READY CASH INVESTMENT FUND
Exchange Shares
Prospectus
June 1, 1997
Not FDIC Insured
This Prospectus offers Exchange Shares of Ready Cash Investment Fund (the
"Fund"), a separate diversified money market portfolio of Norwest Funds (the
"Trust"), which is a registered, open-end, management investment company.
The 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. See
"Prospectus Summary" and "Other Information - Core and Gateway(R) Structure."
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor should know before investing. The Trust has
filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") dated June 1, 1997, as may be amended from time
to time, which is available for reference on the SEC's Web Site
(http://www.sec.gov) and which contains more detailed information about the
Trust and the Fund and is incorporated into this Prospectus by reference. An
investor may obtain a copy of the SAI without charge by contacting the Trust's
distributor, Forum Financial Services, Inc., at Two Portland Square, Portland,
Maine 04101 or by calling (207) 879-0001. Investors should read this Prospectus
and retain it for future reference.
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TABLE OF CONTENTS
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1. Prospectus Summary..........................2 6. Purchases of Shares.........................17
2. Financial Highlights........................5 7. Redemptions of Shares.......................19
3. Investment Objective and Policies...........6 8. Exchanges...................................21
4. Management..................................12 9. Dividends and Tax Matters...................22
5. Characteristics of the Shares...............14 10. Other Information...........................23
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NORWEST FUNDS IS A FAMILY OF MUTUAL FUNDS. THE SHARES OF MUTUAL FUNDS ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE
SYSTEM OR ANY OTHER GOVERNMENT AGENCY. THE SHARES ALSO ARE NOT OBLIGATIONS,
DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY NORWEST BANK MINNESOTA,
N.A. OR ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUND
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS.
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks to provide high current income
to the extent consistent with the preservation of capital and the maintenance of
liquidity. This objective is pursued by investing in a broad spectrum of high
quality money market instruments of United States and foreign issuers.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in Prime Money Market Portfolio (the "Core Portfolio"), a
separate portfolio of Core Trust (Delaware) ("Core Trust"), a registered,
open-end, management investment company, that has the same investment objective
and substantially similar investment policies as the Fund. Accordingly, the
Fund's investment experience will correspond directly with the investment
experience of Prime Money Market Portfolio. See "Other Information - Core and
Gateway Structure."
INVESTMENT ADVISER. Norwest Investment Management, Inc. ("Norwest"), a
subsidiary of Norwest Bank Minnesota, N.A. ("Norwest Bank"), is the Fund's
investment adviser. The Adviser also is the investment adviser of the Core
Portfolio. The Adviser provides investment advice to various institutions,
pension plans and other accounts and, as of June 1, 1997, managed over $42.6
billion in assets. See "Management - Investment Advisory Services." Norwest Bank
serves as transfer agent, dividend disbursing agent and custodian of the Trust,
and serves as the custodian of the Core Portfolio. See "Management - Shareholder
Servicing and Custody." The Fund incurs investment advisory fees indirectly
through the investment advisory fees paid by Prime Money Market Portfolio.
FUND MANAGEMENT AND ADMINISTRATION. The manager of the Trust and distributor of
its shares is Forum Financial Services, Inc. ("Forum"), a registered
broker-dealer and member of the National Association of Securities Dealers, Inc.
Forum Administrative Services, Limited Liability Company ("FAS") provides
administrative services for the Fund and also serves as administrator of the
Core Portfolio. See "Management - Management, Administration and Distribution
Services."
SHARES OF THE FUND. This prospectus offers exchange class shares ("Exchange
Shares") of the Fund. The Fund offers two other separate classes of shares:
investor class shares ("Investor Shares") and institutional class shares
("Institutional Shares"). Investor and Institutional Shares are offered by
separate prospectuses. Shares of each class of the Fund have identical interests
in the investment portfolio of the Fund and, with certain exceptions, have the
same rights. See "Other Information - The Trust and Its Shares."
PURCHASES OF SHARES. The minimum initial investment in Exchange Shares is
$1,000. The minimum subsequent investment is $100. Exchange Shares may be
purchased only through an exchange privilege available to shareholders of B
class shares of certain funds of the Trust ("B Shares") and are offered at a
price equal to their net asset value on each business day of the Fund solely to
those shareholders in exchange for B Shares held by the shareholders. Exchange
Shares are subject to a contingent deferred sales charge imposed on most
redemptions made within a certain number of years of the purchase of the B
Shares that were first purchased by the shareholder and then exchanged, either
directly or indirectly through a series of exchanges, for the Exchange Shares
(the "original B Shares"). Exchange Shares pay a distribution services fee at an
annual rate not to exceed 0.75%, and a maintenance fee in an amount equal to
0.25%, of the Exchange Shares' average daily net assets. Exchange Shares
automatically convert to Investor Shares of the Fund a certain number of years
after the end of the calendar month in which the original B Shares were
purchased. See "Characteristics of the Shares."
REDEMPTIONS. Exchange Shares may be redeemed at their net asset value on each
business day of the Fund but are subject to any applicable contingent deferred
sales charge. See "Redemptions of Shares."
EXCHANGES. Shareholders may exchange Exchange Shares for B Shares of certain
other funds of the Trust. See "Exchanges."
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DIVIDENDS. Dividends of the Fund's net investment income are declared daily and
paid monthly. The Fund's net capital gain, if any, is distributed annually. All
dividends and distributions are reinvested in additional shares of the Fund
unless the shareholder elects to have them paid in cash. See "Dividends and Tax
Matters."
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS. There can be no assurance
that the Fund or Core Portfolio will achieve its investment objective or
maintain a stable net asset value. An investment in the Fund involves certain
risks, depending on the types of investments made and the types of investment
techniques employed. All investments made by the Fund entail some risk. Certain
investments and investment techniques, however, entail additional risks, such as
investments in foreign issuers. See "Investment Objective and Policies -
Investment Policies - Foreign Instruments." The amount of income earned by the
Fund will tend to vary with changes in prevailing interest rates. For more
details about the Fund, its investments and their risks, see "Investment
Objective and Policies."
By pooling its assets in the Core Portfolio with other institutional investors,
the Fund may be able to achieve certain efficiencies and economies of scale that
it could not achieve by investing directly in securities. Nonetheless, these
investments could have adverse effects on the Fund which investors should
consider. See "Other Information - Core and Gateway Structure -- Certain Risks
of Investing in Core Portfolios."
EXPENSE INFORMATION
The purpose of the following table is to assist investors in understanding the
expenses that an investor in Exchange Shares of the Fund will bear directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) Zero
Maximum deferred sales charge
(as a percentage of the lesser of original
purchase price or redemption proceeds) 4.0%(1)
Exchange Fee Zero
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average daily net assets)
Investment Advisory Fees None
Rule 12b-1 Fees (after fee waivers)(3) 0.75%
Other Expenses (after reimbursements) 0.46%
Investment Advisory Fees - Core Portfolio(4) 0.34%
Other Expenses - Core Portfolio (after reimbursements)(5)(6) 0.02%
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Total Operating Expenses (after reimbursements)(4)(5) 1.57%
(1) The maximum 4.0% contingent deferred sales charge imposed on Exchange
Shares applies to redemptions of Exchange Shares that were purchased in
exchange of original B Shares of certain funds of the Trust. The maximum
contingent deferred sales charge imposed on B Shares of other funds of the
Trust is 4.0%. The charge declines from its maximum after the first year
following the purchase of the original B Shares and declines continuously
thereafter, reaching zero after a certain number of years. The amount of
the contingent deferred sales charge applicable to any Exchange Share will
depend upon the deferred sales charge schedule applicable to the original B
Shares which is contained in the applicable fund's prospectus. See
"Characteristics of the Shares."
(2) For a further description of the various expenses associated with investing
in the Fund, see "Management." Expenses associated with Institutional and
Investor Shares of the Fund differ from those of Exchange Shares listed in
the table. The amounts of expenses are based on amounts incurred during the
Fund's most recent fiscal year ended May 31, 1996, restated to reflect
current fees. The Fund indirectly bears its pro rata expenses of the Core
Portfolio.
(3) Absent fee waivers, "Rule 12b-1 Fees" would be 1.00%. Long-term
shareholders of Exchange Shares may pay aggregate sales charges totaling
more than the economic equivalent of the maximum front-end sales charges
permitted by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
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(4) "Investment Advisory Fees - Core Portfolio" reflect the investment advisory
fee of the Core Portfolio and absent fee
waivers, would be 0.34%.
(5) Norwest and Forum have agreed to waive their respective fees or reimburse
expenses in order to maintain the Fund's total combined operating expenses
through May 31, 1998 at or below 1.57%.
(6) Absent estimated expense reimbursements and fee waivers, the expenses of
Exchange Shares would be: "Other Expenses, 3.40%; "Other Expenses -- Core
Portfolio," 0.12%; and Total Operating Expenses, 4.86%. "Other Expenses"
include transfer agency fees payable to Norwest Bank of 0.25%. Except as
otherwise noted, expense reimbursements and fee waivers are voluntary and
may be reduced or eliminated at any time.
EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses that an investor would pay, assuming a $1,000 investment in the Fund's
Shares, the expenses listed in the "Annual Fund Operating Expenses" table, a 5%
annual return and reinvestment of all dividends and distributions. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN.
ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED. The 5% annual
return is not predictive of and does not represent the Fund's projected returns;
rather, it is required by government regulation.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Assuming redemption at the end of the period 57 80 108 187
Assuming no redemption 16 50 86 187
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2. FINANCIAL HIGHLIGHTS
The following table provides financial highlights for the Fund. This information
represents selected data for a single Exchange Share outstanding for the periods
shown. Information for the period ended November 30, 1996 is unaudited and
information for the periods ended May 31, 1994, 1995 and 1996, was audited by
KPMG Peat Marwick LLP, independent auditors. The Funds financial statements for
the period ended November 30, 1996 are contained in the Fund's Semi-Annual
Report. The Fund's financial statements for the fiscal year ended May 31, 1996,
and independent auditors' report thereon, are contained in the Fund's Annual
Report. These financial statements are incorporated by reference into the SAI.
The Semi-Annual and Annual Reports may be obtained upon request without charge.
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Ready Cash Investment Fund
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Period Ended Year Ended Period Ended
November 30, May 31, May 31,
............... ............................. ..............
1996* 1996 1995 1994(a)
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Beginning Net Asset Value per Share $1.00 $1.00 $1.00 $1.00
Net Investment Income 0.020 0.043 0.038 0.001
Dividends from Net Investment Income (0.020) (0.043) (0.038) (0.001)
Ending Net Asset Value per Share $1.00 $1.00 $1.00 $1.00
Ratios to Average Net Assets:
Expenses(b) 1.57%(c) 1.57% 1.57% 1.53%(c)
Net Investment Income 3.99%(c) 4.32% 3.62% 2.48%(c)
Total Return 4.06%(c) 4.38% 3.69% 2.51%(c)
Net Assets at End of Period (000s omitted) $155 $129 $160 $151
...................................................................................................................
* Unaudited.
(a) The Fund commenced the offering of Exchange Shares on May 9, 1994.
(b) During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the ratio
of expenses to average net assets would have been:
Expenses 2.77%(c) 8.24% 6.32% 1.85%(c)
(c) Annualized.
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3. INVESTMENT OBJECTIVE AND POLICIES
There can be no assurance that the Fund or Core Portfolio will achieve its
investment objective or maintain a stable net asset value of $1.00 per share.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide high current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity.
INVESTMENT POLICIES
The Fund currently pursues its investment objective by investing all of its
investable assets in Prime Money Market Portfolio, which has the same investment
objective and substantially similar investment policies as the Fund. Because the
Fund and Prime Money Market Portfolio seek to maintain a rating from at least
one nationally recognized statistical rating organization ("NRSRO"),they may be
limited in the type and amount of permissible securities (as described below)
which they may purchase. The Core Portfolio invests in a broad spectrum of high
quality money market instruments of United States and foreign issuers. Although
the following discusses the investment policies of Prime Money Market Portfolio,
it applies equally to the Fund.
OBLIGATIONS OF FINANCIAL INSTITUTIONS. The Portfolio may invest in obligations
of financial institutions. These include negotiable certificates of deposit,
bank notes, 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. The Portfolio limits its investments in obligations of financial
institutions (including their branches, agencies and subsidiaries) to
institutions which at the time of investment have total assets in excess of one
billion dollars, or the equivalent in other currencies. Investments in foreign
bank obligations are limited to banks, branches and subsidiaries located in
countries which Norwest believes do not present undue risk.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period. Bank
notes are a debt obligation of a bank. Bankers' acceptances are negotiable
obligations of a bank to pay a draft which has been drawn by a customer and are
usually backed by goods in international trade. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Portfolio but may be subject to early withdrawal
penalties which could reduce the Portfolio's yield. Unless there is a readily
available market for them, deposits that are subject to early withdrawal
penalties or that mature in more than seven days are treated as illiquid
securities.
The Portfolio normally will invest more than 25% of its total assets in the
obligations of domestic and foreign financial institutions, their holding
companies, and their subsidiaries. This concentration may result in increased
exposure to risks pertaining to the banking industry. These risks include a
sustained increase in interest rates, which can adversely affect the
availability and cost of a bank's lending activities; exposure to credit losses
during times of economic decline; concentration of loan portfolios in certain
industries; regulatory developments; and competition among financial
institutions. The Portfolio may not invest more than 25% of its total assets in
any other single industry.
UNITED STATES GOVERNMENT SECURITIES. The Portfolio may invest without limit in
United States Government Securities. The U.S. Government Securities in which the
Portfolio may invest include U.S. Treasury Securities and obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are backed by
the full faith and credit of the U.S. Government, such as those guaranteed by
the Small Business Administration or issued by the Government National Mortgage
Association. In addition, the U.S. Government Securities in which the Portfolio
may invest include securities supported primarily or solely by the
creditworthiness of the issuer, such as securities of
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the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority. There is no guarantee that the
U.S. Government will support securities not backed by its full faith and credit.
Accordingly, although these securities have historically involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. Government's full faith and credit.
U.S. GOVERNMENT AND OTHER RELATED ZERO-COUPON SECURITIES. The Portfolio may
invest without limit in U.S. Government and Other Related Zero-Coupon
Securities. The Portfolio may invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury under the
Treasury's Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program. In addition, the Portfolio may invest in other types of
related zero-coupon securities. For instance, a number of banks and brokerage
firms separate the principal and interest portions of U.S. Treasury securities
and sell them separately in the form of receipts or certificates representing
undivided interests in these instruments. These instruments are generally held
by a bank in a custodial or trust account on behalf of the owners of the
securities and are known by various names, including Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS"). The Portfolio will not invest more than 35% of its
total assets in zero-coupon securities other than those issued through the
STRIPS program.
FOREIGN GOVERNMENT SECURITIES. The Portfolio may invest in U.S. dollar
denominated obligations issued or guaranteed by the governments of countries
which Norwest believes do not present undue risk or of those countries'
political subdivisions, agencies or instrumentalities. The Portfolio may also
invest in the obligations of supranational organizations such as the
International Bank for Reconstruction and Development (the "World Bank") and the
Inter-American Development Bank.
MUNICIPAL BONDS. The Portfolio may invest without limit in municipal bonds which
can be classified as either "general obligation" or "revenue" bonds. General
obligation bonds are secured by a municipality's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are usually payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other tax, but not from general tax revenues. Municipal bonds include industrial
development bonds. Municipal bonds may also be "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer is
unable to meet its obligations under the bonds from current revenues, it may
draw on a reserve fund that is backed by the moral commitment (but not the legal
obligation) of the state or municipality that created the issuer.
The Portfolio may invest in tax-exempt industrial development bonds, which in
most cases are revenue bonds and generally do not have the pledge of the credit
of the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Portfolio will acquire private activity securities only if the
interest payments on the security are exempt from federal income taxation (other
than the Alternative Minimum Tax (AMT)).
MUNICIPAL NOTES. The Portfolio may invest without limit in municipal notes,
which may be either "general obligation" or "revenue" securities, are intended
to fulfill short-term capital needs and generally have original maturities not
exceeding one year. They include tax anticipation notes, revenue anticipation
notes (which generally are issued in anticipation of various seasonal revenues),
bond anticipation notes, construction loan notes and tax-exempt commercial
paper. Tax-exempt commercial paper generally is issued with maturities of 270
days or less at fixed rates of interest.
MUNICIPAL LEASES. The Portfolio may invest without limit in municipal leases,
which may take the form of a lease or an installment purchase or conditional
sale contract, are issued by state and local governments and authorities to
acquire a wide variety of equipment and facilities such as fire and sanitation
vehicles, telecommunications equipment and other capital assets. Municipal
leases frequently have special risks not normally associated with general
obligation or revenue bonds. Lease and installment purchase or conditional sale
contracts (which normally provide for title to the leased assets to pass
eventually to the government issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are
7
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deemed to be inapplicable because of the inclusion in many leases or contracts
of "non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Generally, the Portfolio will invest in municipal lease
obligations through certificates of participation.
CORPORATE DEBT SECURITIES. The Portfolio may invest in corporate debt
obligations of domestic or foreign issuers, including commercial paper
(short-term promissory notes) issued by companies to finance their, or their
affiliates', current obligations and corporate notes and bonds. The Portfolio
may invest in privately issued commercial paper or other corporate instruments
which are restricted as to disposition under the federal securities laws. Any
sale of this paper may not be made absent registration under the Securities Act
of 1933 or the availability of an appropriate exemption therefrom. Some of these
restricted securities, however, are eligible for resale to institutional
investors, and accordingly, a liquid market may exist for them. Pursuant to
guidelines adopted by the Board, Norwest will determine whether each such
investment is liquid.
PARTICIPATION INTERESTS. The Portfolio may purchase from financial institutions
participations in loans or securities. A participation interest gives a
Portfolio an undivided interest in the loan or security in the proportion that
the Portfolio's interest bears to the total principal amount of the security.
For certain participation interests a Portfolio will have the right to demand
payment, on not more than seven days' notice, for all or a part of the
Portfolio's participation interest. The Portfolio intends to exercise any demand
rights it may have only upon default under the terms of the loan or security, to
provide liquidity or to maintain or improve the quality of the Portfolio's
investment portfolio. The Portfolio will not invest more than 10% of its total
assets in participation interests in which the Portfolio does not have demand
rights.
FOREIGN INSTRUMENTS. The Portfolio's investments in securities of foreign
entities may involve certain risks that are different from investments in
domestic securities. These risks may include unfavorable political and economic
developments; the imposition of foreign withholding taxes on interest income
payable on these securities; the seizure or nationalization of foreign deposits;
the existence of accounting, auditing and financial reporting standards which
are not comparable to those of U.S. issuers; and the establishment of exchange
controls, interest limitations or other foreign governmental restrictions which
affect adversely the payment of principal and interest on these securities. In
addition, there may be less public information available about foreign issuers.
Norwest considers these factors when making investments in foreign instruments.
The Portfolio has no limit on the amount of its foreign assets which may be
invested in any one type of foreign instrument or in any foreign country;
however, to the extent the Portfolio concentrates its assets in a foreign
country, these risks will be increased.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Fund's (and Core Portfolio's) investment objective and all investment
policies of the Fund (and Core Portfolio) that are designated as fundamental may
not be changed without approval of the holders of a majority of the outstanding
voting securities of the Fund (or Core Portfolio). A majority of the outstanding
voting securities means the lesser of 67% of the shares present or represented
at a 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 (and Core Portfolio) are
not deemed to be fundamental and may be changed by the Board of Trustees of the
Trust (the "Board") or the board of trustees of Core Trust (the "Core Board"),
as applicable, without shareholder approval.
Unless otherwise indicated, the discussion below of the investment policies of
the Core Portfolio refers to the investment policies of the Fund. A further
description of the Fund's and Core Portfolio's investment policies, including
additional fundamental policies, is contained in the SAI.
The Portfolio may enter into repurchase agreements, may enter into reverse
repurchase agreements (which are considered borrowings), may lend their
securities and may purchase securities on a forward commitment basis as
described below. As a fundamental policy, the Portfolio may borrow money for
temporary or emergency purposes (including the meeting of redemption requests),
but not in excess of 33 1/3% of the value of the Portfolio's total assets.
Borrowing for other than meeting redemption requests will not exceed 5% of the
value of a Portfolio's net
8
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assets. The Portfolio is permitted to invest in other investment companies which
intend to comply with Rule 2a-7 and have substantially similar investment
objectives and policies.
The Portfolio's use of repurchase agreements, reverse repurchase agreements,
securities lending and forward commitments entails certain risks not associated
with direct investments in securities. For instance, in the event that
bankruptcy or similar proceedings were commenced against a counterparty in these
transactions or a counterparty defaulted on its obligations, the Portfolio might
suffer a loss. Failure by the other party to deliver a security purchased by the
Portfolio may result in a missed opportunity to make an alternative investment.
Norwest monitors the creditworthiness of counterparties to these transactions
and intends to enter into these transactions only when it believes the
counterparties present minimal credit risks and the income to be earned from the
transaction justifies the attendant risks.
As part of its regular banking operations, Norwest Bank may make loans to public
companies. Thus, it may be possible, from time to time, for the Portfolio to
hold or acquire the securities of issuers which are also lending clients of
Norwest. A lending relationship will not be a factor in the selection of
portfolio securities for the Portfolio.
GENERAL MONEY MARKET FUND GUIDELINES. The Portfolio invests only in high
quality, short-term money market instruments that are determined by Norwest,
pursuant to procedures adopted by the Board or Core Board, as applicable, to be
eligible for purchase and to present minimal credit risks. The Portfolio will
invest only in U.S. dollar-denominated instruments that have a remaining
maturity of 397 days or less (as calculated pursuant to Rule 2a-7 under the
Investment Company Act of 1940 ("1940 Act")) and will maintain a dollar-weighted
average portfolio maturity of 90 days or less. Securities with ultimate
maturities of greater than 397 days may be purchased in accordance with Rule
2a-7. Under that Rule, only those long-term instruments that have demand
features which comply with certain requirements and certain variable rate U.S.
Government Securities, as described below, may be purchased. The securities in
which the Portfolio may invest may have fixed, variable or floating rates of
interest.
Except to the limited extent permitted by Rule 2a-7 and except for U.S.
Government Securities, the Portfolio will not invest more than 5% of its total
assets in the securities of any one issuer. Also, the Portfolio may not purchase
a security if the value of all securities held by the Portfolio and issued or
guaranteed by the same issuer (including letters of credit in support of a
security) would exceed 10% of the Portfolio's total assets. In addition, to
ensure adequate liquidity, the Portfolio may not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements maturing in more
than seven days. Under the supervision of the Board or Core Board, the Norwest
determines and monitors the liquidity of portfolio securities.
As used herein, high quality instruments include those that: (i) are rated (or,
if unrated, are issued by an issuer with comparable outstanding short-term debt
that is rated) in one of the two highest rating categories by two NRSROs or, if
only one NRSRO has issued a rating, by that NRSRO; or (ii) are otherwise unrated
and determined by Norwest, pursuant to guidelines adopted by the Core Board, to
be of comparable quality. The Portfolio will invest at least 95% of its total
assets in securities in the highest rating category as determined pursuant to
Rule 2a-7. A description of the rating categories of Standard & Poor's, Moody's
Investors Service and certain other NRSROs is contained in the SAI.
The market value of the interest-bearing debt securities held by the Portfolio,
including municipal securities, will be affected by changes in interest rates.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates;
i.e., a decline in interest rates produces an increase in market value, while an
increase in rates produces a decrease in market value. Moreover, the longer the
remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. In addition, changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness will also affect the market
value of the debt securities of that issuer. Obligations of issuers of debt
securities, including municipal securities, are also subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. The possibility exists, therefore, that, as a result of bankruptcy,
litigation or other conditions, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may be materially affected.
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Although the Portfolio only invests in high quality money market instruments, an
investment in the Portfolio is subject to risk even if all securities in the
Portfolio's investment portfolio are paid in full at maturity. All money market
instruments, including U.S. Government Securities, can change in value as a
result of changes in interest rates and/or the issuer's actual or perceived
creditworthiness.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements, which
are transactions in which a Portfolio purchases a security and simultaneously
commits to resell that security to the seller at an agreed-upon price on an
agreed-upon future date, normally one to seven days later. The resale price
reflects a market rate of interest that is not related to the coupon rate or
maturity of the purchased security. The Trust's custodian maintains possession
of the underlying collateral, which is maintained at not less than 100% of the
repurchase price.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may lend securities from its
portfolio to brokers, dealers and other financial institutions. Securities loans
must be continuously secured by cash or U.S. Government Securities with a market
value, determined daily, at least equal to the value of the Fund's securities
loaned, including accrued interest. A Portfolio receives interest in respect of
securities loans from the borrower or from investing cash collateral. The
Portfolio may pay fees to arrange the loans. The Portfolio may not lend
portfolio securities in excess of 33 1/3% of the value of the Fund's total
assets. Generally, the lending of portfolio securities involves risks similar
to, but slightly greater than, those involved in entering into repurchase
agreements.
FORWARD COMMITMENTS. The Portfolio may purchase securities on a when-issued or
delayed delivery basis (forward commitments). Securities so purchased are
subject to market price fluctuation from the time of purchase but no interest on
the securities accrues to the Portfolio until delivery and payment take place.
Accordingly, the value of the securities on the delivery date may be more or
less than the purchase price. Forward commitments will be entered into only when
the Portfolio has the intention of actually acquiring the securities, but the
Portfolio may sell the securities before the settlement date if deemed
advisable. In addition, forward commitments will not be entered into if the
aggregate of the commitments exceeds 15% of the value of the Fund's total
assets.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse repurchase
agreements, which are transactions in which a Portfolio 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 specified repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate. The Portfolio
will use the proceeds of reverse repurchase agreements only to fund redemptions
or to make investments which generally either mature or have a demand feature to
resell to the issuer on a date not later than the expiration of the agreement.
Interest costs on the money received in a reverse repurchase agreement may
exceed the return received on the investments made by a Portfolio with those
monies.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Portfolio
invests may have variable or floating rates of interest. These securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate. The interest paid on these securities is a function primarily of the
indexes or market rates upon which the interest rate adjustments are based.
Similar to fixed rate debt instruments, variable and floating rate instruments
are subject to changes in value based on changes in market interest rates or
changes in the issuer's creditworthiness. The rate of interest on securities
purchased by the Portfolio may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index.
There may not be an active secondary market for any particular floating or
variable rate instrument which could make it difficult for the Portfolio to
dispose of the instrument if the issuer defaulted on its repayment obligation
during periods that the Portfolio is not entitled to exercise any demand rights
it may have. The Portfolio could, for this or other reasons, suffer a loss with
respect to an instrument. Norwest monitors the liquidity of the Fund's
investments in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
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The Portfolio also may purchase variable and floating rate demand notes of
corporations, which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay their
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
MORTGAGE- AND ASSET-BACKED SECURITIES. The Portfolio may purchase fixed or
adjustable rate mortgage or other asset-backed securities, including securities
backed by automobile loans, equipment leases or credit card receivables. These
securities may be U.S. Government Securities or privately issued and directly or
indirectly represent a participation in, or are secured by and payable from,
fixed or adjustable rate mortgage or other loans which may be secured by real
estate or other assets. Unlike traditional debt instruments, payments on these
securities may include both interest and a partial payment of principal.
Prepayments of the principal of underlying loans may shorten the effective
maturities of these securities. Some adjustable rate securities (or the
underlying loans) are subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the security.
