,128 $56,742,784 $46,866,718
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
SHARES OUTSTANDING:
Investor A Shares............................ 1,243,632 645,134 144,746 52,474
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
Investor B Shares............................ 272,168 191,380 91,150 42,688
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
Trust Shares................................. 5,124,100 7,263,880 5,122,379 4,204,108
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
NET ASSET VALUE PER SHARE:
Investor A Shares............................ $ 11.49 $ 18.82 $ 10.64 $ 10.90
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
Investor B Shares............................ $ 11.45 $ 18.65 $ 10.56 $ 10.84
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
Trust Shares................................. $ 11.50 $ 18.80 $ 10.59 $ 10.90
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
(a) Cost of Investments....................... $67,325,219 $125,216,328 $55,282,675 $46,224,558
</TABLE>
See notes to financial statements.
71
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (Year Ended May 31, 1995)
INCOME VALUGROWTH SMALL COMPANY CONTRARIAN
STOCK STOCK STOCK STOCK
FUND FUND FUND FUND
--------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and dividend income................. $1,760,167 $3,136,275 $ 535,034 $ 658,202
--------- ----------- ------------- -----------
EXPENSES:
Advisory..................................... 376,050 1,132,507 322,908 258,669
Management................................... 94,013 283,301 64,582 64,667
Transfer agent............................... 117,516 353,908 80,727 80,834
Custodian.................................... 9,469 26,640 6,528 6,489
Legal........................................ 2,646 7,966 15,953 2,217
Filing....................................... 29,278 13,165 26,512 24,505
Accounting................................... 50,000 48,478 51,000 50,000
Auditing..................................... 11,871 12,304 11,763 11,660
Trustees..................................... 973 2,309 747 723
Distribution................................. 13,515 27,965 5,256 1,642
Amortization of organization costs........... -- -- 6,538 6,538
Other........................................ 9,360 13,610 6,895 9,535
--------- ----------- ------------- -----------
Total expenses................................ 714,691 1,922,153 599,409 517,479
Expenses reimbursed and fees waived.......... (234,945) (203,293) (428,753) (154,277)
--------- ----------- ------------- -----------
Net expenses.................................. 479,746 1,718,860 170,656 363,202
--------- ----------- ------------- -----------
NET INVESTMENT INCOME......................... 1,280,421 1,417,415 364,378 295,000
--------- ----------- ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) on investments........... 1,377,855 (752,212) 965,922 1,190,947
Change in unrealized appreciation............. 9,006,486 14,104,085 2,743,762 1,035,192
--------- ----------- ------------- -----------
Net gain on investments....................... 10,384,341 13,351,873 3,709,684 2,226,139
--------- ----------- ------------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS........ $11,664,762 1$4,769,288 $4,074,062 $2,521,139
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
</TABLE>
See notes to financial statements.
72
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Years Ended May 31, 1994 and 1995)
INCOME VALUGROWTH SMALL COMPANY CONTRARIAN
STOCK STOCK STOCK STOCK
FUND(a) FUND(a) FUND(a) FUND(a)
--------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
NET ASSETS -- May 31, 1993.................... $ -- 1$09,669,165 $ -- $ --
--------- ----------- ------------- -----------
OPERATIONS:
Net investment income........................ 603,127 1,198,892 43,449 22,553
Realized gain (loss) on investments.......... (138,329) (1,602,492) 39,781 3,569
Change in unrealized appreciation
(depreciation)............................. (279,880) 2,134,614 (136,882) (172,803)
--------- ----------- ------------- -----------
184,918 1,731,014 (53,652) (146,681)
--------- ----------- ------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- Investor A shares... (369,361) (548,361) (961) (470)
Net investment income -- Investor B shares... (10,702) (5,980) (539) (173)
Net investment income -- Trust shares........ (225,532) (679,347) (42,342) (22,026)
Realized gain on investments -- Investor A
shares..................................... -- (153,843) -- --
Realized gain on investments -- Investor B
shares..................................... -- (8,672) -- --
Realized gain on investments -- Trust
shares..................................... -- (1,398,930) -- --
--------- ----------- ------------- -----------
(605,595) (2,795,133) (43,842) (22,669)
--------- ----------- ------------- -----------
CAPITAL SHARE TRANSACTIONS:
Sale of shares -- Investor A shares.......... 18,449,952 19,443,499 268,285 149,941
Sale of shares -- Investor B shares.......... 843,403 2,314,377 197,800 76,472
Sale of shares -- Trust shares............... 16,908,821 130,944,524 9,455,721 4,898,958
Reinvested dividends -- Investor A shares.... 304,225 289,555 409 152
Reinvested dividends -- Investor B shares.... 7,567 13,249 256 43
Reinvested dividends -- Trust shares......... 3,736 144,222 861 1,607
Cost of shares repurchased -- Investor A
shares..................................... (6,857,636) (116,954,259) (1,974) (2,817)
Cost of shares repurchased -- Investor B
shares..................................... (37,920) (43,483) (978) (955)
Cost of shares repurchased -- Trust shares... (1,495,148) (16,555,250) (111,978) (187,002)
--------- ----------- ------------- -----------
28,127,000 19,596,434 9,808,402 4,936,399
--------- ----------- ------------- -----------
NET ASSETS -- May 31, 1994.................... 27,706,323 128,201,480 9,710,908 4,767,049
--------- ----------- ------------- -----------
OPERATIONS:
Net investment income........................ 1,280,421 1,417,415 364,378 295,000
Realized gain (loss) on investments.......... 1,377,855 (752,212) 965,922 1,190,947
Change in unrealized appreciation............ 9,006,486 14,104,085 2,743,762 1,035,192
--------- ----------- ------------- -----------
11,664,762 14,769,288 4,074,062 2,521,139
--------- ----------- ------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income -- Investor A shares... (305,844) (122,777) (9,212) (3,623)
Net investment income -- Investor B shares... (32,792) (21,641) (4,231) (1,290)
Net investment income -- Trust shares........ (947,266) (1,282,800) (352,830) (289,008)
Realized gain on investments -- Investor A
shares..................................... (16,295) -- (5,960) (103)
Realized gain on investments -- Investor B
shares..................................... (1,737) -- (3,839) (43)
Realized gain on investments -- Trust
shares..................................... (47,216) -- (269,796) (14,518)
--------- ----------- ------------- -----------
(1,351,150) (1,427,218) (645,868) (308,585)
--------- ----------- ------------- -----------
CAPITAL SHARE TRANSACTIONS:
Sale of shares -- Investor A shares.......... 2,463,577 2,466,769 1,290,079 416,869
Sale of shares -- Investor B shares.......... 2,186,659 1,561,962 777,480 385,276
Sale of shares -- Trust shares............... 40,455,329 35,528,998 46,911,637 49,711,822
Reinvested dividends -- Investor A shares.... 305,961 109,377 14,637 3,207
Reinvested dividends -- Investor B shares.... 25,501 17,994 7,961 1,109
Reinvested dividends -- Trust shares......... 44,022 70,143 28,272 149,803
Cost of shares repurchased -- Investor A
shares..................................... (2,404,620) (4,478,873) (111,737) (31,102)
Cost of shares repurchased -- Investor B
shares..................................... (205,441) (512,240) (66,404) (17,607)
Cost of shares repurchased -- Trust shares... (4,555,665) (24,011,552) (5,248,243) (10,732,262)
--------- ----------- ------------- -----------
38,315,323 10,752,578 43,603,682 39,887,115
--------- ----------- ------------- -----------
NET ASSETS -- May 31, 1995.................... $76,335,258 $152,296,128 $56,742,784 $46,866,718
--------- ----------- ------------- -----------
--------- ----------- ------------- -----------
</TABLE>
(a) See note 1 of notes to financial statements for periods covered.
