READY CASH INVESTMENT FUND
Public Entities Shares
PROSPECTUS
May 11, 1998
Not FDIC Insured
This Prospectus offers Public Entities Shares of Ready Cash Investment Fund (the
"Fund"), a separate diversified money market portfolio of Norwest Advantage
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 May 11, 1998, 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
Prospectus Summary...............................2 Exchanges.......................................14
Investment Objective and Policies................3 Dividends and Tax Matters.......................15
Management.......................................9 Other Information...............................16
Purchases and Redemptions of Shares..............11
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NORWEST ADVANTAGE 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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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 December 31, 1997, managed over
$23.6 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, LLC ("FAdS") 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 public entities class shares ("Public
Entities Shares") of the Fund. The Fund offers two other separate classes of
shares: investor class shares ("Investor Shares") and exchange class shares
("Exchange Shares"). Investor and Exchange 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 AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed without
a sales or other charge. The minimum initial investment in Public Entities
Shares is $100,000. There is no minimum subsequent investment amount. See
"Purchases and Redemptions of Shares."
EXCHANGES. Holders of Public Entities Shares may exchange their Shares for
Shares of Cash Investment Fund, U.S. Government Fund, and Treasury Fund and
Institutional Shares and I class shares ("I Shares") of other series of the
Trust.
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."
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CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS. There can be no assurance
that the Fund or the 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 the Core Portfolio."
EXPENSE INFORMATION
The purpose of the following table is to assist investors in understanding the
expenses that an investor in Public Entities Shares of the Fund will bear
directly or indirectly. There are no transaction charges in connection with
purchases, redemptions or exchanges of the Shares. The Fund has not adopted a
Rule 12b-1 plan with respect to its Shares and, accordingly, the Fund incurs no
distribution expenses with respect to its Shares.
ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Investment Advisory Fees(2) 0.33%
Other Expenses (after fee waivers/reimbursements)(3) 0.22%
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Total Operating Expenses (after fee waivers/reimbursements)(3) 0.55%
(1) For a further description of the various expenses associated with investing
in the Fund, see "Management." Expenses associated with other classes of the
Fund differ from those listed in the table. The amounts of expenses are based on
estimated amounts for the Fund's current fiscal period. The Fund indirectly
bears its pro rata expenses of the Core Portfolio.
(2) "Investment Advisory Fees" reflect the investment advisory fees incurred by
the Core Portfolio in which the Fund invests.
(3) Absent estimated expense reimbursements and fee waivers, the expenses of
Public Entities Shares would be: "Other Expenses, 0.56% and Total Operating
Expenses, 0.89%. "Other Expenses" include transfer agency fees payable to
Norwest Bank of 0.10%. 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 5% annual
return is not predictive of and does not represent the Fund's projected returns;
rather, it is required by government regulation. The example should not be
considered a representation of past or future expenses or return. Actual
expenses and return may be greater or less than indicated.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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6 18 31 69
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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.
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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 the Core Portfolio, which has the same investment objective
and substantially similar investment policies as the Fund. Because the Fund and
the Core 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 the Core Portfolio, it applies equally to
the Fund.
OBLIGATIONS OF FINANCIAL INSTITUTIONS. The Core 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 Core 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 Core Portfolio but may be subject to early withdrawal
penalties which could reduce the Core 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 Core 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 Core Portfolio may not invest more than 25% of its total
assets in any other single industry.
UNITED STATES GOVERNMENT SECURITIES. The Core Portfolio may invest without limit
in United States Government Securities. The U.S. Government Securities in which
the Core 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 Core Portfolio may invest include securities supported primarily or
solely by the creditworthiness of the issuer, such as securities of the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Tennessee Valley Authority. There is no guarantee that the U.S. Government
will support securities not backed by its
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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 Core Portfolio may
invest without limit in U.S. Government and Other Related Zero-Coupon
Securities. The Core 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 Core 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 Core 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 Core 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 Core
Portfolio may also invest in the U.S. dollar-denominated 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 Core 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 Core 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.
MUNICIPAL NOTES. The Core 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 Core 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
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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. Generally, the Core Portfolio will invest in municipal
lease obligations through certificates of participation.
CORPORATE DEBT SECURITIES. The Core 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 Core
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 Core Portfolio may purchase from financial
institutions participations in loans or securities. A participation interest
gives the Core Portfolio an undivided interest in the loan or security in the
proportion that the Core Portfolio's interest bears to the total principal
amount of the security. For certain participation interests the Core Portfolio
will have the right to demand payment, on not more than seven days' notice, for
all or a part of the Core Portfolio's participation interest. The Core 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 Core Portfolio's investment portfolio. The Core Portfolio
will not invest more than 10% of its total assets in participation interests in
which the Core Portfolio does not have demand rights.
FOREIGN INSTRUMENTS. The Core 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 Core 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 or
region; however, to the extent the Core Portfolio concentrates its assets in a
foreign country or region, 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.
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The Core Portfolio may enter into repurchase agreements, may enter into reverse
repurchase agreements (which are considered borrowings), may lend its securities
and may purchase securities on a forward commitment basis as described below. As
a fundamental policy, the Core 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 Core Portfolio's total assets. Borrowing
for other than meeting redemption requests will not exceed 5% of the value of
the Core Portfolio's net assets. The Core 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 Core 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 Core
Portfolio might suffer a loss. Failure by the other party to deliver a security
purchased by the Core 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 Core 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 Core Portfolio.
GENERAL MONEY MARKET FUND GUIDELINES. The Core 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 Core 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 Core Portfolio may invest may have fixed, variable or floating rates
of interest.
As used herein, high quality instruments include those that: (1) 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 ("requisite NRSROs"); or (2)
are otherwise unrated and determined by Norwest, pursuant to guidelines adopted
by the Core Board, to be of comparable quality. The Core 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.
Under Rule 2a-7, the Fund may not invest more than five percent of its total
assets in the securities of any one issuer other than the U.S. Government,
provided that in certain cases the Fund may invest twenty-five percent of its
assets in the first tier securities of a single issuer for a period of up to
three business days. First tier securities are securities that have received a
short-term rating in the highest category from the requisite NRSROs. The 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. In addition, to ensure adequate liquidity, the
Core 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 Core Board, Norwest determines and monitors the
liquidity of portfolio securities.
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The market value of the interest-bearing debt securities held by the Core
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.
Although the Core Portfolio only invests in high quality money market
instruments, an investment in the Core Portfolio is subject to risk even if all
securities in the Core 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 Core Portfolio may enter into repurchase agreements,
which are transactions in which the Core 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 Core 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. The Core Portfolio receives interest in
respect of securities loans from the borrower or from investing cash collateral.
The Core Portfolio may pay fees to arrange the loans. The Core Portfolio may not
lend portfolio securities in excess of 33 1/3% of the value of its 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 Core 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 Core 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 Core Portfolio has the intention of actually acquiring the securities,
but the Core Portfolio may sell the securities before the settlement date if
deemed advisable. The Core Portfolio will not enter into forward commitments if
the aggregate amount of the commitments exceeds 15% of the value of the Fund's
total assets.
REVERSE REPURCHASE AGREEMENTS. The Core Portfolio may enter into reverse
repurchase agreements, which are transactions in which the Core 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
Core 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
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agreement may exceed the return received on the investments made by the Core
Portfolio with those monies.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Core
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 indices 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 Core 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 Core Portfolio to
dispose of the instrument if the issuer defaulted on its repayment obligation
during periods that the Core Portfolio is not entitled to exercise any demand
rights it may have. The Core Portfolio could, for this or other reasons, suffer
a loss with respect to an instrument. Norwest monitors the liquidity of the Core
Portfolio's investments in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
The Core 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 Core 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 mortgages 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 Core 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 Core
Portfolio must include a portion of the original issue discount of the security
as income. Because the Core Portfolio distributes substantially all of its net
investment income, the Core 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 Core Portfolio may invest.
YEAR 2000. Like other mutual funds, financial and other business organizations
and individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers to the Funds do
not properly process and calculate date-related information and data from and
after January 2000. The Adviser and the manager are taking steps to address the
Year 2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are
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being taken by the Funds' other major service providers. There can be no
assurance, however, that these steps will be sufficient to avoid any adverse
impact on the Funds from this problem.
MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Trustees, and the business of the Core 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 December
31, 1997, Norwest Corporation had assets of $88.5 billion which made it the 11th
largest bank holding company in the United States. As of December 31, 1997,
Norwest Corporation and its affiliates managed assets with a value of
approximately $51.7 billion.
PORTFOLIO MANAGERS. Many persons on the advisory staff of Norwest contribute to
the investment services provided to 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 and the Core
Portfolio. For periods prior to June 1, 1997, the persons served in their
current positions with Norwest Bank and provided investment services directly to
the Fund. Prior to that date, Norwest Bank was the Fund's investment adviser. In
addition to their responsibilities as listed below, the portfolio managers may
perform other portfolio management duties for Norwest Bank.