ZERO-COUPON SECURITIES. The Portfolio may invest in zero-coupon securities (such
as Treasury bills), which are securities that are sold at original issue
discount and pay no interest to holders prior to maturity, but the Portfolio
must include a portion of the original issue discount of the security as income.
Because the Portfolio distributes substantially all of its net investment
income, the Portfolio may have to sell portfolio securities to distribute
imputed income, which may occur at a time when Norwest would not have chosen to
sell such securities and which may result in a taxable gain or loss. Zero-coupon
securities may be subject to greater fluctuation of market value than the other
securities in which the Portfolio may invest.
4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Trustees, and the business of the Core Portfolio is managed under the direction
of the Core Board. The Board formulates the general policies of the Fund and
meets periodically to review the results of the Fund, monitor investment
activities and practices and discuss other matters affecting the Fund and the
Trust. The Board consists of eight persons.
INVESTMENT ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT. Subject to the general supervision of the Board,
Norwest Investment Management, Inc. makes investment decisions for the Fund and
continuously reviews, supervises and administers the Fund's investment program.
Norwest provides its investment advisory services indirectly to the Fund through
its investment advisory services to the Core Portfolio. 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 March
31, 1997, Norwest Corporation had assets of $83.6 billion which made it the 11th
largest bank holding company in the United States. As of December 31, 1996,
Norwest and its affiliates managed assets with a value of approximately $42.6
billion.
PORTFOLIO MANAGERS. Many persons on the advisory staff of Norwest contribute to
the investment services provided to the Fund and the Core Portfolio. The
following persons, however, are primarily responsible for day-to-day management
and, unless otherwise noted, have been since the inception of the Fund or
Portfolio. For periods prior to June 1, 1997, all persons associated with
Norwest served in their current positions with Norwest Bank. Prior to that date
Norwest Bank was the Fund's investment adviser. In addition to their
responsibilities as listed below, each of the portfolio managers may perform
other portfolio management duties for Norwest Bank.
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DAVID D. SYLVESTER and LAURIE R. WHITE. Mr. Sylvester has been associated with
Norwest for 16 years, the last 8 years as a Vice President and Senior Portfolio
Manager. He has over 20 years' experience in managing securities portfolios. Ms.
White has been a Vice President and Senior Portfolio Manager of Norwest since
1991; from 1989 to 1991, she was a Portfolio Manager at Richfield Bank and
Trust. Ms. White began serving as a portfolio manager in 1991.
ADVISORY FEES. For its services, Norwest receives investment advisory fees from
the Core Portfolio at an annual rate of 0.40% of the first $300 million of the
Core Portfolios' average daily net assets, 0.36% of the next $400 million of the
Core Portfolios' average daily net assets and 0.32% of the Core Portfolios'
remaining average daily net assets.
The Fund may withdraw its investments from the Core Portfolio at any time if the
Board determines that it is in the best interests of the Fund to do so. See
"Other Information - Core and Gateway Structure." Accordingly, the Fund has
retained Norwest as its investment adviser. In the event that the Fund was to
withdraw its assets from the Core Portfolio, Norwest would receive an investment
advisory fee at the same rate as it receives from the Core Portfolio.
MANAGEMENT, ADMINISTRATION AND DISTRIBUTION SERVICES
As manager, Forum supervises the overall management of the Trust (including the
Trust's receipt of services for which the Trust is obligated to pay) other than
investment advisory services. In this capacity Forum provides the Trust with
general office facilities, provides persons satisfactory to the Board to serve
as officers of the Trust and oversees the performance of administrative and
professional services rendered to the Fund by others, including the Fund's
custodian, transfer agent, accountants, auditors and legal counsel. FAS is
responsible for performing certain administrative services necessary for the
Trust's operations with respect to the Fund including, but not limited to: (i)
preparing and printing updates of the Trust's registration statement and
prospectuses, the Trust's tax returns, and reports to its shareholders, the SEC
and state securities administrators; (ii) preparing proxy and information
statements and any other communications to shareholders; (iii) monitoring the
sale of shares and ensuring that such shares are properly and duly registered
with the SEC and applicable state securities administrators; and (iv)
determining the amount of and supervising the declaration of distributions to
shareholders.
As of June 1, 1997, Forum and FAS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $19 billion. Forum is a member of the National
Association of Securities Dealers, Inc. For their services Forum and FAS each
receives a fee with respect to the Fund at an annual rate of 0.05% of the first
$300 million of the Fund's average daily net assets, 0.375% of the next $400
million of the Fund's average daily net assets and 0.025% of the Fund's
remaining average daily net assets. FAS also serves as an administrator of the
Core Portfolio and provides services to the Core Portfolio that are similar to
those provided to the Fund by Forum and FAS. For its services FAS receives a fee
with respect to the Core Portfolio at an annual rate of 0.10% of the Portfolio's
average daily net assets.
Pursuant to a separate agreement, Forum Accounting Services, Limited Liability
Company ("Forum Accounting") provides portfolio accounting services to the Fund
and to the Core Portfolio. Forum, FAS, and Forum Accounting are members of the
Forum Financial Group of companies which together provide a full range of
services to the investment company and financial services industry. As of June
1, 1997, Forum, FAS and Forum Accounting were controlled by John Y. Keffer,
President and Chairman of the Trust.
Pursuant to a separate Distribution Services Agreement, Forum is the exclusive
representative of the Trust to act as principal underwriter and distributor of
the Fund, except under circumstances specified in that agreement. In addition,
the Fund has adopted a Rule 12b-1 Plan applicable to the Shares under which
Forum receives distribution fees. See "Characteristics of the Shares." From its
own resources, Forum may pay a fee to broker-dealers or other persons for
distribution or other services related to the Fund.
SHAREHOLDER SERVICING AND CUSTODY
Norwest Bank serves as transfer agent and dividend disbursing agent for the
Trust (in this capacity, the "Transfer Agent"). The Transfer Agent maintains an
account for each shareholder of the Trust (unless such accounts are
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maintained by sub-transfer agents or processing agents), performs other transfer
agency functions and acts as dividend disbursing agent for the Trust. The
Transfer Agent is permitted to subcontract any or all of its functions with
respect to all or any portion of the Trust's shareholders to one or more
qualified sub-transfer agents or processing agents, which may be affiliates of
the Transfer Agent. Sub-transfer agents and processing agents may be "Processing
Organizations" as described under "How To Buy Shares - Purchase Procedures." The
Transfer Agent is permitted to compensate those agents for their services;
however, that compensation may not increase the aggregate amount of payments by
a Fund to the Transfer Agent. For its services, the Transfer Agent receives a
fee with respect to the Fund at an annual rate of 0.25% of the Fund's average
daily net assets attributable to the Shares.
Norwest Bank also serves as the Fund's and the Core Portfolio's custodian. For
its custodial services, Norwest Bank receives a fee with respect to the Fund and
the Core Portfolio at an annual rate of 0.02% of the first $100 million of the
Fund's or Core Portfolio's average daily net assets, 0.01% of the next $200
million of the Fund's or Core Portfolio's average daily net assets and 0.005% of
the Fund's or Core Portfolio's remaining average daily net assets. No fee is
payable by the Fund to the extent the Fund is invested in the Core Portfolio.
EXPENSES OF THE FUND
Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Funds, the Trust has confirmed its obligation to pay all the Trust's
expenses. The Fund's expenses include Trust expenses attributable to the Fund,
which are allocated to the Fund, and expenses not specifically attributable to
the Fund, which are allocated among the Fund and all other funds of the Trust in
proportion to their average net assets. Each service provider to the Fund may
each elect to waive (or continue to waive) all or a portion of their fees, which
are accrued daily and paid monthly. Any such waivers will have the effect of
increasing the Fund's performance for the period during which the waiver is in
effect. Fee waivers are voluntary and may be reduced or eliminated at any time.
Norwest and Forum have agreed to waive their respective fees or reimburse
expenses in order to maintain the Fund's total combined operating expenses
through May 31, 1998 at the same level as the Fund's total operating expenses
prior to May 31, 1997, 1.57%. After May 31, 1998, any proposed reduction in the
amount of the waiver or reimbursements would be reviewed by the Board.
Each service and their agents and affiliates may also act in various capacities
for, and receive compensation from, their customers who are shareholders of the
Fund. Under agreements with those customers, these entities may elect to credit
against the fees payable to them by their customers or to rebate to customers
all or a portion of any fee received from the Trust with respect to assets of
those customers invested in a Fund.
The expenses of the Fund include the Fund's pro rata share of the operating
expenses of the Core Portfolio which are borne indirectly by the Fund's
shareholders.
5. CHARACTERISTICS OF THE SHARES
Exchange Shares are sold at their net asset value per share without the
imposition of a sales charge at the time of purchase. With respect to Exchange
Shares, the Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act providing for distribution payments at an annual rate
of no more than 0.75% of the average daily net assets of the Fund attributable
to the Exchange Shares (the "distribution services fee") by the Fund to Forum,
to compensate Forum for its distribution activities. The distribution payments
due to Forum from the Exchange Shares comprise: (i) the unpaid balance of, at
the time the Exchange shares are acquired, sales commissions equal to a certain
percentage of the amount received by the Fund for each original B Share
exchanged for the Exchange Shares (excluding reinvestment of dividends and
distributions) ("sales commissions"); and (ii) an interest fee calculated by
applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of uncovered distribution charges (as
described below). Forum currently expects to pay sales commissions to each
broker-dealer at the time of sale of original B Shares of up to 4% of the
purchase price of the original B Shares sold by the broker-dealer. No additional
sales commissions are due to Forum at the time of an exchange of the original B
Shares for Exchange Shares.
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Under the distribution services agreement between Forum and the Trust, Forum
will receive, in addition to the distribution services fee, all contingent
deferred sales charges due upon redemptions of Exchange Shares. The combined
contingent deferred sales charge and distribution services fee on Exchange
Shares are intended to finance the distribution of original B Shares by
permitting an investor to purchase shares through broker-dealers without the
assessment of an initial sales charge and, at the same time, permitting Forum to
compensate broker-dealers in connection with the sales of the shares. Proceeds
from the contingent deferred sales charge with respect to the Fund are paid to
Forum to defray the expenses related to providing distribution-related services
in connection with the sales of original B Shares, such as the payment of
compensation to broker-dealers selling original B Shares. The distribution
services agreement provides that Forum may spend the distribution services fees
it receives as it deems appropriate on any activities primarily intended to
result in the sale of those shares.
Under the Plan, the Fund will make distribution services fee payments to Forum
only for periods during which there are outstanding uncovered distribution
charges attributable to the Fund. Uncovered distribution charges are calculated
daily and are equivalent on any given day to all sales commissions previously
due, less amounts received pursuant to the Plan, plus the interest fee to which
Forum is entitled under the Plan, less all contingent deferred sales charges
previously paid to Forum. At May 31, 1996, uncovered distribution expenses for
the Fund were $1,356 or approximately 0.10% of the Fund's net assets
attributable to Exchange Shares as of the same date.
The amount of distribution services fees and contingent deferred sales charge
payments received by Forum with respect to the Fund is not related directly to
the amount of expenses incurred by Forum in connection with providing
distribution services to the original B Shares and may be higher or lower than
those expenses. Forum may be considered to have realized a profit under the Plan
if, at any time, the aggregate amounts of all distribution services fees and
contingent deferred sales charge payments previously made to Forum exceed the
total expenses incurred by Forum in distributing original B Shares. Total
expenses for this purpose include interest expenses, carrying charges or other
financing costs or allocations of Forum's overhead; the Fund is not obligated to
reimburse Forum for those expenses. The amount of contingent deferred sales
charges paid to Forum by the Fund may affect the amount of: (i) uncovered
distribution charges calculated under the Plan with respect to the Fund; and
(ii) the distribution services fee payable to Forum under the Plan with respect
to the Fund.
Pursuant to the Plan, the Fund has agreed also to pay Forum a maintenance fee in
an amount equal to 0.25% of the average daily net assets of the Fund
attributable to the Exchange Shares for providing personal services to
shareholder accounts. The maintenance fee may be paid by Forum to broker-dealers
in an amount not to exceed 0.25% of the value of the Exchange Shares held by the
customers of the broker-dealers. The distribution services fee and the
maintenance fee are each accrued daily and paid monthly and will cause the
Fund's Exchange Shares to have a higher expense ratio and to pay lower dividends
than Investor Shares of the Fund. Notwithstanding the discontinuation of
distribution services fees with respect to the Fund, the Fund may continue to
pay maintenance fees.
The distribution services fee payable to Forum by the Fund with respect to each
day is accrued on that day as a liability of the Fund with respect to the
Exchange Shares and as a result of the accrual reduces the net assets of the
Exchange Shares. However, the Fund does not accrue future distribution services
fees as a liability of the Fund with respect to the Exchange Shares or reduce
the Fund's current net assets in respect of distribution services fees which may
become payable under the Plan in the future.
In the event that the Plan is terminated or not continued with respect to the
Exchange Shares of the Fund, the Fund may, under certain circumstances, continue
to pay distribution services fees to Forum (but only with respect to sales that
occurred prior to the termination or discontinuance of the Plan). Those
circumstances are described in detail in the SAI. In deciding whether to
purchase Exchange Shares, investors should consider that payments of
distribution services fees could continue until such time as there are no
uncovered distribution charges under the Plan attributable to the Fund.
Periods with a high level of sales of Exchange Shares accompanied by a low level
of redemptions of those shares that are subject to contingent deferred sales
charges will tend to increase uncovered distribution charges. Conversely,
periods with a low level of sales of Exchange Shares accompanied by a high level
of redemptions of those shares that are subject to contingent deferred sales
charges will tend to reduce uncovered distribution charges.
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A high level of sales of Exchange Shares during the next few years of the Fund's
operations coupled with the limitation on the amount of distribution services
fee payable by the Fund with respect to Exchange Shares during any fiscal year,
would cause a large portion of the distribution services fees attributable to a
sale of the Exchange Shares to be accrued and paid by the Fund to Forum with
respect to those shares in fiscal years subsequent to the years in which those
shares were sold. The payment delay would in turn result in the incurrence and
payment of increased interest fees under the Plan.
In approving the Plan, the Board determined that there was a reasonable
likelihood that the Plan would benefit the Fund and its Exchange shareholders.
Information with respect to distribution services fees, maintenance fees and
other revenues and expenses of Forum will be presented to the Board each year
for their consideration in connection with their deliberations as to the
continuance of the Plan with respect to the Fund. In its review of the Plan, the
Board takes into consideration the distribution and maintenance expenses
incurred by the Fund. The distribution services fee or maintenance fee of the
Exchange Shares will not be used to subsidize the provision of distribution
services or personal services with respect to any other shares of the Fund.
CONTINGENT DEFERRED SALES CHARGE. Exchange Shares which are redeemed within a
certain number of years of the purchase of the original B Shares will be subject
to contingent deferred sales charges applicable to the original B Shares as if
the original B Shares were being redeemed at the time of redemption of the
Exchange Shares. The amount of the contingent deferred sales charge, if any,
will vary depending on the number of years between the payment for the purchase
of the original B Shares and the redemption of the Exchange Shares.
The contingent deferred sales charge will be assessed on an amount equal to the
lesser of the cost of the original B Shares and the net asset value of the
Exchange Shares being redeemed at the time of redemption. Accordingly, no sales
charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
Redemptions of shares will be effected in the manner that results in the
imposition of the lowest deferred sales charge. Redemptions with respect to a
shareholder's investment in the Fund will automatically be made first from any
Investor Shares in the Fund, second from Exchange Shares acquired pursuant to
reinvestment of dividends and distributions, third from Exchange Shares held for
longer than the time period for which a contingent deferred sales charge is
imposed on the original B Shares, and fourth from the longest outstanding
Exchange Shares held for less than that time period.
No contingent deferred sales charge is imposed on: (i) redemptions of shares
acquired through the reinvestment of dividends and distributions; (ii)
involuntary redemptions by the Fund of shareholder accounts with low account
balances; (iii) redemptions of shares following the death or disability of a
shareholder if the Fund is notified within one year of the shareholder's death
or disability; (iv) redemptions to effect a distribution (other than a lump sum
distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan; and (v) by any registered investment adviser
with whom Forum has entered into a Share purchase agreement and which is acting
on behalf of its fiduciary customer accounts. See the SAI for further
information.
CONVERSION FEATURE. After a certain number of years from the end of the calendar
month in which the shareholder's purchase order for the original B Shares was
accepted, the shareholder's Exchange Shares will automatically convert to
Investor Shares of the Fund. The conversion will be on the basis of the relative
net asset values of Investor Shares and Exchange Shares, without the imposition
of any sales load, fee or other charge. For purposes of conversion to Investor
Shares, Exchange Shares purchased through the reinvestment of dividends and
distributions paid in respect of Exchange Shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time any Exchange
Shares in the shareholder's account (other than those in the sub-account)
convert, an equal pro-rata portion of those shares in the sub-account will also
convert. The conversion is subject to the continuing availability of certain
opinions of counsel and may be suspended if such an opinion is no longer
available at the time the conversion is to occur. In that event, no further
conversions would occur, and shares might continue to be subject to distribution
services and maintenance fees for an indefinite period.
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6. PURCHASES OF SHARES
GENERAL INFORMATION
Exchange Shares are continuously sold only through an exchange privilege
available to shareholders of B Shares of certain other series of the Trust on
every weekday except customary national business holidays and Good Friday ("Fund
Business Day"). The purchase price for Exchange Shares equals their net asset
value next-determined after acceptance of an order. The Trust reserves the right
to advance the time by which the Fund must receive purchase or redemption orders
on days that the New York Stock Exchange or Minneapolis Federal Reserve Bank
closes early or the Public Securities Association recommends that the government
securities markets close early, or due to other unusual circumstances which may
affect the Fund's trading hours.
All payments for Shares must be in U.S. dollars. Investments in the Fund may be
made either through certain financial institutions or by an investor directly.
An investor who invests in the Fund directly will be the shareholder of record.
All transactions in Exchange Shares are effected through the Transfer Agent
which accepts orders for redemptions and for subsequent purchases only from
shareholders of record. Shareholders of record will receive from the Trust
periodic statements listing all account activity during the statement period.
There is a $1,000 minimum for initial purchases and a $100 minimum for
subsequent purchases of Exchange Shares. The Fund may in its discretion waive
the investment minimums. Shareholders who elect the Directed Dividend Option are
not subject to the initial investment minimum. See "Dividends and Tax Matters."
An investor's order will not be accepted or invested by the Fund during the
period before the Fund's receipt of immediately available funds. Fund shares
become entitled to receive dividends and distributions on the Fund Business Day
the order is accepted.
The Fund reserves the right to reject any subscription for the purchase of its
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
Investors who exchange B shares for Exchange Shares will have an account opened
for them automatically.
To participate in shareholder services not referenced on the shareholder's
original account application form and to change information on a shareholder's
account (such as addresses), investors or existing shareholders should contact
the Trust at the following address:
NORWEST FUNDS
READY CASH INVESTMENT FUND
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT
733 MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0040
The Trust reserves the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders and to charge a
fee for certain shareholder services, although no such fees are currently
contemplated. Any privilege and participation in any program may be terminated
by the shareholder at any time by writing to the Trust.
BY MAIL. Exchange purchases may be accomplished by written instructions to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the B Shares being exchanged. All written exchange
requests must be signed by the shareholder, and all certificates submitted for
exchange must be endorsed by the shareholder with signature guaranteed. See
"Redemptions of Shares -- Other Redemption Matters."
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BY TELEPHONE. Exchange purchases may be accomplished by telephone by any
shareholder of B Shares of the Fund of the Trust that has elected telephone
exchange privileges by calling the Transfer Agent at (800) 338-1348 or (612)
667-8833 and providing the shareholder's account number, the exact name in which
the shares are registered and the shareholder's social security or taxpayer
identification number. See "Redemptions of Shares -- Other Redemption Matters."
THROUGH FINANCIAL INSTITUTIONS. Shares may be exchanged and redeemed through
certain broker-dealers, banks and other financial institutions ("Processing
Organizations"). The Transfer Agent, Forum and their affiliates may be
Processing Organizations. Processing Organizations may receive payments as a
processing agent from the Transfer Agent. In addition, financial institutions,
including Processing Organizations, may charge their customers a fee for their
services and are responsible for promptly transmitting purchase, redemption and
other requests to the Funds.
Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in the Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase the Fund's
shares through a Processing Organization may or may not be the shareholder of
record and, subject to their institution's and the Fund's procedures, may have
Fund shares transferred into their name.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with confirmations and periodic statements. The Trust is not
responsible for the failure of any Processing Organization to carry out its
obligations to its customer.
SUBSEQUENT EXCHANGES OF SHARES. Subsequent exchanges of B Shares of certain
other series of the Trust for Exchange Shares may be made by mailing
instructions, by telephone or through the shareholder's Processing Organization
as indicated above.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be a suitable investment vehicle for part or all of the assets held
in individual retirement accounts ("IRAs"). An IRA account application form may
be obtained by contacting the Trust at (800) 338-1348 or (612) 667-8833.
Generally, all contributions and investment earnings in an IRA will be
tax-deferred until withdrawn. Individuals may make tax-deductible IRA
contributions of up to a maximum of $2,000 annually. However, the deduction will
be reduced if the individual or, in the case of a married individual filing
jointly, either the individual or the individual's spouse is an active
participant in an employer-sponsored retirement plan and has adjusted gross
income above certain levels.
An employer may also contribute to an individual's IRA as part of a Savings
Incentive Match Plan for Employees, or "SIMPLE plan," established after December
31, 1996. Under a SIMPLE plan, an employee may contribute up to $6,000 annually
to the employee's IRA, and the employer must generally match such contributions
up to 3% of the employee's annual salary. Alternatively, the employer may elect
to contribute to the employee's IRA 2% of the lesser of the employee's earned
income or $150,000.
The foregoing discussion regarding IRAs is based on regulations in effect as of
June 1, 1997 and summarizes only some of the important federal tax
considerations generally affecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for tax planning. Investors
should consult their tax advisors with respect to their specific tax situations
as well as with respect to state and local taxes.
7. REDEMPTIONS OF SHARES
GENERAL INFORMATION
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Exchange Shares may be redeemed at their net asset value on any Fund Business
Days subject to a contingent deferred sales charge imposed on most redemptions
made within a certain number of years of purchase of the original B Shares.
There is no minimum period of investment and no restriction on the frequency of
redemptions. Fund shares are redeemed as of the next determination of the Fund's
net asset value following acceptance by the Transfer Agent of the redemption
order in proper form (and any supporting documentation which the Transfer Agent
may require). Redeemed shares are not entitled to receive dividends declared on
or after the day the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later than
seven days, following acceptance of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days after
the tender of the shares to 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 to protect the
Fund's shareholders.
REDEMPTION PROCEDURES
Shareholders who have invested through a Processing Organization may redeem
their shares through the Processing Organization as described above.
Shareholders who have invested directly in the Fund may redeem their shares as
described below. Shareholders that wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application form. These privileges may
not be available until several weeks after a shareholder's application is
received. Shares for which certificates have been issued may not be redeemed by
telephone.
Redemption orders will be accepted on Fund Business Day only until 3:00 p.m.
Eastern time. The Trust reserves the right to close early and advance the time
by which the Fund must receive redemption orders on days that the New York Stock
Exchange or Minneapolis Federal Reserve Bank closes early, the Public Securities
Association recommends that the government securities markets close early or due
to other circumstances which may affect a Fund's trading hours.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. See "Redemptions of Shares - Other Redemption Matters."
BY TELEPHONE. A shareholder who has elected telephone redemption privileges may
make a telephone redemption request by calling the Transfer Agent at
800-338-1348 or 612-667-8833 and providing the shareholder's account number, the
exact name in which his shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds.
See "Redemptions of Shares -- Other Redemption Matters."
BY BANK WIRE. For redemptions of more than $5,000, a shareholder who has elected
wire redemption privileges may request the Fund to transmit the redemption
proceeds by federal funds wire to a bank account designated in writing by the
shareholder. To request bank wire redemptions by telephone, the shareholder also
must have elected the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day after a redemption request in proper form is
received by the Transfer Agent.
OTHER REDEMPTION MATTERS
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To protect shareholders and the Fund 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 a shareholder's
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 Norwest 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.
Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association or other eligible
institution that is authorized to guarantee signatures and is acceptable to the
Transfer Agent. Whenever a signature guarantee is required, the signature of
each person required to sign for the account must be guaranteed.
Shareholders who want telephone redemption or exchange privileges 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 causing written confirmations of the resulting
transactions to be sent to shareholders. If the Trust and Transfer Agent did not
employ such procedures, they could be liable for losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach the Transfer Agent by telephone, requests may be
mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 immediately
following any redemption.
8. EXCHANGES
Shareholders of Exchange Shares may exchange their shares for B Shares of Stable
Income Fund, Intermediate Government Income Fund, Income Fund, Total Return Bond
Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund,
Income Equity Fund, ValuGrowthSM Stock Fund, Small Company Stock Fund and
International Fund of the Trust. Those shares are offered through separate
prospectuses. It is anticipated that the Trust may in the future create
additional funds which will offer B Shares that are exchangeable with Exchange
Shares. Prospectuses for these funds, as well as a current list of the funds of
the Trust that offer shares exchangeable with Exchange Shares, can be obtained
by contacting the Transfer Agent.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make; the Fund reserves the right,
however, to limit excessive exchanges by any shareholder. Exchanges are subject
to the fees charged (other than contingent deferred sales charges) by, and the
limitations (including minimum investment restrictions) of, the fund into which
a shareholder is exchanging.
Exchange Shares may be exchanged without the payment of any contingent deferred
sales charge. B Shares acquired as a result of such exchange and subsequently
redeemed will nonetheless be subject to the contingent deferred sales charge
applicable to the Exchange Shares as if those shares were being redeemed at that
time. For purposes of computing both the contingent deferred sales charge
payable upon redemption of the B Shares and the time remaining before the B
Shares convert to A Shares of that fund, the deferred sales charge and the time
remaining applicable to the Exchange Shares will apply to the B Shares rather
than the deferred sales charge and time remaining that would otherwise apply.
The deferred sales charge and time remaining applicable to Exchange Shares will
apply to new B Shares resulting from both an initial and any subsequent
exchanges.
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Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into the Fund if that fund's shares may
legally be sold in the shareholder's state of residence.
The Fund and federal tax law treat an exchange as a redemption and a
simultaneous new purchase. Accordingly, a shareholder may realize a capital gain
or loss depending on whether the value of the shares redeemed is more or less
than the shareholder's basis in the shares at the time of the exchange
transaction. Exchange procedures may be modified materially or terminated by the
Trust at any time upon 60 days' notice to shareholders. See "Additional Purchase
and Redemption Information" in the SAI.
BY MAIL. Exchanges may be made by sending a written request to the Transfer
Agent accompanied by any share certificates for the shares to be exchanged. All
written requests for exchanges must be signed by the shareholder, and all
certificates submitted for exchange must be endorsed by the shareholder with
signature guaranteed. See "Redemptions of Shares - Other Redemption Matters."
BY TELEPHONE. A shareholder who has elected telephone exchange privileges may
make a telephone exchange request by calling the Transfer Agent at (800)
338-1348 or (612) 667-8833 and providing the shareholder's account number, the
exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See
"Redemptions of Shares - Other Redemption Matters."
9. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are declared daily and paid
monthly. Distributions of net capital gain, if any, realized by the Fund are
distributed annually. Dividends and distributions paid by the Fund with respect
to each class of shares are calculated in the same manner and at the same time.