See notes to financial statements.
73
<PAGE>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Norwest Funds (the 'Trust') is registered as an open-end management
investment company. The Trust currently has four equity investment portfolios
(each a 'Fund'). The classes of each Fund commenced operations on the
following dates:
<TABLE>
<S> <C>
Income Stock Fund (Investor A shares)................................... June 1, 1993
Income Stock Fund (Investor B shares)................................... August 4, 1993
Income Stock Fund (Trust shares)........................................ August 2, 1993
ValuGrowth Stock Fund (Investor A shares)............................... January 8, 1988
ValuGrowth Stock Fund (Investor B shares)............................... August 5, 1993
ValuGrowth Stock Fund (Trust shares).................................... August 2, 1993
December 31,
Small Company Stock Fund (Investor A shares)............................ 1993
December 31,
Small Company Stock Fund (Investor B shares)............................ 1993
December 31,
Small Company Stock Fund (Trust shares)................................. 1993
December 31,
Contrarian Stock Fund (Investor A shares)............................... 1993
December 31,
Contrarian Stock Fund (Investor B shares)............................... 1993
December 31,
Contrarian Stock Fund (Trust shares).................................... 1993
</TABLE>
Investor A shares are sold with a front-end sales charge. Investor B shares
are subject to a contingent deferred sales charge upon redemption and after a
specified number of years, automatically convert to Investor A shares. Trust
shares are offered exclusively to fiduciary and other clients of banks, trust
companies and their affiliates. Trust shares shareholders incur neither a
front-end nor contingent deferred sales charge.
Each Fund is diversified. Prior to July 31, 1993, the Trust's operation was
conducted as Prime Value Funds, Inc., a Maryland Corporation. The Funds'
financial statements are prepared in accordance with generally accepted
accounting principles. The Trust Instrument authorizes the issuance of an
unlimited number of shares of beneficial interest without par value.
Financial Statement Periods and Change of Fiscal Year -- Funds or share
classes which commenced operations during the fiscal year ended May 31, 1994
have had less than a full year of operations. As a result, the financial
highlights and amounts reflected in the statements of changes in net assets
and footnotes to financial statements for such Funds or share classes, present
results of operations from the commencement date shown above, through May 31,
1994.
For other classes or Funds, the earliest period presented in the financial
highlights reflects operations for the period beginning with the commencement
date above through the date of its then fiscal year end.
Effective May 31, 1992, ValuGrowth Stock Fund elected to change its fiscal
year end to May 31. Prior to May 31, 1992, that Fund's fiscal year end was
November 30.
Security Valuation -- Securities with a maturity of 60 days or less are
valued at amortized cost. Other securities held by the Funds for which market
quotations are readily available are valued using the last reported sales
price provided by independent pricing services. If no sales are reported, the
last bid price is used. In the absence of readily available market quotations,
securities are valued at fair value determined by the Board of Trustees.
Unrealized appreciation and depreciation based on identified tax cost as of
May 31, 1995 were as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
Appreciation Depreciation
--------- -----------
<S> <C> <C>
Income Stock Fund................................................... $9,533,581 $ 806,975
ValuGrowth Stock Fund............................................... 29,526,113 2,954,918
Small Company Stock Fund............................................ 5,214,232 2,634,087
Contrarian Stock Fund............................................... 4,235,769 3,373,380
</TABLE>
Realized gains and losses on investments sold are recorded on the basis of
identified cost.
The cost basis for Federal income tax purposes is the same as for financial
accounting purposes except for ValuGrowth Stock Fund and Small Company Stock
Fund, whose tax cost of securities is $125,762,949 and $55,309,408,
respectively.
Interest and Dividend Income and Dividends to Shareholders -- Interest
income is accrued as earned. Dividend income is recorded on the ex-dividend
date. Dividends to shareholders of net investment income are declared and paid
monthly by each Fund. Net capital gain, unless offset by any available capital
loss carryforwards, is distributed to shareholders at least annually.
74
<PAGE>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Distributions from net investment income and realized capital gains are
based on their tax basis. The significant difference between financial
statement amounts available for distribution and distributions made in
accordance with income tax regulations are primarily attributable to the
deferral of post -- October losses, wash sales and utilization of capital loss
carryforwards.
Expense Allocation -- Each share of each class represents an undivided,
proportionate interest in the Fund. The Funds' class specific expenses include
distribution expenses, if any, transfer agent fees and expenses and certain
other expenses that can be solely attributable to a class.