DAVID D. SYLVESTER and LAURIE R. WHITE. Mr. Sylvester has been
associated with Norwest since 1979, and has been a Vice President and
Senior Portfolio Manager since 1985. 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 of Ready Cash Investment Fund 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 Portfolio's average daily net assets, 0.36% of the next $400 million of the
Core Portfolio's average daily net assets and 0.32% of the Core Portfolio's
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
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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. FAdS is
responsible for performing certain administrative services necessary for the
Trust's operations with respect to the Fund including, but not limited to: (1)
preparing and printing updates of the Trust's registration statement,
prospectuses, and statements of additional information, the Trust's tax returns,
and reports to its shareholders, the SEC and state securities administrators;
(2) preparing proxy and information statements and any other communications to
shareholders; (3) monitoring the sale of shares and ensuring that such shares
are properly and duly registered with the SEC and applicable state securities
administrators; and (4) determining the amount of and supervising the
declaration of distributions to shareholders.
As of December 31, 1997, Forum and FAdS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $30 billion. Forum is a member of the National
Association of Securities Dealers, Inc. For their services Forum and FAdS each
receives a fee with respect to the Fund at an annual rate of 0.075% of the
Fund's average daily net assets. FAdS also serves as administrator of the Core
Portfolio and provides services to the Core Portfolio that are similar to those
provided to the Fund by Forum and FAdS. For its services FAdS receives a fee
with respect to the Core Portfolio at an annual rate of 0.05% of the Portfolio's
average daily net assets.
Pursuant to separate agreements, Forum Accounting Services, LLC ("FAcS")
provides portfolio accounting services to the Fund and to the Core Portfolio.
Forum, FAdS, and FAcS 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 May 11, 1998, Forum, FAdS and FAcS were
controlled by John Y.
Keffer, President and Chairman of the Trust.
Pursuant to a separate Distribution Services Agreement, Forum acts as principal
underwriter and distributor of the Fund. Forum receives no fee for distributing
Public Entities 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. Forum is located at Two Portland Square, Portland, Maine 04101.
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 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
the Fund to the Transfer Agent. For its services, the Transfer Agent receives a
fee with respect to the Fund at an annual rate of 0.10% 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, 0.015% of the next $100
million of the Fund's or Core Portfolio's average daily net assets and 0.01% of
the Fund's or Core Portfolio's remaining average daily net assets. No fee is
directly payable by the Fund to the extent the Fund is invested in the Core
Portfolio.
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EXPENSES OF THE FUND
Subject to the obligation of Norwest to reimburse the Trust for certain expenses
of the Fund, 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.
Each service provider 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.
PURCHASES AND REDEMPTIONS OF SHARES
Public Entities Shares are designed primarily for Minnesota public entity
finance managers -- including county treasurers, school and water/sewer district
finance managers and other public entity managers. Shares are continuously sold
and redeemed at a price equal to their net asset value next-determined after
acceptance of an order, or receipt of a redemption request, on every weekday
except customary national holidays (New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas) and Good Friday ("Fund Business Day").
GENERAL PURCHASE INFORMATION
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 the Fund's
shares are effected through the Transfer Agent, which accepts orders for
redemptions and for subsequent purchases only from shareholders of record and
new investors. Shareholders of record will receive from the Trust periodic
statements listing all account activity during the statement period.
You must pay for your shares in U.S. dollars by check or money order (drawn on a
U.S. bank), by bank or federal funds wire transfer, or by electronic bank
transfer; cash cannot be accepted.
When you sign your application for a new Fund account, you are certifying that
your Social Security or other taxpayer ID number is correct and that you are not
subject to backup withholding. If you violate certain federal income tax
provisions, the Internal Revenue Service can require the Fund to withhold 31% of
your distributions and redemptions.
Shares of the Fund are offered without a sales charge and may be redeemed
without charge. The minimum investment in Public Entities Shares is $100,000 and
there is no minimum subsequent investment.
Shares of the Fund become entitled to receive dividends on the Fund Business Day
that a purchase order is accepted. 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. Purchase and redemption orders will be accepted on Fund
Business Days only until 3:00 p.m.; the payment for purchases must be received
by 4:00 p.m. All times referenced are Eastern Time.
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The Trust reserves the right to close early and advance the time by which the
Fund must receive purchase or redemption orders and payments 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 the Fund's trading
hours.
The Trust reserves the right to reject any subscription for the purchase of Fund
shares, including subscriptions by those deemed to be "market timers." "Market
timers" generally include: market timing or allocation services, accounts
administered so as to buy, sell or exchange shares based on predetermined market
indicators, or any person or group whose transactions seem to follow a timing
pattern. Share certificates are issued only to shareholders of record upon their
written request, and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
Ready Cash Investment Fund: Public Entities Shares
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
REQUEST BY MAIL. Investors may send a check or money order (cash cannot be
accepted) along with a completed account application form to the Trust at the
address listed above. Checks and money orders are accepted at full value subject
to collection. Payment by a check drawn on any member of the Federal Reserve
System can normally be converted into federal funds within two business days
after receipt of the check. Checks drawn on some non-member banks may take
longer. If a check does not clear, the purchase order will be canceled and the
investor will be liable for any losses or fees incurred by the Trust, the
Transfer Agent or FFSI.
For individual or Uniform Gift to Minors Act accounts, the check or money order
used to purchase shares of the Fund must be made payable to "Norwest Advantage
Funds" or to one or more owners of that account and endorsed to Norwest
Advantage Funds. No other method of payment by check will be accepted. For
corporation, partnership, trust, 401(k) plan or other non-individual type
accounts, the check used to purchase shares of the Fund must be made payable on
its face to "Norwest Advantage Funds." No other method of payment by check will
be accepted.
REQUEST BY BANK WIRE. To make an initial investment in the Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Transfer Agent at (612) 667-8833 or (800) 338-1348 to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
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Norwest Bank Minnesota, N.A.
ABA: 091 000 019
For Credit to: Norwest Funds 0844-131
Re: Ready Cash Investment Fund: Public Entities Shares
Account Number:
Account Name:
The investor should then promptly complete and mail the account application
form. There may be charges by the investor's bank for transmitting the money by
bank wire. The Trust does not charge investors for the receipt of wire
transfers. Payment by bank wire is treated as a federal funds payment when
received.
REQUEST THROUGH FINANCIAL INSTITUTIONS. Shares may be purchased and redeemed
through certain broker-dealers, banks and other financial institutions
("Processing Organizations"). The Transfer Agent, FFSI or their affiliates may
be Processing Organizations. Financial institutions, including Processing
Organizations, may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Fund.
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. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with confirmations and periodic statements. The Trust is not
responsible for the failure of any Processing Organization to carry out its
obligations to its customer.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases may be made by mailing a check, by sending a bank wire or
through the shareholder's Processing Organization as indicated above. All
payments should clearly indicate the shareholder's name and account number.
GENERAL REDEMPTION INFORMATION
Fund shares may be redeemed at their net asset value on any Fund Business Day.
There is no minimum period of investment and no restriction on the frequency of
redemptions.
Fund shares are redeemed as of the next determination of the Fund's net asset
value following receipt 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 on the day on which the
redemption is effective. Redemption orders are accepted up to 3:00 p.m. Eastern
Time. The Trust reserves the right to close early and to advance the times by
which the Fund must receive purchase or redemption orders. See "Purchase and
Redemption of Shares -- General Purchase Information."
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
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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 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: (1)
endorsement on a share certificate; (2) instruction to change a shareholder's
record name; (3) modification of a designated bank account for wire redemptions;
(4) dividend and distribution election; (5) telephone redemption; (6) exchange
option election or any other option election in connection with the
shareholder's account; (7) written instruction to redeem shares whose value
exceeds $50,000; (8) redemption in an account in which the account address has
changed within the last 30 days; (9) redemption when the proceeds are deposited
in a Norwest Advantage Funds account under a different account registration; and
(10) 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 a
Fund account whose aggregate net asset value is less than $100,000 immediately
following any redemption.
REDEMPTION PROCEDURES
Shareholders who have invested directly in the Fund may redeem their shares as
described below. Shareholders who have invested through a Processing
Organization may redeem their shares through the Processing Organization as
described under "Purchases and Redemptions of Shares -- Purchase Procedures --
Through Financial Institutions." 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.
REQUEST 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
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guaranteed, and all certificates submitted for redemption must be endorsed by
the shareholder with signature guaranteed. See "Purchases and Redemptions of
Shares -- General Redemption Information."
REQUEST BY TELEPHONE. A shareholder who has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at (800) 338-1348 or (612) 667-8833 and providing the shareholder's account
number, the exact name in which the shares are registered and the shareholder's
social security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds. See "Purchases and Redemptions of Shares -- General Redemption
Information."
REQUEST 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.
EXCHANGES
Holders of Public Entities Shares may exchange their Shares for Shares of Cash
Investment Fund, U.S. Government Fund, and Treasury Fund and Institutional
Shares and I class shares ("I Shares") of other series of the Trust. The Trust
may in the future create additional classes of funds the shares of which will be
exchangeable with the Shares of the Fund. A current list of the funds of the
Trust that offer shares exchangeable with the Shares of the Fund can be obtained
through Forum 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 by, and the limitations (including minimum investment
restrictions) of, the fund into which a shareholder is exchanging.