The per share dividends on Exchange Shares will be lower than the per share
dividends on other classes of the Fund as a result of the distribution services
fees and maintenance fees applicable to Exchange Shares.
Shareholders may choose to have dividends and distributions reinvested in
Exchange Shares of the Fund (the "Reinvestment Option") or to receive dividends
and distributions in cash (the "Cash Option"). All dividends and distributions
are treated in the same manner for federal income tax purposes whether received
in cash or reinvested. Under the Reinvestment Option, all dividends and
distributions of the Fund are automatically invested in additional shares of the
Fund. All dividends and distributions are reinvested at the Fund's net asset
value as of the payment date of the dividend or distribution. Shareholders are
assigned this option unless the Cash Option is selected. Under the Cash Option,
all dividends and distributions are paid to the shareholder in cash.
TAX MATTERS
The Fund intends to qualify each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986 (the "Code"). As
such, the Fund will not be liable for federal income and excise taxes on the net
investment income and capital gain distributed to its shareholders. Because the
Fund intends to distribute all of its net investment income and net capital gain
each year, the Fund should thereby avoid all federal income and excise taxes.
Dividends paid by the Fund out of its net investment income (including net
short-term capital gain) are taxable to shareholders of the Fund as ordinary
income. Distributions of net long-term capital gain by the Fund are taxable to
the shareholders of the Fund as long-term capital gain, regardless of the length
of time the shareholder may have held Shares in the Fund at the time of
distribution.
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The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to a shareholder who fails to provide the Fund with a correct taxpayer
identification number or to make required certifications, or who is subject to
backup withholding.
Reports containing appropriate information with respect to the federal income
tax status of dividends and distributions paid during the year by the Fund will
be mailed to shareholders shortly after the close of each calendar year.
CORE PORTFOLIO. The Core Portfolio is not required to pay federal income taxes
on its net investment income and capital gain, as it is treated as a partnership
for federal income tax purposes. All interest, dividends and gains and losses of
the Core Portfolio are deemed to have been "passed through" to the Fund in
proportion to the Fund's holdings of the Core Portfolio, regardless of whether
such interest, dividends or gains have been distributed by the Core Portfolio or
losses have been realized by the Core Portfolio.
10. OTHER INFORMATION
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, and custodian to an investment company and
to purchase shares of the investment company as agent for and upon the order of
a customer and, in connection therewith, to retain a sales charge or similar
payment. Forum believes that Norwest and any bank or other bank affiliate that
may also perform Processing Organization or similar services for the Trust and
its shareholders without violating applicable federal banking rules. If a bank
or bank affiliate were prohibited in the future from so acting, changes in the
operation of the Trust could occur and a shareholder serviced by the bank or
bank affiliate may no longer be able to avail itself of those services. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of the Fund is determined as of 3:00
p.m., Eastern Time, on each Fund Business Day by dividing the value of the
Fund's net assets (i.e., the value of its securities and other assets less its
liabilities) by the number of shares outstanding at the time the determination
is made. The Fund does not determine net asset value on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving and Christmas.
In order to maintain a stable net asset value per share of $1.00, the portfolio
securities of the Fund and Core Portfolio are valued at their amortized cost.
Amortized cost valuation involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium. If the market value of the a Fund's portfolio deviates more than 1/2 of
1% from the value determined on the basis of amortized cost, the Board will
consider whether any action should be initiated to prevent any material effect
on shareholders.
PERFORMANCE INFORMATION
The Fund's performance may be quoted in terms of yield. All performance
information which is based on historical results and is not intended to indicate
future performance. The Fund's yield is a way of showing the rate of income the
Fund earns on its investments as a percentage of the Fund's share price. To
calculate yield, the Fund takes the income it earned from its portfolio of
investments for a 7 day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of the 7
day period.
The Fund's advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Lipper Analytical
Services, Inc. or IBC/Donoghue, Inc. In addition, the
21
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performance of the Fund may be compared to securities indices This material is
not to be considered representative or indicative of future performance. All
performance information for the Fund is calculated on a class basis.
THE TRUST AND ITS SHARES
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Fund) and may
divide portfolios or series into classes of shares (such as Exchange Shares);
the costs of doing so will be borne by the Trust. Currently the authorized
shares of the Trust are divided into thirty-three separate series.
OTHER CLASSES OF SHARES. The Fund currently issues three classes of shares:
Institutional Shares, Investor Shares and Exchange Shares. Investor Shares are
offered by separate prospectus to investors who invest a minimum of $1,000
without any sales charges or distribution services or maintenance fees. Each
class of a Fund may have a different expense ratio and different sales charges
(including distribution fees) and each class' performance will be affected by
its expenses and sales charges. For more information on any other class of
shares of the Fund, investors may contact the Transfer Agent at (612)667-8833 or
(800) 338-1348 or the Fund's distributor. Investors may also contact their
Norwest sales representative to obtain information about the other classes.
Sales personnel of broker-dealers and other financial institutions selling the
Fund's shares may receive differing compensation for selling Exchange and
Investor Shares.
SHAREHOLDER VOTING AND OTHER RIGHTS. Each share of each series of the Trust and
each class of shares has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately, except that
expenses related to the distribution of the shares of each class (and certain
other expenses such as transfer agency and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular series
or class, except if the matter affects only one series or class or voting by
series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. Shareholders have available certain procedures for the removal of
Trustees. There are no conversion or preemptive rights in connection with shares
of the Trust. All shares, when issued in accordance with the terms of the
offering, will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a series is entitled to
the shareholder's pro rata share of all dividends and distributions arising from
that series' assets and, upon redeeming shares, will receive the portion of the
series' net assets represented by the redeemed shares.
The Core Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the Core Portfolio will be entitled
to vote in proportion to its relative beneficial interest in the Core Portfolio.
When required by the 1940 Act and other applicable law, the Fund will solicit
proxies from its shareholders and will vote its interest in the Core Portfolio
in proportion to the votes cast by its shareholders.
From time to time, certain shareholders may own a large percentage of the Shares
of the Fund and, accordingly, may be able to greatly affect (if not determine)
the outcome of a shareholder vote.
CORE AND GATEWAY STRUCTURE
The Fund seeks to achieve it investment objective by investing all of its
investable assets in the Core Portfolio, that has the same investment objective
and substantially identical investment policies as the Fund. Accordingly, the
Core Portfolio directly acquires portfolio securities and the Fund acquires an
indirect interest in those securities. The Core 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 the Core Portfolio belong only to,
and the liabilities of the Core Portfolio are borne solely by, the Core
Portfolio and no other portfolio of Core Trust.
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THE CORE PORTFOLIO. The Fund's investment in the Core Portfolio is in the form
of a non-transferable beneficial interest. All investors in the Core Portfolio
will invest on the same terms and conditions and will pay a proportionate share
of the Core Portfolio's expenses. As of June 1, 1997, one other fund of the
Trust invested a portion of its assets in Prime Money Market Portfolio.
The Core Portfolio will not sell its shares directly to members of the general
public. Another investor in the Core Portfolio, such as an investment company,
that might sell its shares to members of the general public would not be
required to sell its shares at the same public offering price as the Fund, and
could have different advisory and other fees and expenses than the Fund.
Therefore, Fund shareholders may have different returns than shareholders in
another investment company that invests in the Core Portfolio. Information
regarding any such funds is available from Core Trust by calling Forum at (207)
879-0001.
CERTAIN RISKS OF INVESTING IN CORE PORTFOLIOS. The Fund's investment in the Core
Portfolio may be affected by the actions of other large investors in the Core
Portfolio. For example, if the Core Portfolio had a large investor other than
the Fund that redeemed its interest, the 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
the Core Portfolio, there can be no assurance that any issue that receives a
majority of the votes cast by the Fund's shareholders will receive a majority of
votes cast by all investors in the Core Portfolio; indeed, other investors
holding a majority interest in the Core Portfolio could have voting control of
the Core Portfolio.
The Fund may withdraw its entire investment from the Core Portfolio at any time,
if the Board determines that it is in the best interests of the Fund and its
shareholders to do so. The Fund might withdraw, for example, if there were other
investors in the Core Portfolio with power to, and who did by a vote of all
investors (including the Fund), change the investment objective or policies of
the Core Portfolio in a manner not acceptable to the Board. A withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Core Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would incur brokerage fees or other transaction costs. If
the Fund withdrew its investment from the Core Portfolio, the Board would
consider what action might be taken, including the management of the Fund's
assets directly by the Adviser or the investment of the Fund's assets in another
pooled investment entity. The inability of the Fund to find a suitable
replacement investment, in the event the Board decided not to permit the Adviser
to manage the Fund's assets directly, could have a significant impact on
shareholders of the Fund.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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NORWEST ADVANTAGE FUNDS
READY CASH INVESTMENT FUND
EXCHANGE SHARES
Supplement Dated June 1, 1997 to
Prospectus Dated June 1, 1997
Ready Cash Investment Fund (the "Fund") currently invests directly in portfolio
securities. Pursuant to a shareholder vote, the Fund will convert to the
structure described on page 1 of the prospectus and in "Prospectus Summary -
Highlights of the Funds" on pages 2 and 3 of the prospectus on August 22nd.
Accordingly, until that time (i) Ready Cash Investment Fund does not anticipate
obtaining a rating from an NRSRO (see "Investment Objectives and Policies -
Investment Policies" on page 6 of the prospectus) and (ii) the "Annual Fund
Operating Expenses" table on page 4 of the prospectus is replaced in its
entirety with the following:
ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average daily net assets)
Investment Advisory Fees
(after fee waivers) 0.35%
Rule 12b-1 Fees (after waivers) None
Other Expenses (2)
(after reimbursements) 1.23%
Total Operating Expenses 1.58%
(1) For a further description of the various expenses associated with investing
in the Fund, see "Management." The table is based on expenses incurred during
the Fund's most recent fiscal year ended May 31, 1996. "Other Expenses" includes
transfer agency fees payable to Norwest Bank of 0.25%. Absent fee waivers and
expense reimbursements, the expenses of Exchange Shares would be: Investment
Advisory Fees, 0.36%; Rule 12b-1 Fees, 1.00%; Other Expenses, 6.93% and Total
Operating Expenses, 8.24%. Expense reimbursements and fee waivers are voluntary
and may be reduced or eliminated at any time.
(2) Long-term shareholders may pay aggregate sales charges totaling more than
the economic equivalent of the maximum front-end sales charges permitted by the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
<PAGE>
NORWEST FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 1997
================================================================================
CASH INVESTMENT FUND CONSERVATIVE BALANCED FUND
READY CASH INVESTMENT FUND MODERATE BALANCED FUND
U.S. GOVERNMENT FUND GROWTH BALANCED FUND
TREASURY FUND INCOME EQUITY FUND
MUNICIPAL MONEY MARKET FUND INDEX FUND
STABLE INCOME FUND VALUGROWTHSM STOCK FUND
INTERMEDIATE GOVERNMENT INCOME FUND DIVERSIFIED EQUITY FUND
DIVERSIFIED BOND FUND GROWTH EQUITY FUND
INCOME FUND LARGE COMPANY GROWTH FUND
TOTAL RETURN BOND FUND SMALL COMPANY STOCK FUND
LIMITED TERM TAX-FREE FUND SMALL COMPANY GROWTH FUND
TAX-FREE INCOME FUND CONTRARIAN STOCK FUND
COLORADO TAX-FREE FUND INTERNATIONAL FUND
MINNESOTA TAX-FREE FUND
================================================================================
<PAGE>
NORWEST FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JUNE 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
Norwest Funds is registered with the Securities and Exchange Commission as an
open-end management investment company under the Investment Company Act of 1940,
as amended.
This Statement of Additional Information supplements the Prospectuses dated June
1, 1997, as may be amended from time to time, offering the following classes of
shares of the separate portfolios of Norwest Funds: Cash Investment Fund, Ready
Cash Investment Fund (Institutional Shares, Investor Shares and Exchange
Shares), U.S. Government Fund, Treasury Fund, Municipal Money Market Fund
(Institutional Shares and Investor Shares), and A Shares, B Shares and I Shares
of each of Stable Income Fund, Intermediate Government Income Fund, Income Fund,
Total Return Bond Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota
Tax-Free Fund, Conservative Balanced Fund, Moderate Balanced Fund, Growth
Balanced Fund, Income Equity Fund, ValuGrowth Stock Fund, Diversified Equity
Fund, Growth Equity Fund, Small Company Stock Fund, Contrarian Stock Fund and
International Fund and I Shares of each Diversified Bond Fund, Limited Term
Tax-Free Fund, and Small Company Growth Fund.
Norwest Funds offers shares of one other portfolio, Small Cap Opportunities
Fund. This Statement of Additional Information does not pertain to that
portfolio.
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>
<S> <C> <C>
TABLE OF CONTENTS
PAGE
Introduction................................................................................1
1. Investment Policies.....................................................................3
Security Ratings Information.......................................................3
Money Market Fund Matters..........................................................3
Fixed Income Investments...........................................................4
Mortgage-Backed And Asset-Backed Securities.......................................10
Interest Rate Protection Transactions..............................................12
Hedging And Option Income Strategies...............................................13
Foreign Currency Transactions......................................................17
Equity Securities and Additional Information Concerning the Equity Funds...........18
Illiquid Securities and Restricted Securities......................................20
Borrowing And Transactions Involving Leverage......................................21
Repurchase Agreements..............................................................23
Temporary Defensive Position.......................................................24
2. Information Concerning Colorado and Minnesota...........................................25
Colorado...........................................................................25
Minnesota..........................................................................27
3. Investment Limitations..................................................................29
Fundamental Limitations............................................................29
Non-Fundamental Limitations........................................................32
4. Performance and Advertising Data........................................................35
SEC Yield Calculations.............................................................35
Total Return Calculations..........................................................36
Multiclass, Collective Trust Fund and Core-Gateway Performance.....................37
Other Advertisement Matters........................................................37
5. Management..............................................................................40
Trustees and Officers..............................................................40
Investment Advisory Services.......................................................43
Management and Administrative Services.............................................46
Distribution ..............................................................48
Transfer Agent.....................................................................50
Custodian..........................................................................50
Portfolio Accounting...............................................................51
Expenses...........................................................................52
6. Portfolio Transactions..................................................................53
7. Additional Purchase and Redemption Information..........................................58
Statement of Intention.............................................................58
Exchanges..........................................................................58
Redemptions........................................................................60
Contingent Deferred Sales Charge (A Shares)........................................60
Contingent Deferred Sales Charge (A Shares and B Shares) ..........................61
Conversion of B Shares.............................................................61
8. Taxation................................................................................62
(i)
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TABLE OF CONTENTS
9. Additional Information About the Trust and the Shareholders of the Funds ...............64
Determination of Net Asset Value...................................................64
Counsel and Auditors...............................................................64
General Information................................................................64
Recent Mergers.....................................................................65
Shareholdings......................................................................65
Financial Statements...............................................................65
Registration Statement.............................................................65
Appendix A - Description of Securities Ratings..............................................A-1
Appendix B - Miscellaneous Tables...........................................................B-1
Table 1 - Investment Advisory Fees..........................................................
Table 2 - Management Fees...................................................................
Table 3 - Distribution Fees.................................................................
Table 4 - Sales Charges.....................................................................
Table 5 - Accounting Fees...................................................................
Table 6 - Commissions.......................................................................
Table 7 - 5% Shareholders...................................................................
Appendix C - Performance Data...............................................................C-1
Table 1 - Money Market Fund.................................................................C-1
Table 2 - Yields............................................................................C-1
Table 3 - Total Returns.....................................................................C3
</TABLE>
(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 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.
Each Fund's investment adviser is Norwest Investment Management, a part of
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A., which serves as the
Trust's transfer agent and custodian, is a subsidiary of Norwest Corporation.
Forum Financial Services, Inc., a registered broker-dealer, serves as the
Trust's manager and as distributor of the Trust's shares. Forum Administrative
Services, LLC serves as each Fund's administrator. Schroder Capital Management
International Inc. serves as investment subadviser to Conservative Balanced
Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified Equity Fund,
Growth Equity Fund and International Fund. Schroder also serves as investment
adviser to International Portfolio, in which International Fund currently
invests all of its investable assets. Crestone Capital Management, Inc. serves
as investment subadviser to Small Company Stock Fund.
As used in this SAI, the following terms shall have the meanings listed:
"Adviser" shall mean Norwest Investment Management, Inc., a subsidiary
of Norwest Bank Minnesota, N.A.
"Investment Advisers" shall mean, collectively, Norwest, Schroder and
Crestone, as applicable.
"Board" shall mean the Board of Trustees of the Trust.
"Balanced Fund" shall mean each of Conservative Balanced Fund,
Moderate Balanced Fund and Growth Balanced Fund.
"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.
"Crestone" shall mean Crestone Capital Management, Inc.
"Custodian" shall mean Norwest acting in its capacity as custodian of a
Fund.
"Equity Fund" shall mean each of Income Equity Fund, Index Fund,
ValuGrowth Stock Fund, Diversified Equity Fund, Growth Equity Fund,
Large Company Growth Fund, Small Company Stock Fund, Small Company
Growth Fund, Contrarian Stock Fund and International Fund.
"FFC" shall mean Forum Financial Corp., the Trust's fund accountant.
"Fitch" shall mean Fitch Investors Service, L.P.
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"Income Fund" shall mean each of Stable Income Fund, Intermediate
Government Income Fund, Diversified Bond Fund, Income Fund and Total
Return Bond Fund.
"Forum" shall mean Forum Financial Services, Inc., the Trust's manager
and distributor of the Trust's shares.
"Forum Administrative" shall mean Forum Administrative Services, LLC,
the Trust's administrator.
"Fund" shall mean each of the twenty-seven separate portfolios of the
Trust to which this Statement of Additional Information relates as
identified on the cover page.
"Money Market Funds" shall mean each of Cash Investment Fund,
Ready Cash Investment Fund, U.S. Government Fund, Treasury Fund and
Municipal Money Market Fund.
"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 recognize statistical rating
organization.
"Portfolio" shall mean Prime Money Market Portfolio, Money Market
Portfolio, Stable Income Portfolio, Total Return Bond Portfolio,
Positive Return Bond Portfolio, Managed Fixed Income Portfolio, Income
Equity Portfolio, Large Company Growth Portfolio, Small Company Value
Portfolio, Small Company Growth Portfolio, Small Company Stock
Portfolio, Index Portfolio and International Portfolio, thirteen
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.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's Rating Group.
"Tax Free Income Fund" shall mean each of Limited Term Tax-Free Fund,
Tax-Free Income Fund, Colorado Tax-Free Fund and Minnesota Tax-Free
Fund.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as
transfer and dividend disbursing agent of the a Fund.
"Trust" shall mean Norwest 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.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
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1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in each
Prospectus concerning each Fund's investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any investment
or employ any investment technique or strategy not referenced in the Prospectus
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
International Fund also pertain to the International Portfolio, in which that
Fund currently invests all of its assets. In addition, references to the Funds
which include International Fund also pertain to International Portfolio.
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), the Investment Adviser of the Fund 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 Investment 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
Investment Adviser to be of comparable quality to securities whose rating has
been lowered below the lowest permissible rating category) if the Investment
Adviser determines that retaining such security is in the best interests of the
Fund.
To limit credit risks, International 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.
MONEY MARKET FUND MATTERS
Pursuant to Rule 2a-7 adopted under the 1940 Act, each of the Money Market Funds
may invest only in "eligible securities" as defined in that Rule. Generally, an
eligible security is a security that (i) is denominated in U.S. Dollars and has
a remaining maturity of 397 days or less; (ii) is rated, or is issued by an
issuer with short-term debt outstanding that is rated, in one of the two highest
rating categories by two NRSROs or, if only one NRSRO has issued a rating, by
that NRSRO; and (iii) has been determined by the Investment Adviser to present
minimal credit risks pursuant to procedures approved by the Board. In addition,
the Money Market Funds will maintain a dollar-weighted average maturity of 90
days or less. Unrated securities may also be eligible securities if the
Investment
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Adviser determines that they are of comparable quality to a rated eligible
security pursuant to guidelines approved by the Board.
Under Rule 2a-7, except for Municipal Money Market Fund, a Money Market Fund may
not invest more than five percent of its total assets in the securities of any
one issuer other than U.S. Government Securities, provided that in certain cases
a Fund may invest 5% of its assets in a single issuer for a period of up to
three business days. Municipal Money Market Fund is, however, subject to the
issuer diversification rules described in paragraph (1) under "Investment
Limitations, Nonfundamental Limitations." Except for Municipal Money Market
Fund, a Money Market Fund may not invest in a security that has received, or is
deemed comparable in quality to a security that has received, the second highest
rating by the requisite number of NRSROs (a "second tier security") if
immediately after the acquisition thereof the Fund would have invested more than
(A) the greater of one percent of its total assets or one million dollars in
securities issued by that issuer which are second tier securities, or (B) five
percent of its total assets in second tier securities.
Immediately after the acquisition of any put, no more than five percent of a
Money Market Fund's total assets may be invested in securities issued by or
subject to conditional puts from the same institution and no more than ten
percent of a Money Market Fund's total assets may be invested in securities
issued by or subject to unconditional puts (including guarantees) from the same
institution. However, these restriction only apply with respect to 75% of the
Municipal Money Market Fund's total assets.
INVESTMENT BY FEDERAL CREDIT UNIONS
U.S. Government Fund and Treasury Fund limit their investments, as described in
each of the Prospectuses for those Funds, to investments that are legally
permissible for Federally chartered credit unions under applicable provisions of
the Federal Credit Union Act (including 12 U.S.C. Section 1757(7), (8) and (15))
and the applicable rules and regulations of the National Credit Union
Administration (including 12 C.F.R. Part 703, Investment and Deposit
Activities), as such statutes and rules and regulations may be amended. Treasury
Fund limits its investments to Treasury obligations, including Treasury STRIPS
with a maturity of less than 13 months. U.S. Government Fund limits its
investments to U.S. Government Securities (including Treasury STRIPS),
repurchase agreements fully collateralized by U.S. Government Securities and
other government related zero-coupon securities, such as TIGRs and CATs. All
zero-coupon securities in which the Fund invests will have a maturity of less
than 13 months. Certain U.S. Government Securities owned by the Fund may be
mortgage or asset backed, but, except to reduce interest rate risk, no such
security will be (i) a stripped mortgage backed security ("SMBS"), (ii) a
collateralized mortgage obligation ("CMO") or real estate mortgage investment
conduit ("REMIC") that meets any of the tests outlined in 12 C.F.R. Section
703.5(g) or (iii) a residual interest in a CMO or REMIC. In order to reduce
interest rate risk the Fund may purchase a SMBS, CMO, REMIC or residual interest
in a CMO or REMIC but only in accordance with 12 C.F.R. Section 703.5(i). Each
Fund also may invest in reverse repurchase agreements in accordance with 12
C.F.R. 703.4(e).
FIXED INCOME INVESTMENTS
GENERAL INFORMATION CONCERNING FIXED INCOME SECURITIES
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors including the general conditions of the money market and
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
4
<PAGE>
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 (except
Treasury Fund) may invest in U.S. Government Securities. Obligations of certain
agencies and instrumentalities of the U.S. government are supported by the full
faith and credit of the U.S. Government such as those guaranteed by the Small
Business Administration or issued by the Government National Mortgage
Association; others are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations; and still others are supported
primarily or solely by the creditworthiness of the issuer, such as securities of
the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority. No assurance can be given that
the U.S. government would provide financial support to U.S. government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
Accordingly, although these securities have historically involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. Government's full faith and credit. 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 its 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.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand by the Fund but may
be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation and could reduce the
Fund's yield. Although fixed-time deposits do not in all cases have a secondary
market, there are no contractual restrictions on the Fund's right to transfer a
beneficial interest in the deposits to third parties. Deposits subject to early
withdrawal penalties or that mature in more than seven days are treated as
illiquid securities if there is no readily available market for the securities.
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
basically the same as ETDs except they are issued by Canadian offices of major
Canadian banks.
Investments that a Fund may make in securities 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
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<PAGE>
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.
COMMERCIAL PAPER
Except for the Money Market Funds, 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.
Commercial paper (short-term promissory notes) consists of unsecured promissory
notes issued by companies to finance their or their affiliates' current
obligations. 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
The Fixed Income Funds may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest at a rate based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. The insurance company may
assess periodic charges against a GIC for expense and service costs allocable to
it, and these charges will be deducted from the value of the deposit fund. A
Fund will purchase a GIC only when the 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
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")
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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 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
7
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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
refunding (that is, the tax-exempt refinancing) of various kinds of other
private commercial projects originally financed with tax-exempt bonds. In future
years, the types of projects qualifying under the Code for tax-exempt financing
are expected to become increasingly limited.
Because of terminology formerly used in the Internal Revenue Code, virtually any
form of private activity bond may still be referred to as an "industrial
development bond," but more and more frequently revenue bonds have 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 no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
ALTERNATIVE MINIMUM TAX. Municipal securities are also categorized according to
whether the interest is or is not includable in the calculation of alternative
minimum taxes imposed on individuals, according to whether the costs of
acquiring or carrying the bonds are or are not deductible in part by banks and
other financial institutions, and according to other criteria relevant for
Federal income tax purposes. Due to the increasing complexity of 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
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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
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
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the effects of changes in the underlying index. This form of leverage may have
the effect of increasing the volatility of the security's market value while
increasing the security's, and thus the Fund's, yield. Money Market Funds may
not invest in inverse floaters and certain other variable and floating rates
securities that do not imply with Rule 2a-17.
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.
The Investment Advisers, as applicable, monitor 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. The Investment Advisers
monitor 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 Portfolio intend to purchase such securities only when the
Investment Adviser believes the interest income from the instrument justifies
any principal risks associated with the instrument. A Fund may attempt to limit
any potential loss of principal by purchasing similar instruments that are
intended to provide an offsetting increase in principal. There can be no
assurance that 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
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of assets (usually the bank, savings association or mortgage banker that
transferred the underlying loans to the issuer of the security), to ensure that
the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting after default and liquidation ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Funds will not pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price
of security.
Examples of credit enhancement arising out of the structure of the transaction
include (i) "senior-subordinated securities" (multiple class securities with one
or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), (ii) creation
of "spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets are held in
reserve against future losses) and (iii) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
OTHER GOVERNMENTAL RELATED MORTGAGE-BACKED SECURITIES
The Resolution Trust Corporation ("RTC"), which was organized by the U.S.
Government in connection with the savings and loan crisis, holds assets of
failed savings associations as either a conservator or receiver for such
associations, or it acquires such assets in its corporate capacity. These assets
include, among other things, single family and multi-family mortgage loans, as
well as commercial mortgage loans. In order to dispose of such assets in an
orderly manner, RTC has established a vehicle registered with the SEC through
which it sold mortgage-backed securities. RTC mortgage-backed securities
represent pro rata interests in pools of mortgage loans that RTC holds or has
acquired, as described above, and are supported by one or more of the types of
private credit enhancements used by Private Mortgage Lenders.
It is anticipated that in the future the Federal Deposit Insurance Corporation
(which also holds mortgage loans as a conservator or receiver of insolvent banks
or in its corporate capacity) or other governmental agencies or
instrumentalities may establish vehicles for the issuance of mortgage-backed
securities that are similar in structure and in types of credit enhancements to
RTC securities.
ASSET-BACKED SECURITIES
A Fund may invest in asset-backed securities, which have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Asset-backed
securities are securities that represent direct or indirect participations in,
or are secured by and payable from, assets such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts and special
purpose corporations.
