<PAGE>
As filed with the Securities and Exchange Commission on July 15, 1997
File No. 33-9645
File No. 811-4881
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 44
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 46
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NORWEST FUNDS
(Formerly "Norwest Advantage Funds" and "Norwest Funds" and prior
thereto "Prime Value Funds, Inc.")
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square
Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (207) 879-1900
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Catherine S. Wooledge, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
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It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485, paragraph (b)
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on [ ] pursuant to Rule 485, paragraph (b)
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60 days after filing pursuant to Rule 485, paragraph (a)(i)
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X on October 1, 1997 pursuant to Rule 485, paragraph (a)(i)
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75 days after filing pursuant to Rule 485, paragraph (a)(ii)
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on [ ] pursuant to Rule 485, paragraph (a)(ii)
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this post-effective amendment designates a new effective date for a
- ----- previously filed post-effective amendment
Registrant has registered an indefinite number of shares of beneficial interest
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Accordingly, no fee is payable herewith. Registrant filed
a Rule 24f-2 notice for its various portfolios with a May 31 fiscal year end on
July 26, 1996.
READY CASH INVESTMENT FUND, STABLE INCOME FUND, TOTAL RETURN BOND FUND, INDEX
FUND, INCOME EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY STOCK FUND,
SMALL COMPANY GROWTH FUND, SMALL CAP OPPORTUNITIES FUND AND INTERNATIONAL FUND
OF REGISTRANT ARE CURRENTLY STRUCTURED AS FEEDER FUNDS. THIS AMENDMENT INCLUDES
A MANUALLY EXECUTED SIGNATURE PAGE FOR THE REGISTRANTS WHOSE PORTFOLIOS ARE
MASTER FUNDS: SCHRODER CAPITAL FUNDS AND CORE TRUST (DELAWARE).
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(a))
PART A
(Prospectus offering Shares of Performa Smith Disciplined Growth Fund,
Performa Smith Small Cap Value Fund, Performa Large Cap Value Fund, Performa
Galliard Strategic Value Bond Fund and Performa Schroder Global Growth Fund)
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- --------- ---------------------- --------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis About the Funds; About Your
Investment
Item 3. Condensed Financial
Information Not Applicable
Item 4. General Description of
Registrant About the Funds; How the Funds
Pursue Their Objective -- Risk
Considerations; Risk Factors;
Organization and History of Core &
Gateway Structure
Item 5. Management of the Fund About the Funds; How the Funds Are
Managed
Item 5A. Management's Discussion of
Fund Performance How Each Fund Makes Distributions
to Shareholders -- Tax
Item 6. Capital Stock and
Other Securities Cover Page; How Each Fund Makes
Distributions to Shareholders --
Tax
Item 7. Purchase of Securities
Being Offered How To Buy Shares, How to Exchange
Shares; Types of Account Ownership
Item 8. Redemption or Repurchase How to Sell Shares; How to Exchange
Shares
Item 9. Pending Legal Proceedings Not Applicable
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(a))
PART B
(SAI offering Shares of Performa Smith Disciplined Growth Fund, Performa Smith
Small Cap Value Fund, Performa Large Cap Value Fund, Performa Galliard Strategic
Value Bond Fund and Performa Schroder Global Growth Fund)
Form N-1A Location in Statement of
Item No. (Caption) Additional Information (Caption)
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information
and History Prospectus
Item 13. Investment Objectives
and Policies Investment Policies; Investment
Limitations
Item 14. Management of the Fund Management and Administrative
Services; Additional Information
about the Trust and the
Shareholders of the Funds
Item 15. Control Persons and Principal
Holders of Securities Additional Information about the
Trust and the Shareholders of the
Funds -- Shareholdings
Item 16. Investment Advisory and
Other Services Investment Advisory Services
Item 17. Brokerage Allocation and
Other Practices Portfolio Transactions
Item 18. Capital Stock and
Other Securities Additional Information about the
Trust and the Shareholders of the
Fund
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Additional Purchase, Redemption and
Exchange Information
Item 20. Tax Status Taxation
Item 21. Underwriters Portfolio Transactions
Item 22. Calculation of
Performance Data Performance and Advertising Data
Item 23 Financial Statements Additional Information about the
Trust and the Shareholders of the
Funds -- Financial Statements
<PAGE>
PROSPECTUS
OCTOBER 1, 1997
THE PERFORMA FUNDS
PERFORMA GALLIARD STRATEGIC VALUE BOND FUND
PERFORMA SMITH DISCIPLINED GROWTH FUND
PERFORMA SMITH SMALL CAP VALUE FUND
PERFORMA LARGE CAP VALUE FUND
PERFORMA SCHRODER GLOBAL GROWTH FUND
This Prospectus explains concisely what you should know before investing in
Performa Smith Disciplined Growth Fund, Performa Smith Small Cap Value Fund,
Performa Large Cap Value Fund, Performa Galliard Strategic Value Bond Fund and
Performa Schroder Global Growth Fund (each a "Fund" and collectively the "Funds"
or "Performa Funds"). Please read it carefully and keep it for future reference.
The Funds are each diversified portfolios of Norwest Advantage Funds (the
"Trust"), a registered, open-end, management investment company.
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS
INVESTABLE ASSETS IN A SEPARATE PORTFOLIO OF ANOTHER REGISTERED, OPEN-END,
MANAGEMENT INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE (EACH A
"PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS" OR "PERFORMA FUNDS").. SEE "ABOUT
THE FUNDS" AND "ORGANIZATION AND HISTORY -- CORE AND GATEWAY-Registered
Trademark- STRUCTURE."
You can find more detailed information in the October 1, 1997 Statement of
Additional Information (the "SAI"), which may be amended from time to time. For
a free copy of the SAI or other information, call Forum Financial Services, Inc.
at 1-800-___-____. The SAI has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated into this Prospectus by reference.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT
AGENCY, AND INVOLVE 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.
<PAGE>
ABOUT THE FUNDS
EXPENSE SUMMARY
This section will help you estimate the impact of the Funds' expenses on your
investment over time. It describes the sales charges and transaction fees
(there are none), management fees and annual operating expenses that apply to
the Fund's shares.
OBJECTIVES
Read this section to make sure that the objective of the Fund in which you
invest is consistent with your own objectives.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
This section explains in detail how each Fund seeks to achieve its objective.
ADDITIONAL RISK FACTORS AND INVESTMENT POLICIES
This section explains how certain types of investments and investment techniques
can add additional risk to the Funds and describes some of the policies of
Funds.
HOW PERFORMANCE IS SHOWN
This section describes and defines the measures used to assess Fund performance.
All data are based on past investment results and do not predict future
performance.
HOW THE FUNDS ARE MANAGED
Consult this section for information about a Fund's management, allocation of
its expenses, and how purchases and sales of securities are made.
THE FUNDS' OTHER SERVICE PROVIDERS
This section lists the other service providers the Funds have retained to run
their business.
ORGANIZATION AND HISTORY
In this section, you will learn when a Fund was introduced, its structure, how
it is organized and how it may offer shares.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
This section describes the ways you may purchase shares and tells you the
minimum amounts required to open various types of accounts.
HOW TO SELL SHARES
In this section you can learn how to sell Fund shares and understand the Funds'
procedures related to your redemption.
HOW TO EXCHANGE SHARES
Find out in this section how you may exchange Fund shares for shares of other
Performa Funds and for [Investor Shares of Ready Cash Investment Fund].
HOW A FUND VALUES ITS SHARES
This section explains how a Fund determines the value of its shares.
-2-
<PAGE>
DISTRIBUTIONS TO SHAREHOLDERS AND TAX INFORMATION
This section describes the various options you have in choosing how to receive
Fund dividends. It also discusses the tax status of the payments and counsels
you to seek specific advice about your own situation.
APPENDICES
APPENDIX A --GLOSSARY OF INVESTMENT TERMS
This Appendix provides a more detailed description of some of the types of
securities and other instruments in which the Funds may invest.
APPENDIX B --EXPLANATION OF RATING CATEGORIES
This Appendix summarizes the ratings that may be given to fixed income
securities by rating agencies.
-3-
<PAGE>
ABOUT THE FUNDS
EXPENSE SUMMARY
Fund costs and expenses are one of several factors to consider when investing.
Your costs and expenses are summarized in the following three tables. The
Shareholder Transaction Expenses table summarizes your transaction costs of
buying and selling Fund shares. The Annual Fund Operating Expenses table
summarizes the expenses you will bear directly or indirectly on your investment
in a Fund and is based on estimated expenses for the Funds' initial fiscal year
of operations ending May 31, 1998. The Examples show your cumulative expenses
attributable to a hypothetical $1,000 investment over specified periods.
SHAREHOLDER TRANSACTION EXPENSES
(applicable to each Fund)
Sales charges on purchases and reinvested distributions None
Deferred sales charges or redemption fees None
Exchange fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after applicable fee waivers)
<TABLE>
<CAPTION>
Total Fund
Management Other Operating
Fees 12b-1 Fees Expenses Expenses
---- ---------- -------- --------
<S> <C> <C> <C> <C>
Performa Galliard Strategic Value Bond Fund 0.60% None 0.25% 0.85%
Performa Large Cap Value Fund 1.00% None 0.25% 1.25%
Performa Smith Disciplined Growth Fund 1.00% None 0.25% 1.25%
Performa Smith Small Cap Value Fund 1.05% None 0.25% 1.30%
Performa Schroder Global Growth Fund [1.00%] None [0.40%] [1.40%]
</TABLE>
This table is provided to help you understand the expenses of investing and your
share of a Fund's operating expenses. Each Fund's expenses include the Fund's
pro rata portion of all expenses of its corresponding Portfolio, which are borne
indirectly by each Fund shareholder. Management Fees reflect the contractual
rates for investment advisory and administration fees and Other Expenses are
estimated and reflect estimated waivers. Absent estimated fee waivers, Other
Expenses would be 0.40%, 0.40%, 0.40%, 0.40% and [0.55%], respectively, and
Total Fund Operating Expenses would be 1.00%, 1.40%, 1.40%, 1.45% and 1.55%,
respectively. Other Expenses include transfer agency fees of 0.25%. Fee
waivers and expense reimbursements are voluntary and may be reduced or
eliminated at any time. For a further description of the various expenses
incurred in the operation of the Fund, see "How the Funds are Managed."
EXAMPLES
Your investment of $1,000 would incur the following expenses assuming (i) the
investment of all of the Fund's assets in its corresponding Portfolio, (ii) a 5%
annual return, (iv) the reinvestment of all your dividends and distributions and
(iii) redemption at the end of each period. The example is based on the
expenses listed in the Annual Fund Operating Expenses table.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Performa Galliard Strategic Value Bond Fund $9 $27 $47 $105
Performa Large Cap Value Fund $13 $40 $69 $151
Performa Smith Disciplined Growth Fund $13 $40 $69 $151
Performa Smith Small Cap Value Fund $13 $41 $71 $157
Performa Schroder Global Growth Fund [$14] [$43] [$75] [$165]
</TABLE>
-4-
<PAGE>
THE FIVE PERCENT ANNUAL RETURN IS REQUIRED BY GOVERNMENT REGULATION AND DOES NOT
REPRESENT THE FUND'S ACTUAL RETURNS. THE EXAMPLE DOES NOT REPRESENT PAST OR
FUTURE EXPENSE LEVELS. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN
THOSE SHOWN.
OBJECTIVES
Each Fund pursues its objective as listed below through its own separate
investment policies. None of the Funds is intended to be a complete investment
program, and there is no assurance that any Fund will achieve its objective.
PERFORMA SMITH DISCIPLINED GROWTH FUND seeks capital appreciation by investing
in a diversified portfolio of common stocks of larger companies.
PERFORMA SMITH SMALL CAP VALUE FUND seeks capital appreciation by investing in a
diversified portfolio of common stocks of smaller companies.
PERFORMA LARGE CAP VALUE FUND seeks capital appreciation by investing in a
diversified portfolio of common stock of companies whose current stock price the
investment adviser believes does not reflect the underlying value of the
company.
PERFORMA GALLIARD STRATEGIC VALUE BOND FUND seeks total return.
PERFORMA SCHRODER GLOBAL GROWTH FUND seeks long-term growth of capital by
investing in a diversified portfolio of common stocks of established companies
throughout the world, including the United States.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
STRUCTURE OF THE FUNDS
Each Fund seeks to achieve its objective by investing all of its investable
assets in a separate portfolio of a registered, open-end, management investment
company (each a "Core Trust") that has the same objective and substantially
similar investment policies as the Fund. Accordingly, the investment experience
of each Fund will correspond directly with the investment experience of its
respective Portfolio. The Portfolios in which the Funds invest are:
<TABLE>
<CAPTION>
FUND PORTFOLIO
<S> <C>
Performa Galliard Strategic Value Bond Fund Strategic Value Bond Portfolio
Performa Smith Disciplined Growth Fund Disciplined Growth Portfolio
Performa Smith Small Cap Value Fund Small Cap Value Portfolio
Performa Large Cap Value Fund Large Cap Value Portfolio
Performa Schroder Global Growth Fund Global Growth Portfolio
</TABLE>
By pooling their assets in a Portfolio with other institutional investors, each
of the Funds may be able to achieve certain efficiencies, economies of scale and
enhanced portfolio diversification. Nonetheless, these investments could have
adverse effects on the Funds which investors should consider. Investment
decisions are made by the portfolio managers of each Portfolio independently.
See "Organization and History - Core and Gateway Structure."
You should read the Additional Risks and Investment Policies section and the
appendices in conjunction with this section in order to fully understand the
Funds' investments and risks. Although this "How the Funds Pursue Their
Objectives" section discusses the investment policies of the Portfolios, it
applies equally to the Funds.
-5-
<PAGE>
PERFORMA GALLIARD STRATEGIC VALUE BOND FUND
The Portfolio invests in a broad range of fixed income asset classes including
corporate bonds, asset backed securities, mortgage related securities, U.S.
Government Securities, preferred stock, convertible bonds and foreign bonds in
order to create a strategically diversified portfolio of high quality fixed
income investments.
The investment adviser's investment decisions are founded in modern portfolio
theory where relative value is emphasized versus the investment adviser's
ability to predict the direction of interest rates. The investment adviser's
investment process includes an ongoing evaluation of the optimal portfolio
structure. In general, particular emphasis will be placed on higher current
income assets such as corporate bonds and mortgage/asset backed securities in
order to enhance returns. This exposure enhances performance in varying
economic and interest rate cycles while avoiding excessive risk concentrations.
The process involves rigorous security evaluation on a case by case basis
identifying and valuing cash flows, any embedded options, credit
quality/structure, and other factors such as structure, liquidity or
marketability. Current versus historical trading relationships, supply/demand
issues and expected returns in varying economic/interest rate environments are
additionally evaluated. This process identifies securities which represent the
best relative economic value. The results of the investment process are then
evaluated against the Portfolio's objective and the portfolio purchases those
securities which will enhance its positioning. The Portfolio will be
repositioned based on changes in market environment or shifts in relative value.
The Portfolio's investments are subject to "credit risk" relating to the
financial condition of the issuers of the securities it holds. See "Additional
Risk Factors and Investment Policies - Credit Risk." To limit credit risk, at
least 65% of the Portfolio's assets will be invested in fixed income securities
rated in one of the three highest rating categories by at least one Nationally
Recognized Statistical Rating Organization ("NRSRO"), such as Moody's Investors
Service, Standard & Poor's, Fitch Investors Service, L.P. or Duff and Phelps, or
which are unrated and determined by the investment adviser to be of comparable
quality. In addition, the Portfolio will limit its investment in securities
with a less than investment grade rating to 20% of the Portfolio's assets.
While the average quality of the Portfolio will vary over an economic cycle, the
average rating of the Portfolio's investments will be "A" or better. A
description of the rating categories of various NRSRO's is contained in Appendix
B. Investment grade instruments include those that are rated in one of four
highest long-term rating categories by an NRSROs or are unrated and determined
by the investment adviser to be of comparable quality.
The average maturity of the Portfolio will vary between five and fifteen years.
In the case of mortgage-related, asset backed and similar securities, the
Portfolio uses the security's average life in calculating the Portfolio's
average maturity. The Portfolio's effective duration will vary in the range of
three to eight years over an economic cycle.
The Portfolio is able to enter into derivative transactions which will allow the
Portfolio to receive favorable financing or to diversify portfolio risk. See
"Appendix A--Glossary of Investment Terms--Futures, Options and Other
Derivatives."
RISKS OF NON-INVESTMENT GRADE SECURITIES. The Portfolio may invest up to 20%
of its assets in non-investment grade securities (securities rated below the
fourth highest rating category by an NRSRO or which are unrated and judged by
the investment adviser to be of comparable quality). Such high risk securities
(commonly referred to as "junk bonds") are not considered to be investment grade
and have speculative or predominantly speculative characteristics.
Non-investment grade, high risk securities provide poor protection for payment
of principal and interest but may have greater potential for capital
appreciation than do higher quality securities. These lower rated securities
involve greater risk of default or price changes due to changes in the issuers'
creditworthiness than do higher quality securities. The market for these
securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. In addition, the market prices of lower rated securities may fluctuate
more than the market prices of higher quality securities and may decline
significantly in periods of general economic difficulty or rising interest
rates.
-6-
<PAGE>
PERFORMA SMITH DISCIPLINED GROWTH FUND
The Portfolio invests primarily in the common stock of companies that, in the
view of the investment adviser, possess above average potential for growth. The
average market capitalization of the Portfolio will be greater than $5 billion.
The Portfolio invests in common stock in an effort to obtain greater long-term
returns. See "Additional Risk Factors and Investment Policies - Investing in
Common Stock".
The Portfolio seeks to identify growth companies that the investment adviser
believes will report a level of corporate earnings that exceeds the level
expected by investors. This feature is called a positive earnings surprise and
is usually associated with positive investment performance. In searching for
companies which possess this attribute, the investment adviser uses both
quantitative and fundamental analysis. Among the factors that the investment
adviser believes are important in identifying these companies are earnings
estimate changes of investment analysts, the recent trend of company earnings
reports, and an analysis of the fundamental business outlook for the company.
The investment adviser uses a variety of valuation measures to determine whether
the share price already reflects the positive fundamentals identified by the
investment adviser. A sell discipline determines the trading activity of the
Portfolio. The investment adviser employs various risk control measures which
attempt to constrain the variability of the investment returns.
PERFORMA SMITH SMALL CAP VALUE FUND
The Portfolio invests primarily in the common stock of small companies that, in
the view of the investment adviser, are undervalued. The average market
capitalization of the Portfolio will be on average less than $1 billion. The
Portfolio invests in common stock of smaller companies in an effort to obtain
higher growth rates and greater long-term returns. See "Additional Risk Factors
and Investment Policies - Investing in Common Stock."
Within the universe of small companies, the Portfolio invests in companies that
the investment adviser believes are undervalued. The determination of value is
based upon both the price to earnings ratio of the company and a comparison of
the public market value of the company to a proprietary model that values the
company in the private market. From the list of undervalued companies, the
investment adviser selects those companies which the adviser believes will
report a level of corporate earnings that exceeds the level expected by
investors. This feature is called a positive earnings surprise and is usually
associated with positive investment performance. In searching for companies
which possess this attribute, the investment adviser uses both quantitative and
fundamental analysis. Among the factors that the investment adviser believes are
important in identifying these companies are earnings estimate changes of
investment analysts, the recent trend of company earnings reports, and an
analysis of the fundamental business outlook for the company. A sell discipline
determines the trading activity of the Portfolio. See "Additional Risk Factors
and Investment Policies - Investing in Smaller Companies."
RISKS OF SMALL CAP INVESTING. Investment in smaller capitalization companies
carries greater risk than investments in larger capitalization companies.
Smaller capitalization companies generally experience higher growth rates and
higher failure rates than do larger capitalization companies; and the trading
volume of smaller capitalization companies' securities is normally lower than
that of larger capitalization companies and, consequently, generally has a
disproportionate effect on market price (tending to make prices rise more in
response to buying demand and fall more in response to selling pressure).
Accordingly, the net asset value of the fund can be expected to fluctuate more
that that of other funds that invest in larger capitalization companies.
Smaller issuers often have products and management personnel that have not been
tested by time or the marketplace and their financial resources may not be as
substantial as those of more established companies. Their securities (which the
Portfolio may purchase when they are offered to the public for the first time)
may have a limited trading market which can adversely affect their sale by the
Portfolio and can result in such securities being priced lower than otherwise
might be the case. If other institutional investors engage in trading this type
of security, the Portfolio may be forced to dispose of its holdings at prices
lower than might otherwise be obtained.
-7-
<PAGE>
PERFORMA LARGE CAP VALUE FUND
The Portfolio invests primarily in the common stock of United States companies
whose current stock price, in the view of the investment adviser, does not
reflect the underlying value of the company. The Portfolio invests in common
stock in an effort to obtain greater long-term returns.
The determination of value of a company is based upon a variety of measures
incorporating assets, earnings, cash flow or business franchises. Although most
of the assets of the Portfolio will be invested in common stocks of United
States issuers, the Portfolio may also purchase other types of investments,
including stocks of foreign issuers, convertible securities, warrants, options
and futures contracts. Investment in these types of securities will occur only
when the purchase is consistent with the Portfolio's investment objective and
policies.
Ordinarily the Portfolio will be fully invested in common stocks. However, when
management believes that investments in securities other than common stock offer
opportunity for capital growth or that prevailing conditions warrant the taking
of a more defensive or conservative investment position, the Portfolio may
invest a portion or all of its assets in preferred stock, corporate debt
securities, U.S. Government Securities and municipal securities.
PERFORMA SCHRODER GLOBAL GROWTH FUND
The Portfolio invests in common stocks of established companies located in the
developed, newly industrialized and emerging markets. Normally the Portfolio
will invest in at least 5 countries, one of which will be the United States.
While the Portfolio can purchase stocks without regard to a companies market
capitalization, investments will generally be concentrated in established large
and to a lesser extent medium sized companies. The percentage of Portfolio's
assets invested in U.S. and non-U.S. stocks will vary over time in accordance
with the outlook of the investment adviser.
The Portfolio is designed for investors seeking the opportunity to benefit from
the growth and prosperity of many companies and countries around the world.
Focus will be on stock markets and securities which are anticipated to produce
the highest potential return.
Stock selection is at the heart of the investment adviser's investment process.
Its approach to selecting investments emphasizes fundamental company analysis.
the adviser's stock selection focuses on companies that it believes have a
sustainable competitive advantage and whose growth potential is undervalued by
investors. In selecting companies for investment, the investment adviser
considers historical growth rates and future growth prospects, management
capability, competitive position in both domestic and export markets and other
factors. Allocation among markets will be based upon an assessment of the
likelihood that a country will have favorable long-term business environments in
which corporate growth will not be impeded by adverse macroeconomics or
political factors.
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, other economic and financial conditions, government intervention,
speculation, and other factors, many of which may be difficult if not impossible
to predict. 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 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
-8-
<PAGE>
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 and may expose the Portfolio to the risk that the counterparty is
unable to perform. 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 obligations under such contracts
would obligate it to deliver an amount of foreign currency in excess of the
value of its 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 the investment adviser 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. See "How the Funds
Pursue their Objectives - Performa Schroder Global Growth Fund - Currency
Fluctuations and Devaluations."
DEBT SECURITIES. The Portfolio may seek capital appreciation through investment
in convertible or non-convertible debt securities. Capital appreciation in debt
securities may arise as a result of a favorable change in relative foreign
exchange rates, in relative interest rate levels, or in the creditworthiness of
issuers. The receipt of income from these securities is incidental to the
Portfolio's objective of long-term capital appreciation. Such income can be
used, however, to offset the operating expenses of the Portfolio. The Portfolio
will not seek to benefit from anticipated short-term fluctuations in currency
exchange rates. The Portfolio also may invest to a certain extent in debt
securities in order to participate in debt-to-equity conversion programs
incident to corporate reorganizations.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total
assets in issuers located in any one country and to the extent that it does so,
is susceptible to a range of factors that could adversely affect that country,
including the political and economic developments and foreign exchange rate
fluctuations discussed below. As a result of investing substantially in one
country, the value of the Portfolio's assets may fluctuate more widely than the
value of shares of a comparable fund with a lesser degree of geographic
concentration.
INTERNATIONAL INVESTING RISK FACTORS. All investments, domestic and foreign,
involve risks. Investment in the securities of foreign issuers may involve risks
in addition to those normally associated with investments in the securities of
U.S. issuers. While the Portfolio will generally invest only in securities of
companies and governments in countries that the investment adviser, in its
judgment, considers both politically and economically stable, 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.
Foreign investments are subject to the risk of changes in foreign governmental
attitudes towards private investment that could lead to nationalization,
increased taxation or confiscation of Portfolio assets.
Moreover, (i) dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income earned by the Portfolio; (ii)
commission rates payable on foreign portfolio transactions are generally higher
than in the United States; (iii) accounting, auditing and financial reporting
standards differ from those in the United States, which means that less
information about foreign companies may be available than is generally available
about issuers of comparable securities in the United States; (iv) foreign
securities often trade less frequently and with lower volume than United States
securities and consequently may exhibit greater price volatility; and (v)
foreign securities trading practices, including those involving securities
settlement, may expose the Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer or registrar.
EMERGING MARKETS. Investing in emerging market countries generally presents
greater risk than does other foreign investing. In any emerging market country,
there is the increased possibility of expropriation of assets, confiscatory
taxation, nationalization of companies or industries, foreign exchange controls,
foreign investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments that could affect investments in those countries. In the event of
expropriation, nationalization or other confiscation, the Portfolio could lose
its entire investment in the country involved. The economies of developing
countries are more likely to be adversely affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade. There may also be less monitoring and regulation of emerging markets and
the
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<PAGE>
activities of brokers there. Investing may require that the Portfolio adopt
special procedures, seek local government approvals or take other actions that
may incur costs for the Portfolio.
Certain emerging market countries may restrict investment by foreign investors.
These restrictions or controls may at times limit or preclude investment in
certain securities and may increase the costs and expenses of the Portfolio.
Several emerging market countries have experienced high, and in some periods
extremely high, rates of inflation in recent years. Inflation and rapid
fluctuations in inflation rates may adversely affect these countries' economies
and securities markets. Further, inflation accounting rules in some emerging
market countries may indirectly generate losses or profits for certain emerging
market companies.
CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest
heavily in non-U.S. currency-denominated securities, changes in foreign currency
exchange rates will affect the value of the Portfolio's investments. A decline
against the dollar in the value of currencies in which the Portfolio's
investments are denominated will result in a corresponding decline in the dollar
value of the Portfolio's assets. This risk is heightened in some emerging
market countries.