Exchanges may only be made between identically registered accounts or to open a
new account. A new account application is required to open a new account through
an exchange if the new account will not have an identical registration and the
same shareholder privileges as the account from which the exchange is being
made. Shareholders may only exchange into a fund if the 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 purchase.
Accordingly, a shareholder may realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in the shares at the time of the exchange transaction. Exchange procedures
may be materially amended or terminated by the Trust at any time upon 60 days'
notice to shareholders. See "Additional Purchase and Redemption Information" in
the SAI.
REQUEST BY MAIL. Exchanges may be made by sending a written request to the
Transfer Agent accompanied by any share certificates for the shares to be
exchanged. All written requests for exchanges must be signed by the shareholder,
and all certificates submitted for exchange must be endorsed by the shareholder
with signature guaranteed. See "Purchases and Redemptions of Shares -- General
Redemption Information."
REQUEST BY TELEPHONE. A shareholder who has elected telephone exchange
privileges may make a telephone exchange by calling the Transfer Agent at (800)
338-1348 or (612) 667-8833 and providing the shareholder's account number, the
exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. See "Purchases
and Redemptions of Shares -- General Redemption Information."
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SHAREHOLDER SERVICES
REOPENING ACCOUNTS
A shareholder may reopen an account, without filing a new account application
form, at any time within one year after the shareholder's account is closed,
provided that the information on the account application form on file with the
Trust is still applicable.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of net investment income are declared daily and paid monthly.
Distributions of net capital gain, if any, realized by the Fund are distributed
annually.
Shareholders may choose to have dividends and distributions of the Fund
reinvested in shares of the Fund (the "Reinvestment Option"), to receive
dividends and distributions in cash (the "Cash Option") or to direct dividends
and distributions to be reinvested in shares of another fund of the Trust (the
"Directed Dividend Option"). All dividends and distributions are treated in the
same manner for federal income tax purposes whether received in cash or
reinvested in shares of a fund.
Under the Reinvestment Option, all dividends and distributions of 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 one of the other two options is selected. Under the Cash Option, all
dividends and distributions are paid to the shareholder in cash. Under the
Directed Dividend Option, shareholders of the Fund whose shares in a single
account of the Fund total $100,000 or more may elect to have all dividends and
distributions reinvested in shares of another fund of the Trust, provided that
those shares are eligible for sale in the shareholder's state of residence. For
further information concerning the Directed Dividend Option, shareholders should
contact the Transfer Agent.
TAX MATTERS
The Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). As such, the Fund will not be liable for federal income and excise
taxes on the net investment income and net 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. Pursuant to the Taxpayer Relief Act of 1997, two different tax rates
apply to net capital gain -- that is, the excess of net gains from capital
assets held for more than one year over net losses from capital assets held for
not more than one year. One rate (generally 28%) applies to net gain on capital
assets held for more than one year but not more than 18 months ("mid-term
gain"), and a second rate (generally 20%) applies to the balance of such net
capital gain ("adjusted net capital gain"). Distributions of mid-term gain and
adjusted net capital gain will be taxable to shareholders as such, regardless of
how long a shareholder has held shares in the Fund. If a shareholder holds
Shares for six months or less and during that period receives a distribution of
net capital gain, any loss realized on the sale of the Shares during that
six-month period would be a long-term capital loss to the extent of the
distribution.
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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 investing in
the Core Portfolio 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.
MISCELLANEOUS
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.
OTHER INFORMATION
BANKING LAW MATTERS
Federal banking rules generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to an investment company and to
purchase shares of the investment company as agent for and upon the order of a
customer and, in connection therewith, to retain a sales charge or similar
payment. Forum believes that Norwest Bank and any bank or other bank affiliate
also may 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 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 only determines net asset value on Fund Business Days.
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 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 or total return. The
yield quotation more closely reflects the current earnings of the Fund than the
total return. All performance information 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 standardized yield, the Fund takes the
income it earned from its investments for a 7-day period (net of
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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 total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and distributions are
reinvested. A cumulative total return reflects the Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same cumulative total
return if the Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
The Fund's advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc., Lipper
Analytical Services, Inc. and IBC/Donoghue, Inc. In addition, the performance of
the Fund may be compared to securities indices. These indices may be comprised
of a composite of various recognized securities indices to reflect the
investment policies of the funds. Indices are not used in the management of the
Fund but rather are standards by which Norwest and shareholders may compare the
performance of the Fund to an unmanaged composite of securities with similar,
but not identical, characteristics as the Fund. This material is not to be
considered representative or indicative of future performance. Investment return
will fluctuate. 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 Public Entities
Shares); the costs of doing so will be borne by the Trust. Currently the
authorized shares of the Trust are divided into forty separate series.
OTHER CLASSES OF SHARES
Ready Cash Investment Fund currently issues two other classes of shares -
Investor Shares and Exchange Shares. Each class of the Fund will have different
expense ratios and may have different distribution fees. Each class' performance
is affected by its expenses. For more information on the other classes of
shares, investors may contact the Transfer Agent at (612) 667-8833 or (800)
338-1348 or the Trust's distributor. Investors may also contact their Norwest
sales representative to obtain information on the other classes.
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
distribution plan which pertain to the class and other matters for which
separate class voting is appropriate under applicable law. Generally, shares
will be voted in the aggregate without reference to a particular 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 and Trustees have available certain procedures for the removal of
Trustees. There are no conversion or preemptive rights in connection with shares
of the Trust. All shares when issued in accordance with the terms of the
offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders. 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.
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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, 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 its investment objective by investing all of its
investable assets in the Core Portfolio, which has the same investment objective
and substantially identical investment policies as the Fund. The Core Portfolio
directly acquires portfolio securities and the Fund acquires an indirect
interest in those securities. Core Trust is registered under the 1940 Act as an
open-end, management, investment company. 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.
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 May 11, 1998, two or more funds of the
Trust invested in the Core 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 THE CORE PORTFOLIO. The Fund's investment in the
Core Portfolio may be affected by the actions of other large investors in that
Core Portfolio. For example, if the 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, if other investors
hold a majority interest in the Core Portfolio, they 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 a 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.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MAY 11, 1998
READY CASH INVESTMENT FUND
PUBLIC ENTITIES SHARES
<PAGE>
READY CASH INVESTMENT FUND
PUBLIC ENTITIES SHARES
STATEMENT OF ADDITIONAL INFORMATION
May 11, 1998
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
Ready Cash Investment Fund (the "Fund") is a separate series of Norwest
Advantage Funds, an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
This Statement of Additional Information supplements the Prospectus dated May
11, 1998, as may be amended from time to time, offering Public Entities Shares
of Ready Cash Investment Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ ONLY IN CONJUNCTION WITH
THE CURRENT PROSPECTUS, COPIES OF WHICH MAY BE OBTAINED BY AN INVESTOR WITHOUT
CHARGE BY CONTACTING THE DISTRIBUTOR AT THE ADDRESS LISTED ABOVE.
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<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
Page
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INTRODUCTION...............................................................................5
1. INVESTMENT POLICIES....................................................................6
Security Ratings Information......................................................6
General Information Regarding Fixed Income Securities.............................6
Money Market Fund Matters.........................................................7
U.S. Government Securities........................................................7
Bank Obligations..................................................................8
Short Term Debt Securities/Commercial Paper.......................................8
Zero Coupon Securities............................................................9
Variable and Floating Rate Securities.............................................9
Mortgage-Backed and Asset-Backed Securities......................................10
Types of Credit Enhancement......................................................10
Asset-Backed Securities..........................................................10
Interest-Only and Principal-Only Securities......................................11
Municipal Securities.............................................................11
Illiquid and Restricted Securities...............................................14
Loans of Portfolio Securities....................................................15
Borrowing And Transactions Involving Leverage....................................15
Repurchase Agreements............................................................17
2. INVESTMENT LIMITATIONS................................................................18
Fundamental Limitations..........................................................18
Non-Fundamental Limitations......................................................19
3. PERFORMANCE AND ADVERTISING DATA......................................................20
SEC Yield Calculations...........................................................21
Total Return Calculatioins.......................................................21
Other Advertisement Matters......................................................22
4. MANAGEMENT............................................................................23
Trustees and Officers............................................................23
Compensation of Trustees and Officers of the Trust...............................25
Trustees and Officers of Core Trust..............................................26
Investment Advisory Services.....................................................27
Management and Administrative Services...........................................28
The Portfolio....................................................................30
Distribution.....................................................................30
Transfer Agent...................................................................31
Custodian........................................................................31
Portfolio Accounting.............................................................31
Expenses.........................................................................33
5. PORTFOLIO TRANSACTIONS................................................................33
6. ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION..............................35
General..........................................................................35
Exchanges........................................................................35
Redemptions......................................................................35
</TABLE>
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<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
Page
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7. TAXATION..............................................................................36
8. ADDITIONAL INFORMATION ABOUT THE TRUST AND THE SHAREHOLDERS OF THE FUND ..............36
Determination of Net Asset Value.................................................36
Counsel and Auditors.............................................................37
General Information..............................................................37
Financial Statements.............................................................37
Registration Statement...........................................................38
APPENDIX A - Description of Securities Ratings...........................................A-1
</TABLE>
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INTRODUCTION
The Trust was originally organized under the name "Prime Value Funds, Inc." as a
Maryland corporation on August 29, 1986, and on July 30, 1993, was reorganized
as a Delaware business trust under the name "Norwest Funds." On October 1, 1995,
the Trust changed its name to "Norwest Advantage Funds" and on June 1, 1997,
changed its name back to "Norwest Funds." On August 4, 1997, the Trust changed
its name back to "Norwest Advantage Funds."