Organization Costs -- The costs incurred by Contrarian Stock Fund and Small
Company Stock Fund in connection with their organization and registration of
shares, in amounts of $32,694 and $32,694, respectively, have been capitalized
and are being amortized using the straight-line method over a five year period
beginning on the commencement of the Funds' operations. Certain of these costs
were paid by Forum Financial Services, Inc. and will be reimbursed by the
respective Funds.
Federal Income Tax -- Each Fund has qualified, and intends to continue to
qualify, as a regulated investment company and distributes all of its taxable
income. Therefore, no Federal income tax provision is required. As of May 31,
1995 certain of the Funds have capital loss carryovers available to offset
future capital gains as follows:
<TABLE>
<CAPTION>
Year of Expiration
--------------------
2002 2003 Total
--------- --------- ---------
<S> <C> <C> <C>
ValuGrowth Stock Fund....................................... $1,602,492 $ 205,589 $1,808,083
</TABLE>
2. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of each Equity Fund is Norwest Investment
Management, a part of Norwest Bank Minnesota, N.A. (the 'Adviser'). Norwest
Bank Minnesota, N.A. is a subsidiary of Norwest Corporation. The Adviser
receives an advisory fee from each of Income Stock Fund, ValuGrowth Stock Fund
and Contrarian Stock Fund at an annual rate of 0.80% of the respective Fund's
average daily net assets for the first $300 million of net assets of the Fund
declining to 0.72% of the average daily net assets of the Fund in excess of
$700 million. The Adviser receives an advisory fee from Small Company Stock
Fund at an annual rate of 1.00% of the Fund's average daily net assets for the
first $300 million of net assets of the Fund declining to 0.92% of the average
daily net assets of the Fund in excess of $700 million. Pursuant to an
agreement among the Adviser, the Trust and Crestone Capital Management, Inc.
(the 'Subadviser'), the Adviser may delegate certain of its advisory
responsibilities to the Subadviser and pay the Subadviser a fee.
The Adviser has agreed to reimburse each Fund for certain operating
expenses (exclusive of interest, taxes, brokerage fees, fees and other
expenses paid pursuant to any distribution plan and organization expenses, all
to the extent permitted by applicable state law or regulation) which in any
year exceed the limits prescribed by any state in which the Fund's shares are
qualified for sale. The Funds' annual expenses are estimated and accrued
daily, and any related reimbursements are made monthly by the Adviser.
Norwest Bank Minnesota, N.A. serves as the Trust's transfer agent, dividend
disbursing agent and custodian, and is compensated for those services at an
aggregate annual rate of up to 0.30% of the average daily net assets of each
Fund. Transfer agent fees are based on the average daily net assets
attributable to each class of a Fund's shares.
The manager of the Trust is Forum Financial Services, Inc. ('Forum'), a
registered broker-dealer and a member of the National Association of
Securities Dealers, Inc. Forum receives a management fee from each Fund at an
annual rate of 0.20% of the average daily net assets of the Fund. In addition,
certain legal expenses were charged to the Trust by Forum. The respective
amounts of legal expenses for Income Stock Fund, ValuGrowth Stock Fund, Small
Company Stock Fund and Contrarian Stock Fund were: $1,090, $3,756, $647, $556.
Forum Financial Corp., an affiliate of Forum, provides fund accounting
services to the Trust. For these services, Forum Financial Corp. receives a
fee of $36,000 per year per fund plus certain amounts based upon the number of
classes and number and types of portfolio transactions within each Fund.
The Trust has adopted a Distribution Plan (the 'Plan') with respect to
Investor B shares of each Fund pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Plans authorize the payment to Forum of an annual
distribution service fee of 0.75% of the average daily net assets, and a
maintenance fee of 0.25% of the average daily net assets, of each Fund
attributable to Investor B shares. No Fund incurred any maintenance fees
during the year ended May 31, 1995. The distribution payments are used to
reimburse the distributor for (i) sales commissions at levels set from time to
time by the Board not to exceed 6.25% of the amount received by the Fund for
each Investor B share sold (excluding reinvestment of dividends and
distributions) and (ii) interest calculated by applying the rate of 1% over
the prime rate to the outstanding balance of unreimbursed distribution
charges. The current sales commission rate for all Equity Funds is 4.50%.
75
<PAGE>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
In the event that the Plan is terminated or not continued, the Fund will
continue to pay distribution service fees to Forum (but only with respect to
sales that occurred prior to the termination or discontinuance of the Plan)
until the earlier of (a) four years after the date of termination or
discontinuance or (b) such time as there exist no unreimbursed distribution
charges attributable to that Fund under the Plan, as calculated pursuant to
the Plan.