The Fund is required to distribute substantially all of its investment income in
U.S. dollars. Because most of the Portfolio's income is received and realized
in foreign currencies, a decline in the value of a particular foreign currency
against the U.S. dollar that occurs after the Portfolio's income has been earned
may require the Portfolio to liquidate some portfolio securities to acquire
sufficient U.S. dollars to make such distributions. Similarly, if the exchange
rate declines between the time the Portfolio incurs expenses in U.S. dollars and
the time expenses are paid, the Portfolio may be required to liquidate
additional foreign securities to purchase the U.S. dollars required to meet its
expenses.
ADDITIONAL RISK FACTORS AND INVESTMENT POLICIES
RISK FACTORS
INVESTING IN COMMON STOCK. The fundamental risk of investing in common stock is
the risk that the value of the stock might decrease. Stock values fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
preferred stocks, fixed-income and money market investments. Equity securities
in which a Portfolio may invest may be traded on a securities exchange or in the
over-the-counter market and, particularly for smaller and foreign companies, may
not be traded every day in the volume typical of securities traded on a major
U.S. national securities exchange. As a result, disposition by a Portfolio of a
security to meet redemptions by interest holders or otherwise may require the
Portfolio to sell these securities at a discount from market prices, to sell
during periods when disposition is not desirable, or to make many small sales
over a lengthy period of time. 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.
INVESTING IN SMALLER COMPANIES. Investments in the securities of smaller
companies may involve greater risks than investing in the securities of larger
companies. The risks of investing in smaller capitalization companies are
described under "How the Funds Pursue Their Objectives - Performa Smith Small
Cap Value Fund - Risks of Small Cap Investing."
INVESTING IN FIXED INCOME SECURITIES. The primary risks of investing in any
fixed income instrument are credit risk and interest rate risk. In addition,
prepayment risk and extension risk exist for certain types of fixed income
instruments in which a Portfolio may invest,
INTEREST RATE RISK. The market value of interest-bearing debt securities
is affected by changes in interest rates. There is normally an inverse
relationship between the market value of these securities and actual changes in
interest rate. Thus, a decline in interest rates produces an increase in market
value, while an increase in interest rates produces a
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decrease in market value. Moreover, the longer the remaining maturity of a
security, the greater is the affect of interest rate changes on the market value
of the security.
CREDIT RISK. Fixed income investments are subject to "credit risk," which
refers to the ability of the debtor (the issuer of the instrument) and any other
obligor, to pay principal and interest on the debt as it becomes due. Changes
in the ability of an issuer to make payments of interest and principal and the
market's perception of an issuer's creditworthiness will affect the market value
of the debt securities of that issuer. Obligations of issuers of debt
securities 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.
PREPAYMENT RISK. Mortgage-related and asset backed securities are subject
to prepayment risk, which refers to the fact that holders of these instruments
may have all or any part of their principal investment returned by the issuer as
the mortgages or other assets backing the investment are paid off. Prepayments
during times of declining interest rates tend to lower the return of a Fund.
Prepayments may result in losses to a Fund if the securities were acquired at a
premium.
EXTENSION RISK. Certain debt instruments may also be subject to extension
risk, which refers to the change in total return on a debt instrument resulting
from extension or abbreviation of the instrument's maturity.
INVESTING IN FOREIGN SECURITIES. Investments in foreign securities, including
those of foreign governments, may involve greater risks than investing in
comparable domestic securities. These risks, including currency and political
related risks, as well as the heightened risks of investing in less developed
countries (so called emerging markets) are described under "How the Funds Pursue
Their Objectives - Performa Schroder Global Growth Fund - International
Investing Risk Factors."
INVESTING IN DERIVATIVES. Each Fund may use futures, options and other
derivative instruments to protect its investment portfolio from movements in
securities prices and interest rates. The Funds may also use a variety of
currency hedging techniques, including forward currency contracts, to manage
exchange rate risk when investing in securities denominated in foreign
currencies.
INVESTMENT POLICIES
Each Fund's (and each Portfolio's) investment objective and all investment
policies of the Funds (and Portfolios) 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 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
fundamental and may be changed by the Board of Trustees of the Trust (the
"Board") without shareholder approval. Likewise, nonfundamental investment
policies of a Portfolio may be changed by that investment company's board of
trustees ("Core Board") without shareholder approval.
Each investment adviser monitors the creditworthiness of counterparties to the
Portfolios' 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 AND LENDING. As a fundamental policy, each Portfolio may borrow money
but 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 is not expected to exceed five percent
of the value of a Portfolio's assets. Certain transactions, such as reverse
repurchase agreements, that are similar to borrowings are not treated as
borrowings to the extent that the are fully collateralized. Each Portfolio may
lend its investment securities to brokers, dealers and financial institutions
for the purpose of realizing additional income. The total market value of
securities loaned will not at any time exceed one-third of the value of the
total assets of the
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Portfolio. The risk in lending portfolio securities is the possible loss of
rights in the collateral should the borrower fail financially.
DIVERSIFICATION AND CONCENTRATION. Each Portfolio 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 Portfolio may purchase
a security (other than a U.S. Government Security or a security of an investment
company) if, as a result: (i) more than 5% of the Portfolio's total assets would
be invested in the securities of a single issuer; or (ii) the Portfolio would
own more than 10% of the outstanding voting securities of any single issuer.
Each Portfolio is prohibited from concentrating its assets in the securities of
issuers in any one industry. As a fundamental policy, each Portfolio may not
purchase a security if, as a result, more than 25% of the value of the
Portfolio's total assets would be invested in the securities of issuers
conducting their principal business activities in the same industry. This limit
does not apply to investments in U.S. Government Securities, or repurchase
agreements covering U.S. Government Securities.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant,
each Portfolio 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 Portfolio has
assumed a temporary defensive position, it may not be pursuing its investment
objective. Apart from temporary defensive purposes, a Portfolio may at any time
invest a portion of its assets in cash and cash equivalents. Except during
periods when a Portfolio assumes a temporary defensive position, each Portfolio
(other than Performa Galliard Strategic Value Bond Portfolio) will have at least
65% of its total assets invested in common stock and Performa Galliard Strategic
Value Bond Portfolio will have at least 65% of its total assets invested in
bonds.
MORTGAGE-RELATED SECURITIES. Strategic Value Bond portfolio may invest in
mortgage-related securities, which represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-related securities may be issued by
governmental or government-related entities or by non-governmental entities.
Interests in mortgage-related securities differ from other forms of debt
securities. Mortgage-related 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.
The market for certain mortgage-related securities may be limited. This may
increase the volatility of the price of a particular security and make it
difficult for the portfolio to sell a security.
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.
Adjustable rate mortgage-related 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
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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.
Stripped mortgage-related securities are classes of mortgage-related securities
that receive different proportions of the interest and principal distributions
from the underlying assets. 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 underlying 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, the Portfolio does not purchase IOs or
POs.
ASSET-BACKED SECURITIES. Strategic Value Bond Portfolio may invest in
asset-backed securities, which 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, leases of various types of
real and personal property and receivables from revolving credit card
agreements. 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. 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, the market experience in these asset-backed securities is limited and
the market' may not be able to sustain liquidity through all phases of an
interest rate or economic cycle.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. Strategic Value Bond
Portfolio and Global Growth Portfolio may enter into futures contracts on
securities, financial indices and foreign currencies and options on such
contracts and may invest in options on securities, financial indices and foreign
currencies, forward contracts and interest rate swaps and swap-related products
(collectively, "derivative instruments"). The Portfolios intend to use most
derivative instruments primarily to hedge the value of its portfolio against
potential adverse movements in securities prices, foreign currency markets or
interest rates. To a limited extent, a Portfolio may also use derivative
instruments for non-hedging purposes such as seeking to increase the Portfolio's
income or otherwise seeking to enhance return. Please refer to Appendix A to
this Prospectus and the SAI for a more detailed discussion of these instruments.
The use of derivative instruments exposes a Portfolio to additional investment
risks and transaction costs. Risks inherent in the use of derivative
instruments include (i) the risk that interest rates, securities prices and
currency markets will not move in the directions that the portfolio manager
anticipates; (ii) imperfect correlation between the price of derivative
instruments and movements in the prices of the securities, interest rates or
currencies being hedged; (iii) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (iv)
inability to close out certain hedged positions to avoid adverse tax
consequences; (v) the possible absence of a liquid secondary market for any
particular instrument and possible exchange-imposed price fluctuation limits,
either of which may make it difficult or impossible to close out a position when
desired; (vi) leverage risk, that is, the risk that adverse price movements in
an instrument can result in a loss substantially greater than the Portfolio's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and (vii) particularly in the case of privately negotiated
instruments, the risk that the counterparty will fail to perform its
obligations, which could leave the Portfolio worse off than if it had not
entered into the position.
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<PAGE>
Although the Portfolios believe that the use of derivative instruments will be
beneficial, a Portfolio's performance could be worse than if the Portfolio had
not used such instruments if the portfolio manager's judgment proves incorrect.
When a Portfolio invests in a derivative instrument, it may be required to
segregate cash and other assets with its custodian. Segregating assets could
diminish the Portfolio's return due to the opportunity losses of foregoing other
potential investments with the segregated assets.
HOW PERFORMANCE IS SHOWN
Fund performance figures are based upon historical results and are not intended
to indicate future performance. Investment returns and net asset value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
This section will help you understand various terms that are commonly used to
describe the Funds' performance. You may see references to these terms in the
Funds' advertisements and in general media articles. These advertisements may
include comparisons of the Funds' performance to the performance of other mutual
funds, mutual fund averages or recognized stock market indices. The Funds may
measure performance in terms of yield or total return.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (E.G., the life of the Fund). A cumulative total return does not
show interim fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the
cumulative total return for the stated period and determining what constant
annual return would have produced the same cumulative return. Average annual
returns for more than one year tend to smooth out variations in the Fund's
return and are not the same as actual annual results.
Yield shows the rate of income a Fund earns on its investments as a percentage
of the Fund's share price. It is calculated by dividing the Fund's net
investment income for a 30-day period by the average number of shares entitled
to receive dividends and dividing the result by the Fund's net asset value per
share at the end of the 30-day period. Yield does not include changes in NAV.
Yields are calculated according to standardized SEC formulas and may not equal
the income on an investor's account. Yield is usually quoted on an annualized
basis. An annualized yield represents the amount you would earn if you remained
in a Fund for a year and the Fund continued to have the same yield for the
entire year.
HOW THE FUNDS ARE MANAGED
TRUSTEES
The Board of Trustees oversees the business affairs of the Funds and is
responsible for major decisions relating to each Fund's objective and policies.
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. A board of trustees for each Portfolio performs similar
functions with respect to the Portfolios and the Board also oversees the
activities of each Portfolio and its service providers.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. ("NORWEST"). Subject to the general
supervision of the Board, Norwest makes investment decisions for the Portfolios
(other than Global growth Portfolio) and continuously reviews,
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supervises and administers each Portfolio's investment program or oversees the
investment decisions of the investment subadvisers, as applicable. Norwest,
which is located at Norwest Center, Sixth Street and Marquette, Minneapolis,
Minnesota 55479, is an indirect subsidiary of Norwest Corporation, a multi-bank
holding company that was incorporated under the laws of Delaware in 1929. As of
October 1, 1997, Norwest Corporation had assets of $[____] billion, which made
it the 11th largest bank holding company in the United States. As of that date,
Norwest and its affiliates managed assets with a value of approximately $[____]
billion.
As part of its regular banking operations, Norwest Bank Minnesota, N.A. and
other banking affiliates of Norwest may make loans to companies. Thus, it may
be possible, from time to time, for a Portfolio to hold or acquire the
securities of issuers which are also lending clients of Norwest's banking
affiliates. A lending relationship will not be a factor in the selection of
portfolio securities for a Portfolio.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. ("SCHRODER"). Schroder is the
investment adviser of Schroder Global Growth Portfolio. Schroder 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 world-wide group of banks and financial services companies
(referred to as the "Schroder Group") with associated companies and branch and
representative offices in eighteen countries. The Schroder Group specializes in
providing investment management services.
INVESTMENT SUBADVISERS. To assist Norwest in carrying out its obligations, the
Portfolios and Norwest have retained the services of two investment subadvisers.
The investment subadvisers make investment decisions for the Portfolios to which
they act as such and continuously review, supervise and administer those
Portfolios' investment programs with respect to that portion, if any, of the
Portfolios' assets that Norwest believes should be managed by the subadviser.
Norwest supervises the performance of the subadvisers, including their adherence
to the Portfolios' objectives and policies.
SMITH ASSET MANAGEMENT GROUP, LP ("SMITH GROUP"). Smith Group, whose principal
business address is 500 Crescent Court, Suite 250, Dallas, Texas, is a
registered investment adviser. Smith group provides investment management
services to company retirement plans, foundations, endowments, trust companies,
and high net worth individuals. As of October 1, 1997, the Smith Group managed
over $200 million in assets. Currently, Smith Group manage all of the assets of
the following Portfolios it subadvises:
<TABLE>
<CAPTION>
FUND PORTFOLIO
<S> <C>
Performa Smith Disciplined Growth Disciplined Growth Portfolio
Performa Smith Small Cap Value Small Cap Value Portfolio
Performa Large Cap Value Large Cap Value Portfolio
</TABLE>
GALLIARD CAPITAL MANAGEMENT, INC.("GALLIARD"). Galliard, which is located at
800 LaSalle Avenue Suite 2060, Minneapolis, Minnesota, is a registered
investment adviser that specializes in fixed income management. The firm
manages assets on the premise that outstanding performance is achieved through
fundamental security analysis and strategic portfolio diversification. As of
October 1, 1997, Galliard had over $3.0 billion in assets under management.
Currently, Galliard manage all of the assets of the following Portfolio it
subadvises:
<TABLE>
<CAPTION>
FUND PORTFOLIO
<S> <C>
Performa Galliard Strategic Value Bond Strategic Value Bond Portfolio
</TABLE>
PORTFOLIO MANAGERS
The following persons are primarily responsible for the management of the
Portfolios' assets and have served as the portfolio managers since the inception
of the Portfolios.
PERFORMA SMITH DISCIPLINED GROWTH FUND, PERFORMA SMITH SMALL CAP VALUE FUND AND
PERFORMA LARGE CAP VALUE FUND. Stephen S. Smith, CFA. Mr. Smith is the Chief
Investment Officer for Smith Group and is a principal in the firm. He has held
this position since November, 1995. Prior thereto, Mr. Smith served as senior
portfolio manger
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with NationsBank where he managed approximately $1 billion of client assets. At
NationsBank, Mr. Smith held a variety of management positions including manager
of the institutional asset management group, manager of the disciplined equity
style and member of the Investment Policy Committee. At NationsBank he also
served as sub-adviser for a portfolio of AIM Management Company's Summit Fund..
His educational background includes a B.S. in Industrial Engineering and an
M.B.A., both received from the University of Alabama. He was awarded the
Chartered Financial Analyst (CFA) designation in 1981.
PERFORMA GALLIARD STRATEGIC VALUE BOND FUND. Richard Merriam. Senior Portfolio
Manager/Principal of Galliard since 19__. Mr. Merriam directs the management of
fixed income portfolios and oversees the trading and research functions at
Galliard. Prior to joining Galliard, Mr. Merriam was Chief Investment Officer
of Insight Investment Management. Before that, he served as a Senior Vice
President at Washington Square Capital, where he oversaw management of nearly
$5.0 billion in assets. Mr. Merriam has over 13 years investment management
experience. He obtained a BA from the University of Michigan and a MBA from the
University of Minnesota.
PERFORMA SCHRODER GLOBAL GROWTH FUND. The investment management team of Mark J.
Smith and Michael Perelstein (with the assistance of an Schroder investment
committee). Mr. Smith has been a First Vice President of Schroder since April
1990 and a Director thereof since April 1993. He has been employed by various
Schroder Group companies in the investment research and portfolio management
areas since 1983. Mr. Perelstein has been a Senior Vice President of Schroder
since January 2, 1997. Prior thereto, Mr. Perelstein was a Managing Director at
MacKay Shields. Mr. Perelstein has more than twelve years of international and
global investment experience.
BACKGROUND OF SMITH GROUP PERFORMANCE
The following table sets forth composite performance data relating to the
historical performance of separate accounts and mutual fund portfolios managed
by Mr. Stephen Smith, since the dates indicated, that have investment
objectives, policies, strategies and risks substantially similar to those of
Smith Disciplined Growth Portfolio and Smith Small Cap Value Portfolio. Mr.
Smith is the portfolio manager for these two Portfolios. The data is provided
to illustrate the past performance of Mr. Smith in managing substantially
similar accounts as measured against specified market indices and does not
represent the performance of the Portfolios. Investors should not consider this
performance data as an indication of future performance of the Portfolios, the
Smith Group or Mr. Smith.
Mr. Smith's composite performance data were calculated on a total return basis
and include all dividends and interest, accrued income and realized and
unrealized gain and loss. All composites are calculated net of estimated
expense ratios for the respective Portfolios, i.e., 1.25% for Smith Disciplined
Growth Portfolio and 1.30% for Smith Small Cap Value Portfolio, and without
provision for federal or state income taxes. Mr. Smith's composites include all
actual, fee paying, discretionary institutional private accounts and mutual fund
portfolios managed by Mr. Smith. Securities transactions are accounted for on
the trade date and accrual accounting is utilized. Cash and equivalents are
included in performance returns. The monthly returns of Mr. Smith's composites
combine the individual accounts' returns (calculated on a time weighted rate of
return) by asset weighing each individual account's asset value as of the
beginning of the month. Quarterly and yearly returns are calculated by
geometrically linking the monthly and quarterly returns, respectively. The
yearly returns are computed by geometrically linking the returns of each quarter
within the calendar year.
The institutional private accounts that are included in Mr. Smith's composites
are not subject to certain investment limitations, diversification requirements,
specific tax restrictions and investment limitations imposed on the Portfolios
by the 1940 Act or the Internal Revenue Code. Consequently, the performance
results for Mr. Smith's composites could have been adversely affected if the
institutional private accounts included in the composite had been regulated as
investment companies under the federal securities laws.
The investment results of Mr. Smith's composites presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Portfolios or an individual investor investing in the Performa Smith
Disciplined Growth Fund or the Performa Smith Small Cap Value Fund. Investors
should also be aware that the use of a methodology different from that used
below to calculated performance could result in different performance data.
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----------------------------------------------------------------------
Mr. Smith's Composite for the Smith
Disciplined Growth Style(2) S&P 500 Index(3)
----------------------------------------------------------------------
1992 19.67% 7.62%
----------------------------------------------------------------------
1993 24.91% 10.06%
----------------------------------------------------------------------
1994 (1.06%) 1.30%
----------------------------------------------------------------------
1995 37.72% 37.54%
----------------------------------------------------------------------
1996 30.94% 22.99%
----------------------------------------------------------------------
1 Year(1) 40.35% 34.65%
----------------------------------------------------------------------
3 Years(1) 32.38% 28.83%
----------------------------------------------------------------------
5 Years(1) 25.66% 19.76%
----------------------------------------------------------------------
Since
Inception(1) 23.86% 17.66%
----------------------------------------------------------------------
----------------------------------------------------------------------
Mr. Smith's Composite for the
Smith Small Cap Value Style Russell 2000(4)
----------------------------------------------------------------------
Since
Inception
11/1/96(1) 25.46% 16.38%
----------------------------------------------------------------------
(1) Through June 30, 1997.
(2) The composite returns shown in this chart consists of total returns for the
years 1992 through June 1997 of accounts which Stephen S. Smith, now Chief
Investment Officer of the Smith Group, personally managed as mutual funds during
the period 1992-October 31, 1995 in his capacity as senior portfolio manager for
another firm by which he was then employed. Private account performance during
this period has not been included since those accounts were not managed
similarly to the mutual fund portfolios. Since November 1, 1995 at Smith Group,
Mr. Smith has employed the same investment style in discretionary private
accounts as he employed in the mutual funds. The data for 1992-October 31, 1995
are not, and should not be construed as the performance data of Smith Group,
which began business on November 1, 1995.
(3) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.
(4) The Russell 2000 Index is an unmanaged index consisting of the securities
of the 2,000 issuers having the smallest capitalization in the Russell 3000
Index, representing approximately 10% of the Russell 3000 total market
capitalization. The average market capitalization was approximately $500
million. The Index reflects the reinvestment of income dividends and capital
gain distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
BACKGROUND OF GALLIARD PERFORMANCE
The following table sets forth composite performance data relating to the
historical performance of separate accounts and mutual fund portfolios managed
by the [Mr. Richard Merriam][Galliard], since the dates indicated, that have
investment objectives, policies, strategies and risks substantially similar to
those of Strategic Value Bond Portfolio. The data is provided to illustrate the
past performance of Mr. Merriam in managing substantially similar accounts as
measured against specified market indices and does not represent the performance
of Strategic Value Bond Portfolio. Investors should not consider this
performance data as an indication of future performance of Strategic Value Bond
Portfolio, Galliard or Mr. Merriam.
Galliard maintains various return composites of client portfolios for
performance comparison purposes. Each composite includes all accounts managed
within a similar style, and with similar investment objectives and guidelines.
The investment returns below are actual results of Galliard's Short/Intermediate
Income Bond
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Composite. This composite is managed employing Galliard's basic fixed income
management philosophy and has investment objectives and guidelines most similar
to those proposed for the Strategic Value Bond Portfolio.
--------------------------------------------------------------------------
GALLIARD SHORT/INTERMEDIATE INCOME COMPOSITE
--------------------------------------------------------------------------
PERIODS ENDED JUNE 30, 1997
--------------------------------------------------------------------------
Since
Last 3 Last 12 Inception
Months Months 4/16/96
-------------------------------------------------------------------------
Composite 3.23% 7.56% 8.17%
-------------------------------------------------------------------------
Benchmark-Lehman Intermediate 2.95% 7.22% 7.90%
-------------------------------------------------------------------------
Government/Corporate Index
-------------------------------------------------------------------------
Galliard composites are calculated weighting the market value of each component
account. Accounts are placed in the composite at the end of the first full
calendar quarter following their inception or as agreed upon with the client.
The Short/Intermediate Income Composite as of June 30, 1997 consisted of one
account with assets of approximately $90 million. The Composite's benchmark is
the Lehman Intermediate Government/Corporate Index. Although the Strategic
Value Bond Portfolio will utilize a different benchmark, the Lehman Aggregate
Index, management believes the relative performance of the Composite above
versus its Lehman benchmark is indicative of the style and guidelines which will
be employed in Strategic Value Bond Portfolio. Private accounts are not subject
to certain investment limitations, diversification requirements, and other
restrictions imposed by the 1940 Act and the Internal Revenue Code which, if
applicable, may have adversely affected performance. As a result, portfolio
management strategies used on Galliard's Composite and those for the Portfolio
may vary. Also, fees on the Composite are imposed monthly rather than daily for
mutual funds, which may inflate performance slightly. This performance does not
represent historical performance of Performa Galliard Strategic Value Fund and
should not be interpreted as predictive of future performance of the Fund which
is newly organized and has no performance of its own. The performance of the
Fund may be higher or lower than that shown. Past performance is no guarantee
of future assets.
ADVISORY FEES
Norwest (Schroder in the case of Global Growth Portfolio) is paid an investment
advisory fee at the following annual rates of the Portfolio's average daily net
assets.
FUND ADVISORY FEE
Strategic Value Bond Portfolio
(Performa Galliard Strategic Value Bond Fund) 0.50%
Disciplined Growth Portfolio
(Performa Smith Disciplined Growth Fund) 0.90%
Small Cap Value Portfolio
(Performa Smith Small Cap Value Fund) 0.95%
Large Cap Value Portfolio
(Performa Large Cap Value Fund) 0.90%
Schroder Global Growth Portfolio
(Performa Schroder Global Growth Fund) [0.65]
Norwest (and not the Portfolios) pays Smith and Galliard a fee for their
investment subadvisory services. This compensation does not increase the amount
paid by the Portfolio to Norwest for investment advisory services.
Each Fund may withdraw its investments from its corresponding Portfolio at any
time if the Board determines that it is in the best interests of the Fund to do
so. See "Organization and History - Core and Gateway Structure." Accordingly,
each of these Funds has retained Norwest as its investment adviser. Similarly,
in the event that a Fund withdraws its investment from a Portfolio, to the
extent the Fund invested in a Portfolio advised by Schroder or an investment
subadviser, the Fund has retained Schroder and that subadviser as an investment
subadviser. Under these ""dormant" investment advisory arrangements, no Fund
pays any advisory fees as long as the Fund remains completely invested in its
respective Portfolio or any other investment company. In the event that a Fund
were to withdraw its assets from its respective Portfolio, Norwest would receive
an investment advisory fee from the Fund at the same rate as the fee paid by the
Portfolio, except in the case of Performa Schroder Global Growth Fund wherein
Norwest would be paid a fee of [____]% of the Fund's average daily net assets.
Pursuant to the Funds' dormant investment subadvisory agreements,
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Norwest (and not the Funds) would pay Schroder and each subadviser, as
applicable, a fee for its investment subadvisory services.
THE FUNDS' EXPENSES
Each Fund is responsible for all expenses related to its operations. Theses
expenses include legal and accounting expenses; trustees' fees and expenses;
insurance premiums, fees and expenses of the Fund's service providers; brokerage
fees and expenses; expenses of registering and qualifying shares for sale with
the SEC and with various state securities commissions; expenses of obtaining
quotations on portfolio securities; the expenses of maintaining the Fund's legal
existence and of shareholders' meetings; and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses.
Trust expenses directly attributed to a Fund are charged to the Fund; other
expenses are allocated proportionately among all the series of the Trust in
relation to the net assets of each series. Similar policies pertain to the
Portfolios.
PORTFOLIO TRADING AND 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 investment advisers seek "best execution" for all portfolio transactions,
but a Portfolio 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 U.S. securities exchanges.
Subject to the Portfolios' policy of obtaining the best price consistent with
quality of execution of transactions, each investment adviser may employ
broker-dealer affiliates of the investment adviser (collectively "Affiliated
Brokers") to effect brokerage transactions. The payment of commissions to
Affiliated Brokers is subject to procedures to provide that the commissions will
not exceed the usual and customary broker's commissions charged by unaffiliated
brokers. No specific portion of a Portfolio'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 through brokers who sell Fund shares.