The Fund invests all its investable assets in Prime Money Market Portfolio (the
"Portfolio"), a series of Core Trust (Delaware), a registered, open-end
management investment company. The expenses of the Fund include the Fund's pro
rata share of the expenses of the Portfolio.
The Fund's and the Portfolio's investment adviser is Norwest Investment
Management, Inc. ("Norwest"), a subsidiary of Norwest Bank Minnesota, N.A.
("Norwest Bank"). Norwest Bank, a subsidiary of Norwest Corporation, serves as
the Trust's transfer agent, dividend disbursing agent and custodian.
Forum Financial Services, Inc. ("Forum"), a registered broker-dealer, serves as
the Trust's manager and as distributor of the Trust's shares. Forum
Administrative Services, LLC ("FAdS") serves as the Trust's administrator.
As used in this SAI, the following terms shall have the meanings listed:
"Adviser" or "Investment Adviser" shall mean Norwest.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Core Trust" shall mean Core Trust (Delaware) an open-end, management
investment company registered under the 1940 Act.
"Core Trust Board" shall mean the Board of Trustees of Core Trust.
"Custodian" shall mean Norwest acting in its capacity as custodian of
the Fund.
"FAdS" shall mean Forum Administrative Services, LLC, the Trust's
administrator.
"Fitch" shall mean Fitch IBCA, Inc.
"Forum" shall mean Forum Financial Services, Inc., a registered
broker-dealer and distributor of the Trust's shares.
"FAcS" shall mean Forum Accounting Services, LLC, the Trust's fund
accountant.
"Moody's" shall mean Moody's Investors Service.
"Norwest" shall mean Norwest Investment Management, Inc., a subsidiary
of Norwest Bank Minnesota, N.A.
"Norwest Bank" shall mean Norwest Bank Minnesota, N.A., a subsidiary
of Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"Portfolio" shall mean Prime Money Market Portfolio, a series of Core
Trust.
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"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's.
"Transfer Agent" shall mean Norwest Bank acting in its capacity as
transfer and dividend disbursing agent of the Fund.
"Trust" shall mean Norwest Advantage Funds, an open-end, management
investment company registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning the Fund's and the Portfolio's investments, investment
techniques and strategies and the risks associated therewith. Although the
following is discussed with respect the Fund, the Trust and the Board, it
applies equally to the Portfolio, the Core Trust and the Core Trust Board. The
Fund may not make any investment or employ any investment technique or strategy
not referenced in the Prospectus.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations. A description of the ratings categories of
certain NRSROs is included in Appendix A to this SAI. The Fund may use these
ratings, together with other factors, 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 the Fund, Norwest will determine whether the Fund should continue
to hold the obligation. To the extent that the ratings given by a NRSRO may
change as a result of changes in such organizations or their rating systems,
Norwest 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.
The Fund may purchase certain unrated securities. Unrated securities may not be
as actively traded as rated securities. The Fund may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and determined by its Norwest to be of comparable quality to
securities whose rating has been lowered below the lowest permissible rating
category) if Norwest determines that retaining such security is in the best
interests of the Fund.
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
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market value of portfolio investments, and a decline in interest rates will
generally increase the value of portfolio investments.
Obligations of issuers of fixed income securities (including municipal
securities) are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers
may become subject to laws enacted in the future by Congress, state
legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
MONEY MARKET FUND MATTERS
Pursuant to Rule 2a-7 adopted under the 1940 Act, the Fund may invest only in
"eligible securities" as defined in that Rule. Generally, an eligible security
is a security that: (1) is denominated in U.S. Dollars and has a remaining
maturity of 397 days or less; (2) 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 (the "requisite NRSROs"); and (3) has been determined by Norwest to
present minimal credit risks pursuant to procedures approved by the Board. In
addition, the Fund will maintain a dollar-weighted average maturity of 90 days
or less. Unrated securities may also be eligible securities if Norwest
determines that they are of comparable quality to a rated eligible security
pursuant to guidelines approved by the Board.
Under Rule 2a-7, the Fund may not invest more than five percent of its total
assets in the securities of any one issuer other than the U.S. Government,
provided that in certain cases the Fund may invest twenty-five percent of its
assets in the first tier securities of a single issuer for a period of up to
three business days. First tier securities are securities that have received a
short-term rating in the highest category from the requisite NRSROs. The 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 demand feature or guarantee, The Fund,
with respect to seventy-five percent of its assets may not invest more than ten
percent of its assets in securities subject to demand features or guarantees
from the same institution, except that the Fund may invest up to twenty five
percent of its assets in demand features or guarantees in first-tier demand
features or guarantees issued by a non-controlled person. The Fund may not
invest more than five percent of its assets in securities subject to second tier
demand features in guarantees issued by the same institution.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, the Fund may invest in U.S.
Government Securities. Agencies and instrumentalities which issue or guarantee
debt securities and which have been established or sponsored by the United
States government include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land
Banks, the Federal National Mortgage Association, the Small Business
Administration, the Government National Mortgage Association and the Student
Loan Marketing Association. Other agencies are supported by the right of the
issuer to borrow from the Treasury; others are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; and still
others are supported primarily or solely by the creditworthiness of the issuer.
No assurance can be given that the U.S. Government would provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. Accordingly, although these securities have
historically involved little risk of loss of principal if held
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to maturity, they may involve more risk than securities backed by the U.S.
Government's full faith and credit. The Fund will invest in the obligations of
such agencies or instrumentalities only when Norwest believes that the credit
risk with respect thereto is consistent with the Fund's investment policies.
BANK OBLIGATIONS
The 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. The 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
that Norwest believes do not present undue risk.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Fund but may be subject to early withdrawal penalties
which vary depending 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 Fund may invest in Eurodollar certificates of deposit, which are U.S. dollar
denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States; Yankee certificates of deposit, which
are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar denominated deposits in a foreign
branch of a U.S. bank or a foreign bank; and Canadian time deposits, which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks.
Investments that the Fund may make in instruments of foreign banks, branches or
subsidiaries may involve certain risks, including future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on such securities, the possible seizure or nationalization of
foreign deposits, differences from domestic banks in applicable accounting,
auditing and financial reporting standards, and the possible establishment of
exchange controls or other foreign governmental laws or restrictions applicable
to the payment of certificates of deposit or time deposits which might affect
adversely the payment of principal and interest on such securities held by the
Fund.
SHORT TERM DEBT SECURITIES/COMMERCIAL PAPER
The Fund may invest in commercial paper, i.e., short-term unsecured promissory
notes issued in bearer form by bank holding companies, corporations and finance
companies. 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 the Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
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ZERO COUPON SECURITIES
Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity. Accordingly, these securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. Federal tax law requires that the Fund accrue a portion of the
discount at which a zero-coupon security was purchased as income each year even
though the Fund receives no interest payment in cash on the security during the
year. Interest on these securities, however, is reported as income by the Fund
and must be distributed to its shareholders. The Fund distributes all of its net
investment income, and 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.
Currently U.S. Treasury securities issued without coupons include Treasury bills
and separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. These stripped components are traded
independently under the Treasury's Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or as Coupons Under Book Entry
Safekeeping ("CUBES"). A number of banks and brokerage firms separate the
principal and interest portions of U.S. Treasury securities and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments. These instruments are generally held by a bank
in a custodial or trust account on behalf of the owners of the securities and
are known by various names, including Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury
Securities ("CATS"). In addition, corporate debt securities may be zero coupon
securities.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Fund invests 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 the Fund may be tied to Treasury or other government
securities or indices on those securities as well as any other rate of interest
or index. The Fund may not invest in securities which pay interest at a rate
that varies inversely to prevailing short-term interest rates ("inverse
floaters") and certain other variable and floating rates securities that do not
comply with Rule 2a-7.
There may not be an active secondary market for any particular floating or
variable rate instruments which could make it difficult for the Fund to dispose
of such an instrument if the issuer defaulted on its repayment obligation during
periods that the Fund is not entitled to exercise any demand rights it may have.
The Fund could, for this or other reasons, suffer a loss with respect to an
instrument. 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.
Many variable rate instruments include the right of the holder to demand
prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The payment of principal and interest by issuers of certain securities
purchased by the Fund may be guaranteed by letters of credit or other credit
facilities offered by banks or other financial institutions.