Unreimbursed distribution charges at May 31, 1995 were as follows:
<TABLE>
<S> <C>
Income Stock Fund................................................................ $ 103,456
ValuGrowth Stock Fund............................................................ 120,114
Small Company Stock Fund......................................................... 33,652
Contrarian Stock Fund............................................................ 16,433
</TABLE>
For the year ended May 31, 1995, fees waived and expenses reimbursed by the
Trust's custodian and transfer agent, investment adviser, and manager and
distributor were as follows:
<TABLE>
<CAPTION>
Fees Waived
------------------------------------- Expenses
Custodian and Reimbursed
Transfer -----------
Agent Adviser Forum Forum
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Income Stock Fund............................. $ 7,476 $ 202,986 $ 24,483 $ --
ValuGrowth Stock Fund......................... 12,687 4,813 184,872 921
Small Company Stock Fund...................... 65,714 322,908 19,627 20,504
Contrarian Stock Fund......................... 15,316 128,979 1,928 8,054
</TABLE>
During the year ended May 31, 1995, pursuant to the procedures adopted by
the Board of Trustees, ValuGrowth Stock Fund placed a portion of its portfolio
transactions through Norwest Investment Services, Inc., an affiliate of the
Adviser, for which brokerage commissions of $12,213 were paid.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales (including maturities) of
securities (excluding short-term investments) during the year ended May 31,
1995 were as follows:
<TABLE>
<CAPTION>
Proceeds
Cost of from
Purchases Sales
---------- ---------
<S> <C> <C>
Income Stock Fund.................................................. $39,385,484 $3,960,847
ValuGrowth Stock Fund.............................................. 100,716,500 89,689,422
Small Company Stock Fund........................................... 60,550,168 19,263,569
Contrarian Stock Fund.............................................. 45,594,592 8,841,575
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Transactions of Fund shares are summarized in the following tables:
Income Stock Fund
<TABLE>
<CAPTION>
Investor A shares Investor B shares Trust shares
-------------------- ------------------------ ------------------------
Period Period
Year Ended May 31, Year Ended Ended Year Ended Ended
-------------------- May 31, May 31, May 31, May 31,
1995 1994 1995 1994 1995 1994
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................. 229,493 1,899,070 204,693 87,427 3,963,479 1,754,207
Shares repurchased.......... (240,780) (706,230) (19,363) (3,912) (441,581) (156,763)
Shares issued on
reinvestment
of dividends............... 30,561 31,518 2,531 792 4,370 388
--------- --------- ----------- ----------- ----------- -----------
Net increase................ 19,274 1,224,358 187,861 84,307 3,526,268 1,597,832
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
</TABLE>
76
<PAGE>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
ValuGrowth Stock Fund
<TABLE>
<CAPTION>
Investor A shares Investor B shares Trust shares
-------------------- ------------------------ ------------------------
Period Period
Year Ended May 31, Year Ended Ended Year Ended Ended
-------------------- May 31, May 31, May 31, May 31,
1995 1994 1995 1994 1995 1994
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............. 140,912 1,126,371 89,782 131,435 2,048,579 7,515,912
Shares repurchased....... (254,529) (6,739,848) (29,138) (2,490) (1,376,569) (936,299)
Shares issued on
reinvestment
of dividends............ 6,298 16,548 1,034 757 4,043 8,214
--------- --------- ----------- ----------- ----------- -----------
Net increase
(decrease).............. (107,319) (5,596,929) 61,678 129,702 676,053 6,587,827
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
<CAPTION>
Small Company Stock Fund
Investor A shares Investor B shares Trust shares
------------------------ ------------------------ ------------------------
Period Period Period
Year Ended Ended Year Ended Ended Year Ended Ended
May 31, May 31, May 31, May 31, May 31, May 31,
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............. 127,352 27,063 77,049 31,213 4,701,475 955,405
Shares repurchased....... (10,985) (199) (6,562) (3,435) (526,044) (11,408)
Shares issued on
reinvestment of
dividends............... 1,473 42 808 171 2,864 87
----------- ----------- ----------- ----------- ----------- -----------
Net increase............. 117,840 26,906 71,295 27,949 4,178,295 944,084
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
Contrarian Stock Fund
Investor A shares Investor B shares Trust shares
------------------------ ------------------------ ------------------------
Period Period Period
Year Ended Ended Year Ended Ended Year Ended Ended
May 31, May 31, May 31, May 31, May 31, May 31,
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............. 40,379 15,052 36,555 7,791 4,757,781 487,630
Shares repurchased....... (3,000) (283) (1,670) (100) (1,036,666) (19,130)
Shares issued on
reinvestment of
dividends............... 310 16 108 4 14,330 163
----------- ----------- ----------- ----------- ----------- -----------
Net increase............. 37,689 14,785 34,993 7,695 3,735,445 468,663
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
5. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR (unaudited)
Income Dividends -- All of the income dividends paid by each Fund were
ordinary income for Federal income tax purposes. The percentage of income
dividends that were qualifying dividends for the corporate dividends received
deduction were:
<TABLE>
<CAPTION>
Qualifying
Dividends
-------------
<S> <C>
Income Stock Fund................................................................ 88%
ValuGrowth Stock Fund............................................................ 71%
Small Company Stock Fund......................................................... 54%
Contrarian Stock Fund............................................................ 85%
</TABLE>
Capital Gain Dividends -- The Income Stock Fund declared long term capital
gain dividends of $0.005037 per share in December 1994.
77
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ----------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD
Net
Realized Ratios to Average
and Net Assets
Beginning Unrealized Dividends Distributions Ending ------------------------
Net Asset Net Gain (Loss) from Net from Net Net Asset Net
Value Per Investment on Investment Realized Value Per Investment
Share Income Investments Income Gains Share Expenses(a) Income
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STOCK FUND
Investor A shares
Year Ended May 31,