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
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the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only ("POs") securities usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only ("IOs") securities result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, a Fund may receive less cash back than
it initially invested.
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
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1940 Act. The Funds also will establish and maintain such segregated accounts
with respect to its total obligations under any interest rate swaps that are not
entered into on a net basis and with respect to any interest rate caps, collars
and floors that are written by the Fund.
A Fund will enter into interest rate protection transactions only with banks and
other institutions believed by the Investment Adviser to the Fund to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Caps, collars and floors are more
recent innovations for which documentation is less standardized and,
accordingly, they are less liquid than swaps.
HEDGING AND OPTION INCOME STRATEGIES
Other than the Money Market Funds, 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. 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-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
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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.
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.
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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.
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.
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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 such 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 has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
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(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.
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
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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, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
EQUITY SECURITIES AND ADDITIONAL INFORMATION CONCERNING THE EQUITY FUNDS
CONTRARIAN STOCK FUND
Contrarian Stock Fund invests primarily in common stocks which may be out of
favor with the investment community when purchased but for which Norwest
believes there is significant potential for price appreciation. The basic
premise to Norwest's "contrarian" investment approach is that security prices
change more than fundamental investment values. Norwest monitors a universe of
depressed issues as a starting point in making investment decisions for the
Fund. It then projects the earnings of these depressed companies in normal and
peak years and estimates how the market might value these earnings. Analysis of
possible investments is intensive and fundamental, with emphasis on the quality
of a firm's assets and its ability to earn good returns on those assets.
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
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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
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 at any time or if the issuer's common stock
is trading at a specified price level or better. The redemption price starts at
the beginning of the PERCS' duration period at a price that is above the cap by
the amount of the extra dividends the PERCS holder is entitled to receive
relative to the common stock over the
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duration of the PERCS and declines to the cap price shortly before maturity of
the PERCS. In exchange for having the cap on capital gains and giving the issuer
the option to redeem the PERCS at any time or at the specified common stock
price level, a Fund may be compensated with a substantially higher dividend
yield than that on the underlying common stock. Funds that seek current income
find PERCS attractive because a PERCS provides a higher dividend income than
that paid with respect to a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, the Investment Fund may be compensated with the higher
yield, contingent on how well the underlying common stock does. Funds that seek
current income find ELKS attractive because ELKS provide a higher dividend
income than that paid with respect to a company's common stock.
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities, in
that the amount received prior to maturity is not fixed but is based on the
price of the issuer's common stock. LYONs are zero-coupon notes that sell at a
large discount from face value. For an investment in LYONs, a Fund will not
receive any interest payments until the notes mature, typically in 15 or 20
years, when the notes are redeemed at face, or par, value. The yield on LYONs,
typically, is lower-than-market rate for debt securities of the same maturity,
due in part to the fact that the LYONs are convertible into common stock of the
issuer at any time at the option of the holder of the LYON. Commonly, LYONs are
redeemable by the issuer at any time after an initial period or if the issuer's
common stock is trading at a specified price level or better, or, at the option
of the holder, upon certain fixed dates. The redemption price typically is the
purchase price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Fund will receive
only the lower-than-market yield unless the underlying common stock increases in
value at a substantial rate. LYONs are attractive to investors when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
WARRANTS
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. 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.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES
Each Fund may invest up to 15 percent (ten percent in the case of the Money
Market Funds) 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
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to repayment within seven days. The Board and, in the case of International
Portfolio, 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.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. A Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
A 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.
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 short sales of securities against the box. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold short.
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. Counterparties
to a Money Market Fund's reverse repurchase agreements must be a primary dealer
that reports to the Federal Reserve Bank of New York ("primary dealers") or one
of the largest 100 commercial banks in the United States.
Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the
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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.
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REPURCHASE AGREEMENTS
The Funds maintain procedures for evaluating and monitoring the creditworthiness
of vendors of repurchase agreements. In addition, each Fund that may enter into
repurchase agreements requires continual maintenance of collateral held by its
custodian with a market value at least equal to the repurchase price.
Counterparties to a Money Market Fund's repurchase agreements must be a primary
dealer that reports to the Federal Reserve Bank of New York ("primary dealers")
or one of the largest 100 commercial banks in the United States.
Under the terms of a repurchase agreement, a Fund purchases securities from
registered broker-dealers, banks or their affiliates subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. The seller under a
repurchase agreement is required to maintain the value of collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). If the seller were to default on its repurchase obligation or
become insolvent, the Fund holding such obligation would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that a Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Fund's believe
that, under the regular procedures normally in effect for custody of a Fund's
securities subject to repurchase agreements, and under Federal laws, a court of
competent jurisdiction would rule in favor of the Fund if presented with the
question. Securities subject to repurchase agreements will be held by the Fund's
custodian or another qualified custodian or in the Federal Reserve book-entry
system. Repurchase agreements are considered to be loans by a Fund for certain
purposes under the 1940 Act.
TEMPORARY DEFENSIVE POSITION
When a Fund other than a Money Market Fund, in accordance with the policies
described in its 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 Norwest 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.
Except as may be permitted by the SEC, the Funds may invest in the securities of
other investment companies within the limits prescribed by the 1940 Act. Under
normal circumstances and except as described below, each Fund intends to invest
less than 5% of the value of its net assets in the securities of other
investment companies. International Fund invests all of its investable assets in
International Portfolio and Conservative Balanced Fund, Moderate Balanced Fund,
Growth Balanced Fund, Diversified Equity Fund and Growth Equity Fund invest in
certain portfolios of Core Trust in accordance with an exemptive order issued by
the SEC. In addition to those Funds' expenses (including the various fees), as a
shareholder in another investment company, the Funds bear their pro rata portion
of the other investment companies' expenses (including fees).
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2. INFORMATION CONCERNING COLORADO AND MINNESOTA
Following is a brief summary of some of the factors that may affect the
financial condition of the State of Colorado and the State of Minnesota and
their respective political subdivisions. It is not a complete or comprehensive
description of these factors or an analysis of financial conditions and may not
be indicative of the financial condition of issuers of obligations held by
Colorado Tax Free Fund and Minnesota Tax-Free Fund or any particular projects
financed with the proceeds of such obligations. Many factors not included in the
summary, such as the national economy, social and environmental policies and
conditions, and the national and international markets for products produced in
each state could have an adverse impact on the financial condition of a State
and its political subdivisions, including the issuers of obligations held by a
Fund. It is not possible to predict whether and to what extent those factors may
affect the financial condition of a State and its political subdivisions,
including the issuers of obligations held by a Fund.
The State of Colorado's political subdivisions include approximately 1,600 units
of local government in Colorado, including counties, statutory cities and towns,
home-rule cities and counties, school districts and a variety of water,
irrigation, and other special districts and special improvement districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness.
The following summary is based on publicly available information that has not
been independently verified by the Trust or its legal counsel.
COLORADO
THE COLORADO STATE ECONOMY
Among the most significant sectors of the State's economy are services, trade,
manufacture of durable and non-durable goods and tourism. Between late 1984 and
mid-1987, the State's economy was adversely affected by numerous factors,
including the contraction of the energy sector, layoffs by advanced technology
firms and an excess supply of both residential and nonresidential buildings
causing employment in the construction sector to decline. As a result of these
conditions, certain areas of the State experienced particularly high
unemployment. Furthermore, in 1986, for the first time in 32 years, job
generation in the State was negative and, in 1986, for the first time in 21
years, the State experienced negative migration, with more people leaving the
State than moving in.
From 1987 through 1995, there has been moderate but steady improvement in the
Colorado economy: per-capita income increased approximately 48.4% (4.4% in 1995)
and retail trade sales increased approximately 63.3% (5.2% in 1995). The State's
estimated growth rate is above the national growth rate and the State's
unemployment rate is still below the national unemployment rate (in 1995 the
State's unemployment rate was 4.2% and the United State's unemployment rate was
5.6%).
STATE REVENUES
The State operates on a fiscal year beginning July 1 and ending June 30. Fiscal
year 1995 refers to the fiscal year ended June 30, 1995.
The State derives all of its General Fund revenues from taxes. The two most
important sources of these revenues are sales and use taxes and personal income
taxes, which accounted for approximately 31.2% and 53.3%, respectively, of total
General Fund revenues during fiscal year 1994 and approximately 31.5% and 53.2%,
respectively, of total General Fund revenues during fiscal year 1995. The ending
General Fund balance for fiscal year 1994 was $405.1 million and for fiscal year
1995 was approximately $396.7 million.
The Colorado Constitution contains strict limitations on the ability of the
State to create debt except under certain very limited circumstances. However,
the constitutional provision has been interpreted not to limit the ability of
the State to issue certain obligations which do not constitute debt, including
short-term obligations which do not extend
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beyond the fiscal year in which they are incurred and lease purchase obligations
which are subject to annual appropriation. The State is authorized pursuant to
State statutes to issue short-term notices to alleviate temporary cash flow
shortfalls. The most recent issue of such notes, issued on July 1, 1996, was
given the highest rating available for short-term obligations by S&P, which is a
division of The McGraw-Hill Companies, Inc. (SP-1+) and Fitch Investors Service,
Inc. (F-1+) (A rating on such notes was not requested from, and consequently no
rating was given by, Moody's) Because of the short-term nature of such notes,
their ratings should not be considered necessarily indicative of the State's
general financial condition.
TAX AND SPENDING LIMITATION AMENDMENT
On November 3, 1992, the Colorado voters approved a State constitutional
amendment (the "Amendment") that restricts the ability of the State and local
governments to increase taxes, revenues, debt and spending. The Amendment
provides that its provisions supersede conflicting State constitutional, State
statutory, charter or other State or local provisions.
The provisions of the Amendment apply to "districts", which are defined in the
Amendment as the State or any local government, with certain exclusions. Under
the terms of the Amendment, districts must have prior voter approval to impose
any new tax, tax rate increase, mill levy increase, valuation for assessment
ratio increase and extension of an expiring tax. Such prior voter approval is
also required, except in certain limited circumstances, for the creation of "any
multiple-fiscal year direct or indirect district debt or other financial
obligation." The Amendment prescribes the timing and procedures for any
elections required by the Amendment.
Because the Amendment's voter approval requirements apply to any "multiple
fiscal year" debt or financial obligation, short-term obligations which do not
extend beyond the fiscal year in which they are incurred are exempt from the
voter approval requirements of the Amendment. In addition, the Colorado Court of
Appeals has determined that lease purchase obligations subject to annual
appropriation are not subject to the voter approval requirements of the
Amendment. The Amendment's voter approval requirements and other limitations
(discussed in the following paragraph) do not apply to "enterprises," which are
defined in the Amendment as follows: "a government-owned business authorized to
issue its own revenue bonds and receiving under 10% of annual revenue in grants
from all Colorado state and local governments combined."
Among other provisions, the Amendment requires the establishment of emergency
reserves, limits increases in district revenues and limits increases in district
fiscal year spending. As a general matter, annual State fiscal year spending may
change not more than inflation plus the percentage change in State population in
the prior calendar year. Annual local district fiscal year spending may change
no more than inflation in the prior calendar year plus annual local growth, as
defined in and subject to the adjustments provided in the Amendment. The
Amendment provides that annual district property tax revenues may change no more
than inflation in the prior calendar year plus annual local growth, as defined
in and subject to the adjustments provided in the Amendment. District revenues
in excess of the limits prescribed by the Amendment are required, absent voter
approval, to be refunded by any reasonable method, including temporary tax
credits or rate reductions. In addition, the Amendment prohibits new or
increased real property transfer taxes, new State real property taxes and new
local district income taxes. The Amendment also provides that a local district
may reduce or end its subsidy to any program (other than public education
through grade 12 or as required by federal law) delegated to it by the State
General Assembly for administration.
This description is not intended to constitute a complete description of all of
the provisions of the Amendment. Furthermore, many provisions of the Amendment
and their application are unclear. Several statutes have been enacted since the
passage of the Amendment attempting to clarify the application of the Amendment
with respect to certain governmental entities and activities and numerous court
decisions have been rendered interpreting certain of the Amendment's provisions.
However, many provisions of the Amendment may require further legislative or
judicial clarification. The future impact of the Amendment on the financial
operations and obligations of the State and local governments in the State
cannot be determined at this time. Attempts to apply the provisions of the
Amendment to obligations issued prior to the approval of the Amendment may be
challenged as violation of protections afforded by the federal constitution
against impairment of contracts.
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MINNESOTA
The following information has been derived from the ECONOMIC REPORT TO THE
GOVERNOR for 1993 and 1994, prepared by the Economic Resource Group, and COMPARE
MINNESOTA: AN ECONOMIC AND STATISTICAL FACT BOOK 1994/1995 by the Minnesota
Department of Trade and Economic Development. More recent editions of such
publications were not available at the time this prospectus was prepared.
THE STRUCTURE OF THE MINNESOTA STATE'S ECONOMY
Diversity and a significant natural resource base are two important
characteristics of the State's economy.
When viewed in 1993 on an aggregate level, the structure of the State's economy
parallels the structure of the United States economy as a whole. State
employment in 10 major sectors was distributed in approximately the same
proportions as national employment. In all sectors, the share of total State
employment was within 2 percentage points of national employment share.
Some unique characteristics of the State's economy are apparent in employment
concentrations in industries that comprise the durable goods and non-durable
goods manufacturing categories. In the durable goods industries, the State's
employment in 1993 was highly concentrated in industrial machinery, fabricated
metals, instruments and miscellaneous categories. Of particular importance is
the industrial machinery category in which 32.6 percent of the State's durable
goods employment was concentrated in 1993, as compared to 18.9 percent for the
United States as a whole. The emphasis is partly explained by the location in
the State of Ceridian, Unisys, IBM, Cray Research, and other computer equipment
manufacturers which are included in the industrial machinery classification.
The importance of the State's resource base for overall employment is apparent
in the employment mix in non-durable goods industries. In 1993, 29.4 percent of
the State's non-durable goods employment was concentrated in food and kindred
industries, and 19.1 percent in paper and allied industries. This compares to
21.4 percent and 8.8 percent, respectively, for comparable sectors in the
national economy. Both of these rely heavily on renewable resources in the
State. Over half of the State's acreage is devoted to agricultural purposes, and
nearly one-third to forestry. Printing and publishing is also relatively more
important in the State than in the U.S.
Mining is currently a less significant factor in the State economy than it once
was. Mining employment, primarily in the iron ore or taconite industry, dropped
from 17.3 thousand in 1979 to 7.4 thousand in 1993. It is not expected that
mining employment will return to 1979 levels. However, Minnesota retains
significant quantities of taconite as well as copper, nickel, cobalt, and peat
which may be utilized in the future.
EMPLOYMENT GROWTH IN THE STATE
In the period 1980 to 1993, overall employment growth in Minnesota lagged behind
national growth. However, manufacturing has been a strong sector, with Minnesota
employment outperforming its U.S. counterpart in both the 1980-1990 and
1990-1993 periods. Over 40 percent of the total increase in Minnesota employment
between the years 1983-1992 resulted from a 50.2 percent increase in employees
in the services industry during this period. Mining was the only industry where
employment decreased between 1983-1992 in both Minnesota and the United States,
dropping by almost 14 percent in Minnesota and 33 percent in the United States.
In spite of a strong manufacturing sector, during the 1980 to 1990 period total
employment in Minnesota increased 18.1 percent while increasing 20.1 percent
nationally. Most of Minnesota's relatively slower growth is associated with
declining agricultural employment and with the two recessions in the U.S.
economy during the early 1980's which were more severe in Minnesota than
nationwide. Minnesota non-farm employment growth generally kept pace with the
nation in the period after the 1981-82 recession ended in late 1982. Employment
data through December, 1993 indicate the recession which began in July, 1990 was
less severe in Minnesota than in the national economy, and that Minnesota's
recovery has been more rapid than the nation's. Between 1990 and 1993,
Minnesota's non-farm employment grew 5.1 percent compared to only 0.7 percent
nationwide.
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PERFORMANCE OF THE STATE'S ECONOMY
Since 1980, State per capita personal income has been within three percentage
points of national per capita personal income. The State's per capita income,
which is computed by dividing personal income by total resident population, has
generally remained above the national average in spite of the early 1980's
recessions and some difficult years in agriculture. In 1992, Minnesota per
capita personal income was 101.6 percent of its U.S.
counterpart.
In the level of personal income per capita, Minnesota ranked second among twelve
north central states in both 1990 and 1992. During the period 1983 to 1992,
Minnesota ranked first among such states in growth of personal income and third
during the period 1991 to 1992. Minnesota ranked seventeenth nationally and
second among the twelve north central states with a per capita disposable income
of $17,448 in 1992. During 1990-1992, wage and salary disbursements which
constitute some 60% of total personal income grew 12.3 percent in Minnesota as
compared to 8.3 percent for the United States. Personal income in Minnesota grew
more rapidly than eleven other north central states' averages during 1991-1992,
and faster than the United States average. Over the period 1983 to 1992,
Minnesota non-agricultural employment grew 27.4 percent while such employment in
the United States grew 19.7 percent. During the 1990-1993 period, Minnesota
non-agricultural employment increased 5.1 percent, while regional employment
increased 1.3 percent.
Retail sales in Minnesota increased an average of 5.9 percent per year,
compounded, between 1983 and 1992. This growth, however, was not uniform from
year to year. Retail sales grew only 3.4 percent in 1982, a recession year, and
3.0 percent in 1985, while growing 12.1 percent in 1984, and 2.0 percent in
1986.
During 1992 and 1993, the State's monthly unemployment rate was generally less
than the national unemployment rate, averaging 5.1 percent in 1993, as compared
to the national average of 7.4 percent.
POPULATION TRENDS IN THE STATE
Minnesota resident population grew from 4,085,000 in 1980 to 4,390,000 in 1990,
or at an average annual compound rate of 0.7 percent. In comparison, U.S.
population grew at an annual compound rate of 0.9 percent during this period.
Minnesota resident population increased 4,625,000 in 1995. Minnesota population
is currently forecast to grow at an annual compound rate of 0.6 percent between
1990 and 2000. Minnesota population growth accelerated during the late 1980's.
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3. INVESTMENT LIMITATIONS
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of a
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
Whenever reference is made throughout this SAI or the applicable prospectus to
the limitations of the 1940 Act, to "the extent permitted by the 1940 Act" or to
similar language, the reference shall be deemed to include reference to any
exemptive order obtained by the Trust or which may be relied upon by the Trust.
For purposes of the fundamental and nonfundamental limitations which relate to
diversification, the District of Columbia, each state, each political
subdivision, agency, instrumentality and authority thereof, and each multi-state
agency of which a state is a member is deemed to be a separate "issuer." When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of private activity bonds, if the bond is backed only by the assets and revenues
of the nongovernmental user, then such nongovernmental user would be deemed to
be the sole issuer. However, if in either case, the creating government or some
other agency guarantees a security, that guarantee would be considered a
separate security and would be treated as an issue of such government or other
agency.
A Fund's fundamental limitations 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.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are fundamental
policies of the Fund. Reference to International Fund includes reference to
International Portfolio, which has the same fundamental policies.
(1) DIVERSIFICATION
EACH FUND (other than Colorado Tax-Free Fund and Minnesota
Tax-Free Fund) may not, with respect to 75% of its assets,
purchase a security (other than a U.S. Government Security or
a security of an investment company) if, as a result (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) CONCENTRATION
(a) CASH INVESTMENT FUND and READY CASH INVESTMENT FUND may not
purchase a security if, as a result, more than 25% of the Fund's
total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided, (i) there is no limit on investments in U.S.
Government Securities, in repurchase agreements covering U.S.
Government Securities or in foreign government securities, (ii)
municipal securities are not treated as involving a single
industry, (iii) there is no limit on investment in issuers
domiciled in a single country, (iv) financial service companies
are classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance) and (v) utility companies are classified according to
their services (for example, gas, gas transmission, electric and
gas, electric and telephone); and provided the Fund will invest
more than 25% of the value of the Fund's total assets in
obligations of domestic and foreign financial institutions and
their holding companies. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, the Fund may
invest in one or more investment companies; provided that, except
to the extent the Fund invests
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in other investment companies pursuant to Section 12(d)(1)(A) of
the 1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of this
policy.
(b) TREASURY FUND, U.S. GOVERNMENT FUND and MUNICIPAL MONEY MARKET
FUND may not purchase a security if, as a result, more than 25%
of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the
same industry; provided, (i) there is no limit on investments in
U.S. Government Securities, in repurchase agreements covering
U.S. Government Securities, in foreign government securities, or
in obligations of domestic commercial banks (including U.S.
branches of foreign banks subject to regulations under U.S. laws
applicable to domestic banks and, to the extent that its parent
is unconditionally liable for the obligation, foreign branches of
U.S. banks), (ii) municipal securities are not treated as
involving a single industry, (iii) there is no limit on
investment in issuers domiciled in a single country, (iv)
financial service companies are classified according to the end
users of their services (for example, automobile finance, bank
finance and diversified finance) and (v) utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
Notwithstanding anything to the contrary, to the extent permitted
by the 1940 Act, the Fund may invest in one or more investment
companies; provided that, except to the extent the Fund invests
in other investment companies pursuant to Section 12(d)(1)(A) of
the 1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of this
policy.
(c) INCOME FUND, LIMITED TERM TAX-FREE FUND, TAX-FREE INCOME FUND,
COLORADO TAX-FREE FUND, MINNESOTA TAX-FREE FUND and VALUGROWTH
STOCK FUND may not purchase a security if, as a result, more than
25% of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the
same industry; provided, (i) there is no limit on investments in
repurchase agreements covering U.S. Government Securities or (ii)
municipal securities are not treated as involving a single
industry, (iii) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance) and
(iv) utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric
and telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the extent
the Fund invests in other investment companies pursuant to
Section 12(d)(1)(A) of the 1940 Act, the Fund treats the assets
of the investment companies in which it invests as its own for
purposes of this policy.
(d) TOTAL RETURN BOND FUND may not purchase a security if, as a
result, more than 25% of the Fund's total assets would be
invested in securities of issuers conducting their principal
business activities in the same industry; provided, (i) there is
no limit on investments in U.S. Government Securities, or in
repurchase agreements covering U.S. Government Securities, (ii)
mortgage-related or housing-related securities (including
mortgage-related or housing-related U.S. Government Securities)
and municipal securities are not treated as involving a single
industry, (iii) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance), (iv)
utility companies are classified according to their services (for
example, gas, gas transmission, electric and gas, electric and
telephone). Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the extent
the Fund invests in other investment companies pursuant to
Section 12(d)(1)(A) of the 1940 Act, the Fund treats the assets
of the investment companies in which it invests as its own for
purposes of this policy.
(e) SMALL COMPANY STOCK FUND and CONTRARIAN STOCK FUND may not
purchase a security if, as a result, more than 25% of the Fund's
total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided, (i) there is no limit on investments in U.S.
Government Securities, or in repurchase agreements covering U.S.
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Government Securities, municipal securities are not treated as
involving a single industry, (iii) financial service companies
are classified according to the end users of their services (for
example, automobile finance, bank finance and diversified
finance) (iv) utility companies are classified according to their
services (for example, gas, gas transmission, electric and gas,
electric and telephone). Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, the Fund may
invest in one or more investment companies; provided that, except
to the extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund treats
the assets of the investment companies in which it invests as its
own for purposes of this policy.
(f) INTERNATIONAL FUND may not purchase a security if, as a result,
more than 25% of the Fund's total assets would be invested in
securities of issuers conducting their principal business
activities in the same industry; provided, (i) there is no limit
on investments in U.S. Government Securities, or in repurchase
agreements covering U.S. Government Securities, (ii) there is no
limit on investment in issuers domiciled in a single country,
(iii) financial service companies are classified according to the
end users of their services (for example, automobile finance,
bank finance and diversified finance) and (iv) utility companies
are classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone).
Notwithstanding anything to the contrary, to the extent permitted
by the 1940 Act, the Fund may invest in one or more investment
companies; provided that, except to the extent the Fund invests
in other investment companies pursuant to Section 12(d)(1)(A) of
the 1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of this
policy.
(g) STABLE INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND,
DIVERSIFIED BOND FUND, CONSERVATIVE BALANCED FUND, MODERATE
BALANCED FUND, GROWTH BALANCED FUND, INCOME EQUITY FUND, INDEX
FUND, DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE COMPANY
GROWTH FUND, SMALL COMPANY GROWTH FUND and INTERNATIONAL FUND may
not purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same
industry; provided, however, that there is no limit on
investments in U.S. Government Securities, repurchase agreements
covering U.S. Government Securities, foreign government
securities, mortgage-related or housing-related securities,
municipal securities and issuers domiciled in a single country;
that financial service companies are classified according to the
end users of their services (for example, automobile finance,
bank finance and diversified finance); that utility companies are
classified according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone.
Notwithstanding anything to the contrary, to the extent permitted
by the 1940 Act, the Fund may invest in one or more investment
companies; provided that, except to the extent the Fund invests
in other investment companies pursuant to Section 12(d)(1)(A) of
the 1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of this
policy.
(3) BORROWING
(a) Prime Money Market Portfolio, Money Market Portfolio, Total
Return Bond Portfolio, Small Company Stock Portfolio,Growth
Stock Fund, Small Company Stock Fund and Contrarian Stock Fund
may borrow money from banks or by entering into reverse
repurchase agreements, but the Fund will limit borrowings to
amounts not in excess of 33 1/3% of the value of the Fund's
total assets (computed immediately after the borrowing).
(b) STABLE INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND,
DIVERSIFIED BOND FUND, CONSERVATIVE BALANCED FUND, MODERATE
BALANCED FUND, GROWTH BALANCED FUND, INCOME EQUITY FUND, INDEX
FUND, DIVERSIFIED EQUITY FUND, GROWTH EQUITY FUND, LARGE
COMPANY GROWTH FUND, SMALL COMPANY GROWTH FUND and
INTERNATIONAL FUND may borrow money for temporary or emergency
purposes, including the meeting of redemption requests, but
not in excess of 33 1/3% of the value of the Fund's total
assets (as computed immediately after the borrowing).
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(4) ISSUANCE OF SENIOR SECURITIES
NO FUND may issue senior securities except to the extent permitted by
the 1940 Act.
(5) UNDERWRITING ACTIVITIES
NO FUND may underwrite securities of other issuers, except to the
extent that the Fund may be considered to be acting as an underwriter
in connection with the disposition of portfolio securities.
(6) MAKING LOANS
NO FUND may make loans, except a Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted
investments and lend portfolio securities.
(7) PURCHASES AND SALES OF REAL ESTATE
EACH FUND, INTERNATIONAL FUND, TAX-FREE INCOME FUND may not purchase or
sell real estate or any interest therein or real estate limited
partnership interests, except that the Fund may invest in debt
obligations secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein.
(8) PURCHASES AND SALES OF COMMODITIES
EACH FIXED INCOME FUND, EQUITY FUND, and BALANCED FUND may not purchase
or sell physical commodities or contracts, options or options on
contracts to purchase or sell physical commodities; provided that
currency and currency-related contracts and contracts on indices will
not be deemed to be physical commodities.
NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations which are not
fundamental policies of the Fund. Reference to the International Fund includes
reference to International Fund, which has the same fundamentals as policies may
be changed by the Board, or in the case of International Portfolio, the Core
Trust Board.
(1) DIVERSIFICATION
(a) To the extent required to qualify as a regulated investment
company, and with respect to 50% of its assets, Municipal Money
Market Fund may not purchase a security other than a U.S.