Variable rate obligations purchased by the Fund may include participation
interests in variable rate obligations purchased by the Fund from banks,
insurance companies or other financial institutions that are backed by
irrevocable letters of credit or guarantees of banks. The Fund can exercise the
right, on not more than thirty days' notice, to sell such an instrument back to
the bank from which it purchased the instrument and draw on the letter of
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credit for all or any part of the principal amount of the Fund's participation
interest in the instrument, plus accrued interest, but will do so only: (1) as
required to provide liquidity to the Fund; (2) to maintain a high quality
investment portfolio; or (3) upon a default under the terms of the demand
instrument. Banks and other financial institutions retain portions of the
interest paid on such variable rate obligations as their fees for servicing such
instruments and the issuance of related letters of credit, guarantees and
repurchase commitments.
The Fund will not purchase participation interests in variable rate obligations
unless it is advised by counsel or receives a ruling of the Internal Revenue
Service that interest earned by the Fund from the obligations in which it holds
participation interests is exempt from Federal income tax. The Internal Revenue
Service has announced that it ordinarily will not issue advance rulings on
certain of the Federal income tax consequences applicable to securities, or
participation interests therein, subject to a put. Norwest monitors the pricing,
quality and liquidity of variable rate demand obligations and participation
interests therein held by the Fund on the basis of published financial
information, rating agency reports and other research services to which Norwest
may subscribe.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, the Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Fund intends to purchase such securities only when Norwest
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The 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 the Fund will
be able to limit principal fluctuations and, accordingly, the 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 the underlying mortgages or
mortgage-backed securities to make payments, mortgage-backed securities may
contain elements of credit enhancement. Credit enhancement falls into two
categories: (1) liquidity protection; and (2) protection against losses
resulting after default by an obligor on the underlying assets and collection of
all amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provisions of advances, generally
by the entity administering the pool of assets (usually the bank, savings
association or mortgage banker that transferred the underlying loans to the
issuer of the security), to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against losses resulting
after default and liquidation ensures ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund 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: (1) "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); (2) 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 (3) "over-collateralization" (where the
scheduled payments on, or the principal amount of, the underlying assets exceeds
that required to make payment of the securities and pay any servicing or other
fees). The degree of credit enhancement provided for each issue generally is
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that covered by
credit enhancement protection could adversely affect the return on an investment
in such a security.
ASSET-BACKED SECURITIES
The 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
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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 the Fund may
invest. Primarily, these securities do not always have the benefit of a security
interest in comparable collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured by automobiles. Most issuers
of automobile receivables permit the loan servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the asset-backed securities. In addition,
because of the large number of vehicles involved in a typical issuance and the
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
Some tranches of mortgage-backed securities, including CMOs, are structured so
that investors receive only principal payments generated by the underlying
collateral. Principal only securities ("POs") usually sell at a deep discount
from face value on the assumption that the purchaser will ultimately receive the
entire face value through scheduled payments and prepayments; however, the
market values of POs are extremely sensitive to prepayment rates, which, in
turn, vary with interest rate changes. If interest rates are falling and
prepayments accelerate, the value of the PO will increase. On the other hand, if
rates rise and prepayments slow, the value of the PO will drop.
Interest only securities ("IOs") result from the creation of POs; thus, CMOs
with PO tranches also have IO tranches. IO securities sell at a deep discount to
their "notional" principal amount, namely the principal balance used to
calculate the amount of interest due. They have no face or par value and, as the
notional principal amortizes and prepays, the IO cash-flow declines.
Unlike POs, IOs increase in value when interest rates rise and prepayment rates
slow; consequently they are often used to "hedge" portfolios against interest
rate risk. If prepayment rates are high, the Fund may receive less cash back
than it initially invested.
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 or other private activity bonds that are backed only by the
assets and revenues of the non-governmental user (such as manufacturing
enterprises, hospitals, colleges or other entities).
Municipal securities historically have not been subject to registration with the
SEC, although there have been proposals which would require registration in the
future.
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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 rate or amount. Revenue bonds in recent years have come to
include an increasingly wide variety of types of municipal obligations. As with
other kinds of municipal obligations, the issuers of revenue bonds may consist
of virtually any form of state or local governmental entity. Generally, revenue
bonds are secured by the revenues or net revenues derived from a particular
facility, class of facilities, or, in some cases, from the proceeds of a special
excise or other specific revenue source, but not from general tax revenues.
Revenue bonds are issued to finance a wide variety of capital projects including
electric, gas, water and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals. Many of these
bonds are additionally secured by a debt service reserve fund which can be used
to make a limited number of principal and interest payments should the pledged
revenues be insufficient. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Revenue bonds issued by housing authorities may be secured in a
number of ways, including partially or fully insured mortgages, rent subsidized
and/or collateralized mortgages, and/or the net revenues from housing or other
public projects. Some authorities provide further security in the form of a
state's ability (without obligation) to make up deficiencies in the debt service
reserve fund. In recent years, revenue bonds have been issued in large volumes
for projects that are privately owned and operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, 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
owner or 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 organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial
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projects originally financed with tax-exempt bonds. In future years, the types
of projects qualifying under the Code for tax-exempt financing could become
increasingly limited.
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:
(1) whether the interest is or is not includable in the calculation of
alternative minimum taxes imposed on individuals and corporations; (2) whether
the costs of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions; and (3) 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 Fund may acquire
"puts" with respect to municipal securities. A put gives the Fund the right to
sell the municipal security at a specified price at any time on or before a
specified date. The Fund may sell, transfer or assign a put only in conjunction
with its sale, transfer or assignment of the underlying security or securities.
The amount payable to the Fund upon its exercise of a "put" is normally: (1) 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 (2) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by the Fund to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of a Fund's assets
at a rate of return more favorable than that of the underlying security. The
Fund expects that it will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities). The Fund intends to enter into puts only with dealers, banks
and broker-dealers 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 the Fund's assets.
The Fund may purchase municipal securities together with the right to resell
them to the seller or a third party at an agreed-upon price or yield within
specified periods prior to their maturity dates. Such a right to resell is
commonly known as a "stand-by commitment," and the aggregate price which the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to permit
the Fund to be as fully invested as practicable in municipal securities while
preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. In this regard, the Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Stand-by commitments involve certain expenses and risks,
including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and differences
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between the maturity of the underlying security and the maturity of the
commitment. The Fund's policy is to enter into stand-by commitment transactions
only with municipal securities dealers which are determined to present minimal
credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When the Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 10 percent of its net assets in securities that at the
time of purchase are illiquid. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act ("restricted securities") and
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. Illiquid securities
include, among other things, repurchase agreements not entitling the holder to
repayment within seven days. The Board has the ultimate responsibility for
determining whether specific securities are liquid or illiquid and has delegated
the function of making day-to-day determinations of liquidity to Norwest,
pursuant to guidelines approved by the Board. Norwest takes into account a
number of factors in reaching liquidity decisions, including but not limited to:
(1) the frequency of trades and quotations for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to undertake to make a market
in the security; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. Norwest monitors the liquidity of the securities held
by the Fund and reports periodically on such decisions to the Board.
In connection with the Fund's original purchase of restricted securities, it may
negotiate rights with the issuer to have such securities registered for sale at
a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Fund with the issuer at the time
such securities are purchased by the Fund. When registration is required,
however, a considerable period may elapse between a decision to sell the
securities and the time the Fund would be permitted to sell such securities. A
similar delay might be experienced in attempting to sell such securities
pursuant to an exemption from registration. Thus, the Fund may not be able to
obtain as favorable a price as that prevailing at the time of the decision to
sell.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and the Fund might also have to register restricted
securities in order to dispose of them, resulting in expense and delay. The Fund
might not be able to dispose of restricted or other securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time.
An 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, Norwest 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, the Fund's holdings of that security may be illiquid.
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LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities subject to the restrictions stated in
the Prospectus. Under applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, at least equal the
market value of the loaned securities and must consist of cash, bank letters of
credit, U.S. Government securities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. In a portfolio securities lending transaction, the Fund receives from the
borrower an amount equal to the interest paid or the dividends declared on the
loaned securities during the term of the loan as well as the interest on the
collateral securities, less any finders' or administrative fees the Fund pays in
arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower as long as it realizes at least a
minimum amount of interest required by the lending guidelines established by the
Board. The Fund will not lend its portfolio securities to any officer, director,
employee or affiliate of the Fund or Norwest.
BORROWING AND TRANSACTIONS INVOLVING LEVERAGE
The Fund may borrow money for temporary or emergency purposes, including the
meeting of redemption requests, in amounts up to 33 1/3 percent of the Fund's
total assets. Borrowing involves special risk considerations. Interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds (or on the assets
that were retained rather than sold to meet the needs for which funds were
borrowed). Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
investment considerations would not favor such sales. The Fund may not purchase
securities for investment while any borrowing equaling five percent or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding five percent of the value of the Fund's total
assets. The Fund's use of borrowed proceeds to make investments would subject
the Fund to the risks of leveraging. Reverse repurchase agreements, short sales
not against the box, dollar roll transactions and other similar investments that
involve a form of leverage have characteristics similar to borrowings but are
not considered borrowings if the Fund maintains a segregated account.