The frequency of portfolio transactions (the portfolio turnover rate) will vary
from year to year depending on many factors. From time to time a Portfolio may
engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. The investment
advisers anticipate that the annual portfolio turnover rate of each Portfolio
will be less than 100% in their first year of operations. An annual portfolio
turnover rate of 100% would occur if all of the securities in a Portfolio were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to Portfolio and a possible increase in
short-term capital gains or losses.
THE FUNDS' OTHER SERVICE PROVIDERS
ADMINISTRATION AND DISTRIBUTION SERVICES
Forum Administrative Services, Limited Liability Company ("FAS") provides
administrative services for the Funds and also serves as administrator of each
Portfolio, except Schroder Global Growth Portfolio, for which FAS serves as
subadministrator. Schroder Fund Advisors Inc. serves as administrator of
Schroder Global Growth Portfolio. Forum Accounting Services, Limited Liability
Company provides portfolio accounting services to each Fund and to each
Portfolio. The distributor of the Funds' 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 the
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<PAGE>
placement agent of the Portfolios. These companies are members of the Forum
Financial Group of companies, Two Portland Square, Portland, Maine 04101, which
together provide a full range of services to the investment company and
financial services industry. As of October 1, 1997, Forum, FAS and Forum
Accounting were controlled by John Y. Keffer, President and Chairman of the
Trust.
Pursuant to a separate agreement, Norwest receives a fee with respect to
Performa Schroder global Growth Fund at an annual rate of 0.25% of the Funds'
average daily net assets. Under this agreement, Norwest is responsible for
compiling data and preparing communications between the Fund and its
shareholders, maintaining requisite information flows between the Fund and
Schroder, monitoring and reporting to the Board on the performance of the
Portfolio and reimbursing the Fund for certain excess expenses. No fees are
payable under this agreement if the Fund is not completely invested in a
Portfolio.
TRANSFER AGENT AND CUSTODIAN
Norwest Bank Minnesota, N.A. ("Norwest Bank" or the "Transfer Agent") serves as
transfer agent and dividend disbursing agent for the Funds. Norwest Bank
maintains an account for each shareholder of the Trust, 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 to
qualified agents. The Transfer Agent is permitted to compensate those agents
for their services; however, that compensation may not increase the aggregate
amount of payments by the Trust to the Transfer Agent. For its services, the
Transfer Agent receives a fee with respect to each Fund at an annual rate of
0.25% of each Fund's average daily net assets.
Norwest Bank also serves as each Fund's and each Portfolio's (other than
Schroder Global Growth Portfolio's) custodian and may appoint subcustodians for
the foreign securities and other assets held in foreign countries. For its
custodial service, Norwest Bank receives a fee with respect to each Portfolio at
an annual rate of: 0.02% of the first $100 million of the Portfolio's average
daily net assets, 0.015% of the next $200 million of the Portfolio's average
daily net assets and 0.01% of the Portfolio's remaining average daily net
assets. No fee is payable by a Fund to the extent the Fund is invested in a
Portfolio. The Chase Manhattan Bank, N.A. serves as custodian of Schroder
Global Growth Portfolio and is paid a fee for its services.
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to a fund 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.
Norwest and any bank or other bank affiliate also may perform Processing
Organization or similar services for the Funds and their shareholders. If a
bank or bank affiliate were prohibited in the future from so acting, changes in
the operation of the Funds could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
ORGANIZATION AND HISTORY
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; the costs of doing so will
be borne by the Trust. As of the date of this Prospectus, the Funds offer one
class of shares. The Trust offers [forty] separate series, [thirty-three] of
which currently offer three classes of shares.
VOTING AND OTHER RIGHTS
Each share has one vote, with fractional shares voting proportionally. Shares of
each class will vote together as a single class without regard to series or
classes of shares on all matters except: (i) when required by the Investment
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<PAGE>
Company Act of 1940 or when the Trustees have determined that the matter affects
the interests of one or more series or classes materially differently, shares
will be voted by individual series or class; and (ii) when the Trustees have
determined that the matter affects only the interest of one or more series or
classes, only shareholders of that series or class shall be entitled to vote
thereon. Shares are freely transferable, are entitled to dividends as declared
by the Trustees, and, if a Fund were liquidated, would receive the net assets of
that Fund. The funds may suspend the sale of shares at any time and may refuse
any order to purchase shares.
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 (and Trustees) 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 shareholder. A shareholder in a series is entitled to the shareholder's
pro rata share of all dividends and distributions arising from that series'
assets and, upon redeeming shares, will receive the portion of the series' net
assets represented by the redeemed shares.
Each Portfolio normally will not hold meetings of investors except as required
by the 1940 Act. Each investor in a Portfolio will be entitled to vote in
proportion to its relative beneficial interest in the Portfolio. When required
by the 1940 Act and other applicable law, a Fund will solicit proxies from its
shareholders and will vote its interest in a Portfolio in proportion to the
votes cast by its shareholders.
From time to time, certain shareholders may own a large percentage of the Shares
of a Fund and, accordingly, may be able to greatly affect (if not determine) the
outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio, that has the same investment
objective and substantially identical investment policies as the Fund.
Accordingly, each Portfolio directly acquires portfolio securities and a Fund
acquires an indirect interest in those securities. Each Portfolio is a separate
series of Core Trust, a business trust organized under the laws of the State of
Delaware in 1994. Core Trust is registered under the 1940 Act as an open-end,
management, investment company. The assets of each Portfolio belong only to, and
the liabilities of each Portfolio are borne solely by, that Portfolio and no
other portfolio of Core Trust.
THE PORTFOLIOS. A Fund's investment in a Portfolio is in the form of a
non-transferable beneficial interest. All investors in a Portfolio will invest
on the same terms and conditions and will pay a proportionate share of the
Portfolio's expenses. [As of October 1, 1997, one other] Fund of the Trust
invested a portion of its assets in each Portfolio.]
A Portfolio will not sell its shares directly to members of the general public.
Another investor in a 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 any Fund, and could have different
advisory and other fees and expenses than a Fund. Therefore, Fund shareholders
may have different returns than shareholders in another investment company that
invests in a Portfolio. Information regarding any such funds is available from
Core Trust by calling Forum at (207) 879-1900.
CERTAIN RISKS OF INVESTING IN PORTFOLIOS. A Fund's investment in a Portfolio
may be affected by the actions of other large investors in that Portfolio. For
example, if Disciplined Growth Portfolio had a large investor other than
Performa Smith Disciplined Growth Fund that redeemed its interest, Disciplined
Growth Portfolio's remaining investors (including the Fund) might, as a result,
experience higher pro rata operating expenses, thereby producing lower returns.
As there may be other investors in a Portfolio, there can be no assurance that
any issue that receives a majority of the votes cast by a Fund's shareholders
will receive a majority of votes cast by all investors in a Portfolio; indeed,
other investors holding a majority interest in a Portfolio could have voting
control of the Portfolio.
Each Fund may withdraw its entire investment from a Portfolio at any time, if
the Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in
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<PAGE>
a Portfolio with power to, and who did by a vote 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 would incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from a Portfolio, the Board would consider what action might be taken, including
the management of the Fund's assets directly by Norwest or the investment of the
Fund's assets in another pooled investment entity. The inability of the Fund to
find a suitable replacement investment, in the event the Board decided not to
permit Norwest to manage the Fund's assets directly, could have a significant
impact on shareholders of the Fund.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
GENERAL PURCHASE INFORMATION
You can open a fund account with the minimum amount of [$_________] and make
subsequent investments at any time with [$_________]. You can invest in a Fund
either through a financial institution or directly. If you invest in a Fund
directly you will be a shareholder of record. You will receive from your Fund
periodic statements listing all account activity during the statement period.
You must pay for your shares in U.S. dollars by check or money order (drawn on a
U.S. bank), by bank or federal funds wire transfer, or by electronic bank
transfer. Shares are continuously sold and redeemed at a price equal to their
net asset value next-determined after acceptance of your order on every weekday
except customary national holidays and Good Friday ("Fund Business Day").
When you sign your application for a new Fund account, you are certifying that
your Social Security or other taxpayer ID number is correct and that you are not
subject to backup withholding. If you violate certain federal income tax
provisions, the Internal Revenue Service can require the Funds to withhold 31%
of your distributions and redemptions.
You will be entitled to receive dividends on the next Fund Business Day after a
purchase or order for the Shares is accepted.
You may obtain the account application form necessary to open an account by
writing the Trust at:
The Performa 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),
you should contact the Trust. The Trust can modify, limit or terminate any
shareholder privilege only after appropriate notification to you and by charging
a fee for certain shareholder services, although no such fees are currently
expected to be used. You can stop participating in any program at any time by
writing to the Trust.
MAKING PURCHASES BY MAIL. You may send a check or money order (cash cannot be
accepted) along with a completed account application form to the Trust at the
address listed above. Checks and money orders are accepted at full value
subject to collection. If a check does not clear, your purchase order will be
canceled and you will be liable for any losses or fees incurred by the Trust,
the Transfer Agent or the Funds' distributor.
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<PAGE>
If you invest in individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of a Fund must be made payable to "Performa
Funds" or to one or more owners of that account and endorsed to Performa Funds.
No other method of payment by check will be accepted. For non-individual type
accounts, the check used to purchase shares of a Fund must be made payable to
"Performa Funds." No other method of payment by check is accepted by the Funds.
MAKING PURCHASES BY BANK WIRE. To make an initial investment in a Fund using
the wire system for transferring money among banks, you should first telephone
the Transfer Agent at (612) 667-8833 or (800) 338-1348 to obtain an account
number. You should then instruct a bank to wire the money immediately to:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Advantage Funds 0844-131
Re: [Name of Fund]
Account No.:
Account Name:
You should then promptly complete and mail the account application form. You may
incur charges from your bank for transmitting money by bank wire. The Trust
does not charge you for the receipt of wire transfers.
MAKING PURCHASES THROUGH FINANCIAL INSTITUTIONS. You may also purchase and
redeem Shares through certain broker-dealers, banks and other financial
institutions ("Processing Organizations"). Processing Organizations may charge
you a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Funds.
If you purchase shares through a Processing Organization you will be subject to
the procedures of the Processing Organization, which may be different than if
you invest in a Fund directly. You should familiarize yourself with the
institution's procedures and should read this Prospectus in along with any
materials and other information from the institution. When you purchase a
Fund's shares through a Processing Organization you may or may not be the
shareholder of record and, depending on the institution's and the Fund's
procedures, you may have Fund shares transferred into your name. Typically
there is a three-day settlement period for purchases and redemptions through
broker-dealers.
The Trust may confirm your purchases and redemptions made through a Processing
Organization directly to the Processing Organization, which in turn will provide
you with confirmations and periodic statements. If a Processing Organization
fails to carry out its obligations to you, the Trust is not responsible.
MAKING PURCHASES IN AN AUTOMATIC INVESTMENT PLAN. Under the Automatic
Investment Plan, you can have monthly amounts of $50 or more be withdrawn
automatically from a designated bank account (other than passbook savings) and
sent to the Transfer Agent for investment in a Fund. If you choose to use this
plan you must complete an application which you can get by writing or calling
the Transfer Agent. The Trust may change or end your Automatic Investment Plan
if the Trust is unable to settle any transaction your bank. If the Automatic
Investment Plan is ended before your account totals $1,000, the Trust has the
right to close the account as described in the procedures described under "How
to Sell Shares."
HOW TO SELL SHARES
GENERAL REDEMPTION INFORMATION
You may redeem shares 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.
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Once the Transfer Agent has received and accepted the redemption order in proper
form (and any supporting documentation that the Transfer Agent may require) the
Fund shares are redeemed as of the next determination of the Fund's net asset
value. You will not received dividends on redeemed shares after the day the
redemption is effective.
Normally, redemption proceeds are paid immediately, but never later than seven
days after a redemption order is received. If a check was used to purchase the
shares being redeemed, the proceeds of redemption request (and exchanges), won't
be paid unless the check for purchasing the shares has been cleared by the
shareholder's bank, which may take up to 15 days. You can avoid this delay by
paying for your shares through wire transfers. Unless otherwise indicated,
redemption proceeds are normally paid by check and mailed to your address on
record. 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.
SIGNATURE GUARANTEES. To protect you and the Funds against fraud, signatures on
certain requests must have a signature guarantee. Requests must be made in
writing and include a signature guarantee for any of the following transactions:
(i) endorsement on a share certificate; (ii) instruction to change your record
name; (iii) modification of a designated bank account for wire redemptions; (iv)
instruction regarding an Automatic Investment Plan or Automatic Withdrawal Plan;
(v) dividend and distribution election; (vi) telephone redemption; (vii)
exchange option election or any other option election in connection with the
shareholder's account; (viii) written instruction to redeem Shares whose value
exceeds $50,000; (ix) redemption in an account in which the account address has
changed within the last 30 days; (x) redemption when the proceeds are deposited
in a Performa Funds account under a different account registration; and (xi) the
remitting of redemption proceeds to any address, person or account for which
there are not established standing instructions on the account.
You can get a signature guarantees from 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.
Due to the cost of maintaining smaller accounts, the Trust has 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.
REDEMPTION PROCEDURES. If you have invested directly in a Fund you may redeem
your shares as described below. If you have invested through a Processing
Organization you may redeem your shares through the Processing Organization as
described under "How to Buy Shares -- Purchase Procedures -- Through Financial
Institutions." If you wish to redeem your shares by telephone or receive
redemption proceeds by bank wire you must elect these options by properly
completing the appropriate sections of the account application form. These
privileges may not be available to you, however, until several weeks after your
application is received. If you received certificates for your Shares, you may
not redeem those shares by telephone.
MAKING REDEMPTIONS BY MAIL. You may redeem shares by sending a written request
to the Transfer Agent accompanied by any share certificates that may have been
issued to validate the shares being redeemed.
MAKING REDEMPTIONS BY TELEPHONE. If you have elected telephone redemption
privileges you may make a telephone redemption request by calling the Transfer
Agent at (800) 338-1348 or (612) 667-8833 and providing the Transfer Agent with
your account number, your exact name as it appears on the account and your
social security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the your address of
record or, if you elected wire redemption privileges, the proceeds will be
wired.
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If you want telephone redemption or exchange privileges you must elect those
privileges. The Trust and Transfer Agent will employ reasonable procedures in
order to verify that telephone requests are genuine, including recording
telephone instructions and sending confirmations in writing of the transactions
requested. If the Trust and Transfer Agent did not take these measures, they
could be liable for losses due to unauthorized or fraudulent telephone
instructions. You should verify the accuracy of telephone instructions
immediately upon receipt of the confirming statement. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that you are unable to reach the Transfer
Agent by telephone, requests may be mailed or hand-delivered to the Transfer
Agent.
MAKING REDEMPTIONS BY BANK WIRE. If you are redeeming more than $5,000, and you
have elected wire redemption privileges you may request a Fund to transmit the
redemption proceeds by federal funds wire to a bank account that you have
designated in writing. To request bank wire redemptions by telephone, you also
must have elected the telephone redemption privilege in your account
application. Redemption proceeds are transmitted by wire on the day after a
redemption request in proper form is received by the Transfer Agent.
HOW TO EXCHANGE SHARES
GENERAL EXCHANGE INFORMATION
You may exchange your shares for shares of the other Performa Funds and for
Investor Shares of Ready Cash Investment Fund, a money market fund of the Trust.
The Funds do not charge you for exchanges, and there is currently no limit on
the number of exchanges you may make; the Funds can, however, limit excessive
exchanges.
You can make exchanges only between identically registered accounts or to open a
new account. You will have to complete a new account application if your new
account has different registration and shareholder privileges than the account
from which you are making the exchange. You may only exchange into a Fund if
that Fund's shares may legally be sold in the your state of residence.
The Funds and federal tax law treat an exchange as a redemption and a purchase.
Accordingly, you may realize a capital gain or loss depending on whether the
value of the shares you redeemed is more or less than the basis in the shares at
the time of the exchange transaction. The Trust can change or terminate
exchange procedures at any time by notifying you 60 days prior to doing so.
MAKING EXCHANGES BY MAIL. You can make exchanges by sending a written request
to the Transfer Agent accompanied by any share certificates for the shares to be
exchanged. You must sign for all written requests, and endorse all certificates
that you submit for exchange with a signature guarantee. See "How to Sell
Shares."
MAKING EXCHANGES BY TELEPHONE. If you elect telephone exchange privileges you
may make a telephone exchange by calling the Transfer Agent at (800) 338-1348 or
(612) 667-8833 and providing the Transfer Agent with your account number, your
exact name in which your shares are registered and your social security or
taxpayer identification number. See "How to Buy Shares."
HOW THE FUNDS VALUE THEIR SHARES
A Fund calculates the net asset value of shares by dividing the total value of
its assets, less liabilities, by the number of its shares outstanding. Shares
are valued as of the close of regular trading on the New York Stock Exchange
each day the Exchange is open. The Funds do not determine net asset value on the
following holidays: New Year's Day, Presidents' Day, Dr. Martin Luther King Jr.
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees.
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Trading on international securities exchanges and over-the-counter markets is
normally completed well before the close of business on 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 a Fund's 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 Norwest 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 denominated in foreign currencies are converted into
U.S. dollars at the mean of the bid and asked prices of such currencies against
the U.S. dollar last quoted by a major bank prior to the time of conversion.
HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS AND TAX INFORMATION
Dividends of net investment income are declared daily and paid monthly in the
case of Performa Galliard Strategic Value Bond Fund and declared and paid
[_______] in the case of all other Funds. You may have dividends and
distributions reinvested in shares of the same Fund (the "Reinvestment Option"),
receive dividends and distributions in cash (the "Cash Option") or have
dividends and distributions reinvested in shares of another Performa Fund or
Investor Shares of Ready Cash Investment Fund (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. You are assigned this option unless you
selected one of the other two options. Under the Cash Option, all dividends and
distributions are paid to you in cash. Under the Directed Dividend Option, if
you have shares of a Fund in a single account that total $10,000 or more, you
may elect to have all dividends and distributions reinvested in shares of
another fund, provided that those shares are eligible for sale in the your state
of residence. For further information concerning the Directed Dividend Option,
you should contact the Transfer Agent.
FUND TAX MATTERS. Each 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, each Fund will not be liable for federal income and excise
taxes on the net investment income and capital gain distributed to its
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 (other than Performa Galliard Strategic Value Bond Fund that declares
dividends daily) and distributions reduce the net asset value of the Fund paying
the dividend or distribution by the amount of the dividend or distribution.
Dividends or distributions made to you shortly after the purchase of Shares,
will be taxable to you as described above.
PORTFOLIO TAXES. Each Portfolio is not required to pay federal income taxes on
its net investment income and capital gain, as it is treated as partnerships for
federal income tax purposes. All interest, dividends and gains and losses of a
Portfolio are deemed to have been "passed through" to the Funds investing in the
Portfolio in proportion to the Funds' 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.
FUNDS INVESTING IN FOREIGN SECURITIES. Investment income received by a Fund
from sources within foreign countries may be subject to foreign income or other
taxes. Schroder [FILL IN] 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 its Portfolio. As a shareholder of that Fund, you will be
notified of your share of those foreign taxes and will be
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required to treat the amount of such foreign taxes as additional income. In
that event, you may be entitled to claim a credit or deduction for those taxes.
FEDERAL TAX. Each Fund is required by federal law to withhold 31% of reportable
payments paid to you (which may include dividends, capital gain distributions
and redemptions) if you fail to provide the Fund with a correct taxpayer
identification number or 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 you shortly after the close of each calendar
year.
You should consult your tax advisor with respect to your specific tax situation
as well as with respect to state and local taxes.
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APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the Funds may invest. A Fund may
invest in these instruments to the extent permitted by its objectives and
investment policies. The Funds are not limited by this discussion and may
invest in any other type of instruments permitted by the policies discussed
elsewhere in this Prospectus. Please refer to the SAI for a more detailed
discussion of the Funds' investment policies and these instruments.
EQUITY AND RELATED SECURITIES
COMMON STOCK represents a share of ownership in a company, and usually carries
voting rights and earns dividends. Common stockholders are not creditors of the
company, but rather, upon liquidation of the company, are entitled to their pro
rata share of the company's assets after creditors (including fixed income
security holders) and, if applicable, preferred stockholders, are paid. Unlike
preferred stock, dividends on common stock are not fixed but are declared at the
discretion of the issuer.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio within a specific amount of time.
DEPOSITORY RECEIPTS are receipts for shares of a foreign-based company that
entitle the holder to dividends and capital gain on the underlying security.
Receipts include those issued by domestic banks (American Depository Receipts
("ADRs")), foreign financial institutions (Global or European Depository
Receipts) and broker-dealers (depository shares). 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 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.
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. A preferred stockholder generally is a shareholder in the company
and not a creditor of the company as is a holder of the company's fixed income
securities. Preferred stock generally does not carry voting rights.
WARRANTS are securities, typically issued with preferred stocks or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely. The specified price for warrants usually represents a premium
over the applicable market value of the underlying equity security at the time
of the warrant's issuance.
FIXED INCOME (DEBT) INVESTMENTS
BILLS, NOTES AND BONDS are debt securities issued by a company, municipality,
government or government agency. Bills usually have the shortest maturities and
bonds the longest maturities. The issuer of a bill, note or bond is required to
pay the holder the amount of the loan (or par value) at a specified maturity and
to make scheduled interest payments.
CERTIFICATES OF PARTICIPATION are certificates representing an interest in a
pool of securities. Holders are entitled to a proportionate interest in the
underlying securities.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers.
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COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are debt obligations that are
collateralized by mortgages or mortgage pass-through securities ("Mortgage
Assets"). 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. CMOs may have
complicated structures and generally involve more risks than simpler forms of
mortgage-related securities.
DEMAND NOTES are unsecured obligations redeemable upon a specified notice
(typically not more than 30 days). 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 them. Although a Portfolio would generally not
be able to resell a master demand note to a third party, the Portfolio is
entitled to demand payment from the issuer at any time.
FIXED-INCOME SECURITIES are securities that pay a specified rate of return. The
term generally includes securities of all terms (for instance, bills, notes and
bonds) and of various issuers (for instance, corporate instruments, municipal
securities and U.S. Government Securities) that pay a specified rate of interest
or coupons for a specified period of time. It also can include preferred stock,
which pays fixed-dividends. Coupon and dividend rates may be fixed for the life
of the issue or, in the case of variable and floating rate securities, for a
shorter period subject to change.
GUARANTEED INVESTMENT CONTRACTS are arrangement with an insurance company under
which a Portfolio 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.
HIGH-YIELD/HIGH-RISK SECURITIES are securities that are rated below investment
grade by an NRSRO (E.G., "BB" or lower by S&P's and "Ba" or lower by Moody's).
Other terms commonly used to describe these securities include "lower rated
bonds," "non-investment grade bonds" and "junk bonds."
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES are shares in a pool of mortgages
or other debt. These securities are generally pass-through securities, which
means that principal and interest payments on the underlying securities (less
servicing fees) are passed through to shareholders on a pro rata basis. These
securities involve prepayment risk, which is the risk that the underlying
mortgages or other debt may be refinanced or paid off prior to their maturities
during periods of declining interest rates.
MUNICIPAL SECURITIES are obligations of the states, territories and possessions
of the United States and of their subdivisions, authorities and corporations,
the interest on which is exempt from federal income tax. Municipal securities
can be bonds, notes and leases, may have fixed, variable or floating rates of
interest and may be zero-coupon securities. Municipal securities can be
"general obligation" or "revenue" securities. General obligation securities are
secured by a municipality's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities 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.
PARTICIPATION INTERESTS are interests in municipal securities that are owned by
banks or other financial institutions. Participation interests usually carry a
demand feature backed by a letter of credit or guarantee of the bank or
institution permitting the holder to tender them back to the bank or other
institution.
REPURCHASE AGREEMENTS involve the purchase of a security by a Portfolio and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Portfolio at a specified date or upon demand. This
technique offers a method of earning income on idle cash. Repurchase agreements
involve the risk that the seller will fail to repurchase the security, as
agreed. In that case, the Portfolio will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security.
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REVERSE REPURCHASE AGREEMENTS involve the sale of a security by a Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique is similar to borrowing and will be used primarily to provide cash to
satisfy unusually heavy redemption requests, or for other temporary or emergency
purposes.
SECURITY LOANS occur when a Portfolio lends a security it owns and receives
payment from the borrower or interest from investing cash collateral deposited
by the borrower. The Portfolios may pay fees to arrange securities loans.
Security loans involve the risk that the borrower will fail to return the
security, as agreed. In that case, the Portfolio will bear the risk of market
value fluctuations until the security can be returned or collateral can be
liquidated and may encounter delays and incur costs.
U.S. GOVERNMENT SECURITIES means obligations issued or guaranteed as to
principal and interest by the United States Government, its agencies or
instrumentalities. U.S. Government Securities 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
and securities supported primarily or solely by the creditworthiness of the
agency or instrumentality issuing the security, such as securities of the
Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and Student Loan Marketing Association
("Sallie Mae"). There is no guarantee that the U.S. Government will support
securities not backed by its full faith and credit.
VARIABLE AND FLOATING RATE SECURITIES have variable or floating rates of
interest and, under certain limited circumstances, may have varying principal
amounts. These securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some interest rate
index or market interest rate. The adjustable rate tends to decrease the
security's price sensitivity to changes in interest rates.
ZERO COUPON SECURITIES are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity. A Portfolio holding a zero-coupon security
must include a portion of the discount of the security as income. As the Funds
distribute all of their net investment income, the portfolios may have to sell
portfolio securities to distribute imputed income, which may occur at a time
when the investment adviser would not have chosen to sell such securities and
which may result in a taxable gain or loss.
OTHER INVESTMENT TERMS AND TECHNIQUES
DOLLAR ROLL TRANSACTIONS occur when a Portfolio sells fixed income securities,
typically mortgage-related 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 Portfolio assumes the risk of ownership. A
Portfolio is compensated for entering into dollar roll transactions by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale. 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 Portfolio may decline below the price at which a Portfolio is committed
to purchase similar securities. In the event the buyer of securities under a
dollar roll transaction becomes insolvent, the Portfolio's use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
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 Portfolio has valued the securities and include, among other
things, repurchase agreements not entitling the holder to payment within seven
days and securities subject to restrictions on resale (other than those
determined to be liquid pursuant to written guidelines). Limitations on resale
may have an adverse effect on the marketability of portfolio securities, and a
Portfolio might also have to register securities subject to restrictions on
resale in order to dispose of them, resulting in expense and delay. A Portfolio
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby
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experience difficulty satisfying redemptions. There can be no assurance that a
liquid market will exist for any security at any particular time.