Government Security, if as a result, more than 5% of the Fund' s
total assets would be invested in the section as a single issuer
or the Fund would own more than 10% of the outstanding rate
securities of any single issuer.
(b) With respect to each of COLORADO TAX-FREE FUND and MINNESOTA
TAX-FREE FUND, the Fund is "non-diversified" as that term is
defined in the 1940 Act.
(c) With respect to each of COLORADO TAX-FREE FUND and MINNESOTA
TAX-FREE FUND, to the extent required to qualify as a regulated
investment company under the [Internat Revenue] Code [of 1986, as
amended], the Fund may not purchase a security (other than a U.S.
Government security or a security of an investment company) if,
as a result (i) with respect to 50% of its assets, more than 5%
of the Fund's total assets would be invested in the securities of
any single issuer, (ii) with respect to 50% of its assets, the
Fund would own more than 10% of the outstanding securities of any
single issuer, or (iii) more than 25% of the Fund's total assets
would be invested in the securities of any single issuer.
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<PAGE>
(2) BORROWING
EACH FUND'S (other than INTERMEDIATE GOVERNMENT INCOME FUND'S and
DIVERSIFIED BOND FUND'S) borrowings for other than temporary or
emergency purposes or meeting redemption requests may not exceed an
amount equal to 5% of the value of the Fund's net assets. When STABLE
INCOME FUND, INTERMEDIATE GOVERNMENT INCOME FUND, DIVERSIFIED BOND
FUND, CONSERVATIVE BALANCED FUND, MODERATE BALANCED FUND, GROWTH
BALANCED FUND, INCOME EQUITY FUND, INDEX FUND, DIVERSIFIED EQUITY FUND,
GROWTH EQUITY FUND, LARGE COMPANY GROWTH FUND, SMALL COMPANY GROWTH
FUND and INTERNATIONAL FUND establish a segregated account to limit the
amount of leveraging with respect to certain investment techniques,
they do not treat those techniques as involving borrowings for purposes
of this or other borrowing limitations.
(3) ILLIQUID SECURITIES
(a) EACH MONEY MARKET FUND may not acquire securities or invest in
repurchase agreements with respect to any securities if, as a
result, more than 10% of the Fund's net assets (taken at
current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days
and in securities which are not readily marketable, including
securities that are not readily marketable by virtue of
restrictions on the sale of such securities to the public
without registration under the 1933 Act ("Restricted
Securities").
(b) EACH FIXED INCOME FUND, EQUITY FUND and BALANCED FUND may not
acquire securities or invest in repurchase agreements with
respect to any securities if, as result, more than 15% of the
Fund's net assets (taken at current value) would be invested
in repurchase agreements not entitling the holder to payment
of principal within seven days and in securities which are not
readily marketable, including securities that are not readily
marketable by virtue of restrictions on the sale of such
securities to the public without registration under the 1933
Act ("Restricted Securities").
(4) OTHER INVESTMENT COMPANIES
EACH FUND may not invest in securities of another investment company,
except to the extent permitted by the 1940 Act.
(5) MARGIN AND SHORT SALES
EACH FUND (other than INTERMEDIATE GOVERNMENT INCOME FUND) may not
purchase securities on margin, or make short sales of securities
(except short sales against the box), except for the use of short-term
credit necessary for the clearance of purchases and sales of portfolio
securities. Each Fund may make margin deposits in connection with
permitted transactions in options, futures contracts and options on
futures contracts. NO FUND may enter short sales if, as a result, more
that 25% of the value of the Fund's total assets would be so invested,
or such a position would represent more than 2% of the outstanding
voting securities of any single issuer or class of an issuer.
(6) UNSEASONED ISSUERS
NO FUND may not invest in securities (other than fully-collateralized
debt obligations) issued by companies that have conducted continuous
operations for less than three years, including the operations of
predecessors, unless guaranteed as to principal and interest by an
issuer in whose securities the Fund could invest, if, as a result, more
than 5% of the value of the Fund's total assets would be so invested;
provided, that each Fund may invest all or a portion of its assets in
another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions
as the Fund.
33
(7) PLEDGING
<PAGE>
NO FUND may pledge, mortgage, hypothecate or encumber any of its assets
except to secure permitted borrowings or to secure other permitted
transactions.
(8) SECURITIES WITH VOTING RIGHTS
NO MONEY MARKET FUND or FIXED INCOME FUND may purchase securities
having voting rights except securities of other investment companies;
provided that the Funds may hold securities with voting rights obtained
through a conversion or other corporate transaction of the issuer of
the securities, whether or not the Fund was permitted to exercise any
rights with respect to the conversion or other transaction.
(9) LENDING OF PORTFOLIO SECURITIES
NO FUND may lend portfolio securities if the total value of all loaned
securities would exceed 33 1/3% of the Fund's total assets.
(10) REAL ESTATE LIMITED PARTNERSHIPS
NO FUND may invest in real estate limited partnerships.
(11) OPTIONS AND FUTURES CONTRACTS
(a) NO MONEY MARKET FUND may invest in options, futures contracts
or options on futures contracts.
(b) NO FIXED INCOME FUND, EQUITY FUND or BALANCED FUND may
purchase an option if, as a result, more that 5% of the value
of the Fund's total assets would be so invested.
(12) WARRANTS
NO FUND may invest in warrants if (i) more than 5% of the value of the
Fund's net assets would will be invested in warrants (valued at the
lower of cost or market) or (ii) more than 2% of the value of the
Fund's net assets would be invested in warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange; provided,
that warrants acquired by a Fund attached to securities are deemed to
have no value.
(13) TREASURY FUND INVESTMENT LIMITATIONS
TREASURY FUND may not enter into repurchase agreements or purchase any
security other than those that are issued or guaranteed by the U.S.
Treasury, including separately traded principal and interest components
of securities issued or guaranteed by the U.S. Treasury.
(14) PURCHASES AND SALES OF COMMODITIES
NO MONEY MARKET FUND may purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities, provided that currencies and currency-related contracts
and contracts on indices are not be deemed to be physical commodities.
(15) VALUGROWTH STOCK FUND INVESTMENT LIMITATIONS
VALUGROWTH STOCK FUND may not enter into commitments under when-issued
and forward commitment obligations in an amount greater than 15% of the value of
the Fund's total assets.
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<PAGE>
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. There can be no assurance that the Money Market Funds will be able
maintain a stable net asset value of $1.00.
For a listing of certain performance data as of May 31, 1996, see Appendix
Performance Data.
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"). The Funds may also refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of the
Funds' and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that each Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in a Fund
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yields of a Fund are
not fixed or guaranteed, and an investment in a Fund is not insured or
guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of a Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
MONEY MARKET FUNDS
Yield quotations for the Money Market Funds will include an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a specific seven-calendar-day period and are calculated by dividing the
net change during the seven-day period in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period, and multiplying the quotient by 365/7. For this
purpose, the net change in account value reflects the value of additional shares
purchased with dividends declared on the original share and dividends declared
on both the original share and any such additional shares, but would not reflect
any realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
annualized yield quotation used by a Money Market Fund is calculated by
compounding the current yield quotation for such period by adding 1 to the
product, raising the sum to a power equal to 365/7, and subtracting 1 from the
result. The standardized tax equivalent yield is the rate an investor would have
to earn from a fully taxable investment in order to equal a Fund's yield after
taxes. Tax
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<PAGE>
equivalent yields are calculated by dividing the Fund's yield by one minus the
stated Federal or combined Federal and state tax rate. If a portion of a Fund's
yield is tax-exempt, only that portion is adjusted in the calculation.
FIXED INCOME AND EQUITY FUNDS
Standardized yields for the Funds used in advertising are computed by dividing a
Fund's interest income (in accordance with specific standardized rules) for a
given 30 days or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income in accordance with specific
standardized rules) in order to arrive at an annual percentage rate. In general,
interest income is reduced with respect to municipal securities purchased at a
premium over their par value by subtracting a portion of the premium from income
on a daily basis. In general, interest income is increased with respect to
municipal securities purchased at original issue at a discount by adding a
portion of the discount to daily income. Capital gains and losses generally are
excluded from these calculations.
The standardized tax equivalent yield is the rate an investor would have to earn
from a fully taxable investment in order to equal a Fund's yield after taxes.
Tax equivalent yields are calculated by dividing the Fund's yield by one minus
the stated Federal or combined Federal and state tax rate. If a portion of a
Fund's yield is tax-exempt, only that portion is adjusted in the calculation.
Income calculated for the purpose of determining each Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, any change in the Fund's net asset value per
share over the period and maximum sales charge, if any, applicable to purchases
of the Fund's shares. Average annual total returns are calculated, through the
use of a formula prescribed by the SEC, by determining the growth or decline in
value of a hypothetical historical investment in a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years. The
average annual total return is computed separately for each class of shares of a
Fund. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period
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
36
<PAGE>
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration. Period total return is calculated according to the following
formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
MULTICLASS, COLLECTIVE TRUST FUND AND MASTER-FEEDER PERFORMANCE
MULTICLASS PERFORMANCE
When a Fund has more than one class of shares, performance calculations for the
classes of shares that are created after the initial class may be stated so as
to include the performance of the initial class or classes of the Fund.
Generally, performance of the initial class is not restated to reflect the
expenses or expense ratio of the subsequent class. For instance, if A Shares of
a Fund are created after I Shares have been in existence, the inception of
performance for the A Shares will be deemed to be the inception date of the I
Shares and the performance of the I Shares (based on the I Shares actual
expenses) from the inception of I Shares to the inception of A Shares will be
deemed to be the performance of A Shares for that period. For standardized total
return calculations, the current maximum initial sales load on A Shares would be
used in determining the total return of A Shares as if assessed at the inception
of I Shares. Generally, the performance of B Shares will be calculated only from
the inception date of B Shares, regardless of the existence of prior share
classes in the same Fund.
COLLECTIVE TRUST FUND PERFORMANCE
Prior to November 11, 1994, Norwest Bank Minnesota, N.A. managed several
collective trust funds with investment objectives and investment policies
substantially similar to those of certain of the Funds. Therefore, the
performance for those applicable Funds includes the performance of their
predecessor collective investment funds for periods before those funds became
mutual funds on November 11, 1994. The collective investment fund performance
was adjusted to reflect those Funds 1994 estimate of their expense ratios for
the first year of operations as a mutual fund. The collective investment funds
were not registered under the 1940 Act or subject to certain investment
restrictions that are imposed by the Act. If the collective investment fund had
been registered under the 1040 Act, the collective investment fund historical
return may have been adversely affected. The performance of International Fund
reflects the historical performance of Schroder International Equity Fund
(managed by Schroder Capital Management International Inc.) in which the
collective investment fund invested. Performance of International Fund has been
adjusted to reflect fees and expenses of the Schroder International Equity Fund.
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. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge; excluding sales charges from a total return calculation produces a
higher return figure. Any performance information may be presented numerically
or in a table, graph or similar illustration.
37
<PAGE>
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.
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:
<TABLE>
<S> <C> <C> <C> <C>
Systematic Share Shares
Period Investment Price Purchased
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
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
38
<PAGE>
marginal Federal an 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
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 October 31, 1996 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.
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<PAGE>
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.
Timothy J. Penny, Trustee, Age 45.
Senior Counselor to the public relations firm of Himle-Horner since
January 1995 and Senior Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since January 1995. Prior
thereto Mr. Penny was the Representative to the United States Congress
from Minnesota's First Congressional District. His address is 500 North
State Street, Waseca, Minnesota 56095.
Donald C. Willeke, Trustee, Age 56.
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
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.
Counsel, Forum Financial Services, Inc., with which he has been
associated since 1991. Prior thereto, Mr. Goldstein was associated
with the law firm of Kirkpatrick & Lockhart. Mr. Goldstein is also an
officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
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.
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<PAGE>
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. Prior thereto, associate at
Morrison & Foerster since September 1994, prior thereto associate
corporate counsel at Franklin Resources, Inc. since September 1993, and
prior thereto associate at Drinker Biddle & Reath, Washington, D.C. Her
address is Two Portland Square, Portland, Maine 04101.
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 Assistant
Secretary 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 26.
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 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. Mr. Willeke
was appointed a Trustee in July 1995 and Mr. Penny was appointed a Trustee in
January 1996.
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.
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<TABLE>
<S> <C> <C>
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 $28,000 $28,975
Mr. Leach $33,000 $33,970
Mr. Penny $16,000 $16,985
Mr. Willeke $29,973 $30,000
</TABLE>
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 June 1, 1997, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Funds.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer, Goldstein, Butt, Sheehan, and Misses. Clark and
Walker, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Management - Trustees and Officers - Trustees and Officers of the Trust."
John Y. Keffer,* Chairman and President.
Costas Azariadis, Trustee, Age 53.
Professor of Economics, University of California, Los Angeles, since
July 1992. Prior thereto, Dr. Azariadis was Professor of Economics at
the University of Pennsylvania. His address is Department of
Economics, University of California, Los Angeles, 405 Hilgard Avenue,
Los Angeles, California 90024.
James C. Cheng, Trustee, Age 54.
Managing Director, Forum Financial Services, Inc. since September
1991. President of Technology Marketing Associates (a marketing
consulting company) since September 1991. Prior thereto, Mr. Cheng was
President and Chief Executive Officer of Network Dynamics,
Incorporated (a software development company). His address is Two
Portland Square, Portland, Maine 04101.
J. Michael Parish, Trustee, Age 53.
Partner at the law firm of Winthrop Stimson Putnam & Roberts since
1989. Prior thereto, he was a partner at LeBoeuf, Lamb, Leiby & MacRae,
a law firm of which he was a member from 1974 to 1989. His address is
40 Wall Street, New York, New York 10005.
Richard C. Butt, Treasurer
Sara M. Clark, Vice President, Assistant Secretary and Assistant Treasurer.
David I. Goldstein, Secretary.
Thomas G. Sheehan, Assistant Secretary.
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Renee A. Walker, Assistant Secretary
INVESTMENT ADVISORY SERVICES
GENERAL
Table 1 in Appendix B shows the dollar amount of fees payable under the
Investment Advisory Agreements between Norwest and the Trust with respect to
each Fund, the amount of fee that was waived by Norwest, if any, and the actual
fee received by Norwest. That table also shows similar information with respect
to Schroder for its services to International Portfolio. The data is for the
past three fiscal years or a shorter period if the Fund has been in operation
for a shorter period.
The advisory fee for each fund (and any class of the fund) is based on the
average daily net asset of each fund (or class thereof) at the annual rate
disclosed in the fund's prospectives.
All investment advisory fees are accrued daily and paid monthly. The Advisers,
in their its sole discretion, may waive or continue to waive all or any portion
of their investment advisory fees.
In addition to receiving its advisory fee from the Funds, Norwest or its
affiliates may act and be compensated as investment manager for their 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." and "-Crestone
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 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 when authorized either by vote of the Fund's
shareholders or by a vote of a majority of the Board of Trustees, or by Norwest
on not more than 60 days' nor less than 30 days' written notice, and will
automatically terminate in the event of its assignment. The Investment Advisory
Agreements also provide that, with respect to the Funds, 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 their duties to the Fund, except for
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 Index Portfolio and Small Company
Portfolio, two separate series of Core Trust in which Conservative Balanced
Fund, Moderate Balanced Fund, Growth Balanced Fund, Diversified Equity Fund and
Growth Equity Fund (the "Blended Funds") invest a portion of their assets. The
Blended Funds also invest a portion of their assets in International Portfolio
II of Core Trust. See "Investment Advisory Services --
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<PAGE>
Schroder Capital Management International, Inc.-- International
Portfolio/International Portfolio II" below. The investment advisory agreements
between Core Trust on behalf of Index Portfolio and Small Company Portfolio are
identical to the Investment Advisory Agreements between the Trust and Norwest,
except for the fees payable thereunder and certain immaterial matters. While the
Advisor receives investment advisory fees from the Blended Funds, Norwest is
required to waive all of its investment advisory fees payable by Index Portfolio
and Small Company Portfolio.
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL, INC.-- INTERNATIONAL
PORTFOLIO/INTERNATIONAL PORTFOLIO II
International Fund invests all of its assets in International Portfolio and each
Blended Fund invests a portion of its assets in International Portfolio II.
Pursuant to separate Advisory Agreements between Core Trust and Schroder,
Schroder acts as investment adviser to International Portfolio and International
Portfolio II and is required to furnish at its expense all services, facilities
and personnel necessary in connection with managing International Portfolio's
investments and effecting portfolio transactions for International Portfolio.
The Advisory Agreement between International Portfolio and Schroder and
International Portfolio II and Schroder each will continue in effect only if
such continuance is specifically approved at least annually by the Core Trust or
by vote of the holders of beneficial interest of the respective Portfolio, and
in either case by a majority of the Trustees of Core Trust who are not parties
to the Advisory Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Advisory Agreement.
The Advisory Agreements and Investment Subadvisory Agreements are each
terminable without penalty by the respective Portfolio or Fund on 60 days'
written notice when authorized either by vote of the unitholders of the
Portfolio or Fund, as applicable or by a vote of a majority of the Core Trust
Board or Board as applicable, or by Schroder on not more than 60 days' nor less
than 30 days' written notice, and will automatically terminate in the event of
their assignment. The Advisory Agreements and Investment Subadvisory Agreements
also provide that, with respect to each Portfolio or Fund, neither Schroder nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the performance of its or their duties to the Portfolio
or Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of Schroder's or their duties or by reason of reckless disregard of
its or their obligations and duties under the Advisory Agreement. The Advisory
Agreements provide and Investment Subadvisory Agreements that Schroder may
render service to others.
On behalf of Blended Fund and International, Norwest and the Trust have entered
into an Investment Subadvisory Agreement with Schroder. An Investment
Subadvisory Agreement would become operative and Schroder would directly manage
a Fund's assets if the Board determined it was no longer in the best interest of
the Fund to invest in international securities by investing in another
registered investment company. In that event, pursuant to the Investment
Subadvisory Agreement Schroder would makes investment decisions directly for a
Fund and continuously review, supervise and administer the Fund's investment
program with respect to that portion, if any, of the Fund's portfolio that
Norwest has so delegated. Schroder would be required to furnish at its own
expense all services, facilities and personnel necessary in connection with
managing of the Funds' investments and effecting portfolio transactions for the
Funds (to the extent of Norwest's delegation).
The Investment Subadvisory Agreements will continue in effect only if such
continuance is specifically approved at least annually by the Board or by vote
of the shareholders of the respective Fund, and in either case by a majority of
the Trustees who are not interested persons of any party to the Investment
Subadvisory Agreement, at a meeting called for the purpose of voting on the
Investment Subadvisory Agreement.
No payments are made under the Funds' Investment Subadvisory Agreements with
Schroder because no assets are allocated to Schroder to manage directly.
The Advisory Agreements between Schroder and Core Trust on behalf of
International Portfolio and International Portfolio II are identical to the
Investment Advisory Agreements between the Trust and Norwest, except for the
fees payable thereunder and certain immaterial matters. Norwest is required to
reimburse International Portfolio II in an amount equal to the investment
advisory fees payable by the Portfolio to Schroder.
44
<PAGE>
CRESTONE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with the Small Company Stock Fund (the "Fund"), Norwest has entered
into a Sub-Investment Advisory Agreement with Crestone, located at 7720 East
Belleview Avenue, Suite 220, Englewood, Colorado 80111. Crestone is registered
with the SEC as an investment adviser and is a non-wholly owned subsidiary of
Norwest. Pursuant to the Sub-Investment Advisory Agreement, Crestone makes
investment decisions for the Fund and continuously reviews, supervises and
administers the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio that Norwest believes should be invested using Crestone
as a subadviser. Currently, Crestone manages the entire portfolio of the Fund
and has since the Fund's inception. Norwest supervises the performance of
Crestone including its adherence to the Portfolio's investment objectives and
policies and pays Crestone a fee for its investment management services. For its
services under the Sub-Investment Advisory Agreement, Norwest pays Crestone a
fee based on the Fund's average daily net assets at an annual rate of 0.40% on
the first $30 million; 0.30% on the next $30 million; 0.20% on the next $40
million and 0.15% on all sums in excess of $100 million. For the Fund's fiscal
years ended May 31, 1996, 1995 and 1994, Norwest paid Crestone subadvisory fees
of $180,748, $137,862 and $8,792, respectively.
Under its Sub-Investment Subadvisory Agreement, Crestone makes investment
decisions for the Fund and continuously reviews, supervises and administers the
Fund's investment program with respect to that portion, if any, of the Fund's
portfolio for which Norwest has delegated management responsibility. Crestone is
required to furnish at its own expense all services, facilities and personnel
necessary in connection with managing of the Fund's investments and effecting
portfolio transactions for the Fund (to the extent of Norwest's delegation).
The Sub-Investment Advisory Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by vote
of the shareholders of the Fund, and in either case by a majority of the
Trustees who are not interested persons of any party to the Sub-Investment
Advisory Agreement, at a meeting called for the purpose of voting on the
Sub-Investment Advisory Agreement.
The Sub-Investment Agreement is terminable without penalty by the Fund on 60
days' written notice when authorized either by vote of the Fund's shareholders
or by a vote of a majority of the Board, or by Crestone on not more than 60
days' nor less than 30 days' written notice, and will automatically terminate in
the event of its assignment. The Sub-Investment Advisory Agreement also provides
that neither Crestone 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 its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Sub-Investment
Advisory Agreement. The Sub-Investment Advisory Agreement provides that Crestone
may render services to others.
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 adviser and is an investment advisory subsidiary
of Norwest Bank. Pursuant to the Sub-Investment Advisory Agreement, Galliard
makes investment decisions for the Fund and continuously reviews, supervises and
administers the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio that Norwest believes should be invested using Galliard
as a subadviser. Currently, Galliard manages the entire portfolio of the Fund
and has 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.
Under its Sub-Investment Subadvisory Agreement, Galliard makes investment
decisions for the Fund and continuously reviews, supervises and administers the
Fund's investment program with respect to that portion, if any,
45
<PAGE>
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 the Fund's
investments and effecting portfolio transactions for the Fund (to the extent of
Norwest's delegation).
The Sub-Investment Advisory Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by vote
of the shareholders of the Fund, and in either case by a majority of the
Trustees who are not interested persons of any party to the Sub-Investment
Advisory Agreement, at a meeting called for the purpose of voting on the
Sub-Investment Advisory Agreement.
The Sub-Investment Agreement is terminable without penalty by the Fund on 60
days' written notice when authorized either by vote of the Fund's shareholders
or by a vote of a majority of the Board, or by Galliard on not more than 60
days' nor less than 30 days' written notice, and will automatically terminate in
the event of its assignment. The Sub-Investment Advisory Agreement also provides
that neither Galliard 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 its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Sub-Investment
Advisory Agreement. The Sub-Investment Advisory Agreement provides that Galliard
may render services to others.
PEREGRINE CAPITAL MANAGEMENT, INC.
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with 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 (the "Funds"),
Norwest has entered into an Investment Subadvisory Agreement with Peregrine,
located at 800 LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55479.
Peregrine 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, Peregrine makes investment decisions for the Fund and
continuously reviews, supervises and administers the Fund's investment program
with respect to that portion, if any, of the Fund's portfolio that Norwest
believes should be invested using Peregrine as a subadviser. Currently,
Peregrine manages the entire portfolio of the Fund and has since the Fund's
inception. Norwest supervises the performance of Peregrine including its
adherence to the Portfolio's investment objectives and policies and pays
Peregrine a fee for its investment management services.
Under its Sub-Investment Subadvisory Agreement, Peregrine makes investment
decisions for the Fund and continuously reviews, supervises and administers the
Fund's investment program with respect to that portion, if any, of the Fund's
portfolio for which Norwest has delegated management responsibility. Peregrine
is required to furnish at its own expense all services, facilities and personnel
necessary in connection with managing of the Fund's investments and effecting
portfolio transactions for the Fund (to the extent of Norwest's delegation).
The Sub-Investment Advisory Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by vote
of the shareholders of the Fund, and in either case by a majority of the
Trustees who are not interested persons of any party to the Sub-Investment
Advisory Agreement, at a meeting called for the purpose of voting on the
Sub-Investment Advisory Agreement.
The Sub-Investment Agreement is terminable without penalty by the Fund on 60
days' written notice when authorized either by vote of the Fund's shareholders
or by a vote of a majority of the Board, or by Peregrine on not more than 60
days' nor less than 30 days' written notice, and will automatically terminate in
the event of its assignment. The Sub-Investment Advisory Agreement also provides
that neither Peregrine 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 its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Sub-Investment
Advisory Agreement. The Sub-Investment Advisory Agreement provides that
Peregrine may render services to others.
46
<PAGE>
UNITED CAPITAL MANAGEMENT
To assist Norwest in carrying out its obligations under the Investment Advisory
Agreement with Diversified Bond Fund, Total Return Bond Fund, Conservative
Balanced Fund, Moderate Balanced Fund, Growth Balanced Fund and Contrarian Stock
Fund (the "Funds"), Norwest has entered into an Investment Subadvisory Agreement
with United Capital Management, located at 1700 Lincoln Street, Suite 3301,
Denver, Colorado 80274. United Capital Management is registered with the SEC as
an investment adviser and is a division of Norwest Bank Colorado, N.A.. Pursuant
to the Sub-Investment Advisory Agreement, United Capital management makes
investment decisions for the Fund and continuously reviews, supervises and
administers the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio that Norwest believes should be invested using United
Capital management as a subadviser. Currently, United Capital management manages
the entire portfolio of the Fund and has since the Fund's inception. Norwest
supervises the performance of United Capital management including its adherence
to the Portfolio's investment objectives and policies and pays United Capital
management a fee for its investment management services.
Under its Sub-Investment Subadvisory Agreement, United Capital management makes
investment decisions for the Fund and continuously reviews, supervises and
administers the Fund's investment program with respect to that portion, if any,
of the Fund's portfolio for which Norwest has delegated management
responsibility. United Capital management is required to furnish at its own
expense all services, facilities and personnel necessary in connection with
managing of the Fund's investments and effecting portfolio transactions for the
Fund (to the extent of Norwest's delegation).
The Sub-Investment Advisory Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by vote
of the shareholders of the Fund, and in either case by a majority of the
Trustees who are not interested persons of any party to the Sub-Investment
Advisory Agreement, at a meeting called for the purpose of voting on the
Sub-Investment Advisory Agreement.
The Sub-Investment Agreement is terminable without penalty by the Fund on 60
days' written notice when authorized either by vote of the Fund's shareholders
or by a vote of a majority of the Board, or by United Capital management on not
more than 60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. The Sub-Investment Advisory Agreement
also provides that neither United Capital management 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 its or their
duties or by reason of reckless disregard of its or their obligations and duties
under the Sub-Investment Advisory Agreement. The Sub-Investment Advisory
Agreement provides that United Capital management 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 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
47
<PAGE>
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 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.
Forum 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, Forum Administrative (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, 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
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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 Internal Revenue Code of 1986, 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 Forum
Administrative nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of Forum Administrative'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 Forum Administrative 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 Forum Administrative's Administration Agreement, respectively.
Forum and Forum Administrative may compensate those agents for their services;
however, no such compensation may increase the aggregate amount of payments by
the Trust to Forum or Forum Administrative pursuant to their Management and
Administration Agreements with the Trust.
Table 2 in Appendix B shows the dollar amount of fees payable to Forum for its
management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding), the amount of fee that was
waived by Forum, if any, and the actual fee received by Forum. The data is for
the past three fiscal years or shorter period if the Fund has been in operation
for a shorter period.