OTHER TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. The Fund may borrow for other than temporary or emergency
purposes, lend its securities, enter reverse repurchase agreements, and purchase
securities on a when issued or forward commitment basis. Each of these
transactions involve the use of "leverage" when cash made available to the Fund
through the investment technique is used to make additional portfolio
investments. The Fund uses these investment techniques only when Norwest
believes that the leveraging and the returns available to the Fund from
investing the cash will provide shareholders a potentially higher return.
Leverage exists when the Fund achieves the right to a return on a capital base
that exceeds the amount of the Fund's investment. Leverage creates the risk of
magnified capital losses which occur when losses affect an asset base, enlarged
by borrowings or the creation of liabilities, that exceeds the equity base of
the Fund. Leverage may involve the creation of a liability that requires the
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as the Fund is able to realize a net return on its investment portfolio
that is higher than interest expense incurred, if any, leverage will result in
higher current net investment income being realized by the Fund than if the Fund
were not leveraged. On the other hand, interest rates change from time to time
as does their relationship to each other depending upon such factors as supply
and demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the
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leveraging have been invested. To the extent that the interest expense involved
in leveraging approaches the net return on the Fund's investment portfolio, the
benefit of leveraging will be reduced, and, if the interest expense on
borrowings were to exceed the net return to shareholders, the Fund's use of
leverage would result in a lower rate of return than if the Fund were not
leveraged. Similarly, the effect of leverage in a declining market could be a
greater decrease in net asset value per share than if the Fund were not
leveraged. In an extreme case, if the Fund's current investment income were not
sufficient to meet the interest expense of leveraging, it could be necessary for
the Fund to liquidate certain of its investments at an inappropriate time. The
use of leverage may be considered speculative.
SEGREGATED ACCOUNT
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set aside and maintain in a segregated account cash
and other liquid securities in accordance with SEC guidelines. The account
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions. The Fund's commitments may include: (1)
the Fund's obligations to repurchase securities under a reverse repurchase
agreement and to settle when-issued and forward commitment transactions; and (2)
the greater of the market value of securities sold short or the value of the
securities at the time of the short sale (reduced by any margin deposit).
SHORT SALES
The Fund may make short sales of securities against the box. A short sale is
"against the box" to the extent that while the short position is open, the Fund
must own an equal amount of the securities sold short, or by virtue of ownership
of securities have the right, without payment of further consideration, to
obtain an equal amount of the securities sold short. Short sales against-the-box
may in certain cases be made to defer, for Federal income tax purposes,
recognition of gain or loss on the sale of securities "in the box" until the
short position is closed out. Under recently enacted legislation, if the Fund
has unrealized gain with respect to a long position and enters into a short sale
against-the-box, the Fund generally will be deemed to have sold the long
position for tax purposes and thus will recognize gain. Prohibitions on entering
short sales other than against the box does not restrict the Fund's ability to
use short-term credits necessary for the clearance of portfolio transactions.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which the Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Counterparties to the Fund's reverse repurchase agreements must be primary
dealers that report to the Federal Reserve Bank of New York ("primary dealers")
or one of the largest 100 commercial banks in the United States.
Generally, a reverse repurchase agreement enables the Fund to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by the Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase or sell portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by the Fund with payment and delivery to take place in
the future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time it enters into the transaction. 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
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<PAGE>
transaction. When the Fund enters into a delayed delivery transaction, it
becomes obligated to purchase securities and it has all of the rights and risks
attendant to ownership of the security, although delivery and payment occur at a
later date. 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 the 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. The Fund generally has
the ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition, it could, as with
the disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent the Fund engages in when-issued or delayed delivery transactions,
it will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to dispose of the right to acquire these securities before the
settlement date if deemed advisable.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. If Norwest were
to forecast incorrectly the direction of interest rate movements, however, the
Fund might be required to complete when-issued or forward transactions at prices
inferior to the current market values. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Fund enters into
when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. In some instances,
the third-party seller of when-issued or forward commitment securities may
determine prior to the settlement date that it will be unable to meet its
existing transaction commitments without borrowing securities. If advantageous
from a yield perspective, the Fund may, in that event, agree to resell its
purchase commitment to the third-party seller at the current market price on the
date of sale and concurrently enter into another purchase commitment for such
securities at a later date. As an inducement for the Fund to "roll over" its
purchase commitment, the Fund may receive a negotiated fee. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of the Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
the Fund's net asset value. For purposes of the Fund's investment policies, the
purchase of securities with a settlement date occurring on a Public Securities
Association approved settlement date is considered a normal delivery and not a
when-issued or forward commitment purchase.
REPURCHASE AGREEMENTS
The Fund may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. In a typical repurchase agreement, the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed-upon time and price. The repurchase price exceeds
the sale price, reflecting an agreed-upon interest rate effective for the period
the buyer owns the security subject to repurchase. The agreed-upon rate is
unrelated to the interest rate on that security. Norwest will monitor the value
of the underlying security at the time the transaction is entered into and at
all times during the term of the repurchase agreement to ensure that the value
of the security always equals or exceeds the repurchase price (including accrued
interest). In the event of default by the seller under the repurchase agreement,
the Fund may have difficulties in exercising its rights to the underlying
securities and may incur costs and experience time delays in connection with the
disposition of such securities. To evaluate potential risks, Norwest reviews the
credit-worthiness of those banks and dealers with which the Fund enters into
repurchase agreements.
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<PAGE>
Counterparties to the Fund's repurchase agreements must be primary dealers or
one of the largest 100 commercial banks in the United States.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve book-entry system.
Repurchase agreements are considered to be loans by the Fund for certain
purposes under the 1940 Act.
2. INVESTMENT LIMITATIONS
For purposes of all fundamental and nonfundamental investment policies of the
Fund: the term 1940 Act includes the rules thereunder, SEC interpretations and
any exemptive order upon which the Fund may rely; and (2) the term Code includes
the rules thereunder, IRS interpretations and any private letter ruling or
similar authority upon which the Fund may rely.
The Fund has adopted the investment policies listed in this section which are
nonfundamental policies unless otherwise noted. Except for its investment
objective, which is fundamental, the Fund has not adopted any fundamental
policies except as required by the 1940 Act. The investment policies of the
Portfolio are substantially the same as those of the Fund.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy cannot be changed without the affirmative vote of the
lesser of: (1) more than 50% of the outstanding shares of the Fund; or (2) 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
The Fund has adopted the following investment limitations which are fundamental
policies:
(1) DIVERSIFICATION
The 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: (1) more
than 5% of the Fund's total assets would be invested in the
securities of a single issuer; or (2) the Fund would own more
than 10% of the outstanding voting securities of any single
issuer
(2) CONCENTRATION
The 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: (1) there is no
limit on investments in U.S. Government Securities, in
repurchase agreements covering U.S. Government Securities or
in foreign government securities; (2) municipal securities are
not treated as involving a single industry; (3) there is no
limit on investment in issuers domiciled in a single country;
(4) financial service companies are classified according to
the end users of their services (for example, automobile
finance, bank finance and diversified finance); and (5)
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 in other investment
companies
18
<PAGE>
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
The 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).
(4) ISSUANCE OF SENIOR SECURITIES
The Fund may not issue senior securities except to the
extent permitted by the 1940 Act.
(5) UNDERWRITING ACTIVITIES
The Fund may not underwrite securities of other issuers,
except to the extent that the Fund may be considered to be
acting as an underwriter in connection with the disposition of
portfolio securities.
(6) MAKING LOANS
The Fund may not make loans, except the 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
The 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.
NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations which are not
fundamental policies. The policies of the Fund may be changed by the Board.
(1) BORROWING
The Fund's borrowings for other than temporary or emergency
purposes or meeting redemption requests may not exceed an
amount equal to 5% of the value of the Fund's net assets.
(2) ILLIQUID SECURITIES
The 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, as amended
("Restricted Securities").
(3) OTHER INVESTMENT COMPANIES
The Fund may not invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
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<PAGE>
(4) MARGIN AND SHORT SALES
The Fund may not purchase securities on margin, or make short
sales of securities (except short sales against the box),
except for the use of short-term credit necessary for the
clearance of purchases and sales of portfolio securities. The
Fund may make margin deposits in connection with permitted
transactions in options, futures contracts and options on
futures contracts. The Fund may not enter into short sales if,
as a result, more that 25% of the value of the Fund's total
assets would be so invested, or such a position would
represent more than 2% of the outstanding voting securities of
any single issuer or class of an issuer.
(5) PLEDGING
The Fund may not pledge, mortgage, hypothecate or encumber any
of its assets except to secure permitted borrowings or to
secure other permitted transactions.
(6) SECURITIES WITH VOTING RIGHTS
The Fund may not purchase securities having voting rights
except securities of other investment companies; provided that
the Fund 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.
(7) LENDING OF PORTFOLIO SECURITIES
The Fund may not lend portfolio securities if the total value
of all loaned securities would exceed 33 1/3% of the Fund's
total assets, as determined by SEC guidelines.
(8) REAL ESTATE LIMITED PARTNERSHIPS
The Fund may not invest in real estate limited partnerships.