1995.................. $ 9.53 $ 0.27 $ 1.97 $ (0.27) $(0.01) $ 11.49 1.00% 2.66%
1994.................. 10.00 0.28 (0.47) (0.28) -- 9.53 0.67% 3.15%
Investor B shares
Year Ended May 31,
1995................ 9.51 0.21 1.96 (0.22) (0.01) 11.45 1.75% 2.08%
Period Ended May 31,
1994(c)............. 9.66 0.20 (0.13) (0.22) -- 9.51 1.65%(b) 2.37%(b)
Trust shares
Year Ended May 31,
1995................ 9.54 0.27 1.97 (0.27) (0.01) 11.50 1.00% 2.77%
Period Ended May 31,
1994(c)............. 9.61 0.25 (0.06) (0.26) -- 9.54 0.86%(b) 3.20%(b)
VALUGROWTH STOCK FUND
Investor A shares
Year Ended May 31,
1995.................. 17.17 0.17 1.66 (0.18) -- 18.82 1.20% 1.01%
1994.................. 17.27 0.10 0.19 (0.17) (0.22) 17.17 1.20% 1.06%
1993.................. 16.30 0.17 1.34 (0.17) (0.37) 17.27 1.20% 1.02%
Six Months Ended May
31, 1992(d)........... 14.48 0.09 1.83 (0.10) -- 16.30 1.19%(b) 1.34%(b)
Year Ended November
30, 1991............ 11.67 0.18 2.82 (0.19) -- 14.48 1.19% 1.57%
1990.................. 12.67 0.21 (0.55) (0.21) (0.45) 11.67 1.20% 1.88%
Investor B shares
Year Ended May 31,
1995................ 17.10 0.07 1.61 (0.13) -- 18.65 1.95% 0.28%
Period Ended May 31,
1994(c)............. 17.12 0.07 0.23 (0.10) (0.22) 17.10 1.95%(b) 0.25%(b)
Trust shares
Year Ended May 31,
1995................ 17.16 0.18 1.64 (0.18) -- 18.80 1.20% 1.02%
Period Ended May 31,
1994(c)............. 16.91 0.13 0.46 (0.12) (0.22) 17.16 1.20%(b) 0.92%(b)
SMALL COMPANY STOCK FUND
Investor A shares
Year Ended May 31,
1995................ 9.84 0.12 0.87 (0.11) (0.08) 10.64 0.53% 1.14%
Period Ended May 31,
1994(c)............. 10.00 0.07 (0.15) (0.08) -- 9.84 0.22%(b) 1.95%(b)
Investor B shares
Year Ended May 31,
1995................ 9.82 0.07 0.84 (0.09) (0.08) 10.56 1.27% 0.38%
Period Ended May 31,
1994(c)............. 10.00 0.06 (0.17) (0.07) -- 9.82 0.98%(b) 1.27%(b)
Trust shares
Year Ended May 31,
1995................ 9.80 0.12 0.87 (0.12) (0.08) 10.59 0.52% 1.14%
Period Ended May 31,
1994(c)............. 10.00 0.08 (0.20) (0.08) -- 9.80 0.20%(b) 2.03%(b)
CONTRARIAN STOCK FUND
Investor A shares
Year Ended May 31,
1995................ 9.71 0.11 1.19 (0.11) (0.003) 10.90 1.01% 1.05%
Period Ended May 31,
1994(c)............. 10.00 0.06 (0.28) (0.07) -- 9.71 0.61%(b) 1.77%(b)
Investor B shares
Year Ended May 31,
1995................ 9.69 0.07 1.16 (0.08) (0.003) 10.84 1.78% 0.35%
Period Ended May 31,
1994(c)............. 10.00 0.05 (0.30) (0.06) -- 9.69 1.28%(b) 1.14%(b)
Trust shares
Year Ended May 31,
1995................ 9.71 0.11 1.19 (0.11) (0.003) 10.90 1.12% 0.91%
Period Ended May 31,
1994(c)............. 10.00 0.07 (0.29) (0.07) -- 9.71 0.62%(b) 1.82%(b)
<CAPTION>
NORWEST FUNDS -- EQUITY
- -----------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A S
Net
Assets at
End of
Portfolio Period
Total Turnover (000's
Return Rate Omitted)
--------- ----------- ---------
<S> <C> <C> <C>
INCOME STOCK FUND
Investor A shares
Year Ended May 31,
1995.................. 23.87% 8.93% $ 14,292
1994.................. (1.92%) 57.50% 11,668
Investor B shares
Year Ended May 31,
1995................ 23.12% 8.93% 3,115
Period Ended May 31,
1994(c)............. 0.87%(b) 57.50% 802
Trust shares
Year Ended May 31,
1995................ 23.85% 8.93% 58,927
Period Ended May 31,
1994(c)............. 1.73%(b) 51.50% 15,237
VALUGROWTH STOCK FUND
Investor A shares
Year Ended May 31,
1995.................. 10.72% 63.82% 12,138
1994.................. 1.68% 86.07% 12,922
1993.................. 9.32% 57.34% 109,669
Six Months Ended May
31, 1992(d)........... 26.46%(b) 29.50% 68,659
Year Ended November
30,
1991.................. 25.84% 31.17% 4,853
1990.................. (2.91%) 38.67% 750
Investor B shares
Year Ended May 31,
1995................ 9.88% 63.82% 3,569
Period Ended May 31,
1994(c)............. 2.36%(b) 86.07% 2,218
Trust shares
Year Ended May 31,
1995................ 10.67% 63.82% 136,589
Period Ended May 31,
1994(c)............. 2.99%(b) 86.07% 113,061
SMALL COMPANY STOCK FUN
Investor A shares
Year Ended May 31,
1995................ 10.19% 68.09% 1,540
Period Ended May 31,
1994(c)............. (1.98%)(b) 14.98% 265
Investor B shares
Year Ended May 31,
1995................ 9.31% 68.09% 963
Period Ended May 31,
1994(c)............. (2.77%)(b) 14.98% 195
Trust shares
Year Ended May 31,
1995................ 10.13% 68.09% 54,240
Period Ended May 31,
1994(c)............. (2.93%)(b) 14.98% 9,251
CONTRARIAN STOCK FUND
Investor A shares
Year Ended May 31,
1995................ 13.52% 30.32% 572
Period Ended May 31,
1994(c)............. (5.35%)(b) 2.67% 144
Investor B shares
Year Ended May 31,
1995................ 12.78% 30.32% 463
Period Ended May 31,
1994(c)............. (6.05%)(b) 2.67% 75
Trust shares
Year Ended May 31,
1995................ 13.52% 30.32% 45,832
Period Ended May 31,
1994(c)............. (5.35%)(b) 2.67% 4,548
</TABLE>
See notes to financial statements.
78
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- ----------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
SELECTED DATA FOR A SHARE OUTSTANDING DURING THE PERIOD
(a) During certain periods, various fees and expenses were waived and reimbursed, respectively. Had such waivers and
reimbursements not occurred, the ratio of expenses to average net assets would have been:
Six
Months Year Ended
Year Ended May 31, Ended November 30,
----------------------------------- May 31, --------------------
1995 1994 1993 1992(b)(d) 1991 1990
----------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income Stock Fund
Investor A shares........................................ 1.51% 1.83% -- -- -- --
Investor B shares........................................ 2.82% 2.99%(b) -- -- -- --
Trust shares............................................. 1.47% 1.62%(b) -- -- -- --
ValuGrowth Stock Fund
Investor A shares........................................ 1.43% 1.43% 1.42% 1.64% 4.33% 11.73%
Investor B shares........................................ 2.51% 2.55%(b) -- -- -- --
Trust shares............................................. 1.33% 1.39%(b) -- -- -- --
Small Company Stock Fund
Investor A shares........................................ 2.32% 7.22%(b) -- -- -- --
Investor B shares........................................ 3.56% 9.09%(b) -- -- -- --
Trust shares............................................. 1.82% 3.52%(b) -- -- -- --
Contrarian Stock Fund
Investor A shares........................................ 2.96% 10.66%(b) -- -- -- --
Investor B shares........................................ 4.92% 20.87%(b) -- -- -- --
Trust shares............................................. 1.57% 4.33%(b) -- -- -- --
</TABLE>
(b) Annualized
(c) See Note 1 of notes to financial statements for periods covered
(d) See Note 1 of notes to financial statements regarding change of fiscal
year
See notes to financial statements.