The Administration Agreement became effective on October 1, 1996 and,
accordingly, no fees have been paid pursuant to that agreement during the past
three years.
PORTFOLIOS OF CORE TRUST
Forum manages all aspects of Core Trust's operations with respect to small
company portfolio, International Portfolio II (the "Blended Portfolios") and
International Portfolio (collectively, 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 Forum
Administrative perform for the Blended Funds under the Management and
Administration Agreements, to the extent the services are applicable to the
Portfolios and their structure. Forum and Forum Administrative waive their fees
payable by each of the Blended Funds under the Management and Administration
Agreements to the extent those Funds incur indirectly management fees charged by
Forum to a Blended Portfolio.
NORWEST ADMINISTRATIVE SERVICES
Under an Administrative Servicing Agreement between the Trust and Norwest with
respect to International Fund, Norwest performs ministerial, administrative and
oversight functions for the Fund and undertakes to reimburse certain excess
expenses of the Fund. Among other things, Norwest gathers performance and other
data from Schroder as the adviser of International Portfolio and from other
sources, formats the data and prepares reports to the Fund's shareholders and
the Trustees. Norwest also insures that Schroder is aware of pending net
purchases or redemptions of Fund shares and other matters that may affect
Schroder's performance of its duties. Lastly, Norwes
49
<PAGE>
has agreed to reimburse the Fund for any amounts by which its operating expenses
(exclusive of interest, taxes and brokerage fees, organization expenses and, if
applicable, distribution expenses, all to the extent permitted by applicable
state law or regulation) exceed the limits prescribed by any state in which the
Fund's shares are qualified for sale. No fees will be paid to Norwest under the
Administrative Servicing Agreement unless the Fund's assets are invested solely
in International Portfolio or in a portfolio of another registered investment
company. This agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by the shareholders and,
in either case, by a majority of the Trustees who are not parties to the
Management Agreement or interested persons of any such party.
The 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.
Table 2 in Appendix B shows the dollar amount of fees payable under the
Servicing Agreement, the amount of the fee that was waived, if any, and the
amount received by Norwest for the past three fiscal years of the Fund.
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.
Under the Distribution Services Agreement related to the Fixed Income Equity and
Balanced Funds, 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 Fixed Income and Equity Fund, and with
respect to Exchange Shares of Ready Cash Investment Fund, the Funds have adopted
a distribution plan pursuant to Rule 12b-1 under
50
<PAGE>
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, Ready Cash
Investment Fund, ValuGrowth Stock Fund, Small Company Stock Fund, Contrarian
Stock Fund, Income Fund, Tax-Free Income Fund, Total Return Bond Fund and
Minnesota Tax-Free Fund would continue to pay distribution services fees for no
more than four years. In contrast, payments by Stable Income Fund, Intermediate
Government Income Fund, Growth Equity Fund and Diversified Equity Fund would
continue until such time as there exist no outstanding uncovered distribution
charges attributable to the Fund and, therefore, could continue for periods of
time beyond four years after the date of termination.
In addition, pursuant to the Plan each of Stable Income Fund, Income Equity
Fund, Intermediate Government Income Fund, Diversified Equity Fund and Growth
Equity Fund may, subject to approval by the Trustees, assume and pay (i) any
uncovered distribution charges of the distributor of a fund whose assets are
being acquired by the Fund and (ii) any other amounts expended for distribution
on behalf of such fund that are not reimbursed or paid by the fund upon the
merger or combination with or acquisition of substantially all of the assets of
that fund.
Table 3 in Appendix B shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1994, 1995 and 1996. With respect to each Fund, Forum has paid brokers that sold
B Shares in amounts greater than the distribution fees received by Forum with
respect to that Fund. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
51
<PAGE>
Table 4 in Appendix B shows the dollar amount of sales charges payable to Forum
with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares) and the amount of sales charge retained
by Forum and not reallowed to other persons. The data is for the past three
fiscal years or shorter period if the Fund has been in operation for a shorter
period.
TRANSFER AGENT
Norwest Bank acts as Transfer Agent of the Trust pursuant to a Transfer Agency
Agreement. The Transfer Agency Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board or by a vote
of the shareholders of the Trust and in either case by a majority of the
Trustees who are not parties to the Transfer Agency Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
The responsibilities of the Transfer Agent include: (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 from the Trust, with respect to
Cash Investment Fund, U.S. Government Fund, Treasury Fund, Investor Shares and
Exchange Shares of Ready Cash Investment Fund, Investor Shares of Municipal
Money Market Fund and each class of each Fixed Income and Equity Fund, a fee
computed and paid monthly at the annual rate of 0.25% of the Fund's average
daily net assets (or, in those Funds with more than one class, the Fund's
average daily net assets attributable to the class). For its services, the
Transfer Agent receives from the Trust, with respect to Institutional Shares of
Ready Cash Investment Fund and Municipal Money Market Fund, a fee computed and
paid monthly at the annual rate of 0.10% of the Fund's average daily net assets
attributable to the class plus reimbursement of Norwest Bank's out-of-pocket
expenses relating to the Institutional Shares.
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank acts as the custodian of the
Trust's assets (in this capacity the "Custodian"). 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.
With respect to Cash Investment Fund, U.S. Government Fund and Treasury Fund,
the Custodian's fee for any fiscal year of the Trust will not exceed 0.03% of
the Fund's average daily net assets. With respect to Ready Cash Investment Fund,
Municipal Money Market Fund, Income Fund, Total Return Bond Fund, Limited Term
Tax-Free Fund, Tax-Free Income Fund, Colorado Tax-Free Fund, Minnesota Tax-Free
Fund, ValuGrowth Stock Fund, Small
Company Stock Fund and Contrarian Stock Fund, the Custodian's fee for any fiscal
year of the Trust will not exceed
0.05% of the Fund's average daily net assets. The fee is Stable Income Fund,
Intermediate Government Income Fund, Diversified Bond Fund, each Balanced Fund,
Income Equity Fund, Index Fund, Diversified Equity Fund,
52
<PAGE>
Growth Equity Fund, Large Company Growth Fund, Small Company Growth Fund and
International Fund pay no custodian fees, but incur the expenses of
subcustodians. In addition, the Funds permitted to lend their portfolio
securities pay, the custodian a separate fee for performing certain functions in
connection with those loans.
Pursuant to rules adopted under the 1940 Act, Conservative Balanced Fund,
Moderate Balanced Fund, Growth Balanced Fund, Diversified Equity Fund, Growth
Equity Fund and International Fund may maintain their 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. The Chase Manhattan Bank, N.A.,
through its Global Custody Division located in London, England, acts as
custodian for International Portfolio and International Portfolio II, but plays
no role in making decisions as to the purchase or sale of portfolio securities.
International Fund will not pay custodian fees to the extent the Fund invests in
shares of another registered investment company. International Fund incurs,
however, its proportionate share of the custodial fees of International
Portfolio and Conservative Balanced Fund, Moderate Balanced Fund, Growth
Balanced Fund, Diversified Equity Fund and Growth Equity Fund incur their
proportionate share of the custodial fees of International Portfolio II.
PORTFOLIO ACCOUNTING
FFC, 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, FFC 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, FFC receives
from the Trust with respect to each Fund a fee of $36,000 per year plus, for
each class of the Fund above one, $12,000 per year. In addition, FFC is paid an
additional $12,000 per year with respect to tax-free money market funds, global
and international funds and funds with more than 25% of their total assets
invested in asset backed securities, that have more than 100 security positions
or that have a monthly portfolio turnover rate of 10% or greater. As of October
1, 1996 those funds included Municipal Money Market Fund, International Fund,
Stable Income Fund and Intermediate Government Income Fund. Under International
Fund's Fund Accounting Agreement so long as all of the Fund's investments
consist solely of securities of International Portfolio or any other registered
investment company, the Fund pays $12,000 per year plus $12,000 for each class
of shares above one.
FFC is required to use its best judgment and efforts in rendering fund
accounting services and is not be liable to the Trust for any action or inaction
in the absence of bad faith, willful misconduct or gross negligence. FFC is not
responsible or liable for any failure or delay in performance of its fund
accounting obligations arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control and the Trust has agreed to
indemnify and hold harmless FFC, its employees, agents, officers and directors
against and from any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way related to FFC's actions
taken or failures to act with respect to a Fund or based, if applicable, upon
information, instructions or requests with respect to a Fund given or made to
FFC by an officer of the Trust duly authorized. This indemnification does not
apply to FFC's actions taken or failures to act in cases of FFC's own bad faith,
willful misconduct or gross negligence.
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<PAGE>
Table 5 in Appendix B shows the dollar amount of fees payable to FFC for its
accounting services with respect to each Fund, the amount of fee that was waived
by FFC, if any, and the actual fee received by FFC. The data is for the past
three fiscal years or shorter period if the Fund has been in operation for a
shorter period.
EXPENSES
The Trust may elect not to qualify the shares of all of its Funds and classes
thereof for sale in every state. Norwest has agreed to reimburse the Trust for
certain of the operating expenses of the Funds (exclusive of interest, taxes,
brokerage, fees and organization expenses, all to the extent permitted by
applicable state law or regulation) which in any year exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale. Forum
believes that currently the most restrictive expense ratio limitation imposed by
any state is 2-1/2% of the first $30 million of each Fund's average net assets,
2% of the next $70 million of its average net assets and 1-1/2% of its average
net assets in excess of $100 million. For the purpose of this obligation to
reimburse expenses, a Fund's annual expenses are estimated and accrued daily,
and any appropriate estimated payments will be made by Norwest or Forum monthly.
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 to any distribution or shareholder service plan adopted
pursuant to Rule 12b-1 under the Act.
6. PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities for the Money Market and Fixed
Income Funds usually are, principal transactions. Debit instruments are normally
the Balanced Funds, purchased directly from the issuer or from an underwriter or
market maker for the securities. There usually are no brokerage commissions paid
for such purchases. The Equity Funds and the Balanced Funds generally will
effect purchases and sales of equity securities through brokers who charge
commissions except in the over-the-counter markets. Purchases of debt and equity
securities from underwriters of the securities include a disclosed fixed
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked price. In the case of debt and equities securities, 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, these commissions are negotiated, whereas on foreign stock
exchanges these commissions are generally fixed. Where transactions are executed
in the over-the-counter market, each Fund Portfolio and International Portfolio
will seek to
54
<PAGE>
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
Portfolios and International Portfolio will attempt to negotiate best execution.
The Money Market Funds and Fixed Income Funds may effect purchases and sales
through brokers who charge commissions, although the Trust does not anticipate
that the Money Market Funds will do so. Table 6 in Appendix B shows the
aggregate brokerage commissions with respect to each Fund. The data presented is
for the past three fiscal years or a shorter period if the Fund has been in
operation for a shorter period. Except as otherwise noted. Any material change
in the last two years in the amount of brokerage commissions paid by a fund was
due to an increase or decrease in the Fund's assets.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board and Core Trust Board has authorized the Investment
Advisers to employ their respective affiliates to effect securities transactions
of the Funds 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 Management, 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 non-interested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of an Adviser by the Funds satisfy
the foregoing standards. The Core Trust Board has 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.
During the last three fiscal years certain Funds paid brokerage commissions to
NISI, a wholly-owned broker-dealer subsidiary of the parent of Norwest, Norwest
Corporation. The following table indicates the Funds that paid commissions to
NISI, the aggregate amounts of commissions paid, the percentage of aggregate
brokerage commissions paid to NISI and the percentage of the aggregate dollar
amount of transactions involving payment of commissions that were effected
through NISI.
<TABLE>
<S> <C> <C> <C>
Percentage of
Commission
Aggregate Percentage Transactions
Commissions of Commissions Executed
Paid to nisi Paid to nisi Through nisi
----------- -------------- ------------
VALUGROWTH STOCK FUND
Year Ended May 31, 1996 $10,494 2.41% 1.73%
Year Ended May 31, 1995 $12,213 1.78% 2.28%
Year Ended May 31, 1994 $25,713 4.65% 6.00%
</TABLE>
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 such factors as size of the order, difficulty of
execution,
55
<PAGE>
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 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.
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 Adviser's opinion, is equitable to each and
in accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for a Fund
and other client accounts managed by the Advisers occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
During their last fiscal year, certain Funds acquired securities issued by their
"regular brokers and dealers" or the parents of those brokers and dealers.
Regular brokers and dealers means the 10 brokers or dealers that (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.
Following is a list of the regular brokers and dealers of the Funds whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of May 31, 1996.
<TABLE>
<S> <C> <C>
Regular Broker Value of
Or Dealer Securities Held
-------------- ---------------
CASH INVESTMENT FUND Bear, Stearns & Company $75,000,000
CS First Boston $15,000,000
Merrill Lynch & Co. $47,497,784
Morgan Stanley $345,781,386
READY CASH INVESTMENT FUND Bear, Stearns & Company $50,000,000
CS First Boston $10,000,000
Merrill Lynch & Co. $37,499,817
Morgan Stanley $55,000,000
U.S. GOVERNMENT FUND Bank of America Securities 345,781,386
TREASURY FUND None 0
56
<PAGE>
MUNICIPAL MONEY MARKET FUND None 0
STABLE INCOME FUND Lehman Brothers Holdings 1,043,889
INTERMEDIATE GOVERNMENT FUND None 0
DIVERSIFIED BOND FUND Lehman Brothers Holdings 1,092,216
Paine Webber Group, Inc. 991,450
Dean Witter 977,500
Charles Schwab Corporation 562,630
INCOME FUND None 0
TOTAL RETURN BOND FUND Salomon Brothers Inc. 1,205,617
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
Regular Broker Value of
Or Dealer Securities Held
-------------- ---------------
LIMITED TERM TAX-FREE FUND None 0
TAX-FREE INCOME FUND None 0
COLORADO TAX FREE FUND None 0
MINNESOTA TAX FREE FUND` None 0
CONSERVATIVE BALANCED FUND Charles SCHWAB CORPORATION 187,544
Dean Witter 293,598
Paine Webber Group, Inc. 495,725
Salomon Brothers Inc. 497,433
Bear Stearns Company 500,232
Charles SCHWAB CORP. 487,425
Donaldson, Lufkin & Jenrette, Inc. 111,562
MODERATE BALANCED FUND Charles SCHWAB CORPORATION 562,630
Dean Witter 636,131
Lehman Brothers Inc. 819,162
Paine Webber Group, Inc. 1,090,595
Salomon Brothers Inc. 895,522
Charles SCHWAB CORP. 1,940,000
Donaldson, Lufkin & Jenrette, Inc. 427,126
GROWTH BALANCED FUND Charles SCHWAB CORPORATION 562,629
Dean Witter 636,130
Lehman Brothers, Inc. 819,162
Paine Webber Group, Inc. 991,450
Salomon Brothers Inc. 497,432
Charles Schwab Corp. 3,533,225
Donaldson, Lufkin & Jenrette, Inc. 784,125
INCOME EQUITY FUND None 0
INDEX FUND Merrill Lynch & Co., Inc. 498,575
Morgan Stanley Group, Inc. 336,600
Salomon Brothers, Inc. 192,626
VALUGROWTH STOCK FUND None 0
DIVERSIFIED EQUITY FUND Charles SCHWAB CORPORATION 9,971,600
Donaldson, Lufkin & Jenrette, Inc. 2,218,502
GROWTH EQUITY FUND Charles SCHWAB CORPORATION 11,300,500
Donaldson, Lufkin & Jenrette, Inc. 2,524,500
</TABLE>
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<TABLE>
<S> <C> <C>
Regular Broker Value of
Or Dealer Securities held
-------------- ---------------
LARGE COMPANY GROWTH FUND Charles Schwab Corporation 11,300,500
Donaldson, Lufkin & Jenrette, Inc. 2,524,500
SMALL COMPANY STOCK FUND None 0
SMALL COMPANY GROWTH FUND None 0
CONTRARIAN STOCK FUND None 0
INTERNATIONAL FUND None 0
</TABLE>
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. The change in portfolio turnover rate
for Income Fund and Intermediate Government Fund from 1995 to 1996 was due in
part to the change in portfolio managers. Other significant changes in portfolio
turnover rates was due to changing market conditions and the effect of those
conditions on the Funds' investment policies.
7. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
GENERAL
Shares of all Funds are sold on a continuous basis by the distributor.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary. Due to the higher expenses of B Shares,
the net asset value of B Shares will generally be lower than the net asset value
of the other classes. The per share net asset value of each class of a Fund
eventually will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense accrual
differential among the classes.
MONEY MARKET FUNDS
As described in the Prospectuses, under certain circumstances a Money Market
Fund may close early and advance time by which the Fund must receive a purchase
or redemption order and payments. In that case, if an investor placed an order
after the cut-off time the order would be processed on the follow-up business
day and the investor's access to the fund would be temporarily limited.
CLASS A SHARES
GENERAL
OFFERING PRICE. Set forth below is an example of the method of computing the
offering price of the A Shares of the Funds that offer A Shares. Other shares of
the Trust are offered at their next determined net asset value. The example
assumes a purchase of A Shares of the Fixed Income and Equity Funds' in an
amount such that the purchase would be subject to each Fund's maximum sales
charges set forth in the Prospectus at a price based on the net asset value per
share of A Shares of each Fund at May 31, 1996. The maximum sales charges as of
May 31, 1995 was 4.5% for each Equity Fund and 3.75% for each Fixed Income Fund,
except Stable Income Fund, for
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which it was 1.50%. Offering price is determined as follows: Net asset value per
share times the sum of one (1) plus the sales charge expressed as a percentage
(for example 4.5% would equal 0.045).
<TABLE>
<S> <C> <C>
Net Asset Offering
Value Per Share Price
--------------- -----
Stable Income Fund $ 10.20 10.35
Intermediate Government Income Fund 10.89 11.30
Diversified Bond Fund (No A Shares Outstanding)
Income Fund 9.27 9.62
Total Return Bond Fund 9.40 9.75
Tax-Free Income Fund 9.78 10.15
Colorado Tax-Free Fund 9.89 10.26
Minnesota Tax-Free Fund 10.30 10.69
Conservative Balanced Fund (No A Shares Outstanding)
Moderate Balanced Fund (No A Shares Outstanding)
Growth Balanced Fund (No A Shares Outstanding)
Income Equity Fund 27.56 28.80
Index Fund (No A Shares Outstanding)
ValuGrowth Stock Fund 22.63 23.65
Diversified Equity Fund 30.56 31.93
Growth Equity Fund 29.08 30.39
Large Company Growth Fund (No A Shares Outstanding)
Small Company Stock Fund 14.02 14.65
Small Company Growth Fund (No A Shares Outstanding)
Contrarian Stock Fund 10.82 11.31
International Fund 19.82 20.71
</TABLE>
STATEMENT OF INTENTION. As more fully described in the Prospectus, investors may
obtain reduced sales charges with respect to the purchase of A Shares of the
Funds by means of a written Statement of Intention, which expresses the
investor's intention to invest $50,000 or more within a period of 13 months in A
Shares of a Fund. The Statement of Intention is not a binding obligation upon
the investor to purchase the full amount indicated. A Shares purchased with the
first 5% of such amount will be held subject to a registered pledge (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such pledged shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. When the full amount
indicated has been purchased, the shares will be released from pledge.
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The exchange procedures may be modified or terminated at any time upon
appropriate notice to shareholders. For Federal income tax purposes, exchanges
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than the
shareholder's basis in such shares at the time of such transaction.
Shareholders of A Shares may purchase, with the proceeds from a redemption of
all or part of their shares, A Shares of the other Funds that offer A Shares or
Investor Shares of Ready Cash Investment Fund or Municipal Money Market Fund.
Shareholders of B Shares may purchase, with the proceeds from a redemption of
all or part of their shares, B Shares of the other Funds that offer B Shares or
Exchange Shares of Ready Cash Investment Fund. Shareholders of I Shares may
purchase, with the proceeds from a redemption of all or part of their shares, I
Shares
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of the other Funds or Institutional Shares of Ready Cash Investment Fund or
Municipal Money Market Fund or shares of U.S. Government Fund and Treasury Fund.
Shareholders of Investor Shares of Ready Cash Investment Fund and Municipal
Money Market Fund may purchase, with the proceeds from a redemption of all or
part of their shares, Investor Shares of the other Fund or A Shares of the Funds
that offer A Shares. Shareholders of Exchange Shares of Ready Cash Investment
Fund may purchase, with the proceeds from a redemption of all or part of their
shares, B Shares of the Funds that offer B Shares.
Shareholders of Institutional Shares of Ready Cash Investment Fund and Municipal
Money Market Fund and others who are eligible to purchase I Shares may purchase,
with the proceeds from a redemption of all or part of their shares,
Institutional Shares of these Funds, or I Shares of the other Funds of the
Trust. Shareholders of U.S.
Government Fund and Treasury Fund and Municipal Money Market Fund
Shareholders of Institutional Shares of Municipal Money Market Fund who are not
eligible to purchase I Shares may purchase, with the proceeds from a redemption
of all or part of their shares, shares of Cash Investment Fund, U.S. Government
Fund and Treasury Fund. Similarly, shareholders of Cash Investment Fund, U.S.
Government Fund and Treasury Fund who are not eligible to purchase I Shares may
purchase, with the proceeds from a redemption of all or part of their shares,
shares of the other two Funds or Institutional Shares of Municipal Money Market
Fund.
Shareholders of A Shares or Investor Shares making an exchange will be subject
to the applicable sales charge of any A Shares acquired in the exchange;
provided, that the sales charge charged with respect to the acquired shares will
be assessed at a rate that is equal to the excess (if any) of the rate of the
sales charge that would be applicable to the acquired shares in the absence of
an exchange over the rate of the sales charge previously paid on the exchanged
shares. For purposes of the preceding sentence, A Shares acquired through the
reinvestment of dividends or distributions are deemed to have been acquired with
a sales charge rate equal to that paid on the shares on which the dividend or
distribution was paid.
In addition, A Shares and Investor Shares acquired by a previous exchange
transaction involving shares on which a sales charge has directly or indirectly
been paid (e.g., shares purchased with a sales charge or issued in connection
with an exchange transaction involving shares that had been purchased with a
sales charge), as well as additional shares acquired through reinvestment of
dividends or distributions on such shares will be treated as if they had been
acquired subject to that sales charge.
Exchange Shares may only be acquired in exchange for B Shares of a Fund. B
Shares ("original B Shares") may be exchanged for Exchange Shares without the
payment of any contingent deferred sales charge; however, B Shares or Exchange
Shares acquired as a result of an exchange and subsequently redeemed will
nonetheless be subject to the contingent deferred sales charge applicable to the
original B Shares as if those shares were being redeemed at that time. Exchange
Shares may be exchanged without the payment of any contingent deferred sales
charge; however, B Shares acquired as a result of such exchange and subsequently
redeemed will nonetheless be subject to the contingent deferred sales charge
applicable to the original B Shares as if those shares were being redeemed at
that time.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be
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<PAGE>
incurred by the shareholder in converting the securities to cash. The Trust has
filed a formal election with the SEC pursuant to which a Fund will only effect a
redemption in portfolio securities if the particular shareholder is redeeming
more than $250,000 or 1% of the Fund's total net assets, whichever is less,
during any 90-day period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES)
A Shares of the Funds on which no initial sales charge was assessed pursuant to
the Right of Accumulation or Statement of Intention, that are redeemed within
specified periods after the purchase date will be subject to a contingent
deferred sales charge upon redemption.
RIGHT OF ACCUMULATION
Contingent deferred sales charges may be charged on A Shares purchased without
an initial sales charge pursuant to the Cumulative Quantity Discount (Right of
Accumulation) that are redeemed within the first two years after purchase. No
initial sales charge will apply to A Shares purchased if the value of those
shares on the date of purchase plus the net asset value of all A Shares held by
the shareholder (as of the close of business on the previous Fund Business Day)
exceed $1,000,000. In that case the contingent deferred sales charge will apply
to redemptions of shares within the first two years after purchase. For example,
if a shareholder has made prior purchases of A Shares which now have a value of
$900,000, the purchase of $150,000 of A Shares will not be subject to an initial
sales charge but will be subject to the contingent deferred sales charge. The
$900,000 of A Shares is not subject to the contingent deferred sales charge.
STATEMENT OF INTENTION
Contingent deferred sales charges may be charged on redemptions of A Shares
purchased without an initial sales charge pursuant to a Statement of Intention
("SOI")that are redeemed within the first two years after purchase. If a
shareholder purchases $1,000,000 or more within a 13 month period under an SOI,
no initial sales charge will apply with respect to the entire amount purchased.
The contingent deferred sales charge will not apply to SOIs of under $1,000,000
and will not be applied to SOIs for a greater amount if the shareholder never
purchases $1,000,000 or more of A Shares under the SOI; however, the contingent
deferred sales charge will apply. The holding period for each A Share, however,
shall be determined from the date the share was purchased. If the shareholder
redeems A Shares during the period that the SOI is in effect, a contingent
deferred sales charge will be charged at the time the shareholder has purchased
$1,000,000 or more worth of A Shares pursuant to the SOI and will be assessed at
the rate applicable in the case of a single purchase of the minimum amount
specified in the SOI. If the shareholder purchases less than the amount
specified under the SOI, an additional contingent deferred sales charge may be
assessed in respect of A Shares previously redeemed based on the amount actually
purchased pursuant to the SOI.
REINSTATEMENT PRIVILEGE
A Shares purchased by a shareholder within 60 days following the redemption by
the shareholder of A Shares in the same Fund with a value at least equal to the
A Shares being purchased will not be subject to a contingent deferred sales
charge; provided, however, that this exemption is not applicable to more than
two purchases within a 12-month period.
CONTINGENT DEFERRED SALES CHARGE (A SHARES AND B SHARES)
With respect to A Shares and B Shares of the Funds, certain redemptions are not
subject to any contingent deferred sales charge. No contingent deferred sales
charge is imposed on (i) redemptions of shares acquired through the reinvestment
of dividends and distributions, (ii) involuntary redemptions by a Fund of
shareholder accounts with low account balances, (iii) redemptions of shares
following the death or disability of a shareholder if the Fund is notified
within one year of the shareholder's death or disability, (iv) redemptions to
effect a distribution (other than a lump sum distribution) from an IRA, Keogh
plan or Section 403(b) custodial account or from a qualified retirement plan.
For these purposes, the term disability shall have the meaning ascribed thereto
in Section 72(m)(7) of the Code. Under that provision, a person is considered
disabled if the person is unable to engage in any
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substantial activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long-continued
and indefinite duration. Appropriate documentation satisfactory to the Fund is
required to substantiate any shareholder death or disability.
CONVERSION OF B SHARES AND EXCHANGE SHARES
The conversion of Exchange Shares to Investor Shares and B Shares to A Shares is
subject to the continuing availability of an opinion of counsel to the effect
that (i) the assessment of the distribution services fee with respect to the
Exchange Shares and B Shares does not result in the Funds dividends or
distributions constituting "preferential dividends" under the Code, and (ii) the
conversion of Exchange Shares and B Shares does not constitute a taxable event
under Federal income tax law. The conversion of Exchange Shares to Investor
Shares and B Shares to A Shares may be suspended if such an opinion is no longer
available at the time the conversion is to occur. In that event, no further
conversions would occur, and shares might continue to be subject to a
distribution services fee for an indefinite period, which may extend beyond the
specified number of years for conversion of the original B Shares.