MARKET CAPITALIZATION refers to the value of an issuer's outstanding stock and
is calculated by multiplying the total number of common shares outstanding by
the market price per share of the stock.
RULE 144A SECURITIES are securities that are not registered for sale to the
general public, but that may be resold to certain institutional investors.
thus, while the securities are subject to restrictions on their resale, an
institutional market may exist such that the security could be deemed to be
liquid.
SHORT SALES AGAINST-THE-BOX occur when a Portfolio contemporaneously owns or has
the right to obtain at no added cost securities identical to securities which
the Portfolio has sold but not delivered, otherwise referred to as "sold short."
For federal income tax purposes, short sales against-the-box may be made to
defer recognition of gain or loss on the sale of securities until the short
position is closed out.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS generally involve the
purchase of a security with payment and delivery at some time in the future,
i.e., beyond the normal period of securities settlement. A Portfolio does not
earn interest on such securities until settlement and bears the risk of market
value fluctuations in between the purchase and settlement dates. New issues of
stocks and bonds, private placements and U.S. Government Securities may be sold
in this manner.
FUTURES, OPTIONS AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts
generally are not exchange traded and are typically negotiated on an individual
basis. The Portfolios may enter into forward currency contracts to hedge
against declines in the value of securities denominated in, or whose value is
tied to, a currency other than the U.S. dollar or to reduce the impact of
currency appreciation on purchases of such securities. They may also enter into
forward contracts to purchase or sell securities or other financial indices.
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver an instrument at a specified price on a specified date. The
Portfolio may buy and sell futures contracts on foreign currencies, securities
and financial indices including interest rates or an index of U.S. government,
foreign government, equity or fixed-income securities. The Portfolios may also
buy options on futures contracts. An option on a futures contract gives the
buyer the right, but not the obligation, to buy or sell a futures contract at a
specified price on or before a specified date. Futures contracts and options on
futures are standardized and traded on designated exchanges.
INDEXED/STRUCTURED SECURITIES are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. The Portfolio bears the market risk of
an investment in the underlying instruments, as well as the credit risk of the
issuer.
INVERSE FLOATERS are variable or floating rate securities that pay interest at a
rate that varies inversely to prevailing short-term interest rates. 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 Portfolio 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 Portfolio's, yield. There is not an active secondary
market for certain inverse floaters and similar instruments which could make it
difficult for a Portfolio to dispose of the instrument.
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OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolio may purchase and write put and call options on securities,
securities indices and foreign currencies.
SWAP AGREEMENTS include interest rate and mortgage (or other asset) swap
agreements. 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 a Portfolio's performance. Swap
agreements involve risks depending upon the counterparty's creditworthiness and
ability to perform as well as the Portfolio's ability to terminate its swap
agreements or reduce its exposure through offsetting transactions.
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APPENDIX B
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
BOND RATINGS
STANDARD & POOR'S RATINGS SERVICES
INVESTMENT GRADE RATINGS
AAA" Highest rating; extremely strong capacity to pay principal and
interest.
"AA" High quality; very strong capacity to pay principal and interest.
"A" Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
"BBB" Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions or
changing circumstances more likely to lead to a weakened capacity to
pay principal and interest than for higher rated bonds.
NON-INVESTMENT GRADE RATINGS
"BB," "B" Predominantly speculative with respect to the issuer's capacity to
meet required interest and principal payments.
"CCC," "CC,"
"C," "BB" Lowest degree of speculation;
"C" Highest degree of speculation. Quality and protective
characteristics outweighed by large uncertainties or major risk
exposure to adverse conditions.
"D" In default.
MOODY'S INVESTORS SERVICE, INC.
INVESTMENT GRADE RATINGS
"Aaa" Highest quality, smallest degree of investment risk.
"Aa" High quality; together with Aaa bonds, they compose the high-grade
bond group.
"A" Upper-medium grade obligations; many favorable investment attributes.
"Baa" Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present but
certain protective elements may be lacking or may be unreliable over
any great length of time.
NON-INVESTMENT GRADE RATINGS
"Ba" More uncertain, with speculative elements. Protection of interest and
principal payments not well safeguarded during good and bad times.
"B" Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or maintenance of
other contract terms over time.
"Caa" Poor standing, may be in default; elements of danger with respect to
principal or interest payments.
"Ca" Speculative in a high degree; could be in default or have other marked
shortcomings.
"C" Lowest-rated; extremely poor prospects of ever attaining
investment standing.
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PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1997
PERFORMA SMITH DISCIPLINED GROWTH FUND
PERFORMA SMITH SMALL CAP VALUE FUND
PERFORMA LARGE CAP VALUE FUND
PERFORMA GALLIARD STRATEGIC VALUE BOND FUND
PERFORMA SCHRODER GLOBAL GROWTH FUND
<PAGE>
PERFORMA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1997
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING: DISTRIBUTION:
Norwest Bank Minnesota, N.A. Forum Financial Services, Inc.
Transfer Agent Manager and Distributor
733 Marquette Avenue Two Portland Square
Minneapolis, MN 55479-0040 Portland, Maine 04101
(612) 667-8833/(800) 338-1348 (207) 879-1900
The PERFORMA FUNDS are separate series of Norwest Advantage Funds, a registered,
open-end, management investment company under the Investment Company Act of
1940, as amended.
This Statement of Additional Information supplements the Prospectus dated
October 1, 1997, as may be amended from time to time, offering shares of
Performa Smith Disciplined Growth Fund, Performa Smith Small Cap Value Fund,
Performa Large Cap Value Fund, Performa Galliard Strategic Value Bond Fund and
Performa Schroder Global Growth Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
A CORRESPONDING PROSPECTUS, COPIES OF WHICH MAY BE OBTAINED BY AN INVESTOR
WITHOUT CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED ABOVE.
<PAGE>
TABLE OF CONTENTS
Page
Introduction
1. Investment Policies
Security Ratings Information
Money Market Fund Matters
Fixed Income Investments
Mortgage-Backed And Asset-Backed Securities
Interest Rate Protection Transactions
Hedging And Option Income Strategies
Foreign Currency Transactions
Equity Securities and Additional Information Concerning the Equity
Funds
Illiquid Securities and Restricted Securities
Borrowing And Transactions Involving Leverage
Repurchase Agreements
Temporary Defensive Position
2. Investment Limitations
Fundamental Limitations
Non-Fundamental Limitations
3. Performance and Advertising Data
SEC Yield Calculations
Total Return Calculations
Multiclass, Collective Trust Fund and Core-Gateway Performance
Other Advertisement Matters
4. Management
Trustees and Officers
Investment Advisory Services
Management and Administrative Services
Distribution
Transfer Agent
Custodian
Portfolio Accounting
Expenses
5. Portfolio Transactions
6. Additional Purchase and Redemption Information
Statement of Intention
Exchanges
Redemptions
Contingent Deferred Sales Charge (A Shares)
Contingent Deferred Sales Charge (A Shares and B Shares)
Conversion of B Shares
7. Taxation
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TABLE OF CONTENTS
Page
8. Additional Information About the Trust and the Shareholders of the Funds
Determination of Net Asset Value
Counsel and Auditors
General Information
Recent Mergers
Shareholdings
Financial Statements
Registration Statement
Appendix A - Description of Securities Ratings A-1
ii
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INTRODUCTION
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust under the name "Norwest Funds." On October 1, 1995,
the Trust changed its name to "Norwest Advantage Funds" and on June 1, 1997,
changed its name back to "Norwest Funds." On October 1, 1995 the Trust also
changed the name of its various classes of shares as follows: Investor A class
was renamed A class ("A Shares"); Investor B class was renamed B class ("B
Shares"); Trust class was renamed I class ("I Shares"); and Advantage class,
also was renamed I Shares. [Class C Shares ___].
Each Fund's investment adviser is Norwest Investment Management, Inc.
("Norwest"), a subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank").
Norwest also is the investment adviser of each Core Portfolio. Norwest Bank, a
subsidiary of Norwest Corporation, serves as the Trust's transfer agent,
dividend disbursing agent and custodian.
Smith Asset Management Group, LP ("Smith") serves as investment subadviser of
Performa Smith Disciplined Growth Fund/ Disciplined Growth Portfolio and
Performa Smith Small Cap Value Fund/ Small Cap Value Portfolio.
Galliard Capital Management, Inc. ("Galliard") serves as investment subadviser
of Performa Galliard Strategic Value Bond Fund/Strategic Value Bond Portfolio.
____________________ ("_______") serves as investment subadviser of Performa
Large Cap Value Fund/Large Cap Value Portfolio.
Schroder Capital Management International Inc. ("Schroder") serves as investment
adviser to Global Growth Portfolio. Schroder also serves as an investment
subadviser of Performa Schroder Global Growth Fund.
Forum Financial Services, Inc. ("Forum"), a registered broker-dealer, serves as
the Trust's manager and as distributor of the Trust's shares. Forum
Administrative Services, Limited Liability Company ("FAS") serves as each Fund's
administrator.
As used in this SAI, the following terms shall have the meanings listed:
"Advisers" or "Investment Advisers" shall mean, collectively, Norwest and
Subadvisors.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Core Trust" shall mean Core Trust (Delaware), an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" shall mean the Board of Trustees of Core Trust.
"Custodian" shall mean Norwest acting in its capacity as custodian of a
Fund.
"FAS" shall mean Forum Administrative Services, Limited Liability Company,
the Trust's administrator.
"Fitch" shall mean Fitch Investors Service, L.P.
"Forum" shall mean Forum Financial Services, Inc., a registered
broker-dealer and distributor of the Trust's shares.
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"Forum Accounting" shall mean Forum Accounting Services, Limited Liability
Company, the Trust's fund accountant.
"Fund" shall mean each of the five separate portfolios of the Trust to
which this Statement of Additional Information relates as identified on the
cover page.
"Galliard" shall mean Galliard Capital Management, Inc., the investment
subadviser to Performa Galliard Strategic Value Bond Fund/Strategic Value
Bond Portfolio.
"Moody's" shall mean Moody's Investors Service, Inc.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary of
Norwest Bank Minnesota, N.A.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary of
Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Portfolio" shall mean, Disciplined Growth Portfolio, Small Cap Value
Portfolio, Large Cap Value Portfolio, Strategic Value Bond Portfolio and
Global Growth Portfolio five 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 and investment adviser to International Portfolio.
"Schroder Advisors" shall mean Schroder Fund Advisors Inc., the
administrator to Schroder U.S. Smaller Companies Portfolio.
"Schroder Core" shall mean Schroder Capital Funds, an open-end, management
investment company registered under the 1940 Act.
"Schroder Core Board" shall mean the Board of Trustees of Schroder Core.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's Rating Group.
"Stock Index Futures" shall mean futures contracts that relate to
broadly-based stock indices.
"Subadvisers or "Investment Subadvisers: shall mean, collectively, Galliard
Capital Management, Inc., Smith Asset Management Group, LP and
__________________________________.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as transfer
and dividend disbursing agent of the a Fund.
"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 U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
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"1940 Act" shall mean the Investment Company Act of 1940, as amended.
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning each Fund's investments, investment techniques and
strategies and the risks associated therewith (as well as those of the
Portfolio(s), which has the same investment objective and substantially similar
investment policies). Certain of the Funds are designed for investment of that
portion of an investor's funds which can appropriately bear the special risks
associated with certain types of investments (i.e., investment in smaller
capitalization companies). No Fund may make any investment or employ any
investment technique or strategy not referenced in the Prospectus which 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. References to the
investment policies and investment limitations of a Fund that invests all or a
portion of its investable assets in a Core Portfolio(s) refers to that Core
Portfolio(s) in which that Fund currently invests its assets.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
It should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, securities with the same maturity, interest
rate and rating may have different market prices. If an issue of securities
ceases to be rated or if its rating is reduced after it is purchased by a Fund
(neither event requiring sale of such security by a Fund - except in certain
cases with respect to the Money Market Funds), Norwest will determine whether
the Fund should continue to hold the obligation. To the extent that the ratings
given by a NRSRO may change as a result of changes in such organizations or
their rating systems, the Investment Adviser will attempt to substitute
comparable ratings. Credit ratings attempt to evaluate the safety of principal
and interest payments and do not evaluate the risks of fluctuations in market
value. Also, rating agencies may fail to make timely changes in credit ratings.
An issuer's current financial condition may be better or worse than a rating
indicates.
A Fund may purchase unrated securities if its 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. A Fund
may retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by its Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund.
[To limit credit risks, [_______]Portfolio may only invest in securities that
are investment grade (rated in the top four long-term investment grades by an
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 and BBB in the case
of S&P and 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. All 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.]
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES
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Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the money market
and other fixed income securities markets, the size of a particular offering,
the maturity of the obligation and the rating of the issue. Fixed income
securities with longer maturities tend to produce higher yields and are
generally subject to greater price movements than obligations with shorter
maturities. 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 will generally
reduce the market value of portfolio investments, and a decline in interest
rates will generally increase the value of portfolio investments.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal
issuers may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, each of the Funds may invest in
U.S. Government Securities. Agencies and instrumentalities which issue or
guarantee debt securities and which have been established or sponsored by the
United States government include the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal
Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association, the Small
Business Administration, the Government National Mortgage Association and the
Student Loan Marketing Association. Others are supported by the right of the
issuer to borrow from the Treasury; others are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and still
others are supported primarily or solely by the creditworthiness of the issuer.
No assurance can be given that the U.S. government would provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. Accordingly, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit. A Fund will invest in the obligations of such agencies or
instrumentalities only when Norwest believes that the credit risk with respect
thereto is consistent with the Fund's investment policies.
BANK OBLIGATIONS
Each Fund may, in accordance with the policies described in the Prospectus,
invest in obligations of financial institutions, including negotiable
certificates of deposit, bankers' acceptances and time deposits of U.S. banks
(including savings banks and savings associations), foreign branches of U.S.
banks, foreign banks and their non-U.S. branches (Eurodollars), U.S. branches
and agencies of foreign banks (Yankee dollars), and wholly-owned banking-related
subsidiaries of foreign banks. A Fund's investments in the obligations of
foreign banks and their branches, agencies or subsidiaries may be obligations of
the parent, of the issuing branch, agency or subsidiary, or both. Investments
in foreign bank obligations are limited to banks and branches located in
countries which the Fund's Adviser believes do not present undue risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are
payable at the stated maturity date and bear a fixed rate of interest, generally
may be withdrawn on demand by the Fund but may be subject to early withdrawal
penalties which vary depending
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upon market conditions and the remaining maturity of the obligation and could
reduce the Fund's yield. Although fixed-time deposits do not in all cases have
a secondary market, there are no contractual restrictions on the Fund's right to
transfer a beneficial interest in the deposits to third parties. Deposits
subject to early withdrawal penalties or that mature in more than seven days are
treated as illiquid securities if there is no readily available market for the
securities.
The Funds may invest in Eurodollar certificates of deposit, which are U.S.
dollar denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Yankee certificates of
deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank; and Canadian time deposits, which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks.
Investments that a Fund may make in instruments of foreign banks, branches or
subsidiaries may involve certain risks, including future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on such securities, the possible seizure or nationalization of
foreign deposits, differences from domestic banks in applicable accounting,
auditing and financial reporting standards, and the possible establishment of
exchange controls or other foreign governmental laws or restrictions applicable
to the payment of certificates of deposit or time deposits which might affect
adversely the payment of principal and interest on such securities held by the
Fund.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
Each Fund may assume a temporary defensive position and may invest without limit
in commercial paper that is rated in one of the two highest rating categories by
an NRSRO or, if not rated, determined by the Investment Adviser to be of
comparable quality. Certain Funds may invest in commercial paper as an
investment and not as a temporary defensive position. Except as noted below
with respect to variable master demand notes, issues of commercial paper
normally have maturities of less than nine months and fixed rates of return.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
GUARANTEED INVESTMENT CONTRACTS
Performa Galliard Strategic Value Bond Fund may invest in guaranteed investment
contracts ("GICs") issued by insurance companies. Pursuant to such contracts, a
Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the deposit fund on a
monthly basis guaranteed interest at a rate based on an index. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expense and
service costs allocable to it, and these charges will be deducted from the value
of the deposit fund. A Fund will purchase a GIC only when the Investment
Adviser has determined that the GIC presents minimal credit risks to the Fund
and is of comparable quality to instruments in which the Fund may otherwise
invest. Because a Fund may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, a GIC may be considered an
illiquid investment. The term of a GIC will be one year or less.
In determining the average weighted portfolio maturity of a Fund, a GIC will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate. The interest rate on a GIC may be
tied to a specified market index and is guaranteed not to be less than a certain
minimum rate.
ZERO COUPON SECURITIES
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Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. Accordingly, these securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Federal tax law requires that a Fund accrue a portion of the discount
at which a zero-coupon security was purchased as income each year even though
the Fund receives no interest payment in cash on the security during the year.
Interest on these securities, however, is reported as income by the Fund and
must be distributed to its shareholders. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Investment Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss.
Currently U.S. Treasury securities issued without coupons include Treasury bills
and separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). In addition, corporate debt securities may be zero coupon
securities. For the purpose solely of an investment policy of investing at
least 65% of a Fund's assets in U.S. Government Securities, such securities are
currently not deemed to be U.S. Government Securities but rather securities
issued by the bank or brokerage firm involved.
MUNICIPAL SECURITIES
Municipal securities are issued by the States, territories and possessions of
the United States, their political subdivisions (such as cities, counties and
towns) and various authorities (such as public housing or redevelopment
authorities), instrumentalities, public corporations and special districts (such
as water, sewer or sanitary districts) of the States, territories and
possessions of the United States or their political subdivisions. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds, that are backed only by the assets and revenues of the
non-governmental user (such as hospitals and airports).
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities are intended to fulfill the short-term capital needs of the
issuer and generally have maturities not exceeding one year. They include the
following: tax anticipation notes, revenue anticipation notes, bond
anticipation notes, construction loan notes and tax-exempt commercial paper. Tax
anticipation notes are issued to finance working capital needs of
municipalities, and are payable from various anticipated future seasonal tax
revenues, such as income, sales, use and business taxes. Revenue anticipation
notes are issued in expectation of receipt of other types of revenues, such as
federal revenues available under various federal revenue sharing programs. Bond
anticipation notes are issued to provide interim financing until long-term
financing can be arranged and are typically payable from proceeds of the
long-term bonds. Construction loan notes are sold to provide construction
financing. After successful completion and acceptance, many such projects
receive permanent financing through the Federal Housing Administration under the
Federal National Mortgage Association or the Government National Mortgage
Association. Tax-exempt commercial paper is a short-term obligation with a
stated maturity of 365 days or less. It is issued by agencies of state and
local governments to finance seasonal working capital needs or as short-term
financing in anticipation of longer term financing. Municipal notes also
include longer term issues that are remarketed to investors periodically,
usually at one year intervals or less.
MUNICIPAL BONDS. Municipal bonds meet longer term capital needs of a municipal
issuer and generally have maturities of more than one year when issued. General
obligation bonds are used to fund a wide range of public
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projects, including construction or improvement of schools, highways and roads,
and water and sewer systems. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount. Revenue bonds in
recent years have come to include an increasingly wide variety of types of
municipal obligations. As with other kinds of municipal obligations, the
issuers of revenue bonds may consist of virtually any form of state or local
governmental entity. Generally, revenue bonds are secured by the revenues or
net revenues derived from a particular facility, class of facilities, or, in
some cases, from the proceeds of a special excise or other specific revenue
source, but not from general tax revenues. Revenue bonds are issued to finance
a wide variety of capital projects including electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities; colleges
and universities; and hospitals. Many of these bonds are additionally secured
by a debt service reserve fund which can be used to make a limited number of
principal and interest payments should the pledged revenues be insufficient.
Various forms of credit enhancement, such as a bank letter of credit or
municipal bond insurance, may also be employed in revenue bond issues. Revenue
bonds issued by housing authorities may be secured in a number of ways,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated, as discussed below.
Private activity bonds are considered municipal bonds if the interest paid
thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, and health care and other
nonprofit or charitable purposes. These bonds are also used to finance public
facilities such as airports, mass transit systems and ports. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property as security for such payment.
While at one time the pertinent provisions of the Code permitted private
activity bonds to bear tax-exempt interest in connection with virtually any type
of commercial or industrial project (subject to various restrictions as to
authorized costs, size limitations, state per capita volume restrictions, and
other matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of a organization described in Section 501(c)(3) of the Code, rental
multi-family housing facilities, airports, docks and wharves, mass commuting
facilities and solid waste disposal projects, among others, and for the
tax-exempt refinancing) of various kinds of other private commercial projects
originally financed with tax-exempt bonds. In future years, the types of
projects qualifying under the Code for tax-exempt financing are expected to
become increasingly limited.
Because of terminology formerly used in the Internal Revenue Code, virtually any
form of private activity bond may still be referred to as an "industrial
development bond," but more and more frequently revenue bonds have become
classified according to the particular type of facility being financed, such as
hospital revenue bonds, nursing home revenue bonds, multifamily housing revenues
bonds, single family housing revenue bonds, industrial development revenue
bonds, solid waste resource recovery revenue bonds, and so on.
OTHER MUNICIPAL OBLIGATIONS. Other municipal obligations, incurred for a
variety of financing purposes, include municipal leases, which may take the form
of a lease or an installment purchase or conditional sale contract. Municipal
leases are entered into by state and local governments and authorities to
acquire a wide variety of equipment and facilities such as fire and sanitation
vehicles, telecommunications equipment and other capital assets. Municipal
leases frequently have special risks not normally associated with general
obligation or revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased asset to pass
eventually to the government issuer) have evolved as a means for governmental
issuers to acquire property and equipment without being required to meet the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has
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no obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis.
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to
(i) whether the interest is or is not includable in the calculation of
alternative minimum taxes imposed on individuals and corporations, (ii) whether
the costs of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions, and (iii) other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of the Code and
related requirements governing the issuance of tax-exempt bonds, industry
practice has uniformly required as a condition to the issuance of such bonds,
but particularly for revenue bonds, an opinion of nationally recognized bond
counsel as to the tax-exempt status of interest on the bonds.
PUTS AND STANDBY COMMITMENTS ON MUNICIPAL SECURITIES. The Funds may acquire
"puts" with respect to municipal securities. A put gives the Fund the right to
sell the municipal security at a specified price at any time on or before a
specified date. The Funds may sell, transfer or assign a put only in
conjunction with its sale, transfer or assignment of the underlying security or
securities. The amount payable to a Fund upon its exercise of a "put" is
normally (i) the Fund's acquisition cost of the municipal securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
Puts may be acquired by the Funds to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of a Fund's assets
at a rate of return more favorable than that of the underlying security. The
Funds expect that they will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Funds may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities). The Funds intend to enter into puts only with dealers, banks
and broker-dealers which, in Norwest's opinion, present minimal credit risks.
Puts may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of a Fund's assets.
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 the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to
permit 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 are
determined to present minimal credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When a Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.
VARIABLE AND FLOATING RATE SECURITIES
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The securities in which the Funds invest (including municipal securities or
mortgage- and asset-backed securities, as applicable) 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 accordingly to a specified formula, usually with reference
to one or more interest rate indices or market interest rates (the "underlying
index"). The interest paid on these securities is a function primarily of the
underlying index upon which the interest rate adjustments are based. 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 or mortgage-backed 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 any particular floating or
variable rate instruments (particularly inverse floaters and similar
instruments) 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.
Each Fund's investment adviser monitors the liquidity of the Funds' investment
in variable and floating rate instruments, but there can be no guarantee that an
active secondary market will exist.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain
securities purchased by the Funds may be guaranteed by letters of credit or
other credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a municipal security meets
the Funds' investment quality requirements.
Variable rate obligations purchased by the Funds may include participation
interests in variable rate obligations purchased by the Funds from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Funds can exercise
the right, on not more than thirty days' notice, to sell such an instrument back
to the bank from which it purchased the instrument and draw on the letter of
credit for all or any part of the principal amount of a Fund's participation
interest in the instrument, plus accrued interest, but will do so only (i) as
required to provide liquidity to a Fund, (ii) to maintain a high quality
investment portfolio, or (iii) upon a default under the terms of the demand
instrument. Banks and other financial institutions retain portions of the
interest paid on such variable rate obligations as their fees for servicing such
instruments and the issuance of related letters of credit, guarantees and
repurchase commitments.
The Funds will not purchase participation interests in variable rate obligations
unless it is advised by counsel or receives a ruling of the Internal Revenue
Service that interest earned by the Funds from the obligations in which it holds
participation interests is exempt from Federal income tax. The Internal Revenue
Service has announced that it ordinarily will not issue advance rulings on
certain of the Federal income tax consequences applicable to securities, or
participation interests therein, subject to a put. Each Fund's investment
adviser monitors the pricing, quality and liquidity of variable rate demand
obligations and participation interests therein held by the Fund on the basis of
published financial information, rating agency reports and other research
services to which the Investment Adviser may subscribe.
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 such securities only when the Fund's
investment adviser believes the interest income from the instrument justifies
any principal risks associated with the instrument. A Fund may attempt to limit
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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 a Fund will be able to limit principal fluctuations and,
accordingly, a Fund may incur losses on those securities even if held to
maturity without issuer default.
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.
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.
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
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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 securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand,
if rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount
to their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as
the notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Fund may receive less cash back than
it initially invested.
INTEREST RATE PROTECTION TRANSACTIONS
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.
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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, are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
Each Fund may (i) purchase or sell (write) put and call options on securities to
enhance the Fund's performance and (ii) seek to hedge against a decline in the
value of securities owned by it or an increase in the price of securities which
it plans to purchase through the writing and purchase of exchange-traded and
over-the-counter options on individual securities or securities or financial
indices and through the purchase and sale of financial futures contracts and
related options. Certain Funds currently do no not intend to enter into any
such transactions. Whether or not used for hedging purposes, these investments
techniques involve risks that are different in certain respects from the
investment risks associated with the other investments of a Fund. Principal
among such risks are: (a) the possible failure of such instruments as hedging
techniques in cases where the price movements of the securities underlying the
options or futures do not follow the price movements of the portfolio securities
subject to the hedge; (b) potentially unlimited loss associated with futures
transactions and the possible lack of a liquid secondary market for closing out
a futures position; and (c) possible losses resulting from the inability of the
Portfolio's investment adviser to correctly predict the direction of stock
prices, interest rates and other economic factors. To the extent a Fund invests
in foreign securities, it may also invest in options on foreign currencies,
foreign currency futures contracts and options on those futures contracts. Use
of these instruments is subject to regulation by the SEC, the several options
and futures exchanges upon which options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their option income and hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities, currencies or
other options or futures positions whose values are expected to offset ("cover")
its obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it to an obligation to another party unless it owns either (i) an
offsetting ("covered") position or (ii) cash, U.S. Government Securities or
other liquid securities (or other assets as may be permitted by the SEC) with a
value sufficient at all times to cover its potential obligations. When required
by applicable regulatory guidelines, the Funds will set aside cash, U.S.