79
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
INCOME STOCK FUND
Common Stocks (95.0%):
Basic Materials (5.6%):
32,000 E.I. du Pont de Nemours & Company.................................................... $ 2,172,000
65,000 Morton International, Incorporated................................................... 2,063,750
--------------
4,235,750
--------------
Capital Goods (13.3%):
22,800 Emerson Electric Company............................................................. 1,567,500
38,000 General Electric Company............................................................. 2,204,000
55,000 Honeywell, Incorporated.............................................................. 2,179,375
30,000 United Technologies Corporation...................................................... 2,276,250
70,000 WMX Technologies, Incorporated....................................................... 1,907,500
--------------
10,134,625
--------------
Consumer Cyclical (16.0%):
22,000 Dayton Hudson Corporation............................................................ 1,559,250
50,000 Deluxe Corporation................................................................... 1,593,750
40,000 Dun & Bradstreet Corporation......................................................... 2,120,000
35,000 Eastman Kodak Company................................................................ 2,113,127
41,000 J.C. Penney Company, Incorporated.................................................... 1,932,125
15,000 May Department Stores Company........................................................ 588,750
30,000 McDonald's Corporation............................................................... 1,136,250
20,000 Sears Roebuck & Company.............................................................. 1,127,500
--------------
12,170,752
--------------
Consumer Staples (16.8%):
43,000 American Brands, Incorporated........................................................ 1,736,122
20,000 American Home Products Corporation................................................... 1,472,501
19,000 Johnson & Johnson.................................................................... 1,258,750
32,000 Merck & Company, Incorporated........................................................ 1,508,000
25,000 PepsiCo, Incorporated................................................................ 1,225,000
16,000 Pfizer, Incorporated................................................................. 1,410,004
22,000 Philip Morris Companies, Incorporated................................................ 1,603,251
21,000 Procter & Gamble Company............................................................. 1,509,372
37,000 Sara Lee Corporation................................................................. 1,031,376
--------------
12,754,376
--------------
Energy (12.2%):
12,000 Atlantic Richfield Company........................................................... 1,393,500
Energy, continued:
31,000 Chevron Corporation.................................................................. $ 1,522,875
26,000 Exxon Corporation.................................................................... 1,855,748
14,000 Mobil Corporation.................................................................... 1,405,250
10,000 Royal Dutch Petroleum Company........................................................ 1,267,500
28,000 Schlumberger Ltd..................................................................... 1,820,000
--------------
9,264,873
--------------
Financial (11.7%):
50,000 American Express Company............................................................. 1,781,250
36,000 American General Corporation......................................................... 1,242,000
46,000 First Bank System, Incorporated...................................................... 1,932,000
30,000 J.P. Morgan & Company, Incorporated.................................................. 2,126,250
31,000 Transamerica Corporation............................................................. 1,852,250
--------------
8,933,750
--------------
Miscellaneous (2.7%):
35,000 Minnesota Mining & Manufacturing Company............................................. 2,095,625
--------------
Technology (7.5%):
55,000 AT&T Corporation..................................................................... 2,791,250
38,000 Hewlett-Packard Company.............................................................. 2,512,750
10,400 Pitney Bowes, Incorporated........................................................... 384,800
--------------
5,688,800
--------------
Utilties (9.2%):
41,000 Consolidated Natural Gas Company..................................................... 1,634,873
10,000 FPL Group, Incorporated.............................................................. 392,500
54,000 GTE Corporation...................................................................... 1,802,253
40,000 Pacific Gas & Electric Company....................................................... 1,160,000
35,000 Public Service Enterprise Group, Incorporated........................................ 1,041,250
27,000 Texas Utilities Company.............................................................. 975,373
--------------
7,006,249
--------------
Total Common Stocks (cost $63,558,194) 72,284,800
--------------
Short-Term Holdings (5.0%):
2,352,644 Dreyfus Cash Management Fund......................................................... 2,352,644
1,414,381 Provident Institutional Funds, TempFund Fund......................................... 1,414,381
--------------
Total Short-Term Holdings (cost $3,767,025) 3,767,025
--------------
Total Investments (100.0%)
(cost $67,325,219) $ 76,051,825
--------------
--------------
</TABLE>
See notes to financial statements.