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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 each Money Market Fund and Fixed Income Fund expects to derive
substantially all of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of such Funds dividends or
distributions will qualify for the dividends-received deduction for
corporations.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered 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 International Fund shareholder should include in the shareholder's report
of gross income in his Federal income tax return both cash dividends received by
the shareholder from the Fund and also the amount which the Fund advises the
shareholder is the shareholder's pro rata portion, if any, of foreign income
taxes paid with respect to, or withheld from, dividends and interest paid to
International Portfolio from its foreign investments. Each shareholder then
would be entitled, subject to certain limitations, to take a foreign tax credit
against
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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.
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9. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS OF THE FUNDS
DETERMINATION OF NET ASSET VALUE - MONEY MARKET FUNDS
Pursuant to the rules of the SEC, the Board has established procedures to
stabilize each Money Market Funds' net asset value at $1.00 per share. These
procedures include a review of the extent of any deviation of net asset value
per share as a result of fluctuating interest rates, based on available market
rates, from the Fund's $1.00 amortized cost price per share. Should that
deviation exceed 1/2 of 1%, the Board will consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. Each Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less, will not purchase any instrument with a remaining maturity
greater than 397 days or subject to a repurchase agreement having a duration of
greater than 397 days, will limit portfolio investments, including repurchase
agreements, to those U.S. dollar-denominated instruments that the Board has
determined present minimal credit risks and will comply with certain reporting
and recordkeeping procedures. The Trust has also established procedures to
ensure that portfolio securities meet the Funds' high quality criteria.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, NY 10004.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, independent auditors,
served as the independent auditors for the Trust for the fiscal years ended May
31, 1996, 1995 and 1994, as well as for the fiscal year ended October 31, 1995
for those Funds that had that fiscal year end. KPMG Peat Marwick LLP have been
selected as independent auditors for the Trust for the fiscal year ending May
31, 1997. For the prior fiscal periods another audit firm acted as independent
auditors of the Trust's predecessor corporation.
GENERAL INFORMATION
The Trust is divided into twenty eight separate series representing shares of
the Funds and Small Cap Opportunities Fund. 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
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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.
RECENT MERGERS
As of May 17, 1996, three portfolios of the Trust, Adjustable U.S. Government
Reserve Fund, Government Income Fund and Income Stock Fund (the "Acquired
Funds") were reorganized into Stable Income Fund, Intermediate Government Income
Fund and Income Equity Fund (the "Acquiring Funds"), respectively through the
acquisition of all the assets and liabilities of the Acquired Funds by the
corresponding Acquiring Funds. Each Acquiring Fund commenced operations prior to
that date and was the entity that continued its existence after the
transactions. Performance information for the Acquiring Funds only reflects the
Acquiring Funds, performance and all fees listed in this Statement of Additional
Information reflect the fees paid by the Acquiring Funds.
SHAREHOLDINGS
Table 7 to Appendix A lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of May 1, 1997.
FINANCIAL STATEMENTS
The financial statements of each Fund for the semi-annual period ended November
30, 1996 (which include statements of assets and liabilities, statements of
operations, statements of changes in net assets, notes to financial statements,
financial highlights and portfolios of investments) are included in the
Semi-Annual Report to Shareholders of the Trust delivered along with this SAI
and are incorporated herein by reference. The financial statements of each Fund
for the year ended May 31, 1996 (which include statements of assets and
liabilities, statements of operations, statements of changes in net assets,
notes to financial statements, financial highlights, portfolios of investments
and the independent auditors' report thereon) are included in the Annual Report
to Shareholders of the Trust delivered along with this SAI and are incorporated
herein by reference. The fiscal year end of Stable Income Fund, Intermediate
Government Income Fund, Diversified Bond Fund, Conservative Balanced Fund,
Moderate Balanced Fund, Growth Balanced Fund, Income Equity Fund, Index Fund,
Diversified Equity Fund, Growth Equity Fund, Large Company Growth Fund, Small
Company Growth Fund and International Fund was October 31 prior to the year
ended May 31, 1996.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
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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.
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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.
<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. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
-A2-
<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 rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
-A3-
<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.
-A4-
<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.
-A5-
<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+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
-A6-
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Norwest and the Trust with respect to each Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. That table also shows the dollar amount of fees payable under the
investment advisory agreement between Schroder and Core Trust with respect to
International Portfolio, the amount of fee that was waived by Schroder, if any,
and the actual fee received by Schroder. The data is for the past three fiscal
years or shorter period if the Fund/Portfolio has been in operation for a
shorter period.
<TABLE>
<S> <C> <C> <C>
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
------- ------ --------
CASH INVESTMENT FUND
Year Ended May 31, 1996 2,383,128 0 2,383,128
Year Ended May 31, 1995 2,067,323 0 2,067,323
Year Ended May 31, 1994 2,631,318 0 2,631,318
READY CASH INVESTMENT FUND
Year Ended May 31, 1996 4,128,532 44,547 4,083,985
Year Ended May 31, 1995 2,153,906 71,093 2,082,813
Year Ended May 31, 1994 1,187,810 250,039 937,771
U.S. GOVERNMENT FUND
Year Ended May 31, 1996 2,205,102 0 2,205,102
Year Ended May 31, 1995 1,687,958 0 1,687,958
Year Ended May 31, 1994 1,618,648 18,841 1,599,807
TREASURY FUND
Year Ended May 31, 1996 1,308,984 0 1,308,984
Year Ended May 31, 1995 1,152,801 0 1,152,801
Year Ended May 31, 1994 786,588 31,704 754,884
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1996 1,907,103 303,321 1,603,782
Year Ended May 31, 1995 987,273 175,377 811,896
Year Ended May 31, 1994 480,381 296,671 183,710
STABLE INCOME FUND
Year Ended May 31, 1996 106,127 0 106,127
Year End October 31, 1995 114,429 0 114,429
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1996 142,125 0 142,125
Year End October 31, 1995 160,764 0 160,764
DIVERSIFIED BOND FUND
Year Ended May 31, 1996 344,777 0 344,777
Year End October 31, 1995 607,061 0 607,061
<PAGE>
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
------- ------ --------
INCOME FUND
Year Ended May 31, 1996 981,244 196,249 784,995
Year Ended May 31, 1995 560,463 149,529 410,934
Year Ended May 31, 1994 501,265 399,431 101,834
TOTAL RETURN BOND FUND
Year Ended May 31, 1996 584,872 352,590 232,282
Year Ended May 31, 1995 305,162 244,711 60,451
Year Ended May 31, 1994 18,515 18,515 0
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1996 N/A N/A N/A
TAX-FREE INCOME FUND
Year Ended May 31, 1996 1,187,026 1,032,179 154,847
Year Ended May 31, 1995 671,570 306,789 364,781
Year Ended May 31, 1994 600,178 516,714 143,464
COLORADO TAX-FREE FUND
Year Ended May 31, 1996 286,768 286,768 0
Year Ended May 31, 1995 257,147 257,147 0
Year Ended May 31, 1994 200,552 200,552 0
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1996 154,733 154,733 0
Year Ended May 31, 1995 67,504 67,504 0
Year Ended May 31, 1994 64,534 60,030 4,504
CONSERVATIVE BALANCED FUND
Year Ended May 31, 1996 376,529 0 376,529
Year Ended October 31, 1995 547,353 0 547,353
MODERATE BALANCED FUND
Year Ended May 31, 1996 1,208,825 0 1,208,825
Year End October 31, 1995 1,722,174 0 1,722,174
GROWTH BALANCED FUND
Year Ended May 31, 1996 1,424,260 0 1,424,260
Year End October 31, 1995 1,849,672 0 1,849,672
INCOME EQUITY FUND
Year Ended May 31, 1996 227,790 0 227,790
Year End October 31, 1995 187,584 0 187,584
INDEX FUND
Year Ended May 31, 1996 193,373 143,795 49,578
Year End October 31, 1995 212,875 0 212,875
-B2-
<PAGE>
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
------- ------ --------
VALUGROWTH STOCK FUND
Year Ended May 31, 1996 1,335,281 16,691 1,318,590
Year Ended May 31, 1995 1,132,507 4,813 1,127,694
Year Ended May 31, 1994 992,202 168,379 823,823
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1996 3,038,858 0 3,038,858
Year End October 31, 1995 3,737,147 0 3,737,147
GROWTH EQUITY FUND
Year Ended May 31, 1996 3,342,391 0 3,342,390
Year End October 31, 1995 3,961,897 0 3,961,897
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1996 274,152 0 274,152
Year End October 31, 1995 362,480 0 362,480
SMALL COMPANY STOCK FUND
Year Ended May 31, 1996 909,200 327,218 581,982
Year Ended May 31, 1995 322,908 322,908 0
Year Ended May 31, 1994 21,501 21,501 0
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1996 1,653,578 0 1,653,578
Year End October 31, 1995 1,984,348 0 1,984,348
CONTRARIAN STOCK FUND
Year Ended May 31, 1996 349,877 70,170 279,707
Year Ended May 31, 1995 258,669 128,979 129,690
Year Ended May 31, 1994 9,927 9,927 0
INTERNATIONAL FUND*
Year Ended May 31, 1996 316,701 0 316,701
Year End October 31, 1995 367,007 0 367,007
</TABLE>
* Represents investment advisory fees paid to Schroder Capital Management Inc.
by International Portfolio of Core Trust.
-B3-
<PAGE>
TABLE 2 - MANAGEMENT FEES
The following table shows the dollar amount of fees payable to (i) Forum for its
management services with respect to each Fund (or class thereof for those
periods when multiple classes were outstanding), (ii) Norwest for its
administrative services with respect to International Fund and (iii) Forum with
respect to its administrative securities with respect to International
Portfolio. Also shown are the amount of fees that were waived by Forum and
Norwest, if any, and the actual fees received by Forum and Norwest. The data is
for the past three fiscal years or shorter period if the Fund has been in
operation for a shorter period.
<TABLE>
(I) MANAGEMENT FEES TO FORUM
Management Management Management
Fee Fee Fee
Payable Waived Retained
------- ------ --------
<S> <C> <C> <C> <C>
CASH INVESTMENT FUND
Year Ended May 31, 1996 1,076,303 160,959 915,344
Year Ended May 31, 1995 944,718 263,073 681,645
Year Ended May 31, 1994 1,179,716 0 1,179,716
U.S. GOVERNMENT FUND
Year Ended May 31, 1996 1,002,126 40,949 9,611,177
Year Ended May 31, 1995 786,649 135,127 651,522
Year Ended May 31, 1994 757,658 36,670 720,988
TREASURY FUND
Year Ended May 31, 1996 627,992 448,841 179,151
Year Ended May 31, 1995 558,734 467,978 90,756
Year Ended May 31, 1994 387,463 88,351 299,112
READY CASH INVESTMENT FUND
Investor Shares
Year Ended May 31, 1996 760,979 60,072 700,907
Year Ended May 31, 1995 391,466 147,704 243,762
Year Ended May 31, 1994 305,534 5,338 300,146
Institutional Shares
Year Ended May 31, 1996 1,569,081 1,569,081 0
Year Ended May 31, 1995 739,794 589,996 149,797
Year Ended May 31, 1994 260,556 205,978 54,578
Exchange Shares
Year Ended May 31, 1996 273 273 0
Year Ended May 31, 1995 417 331 86
MUNICIPAL MONEY MARKET FUND
Investor Shares
Year Ended May 31, 1996 115,294 65,869 49,425
Year Ended May 31, 1995 82,763 75,983 6,780
Year Ended May 31, 1994 89,824 26,370 63,554
Institutional Shares
Year Ended May 31, 1996 990,763 814,669 176,094
Year Ended May 31, 1995 481,393 393,600 87,793
Year Ended May 31, 1994 184,579 8,730 175,849
-B4-
<PAGE>
Management Management Management
Fee Fee Fee
Payable Waived Retained
------- ------ --------
STABLE INCOME FUND
A Shares
Year Ended May 31, 1996 623 623 0
B Shares
Year Ended May 31, 1996 33 33 0
I Shares
Year Ended May 31, 1996 34,720 34,720 0
Year End October 31, 1995 38,143 38,143 0
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1996 666 666 0
B Shares
Year Ended May 31, 1996 412 412 0
I Shares
Year Ended May 31, 1996 41,991 41,991 0
Year End October 31, 1995 48,716 48,716 0
DIVERSIFIED BOND FUND
I Shares
Year Ended May 31, 1996 98,508 69,269 29,239
Year Ended October 31, 1995 173,446 147,461 25,985
INCOME FUND
A Shares
Year Ended May 31, 1996 11,894 11,894 0
Year Ended May 31, 1995 12,210 11,607 603
Year Ended May 31, 1994 50,378 6,025 44,353
B Shares
Year Ended May 31, 1996 6,732 6,732 0
Year Ended May 31, 1995 5,559 3,553 2,006
Year Ended May 31, 1994 2,799 0 2,799
I Shares
Year Ended May 31, 1996 373,872 353,908 19,964
Year Ended May 31, 1995 206,416 124,725 81,691
Year Ended May 31, 1994 147,328 13,243 134,085
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1996 2,416 2,416 0
Year Ended May 31, 1995 674 674 0
Year Ended May 31, 1994 27 9 18
B Shares
Year Ended May 31, 1996 3,264 3,264 0
Year Ended May 31, 1995 923 923 0
Year Ended May 31, 1994 60 52 8
I Shares
Year Ended May 31, 1996 228,269 12,744 215,525
Year Ended May 31, 1995 120,468 17,639 102,829
Year Ended May 31, 1994 7,320 923 6,397
-B5-
<PAGE>
Management Management Management
Fee Fee Fee
Payable Waived Retained
------- ------ --------
LIMITED TERM TAX-FREE FUND
A Shares
Year Ended May 31, 1996 N/A N/A N/A
B Shares
Year Ended May 31, 1996 N/A N/A N/A
I Shares
Year Ended May 31, 1996 N/A N/A N/A
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1996 67,046 27,085 39,961
Year Ended May 31, 1995 64,084 64,084 0
Year Ended May 31, 1994 114,072 28,475 85,597
B Shares
Year Ended May 31, 1996 9,866 9,866 0
Year Ended May 31, 1995 6,348 5,591 757
Year Ended May 31, 1994 2,493 333 2,160
I Shares
Year Ended May 31, 1996 397,898 304,725 93,173
Year Ended May 31, 1995 198,196 139,199 58,997
Year Ended May 31, 1994 147,507 17,206 130,301
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1996 53,988 48,022 5,966
Year Ended May 31, 1995 56,039 40,684 15,355
Year Ended May 31, 1994 63,445 63,445 0
B Shares
Year Ended May 31, 1996 11,566 11,566 0
Year Ended May 31, 1995 9,429 7,791 1,638
Year Ended May 31, 1994 4,341 3,571 770
I Shares
Year Ended May 31, 1996 49,153 41,507 7,646
Year Ended May 31, 1995 37,392 31,974 5,418
Year Ended May 31, 1994 14,112 10,883 3,229
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1996 43,885 26,289 17,596
Year Ended May 31, 1995 19,236 19,236 0
Year Ended May 31, 1994 21,698 21,698 0
B Shares
Year Ended May 31, 1996 13,910 10,499 3,411
Year Ended May 31, 1995 5,974 5,974 0
Year Ended May 31, 1994 2,446 1,527 919
I Shares
Year Ended May 31, 1996 4,098 2,630 1,468
Year Ended May 31, 1995 1,781 1,622 159
Year Ended May 31, 1994 1,507 1,279 228
-B6-
<PAGE>
Management Management Management
Fee Fee Fee
Payable Waived Retained
------- ------ --------
CONSERVATIVE BALANCED FUND
Year Ended May 31, 1996 83,673 69,584 14,089
Year Ended October 31, 1995 121,634 121,634 0
MODERATE BALANCED FUND
Year Ended May 31, 1996 228,080 126,077 102,003
Year Ended October 31, 1995 324,938 212,921 112,017
GROWTH BALANCED FUND
Year Ended May 31, 1996 245,562 136,905 108,657
Year Ended October 31, 1995 318,909 209,411 109,498
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1996 1,196 1,196 0
B Shares
Year Ended May 31, 1996 670 670 0
I Shares
Year Ended May 31, 1996 43,691 43,691 0
Year Ended October 31, 1995 37,517 37,517 0
INDEX FUND
Year Ended May 31, 1996 128,916 93,961 34,955
Year Ended October 31, 1995 141,917 141,917 0
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1996 27,427 27,427 0
Year Ended May 31, 1995 24,465 24,465 0
Year Ended May 31, 1994 87,585 8,799 78,786
B Shares
Year Ended May 31, 1996 8,763 8,763 0
Year Ended May 31, 1995 5,593 4,617 976
Year Ended May 31, 1994 1,686 0 1,686
I Shares
Year Ended May 31, 1996 297,630 147,086 150,544
Year Ended May 31, 1995 253,243 148,800 104,443
Year Ended May 31, 1994 158,779 26,640 132,139
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1996 99 99 0
B Shares
Year Ended May 31, 1996 96 96 0
I Shares
Year Ended May 31, 1996 467,322 238,224 229,098
Year Ended October 31, 1995 574,946 287,473 287,473
-B7-
<PAGE>
Management Management Management
Fee Fee Fee
Payable Waived Retained
------- ------ --------
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1996 100 100 0
B Shares
Year Ended May 31, 1996 25 25 0
I Shares
Year Ended May 31, 1996 371,252 187,661 183,591
Year Ended October 31, 1995 440,211 286,1371 154,107
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1996 42,177 40,150 2,027
Year Ended October 31, 1995 55,766 55,766 0
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1996 5,800 5,800 0
Year Ended May 31, 1995 1,655 1,515 140
Year Ended May 31, 1994 88 22 66
B Shares
Year Ended May 31, 1996 4,426 4,426 0
Year Ended May 31, 1995 1,051 1,051 0
Year Ended May 31, 1994 67 19 48
I Shares
Year Ended May 31, 1996 171,614 15,664 155,950
Year Ended May 31, 1995 61,876 14,997 46,878
Year Ended May 31, 1994 4,146 1,395 2,751
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1996 183,731 76,278 107,453
Year Ended October 31, 1995 220,483 177,287 43,196
CONTRARIAN STOCK FUND
A Shares
Year Ended May 31, 1996 1,439 1,439 0
Year Ended May 31, 1995 646 646 0
Year Ended May 31, 1994 45 0 45
B Shares
Year Ended May 31, 1996 1,194 1,194 0
Year Ended May 31, 1995 328 328 0
Year Ended May 31, 1994 19 3 16
I Shares
Year Ended May 31, 1996 84,836 37,213 47,623
Year Ended May 31, 1995 63,693 543 63,150
Year Ended May 31, 1994 2,418 0 2,418
-B8-
<PAGE>
Management Management Management
Fee Fee Fee
Payable Waived Retained
------- ------ --------
INTERNATIONAL FUND
A Shares
Year Ended May 31, 1996 345 345 0
B Shares
Year Ended May 31, 1996 395 395 0
I Shares
Year Ended May 31, 1996 69,616 0 69,616
Year Ended October 31, 1995 205,140 41,566 163,574
(II) ADMINISTRATIVE FEES TO NORWEST
INTERNATIONAL FUND
Year Ended May 31, 1996 175,887 0 175,887
Year Ended October 31, 1995 205,150 0 205,150
(III) ADMINISTRATIVE FEES TO FORUM
INTERNATIONAL PORTFOLIO
Year Ended May 31, 1996 105,567 11,873 93,694
Year Ended October 31, 1995 122,669 70,043 52,626
</TABLE>
-B9-
<PAGE>
TABLE 3 - DISTRIBUTION FEES
The following table shows the dollar amount of fees payable to Forum for its
distribution services with respect to each Fund (or class thereof), the amount
of fee that was waived by Forum, if any, and the actual fee received by Forum.
All maintenance fees were waived by Forum during the fiscal years ended May 31,
1995 and 1996. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period. Only Exchange Shares and B
Shares incur distribution fees.
<TABLE>
<S> <C> <C> <C>
Distribution Distribution Distribution
Fee Fee Fee
Payable Waived Retained
------- ------ --------
READY CASH INVESTMENT FUND
Exchange Shares
Year Ended May 31, 1996 1,023 1,023 0
Year Ended May 31, 1995 2,050 2,050 0
Year Ended May 31, 1994 62 62 0
STABLE INCOME FUND
B Shares
Year Ended May 31, 1996 245 245 0
INTERMEDIATE GOVERNMENT INCOME FUND
B Shares
Year Ended May 31, 1996 2,646 2,646 0
INCOME FUND
B Shares
Year Ended May 31, 1996 25,247 6,666 18,581
Year Ended May 31, 1995 27,796 6,949 20,847
Year Ended May 31, 1994 13,997 3,954 10,043
TOTAL RETURN BOND FUND
B Shares
Year Ended May 31, 1996 12,239 3,619 8,620
Year Ended May 31, 1995 4,612 1,153 3,459
Year Ended May 31, 1994 297 74 223
TAX-FREE INCOME FUND
B Shares
Year Ended May 31, 1996 36,997 2,390 34,607
Year Ended May 31, 1995 31,738 7,934 23,803
Year Ended May 31, 1994 12,467 3,566 8,901
COLORADO TAX-FREE FUND
B Shares
Year Ended May 31, 1996 43,374 207 43,167
Year Ended May 31, 1995 47,144 11,786 35,358
Year Ended May 31, 1994 21,705 5,476 16,279
-B10-
<PAGE>
Distribution Distribution Distribution
Fee Fee Fee
Payable Waived Retained
------- ------ --------
MINNESOTA TAX-FREE FUND
B Shares
Year Ended May 31, 1996 52,163 0 52,163
Year Ended May 31, 1995 30,386 8,880 21,506
Year Ended May 31, 1994 12,231 3,058 9,173
INCOME EQUITY FUND
B Shares
Year Ended May 31, 1996 5,031 0 5,031
VALUGROWTH STOCK FUND
B Shares
Year Ended May 31, 1996 32,860 5,269 27,591
Year Ended May 31, 1995 27,965 6,991 20,974
Year Ended May 31, 1994 8,429 3,245 5,184
DIVERSIFIED EQUITY FUND
B Shares
Year Ended May 31, 1996 719 719 0
GROWTH EQUITY FUND
B Shares
Year Ended May 31, 1996 187 187 0
SMALL COMPANY STOCK FUND
B Shares
Year Ended May 31, 1996 16,598 4,077 12,521
Year Ended May 31, 1995 5,256 2,038 3,218
Year Ended May 31, 1994 332 0 332
CONTRARIAN STOCK FUND
B Shares
Year Ended May 31, 1996 4,479 4,479 0
Year Ended May 31, 1995 1,642 411 1,232
Year Ended May 31, 1994 95 0 95
INTERNATIONAL FUND
B Shares
Year Ended May 31, 1996 2,959 2,930 29
</TABLE>
-B11-
<PAGE>
TABLE 4 - SALES CHARGES
The following table shows (i) the dollar amount of sales charges payable to
Forum with respect to sales of A Shares (or of the respective Funds prior to the
offering of multiple classes of shares), (ii) the amount of sales charge
retained by Forum and not reallowed to other persons, and (iii) the amount of
contingent deferred sales charge ("CDSL") paid to Forum. The data is for the
past three fiscal years or shorter period if the Fund has been in operation for
a shorter period.
<TABLE>
Sales Retained CDSL
Charges Amount Paid
------- ------ ----
<S> <C> <C> <C>
STABLE INCOME FUND
A Shares
Year Ended May 31, 1996 423 52 --
B Shares
Year Ended May 31, 1996 -- -- 75
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares
Year Ended May 31, 1996 1.482 129 --
B Shares
Year Ended May 31, 1996 -- -- 964
INCOME FUND
A Shares
Year Ended May 31, 1996 1,567,755 4,428 --
B Shares
Year Ended May 31, 1996 -- -- 8,272
TOTAL RETURN BOND FUND
A Shares
Year Ended May 31, 1996 1,194,198 3,074 --
B Shares
Year Ended May 31, 1996 -- -- 2,853
LIMITED TERM TAX-FREE FUND
A Shares
Year Ended May 31, 1996 N/A N/A --
B Shares
Year Ended May 31, 1996 -- -- N/A
TAX-FREE INCOME FUND
A Shares
Year Ended May 31, 1996 5,429,389 12,264 --
B Shares
Year Ended May 31, 1996 -- -- 6,576
COLORADO TAX-FREE FUND
A Shares
Year Ended May 31, 1996 2,889,945 7,135 --
B Shares
Year Ended May 31, 1996 -- -- 12,557
-B12-
<PAGE>
Sales Retained CDSL
Charges Amount Paid
------- ------ ----
MINNESOTA TAX-FREE FUND
A Shares
Year Ended May 31, 1996 4,598,204 12,506 --
B Shares
Year Ended May 31, 1996 -- -- 8,412
INCOME EQUITY FUND
A Shares
Year Ended May 31, 1996 10,996 1,088 --
B Shares
Year Ended May 31, 1996 -- -- 570
VALUGROWTH STOCK FUND
A Shares
Year Ended May 31, 1996 1,162,647 4,628 --
B Shares
Year Ended May 31, 1996 -- -- 12,911
DIVERSIFIED EQUITY FUND
A Shares
Year Ended May 31, 1996 50,658 15 --
B Shares
Year Ended May 31, 1996 -- -- 0
GROWTH EQUITY FUND
A Shares
Year Ended May 31, 1996 26,825 7 --
B Shares
Year Ended May 31, 1996 -- -- 0
SMALL COMPANY STOCK FUND
A Shares
Year Ended May 31, 1996 1,309,565 5,153 2,972
B Shares
Year Ended May 31, 1996 -- -- --
CONTRARIAN STOCK FUND
A Shares
Year Ended May 31, 1996 103,499 425 --
B Shares
Year Ended May 31, 1996 -- -- 1,432
INTERNATIONAL FUND
Year Ended May 31, 1996 269 30 --
B Shares
Year Ended May 31, 1996 -- -- 213
</TABLE>
-B13-
<PAGE>
TABLE 5 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FFC for its
accounting services with respect to each Fund, the amount of fee that was waived
by FFC, if any, and the actual fee received by FFC. The table also shows similar
information with respect to International Portfolio. The data is for the past
three fiscal years or shorter period if the Fund has been in operation for a
shorter period.