Government Securities or other liquid securities (or other assets as may be
permitted by the SEC) in a segregated account with its custodian in the
prescribed amount. Any assets used for cover or held in a segregated account
cannot be sold or closed out while the hedging or option income strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of a Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of currency to the writer of the option on or before a fixed
date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
currency on or before a fixed date, at a predetermined price. The predetermined
prices may be higher or lower than the market value of the underlying currency.
A Fund may buy or sell both exchange-
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traded and over-the-counter ("OTC") options. A Fund will purchase or write an
option only if that option is traded on a recognized U.S. options exchange or if
the 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 currency
underlying the option. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as the loss of the expected benefit of
the transaction. OTC options and the securities underlying these options
currently are treated as illiquid securities by the Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon certain
factors, including the market price of the underlying securities, index or
currency, the relationship of the exercise price to the market price, the
historical price volatility of the underlying assets, the option period, supply
and demand and interest rates.
Certain Funds may purchase call options on debt securities that Norwest intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. A Fund may similarly purchase put options
in order to hedge against a decline in market value of securities held in its
portfolio. The put enables the Fund to sell the underlying security at the
predetermined exercise price; thus the potential for loss to the Fund is limited
to the option premium paid. If the market price of the underlying security is
lower than the exercise price of the put, any profit the Fund realizes on the
sale of the security would be reduced by the premium paid for the put option
less any amount for which the put may be sold.
An 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.
Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities which are being hedged. Index options are settled
exclusively in cash.
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 "Hedging and Option Income
Strategies -- Options Strategies" and "Foreign Currency 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, a Fund may be disadvantaged
by having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
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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 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.
(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will fail to
perform its obligations, in which case the Fund could be worse off than if the
contract had not been entered into.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
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A Fund may purchase call options on a futures contract as a means of obtaining
temporary exposure to market appreciation at limited risk. This strategy is
analogous to the purchase of a call option on an individual security, in that it
can be used as a temporary substitute for a position in the security itself.
A Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, a Fund may sell foreign currency futures contracts when its
Investment Adviser anticipates a general weakening of foreign currency exchange
rates that could adversely affect the market values of the Fund's foreign
securities holdings. A Fund may purchase a foreign currency futures contract to
hedge against an anticipated foreign exchange rate increase pending completion
of anticipated transactions. Such a purchase would serve as a temporary measure
to protect the Fund against such increase. A Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. A Fund may write call options on foreign currency futures
contracts as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Fund is
required to deposit (typically with its custodian in a segregated account in the
name of the futures broker) an amount of cash or U.S. Government Securities
generally equal to 5% or less of the contract value. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the futures position
varies. When writing a call on a futures contract, variation margin must be
deposited in accordance with applicable exchange rules. The initial margin in
futures transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In that event, it may not be possible for a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options will
depend upon the Investment Adviser's ability to predict movements in the
direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the future; thus, for example, trading of stock index futures may not reflect
the trading of the securities which are used to formulate an index or even
actual fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions in the
futures market or otherwise. There may be several reasons unrelated to the value
of the underlying currencies which causes this situation to occur. As a result,
a correct forecast of general market trends may still not result in successful
hedging through the use of futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited life.
A Fund will not trade options on futures contracts on any exchange or board of
trade unless and until, in Norwest's opinion, the market for such options
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has developed sufficiently that the risks in connection with options on futures
transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. In addition, settlement of foreign currency
futures contracts must occur within the country issuing that currency. Thus, a
Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Fund may
be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section a Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margin and premiums required to establish such positions would exceed 5%
of the Fund's net assets.
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 pending the completion of certain investment programs.
Accordingly, the value of the assets of a Fund, as measured in U.S. dollars,
may be affected by changes in foreign currency exchange rates and exchange
control regulations. In addition, the Fund may incur costs in connection with
conversions between various currencies. 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.
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Second, a Fund may enter into forward 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 investment securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Advisers do
not intend to enter into forward contracts on a regular or continuous basis and
will not do so if, as a result, a Fund will have more than 25 percent of the
value of its total assets committed to such contracts or the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's investment securities or other assets denominated in that
currency.
At or before the settlement of a forward contract, a Fund may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency.
The Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, it will realize a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign
currencies is a global around-the-clock market.
When required by applicable regulatory guidelines, a Fund will set aside cash,
U.S. Government Securities or other liquid assets in a segregated account with
its custodian in the prescribed amount.
EQUITY SECURITIES AND ADDITIONAL INFORMATION
COMMON STOCK 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 general, 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 regional securities exchange and may not be
traded every day or in the volume typical of securities trading on a national
securities exchange. As a result, disposition by a 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 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.
CONVERTIBLE SECURITIES
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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
Equity-linked securities are securities that are convertible into or based upon
the value of, equity securities upon certain terms and conditions. The following
are three examples of equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are 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 either at any time or when the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS' duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Fund may be
compensated with a substantially higher dividend yield than that on the
underlying common stock. Funds that seek current income find PERCS attractive
because a PERCS provides a higher dividend income than that paid with respect to
a company's common stock.
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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
A warrant is an option to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. The price of warrants does not necessarily
move parallel to the prices of the underlying securities. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. Unlike convertible securities and preferred stocks,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for the resale of the
warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised. To the extent that the market
value of the security that may be purchased upon exercise of the warrant rises
above the exercise price, the value of the warrant will tend to rise. To the
extent that the exercise price equals or exceeds the market value of such
security, the warrants will have little or no market value. If a warrant is not
exercised within the specified time period, it will become worthless and the
Fund will lose the purchase price paid for the warrant and the right to purchase
the underlying security.
HIGH YIELD/JUNK BONDS
Securities rated less than Baa by Moody's or BBB by S&P are classified as
non-investment grade securities and are considered speculative by those rating
agencies. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield/high risk securities market in
the 1980's had paralleled a long economic expansion, many issuers subsequently
have been affected by adverse economic and market conditions. It should be
recognized that an economic downturn or increase in interest rates is likely to
have a negative effect on (i) the high yield bond market, (ii) the value of high
yield/high risk securities and (iii) the ability of the securities' issuers to
service their principal and interest payment obligations, to meet their
projected business goals or to obtain additional financing. In addition, the
market for high yield/high risk securities, which is concentrated in relatively
few market makers, may not be as liquid as the market for investment grade
securities. Under adverse market or economic conditions, the market for high
yield/high risk securities could
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contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, the Fund could find it more difficult to
sell these securities or may be able to sell the securities only at prices lower
than if such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may be less
than the prices used in calculating the Fund's net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
the Fund may have to use subjective rather than objective criteria to value its
high yield/high risk securities investments accurately and rely more heavily on
the judgment of the Fund's investment adviser.
Prices for high yield/high risk securities also may be affected by legislative
and regulatory developments. For example, Congress has considered legislation
to restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. These laws could adversely affect the Fund's net asset value and
investment practices, the market for high yield/high risk securities, the
financial condition of issuers of these securities and the value of outstanding
high yield/high risk securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, Schroder may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Portfolio experiences unexpected net
redemptions, Schroder may be forced to sell the Portfolio's higher rated
securities, resulting in a decline in the overall credit quality of the
Portfolio's portfolio and increasing the exposure of the Portfolio to the risks
of high yield/high risk securities.
ILLIQUID 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 1933 Act ("restricted
securities"), 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 which are otherwise not readily marketable and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements not entitling the holder to repayment within seven days.
The Board and, in the case of the Portfolios, the Core Trust Board, has the
ultimate responsibility for determining whether specific securities are liquid
or illiquid and has delegated the function of making day-to-day determinations
of liquidity to the Investment Adviser of each Fund, pursuant to guidelines
approved by the applicable board. The Investment Advisers take into account a
number of factors in reaching liquidity decisions, including but not limited to:
(1) the frequency of trades and quotations for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to undertake to make a market
in the security; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. The Investment Advisers monitor the liquidity of the
securities held by each Fund and report periodically on such decisions to the
Board or Core Trust Board, as applicable.
In connection with the Portfolio's original purchase of restricted securities,
it may negotiate rights with the issuer to have such securities registered for
sale at a later time. Further, the expenses of registration of restricted
securities that are illiquid may also be negotiated by the Portfolio with the
issuer at the time such securities are purchased by the Portfolio. When
registration is required, however, a considerable period may elapse between a
decision to sell the securities and the time the Portfolio would be permitted to
sell such securities. A similar delay might be experienced in attempting to
sell such securities pursuant to an exemption from registration. Thus, the
Portfolio may not be able to obtain as favorable a price as that prevailing at
the time of the decision to sell.
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.
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A institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on the issuer's ability to honor a demand for
repayment of the unregistered security. A security's contractual or legal
restrictions on resale to the general public or to certain institutions may not
be indicative of the liquidity of the security. If such securities are eligible
for purchase by institutional buyers in accordance with Rule 144A under the 1933
Act under guidelines adopted by the Board or the Core Trust Board, the
Investment Advisers may determine that such securities are not illiquid
securities. These guidelines take into account trading activity in the
securities and the availability of reliable pricing information, 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.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities subject to the restrictions stated
in its Prospectus. Under applicable regulatory requirements (which are subject
to change), the loan collateral must, on each business day, at least equal the
market value of the loaned securities and must consist of cash, bank letters of
credit, U.S. Government securities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to
the Fund. In a portfolio securities lending transaction, the Fund receives from
the borrower an amount equal to the interest paid or the dividends declared on
the loaned securities during the term of the loan as well as the interest on the
collateral securities, less any finders' or administrative fees the Fund pays in
arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower as long as it realizes at least a
minimum amount of interest required by the lending guidelines established by the
Trust's Board of Trustees. The Fund will not lend its portfolio securities to
any officer, director, employee or affiliate of the Fund or an Adviser. The
terms of the Portfolio's loans must meet certain tests under the Internal
Revenue Code and permit the Portfolio to reacquire loaned securities on five
business days' notice or in time to vote on any important matter.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
Each Fund may borrow money for temporary or emergency purposes, including the
meeting of redemption requests, in amounts up to 33 1/3 percent of the Fund's
total assets. Borrowing involves special risk considerations. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds (or on the assets
that were retained rather than sold to meet the needs for which funds were
borrowed). Under adverse market conditions, a Fund might have to sell portfolio
securities to meet interest or principal payments at a time when investment
considerations would not favor such sales. Except as otherwise noted, no Fund
may purchase securities for investment while any borrowing equaling five percent
or more of the Fund's total assets is outstanding or borrow for purposes other
than meeting redemptions in an amount exceeding five percent of the value of the
Fund's total assets. A Fund's use of borrowed proceeds to make investments
would subject the Fund to the risks of leveraging. Reverse repurchase
agreements, short sales not against the box, dollar roll transactions and other
similar investments that involve a form of leverage have characteristics similar
to borrowings but are not considered borrowings if the Fund maintains a
segregated account.
OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. Certain 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. 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 Norwest
believes that the leveraging and the returns available to the Fund from
investing the cash will provide shareholders a potentially higher return.
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Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the investment the Fund has invested. Leverage creates the risk of
magnified capital losses which occur when losses affect an asset base, enlarged
by borrowings or the creation of liabilities, that exceeds the equity base of
the Fund. Leverage may involve the creation of a liability that requires the
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as 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 and maintain in a segregated account cash, U.S.
Government Securities (or other assets as may be permitted by the SEC) in
accordance with SEC guidelines. The account's value, which is marked to market
daily, will be at least equal to the Fund's commitments under these
transactions. The Fund's commitments include the Fund's obligations to
repurchase securities under a reverse repurchase agreement and settle
when-issued and forward commitment transactions.
MARGIN AND SHORT SALES
Certain Funds may enter into short sales as described in the prospectus of that
Fund. The Funds may make short sales of securities against the box. A short
sale is "against the box" to the extent that while the short position is open,
the Fund must own an equal amount of the securities sold short, or by virtue of
ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may be made to defer, for Federal income tax purposes,
recognition of gain or loss on the sale of securities "in the box" until the
short position is closed out. Prohibitions on entering short sales other than
against the box does not restrict a Fund's ability to use short-term credits
necessary for the clearance of portfolio transactions and to make margin
deposits in connection with permitted transactions in options and futures
contracts.
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 the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the
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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 TRANSACTIONS
Certain Funds may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a Fund with payment and delivery to take place in
the future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time it enters into the transaction. In those cases,
the purchase price and the interest rate payable on the securities are fixed on
the transaction date and delivery and payment may take place a month or more
after the date of the transaction. When a Fund enters into a delayed delivery
transaction, it becomes obligated to purchase securities and it has all of the
rights and risks attendant to ownership of the security, although delivery and
payment occur at a later date. To facilitate such acquisitions, the Fund will
maintain with its custodian a separate account with portfolio securities in an
amount at least equal to such commitments.
At the time a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value. The value of the fixed income securities to be delivered in
the future will fluctuate as interest rates and the credit of the underlying
issuer vary. On delivery dates for such transactions, the Fund will meet its
obligations from maturities, sales of the securities held in the separate
account or from other available sources of cash. A Fund generally has the
ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If a Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent a Fund engages in when-issued or delayed delivery transactions, it
will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. A Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to dispose of the right to acquire these securities before the
settlement date if deemed advisable.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. If an
Investment Adviser were to forecast incorrectly the direction of interest rate
movements, however, a Fund might be required to complete when-issued or forward
transactions at prices inferior to the current market values. When-issued
securities and forward commitments may be sold prior to the settlement date, but
a Fund enters into when-issued and forward commitments only with the intention
of actually receiving or delivering the securities, as the case may be. In some
instances, the third-party seller of when-issued or forward commitment
securities may determine prior to the settlement date that it will be unable to
meet its existing transaction commitments without borrowing securities. If
advantageous from a yield perspective, a Fund may, in that event, agree to
resell its purchase commitment to the third-party seller at the current market
price on the date of sale and concurrently enter into another purchase
commitment for such securities at a later date. As an inducement for a Fund to
"roll over" its purchase commitment, the Fund may receive a negotiated fee.
When-issued securities may include bonds purchased on a "when, as and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Any significant commitment of a Fund's assets to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of the Fund's net asset value. For purposes of the Funds' investment
policies, the purchase of securities with a settlement date occurring on a
Public Securities Association approved settlement date is considered a normal
delivery and not a when-issued or forward commitment purchase.
REPURCHASE AGREEMENTS
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The Funds may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. In a typical repurchase agreement, the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed-upon time and price. The repurchase price
exceeds the sale price, reflecting an agreed-upon interest rate effective for
the period the buyer owns the security subject to repurchase. The agreed-upon
rate is unrelated to the interest rate on that security. The Adviser will
monitor the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
ensure that the value of the security always equals or exceeds the repurchase
price (including accrued interest). In the event of default by the seller under
the repurchase agreement, the Portfolio may have difficulties in exercising its
rights to the underlying securities and may incur costs and experience time
delays in connection with the disposition of such securities. To evaluate
potential risks, the Adviser reviews the credit-worthiness of those banks and
dealers with which the Portfolio enters into repurchase agreements.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve book-entry system.
Repurchase agreements are considered to be loans by a Fund for certain purposes
under the 1940 Act.
TEMPORARY DEFENSIVE POSITION
When a Fund, in accordance with the policies described in the Prospectus,
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, except in the case of
International Fund total assets in excess of one billion dollars and that are
insured by the Federal Deposit Insurance Corporation, (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 investment 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.
Each of the Funds invest all of their investable assets in a separate portfolio
(each a "Core Portfolio") of a registered, open-end, management investment
company that has the same investment objective and substantially similar
investment policies. Accordingly, the investment experience of each of these
Funds will correspond directly with the investment experience of its respective
Core Portfolio.
The expenses of each Fund that invest in one or more Core Portfolios include the
Fund's pro rata share of the expenses of the Core Portfolios in which the Fund
invests, which are borne indirectly by the Fund's shareholders.
2. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of the
Fund, (i) the term 1940 Act includes the rules thereunder, SEC interpretations
and any exemptive order upon which the Fund may rely and (ii) the term Code
includes the rules thereunder, IRS interpretations and any private letter ruling
or similar authority upon which the Fund may rely.
The Fund has adopted the investment policies listed in this section which are
nonfundamental policies unless otherwise noted. Except for its investment
objective, which is fundamental, the Fund has not adopted any fundamental
policies except as required by the 1940 Act.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy cannot be changed without the affirmative vote of the
lesser of (i) more than 50% of the outstanding shares of the Fund or (ii) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented.
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FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund. Reference to the Funds includes reference to the Core
Portfolio in which each Fund invests, which has the same fundamental policies as
the Fund.
(1) DIVERSIFICATION
No Fund may, with respect to 75% of its assets, purchase a security
(other than a U.S. Government Security or a security of an investment
company) if, as a result: (i) more than 5% of the 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.
2. INDUSTRY CONCENTRATION
No Fund may purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same industry.
For purposes of this limitation, there is no limit on: (i) investments
in U.S. Government securities, in repurchase agreements covering U.S.
Government Securities, in securities issued by the states, territories
or possessions of the United States ("municipal securities") or in
foreign government securities or (ii) investment in issuers domiciled
in a single jurisdiction. Notwithstanding anything to the contrary,
to the extent permitted by the 1940 Act, each Fund may invest in one
or more investment companies; provided that, except to the extent the
Fund invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Fund treats the assets of the
investment companies in which it invests as its own for purposes of
this policy.
For purposes of this policy (i) "mortgage related securities," as that
term is defined in the 1934 Act, are treated as securities of an
issuer in the industry of the primary type of asset backing the
security, (ii) financial service companies are classified according to
the end users of their services (for example, automobile finance, bank
finance and diversified finance) and (iii) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
3. BORROWING
No Fund may borrow money if, as a result, outstanding borrowings would
exceed an amount equal to 33 1/3% of the Fund's total assets.
4. REAL ESTATE
No Fund may purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business).
5. LENDING
No Fund may make loans to other parties. For purposes of this
limitation, entering into repurchase agreements, lending securities
and acquiring any debt security are not deemed to be the making of
loans.
No Fund may lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to 33 1/3% of the Fund's total
assets.
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6. COMMODITIES
No Fund may purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities).
7. UNDERWRITING
No Fund may underwrite (as that term is defined in the 1933 Act)
securities issued by other persons except, to the extent that in
connection with the disposition of the Fund's assets, the Fund may be
deemed to be an underwriter.
8. SENIOR SECURITIES
No Fund may issue senior securities except to the extent permitted by
the 1940 Act.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund. Reference to each of the Funds includes
reference to each Fund's corresponding Core Portfolio which has the same
policies as the Fund. These policies may be changed by the Board, or in the case
of a Core Portfolio, the Core Trust Board.
(1) BORROWING
For purposes of the limitation on borrowing, the following are not
treated as borrowings to the extent they are fully collateralized: (i)
the delayed delivery of purchased securities (such as the purchase of
when-issued securities), (ii) reverse repurchase agreements, (iii)
dollar-roll transactions and (iv) the lending of securities ("leverage
transactions").
2. LIQUIDITY
No Fund may invest more than 15% of its net assets in illiquid assets
such as: (i) securities that cannot be disposed of within seven days
at their then-current value, (ii) repurchase agreements not entitling
the holder to payment of principal within seven days and (iii)
securities subject to restrictions on the sale of the securities to
the public without registration under the 1933 Act ("restricted
securities") that are not readily marketable. Each Fund may treat
certain restricted securities as liquid pursuant to guidelines adopted
by the Board of Trustees.
3. EXERCISING CONTROL OF ISSUERS
No Fund may make investments for the purpose of exercising control of
an issuer. Investments by a Fund in entities created under the laws of
foreign countries solely to facilitate investment in securities in
that country will not be deemed the making of investments for the
purpose of exercising control.
4. SHORT SALES AND PURCHASING ON MARGIN
No Fund may sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short (short sales "against the box"), and provided that transactions
in futures contracts and options are not deemed to constitute selling
securities short.
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No Fund may purchase securities on margin, except that a Fund may use
short-term credit for the clearance of the Fund's transactions, and
provided that initial and variation margin payments in connection with
futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
5. OPTIONS, WARRANTS AND FUTURES CONTRACTS
No Fund may invest in futures or options contracts regulated by the
CFTC for (i) bona fide hedging purposes within the meaning of the
rules of the CFTC and (ii) for other purposes if, as a result, no more
than 5% of the Fund's net assets would be invested in initial margin
and premiums (excluding amounts "in-the-money") required to establish
the contracts.
No Fund (i) will hedge more than [50%] of its total assets by selling
futures contracts, buying put options, and writing call options (so
called "short positions"), (ii) will buy futures contracts or write
put options whose underlying value exceeds [25%] of the Fund's total
assets, and (iii) will buy call options with a value exceeding [5%] of
the Fund's total assets.
4. PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements, sales
literature, shareholder reports or other communications to shareholders or
prospective investors. All performance information supplied by the Funds is
historical and is not intended to indicate future returns. 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"). The
Funds may also compare any of their performance information with the performance
of recognized stock, bond and other indexes, including but not limited to the
Municipal Bond Buyers Indices, the Salomon Brothers Bond Index, Shearson Lehman
Bond Index, the Standard & Poor's 500 Composite Stock Price Index, Russell 2000
Index, Morgan Stanley - Europe, Australian and Far East Index, Lehman Brothers
Intermediate Government Index, Lehman Brothers Intermediate Government/Corporate
Index, the Dow Jones Industrial Average, U.S. Treasury bonds, bills or notes and
changes in the Consumer Price Index as published by the U.S. Department of
Commerce. The Funds may refer to general market performances over past time
periods such as those published by Ibbotson Associates (for instance, its
"Stocks, Bonds, Bills and Inflation Yearbook"). In addition, the Funds may also
refer in such materials to mutual fund performance rankings and other data
published by Fund Tracking Companies. Performance advertising may also refer to
discussions of the Funds' and comparative mutual fund data and ratings reported
in independent periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge
their customers, various retirement plans or other shareholders that invest in a
Fund fees in connection with an investment in a Fund, which will have the effect
of reducing the Fund's net yield to those shareholders. The yields of a Fund
are not fixed or guaranteed, and an investment in a Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of a Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it
may not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
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<PAGE>
FIXED INCOME AND EQUITY FUNDS
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's interest income (in accordance with specific standardized rules) for a
given 30 days or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income in accordance with specific
standardized rules) in order to arrive at an annual percentage rate. In
general, interest income is reduced with respect to municipal securities
purchased at a premium over their par value by subtracting a portion of the
premium from income on a daily basis. In general, interest income is increased
with respect to municipal securities purchased at original issue at a discount
by adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from these calculations.
The standardized tax equivalent yield is the rate an investor would have to earn
from a fully taxable investment in order to equal a Fund's yield after taxes.
Tax equivalent yields are calculated by dividing the Fund's yield by one minus
the stated Federal or combined Federal and state tax rate. If a portion of a
Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, any change in the Fund's net asset value per
share over the period and maximum sales charge, if any, applicable to purchases
of the Fund's shares. Average annual total returns are calculated, through the
use of a formula prescribed by the SEC, by determining the growth or decline in
value of a hypothetical historical investment in a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years. The
average annual total return is computed separately for each class of shares of a
Fund. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at
the beginning of the applicable period
In addition to average annual returns, 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
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<PAGE>
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
CORE-GATEWAY PERFORMANCE
When a Fund such as Performa Smith Disciplined Growth Fund (a "Gateway fund")
invests all of its investable assets in another investment company such as
Disciplined Growth Portfolio (a "Core fund"), special performance calculation
rules apply. For instance, if a Gateway fund invests in a Core fund that has a
performance history prior to the investment by the Gateway fund, the Gateway
fund will assume the performance history of the Core fund. That history will not
be restated to reflect the internal expense ratio of the Gateway fund. However,
a Core fund's performance will be restated to reflect any sales charges that are
applicable to the Gateway fund's shares.
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 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. Any performance information may be presented
numerically or in a table, graph or similar illustration.
The Funds may also include various information in their advertisements
including, but not limited to (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
principal of dollar cost averaging, (vii) descriptions of the Funds' portfolio
managers and the portfolio management staff of the Investment 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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<PAGE>
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
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 Average Total
Invested $600 Price $15.17 Shares 41.81
With respect to the Funds that invest in municipal securities and distribute
Federally tax-exempt (and in certain cases state tax exempt) dividends, the
Funds may advertise the benefits of and other effects of investing in municipal
securities. For instance, the Funds' advertisements may note that municipal
bonds have historically offered higher after tax yields than comparable taxable
alternatives for those persons in the higher tax brackets, that municipal bond
yields may tend to outpace inflation and that changes in tax law have eliminated
many of the tax advantages of other investments. The combined Federal and state
income tax rates for a particular state may also be described and advertisements
may indicate equivalent taxable and tax-free yields at various approximate
combined marginal Federal and state tax bracket rates. All yields so advertised
are for illustration only are not necessarily representative of a Fund's yield.
In connection with its advertisements each Fund may provide "shareholders
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has for more than 60 years been
committed to quality products and outstanding service to assist its customers in
meeting their financial goals and setting forth the reasons that Norwest
believes that it has been successful as a national financial service firm.
CORE-GATEWAY PERFORMANCE
When a Fund such as International Fund (a "Gateway fund") invests all of its
investable assets in another investment company such as International Portfolio
(a "Core fund"), special performance calculation rules apply. For instance, if
a Gateway fund invests in a Core fund that has a performance history prior to
the investment by the Gateway fund, the Gateway fund will assume the performance
history of the Core fund. That history will not be restated to reflect the
internal expense ratio of the Gateway fund. However, a Core fund's performance
will be restated to reflect any sales charges that are applicable to the Gateway
fund's shares.
5. MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or certain non-banking affiliates of
Norwest.
TRUSTEES AND OFFICERS
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TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years and age as of May 31, 1997 are set forth below. Each
Trustee who is an "interested person" (as defined by the 1940 Act) of the Trust
is indicated by an asterisk.
John Y. Keffer, Chairman and President,* Age 54.
President and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability Company (a
mutual fund administrator), Forum Financial Corp. (a registered transfer
agent), and other companies within the Forum Financial Group of companies.