(9) OPTIONS AND FUTURES CONTRACTS
The Fund may not invest in options, futures contracts or
options on futures contracts.
(10) PURCHASES AND SALES OF COMMODITIES
The Fund may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell
physical commodities; provided that currencies and
currency-related contracts and contracts on indices will not
be deemed to be physical commodities.
3. 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 Fund is
historical and is not intended to indicate future returns. The Fund's yield and
total return fluctuate in response to market conditions and other factors.
Investment return and principal value will fluctuate, and shares, when redeemed,
may be worth more or less than their original cost. There can be no assurance
that the Fund will be able to maintain a stable net asset value of $1.00.
In performance advertising, the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or other companies which track the
investment performance of investment companies ("Fund Tracking Companies"). The
Fund may also compare any of its performance information with the performance of
recognized stock, bond and other indices, including but
20
<PAGE>
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 Fund may refer to general
market performances over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook"). In
addition, the Fund may 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 Fund and comparative mutual
fund data and ratings reported in independent periodicals, such as newspapers
and financial magazines.
SEC YIELD CALCULATIONS
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Norwest, Processing Organizations and others may charge their
customers, various retirement plans or other shareholders that invest in the
Fund fees in connection with an investment in the Fund, which will have the
effect of reducing the Fund's net yield to those shareholders. The yields of the
Fund are not fixed or guaranteed, and an investment in the Fund is not insured
or guaranteed. Accordingly, yield information may not necessarily be used to
compare shares of the Fund with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare the Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
Yield quotations for the Fund 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 the 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.
Income calculated for the purpose of determining the Fund's standardized yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for the Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Standardized total returns quoted in advertising and sales literature reflect
all aspects of the Fund's return, including the effect of reinvesting dividends
and capital gain distributions, if any, and any change in the Fund's net asset
value per share over the period. 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 the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. For example, a cumulative return of 100% over
ten years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years. The
average annual total return is computed separately for each class of shares of
the 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 Fund.
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<PAGE>
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
Standardized total return quotes may be accompanied by non-standardized total
return figures calculated by alternative methods.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital, if any (including capital gains, if applicable, 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
OTHER ADVERTISEMENT MATTERS
The Fund may also include various information in its advertisements including,
but not limited to: (1) 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; (2) 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; (3) 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, quarterly
or daily); (4) 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; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) biographical descriptions of the Fund's
portfolio managers and the portfolio management staff of Norwest or summaries of
the views of the portfolio managers with respect to the financial markets; (7)
the results of a hypothetical investment in the Fund over a given number of
years, including the amount that the investment would be at the end of the
period; (8) the effects of earning Federal and, if applicable, state tax-exempt
income from the Fund or investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan; and (9) the net
asset value, net assets or number of shareholders of the Fund as of one or more
dates.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of
22
<PAGE>
compounding are as follows: at 7% and 12% annually, $1,000 will grow to $1,967
and $3,106, respectively, at the end of ten years and $3,870 and $9,646,
respectively, at the end of twenty years. These examples are for illustrative
purposes only and are not indicative of the Fund's performance.
In connection with its advertisements the Fund may provide "shareholders'
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
Norwest or its parent corporation that Norwest has 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.
4. MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years and age as of May 11, 1998 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. The officers set forth below, 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.
JOHN Y. KEFFER, Chairman and President,* Age 55.
President and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability Company (a
mutual fund administrator), Forum Financial Corp. (a registered transfer
agent), and other companies within the Forum Financial Group of companies.
Mr. Keffer is a Director, Trustee and/or officer of various registered
investment companies for which Forum Financial Services, Inc. or its
affiliates serves as manager, administrator or distributor. His address is
Two Portland Square, Portland, Maine 04101.
ROBERT C. BROWN, Trustee,* Age 65.
Director, Federal Farm Credit Banks Funding Corporation and Farm
Credit System Financial Assistance Corporation since February 1993.
Prior thereto, he was Manager of Capital Markets Group, Norwest
Corporation (a multi-bank holding company and parent of Norwest),
until 1991. His address is 1431 Landings Place, Sarasota, Florida
34231.
DONALD H. BURKHARDT, Trustee, Age 70.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 76.
President and sole Director of James C. Harris & Co., Inc. (a
financial consulting firm). Mr. Harris is also a liquidating trustee
and former Director of First Midwest Corporation (a small business
investment company). His address is 6950 France Avenue South,
Minneapolis, Minnesota 55435.
RICHARD M. LEACH, Trustee, Age 63.
President of Richard M. Leach Associates (a financial consulting firm)
since 1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor
Investments (a registered investment adviser), a Director of
Mountainview Broadcasting (a radio station) and Managing Director of
Digital Techniques, Inc. (an
23
<PAGE>
interactive video design and manufacturing company). His address is
P.O. Box 1888, New London, New Hampshire 03257.
JOHN S. MCCUNE,* Trustee, Age 46.
President, Norwest Investment Services, Inc. (a broker-dealer
subsidiary of Norwest bank) His address is 608 2nd Avenue South,
Minneapolis, Minnesota 55479.
TIMOTHY J. PENNY, Trustee, Age 45.
Senior Counselor to the public relations firm of Himle-Horner since
January 1995 and Senior Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since January 1995. Prior
thereto Mr. Penny was the Representative to the United States Congress
from Minnesota's First Congressional District. His address is 500 North
State Street, Waseca, Minnesota 56095.
DONALD C. WILLEKE, Trustee, Age 56.
Principal of the law firm of Willeke & Daniels. His address is 201
Ridgewood Avenue, Minneapolis, Minnesota 55403.
SARA M. MORRIS, Vice President and Treasurer, Age 33.
Managing Director, Forum Financial Services, Inc., with which she has
been associated since 1994. Prior thereto, from 1991 to 1994 Ms. Morris
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. Morris is also an officer of various
registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland Square,
Portland, Maine 04101.
DAVID I. GOLDSTEIN, Vice President and Secretary, Age 36.
Managing Director and General Counsel, Forum Financial Services, Inc.,
with which he has been associated since 1991. Mr. Goldstein is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
THOMAS G. SHEEHAN, Vice President and Assistant Secretary, Age 43.
Managing Director and Counsel, Forum Financial Services, Inc., with
which he has been associated since 1993. Prior thereto, Mr. Sheehan
was Special Counsel to the Division of Investment Management of the
SEC. Mr. Sheehan is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
PAMELA J. WHEATON, Assistant Treasurer, Age 38.
Manager - Tax and Compliance Group, Forum Financial Services, Inc.,
with which she has been associated since 1989. Ms. Wheaton is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. Her address is Two
Portland Square, Portland, Maine 04101.
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<PAGE>
MAX BERUEFFY, Assistant Secretary, Age 44.
Senior Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto, Mr. Berueffy was on the staff of
the U.S. Securities and Exchange Commission for seven years, first in
the appellate branch of the Office of the General Counsel, then as a
counsel to Commissioner Grundfest and finally as a senior special
counsel in the Division of Investment Management. Mr. Berueffy is also
Secretary or Assistant Secretary of various registered investment
companies for which Forum Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
DON L. EVANS, Assistant Secretary, Age 49.
Assistant Counsel, Forum Financial Services, Inc., with which he has
been associated since 1995. Prior thereto, Mr. Evans was associated
with the law firm of Bisk & Lutz and prior thereto was associated with
the law firm of Weiner & Strother. Mr. Evans is also an officer of
various registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two Portland Square,
Portland, Maine.
EDWARD C. LAWRENCE, Assistant Secretary, Age 28.
Fund Administrator, Forum Financial Services, Inc., with which he has
been associated since 1997. Prior thereto, Mr. Lawrence was a
self-employed contractor on antitrust cases with the law firm of White
& Case. After graduating from law school, from 1994-1996, Mr. Lawrence
worked as an assistant public defender for the Missouri State Public
Defender's Office. His 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 $6,000,
payable quarterly, for the Trustee's service to the Trust and to Norwest Select
Funds, a separate registered open-end management investment company for which
each Trustee serves as trustee. In addition, each Trustee is paid $3,000 for
each regular Board meeting attended (whether in person or by electronic
communication), is paid an additional $2,000 for the Board meeting held in July
(at which the Trust's contracts with service providers are reviewed) 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 $8,000 from the Trust and
Norwest Select Funds allocated pro rata between the Trust and Norwest Select
Funds based upon relative net assets, for his services as Chairman. Each Trustee
was elected by shareholders on April 30, 1997.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Norwest Select Funds, combined. Norwest Select Funds
has a December 31 fiscal year end. Information is presented for the twelve month
period ended May 31, 1997, 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 $30,942 $31,000
Mr. Burkhardt $36,932 $37,000
Mr. Harris $30,942 $31,000
Mr. Leach $30,942 $31,000
Mr. Penny $30,942 $31,000
Mr. Willeke $30,942 $31,000
</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,
1997 total expenses of the Trustees (other than Mr. Keffer) was $22,804 and
total expenses of the trustees of Norwest Select Funds was $46.
As of May 11, 1998, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Fund.