<TABLE>
<S> <C> <C> <C>
Fee Fee Fee
Payable Waived Retained
------- ------ --------
CASH INVESTMENT FUND
Year Ended May 31, 1996 49,000 0 49,000
Year Ended May 31, 1995 36,000 0 36,000
Year Ended May 31, 1994 47,000 0 47,000
U.S. GOVERNMENT FUND
Year Ended May 31, 1996 46,000 0 46,000
Year Ended May 31, 1995 36,000 0 36,000
Year Ended May 31, 1994 36,000 0 36,000
TREASURY FUND
Year Ended May 31, 1996 43,500 0 43,500
Year Ended May 31, 1995 36,000 0 36,000
Year Ended May 31, 1994 36,000 0 36,000
READY CASH INVESTMENT FUND
Year Ended May 31, 1996 63,000 0 63,000
Year Ended May 31, 1995 48,000 0 48,000
Year Ended May 31, 1994 41,000 0 41,000
MUNICIPAL MONEY MARKET FUND
Year Ended May 31, 1996 72,500 0 72,500
Year Ended May 31, 1995 60,000 0 60,000
Year Ended May 31, 1994 60,000 0 60,000
STABLE INCOME FUND
Year Ended May 31, 1996 37,452 7,136 30,316
Year Ended October 31, 1995 51,700 0 51,700
INTERMEDIATE GOVERNMENT INCOME FUND
Year Ended May 31, 1996 29,452 5,322 24,130
Year Ended October 31, 1995 52,700 0 52,700
DIVERSIFIED BOND FUND
Year Ended May 31, 1996 29,500 5,561 23,939
Year Ended October 31, 1995 46,700 0 36,700
INCOME FUND
Year Ended May 31, 1996 79,500 0 79,500
Year Ended May 31, 1995 64,000 0 64,000
Year Ended May 31, 1994 63,000 0 63,000
-B14-
<PAGE>
Fee Fee Fee
Payable Waived Retained
------- ------ --------
TOTAL RETURN BOND FUND
Year Ended May 31, 1996 57,500 0 57,500
Year Ended May 31, 1995 50,000 0 50,000
Year Ended May 31, 1994 23,500 23,500 0
LIMITED TERM TAX-FREE FUND
Year Ended May 31, 1996 N/A N/A N/A
TAX-FREE INCOME FUND
Year Ended May 31, 1996 66,000 0 66,000
Year Ended May 31, 1995 62,000 0 62,000
Year Ended May 31, 1994 65,100 0 65,100
COLORADO TAX-FREE FUND
Year Ended May 31, 1996 60,000 0 60,000
Year Ended May 31, 1995 55,000 0 55,000
Year Ended May 31, 1994 50,000 50,000 0
MINNESOTA TAX-FREE FUND
Year Ended May 31, 1996 56,000 0 56,000
Year Ended May 31, 1995 55,300 0 55,300
Year Ended May 31, 1994 54,000 0 54,000
CONSERVATIVE BALANCED FUND
Year Ended May 31, 1996 32,500 6,054 26,446
Year Ended October 31, 1995 54,266 0 54,266
MODERATE BALANCED FUND
Year Ended May 31, 1996 36,000 7,104 28,896
Year Ended October 31, 1995 52,266 0 52,266
GROWTH BALANCED FUND
Year Ended May 31, 1996 34,000 6,591 27,409
Year Ended October 31, 1995 50,833 0 50,833
INCOME EQUITY FUND
Year Ended May 31, 1996 22,935 4,293 18,642
Year Ended October 31, 1995 34,700 0 34,700
VALUGROWTH STOCK FUND
Year Ended May 31, 1996 57,500 0 57,500
Year Ended May 31, 1995 48,500 0 48,500
Year Ended October 31, 1995 53,000 0 53,000
INDEX FUND
Year Ended May 31, 1996 30,500 5,659 24,841
Year Ended October 31, 1995 46,266 0 46,266
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1996 30,306 6,216 24,090
Year Ended October 31, 1995 34,700 0 34,700
-B15-
<PAGE>
Fee Fee Fee
Payable Waived Retained
------- ------ --------
GROWTH EQUITY FUND
Year Ended May 31, 1996 30,306 6,216 24,090
Year Ended October 31, 1995 34,700 0 34,700
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1996 21,000 3,755 17,245
Year Ended October 31, 1995 34,700 0 34,700
SMALL COMPANY STOCK FUND
Year Ended May 31, 1996 60,500 0 60,500
Year Ended May 31, 1995 51,000 0 51,000
Year Ended May 31, 1994 22,500 22,500 0
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1996 30,000 5,759 24,241
Year Ended October 31, 1995 36,700 0 36,700
CONTRARIAN STOCK FUND
Year Ended May 31, 1996 52,000 0 52,000
Year Ended May 31, 1995 50,000 0 50,000
Year Ended May 31, 1994 22,500 22,500 0
INTERNATIONAL FUND
Year Ended May 31, 1996 23,000 3,952 19,048
Year Ended October 31, 1995 51,766 39,766 12,000
INTERNATIONAL PORTFOLIO
Year Ended May 31, 1996 50,500 8,500 42,000
Year Ended October 31, 1995 77,967 8,567 69,400
</TABLE>
-B16-
<PAGE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C>
AGGREGATE
COMMISSIONS PAID
DIVERSIFIED BOND FUND
Year Ended May 31, 1996 5,261
Year Ended October 31, 1995 1,750
CONSERVATIVE BALANCED FUND
Year Ended May 31, 1996 8,406
Year Ended October 31, 1995 9,298
MODERATE BALANCED FUND
Year Ended May 31, 1996 54,332
Year Ended October 31, 1995 57,931
GROWTH BALANCED FUND
Year Ended May 31, 1996 69,732
Year Ended October 31, 1995 66,361
INCOME EQUITY FUND
Year Ended May 31, 1996 52,904
Year Ended October 31, 1995 25,321
INDEX FUND
Year Ended May 31, 1996 121,170
Year Ended October 31, 1995 107,321
VALUGROWTH STOCK FUND
Year Ended May 31, 1996 436,274
Year Ended May 31, 1995 485,176
Year Ended May 31, 1994 553,049
DIVERSIFIED EQUITY FUND
Year Ended May 31, 1996 175,648
Year Ended October 31, 1995 180,093
GROWTH EQUITY FUND
Year Ended May 31, 1996 127,666
Year Ended October 31, 1995 115,993
LARGE COMPANY GROWTH FUND
Year Ended May 31, 1996 42,229
Year Ended October 31, 1995 60,264
-B17-
<PAGE>
AGGREGATE
COMMISSIONS PAID
SMALL COMPANY STOCK FUND
Year Ended May 31, 1996 208,021
Year Ended May 31, 1995 67,471
Year Ended May 31, 1994 10,127
SMALL COMPANY GROWTH FUND
Year Ended May 31, 1996 785,875
Year Ended October 31, 1995 600,341
CONTRARIAN STOCK FUND
Year Ended May 31, 1996 52,162
Year Ended May 31, 1995 43,397
Year Ended May 31, 1994 9,311
INTERNATIONAL FUND*
Year Ended May 31, 1996 188,849
Year Ended October 31, 1995 348,358
* Reflects commission paid by International Portfolio; International Fund paid
no commissions directly during either year.
</TABLE>
-B18-
<PAGE>
TABLE 7 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund as of May 1997, as well as
their percentage holding of all shares of the Fund. All percentages are rounded
off to the nearest one percent. Certain persons own shares of the Funds of
record only, including Alpine & Co., BHC Securities, Inc., EMSEG & Co., First
Stock Co., Norwest Bank Minnesota, N.A. and Stout & Co.
<TABLE>
<S> <C> <C> <C> <C>
SHARE % OF % OF
NAME AND ADDRESS BALANCE CLASS FUND
---------------- ------------- ----- --------
CASH INVESTMENT FUND Norwest Bank Minnesota NA 232,972,631.500 11.166% 11.166%
Collective Trust Funds
Clearing Account
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Norwest Investment Services 1,631,937,513.720 78.220% 78.220%
c/o Greg Wraalstad
608 2nd Avenue South
8th Floor MS 0162
Minneapolis MN 55479-0162
READY CASH INVESTMENT FUND
Investor Shares BHC Securities, Inc. 190,326,428.770 33.905% 10.570%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Norwest Investment Services 358,876,573.770 63.930% 19.931%
c/o Greg Warrlstad
608 2nd Avenue South
8th Floor, MS 0162
Minneapolis MN 55479-0162
Institutional Shares Norwest Bank Minnesota NA AMS 271,456,847.024 21.917% 15.076%
VP4600301
Attn: Cash Sweep Processing
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Norwest Bank Minnesota NA AMS
VP460500022 610,356,675.500 49.279% 33.898%
Attn: Cash Sweep Processing
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Norwest Bank Minnesota NA AMS
VP4500030
Attn: Cash Sweep Processing 94,510,122.000 7.630% 5.248%
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Alpine & Co
-B19-
<PAGE>
Non Discretionary
1740 Broadway MS 8751
Denver, CO 80274 106,021,035.290 8.559% 5.888%
Exchange Shares Stephen P. Arkulary 89,170.870 14.112% 0.0004%
and Helen M. Doane
Jt. Ten 711266
595 W. Wabasha Street
Duluth MN 55803
Norwest Bank Minnesota 438,636.600 69.417% 0.0243%
Cust. for IRA Account of
Dennis M. Dougherty
RD 1, Box 1444
East Stroudsburg PA 18301
BHC Securities Inc. 57,559.460 9.109% 0.0031%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
U.S. GOVERNMENT FUND Alpine & Co 166,894,993.810 9.592% 9.592%
Non-Discretionary
1740 Broadway MS 8751
Denver, CO 80274
Norwest Bank Minnesota NA AMS 1,311,407,849.360 75.377% 75.377%
Collective Trust Funds
Clearing Account
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Norwest Investment Services
c/o Greg Wraalstad 326,370,481.810 18.759% 18.759%
608 2nd Avenu South
8th Floor -- MS 0162
Minneapolis MN 55479-0162
TREASURY FUND Alpine & Co. 85,502,626.510 8.311% 8.311%
Discretionary
1740 Broadway MS 8751
Denver, CO 80274
Norwest Bank Minnesota NA AMS 525,518,273.310 51.085% 51.085%
Collective Trust Funds
Clearing Account
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Norwest Bank Colorado Springs
Attn: Jan Peto 62,598,435.560 6.085% 6.085%
P.O. Box 400
Colorado Springs, CO 80901
-B20-
<PAGE>
Norwest Investment Services
c/o Greg Wraalstad 236,266,678.130 22.967% 22.967%
608 2nd Avenu South
8th Floor -- MS 0162
Minneapolis MN 55479-0162
MUNICIPAL MONEY MARKET FUND
Investor Shares BHC Securities, Inc. 11,856,549.960 22.548% 1.847%
Attn: Cash Sweeps
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Norwest Investment Services 39,468,399.560 75.060% 6.148%
c/o Greg Wraalstad
608 2nd Avenu South % %
8th Floor MS - 0162
Institutional Shares Norwest Bank Minnesota NA AMS 183,035,857.010 31.064% 28.519%
Collective Trust Funds
Clearing Account
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Norwest Bank Minnesota NA
VP4620002 218,179,174.990 37.028% 33.994%
Attn: Cash Sweep Processing
733 Marquette Avenue 4th Floor
Minneapolis, MN 55479-0050
Finaba
Non Discretionary Cash Account 45,723,443.990 7.760% 7.124%
Attn: Jon Rutter
1314 Avenue K
Lubbock TX 79401
Norwest Investment Services
c/o Greg Wraalstad 95,761,229.530 16.252% 14.920%
608 2nd Avenue South
8th Floor MS - 0162
Minneapolis MN 55479-0162
-B21-
<PAGE>
STABLE INCOME FUND
A Shares Ramsey Foundation 136,738.146 11.138% 10.260%
8100 34th Avenue South
PO Box 1309
Minneapolis, MN 55440-1309
St. Paul Ramsey Medical Center 274,203.562 22.335% 20.575%
6th Floor
8100 34th Ave South
PO Box 1309
Minneapolis, MN 55440-1309
Von Maur Investment Co 116,567.861 9.495% 8.746%
6565 Brady St.
Davenport, IA 52806
Aspen Medical Group, PA 98,818.627 7.397% 7.415%
1021 Bandana Blvd. E, Suite 200
St. Paul, MN 55108
Analysts International Corporation
7615 Metro Blvd. 216,969.473 17.673% 16.280%
Minneapolis, MN 55439
B Shares Fred P. Mattson 7,979.911 7.597% 0.598%
and Berry J. Matton
P.O. Box 248
Elmwood, WI 54740-0248
BHC Securities, Inc. 6,758.457 6.434% 0.507%
FBO 52443692
One Commerce Square
2005 Market St. STE 1200
Philadelphia, PA 19103
BHC Securities, Inc. 6,122.083 5.828% 0.459%
FBO 52509602
One Commerce Square
2005 Market St. STE 1200
Philadelphia, PA 19103
Norwest Investment Services, Inc. 11,773.862 11.209% 0.883%
FBO 800059291 %
Northstar Building East - 8th Fl.
618 Second Avenue - South
Minneapolis MN 55479-0162
Janet R. Anderson
TOD 6,183.057 5.886% 0.463%
1874 Summit Avenue
St. Paul MN 55105
-B22-
<PAGE>
Charles Anjad-Ali
1305 Dayton Avenue 8,420.307 8.016% 0.631%
St. Paul MN 55104
INTERMEDIATE GOVERNMENT INCOME
FUND
A Shares BHC Securities, Inc. 263,205.698 21.597% 12.660%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Ibrahim M. Almadani 108,812.262 8.928% 5.195%
and Salwa A. Aboulghaffar
c/o Bernie Harkel
10010 Regency Circle
Omaha NE 68114
INCOME FUND
A Shares BHC Securities, Inc. 172,137.075 30.515% 0.575%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
TOTAL RETURN BOND FUND
A Shares BHC Securities, Inc. 59,085.463 18.060% 0.416%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Norwest Wealthbuilder 165,292.626 50.523% 1.165%
Reinvest Account
733 Marquette Avenue
Minneapolis, MN 55479-0050
I Shares Dentru & Co 3,205,076.083
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
Seret & Co. 7,150,049.422
Discretionary Reinvest
1700 Broadway MS 0076
Denver, CO 80274
LIMITED TERM TAX-FREE FUNDS
Investor Shares Victoria & Co. 296,095.170 7.874% 7.874%
Non-Discretionary Reinvest
-B23-
<PAGE>
Trust Operations
One O'Connor Plaza
Victoria TX 77901
Victoria & Co. Special 435,765.150 11.588% 11.588%
Common Trust Fund
Trust Operations
One O'Connor Plaza
Victoria TX 77901
2,697,945.102 71.747% 71.747%
Norwest Limited Term
Tax-Exempt Bond Fund
PO Box 1450 NW 8477
Minneapolis MN 55480-8477
TAX-FREE INCOME FUND
A Shares BHC Securities, Inc. 410,978.560 14.641% 1.374%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
I Shares Dentru & Co 6,897,542.824 26.155% 23.063%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
FINABA 1,579,783.465 26.155% 5.282%
Discretionary Cash Acct.
1314 Avenue K
Lubbock, TX 79401
Norwest Tax Exempt Bond Fund 14,714,203.086 55.797% 49.199%
P.O. Box 1450 NW 8477
Minneapolis, MN 55480-8477
COLORADO TAX-FREE FUND
A Shares BHC Securities, Inc. 252,004.510 9.273% 4.195%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Walter Stonehocker and Roswitha 539,066.141 19.774% 8.973%
Stonehocker
15600 Holly
Brighton, CO 80601
B Shares Ronald T. Stecker and 38,614.513 5.660% 0.642%
Dorothy E. Stecker
Jt Ten
27 Eagle Drive
Littleton CO 80123
I Shares Dentru & Co 2534,093.903 97.468% 42.184%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
-B24-
<PAGE>
MINNESOTA TAX-FREE FUND
A Shares BHC Securities, Inc. 397,738.332 16.441% 8.901%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
I Shares Norwest Bank Minnesota, NA 171,712.754 17.196% 3.843%
Agnt Madri Inc. Agency
U/A/DT 5/14/96
733 Marquette Avenue MS-0036
Minneapolis, MN 55479-0036
INCOME EQUITY FUND
A Shares BHC Securities, Inc. 478,613.759 36.954% 21.227%
Trade House Acct.
One Commerce Square
2005 Market St.
Philadelphia, PA 19103-3212
VALUGROWTH STOCK FUND
A Shares BHC Securities, Inc. 278,884.096 37.072% 3.402%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Norwest Wealthbuilder 42,559.160 5.657% 0.519%
Reinvest Account
733 Marquette Avenue
Minneapolis MN 55479-0040
DIVERSIFIED EQUITY FUND
A Shares BHC Securities, Inc. 329,190.800 50.024% 21.520%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
GROWTH EQUITY FUND
A Shares BHC Securities, Inc. 116,402.090 27.723% 17.267%
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
Norwest Wealthbuilder 171,390.554 40.820% 25.424%
Reinvest Account
733 Marquette Avenue
Minneapolis MN 55479-0040
-B25-
<PAGE>
SMALL COMPANY STOCK FUND
A Shares Norwest Wealthbuilder 115,727.168 22.352% 0.937%
Reinvest Account
733 Marquette Avenue
Minneapolis, MN 55479-0040
BHC Securities, Inc. 188,110.701 36.333% 1.524%
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103
B Shares BHC Securities, Inc. 28,973.933 7.749% 0.234%
FAO 52711393
One Commerce Square
2005 Market Street
Philadelphia PA 19103-3212
I Shares Dentru & Co 2,222,356.042 6.814% 18.010%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
Norwest Bank Minnesota 779,625.000 6.814% 6.318%
Cust Norwest Foundation - NIM
A/C 12928201
PO Box 1450 NW 0477
Minneapolis MN 55480-8477
% %
SMALL CAP OPPORTUNITIES FUND
A Shares Richard M. Leach 1,180.781 5.583% 4.109
and Peter W. Nash
Trst The Edward Sturgis Trust
U/A DTD 3/10/72
2 Portland Square
Portland ME 04101
BHC Securities, Inc. 2,876.045 13.599% 10.009%
Trade House Act
Attn: Mutual Fd Dept.
One Commerce Square
2505 Market Street
Philadelphia PA 19103
Norwest Investment 2,619.172 12.385% 9.115%
Services, Inc.
FBO 7022167001
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
Norwest Investment 8,355.091 39.508% 29.079%
Services, Inc.
FBO 101482111
-B26-
<PAGE>
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
B Shares Tom S. Haupin 577.156 7.609% 2.008%
1667 Oriole Drive
Galesburg IL 61401
Norwest Investment 582.244 7.676% 2.026%
Services, Inc.
FBO 701984451
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
Norwest Investment 2,418.821 31.891% 8.418%
Services, Inc.
FBO 701942871
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
BHC Securities, Inc. 1,728.180 22.785% 6.014%
FAO 51729488
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia PA 19103
CONTRARIAN STOCK FUND
A Shares BHC Securities, Inc. 3,792.159 65.390% 0.341%
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103
Richard and Ramute Bell 1,146.308 19.766% 0.103%
Richard & Ramute Bell Consvtrs
Consv Jody Kay Bell
726367
Norfolk NE 68701
Marcia Mattson 630.481 10.354% 0.056%
2039 Virginia Lane
Grafton WI 53024
B Shares Lynda J. Best 1,279.541 72.464% 0.115%
3270 Jay Avenue
Bravton IA 50042
Norwest Investment 427.163 24.191% 0.038%
Services, Inc.
FBO 702022391
Northstar Building East - 8th Fl.
608 Second Avenue South
Minneapolis MN 55479-0162
-B27-
<PAGE>
I Shares Dentru & Co 442,129.284 40.118% 39.844%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver CO 80274
Seret & Co. 435,626.799 39.528% 39.258%
Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274
INTERNATIONAL FUND
A Shares Norwest Wealthbuilder 35,880.846 37.965% 21.107%
Reinvest Account
733 Marquette Avenue
Minneapolis, MN 55479-0040
BHC Securities, Inc. 29,438.561 31.140% 17.317%
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103
B Shares BHC Securities, Inc. 7,722.102 10.230% 4.542%
FAO 43268824
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103
David A. Struvk 4,764.293 6.311% 2.802%
1941 Crestview Circle
Ewcelsior MN 55331
</TABLE>
-B28-
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - MONEY MARKET FUND YIELDS
As of November 30, 1996, the SEVEN DAY yield, SEVEN DAY effective yield and, for
Municipal Money Market Fund, the SEVEN DAY tax equivalent yield, of each class
of the Money Market Funds was as follows. For the tax-equivalent yield
quotations, the assumed Federal income tax rate is 39.6%.
<TABLE>
<S> <C> <C> <C> <C>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
CASH INVESTMENT FUND 5.06% 5.19% N/A N/A
READY CASH INVESTMENT FUND
Investor Shares 4.76% 4.87% N/A N/A
Institutional Shares 5.0978% 5.23% N/A N/A
Exchange Shares 5.10% 5.23% N/A N/A
U.S. GOVERNMENT FUND 4.97% 5.09% N/A N/A
TREASURY FUND 4.78% 4.89% N/A N/A
MUNICIPAL MONEY MARKET FUND
Investor Shares 3.06% 3.10% 5.07% 5.13%
Institutional Shares 3.26% 3.31% 5.40% 5.48%
</TABLE>
TABLE 2 - YIELDS
For the 30-day period ended November 30, 1996 the annualized yield and, where
applicable, the tax equivalent yield of each class of the Fixed Income Funds
balanced Funds and Equity Funds was as follows. For the tax-equivalent yield
quotations, the assumed Federal income tax rate is 39.6%. In addition, for the
tax-equivalent yields of the Colorado and Minnesota Tax-Free Funds, the assumed
Colorado and Minnesota income tax rates are 5% and 8.5%, respectively. Limited
Term Tax-Free Fund had not commenced operations as of November 30, 1996.
<TABLE>
<S> <C> <C>
Tax Equivalent
Yield Yield
----- -----
STABLE INCOME FUND
A Shares 6.06% N/A
B Shares 4.91% N/A
I Shares 5.66% N/A
INTERMEDIATE GOVERNMENT INCOME FUND
A Shares 5.46% N/A
B Shares 4.93% N/A
I Shares 5.67% N/A
DIVERSIFIED BOND FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares 5.86% N/A
<PAGE>
Tax Equivalent
Yield Yield
----- -----
INCOME FUND
A Shares 5.68% N/A
B Shares 5.13% N/A
I Shares 5.87% N/A
TOTAL RETURN BOND FUND
A Shares 5.21% N/A
B Shares 4.62% N/A
I Shares 5.38% N/A
LIMITED TERM TAX-FREE FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
TAX-FREE INCOME FUND
A Shares 4.95% 8.20%
B Shares 4.37% 8.00%
I Shares 5.12% 9.25%
COLORADO TAX-FREE FUND
A Shares 5.42% 9.45%
B Shares 4.88% 8.19%
I Shares 5.64% 9.82%
MINNESOTA TAX-FREE FUND
A Shares 4.73% 8.55%
B Shares 4.14% 7.11%
I Shares 4.88% 8.83%
CONSERVATIVE BALANCED FUND
I Shares N/A N/A
MODERATE BALANCED FUND
I Shares N/A N/A
GROWTH BALANCED FUND
I Shares N/A N/A
DIVERSIFIED EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
GROWTH EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INDEX FUND
I Shares N/A N/A
-C2-
<PAGE>
Tax Equivalent
Yield Yield
----- -----
VALUGROWTH STOCK FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INCOME EQUITY FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
LARGE COMPANY GROWTH FUND
I Shares N/A N/A
SMALL COMPANY STOCK FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
SMALL COMPANY GROWTH FUND
I Shares N/A N/A
CONTRARIAN STOCK FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
INTERNATIONAL FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
SMALL CAP OPPORTUNITIES FUND
A Shares N/A N/A
B Shares N/A N/A
I Shares N/A N/A
</TABLE>
TABLE 3 - TOTAL RETURNS
The average annual total return of each class of each Fixed Income and Equity
Fund for the periods ended November 30, 1996 was as follows. The actual dates of
the commencement of each Fund's operations, or the commencement of the offering
of each class' shares, is listed in the Fund's financial statements. The
performance of the Funds marked with an asterisk (*) includes the performance of
a collective investment fund prior to its conversion into the Fund. See
"Performance and Advertising Data - Multiclass, Collective Trust Fund and
Core-Gateway Performance."
<TABLE>
<S> <C> <C> <C> <C>
Since
One Year Five Years Ten Years Inception
-------- ---------- --------- ---------
STABLE INCOME FUND
A Shares 4.28% N/A N/A 5.92%
B Shares N/A N/A N/A 3.27%
I Shares 5.83% N/A N/A 6.70%
-C3-
<PAGE>
Since
One Year Five Years Ten Years Inception
-------- ---------- --------- ---------
INTERMEDIATE GOVERNMENT INCOME FUND*
A Shares 1.42% 4.91% 6.60% N/A
B Shares 3.00% N/A N/A 3.00%
I Shares 5.38% 5.72% 7.01% N/A
DIVERSIFIED BOND FUND*
A Shares N/A N/A N/A N/A
B Shares N/A N/A N/A N/A
I Shares 5.13% 5.87% 7.03% N/A
INCOME FUND
A Shares 0.68% 5.59% N/A 7.68%
B Shares 1.73% N/A N/A 2.92%
I Shares 4.59% 6.40% N/A 8.10%
TOTAL RETURN BOND FUND
A Shares 1.32% N/A N/A 4.36%
B Shares 2.57% N/A N/A 4.41%
I Shares 5.25% N/A N/A 5.79%
LIMITED TERM TAX-FREE FUND
A Shares N/A N/A N/A N/A
B Shares N/A N/A N/A N/A
I Shares N/A N/A N/A 37.45%
TAX-FREE INCOME FUND
A Shares 2.36% 5.96% N/A 6.27%
B Shares 3.53% N/A N/A 4.63%
I Shares 6.33% 6.79% N/A 6.83%
COLORADO TAX-FREE FUND
A Shares 2.22% N/A N/A 4.95%
B Shares 3.33% N/A N/A 4.72%
I Shares 6.13% N/A N/A 6.10%
MINNESOTA TAX-FREE FUND
A Shares 1.46% 6.04% N/A 6.51%
B Shares 2.66% N/A N/A 4.35%
I Shares 5.46% 6.86% N/A 6.97%
CONSERVATIVE BALANCED FUND
I Shares 9.49% 8.28% N/A 9.13%
MODERATE BALANCED FUND
I Shares 11.80% 9.85% N/A 10.68%
GROWTH BALANCED FUND
I Shares 16.36% 12.25% N/A 12.36%
INCOME EQUITY FUND
A Shares 19.84% 16.39% N/A 15.61%
B Shares N/A N/A N/A 19.75%
I Shares 25.51% 17.48% N/A 16.31%
-C4-
<PAGE>
Since
One Year Five Years Ten Years Inception
-------- ---------- --------- ---------
INDEX FUND*
A Shares N/A N/A N/A N/A
B Shares N/A N/A N/A N/A
I Shares 27.25% 17.56% N/A 13.69%
VALUGROWTH STOCK FUND
A Shares 16.53% 12.70% N/A 12.69%
B Shares 18.03% N/A N/A 12.55%
I Shares 21.98% 13.71% N/A 13.25%
DIVERSIFIED EQUITY FUND*
A Shares 17.26% 15.01% N/A 15.70%
B Shares N/A N/A N/A N/A
I Shares 22.78% 16.07% N/A 16.37%
GROWTH EQUITY FUND*
A Shares 13.13% 14.43% N/A 15.31%
B Shares N/A N/A N/A 7.34%
I Shares 18.48% 15.48% N/A 16.01%
LARGE COMPANY GROWTH FUND*
A Shares N/A N/A N/A N/A
B Shares N/A N/A N/A N/A
I Shares 22.83% 13.46% 13.92% N/A
SMALL COMPANY STOCK FUND
A Shares 16.64% N/A N/A 13.17%
B Shares 18.09% N/A N/A 13.28%
I Shares 22.12% N/A N/A 14.81%
SMALL COMPANY GROWTH FUND*
I Shares 17.57% 20.71% 19.40% N/A
CONTRARIAN STOCK FUND
A Shares (1.66%) N/A N/A 4.59%
B Shares (0.89%) N/A N/A 4.56%
I Shares 2.94% N/A N/A 6.26%
INTERNATIONAL FUND*
A Shares 8.27% N/A N/A 10.89%
B Shares 9.45% N/A N/A 11.52%
I Shares 13.34% N/A N/A 8.78%
SMALL CAP OPPORTUNITIES FUND
A Shares 20.99% N/A N/A 23.42%
B Shares N/A N/A N/A 21.54%
I Shares 26.76% N/A N/A 25.16%
</TABLE>
-C5-