Mr. Keffer is a Director, Trustee and/or officer of various registered
investment companies for which Forum Financial Services, Inc. or its
affiliates serves as manager, administrator or distributor. His address is
Two Portland Square, Portland, Maine 04101.
Robert C. Brown, Trustee,* Age 65.
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corporation since February 1993. Prior
thereto, he was Manager of Capital Markets Group, Norwest Corporation (a
multi-bank holding company and parent of Norwest), until 1991. His address
is 1431 Landings Place, Sarasota, Florida 34231.
Donald H. Burkhardt, Trustee, Age 70.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
James C. Harris, Trustee, Age 76.
President and sole Director of James C. Harris & Co., Inc. (a financial
consulting firm). Mr. Harris is also a liquidating trustee and former
Director of First Midwest Corporation (a small business investment
company). His address is 6950 France Avenue South, Minneapolis, Minnesota
55435.
Richard M. Leach, Trustee, Age 63.
President of Richard M. Leach Associates (a financial consulting firm)
since 1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor
Investments (a registered investment adviser), a Director of Mountainview
Broadcasting (a radio station) and Managing Director of Digital Techniques,
Inc. (an interactive video design and manufacturing company). His address
is P.O. Box 1888, New London, New Hampshire 03257.
John S. McCune, Trustee, Age 46.
President, Norwest Investment Services, Inc. His address is 608 2nd Avenue
South, Minneapolis, Minnesota 55479.
Timothy J. Penny, Trustee, Age 45.
Senior Counselor to the public relations firm of Himle-Horner since January
1995 and Senior Fellow at the Humphrey Institute, Minneapolis, Minnesota (a
public policy organization) since January 1995. Prior thereto Mr. Penny
was the Representative to the United States Congress from Minnesota's First
Congressional District. His address is 500 North State Street, Waseca,
Minnesota 56095.
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<PAGE>
Donald C. Willeke, Trustee, Age 56.
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
Robert Campbell, Treasurer, Age 35.
Director of Fund Accounting, Forum Financial Services, Inc., with which he
has been associated since April 1997. Prior thereto, from February 1994 -
April 1996 Mr. Campbell was Vice President-Business Unit Head, Domestic
Fund Services at State Street Fund Services, Inc. Prior thereto, from
September 1992 - January 1994 Mr. Campbell was Assistant Vice
President-Fund Manager at State Street Bank & Trust Company, and prior
thereto First Line Manager. His address is Two Portland Square, Portland,
Maine 04101.
David I. Goldstein, Vice President and Secretary, Age 35.
Managing Director and Counsel, Forum Financial Services, Inc., with which
he has been associated since 1991. Mr. Goldstein is also an officer of
various registered investment companies for which Forum Financial Services,
Inc. serves as manager, administrator and/or distributor. His address is
Two Portland Square, Portland, Maine 04101.
Sara M. Clark, Vice President and Assistant Treasurer, Age 33.
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, Age 42.
Managing Director and Counsel, Forum Financial Services, Inc., with which
he has been associated since 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr. Sheehan
is also an officer of various registered investment companies for which
Forum Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
Catherine S. Wooledge, Assistant Secretary, Age 54.
Counsel, Forum Financial Services, Inc., with which she has been associated
since 1996. Prior thereto, Ms. Wooledge was an associate at the law firm
of Morrison & Foerster since September 1994, prior thereto Ms. Wooledge was
an associate corporate counsel at Franklin Resources, Inc. since September
1993, and prior thereto associate at the law firm of Drinker Biddle &
Reath, Washington, D.C. Ms. Wooledge 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.
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<PAGE>
Don L. Evans, Assistant Secretary, Age 48.
Assistant Counsel, Forum Financial Services, Inc., with which he has been
associated since 1995. Prior thereto, Mr. Evans was associated with the
law firm of Bisk & Lutz and prior thereto was associated with the law firm
of Weiner & Strother. Mr. Evans is also an officer of various registered
investment companies for which Forum Financial Services, Inc. serves as
manager, administrator and/or distributor. His address is Two Portland
Square, Portland, Maine.
Renee A. Walker, Assistant Secretary, Age 27.
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 from 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 OF THE TRUST
Each Trustee of the Trust is paid a retainer fee in the total amount of $5,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication) and is paid $1,000 for each Committee meeting attended on a date
when a Board meeting is not held. Trustees are also reimbursed for travel and
related expenses incurred in attending meetings of the Board. Mr. Keffer
received no compensation for his services as Trustee for the past year or
compensation or reimbursement for his associated expenses. In addition, no
officer of the Trust is compensated by the Trust.
Mr. Burkhardt, Chairman of the Trust's and Norwest Select Funds' audit
committees, receives additional compensation of $6,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each
Trustee was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1996, which was the fiscal year end of all of the
Trust's portfolios.
Total Compensation From
Total Compensation the Trust and Norwest
from the Trust Select Funds
-------------- ------------
Mr. Brown $28,974 $29,000
Mr. Burkhardt $36,223 $36,250
Mr. Harris $27,975 $28,000
Mr. Leach $32,970 $33,000
Mr. Penny $15,985 $16,000
Mr. Willeke $29,973 $30,000
Mr. McCune $0 $0
Neither the Trust nor Norwest Select Funds has adopted any form of retirement
plan covering Trustees or officers. For the twelve month period ended May 31,
1996 total expenses of the Trustees (other than Mr. Keffer) was $30,408 and
total expenses of the trustees of Norwest Select Funds was $27.
As of October 1, 1997, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Funds.
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TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer, Goldstein, Butt, Sheehan, and Misses. Clark and
Walker, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Management - Trustees and Officers - Trustees and Officers of the Trust."
John Y. Keffer,* Chairman and President.
Costas Azariadis, Trustee, Age 53.
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
James C. Cheng, Trustee, Age 54.
Managing Director, Forum Financial Services, Inc. since September 1991.
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is Two Portland Square, Portland, Maine
04101.
J. Michael Parish, Trustee, Age 53.
Partner at the law firm of Reid & Priest. Prior thereto he was a partner
at the law firm of Winthrop Stimson Putnam & Roberts since 1989. His
address is 40 Wall Street, New York, New York 10005.
Richard C. Butt, Treasurer
CPA, Managing Director, Operations, Forum Financial Corp. since 1996.
Prior thereto, Mr. Butt was a consultant in the financial services
division of KPMG Peat Marwick LLP ("KPMG"). Prior to his employment at
KPMG, Mr. Butt was President of 440 Financial Distributors, Inc., the
distribution subsidiary of 440 Financial Group, and Senior Vice President
of the parent company. Prior thereto, he was a Vice President at
Fidelity Services Company. Mr. Butt is responsible for fund accounting and
transfer agency at Forum. His address is Two Portland Square, Portland,
Maine 04101.
Sara M. Clark, Vice President, Assistant Secretary and Assistant Treasurer.
David I. Goldstein, Secretary.
Thomas G. Sheehan, Assistant Secretary.
Renee A. Walker, Assistant Secretary
TRUSTEES AND OFFICERS OF SCHRODER CORE
The following information relates to the principal occupations of each Trustee
and executive officer of the Schroder Core during the past five years and shows
the nature of any affiliation with Schroder. Messrs. Keffer, Goldstein and
Sheehan and Ms. Wooledge, officers of Schroder Core, 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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Peter E. Guernsey, Oyster Bay, New York - Trustee of the Trust - Insurance
Consultant since August 1986; prior thereto Senior Vice President, Marsh &
McLennan, Inc., insurance brokers.
John I. Howell, Greenwich, Connecticut - Trustee of the Trust - Private
Consultant since February 1987; Honorary Director, American International Group,
Inc.; Director, American International Life Assurance Company of New York.
Clarence F. Michalis, 44 East 64th Street, New York, New York - Trustee of the
Trust - Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation).
Hermann C. Schwab, 787 Seventh Avenue, New York, New York - Chairman (Honorary)
and Trustee of the Trust - retired since March, 1988; prior thereto, consultant
to SCMI since February 1, 1984.
Mark J. Smith (b), 33 Gutter Lane, London, England - President and Trustee of
the Trust - First Vice President of SCMI since April 1990; Director and Vice
President, Schroder Advisors.
Robert G. Davy, 787 Seventh Avenue, New York, New York - a Vice President of the
Trust - Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of Schroders plc in various positions in the
investment research and portfolio management areas since 1986.
Margaret H. Douglas-Hamilton (b) (c), 787 Seventh Avenue, New York, New York -
Vice President of the Trust - Secretary of SCM since July 1995; Secretary of
Schroder Advisors since April 1990; First Vice President and General Counsel of
Schroders Incorporated(b) since May 1987; prior thereto, partner of Sullivan &
Worcester, a law firm.
Richard R. Foulkes, 787 Seventh Avenue, New York, New York - a Vice President of
the Trust; Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd. since 1989.
Catherine S. Wooledge, Assistant Treasurer and Assistant Secretary of the Trust.
Barbara Gottlieb (c), 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust - Assistant Vice President of SWIS since July 1995 prior
thereto held various positions with SWIS affiliates.
Robert Jackowitz (b) (c), 787 Seventh Avenue, New York, New York - Treasurer of
the Trust - Vice President of SCM since September 1995; Treasurer of SCM and
Schroder Advisors since July 1995; Vice President of SCMI since June 1995; and
Assistant Treasurer of Schroders Incorporated since January 1993.
John Y. Keffer, Vice President of the Trust.
Jane P. Lucas (c), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Director and Senior Vice President SCMI; Director of SCM since
September 1995; Assistant Director Schroder Investment Management Ltd. since
June 1991.
Gerardo Machado, 787 Seventh Avenue, New York, New York - Assistant Secretary of
the Trust - Associate, SCMI.
Catherine A. Mazza, 787 Seventh Avenue, New York, New York - Vice President of
the Trust - President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
Thomas G. Sheehan, Assistant Treasurer and Assistant Secretary of the Trust.
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Fariba Talebi, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - First Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987.
John A. Troiano (b), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Managing Director and Senior Vice President of SCMI since October
1995; Director of Schroder Advisors since October 1992; Director of SCMI since
1991; prior thereto, employed by various affiliates of SCMI in various positions
in the investment research and portfolio management areas since 1981.
Ira L. Unschuld, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993; prior to July, 1990, employed by various financial
institutions as a securities or financial analyst.
Alexandra Poe, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust - Vice President of SCMI since August 1996; Fund Counsel
and Senior Vice President of Schroder Advisors since August 1996; prior thereto
an investment management attorney with Gordon Altman Butowsky Weitzen Shalov &
Wein since July 1994; prior thereto counsel and Vice President of Citibank, N.A.
since 1989.
Mary Kunkemueller, 787 Seventh Avenue, New York, New York - Assistant Secretary
of the Trust.
(a) Interested Trustee of the Trust within the meaning of the 1940 Act.
(b) Schroder Advisors is a wholly owned subsidiary of SCMI, which is a wholly
owned subsidiary of Schroders Incorporated, which in turn is an indirect,
wholly owned U.S. subsidiary of Schroders plc.
(c) Schroder Capital Management, Inc. ("SCM") is a wholly owned subsidiary of
Schroder Wertheim Holdings Incorporated which is a wholly owned subsidiary
of Schroders, Incorporated, which in turn is an indirect wholly owned U.S.
subsidiary of Schroders plc.
INVESTMENT ADVISORY SERVICES
GENERAL
The advisory fee for each Fund is based on the average daily net assets of the
Fund at the annual rate disclosed in the Fund's prospectus. If the Fund invests
in one or more core portfolios, the advisory fee paid by the Fund will be with
respect to advisory services rendered at the portfolio level.
All investment advisory fees are accrued daily and paid monthly. Each
investment adviser, in its sole discretion, may waive or continue to waive all
or any portion of its investment advisory fees.
In addition to receiving its advisory fee from the Funds, each investment
adviser or its affiliates may act and be compensated as investment manager for
its clients with respect to assets which are invested in a Fund. In some
instances Norwest or its affiliates may elect to credit against any investment
management, custodial or other fee received from, or rebate to, a client who is
also a shareholder in a Fund an amount equal to all or a portion of the fees
received by Norwest or any of its affiliates from a Fund with respect to the
client's assets invested in the Fund.
NORWEST INVESTMENT MANAGEMENT
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund. For further information about the
investment subadvisory services for certain Funds and the advisory services for
International Portfolio of Core Trust, see "Management - Investment Advisory
Services - Schroder Capital Management International, Inc.,""- Sub-Advisers,"
Crestone Capital Management, Inc.," "Galliard Capital Management, Inc.,"
"Peregrine Capital Management, Inc.," and "United Capital Management, Inc."
below. Under its various Investment Advisory Agreements, Norwest may delegate
its responsibilities to any investment subadviser approved by the Board and, as
applicable, shareholders, with respect to all or a portion of the assets of the
Fund. The Investment Advisory
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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, and in either case, by a majority of the Trustees who are
not interested persons of any party to the Investment Advisory Agreement, at a
meeting called for the purpose of voting on the Investment Advisory Agreement.
Each Investment Advisory Agreement is terminable without penalty with respect to
the Fund on 60 days' written notice (i) by the Board or by a vote of a majority
of the outstanding voting securities of the Fund to the Adviser or (ii) by the
Adviser on 60 days' written notice to the Trust. Each Investment Advisory
Agreement shall terminate upon assignment. The Investment Advisory Agreements
also provide that, with respect to the Funds, neither Norwest nor its personnel
shall be liable for any mistake of judgment or in any event whatsoever, except
for lack of good faith, provided that nothing in the Investment Advisory
Agreements shall be deemed to protect, or purport to protect, the Adviser
against liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of Norwest's duties or by reason of reckless
disregard of its obligations and duties under the Investment Advisory
Agreements. The Investment Advisory Agreements provide that Norwest may render
services to others.
Norwest acts as investment adviser to Cash Investment Fund, Ready Cash
Investment Fund, U.S. Government Fund, Treasury Fund, Municipal Money Market
Fund, Stable Income Fund, Intermediate Government Income Fund, Diversified Bond
Fund, Income Fund, Total Return Bond Fund, Limited Term Tax-Free Fund, Tax-Free
Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, Conservative
Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund, Index Fund, Income
Equity Fund, ValuGrowthSM Stock Fund, Diversified Equity Fund, Growth Equity
Fund, Large Company Growth Fund, Small Company Stock Fund, Small Company Growth
Fund, Small Cap Opportunities Fund, Contrarian Stock Fund and International
Fund. The investment advisory agreements between Core Trust on behalf of the
portfolios are identical to the Investment Advisory Agreements between the Trust
and Norwest, except for the fees payable thereunder and certain immaterial
matters.
SUB-ADVISERS
The Adviser pays a fee to each of the subadvisers. These fees do not increase
the fees paid by shareholders of the Funds. The amount of the fees paid by
Norwest to each Subadviser may vary from time to time as a result of periodic
negotiations with the Subadviser regarding such matters as the nature and extent
of the services (other than investment selection and order placement activities)
provided by the Subadviser to the Fund, the increased cost and complexity of
providing services to the Fund, the investment record of the Subadviser in
managing the Fund and the nature and magnitude of the expenses incurred by the
Subadviser in managing the Fund's assets and by the Adviser in overseeing and
administering management of the Fund. However, the contractual fee payable to
each Fund by Norwest for investment advisory services will not vary as a result
of those negotiations.
Norwest performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Norwest will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with the Fund's fundamental investment objectives and policies, authorizing
Subadvisers to engage in certain investment techniques for the Fund, and
recommending to the Board of Trustees whether sub-advisory agreements should be
renewed, modified or terminated. Norwest also may from time to time recommend
that the Board of Trustees replace one or more Subadvisers or appoint additional
Subadvisers, depending on the Adviser's assessment of what combination of
Subadvisers it believes will optimize each Fund's chances of achieving its
investment objectives.
GALLIARD
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Stable Income Fund, Diversified Bond Fund, Conservative Balanced
Fund, Moderate Balanced Fund and Growth Balanced Fund (the "Funds"), Norwest has
entered into an Investment Subadvisory Agreement with Galliard, located at 800
LaSalle Avenue, Suite 2060, Minneapolis, Minnesota 55479. Galliard is registered
with the SEC as an investment
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adviser and is an investment advisory subsidiary of Norwest Bank. Pursuant to
the Sub-Investment Advisory Agreement, Galliard makes investment decisions for
each of the Funds and continuously reviews, supervises and administers each
Fund's investment program with respect to that portion, if any, of the Fund's
portfolio that Norwest believes should be invested using Galliard as a
subadviser. Currently, Galliard manages the entire portfolio of each Fund and
has done so since the Fund's inception. Norwest supervises the performance of
Galliard including its adherence to the Portfolio's investment objectives and
policies and pays Galliard a fee for its investment management services. [As of
June 1, 1997, for its services under the Sub-Investment Advisory Agreement,
Norwest pays Galliard a fee based on each Fund's average daily net assets at an
annual rate of _____%.]
Under its Investment Subadvisory Agreement, Galliard 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 Fund's portfolio
for which Norwest has delegated management responsibility. Galliard is required
to furnish at its own expense all services, facilities and personnel necessary
in connection with managing of each Fund's investments and effecting portfolio
transactions for each Fund (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually (i) by the Board or by
vote of a majority of the outstanding voting securities of the Funds, and, in
either case, (ii) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements; provided further, however, that
if the Investment Subadvisory Agreement or the continuation of the Agreement is
not approved, the Subadviser may continue to render to each Fund the services
described in the Investment Subadvisory Agreement in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Fund on 60 days' written notice when authorized either by majority vote of
the Fund's shareholders or by the Board, or by Galliard on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to each Fund, neither Galliard nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect Galliard against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Galliard's duties or by reason of reckless disregard of its obligations and
duties under the Investment Subadvisory Agreement. The Investment Subadvisory
Agreements provides that Galliard may render services to others.
SMITH
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Stable Income Fund, Diversified Bond Fund, Conservative Balanced
Fund, Moderate Balanced Fund and Growth Balanced Fund (the "Funds"), Norwest has
entered into an Investment Subadvisory Agreement with Galliard, located at 800
LaSalle Avenue, Suite 2060, Minneapolis, Minnesota 55479. Galliard is registered
with the SEC as an investment adviser and is an investment advisory subsidiary
of Norwest Bank. Pursuant to the Sub-Investment Advisory Agreement, Galliard
makes investment decisions for each of the Funds and continuously reviews,
supervises and administers each Fund's investment program with respect to that
portion, if any, of the Fund's portfolio that Norwest believes should be
invested using Galliard as a subadviser. Currently, Galliard manages the entire
portfolio of each Fund and has done so since the Fund's inception. Norwest
supervises the performance of Galliard including its adherence to the
Portfolio's investment objectives and policies and pays Galliard a fee for its
investment management services. [As of June 1, 1997, for its services under the
Sub-Investment Advisory Agreement, Norwest pays Galliard a fee based on each
Fund's average daily net assets at an annual rate of _____%.]
Under its Investment Subadvisory Agreement, Galliard 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 Fund's portfolio
for which Norwest has delegated management responsibility. Galliard is required
to furnish at its own expense all services, facilities and personnel necessary
in connection with managing of each Fund's investments and effecting portfolio
transactions for each Fund (to the extent of Norwest's delegation).
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The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually (i) by the Board or by
vote of a majority of the outstanding voting securities of the Funds, and, in
either case, (ii) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements; provided further, however, that
if the Investment Subadvisory Agreement or the continuation of the Agreement is
not approved, the Subadviser may continue to render to each Fund the services
described in the Investment Subadvisory Agreement in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Fund on 60 days' written notice when authorized either by majority vote of
the Fund's shareholders or by the Board, or by Galliard on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to each Fund, neither Galliard nor its personnel shall be liable for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing shall be deemed to protect Galliard against liability by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Galliard's duties or by reason of reckless disregard of its obligations and
duties under the Investment Subadvisory Agreement. The Investment Subadvisory
Agreements provides that Galliard may render services to others.
3RD ADVISER
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Stable Income Fund, Diversified Bond Fund, Conservative Balanced
Fund, Moderate Balanced Fund and Growth Balanced Fund (the "Funds"), Norwest has
entered into an Investment Subadvisory Agreement with Galliard, located at 800
LaSalle Avenue, Suite 2060, Minneapolis, Minnesota 55479. Galliard is registered
with the SEC as an investment adviser and is an investment advisory subsidiary
of Norwest Bank. Pursuant to the Sub-Investment Advisory Agreement, Galliard
makes investment decisions for each of the Funds and continuously reviews,
supervises and administers each Fund's investment program with respect to that
portion, if any, of the Fund's portfolio that Norwest believes should be
invested using Galliard as a subadviser. Currently, Galliard manages the entire
portfolio of each Fund and has done so since the Fund's inception. Norwest
supervises the performance of Galliard including its adherence to the
Portfolio's investment objectives and policies and pays Galliard a fee for its
investment management services. [As of June 1, 1997, for its services under the
Sub-Investment Advisory Agreement, Norwest pays Galliard a fee based on each
Fund's average daily net assets at an annual rate of _____%.]
Under its Investment Subadvisory Agreement, Galliard 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 Fund's portfolio
for which Norwest has delegated management responsibility. Galliard is required
to furnish at its own expense all services, facilities and personnel necessary
in connection with managing of each Fund's investments and effecting portfolio
transactions for each Fund (to the extent of Norwest's delegation).
The Investment Subadvisory Agreement will continue in effect only if such
continuance is specifically approved at least annually (i) by the Board or by
vote of a majority of the outstanding voting securities of the Funds, and, in
either case, (ii) by a majority of the Trust's trustees who are not parties to
the Investment Subadvisory Agreement or interested persons of any such party
(other than as trustees of the Trust), at a meeting called for the purpose of
voting on the Investment Subadvisory Agreements; provided further, however, that
if the Investment Subadvisory Agreement or the continuation of the Agreement is
not approved, the Subadviser may continue to render to each Fund the services
described in the Investment Subadvisory Agreement in the manner and to the
extent permitted by the Act and the rules and regulations thereunder.
The Investment Subadvisory Agreement is terminable without penalty with respect
to a Fund on 60 days' written notice when authorized either by majority vote of
the Fund's shareholders or by the Board, or by Galliard on 60 days written
notice to the Trust, and will automatically terminate in the event of its
assignment. The Investment Subadvisory Agreement also provides that, with
respect to each Fund, neither Galliard nor its personnel shall be
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liable for any mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing shall be deemed to protect Galliard against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of Galliard's duties or by reason of reckless disregard of its
obligations and duties under the Investment Subadvisory Agreement. The
Investment Subadvisory Agreements provides that Galliard may render services to
others.
MANAGEMENT AND ADMINISTRATIVE SERVICES
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of FAS, Norwest, any other investment
adviser or investment subadviser to a Fund, or Norwest in its capacity as
administrator pursuant to an investment administration or similar agreement.
With respect to each Fund, Forum has entered into a Management Agreement that
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by the shareholders and, in either case, by a
majority of the Trustees who are not interested persons of any party to the
Management Agreement.
On behalf of the Trust and with respect to each Fund, Forum (i) oversees (A) the
preparation and maintenance by the Advisers and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (B) the reconciliation of
account information and balances among the Advisers and the Trust's custodian,
transfer agent, dividend disbursing agent and fund accountant; (C) the
transmission of purchase and redemption orders for Shares; (D) the notification
of the Advisers of available funds for investment; and (E) the performance of
fund accounting, including the calculation of the net asset value per Share;
(ii) oversees the Trust's receipt of the services of persons competent to
perform such supervisory, administrative and clerical functions as are necessary
to provide effective operation of the Trust; (iii) oversees the performance of
administrative and professional services rendered to the Trust by others,
including its administrator, custodian, transfer agent, dividend disbursing
agent and fund accountant, as well as accounting, auditing, legal and other
services performed for the Trust; (iv) provides the Trust with adequate general
office space and facilities and provides, at the Trust's request and expense,
persons suitable to the Board to serve as officers of the Trust; (v) oversees
the preparation and the printing of the periodic updating of the Trust's
registration statement, Prospectuses and SAIs, the Trust's tax returns, and
reports to its shareholders, the SEC and state and other securities
administrators; (vi) oversees the preparation of proxy and information
statements and any other communications to shareholders; (vii) with the
cooperation of the Trust's counsel, Investment Advisers and other relevant
parties, oversees the preparation and dissemination of materials for meetings of
the Board; (viii) oversees the preparation, filing and maintenance of the
Trust's governing documents, including the Trust Instrument, Bylaws and minutes
of meetings of Trustees, Board committees and shareholders; (ix) oversees
registration and sale of Fund shares, to ensure that such shares are properly
and duly registered with the SEC and applicable state and other securities
commissions; (x) oversees the calculation of performance data for dissemination
to information services covering the investment company industry, sales
literature of the Trust and other appropriate purposes; (xi) oversees the
determination of the amount of and supervises the declaration of dividends and
other distributions to shareholders as necessary to, among other things,
maintain the qualification of each Fund as a regulated investment company under
the Internal Revenue Code of 1986, as amended, and oversees the preparation and
distribution to appropriate parties of notices announcing the declaration of
dividends and other distributions to shareholders; (xii) reviews and negotiates
on behalf of the Trust normal course of business contracts and agreements;
(xiii) maintains and reviews periodically the Trust's fidelity bond and errors
and omission insurance coverage; and (xiv) advises the Trust and the Board on
matters concerning the Trust and its affairs.
The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that neither Forum nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of
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the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of Forum's or their duties or by reason of reckless disregard of
their obligations and duties under the Management Agreement.
FAS manages all aspects of the Trust's operations with respect to each Fund
except those which are the responsibility of Forum, Norwest, or any other
investment adviser or investment subadviser to a Fund, or Norwest in its
capacity as administrator pursuant to an investment administration or similar
agreement. With respect to each Fund, Forum has entered into a Administrative
Agreement that will continue in effect only if such continuance is specifically
approved at least annually by the Board or by the shareholders and, in either
case, by a majority of the Trustees who are not interested persons of any party
to the Management Agreement.