80
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<S> <S> <C>
VALUGROWTH STOCK FUND
Common Stocks (97.0%):
Basic Materials (8.7%):
51,100 Great Lakes Chemical Corporation..................................................... $ 3,117,100
70,700 Hercules, Incorporated............................................................... 3,711,750
102,200 Morton International, Incorporated................................................... 3,244,851
114,800 Witco Corporation.................................................................... 3,157,000
--------------
13,230,701
--------------
Capital Goods (8.8%):
46,900 Emerson Electric Company............................................................. 3,224,375
58,700 General Electric Company............................................................. 3,404,600
80,700 Honeywell, Incorporated.............................................................. 3,197,738
86,500 York International Corporation....................................................... 3,589,750
--------------
13,416,463
--------------
Consumer Cyclical (15.7%):
76,400 Home Depot, Incorporated............................................................. 3,180,150
129,200 Lowe's Companies, Incorporated....................................................... 3,520,700
145,900 Newell Company....................................................................... 3,629,262
121,900 Sensormatic Electronics Corporation.................................................. 3,580,814
139,800 Singer Company....................................................................... 3,302,775
132,830 Wal-Mart Stores, Incorporated........................................................ 3,320,750
59,500 Walt Disney Company.................................................................. 3,309,687
--------------
23,844,138
--------------
Consumer Staples (21.3%):
56,100 American Home Products Corporation................................................... 4,130,362
84,216 Columbia HCA Healthcare Corporation.................................................. 3,442,329
87,400 Crown Cork & Seal Company(a)......................................................... 4,107,800
108,300 Duracell International, Incorporated................................................. 4,683,975
54,700 Gillette Company..................................................................... 4,615,314
56,600 Procter & Gamble Company............................................................. 4,068,125
157,500 Sonoco Products Company.............................................................. 3,898,127
55,800 The Coca-Cola Company................................................................ 3,452,625
--------------
32,398,657
--------------
Energy (9.1%):
54,700 Chevron Corporation.................................................................. 2,687,137
41,800 Mobil Corporation.................................................................... 4,195,675
94,400 Repsol, S.A. ADR..................................................................... 3,079,800
31,385 Royal Dutch Petroleum Company........................................................ 3,978,048
--------------
13,940,660
--------------
Financial (6.2%):
29,500 American International Group, Incorporated........................................... $ 3,355,625
100,700 State Street Boston Corporation...................................................... 3,386,037
54,200 SunAmerica, Incorporated............................................................. 2,777,750
--------------
9,519,412
--------------
Miscellaneous (2.8%):
58,700 Alco Standard Corporation............................................................ 4,204,387
--------------
Technology (16.5%):
58,800 AT&T Corporation..................................................................... 2,984,100
63,000 First Data Corporation............................................................... 3,638,250
84,800 General Motors Corporation Class E................................................... 3,604,000
45,700 Microsoft Corporation(a)............................................................. 3,870,218
71,400 Motorola, Incorporated............................................................... 4,275,075
78,600 Silicon Graphics, Incorporated(a).................................................... 3,055,575
33,300 Xerox Corporation.................................................................... 3,775,387
--------------
25,202,605
--------------
Transportation & Services (1.8%):
52,200 Conrail, Incorporated................................................................ 2,818,800
--------------
Utilities (6.1%):
74,900 Consolidated Natural Gas Company..................................................... 2,986,637
138,000 DPL, Incorporated.................................................................... 3,036,000
211,300 Westcoast Energy, Incorporated....................................................... 3,195,912
--------------
9,218,549
--------------
Total Common Stocks (cost $118,986,813) 147,794,372
--------------
Convertible Preferred Stocks (2.6%):
236,100 Mascotech, Incorporated, $1.20, 7/1/97............................................... 3,275,887
15,200 SunAmerica, Incorporated, $2.78, 3/1/96, Series D.................................... 676,400
--------------
Total Preferred Stocks (cost $5,642,030) 3,952,287
--------------
Short-Term Holdings (0.4%):
293,742 Dreyfus Cash Management Fund......................................................... 293,742
293,743 Provident Institutional Funds, TempFund Fund......................................... 293,743
--------------
Total Short-Term Holdings (cost $587,485) 587,485
--------------
Total Investments (100.0%)
(cost $125,216,328) $152,334,144
--------------
--------------
</TABLE>
(a) Non-income producing security.
See notes to financial statements.
81
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
SMALL COMPANY STOCK FUND
Common Stocks (93.1%):
Basic Materials (9.5%):
51,000 Chemed Corporation, Series 00007911.................................................. $ 1,727,625
23,000 OM Group, Incorporated............................................................... 572,125
88,000 Quanex Corporation................................................................... 2,101,000
46,800 Synalloy Corporation................................................................. 1,076,400
--------------
5,477,150
--------------
Capital Goods (7.4%):
51,200 AGCO Corporation..................................................................... 1,939,200
49,500 Baldor Electric Company.............................................................. 1,410,750
65,900 Encore Wire Corporation.............................................................. 922,600
--------------
4,272,550
--------------
Consumer Cyclical (16.6%):
61,300 Big B, Incorporated.................................................................. 842,875
55,300 Felcor Suite Hotels, Incorporated.................................................... 1,396,325
63,600 Friedman's, Incorporated, Class A(a)................................................. 1,152,750
104,700 Paxar Corporation(a)................................................................. 1,714,463
51,900 Players International, Incorporated(a)............................................... 1,089,900
67,500 RFS Hotel Investors, Incorporated.................................................... 1,016,718
72,500 Sodak Gaming, Incorporated(a)........................................................ 996,875
178,800 Sun Television and Appliances, Incorporated.......................................... 1,396,875
--------------
9,606,781
--------------
Consumer Staples (10.4%):
41,000 Antec Corporation(a)................................................................. 850,750
71,900 BMC Industries, Incorporated......................................................... 1,563,825
25,700 Lunar Corporation(a)................................................................. 565,400
33,500 Sierra Health Services, Incorporated(a).............................................. 900,312
100,000 Verifone, Incorporated(a)............................................................ 2,162,500
--------------
6,042,787
--------------
Energy (9.0%):
81,800 Cairn Energy USA, Incorporated(a).................................................... 818,000
25,000 Input/Output, Incorporated(a)........................................................ 850,000
38,500 Landmark Graphics Corporation(a)..................................................... 909,562
41,000 Neuvo Energy Company(a).............................................................. 876,375
42,600 Parker & Parsley Petroleum Company, Delaware......................................... 830,700
103,000 Tejas Power Corporation.............................................................. 927,000
--------------
5,211,637
--------------
Financial (9.4%):
15,700 Frontier Insurance Group, Inc........................................................ $ 390,538
52,100 John Alden Financial Corporation..................................................... 950,825
120,100 Roosevelt Financial Group, Incorporated.............................................. 2,071,725
43,300 TCF Financial Corporation............................................................ 2,013,450
--------------
5,426,538
--------------
Miscellaneous (4.0%):
51,300 Lesco, Incorporated, Ohio............................................................ 859,275
37,600 Logicon, Incorporated................................................................ 1,442,900
--------------
2,302,175
--------------
Technology (18.2%):
64,900 Benchmark Electronics, Incorporated(a)............................................... 1,395,350
57,000 Dovatron International, Incorporated(a).............................................. 1,282,500
98,100 Exabyte Corporation(a)............................................................... 1,336,614
64,000 Gasonics International Corporation(a)................................................ 1,568,000
28,650 Kent Electronics Corporation(a)...................................................... 880,988
6,700 Kulicke & Soffa Industries, Incorporated(a).......................................... 284,750
75,000 LTX Corporation(a)................................................................... 539,063
59,300 OPTI, Incorporated(a)................................................................ 1,111,875
91,300 Sheldahl Company(a).................................................................. 1,095,600
27,800 Zilog, Incorporated(a)............................................................... 1,066,825
--------------
10,561,565
--------------
Transportation Services (8.6%):
63,100 Kirby Corporation(a)................................................................. 883,400
52,000 M.S. Carriers, Incorporated(a)....................................................... 1,053,000
110,800 Swift Transportation, Incorporated(a)................................................ 1,842,050
63,500 Werner Enterprises, Incorporated..................................................... 1,222,375
--------------
5,000,825
--------------
Total Common Stocks (cost $51,295,128) 53,902,008
--------------
Short-Term Holdings (6.9%):
565,467 Dreyfus Treasury Cash Management Fund................................................ 565,467
1,939,403 Federal Farm Credit Bank Master Note FBO............................................. 1,939,403
61,111 Federated U.S. Short Term Government Fund............................................ 61,110
1,421,567 Provident Institutional Funds, Fed Fund.............................................. 1,421,567
--------------
Total Short-Term Holdings (cost $3,987,547) 3,987,547
--------------
Total Investments (100.0%)
(cost $55,282,675) $ 57,889,555
--------------
--------------
</TABLE>
(a) Non-income producing security.