On behalf of the Trust and with respect to each Fund, FAS (i) provides the Trust
with, or arranges for the provision of, the services of persons competent to
perform such supervisory, administrative and clerical functions as are necessary
to provide effective operation of the Trust; (ii) assists in the preparation and
the printing and the periodic updating of the Trust's registration statement,
Prospectuses and SAIs, the Trust's tax returns, and reports to its shareholders,
the SEC and state and other securities administrators; (iii) assists in the
preparation of proxy and information statements and any other communications to
shareholders; (iv) assists the Advisers in monitoring Fund holdings for
compliance with Prospectus and SAI investment restrictions and assist in
preparation of periodic compliance reports; (v) with the cooperation of the
Trust's counsel, the Investment Advisers, the officers of the Trust and other
relevant parties, is responsible for the preparation and dissemination of
materials for meetings of the Board; (vi) is responsible for preparing, filing
and maintaining the Trust's governing documents, including the Trust Instrument,
Bylaws and minutes of meetings of Trustees, Board committees and shareholders;
(vii) is responsible for maintaining the Trust's existence and good standing
under state law; (viii) monitors sales of shares and ensures that such shares
are properly and duly registered with the SEC and applicable state and other
securities commissions; (ix) is responsible for the calculation of performance
data for dissemination to information services covering the investment company
industry, sales literature of the Trust and other appropriate purposes; and (x)
is responsible for the determination of the amount of and supervises the
declaration of dividends and other distributions to shareholders as necessary
to, among other things, maintain the qualification of each Fund as a regulated
investment company under the Code, as amended, and prepares and distributes to
appropriate parties notices announcing the declaration of dividends and other
distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Agreement also provides that neither FAS nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of FAS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administrative Agreement.
Pursuant to their agreements with the Trust, Forum and FAS may subcontract any
or all of their duties to one or more qualified subadministrators who agree to
comply with the terms of Forum's Management Agreement or FAS's Administration
Agreement, respectively. Forum and FAS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAS pursuant to their Management and
Administration Agreements with the Trust.
PORTFOLIOS OF CORE TRUST
Forum manages all aspects of Core Trust's operations with respect to the
portfolios except those which are the responsibility of Norwest or Schroder.
With respect to each Portfolio, Forum has entered into a management agreement
(the "Core Trust Management Agreement") that will continue in effect only if
such continuance is specifically approved at least annually by the Core Trust
Board or by the shareholders and, in either case, by a majority of the Trustees
who are not interested persons of any party to the Core Trust Management
Agreement. Under the Core Trust Management Agreement, Forum performs similar
services for each Portfolio as it and FAS perform under the Management and
Administration Agreements, to the extent the services are applicable to the
Portfolios and their structure.
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NORWEST ADMINISTRATIVE SERVICES
Under an Administrative Servicing Agreement between the Trust and Norwest with
respect to certain funds, Norwest performs ministerial, administrative and
oversight functions for the Funds and undertakes to reimburse certain excess
expenses of the Funds. Among other things, Norwest gathers performance and
other data from Schroder as the adviser of certain Portfolios and from other
sources, formats the data and prepares reports to the Funds' shareholders and
the Trustees. Norwest also ensures that Schroder is aware of pending net
purchases or redemptions of each Fund's shares and other matters that may affect
Schroder's performance of its duties. Lastly, Norwest has agreed to reimburse
each Fund for any amounts by which its operating expenses (exclusive of
interest, taxes and brokerage fees, organization expenses and, if applicable,
distribution expenses, all to the extent permitted by applicable state law or
regulation) exceed the limits prescribed by any state in which the Funds' shares
are qualified for sale. [ No fees will be paid to Norwest under the
Administrative Servicing Agreement unless the each of the Fund's assets are
invested a portfolio of another registered investment company.] This agreement
will continue in effect only if such continuance is specifically approved at
least annually by the Board or by the shareholders and, in either case, by a
majority of the Trustees who are not parties to the Management Agreement or
interested persons of any such party.
The Administrative Service Agreement provides that neither Norwest nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the performance of its or their duties to the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's or their duties or by reason of reckless disregard of its or their
obligations and duties under the agreement.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of shares of the Funds on a
"best efforts" basis pursuant to a Distribution Services Agreement.
Under the Distribution Services Agreement, the Trust has agreed to indemnify,
defend and hold Forum, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Forum or any such controlling person may incur,
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in the Trust's
Registration Statement or a Fund's Prospectus or Statement of Additional
Information in effect from time to time under the 1933 Act or arising out of or
based upon any alleged omission to state a material fact required to be stated
in any one thereof or necessary to make the statements in any one thereof not
misleading. Forum is not, however, protected against any liability to the Trust
or its shareholders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Forum's reckless disregard of its obligations and duties
under the Distribution Services Agreement.
With respect to each Fund, the Distribution Services Agreement will continue in
effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the Distribution Services Agreement or
interested persons of any such party and, with respect to each class of a Fund
for which there is an effective plan of distribution adopted pursuant to Rule
12b-1, who do not have any direct or indirect financial interest in any
distribution plan of the Fund or in any agreement related to the distribution
plan cast in person at a meeting called for the purpose of voting on such
approval ("12b-1 Trustees").
The Distribution Services Agreement terminates automatically if assigned. With
respect to each Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty (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
12b-1 Trustees, on 60 days' written notice to Forum or (ii) by Forum on 60 days'
written notice to the Trust.
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Under the Distribution Services Agreement related to the Funds that offer A
Shares, Forum receives, and may reallow to certain financial institutions, the
initial sales charges assessed on purchases of A Shares of the Funds. With
respect to B Shares of each Fund that offers B Shares, and with respect to
Exchange Shares of Ready Cash Investment Fund, the Funds have adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") which
authorizes the payment to Forum under the Distribution Services Agreement of a
distribution services fee, 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 and Exchange 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 the 12b-1 trustees. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments to the Plan must be approved by the trustees in the manner
described in the preceding sentence. The Plan may be terminated at any time by
a vote of the Board or by the shareholders of the respective classes.
The Plan is "semi-enhanced" in that under the circumstances described below,
payments to Forum under the Plan continue while there are uncovered distribution
charges even though the Plan has been terminated. Uncovered distribution
charges include all sales commissions previously due, plus interest, less
amounts previously received by Forum (or other distributor) pursuant to the Plan
and contingent deferred sales charges previously paid to Forum. The Plan
provides that in the event of a Complete Termination (as defined below) of the
Plan with respect to a Fund, payments by a Fund in consideration of sales of B
Shares that occurred prior to termination of the Plan will cease. A Complete
Termination in respect of any Fund means: (i) the 12b-1 Trustees acting in good
faith have determined that termination is in the best interest of the Trust and
the shareholders of the Fund; (ii) the Trust does not alter the terms of the
CDSC applicable to the B Shares of the Fund outstanding at the time of the
termination; (iii) the Trust does not pay any portion of the asset based sales
charge or service fees to an entity other than the distributor or its assignee
(unless the distributor at the time of the termination was in material breach
under the Distribution Agreement in respect of the Fund); and (iv) the Fund does
not adopt a distribution plan relating to a class of shares of the Fund that has
a sales load structure substantially similar (as defined in the Plan) to that of
the B shares.
[In the event of a termination of the Plan that does not satisfy clauses (ii),
(iii) and (iv) of the definition of a Complete Termination above, certain funds
would continue to pay distribution services fees for no more than four years.
In contrast, payments by other funds would continue until such time as there
exist no outstanding uncovered distribution charges attributable to the Fund
and, therefore, could continue for periods of time beyond four years after the
date of termination.]
[In addition, pursuant to the Plan, each of certain funds may, subject to
approval by the Trustees, assume and pay (i) any uncovered distribution charges
of the distributor of a fund whose assets are being acquired by the Fund and
(ii) any other amounts expended for distribution on behalf of such fund that are
not reimbursed or paid by the fund upon the merger or combination with or
acquisition of substantially all of the assets of that fund.]
TRANSFER AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as
Transfer Agent of the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
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The responsibilities of the Transfer Agent include: (i) 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; (ii) assisting shareholders in initiating and changing
account designations and addresses; (iii) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records, (iv)
assisting in processing purchase and redemption transactions and receiving wired
funds; (v) transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; (vi) verifying shareholder signatures in
connection with changes in the registration of shareholder accounts; (vii)
furnishing periodic statements and confirmations of purchases and redemptions;
(viii) transmitting proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (ix) receiving, tabulating
and transmitting to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and (x) providing such other related
services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives a fee computed daily and paid
monthly from the Trust, with respect to each Fund, at an annual rate of 0.25% of
the Fund's average daily net assets attributable to each class of the Fund.
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as each Fund's and each Core Portfolio's
(other than Schroder U.S. Smaller Companies Portfolio's) custodian (in this
capacity the "Custodian"). The Chase Manhattan Bank, N.A., acts as custodian
for Schroder U.S. Smaller Companies Portfolio, but plays no role in making
decisions as to the purchase or sale of portfolio securities. The Custodian's
responsibilities include safeguarding and controlling the Trust's cash and
securities, determining income and collecting interest on Fund investments. The
fee is computed and paid monthly, based on the average daily net assets of the
Fund, the number of portfolio transactions of the Fund and the number of
securities in the Fund's portfolio.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets.
The Custodian employs qualified foreign subcustodians to provide custody of the
Funds foreign assets in accordance with applicable regulations.
No Fund will pay custodian fees to the extent the Fund invests in shares of
another registered investment company. Each Fund so invested incurs, however,
its proportionate share of the custodial fees of the Core Portfolio(s) in which
it invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for each Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
[Under the Fund Accounting Agreement, Forum Accounting prepares and maintains
books and records of each Fund on behalf of the Trust that are required to be
maintained under the 1940 Act, calculates the net asset value per share of each
Fund (and class thereof) and dividends and capital gain distributions and
prepares periodic reports to shareholders and the SEC. For its services, Forum
Accounting receives from the Trust with respect to each Fund a fee of $3,000 per
month plus for each additional class of the Fund above one $1,000 per month. In
addition, Forum Accounting is paid additional surcharges for each of the
following: (i) Funds with asset levels exceeding $100
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million - $500/month, Funds with asset levels exceeding $250 million -
$1000/month, Funds with asset levels exceeding $500 million - $1,500/month,
Funds with asset levels exceeding $1,000 million - $2,000/month (ii) Funds
requiring international custody - $1,000/month, (iii) Funds with more than 30
international positions - $1,000/month, (iv) Tax free money market Funds -
$1,000/month, (v) Funds with more than 25% of net assets invested in asset
backed securities - $1,000/month, Funds with more than 50% of net assets
invested in asset backed securities - $2,000/month, (vii) Funds with more than
100 security positions - $1,000/month and (viii) Funds with a monthly portfolio
turnover rate of 10% or greater - $1,000/month.]
[Forum Accounting receives from the Trust with respect to each Gateway Fund a
standard gateway fee of $1,000 per month plus for each additional class of the
Fund above one - $1,000 per month. Forum Accounting also receives a fee of
$2,000 per month for each Gateway Fund operating pursuant to (i) Section
12(d)(1)(E) of the 1940 Act that invests in more than one security. In addition
to the standard gateway fees, Forum Accounting is entitled to receive from the
Trust with respect to each Gateway Fund operating pursuant to Section
12(d)(1)(H) of the 1940 Act additional surcharges as described above if the Fund
invests in securities other than investment companies (calculated as if the
securities were the Fund's only assets)]
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1997. On January 1, 1998, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the Trust to
reflect changes in the Consumer Price Index for the preceding calendar year, as
published by the U.S. Department of Labor, Bureau of Labor Statistics. Forum
shall notify the Trust each year of the new rates, if applicable.
Forum Accounting is required to use its best judgment and efforts in rendering
fund accounting services and is not be liable to the Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to a Fund or based, if applicable, upon information, instructions or requests
with respect to a Fund given or made to Forum Accounting by an officer of the
Trust duly authorized. This indemnification does not apply to Forum
Accounting's actions taken or failures to act in cases of Forum Accounting's own
bad faith, willful misconduct or gross negligence.
Forum Accounting performs similar services for the Portfolios and, in addition,
acts as the Portfolios' transfer agent.
EXPENSES
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(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 Norwest, Forum or affiliated persons of Norwest or
Forum; (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 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
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to any distribution or shareholder service plan adopted pursuant to Rule 12b-1
under the Act.
6. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the
Funds, relates equally to the Portfolios.
Purchases and sales of portfolio securities for Fixed Income Funds usually are
principal transactions. Debt instruments are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. The Funds
generally will effect purchases and sales of equity securities through brokers
who charge commissions except in the over-the-counter markets. Purchases of
debt and equity securities from underwriters of the securities include a
disclosed fixed commission or concession paid by the issuer to the underwriter,
and purchases from dealers serving as market makers include the spread between
the bid and asked price. In the case of debt securities and equity securities
traded in the foreign and domestic over-the-counter markets, there is generally
no stated commission, but the price usually includes an undisclosed commission
or markup. Allocations of transactions to brokers and dealers and the frequency
of transactions are determined by the Advisers in their best judgment and in a
manner deemed to be in the best interest of shareholders of each Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund. In
transactions on stock exchanges in the United States, commissions are
negotiated, whereas on foreign stock exchanges commissions are generally fixed.
Where transactions are executed in the over-the-counter market, each Fund will
seek to deal with the primary market makers; but when necessary in order to
obtain best execution, they will utilize the services of others. In all cases
the Funds will attempt to negotiate best execution.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, each of the Board, Core Trust Board and Schroder Core Board has
authorized the Investment Advisers to employ their respective affiliates to
effect securities transactions of the Funds or the Portfolios, provided certain
other conditions are satisfied. Payment of brokerage commissions to an
affiliate of an Investment Adviser for effecting such transactions is subject to
Section 17(e) of the 1940 Act, which requires, among other things, that
commissions for transactions on securities exchanges paid by a registered
investment company to a broker which is an affiliated person of such investment
company, or an affiliated person of another person so affiliated, not exceed the
usual and customary brokers' commissions for such transactions. It is the
Fund's policy that commissions paid to Schroder Securities Limited, Norwest
Investment Services, Inc. ("NISI") and other affiliates of an Investment Adviser
will, in the judgment of the Investment 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
disinterested Trustees, has adopted procedures to ensure that commissions paid
to affiliates of an Adviser by the Funds satisfy the foregoing standards. The
Core Trust and Schroder Core Boards have adopted similar policies with respect
to the Portfolios.
No Fund has an understanding or arrangement to direct any specific portion of
its brokerage to an affiliate of an Investment Adviser, and will not direct
brokerage to an affiliate of an Investment Adviser in recognition of research
services.
From time to time, a Fund may purchase securities of a broker or dealer through
which it regularly engages in securities transactions.
The practice of placing orders with NISI is consistent with each Fund's
objective of obtaining best execution and is not dependent on the fact that NISI
is an affiliate of Norwest.
The Funds and the Portfolios may not always pay the lowest commission or spread
available. Rather, in determining the amount of commissions, including certain
dealer spreads, paid in connection with securities transactions, an Investment
Adviser takes into account factors such as size of the order, difficulty of
execution,
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efficiency of the executing broker's facilities (including the services
described below) and any risk assumed by the executing broker. The Investment
Advisers may also take into account payments made by brokers effecting
transactions for a Fund or Portfolio (i) to the Fund or Portfolio or (ii) to
other persons on behalf of the Fund or Portfolio for services provided to the
Fund or Portfolio for which it would be obligated to pay.
In addition, the Investment Advisers may give consideration to research services
furnished by brokers to the Advisers for their use and may cause the Funds and
Portfolios to pay these brokers a higher amount of commission than may be
charged by other brokers. Such research and analysis is of the types described
in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended, and is
designed to augment the Investment Adviser's own internal research and
investment strategy capabilities. Such research and analysis may be used by the
Investment Advisers in connection with services to clients other than the Funds
and Portfolios, and not all such services may be used by the Investment Adviser
in connection with the Funds. An Investment Adviser's fees are not reduced by
reason of the Investment Adviser's receipt of the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Boards
may determine, an Adviser may consider sales of shares of the Fund as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Fund.
Investment decisions for the Funds (and for the Portfolios) will be made
independently from those for any other account or investment company that is or
may in the future become managed by the Investment Advisers or their affiliates.
Investment decisions are the product of many factors, including basic
suitability for the particular client involved. Thus, a particular security may
be bought or sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling the
security. In some instances, one client may sell a particular security to
another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the respective
investment adviser's opinion, is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition,
when purchases or sales of the same security for a Fund and other client
accounts managed by the investment 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.
Certain Funds may acquired securities issued by their "regular brokers and
dealers" or the parents of those brokers and dealers. Regular brokers and
dealers means the 10 brokers or dealers that (i) received the greatest amount of
brokerage commissions during the Fund's last fiscal year, (ii) engaged in the
largest amount of principal transactions for portfolio transactions of the Fund
during the Fund's last fiscal year or (iii) sold the largest amount of the
Fund's shares during the Fund's last fiscal year.
PORTFOLIO TURNOVER. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate, which expenses must be borne by a fund and
its shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. In order to continue for Federal tax
purposes, less than 30% of the annual gross income of the Fund must be desired
from the sale of securities held by the Fund for less than three months. See
"Taxation" below. Portfolio turnover rates are set forth under "Financial
Highlight's" in the Funds Prospectuses.
7. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
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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.
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions
are binding. The exchange procedures may be modified or terminated at any time
upon appropriate notice to shareholders. For Federal income tax purposes,
exchanges are treated as sales on which a purchaser will realize a capital gain
or loss depending on whether the value of the shares redeemed is more or less
than the shareholder's basis in such shares at the time of such transaction.
Shareholders of Shares may purchase, with the proceeds from a redemption of all
or part of their shares, Shares of the other Funds.
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. The
Funds have chosen not to make an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. Redemption requests in excess of applicable limits may be paid,
in whole or in part, in investment securities or in cash, as the Trust's Board
of Trustees may deem advisable; however, payment will be made wholly in cash
unless the Board of Trustees believes that economic or market conditions exist
that would make such a practice detrimental to the best interests of the Fund.
If redemption proceeds are paid in investment securities, such securities will
be valued as set forth in the Prospectus under "_______________" and a redeeming
shareholder would normally incur brokerage expenses if he or she were to convert
the securities to cash.
8. TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Code. Such qualification does not, of
course, involve governmental supervision of management or investment practices
or policies. Investors should consult their own counsel for a complete
understanding of the requirements each Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Since certain Funds expect to derive substantially all of their gross income
(exclusive of capital gains) from sources other than dividends, it is expected
that none of such Funds dividends or distributions will qualify for the
dividends-received deduction for corporations.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Fund 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
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last business day of such taxable year. Gain or loss realized by a Fund on
section 1256 contracts generally will be considered 60% long-term and 40%
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 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% long-term and 40% 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 all of the
offsetting positions of which consist of section 1256 contracts.
A Fund's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Fund to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the Fund
may be forced to sell other portfolio securities.
Each shareholder, if applicable, should include in the report of gross income in
the shareholder's federal income tax return cash dividends received by the
shareholder from certain of the Funds. Fund shareholders should also include the
amount which the Fund advises is the shareholder's pro rata portion, if any, of
foreign income taxes paid with respect to, or withheld from, dividends and
interest paid to the Fund or 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.
9. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS
OF THE FUNDS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
_________________, independent auditors, serve as the independent auditors for
the Trust.
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GENERAL INFORMATION
The Trust is divided into _________separate series representing shares of the
Funds. The Trust received an order from the SEC permitting the issuance and
sale of separate classes of shares representing interests in each of the Trust's
existing funds; however, the Trust currently issues and operates the various
Funds, separate classes of shares under the provisions of 1940 Act.
The Board has determined that currently no conflict of interest exists between
or among each Fund's A Shares, B Shares and I Shares, among Ready Cash
Investment Fund's Institutional, Investor and Exchange Shares and between
Municipal Money Market Fund's Institutional and Investor Shares. On an ongoing
basis, the Board, pursuant to its fiduciary duties under the 1940 Act and state
law, will seek to ensure that no such conflict arises.
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which (i) a court refuses
to apply Delaware law, (ii) no contractual limitation of liability is in effect,
and (iii) the Trust itself is unable to meet its obligations. In light of
Delaware law, the nature of the Trust's business, and the nature of its assets,
the Board believes that the risk of personal liability to a Trust shareholder is
extremely remote.
In order to adopt the name Norwest Funds, the Trust agreed in each Investment
Advisory Agreement with Norwest that if Norwest ceases to act as investment
adviser to the Trust or any Fund whose name includes the word "Norwest," or if
Norwest requests in writing, the Trust shall take prompt action to change the
name of the Trust and any such Fund to a name that does not include the word
"Norwest." Norwest may from time to time make available without charge to the
Trust for the Trust's use any marks or symbols owned by Norwest, including marks
or symbols containing the word "Norwest" or any variation thereof, as Norwest
deems appropriate. Upon Norwest's request in writing, the Trust shall cease to
use any such mark or symbol at any time. The Trust has acknowledged that any
rights in or to the word "Norwest" and any such marks or symbols which exist or
may exist, and under any and all circumstances, shall continue to be, the sole
property of Norwest. Norwest may permit other parties, including other
investment companies, to use the word "Norwest" in their names without the
consent of the Trust. The Trust shall not use the word "Norwest" in conducting
any business other than that of an investment company registered under the Act
without the permission of Norwest.
SHAREHOLDINGS
[25% Shareholders]
FINANCIAL STATEMENTS
The fiscal year end of the Funds is May 31. Financial statements for each Fund's
semi-annual period and fiscal year will be distributed to shareholders of
record. The Board in the future may change the fiscal year end of the Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
50
<PAGE>
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
51
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
MUNICIPAL AND 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.
C-1
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
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<PAGE>
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 rated F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
C-3
<PAGE>
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.
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.
C-4
<PAGE>
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE, INC. Moody's highest rating for short-term municipal
loans is MIG-1/VMIG-1. A rating of MIG-1/VMIG-1 denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broadbased access to the market for refinancing. Loans bearing
the MIG-2/VMIG-2 designation are of high quality. Margins of protection are
ample although not so large as in the MIG-1/VMIG-1 group. A rating of MIG
3/VMIG 3 denotes favorable quality. All security elements are accounted for but
there is lacking the undeniable strength of the preceding grades. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established. A rating of MIG 4/VMIG 4 denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
STANDARD & POOR'S RATING GROUP. S&P's highest rating for short-term municipal
loans is SP-1. S&P states that short-term municipal securities bearing the SP-1
designation have very strong or strong capacity to pay principal and interest.
Those issues rated SP-1 which are determined to possess overwhelming safety
characteristics will be given a plus (+) designation. Issues rated SP-2 have
satisfactory capacity to pay principal and interest. Issues rated SP-3 have
speculative capacity to pay principal and interest.
FITCH 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.
Short-term issues rated F-1+ are regarded as having the strongest degree of
assurance for timely payment. Issues assigned a rating of F-1 reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
Issues assigned a rating of F-2 have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1.
C-5
<PAGE>
OTHER MUNICIPAL SECURITIES AND 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+.
C-6
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
Not Applicable to this filing.
FINANCIAL HIGHLIGHTS.
Not Applicable to this filing.
(b) EXHIBITS.
NOTE: * INDICATES THAT THE EXHIBIT IS INCORPORATED HEREIN BY REFERENCE. ALL
REFERENCES TO A POST-EFFECTIVE AMENDMENT ("PEA") OR PRE-EFFECTIVE AMENDMENT
("PreEA") ARE TO PEAs AND PreEAs TO REGISTRANT'S REGISTRATION STATEMENT ON FORM
N-1A, FILE NO. 33-9645.
(1)* Trust Instrument of Registrant as now in effect (filed as Exhibit 1 to
PEA No. 35).
(2)* By-Laws of Registrant as now in effect (filed as Exhibit 2 to PEA No.
35).
(3) Not Applicable.
(4)* Specimen Certificate for shares of beneficial interest of each class of
each portfolio of Registrant. Except for the names of the classes of
shares and CUSIP numbers, the certificate of each class of each
portfolio of Registrant is substantially the same as the specimen
certificate, and therefore, is omitted pursuant to Rule 483(d)(2) under
the 1933 Act (filed as Exhibit 4 to PEA No. 35).
(5) (a)* Form of Investment Advisory Agreement between Registrant and
Norwest Investment Mangement, Inc. relating to Cash Investment
Fund, Ready Cash Investment Fund, U.S. Government Fund, Treasury
Fund, Municipal Money Market Fund, Stable Income Fund, Short
Maturity Government Bond Fund, Intermediate Government Income
Fund, Diversified Bond Fund, Income Fund, Total Return Bond Fund,
Limited Term Tax-Free Fund, Tax-Free Income Fund, Colorado
Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota
Tax-Free Fund, Conservative Balanced Fund, Moderate Balanced
Fund, Growth Balanced Fund, Aggressive Balanced Fund, Index Fund,
Income Equity Fund, ValuGrowth-SM- Stock Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund, Small
Company Stock Fund, Small Company Growth Fund, Diversified Small
Cap Fund, Small Cap Opportunities Fund, Contrarian Stock Fund,
International Fund, Norwest WealthBuilder II High Growth
Portfolio,
<PAGE>
Norwest WealthBuilder II Growth Portfolio, Norwest WealthBuilder
II Growth and Income Balanced Portfolio, Performa Smith
Disciplined Growth Fund, Performa Smith Small Cap Value Fund,
Performa Large Cap Value Fund, Performa Galliard Strategic Value
Bond Fund and Performa Schroder Global Growth Fund. Except for
the names of each series of the Registrant, the Investment
Advisory Agreement of each series of Registrant is substantially
the same as the Investment Advisory Agreement, and therefore, is
omitted pursuant to Rule 483(d)(2) under the 1933 Act (filed as
Exhibit 5(a) to PEA No. 43).
(b)* Investment Sub-Advisory Agreement between Registrant and Crestone
Capital Management, Inc. relating to Small Company Stock Fund
(filed as Exhibit 5(b) to PEA No. 35).
(c)* Investment Sub-Advisory Agreement between Registrant and Schroder
Capital Management International Inc. relating to the Diversified
Equity Fund, Growth Equity Fund, International Fund, Conservative
Balanced Fund, Moderate Balanced Fund and Growth Balanced Fund
(filed as Exhibit 5(c) to PEA No. 35).
(d)* Advisory Agreement between Registrant and Norwest Bank Minnesota,
N.A., relating to Cash Investment Fund, Treasury Fund, U.S.
Government Fund, Ready Cash Investment Fund, Municipal Money
Market Fund, Minnesota Tax-Free Fund, Colorado Tax-Free Fund,
Government Income Fund, Income Fund, Tax-Free Income Fund,
Adjustable U.S. Government Reserve Fund, ValuGrowth Stock Fund,
and Income Stock Fund (filed as Exhibit 5(d) to PEA No. 35).
(e)* Form of Investment Sub-Advisory Agreement between Registrant and
Galliard Capital Management International Inc. relating to the
Stable Income Fund (filed as Exhibit 5(e) to PEA No. 43).