See notes to financial statements.
82
<PAGE>
<TABLE>
<CAPTION>
NORWEST FUNDS -- EQUITY FUNDS MAY 31, 1995
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
Face Security
Amount Description Value
- ---------- ---------------------------------------------------------------------------------------- ---------------
<S> <S> <C>
CONTRARIAN STOCK FUND
Common Stock (91.6%):
Basic Materials (37.9%):
66,000 Alcan Aluminum, Ltd.................................................................. $ 1,955,250
69,000 Alumax(a)............................................................................ 2,009,625
94,700 Armco, Incorporated(a)............................................................... 603,713
20,300 Asarco, Incorporated................................................................. 586,162
109,500 Bethlehem Steel Corporation(a)....................................................... 1,615,125
27,000 Bowater, Incorporated................................................................ 1,059,750
8,200 Champion International Corporation................................................... 380,275
4,400 Consolidated Papers, Incorporated.................................................... 227,700
42,500 Cyprus Amax Minerals Company......................................................... 1,126,250
19,000 Dravo Corporation(a)................................................................. 251,750
8,100 IMC Fertilizer Group, Incorporated................................................... 364,500
67,306 Inland Steel Industries.............................................................. 1,892,981
141,100 LTV Corporation(a)................................................................... 1,975,400
24,100 Pittston Minerals Group.............................................................. 265,100
67,100 USX-Marathon Group, Incorporated..................................................... 1,333,612
56,500 USX-US Steel Group, Incorporated..................................................... 1,808,000
15,000 Wellman, Incorporated................................................................ 376,875
--------------
17,832,068
--------------
Capital Goods (17.3%):
18,500 Aar Corporation LOC.................................................................. 282,125
36,700 Ampco Pittsburgh Corporation......................................................... 302,775
12,500 Bearings, Incorporated............................................................... 346,875
46,400 CBI Industries, Incorporated......................................................... 1,171,600
25,000 Commercial Intertech Corporation..................................................... 450,000
49,000 Gerber Scientific, Incorporated...................................................... 796,250
61,500 McDermott International, Incorporated................................................ 1,614,375
24,000 Parker Hannifin...................................................................... 1,371,000
19,100 Timkin Company....................................................................... 804,587
30,000 Trinova Corporation.................................................................. 1,020,000
--------------
8,159,587
--------------
Consumer Cyclical (7.6%):
25,600 Albany International Corporation..................................................... 569,600
4,700 Giddings & Lewis, Incorporated....................................................... 81,662
41,000 Hartmarx Corporation(a).............................................................. 199,875
Consumer Cyclical, continued:
13,000 The Limited, Incorporated............................................................ $ 289,250
50,000 Manpower, Incorporated............................................................... 1,331,250
44,000 Ryder System, Incorporated........................................................... 1,116,500
--------------
3,588,137
--------------
Energy (1.3%):
6,400 Philips Petroleum Company............................................................ 232,000
50,000 Rowan Companies, Incorporated(a)..................................................... 375,000
--------------
607,000
--------------
Financial (14.2%):
30,700 Aetna Life & Casualty Company........................................................ 1,830,488
34,000 Alexander & Alexander Services, Incorporated......................................... 862,750
7,000 Chubb Corporation.................................................................... 576,625
28,400 CIGNA Corporation.................................................................... 2,122,900
6,800 General Re Corporation............................................................... 920,550
105,000 Mesabi Trust......................................................................... 367,500
--------------
6,680,813
--------------
Technology (8.8%):
13,000 Augat, Incorporated.................................................................. 266,500
29,000 Avnet, Incorporated.................................................................. 1,319,500
44,000 Data General Corporation(a).......................................................... 352,000
12,500 Digital Equipment Corporation(a)..................................................... 557,813
17,500 International Business Machines Corporation.......................................... 1,631,875
--------------
4,127,688
--------------
Transportation & Services (4.1%):
38,075 Aviall............................................................................... 318,879
11,000 London and Overseas Freighters Limited, ADR.......................................... 130,625
59,000 OMI Corporation(a)................................................................... 317,125
30,360 Overseas Shipholding Group........................................................... 576,840
32,000 Yellow Corporation................................................................... 608,000
--------------
1,951,468
--------------
Utilities (0.4%):
8,300 Illinova Corporation................................................................. 205,425
--------------
Total Common Stocks (cost $42,289,798) 43,152,187
--------------
Short-Term Holdings (8.4%):
1,937,775 Dreyfus Cash Management Fund......................................................... 1,937,775
1,996,985 Federal Farm Credit Bank Master Note FBO............................................. 1,996,985
--------------
Total Short-Term Holdings (cost $3,934,760) 3,934,760
--------------
Total Investments (100.0%)
(cost $46,224,558) $ 47,086,947
--------------
--------------
</TABLE>
(a) Non-income producing security.
See notes to financial statements.
83
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