(f)* Form of Investment Sub-Advisory Agreement between Registrant and
Peregrine Capital Management International Inc. relating to the
Small Company Growth Fund and Large Company Growth Fund (filed as
Exhibit 5(f) to PEA No. 43).
(g)* Form of Investment Sub-Advisory Agreement between Registrant and
United Capital Management relating to Total Return Bond Fund and
Contrarian Stock Fund (filed as Exhibit 5(g) to PEA No. 43).
(6)* Distribution Agreement between Registrant and Forum Financial
Services, Inc. relating to each portfolio of Registrant (filed as
Exhibit 6 to PEA No. 35).
(7) Not Applicable.
(8) (a)* Custodian Agreement between Registrant and Norwest Bank
Minnesota, N.A. dated August 1, 1993 as amended November 11, 1994
(filed as Exhibit 8(a) to PEA No. 35).
<PAGE>
(b)* Transfer Agency Agreement to be between Registrant and Norwest
Bank Minnesota, N.A. (filed as Exhibit 8(b) to PEA No. 35).
(9) (a)* Management Agreement between Registrant and Forum Financial
Services, Inc. relating to each portfolio of Registrant (filed
as Exhibit 9(a) to PEA No. 35).
(b)* Fund Accounting Agreement between Registrant and Forum Financial
Corp. (filed as Exhibit 9(b) to PEA No. 35).
(c)* Administration Services Agreement between Registrant and Norwest
Bank Minnesota, N.A. relating to International Fund (filed as
Exhibit 9(c) to PEA No. 35).
(10) (a)* Opinion of Seward & Kissel (filed on December 31, 1986 as
Exhibit 10(a) of PreEA 2).
(b)* Opinion of Seward & Kissel (filed as Exhibit 10(b) to PEA
No. 35).
(11) (a) Not applicable.
(11) (b) Not applicable.
(12) Not Applicable.
(13)* Investment representation letter of John Y. Keffer as initial purchaser
of shares of stock of Registrant (filed on December 31, 1986 as Exhibit
13 of PreEA 2).
(14)* Individual Retirement Account materials (filed on April 22, 1994 as
Exhibit 14 to PEA 24).
(15)* Rule 12b-1 Plan adopted by Registrant with respect to the Income Fund,
Tax-Free Income Fund, Minnesota Tax-Free Fund, ValuGrowth Stock Fund,
Adjustable U.S. Government Reserve Fund, Colorado Tax-Free Fund, Income
Stock Fund, Arizona Tax-Free Fund, Contrarian Stock Fund, Small Company
Stock Fund, Government Income Fund, Total Return Bond Fund, Stable
Income Fund, Income Equity Fund, Diversified Equity Fund, Intermediate
U.S. Government Fund, Growth Equity Fund and Exchange Shares of Ready
Cash Investment Fund (filed as Exhibit 15 to PEA No. 35).
(16) Schedule for Computation of each Performance Quotation provided in the
Registration Statement in response to Item 22 (filed on June 2, 1997 as
Exhibit 16 to PEA 42.)
(17) Not Applicable.
(18)* Multiclass (Rule 18f-3) Plan adopted by Registrant (filed as Exhibit 18
to PEA No. 35).
<PAGE>
Other Exhibits
(A)* Power of Attorney of James C. Harris, Trustee of Registrant (filed as
Other Exhibit A to PEA No. 35).
(B)* Power of Attorney of Richard M. Leach, Trustee of Registrant (filed as
Other Exhibit B to PEA No. 35).
(C)* Power of Attorney of Robert C. Brown, Trustee of Registrant (filed as
Other Exhibit C to PEA No. 35).
(D)* Power of Attorney of Donald H. Burkhardt, Trustee of Registrant (filed
as Other Exhibit D to PEA No. 35).
(E)* Power of Attorney of John Y. Keffer, Trustee of Registrant (filed as
Other Exhibit E to PEA No. 35).
(F)* Power of Attorney of Donald C. Willeke, Trustee of Registrant (filed as
Other Exhibit F to PEA No. 35).
(G)* Power of Attorney of Timothy J. Penny, Trustee of Registrant (filed as
Other Exhibit G to PEA No. 35).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF MAY 1, 1997.
Number of
Title of Class of Unit of Beneficial Interest Record Holders
- --------------------------------------------- --------------
Cash Investment Fund 49
U.S. Government Fund 34
Treasury Fund 25
Municipal Money Market Fund
Investor Shares 20
Institutional Shares 13
Ready Cash Investment Fund
Investor Shares 160
Institutional Shares 14
Exchange Class 14
Income Fund
A Shares 248
<PAGE>
B Shares 245
I Shares 846
Total Return Bond Fund
A Shares 73
B Shares 205
I Shares 275
Colorado Tax-Free Fund
A Shares 413
B Shares 181
I Shares 6
Minnesota Tax-Free Fund
A Shares 443
B Shares 362
I Shares 103
Tax-Free Income Fund
A Shares 592
B Shares 231
I Shares 285
ValuGrowth Stock Fund
A Shares 1,178
B Shares 637
I Shares 1,087
Small Cap Opportunities Fund
A Shares 41
B Shares 23
I Shares 17
Contrarian Stock Fund
A Shares 5
B Shares 4
I Shares 88
Small Company Stock Fund
A Shares 569
B Shares 634
I Shares 1,832
Diversified Equity Fund
A Shares 1,148
B Shares 2,320
I Shares 14
Growth Equity Fund
A Shares 609
B Shares 915
I Shares 12
Large Company Growth Fund
I Shares 13
Small Company Growth Fund
<PAGE>
I Shares 11
International Fund
A Shares 171
B Shares 197
I Shares 18
Income Equity Fund
A Shares 1,996
B Shares 2,616
I Shares 20
Index Fund
I Shares 13
Conservative Balanced Fund
I Shares 11
Moderate Balanced Fund
I Shares 13
Growth Balanced Fund
I Shares 13
Intermediate Government Income Fund
A Shares 475
B Shares 476
I Shares 18
Diversified Bond Fund
I Shares 14
Stable Income Fund
A Shares 71
B Shares 51
I Shares 15
ITEM 27. INDEMNIFICATION.
The general effect of Section 10.02 of Registrant's Trust Instrument is to
indemnify existing or former trustees and officers of the Trust to the fullest
extent permitted by law against liability and expenses. There is no
indemnification if, among other things, any such person is adjudicated liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. This description is modified in its entirety by the provisions of
Section 10.02 of Registrant's Trust Instrument contained in this Registration
Statement as Exhibit 1 and incorporated herein by reference.
Registrant's Investment Advisory Agreements, Investment Subadvisory Agreements,
Management and Distribution Agreements and Distribution Services Agreements
provide that Registrant's investment advisers and principal underwriter are
protected against liability to the extent permitted by Section 17(i) of the
Investment Company Act of 1940. Similar provisions are contained in the
Management Agreement and Transfer Agency and Fund Accounting
<PAGE>
Agreement. Registrant's principal underwriter is also provided with
indemnification against various liabilities and expenses under the Management
and Distribution Agreements and Distribution Services Agreements between
Registrant and the principal underwriter; provided, however, that in no event
shall the indemnification provision be construed as to protect the principal
underwriter against any liability to Registrant or its security holders to which
the principal underwriter would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under those
agreements. Registrant's transfer agent and fund accountant and certain related
individuals are also provided with indemnification against various liabilities
and expenses under the Transfer Agency and Fund Accounting Agreements between
Registrant and the transfer agent and fund accountant; provided, however, that
in no event shall the transfer agent, fund accountant or such persons be
indemnified against any liability or expense that is the direct result of
willful misfeasance, bad faith or gross negligence by the transfer agent or such
persons.
The preceding paragraph is modified in its entirety by the provisions of the
Investment Advisory Agreements, Investment SubAdvisory Agreements, Management
and Distribution Agreements, Distribution Services Agreements, Management
Agreements, Transfer Agency Agreement and Fund Accounting Agreement of
Registrant filed as Exhibits 5, 6, and 9 to Registrant's Registration Statement
and incorporated herein by reference.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
NORWEST INVESTMENT MANAGEMENT, INC.
The description of Norwest Investment Management, Inc., under the caption
"Management-Advisor" or Management of the Funds-Norwest Investment Management"
in each Prospectus and under the caption "Management-Adviser" or "Management
- -Investment Advisory Services-Norwest Investment Management" in each Statement
of Additional Information constituting Parts A and B, respectively, of this
Registration Statement are incorporated by reference herein.
<PAGE>
The following are the directors and principal executive officers of NIM,
including their business connections which are of a substantial nature. The
address of Norwest Corporation, the parent of Norwest Bank Minnesota, N.A.
("Norwest Bank"), which is the parent of NIM, is Norwest Center, Sixth Street
and Marquette Avenue, Minneapolis, MN 55479. Unless otherwise indicated below,
the principal business address of any company with which the directors and
principal executive officers are connected is also Sixth Street and Marquette
Avenue, Minneapolis, MN 55479.
James R. Campbell, Director, President and Chief Executive Officer, has
held this position for the last two years. Mr. Campbell is also
Executive Vice President of Norwest Corporation, Director and Chairman
of Norwest Investment Advisors, Inc., and a Director of Flore
Properties, Inc., Centennial Investment Corporation and Peregrine
Capital Management, Inc., which is located at LaSalle Plaza, 800 LaSalle
Avenue, Suite 1850, Minneapolis, Minnesota 55402-2056. Mr. Campbell is
also a Director of a number of non-profit organizations located in
Minneapolis, Minnesota. Within the last two years Mr. Campbell was a
Director of Norwest Insurance, Inc. and Norwest Equipment Finance, Inc.
Michael A. Graf, Controller and Cashier, also serves as Senior Vice
President and Controller of Norwest Corporation.
P. Jay Kiedrowski, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates since August 1987. Mr. Kiedrowski is also a Director and
Chairman of the Board of Norwest Investment Management, Inc. and
President of Norwest Investment Management, a part of Norwest.
Scott A. Kisting, Director and Executive Vice President, is also a
Director of Norwest Insurance, Inc., IntraWest Insurance Company and
Fidelity National Life Insurance Company.
William H. Queenan, Director, is also Executive Vice President of
Norwest Corporation.
John T. Thornton, Director, is also Executive Vice President and Chief
Financial Officer of Norwest Corporation. Mr. Thornton is also a
Director of Northern Prairie Indemnity, Limited, Grand Cayman, Cayman
Islands, British West Indies, a Director of Norwest Capital Markets,
Inc. Mr. Thornton is also a Director of Norwest Growth Fund, Inc.,
Norwest Venture Capital Management, Inc. and Norwest Equity Capital,
Inc., and Director, President and Treasurer of Norwest Investors, Inc.,
and Director, President and CEO of Norwest Limited, Inc., all located at
2800 Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, MN
54402. Mr. Thornton is also Director and President of Superior Guaranty
Insurance Company and Norwest Holding Company, and a Director of
Bettendorf Asset Management, Inc. Mr. Thornton is also a Director of
Eau Claire Asset Management, Inc., Green Bay Asset Management, Inc.,
Iowa Asset Management, Inc., LaCrosse Asset Management, Inc., South Bend
Asset Management, Inc., South Dakota
<PAGE>
Asset Management, Inc., Waupun Asset Management, Inc., all located at
100 West Commons Blvd., Suite 303, New Castle, DE 19720.
Richard C. Westergaard, Executive Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr.Westergaard is also a Director
of Norwest Business Credit, Inc., Norwest Credit, Inc., First Interstate
Equipment Finance, Inc. and R.D. Leasing, Inc. and a Director of Norwest
Equipment Finance, Inc. and Commonwealth Leasing Corporation, located at
Investors Building, 733 Marquette, Suite 300, Minneapolis, MN
55479-2048.
Charles D. White, Senior Vice President, has served in various
capacities as an employee of Norwest Bank Minnesota, N.A. and/or its
affiliates during the last two years. Mr. White is also Treasurer and
Chief Financial Officer of Norwest Limited, Inc. Mr. White is also a
Director of Bettendorf Asset Management, Inc., Eau Claire Asset
Management, Inc., Green Bay Asset Management, Inc., IntraWest Asset
Management, Inc., Iowa Asset Management, Inc., LaCrosse Asset
Management, Inc., South Bend Asset Management, Inc., South Dakota Asset
Management, Inc., and Waupun Asset Management, Inc., located at 100 West
Commons Boulevard, Suite 303, New Castle, DE 19720.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.
The description of Schroder Capital Management International Inc. ("Schroder")
under the caption "Management of the Funds - Investment Advisory Services -
Schroder Capital Management International Inc." in the Prospectus and
"Management-Investment Advisory Services" in the Statement of Additional
Information relating to International Fund, Diversified Equity Fund, Growth
Equity Fund, Conservative Balanced Fund, Moderate Balanced Fund and Growth
Balanced Fund, constituting certain of Parts A and B, respectively, of the
Registration Statement, are incorporated by reference herein.
The following are the directors and principal officers of Schroder, including
their business connections of a substantial nature. The address of each company
listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS, United
Kingdom. Schroder Capital Management International Limited ("Schroder Ltd.") is
a United Kingdom affiliate of Schroder which provides investment management
services international clients located principally in the United States.
David M. Salisbury. Chief Executive Officer, Director and Chairman of
SCMI; Joint Chief Executive and Director of Schroder Ltd.
Richard R. Foulkes. Deputy Chairman/Executive Vice President of SCMI.
John A. Troiano. Managing Director and Senior Vice President of SCMI.
Mr. Troiano is also a Director of Schroder Ltd.
<PAGE>
David Gibson. Senior Vice President and Director of SCMI. Director of
Schroder Capital Management.
John S. Ager. Senior Vice President and Director of SCMI.
Sharon L. Haugh. Senior Vice President and Director of SCMI, Director
and Chairman of Schroder Advisors Inc.
Gavin D.L. Ralston. Senior Vice President and Managing Director of SCMI.
Mark J. Smith. Senior Vice President and Director of SCMI.
Robert G. Davy. Senior Vice President. Mr. Davy is also a Director of
Schroder Ltd. and an officer of open end investment companies for which
SCMI and/or its affiliates provide investment services.
Jane P. Lucas. Senior Vice President and Director of SCMI; Director of
Schroder Advisors Inc.; Director of Schroder Capital Management.
C. John Govett. Director of SCMI; Group Managing Director of Schroder
Ltd. And Director of Schroders plc.
Phillipa J. Gould. Senior Vice President and Director of SCMI.
Louise Croset. First Vice President and Director of SCMI.
Abdallah Nauphal, Group Vice President and Director of SCMI.
CRESTONE CAPITAL MANAGEMENT, INC.
The description of Crestone Capital Management, Inc. ("Crestone") under the
caption "Management - SubAdviser" in the Prospectus and "Management- Adviser -
SubAdviser - Small Company Stock Fund" in the Statement of Additional
Information relating to the Small Company Stock Fund, constituting certain of
Parts A and B, respectively, of the Registration Statement, are incorporated by
reference herein.
The following are the directors and principal executive officers of Crestone,
including their business connections which are of a substantial nature. The
address of Crestone is 7720 East Belleview Avenue, Suite 220, Englewood Colorado
80111 and, unless otherwise indicated below, that address is the principal
business address of any company with which the directors and principal executive
officers are connected.
Kirk McCown, President and Director.
Mark Steven Sunderhuse, Senior Vice President and Director.
<PAGE>
P. Jay Kiedrowski, Director. Mr. Kiedrowski is also President and
Chairman of the Board of Norwest and an Executive Vice President of
Norwest Bank. His address is Sixth and Marquette Avenue, Minneapolis,
Minnesota 55479.
Steven P. Gianoli, Director. Mr. Gianoli is a Vice President of Norwest
and Norwest Bank. His address is Sixth and Marquette Avenue,
Minneapolis, Minnesota 55479.
Susan Koonsman, Director. Ms. Koonsman is President of Norwest
Investments & Trust. Her address is 1740 Broadway, Denver, Colorado
80274.
PEREGRINE CAPITAL MANAGEMENT, INC.
The description of Peregrine Capital Management, Inc. ("Peregrine") under the
caption "Management - SubAdviser" in the Prospectus and "Management- Adviser -
SubAdviser - Diversified Bond Fund, Conservative Balanced Fund, Moderate
Balanced Fund, Growth Balanced Fund, Diversified Equity Fund, Growth Equity
Fund, Large Company Growth Fund and Small Company Growth Fund in the Statement
of Additional Information relating to Diversified Bond Fund, Conservative
Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified Equity
Fund, Growth Equity Fund, Large Company Growth Fund and Small Company Growth
Fund, constituting certain of Parts A and B, respectively, of the Registration
Statement, are incorporated by reference herein.
The following are the directors and principal executive officers of Peregrine,
including their business connections which are of a substantial nature. The
address of Peregrine is LaSalle Plaza, 800 LaSalle Avenue, Suite 1850,
Minneapolis, Minnesota 55402 and, unless otherwise indicated below, that address
is the principal business address of any company with which the directors and
principal executive officers are connected.
James R. Campbell, Director. Mr. Campbell is President, Chief Executive
Odfficer and a Director of Norwest Bank. His address is Sixth and
Marquette Avenue, Minneapolis, Minnesota 55479-0116
Patricia D. Burns, Senior Vice President.
Tasso H. Coin, Senior Vice President.
John S. Dale, Senior Vice President.
Julie M. Gerend, Senior Vice President. Prior to September, 1995, Ms.
Gerend was Manager, Account Executive at Fidelity Institutional
Retirement Services, Co.
William D. Diese, Senior Vice President.
<PAGE>
Daniel J. Hagen, Vice President. Prior to May, 1996, Mr. Hagen was
Managing Director of Piper Jaffray, Inc.
Ronald G. Hoffman, Senior Vice President and Secretary.
Frank T. Matthews, Vice President.
Jeannine McCormick, Senior Vice President.
Barbara K. McFadden, Senior Vice President.
Robert B. Mersky, Chairman, President and Chief Executive Officer.
Gary E. Nussbaum, Senior Vice President.
James P. Ross, Vice President. Prior to November, 1996, Mr. Ross was
Vice President of Norwest Bank.
Jonathan L. Scharlau, Assistant Vice President.
Jay H. Strohmaier, Senior Vice President. Prior to September, 1996, Mr.
Strohmaier was Senior Vice President/Managed Accounts for Voyageur Asset
Management.
Paul E. von Kuster, Senior Vice President.
Janelle M. Walter, Assistant Vice President.
Paul R. Wurm, Senior Vice President.
J. Daniel Vandermark, Vice President. His address is Sixth and
Marquette Avenue, Minneapolis, Minnesota 55479-1013
GALLIARD CAPITAL MANAGEMENT, INC.
The description of Galliard Capital Management, Inc. ("Galliard") under the
caption "Management - SubAdviser" in the Prospectus and "Management- Adviser -
SubAdviser - Stable Income Fund, Diversified Bond Fund, Conservative Balanced
Fund, Moderate Balanced Fund and Growth Balanced Fund" in the Statement of
Additional Information relating to the Stable Income Fund, Diversified Bond
Fund, Conservative Balanced Fund, Moderate Balanced Fund and Growth Balanced
Fund", constituting certain of Parts A and B, respectively, of the Registration
Statement, are incorporated by reference herein.
The following are the directors and principal executive officers of Galliard,
including their business connections which are of a substantial nature. The
address of Galliard is LaSalle Plaza, Suite 2060, 800 LaSalle Avenue,
Minneapolis, Minnesota 55479 and, unless otherwise indicated
<PAGE>
below, that address is the principal business address of any company with which
the directors and principal executive officers are connected.
Peter Jay Kiedrowski, Chairman. Mr. Kiedrowski is President and Chief
Executive Officer of NIM; Chairman of Crestone and Executive Vice
President of Norwest Bank.
Richard Merriam, Principal. Mr. Merriam is Chief Investment Officer of
Insight Investment Management.
John Caswell, Principal. Mr. Caswell is Chief Investment Officer of
Norwest Bank, N.A.
Karl Tourville, Principal. Mr. Tourville is Vice President/Head of
Fixed Income of Norwest Bank.
Laura Gideon, Senior Vice President of Marketing. Ms. Gideon is Vice
President of Marketing for American Express.
Leela Scattum, Vice President of Operations. Ms. Scattum is a Fund
Accountant for Norwest Bank.
UNITED CAPITAL MANAGEMENT
The description of United Capital Management ("UCM") under the caption
"Management - SubAdviser" in the Prospectus and "Management- Adviser -
SubAdviser - Diversified Bond Fund, Total return Bond Fund, Conservative
Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund and Contrarian Stock
Fund" in the Statement of Additional Information relating to the, Diversified
Bond Fund, Total Return Bond Fund, Conservative Balanced Fund, Moderate Balanced
Fund, Growth Balanced Fund and Contrarian Stock Fund" constituting certain of
Parts A and B, respectively, of the Registration Statement, are incorporated by
reference herein.
The following are the directors and principal executive officers of UCM,
including their business connections which are of a substantial nature. The
address of UCM is 1700 Lincoln Street, Suite 3301, Denver, Colorado 80274 and,
unless otherwise indicated below, that address is the principal business address
of any company with which the directors and principal executive officers are
connected.
W. Lon Schreur, President. Mr. Schreur is Senior Vice President of
Norwest Bank Colorado, N.A..
John T. Groton, Vice President. Mr. Groton is Vice President of Norwest
Bank Colorado, N.A.
David B. Kinney, Vice President. Mr. Kinney is Vice President of
Norwest Bank Colorado, N.A.
<PAGE>
James C. Peery, Senior Vice President. Mr. Peery is Vice President of
Norwest Bank Colorado, N.A.
Leona F. Bennett, Vice President. Ms. Bennett is Vice President of
Norwest Bank Colorado, N.A.
Denise B. Johnson, Vice President. Mr. Johnson is Vice President of
Norwest Bank Colorado, N.A.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Forum Financial Services, Inc., Registrant's underwriter, serves
as underwriter to Core Trust (Delaware), The CRM Funds, The Cutler
Trust, Forum Funds, The Highland Family of Funds, Monarch Funds, Norwest
Funds, Norwest Select Funds, Sound Shore Fund, Inc. and Trans Adviser
Funds, Inc.
(b) John Y. Keffer, President and Secretary of Forum Financial
Services, Inc., is the Chairman and President of Registrant. David R.
Keffer, Vice President and Treasurer of Forum Financial Services, Inc.,
is the Vice President, Assistant Treasurer and Assistant Secretary of
Registrant. Their business address is Two Portland Square, Portland,
Maine.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of accounts, books and other documents required to be maintained by
31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of Forum Financial Services, Inc. at Two Portland
Square, Portland, Maine 04101, at Forum Financial Corp., Two Portland Square,
Portland, Maine 04101 and Forum Administrative Services, Limited Liability
Company, Two Portland Square, Portland, Maine 04101. The records required to be
maintained under Rule 31a-1(b)(1) with respect to journals of receipts and
deliveries of securities and receipts and disbursements of cash are maintained
at the offices of Registrant's custodian. The records required to be maintained
under Rule 31a-1(b)(5), (6) and (9) are maintained at the offices of
Registrant's investment advisers as indicated in the various prospectuses
constituting Part A of this Registration Statement.
Additional records are maintained at the offices of Norwest Bank Minnesota,
N.A., 733 Marquette Avenue, Minneapolis, MN 55479-0040, Registrant's investment
adviser, custodian and transfer agent.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
<PAGE>
(i) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectuses offering
those shares or the commencement of public shares of the respective
shares; and,
(ii) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Portland, and State of Maine on the 11th day of
July, 1997.
NORWEST FUNDS
/s/ John Y. Keffer
--------------------------
John Y. Keffer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement amendment has been signed below by the following persons on the 11th
day of July, 1997.
Signatures Title
---------- -----
(a) Principal Executive Officer
/s/ John Y. Keffer Chairman and President
----------------------------
John Y. Keffer
(b) Principal Financial
and Accounting Officer
/s/ Robert B. Campbell Treasurer
----------------------------
Robert B. Campbell
(c) A Majority of the Trustees
Robert C. Brown Trustee
Donald H. Burkhardt Trustee
James C. Harris Trustee
Richard M. Leach Trustee
Donald C. Willeke Trustee
Timothy J. Penny Trustee
John S. McCune Trustee
By: /s/ John Y. Keffer
----------------------------
John Y. Keffer
Attorney in Fact
<PAGE>
SIGNATURES
On behalf of Core Trust (Delaware), being duly authorized, I have duly caused
this amendment to the Registration Statement of Norwest Funds to be signed in
the City of Portland, State of Maine on the 11th day of July, 1997.
CORE TRUST (DELAWARE)
By: /s/ John Y. Keffer
-----------------------
John Y. Keffer
President
This amendment to the Registration Statement of Norwest Funds has been signed
below by the following persons in the capacities indicated on the 11th day of
July, 1997.
Signatures Title
---------- -----
(a) Principal Executive Officer
/s/ John Y. Keffer Chairman and President
--------------------------
John Y. Keffer
(b) Principal Financial and
Accounting Officer
/s/ Richard C. Butt Treasurer, Principal Financial
-------------------------- and Accounting Officer
Richard C. Butt
(c) A Majority of the Trustees
/s/ John Y. Keffer Chairman
--------------------------
John Y. Keffer
J. Michael Parish Trustee
James C. Cheng Trustee
Costas Azariadis Trustee
By: /s/ John Y. Keffer
--------------------------
John Y. Keffer
Attorney in Fact
<PAGE>
SIGNATURES
On behalf of Schroder Capital Funds, being duly authorized, I have duly caused
this amendment to the Registration Statement of Norwest Funds to be signed in
the City of New York, State of New York on the 2nd day of July, 1997.
SCHRODER CAPITAL FUNDS
By: /s/ Catherine A. Mazza
-------------------------
Catherine A. Mazza
This amendment to the Registration Statement of Norwest Funds has been signed
below by the following persons in the capacities indicated on the 2nd day of
July, 1997.
Signatures Title
---------- -----
(a) Principal Executive Officer
MARK J. SMITH
By:/s/ Thomas G. Sheehan President
-------------------------- and Trustee
Thomas G. Sheehan, Attorney-in-Fact
(b) Principal Financial and
Accounting Officer
ROBERT JACKOWITZ Treasurer
By:/s/ Thomas G. Sheehan
--------------------------
Thomas G. Sheehan, Attorney-in-Fact
(c) Majority of the Trustees
PETER E. GUERNSEY Trustee
JOHN I. HOWELL Trustee
HERMANN C. SCHWAB Trustee
By: /s/ Thomas G. Sheehan
--------------------------
Thomas G. Sheehan
Attorney-in-Fact