TRUSTEES AND OFFICERS OF CORE TRUST
The Trustees and officers of Core Trust and their principal occupations during
the past five years and ages are set forth below. Each Trustee who is an
"interested person" (as defined by the 1940 Act) of Core Trust is indicated by
an asterisk. Messrs. Keffer, Goldstein, Butt, Sheehan, and Misses Clark and
Walker, officers of Core Trust, all currently serve as officers of the Trust.
Accordingly, for background information pertaining to these officers, see
"Management -- Trustees and Officers -- Trustees and Officers of the Trust."
JOHN Y. KEFFER,* Chairman and President.
COSTAS AZARIADIS, Trustee, Age 53.
Professor of Economics, University of California, Los Angeles, since
July 1992. Prior thereto, Dr. Azariadis was Professor of Economics at
the University of Pennsylvania. His address is Department of
Economics, University of California, Los Angeles, 405 Hilgard Avenue,
Los Angeles, California 90024.
JAMES C. CHENG, Trustee, Age 54.
Managing Director, Forum Financial Services, Inc. since September
1991. President of Technology Marketing Associates (a marketing
consulting company) since September 1991. Prior thereto, Mr. Cheng was
President and Chief Executive Officer of Network Dynamics,
Incorporated (a software development company). His address is Two
Portland Square, Portland, Maine 04101.
J. MICHAEL PARISH, Trustee, Age 53.
Partner at the law firm of Reid & Priest. Prior thereto he was a
partner at the law firm of Winthrop Stimson Putnam & Roberts since
1989. His address is 40 Wall Street, New York, New York 10005.
SARA M. MORRIS, Treasurer
PAMELA J. WHEATON, Assistant Treasurer
DAVID I. GOLDSTEIN, Secretary.
THOMAS G. SHEEHAN, Assistant Secretary.
26
<PAGE>
INVESTMENT ADVISORY SERVICES
GENERAL
The advisory fee for the Fund is based on the average daily net assets of the
Fund at the annual rate disclosed in the Fund's prospectus. The investment
advisory fee is accrued daily and paid monthly. The Adviser, in its sole
discretion, may waive or continue to waive all or any portion of the investment
advisory fee.
In addition to receiving its advisory fee, Norwest and its affiliates may act
and be compensated as investment manager for their clients with respect to
assets which are invested in the 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 the
Fund an amount equal to all or a portion of the fees received by Norwest or any
of its affiliates from the Fund with respect to the client's assets invested in
the Fund.
NORWEST INVESTMENT MANAGEMENT, INC.
Norwest furnishes at its expense all services, facilities and personnel
necessary in connection with managing the Fund's investments and effecting
portfolio transactions for the Fund. With respect to the Fund, the Investment
Advisory Agreement between the Trust 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.
The Investment Advisory Agreement provides that Norwest may delegate its
responsibilities to any investment subadviser approved by the Board and, as
applicable, shareholders, with respect to all or any portion of the assets of
the Fund. The Investment Advisory Agreement also provides that no fee shall be
payable with respect to the Fund during any period in which the Fund invests all
(or substantially all) of its investment assets in a registered, open-end,
management investment company, or separate series thereof.
The Investment Advisory Agreement is terminable without penalty with respect to
the Fund on 60 days' written notice: (1) by the Board or by a vote of a majority
of the outstanding voting securities of the Fund to the Adviser; or (2) by the
Adviser to the Trust. The Investment Advisory Agreement shall terminate upon
assignment. The Investment Advisory Agreement also provides that, with respect
to the Fund, neither Norwest nor its personnel shall be liable for any mistake
of judgment or in any event whatsoever, except for lack of good faith, provided
that nothing in the Investment Advisory Agreement shall be deemed to protect, or
purport to protect, the Adviser against liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of Norwest's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Advisory Agreement. The Investment Advisory Agreement provides
that Norwest may render services to others.
The investment advisory agreement between Norwest and Core Trust on behalf of
the Portfolio is, except for certain immaterial matters, identical to the
Investment Advisory Agreement between Norwest and the Trust.
Norwest Investment Management, Inc. is a part of Norwest Corporation which as of
June 30, 1997, was a $83.6 billion financial services company providing banking,
insurance, investments, mortgage and consumer finance through 3,844 stores in
all 50 states, Canada, the Caribbean, Central America and elsewhere.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between Norwest and the Trust with respect to the Fund, the
amount of fee that was waived by Norwest, if any, and the actual fee received by
Norwest. The data is for the past three fiscal years.
27
<PAGE>
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE ADVISORY FEE ADVISORY FEE
PAYABLE WAIVED RETAINED
------------ ------------ ------------
READY CASH INVESTMENT FUND
Year Ended May 31, 1997 6,267,045 50,148 6,216,897
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
</TABLE>
MANAGEMENT AND ADMINISTRATIVE SERVICES
MANAGER AND ADMINISTRATOR
Forum manages all aspects of the Trust's operations with respect to the Fund
except those which are the responsibility of FAdS or Norwest. With respect to
the 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 the Fund, Forum: oversees: (a) the
preparation and maintenance by the Adviser and the Trust's administrator,
custodian, transfer agent, dividend disbursing agent and fund accountant (or if
appropriate, prepares and maintains) in such form, for such periods and in such
locations as may be required by applicable law, of all documents and records
relating to the operation of the Trust required to be prepared or maintained by
the Trust or its agents pursuant to applicable law; (b) the reconciliation of
account information and balances among the Adviser 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 Adviser of available funds for investment; and (e) the performance of
fund accounting, including the calculation of the net asset value per Share; (2)
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; (3) 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; (4) 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; (5) 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; (6) oversees the preparation of proxy and information statements
and any other communications to shareholders; (7) 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; (8)
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; (9) 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; (10) 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; (11) 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 the Fund as a
regulated investment company under the Code, as amended, and oversees the
preparation and distribution to appropriate parties of notices announcing the
declaration of dividends and other distributions to shareholders; (12) reviews
and negotiates on behalf of the Trust normal course of business contracts and
agreements; (13) maintains and reviews periodically the Trust's fidelity bond
and errors and omission insurance coverage; and (14) advises the Trust and the
Board on matters concerning the Trust and its affairs.
28
<PAGE>
The Management Agreement terminates automatically if assigned and may be
terminated without penalty with respect to the Fund by vote of the Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that 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.
FAdS manages all aspects of the Trust's operations with respect to the Fund
except those which are the responsibility of Forum or Norwest. With respect to
the Fund, FAdS has entered into an 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 Administration
Agreement.
On behalf of the Trust and with respect to the Fund, FAdS: (1) 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; (2) 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; (3) assists in the preparation of proxy and information
statements and any other communications to shareholders; (4) assists the Adviser
in monitoring Fund holdings for compliance with Prospectus and SAI investment
restrictions and assist in preparation of periodic compliance reports; (5) with
the cooperation of the Trust's counsel, Norwest, the officers of the Trust and
other relevant parties, is responsible for the preparation and dissemination of
materials for meetings of the Board; (6) 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;
(7) is responsible for maintaining the Trust's existence and good standing under
state law; (8) monitors sales of shares and ensures that such shares are
properly and duly registered with the SEC and applicable state and other
securities commissions; (9) 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 (10)
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 the Fund as a regulated
investment company under the Code, as amended, and prepares and distributes to
appropriate parties notices announcing the declaration of dividends and other
distributions to shareholders.
The Administrative Agreement terminates automatically if assigned and may be
terminated without penalty with respect to the 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 FAdS 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 FAdS'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 FAdS 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 FAdS's Administration
Agreement, respectively. Forum and FAdS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAdS pursuant to their Management and
Administration Agreements with the Trust.
The following table shows the dollar amount of fees payable to Forum for its
management services with respect to the classes of the Fund. Also shown are the
amount of fees that were waived by Forum, if any, and the actual fees received
by Forum. The data is for the past three fiscal years.
29
<PAGE>
<TABLE>
<S> <C> <C> <C>
MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE FEE
PAYABLE WAIVED RETAINED
READY CASH INVESTMENT FUND ---------- ---------- -----------
Investor Shares
Year Ended May 31, 1997 1,070,654 14,082 1,056,572
Year Ended May 31, 1996 760,979 60,072 700,907
Year Ended May 31, 1995 391,466 147,704 243,762
Institutional Shares
Year Ended May 31, 1997 2,595,399 2,413,208 182,191
Year Ended May 31, 1996 1,569,081 1,569,081 0
Year Ended May 31, 1995 739,794 589,996 149,797
Exchange Shares
Year Ended May 31, 1997 850 850 0
Year Ended May 31, 1996 273 273 0
Year Ended May 31, 1995 417 331 86
</TABLE>
The management fees payable with respect to Institutional Shares of Ready Cash
Investment Fund relate to a previous class of the Fund that was liquidated on
December 12, 1997.
THE PORTFOLIO
Forum manages all aspects of Core Trust's operations with respect to the
Portfolio except those which are the responsibility of Norwest. Forum has
entered into a management agreement with respect to the Portfolio (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 interestholders of Core Trust, 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 the Portfolio as it and FAdS perform under the Management
and Administration Agreements, to the extent the services are applicable to the
Portfolio. Forum and FAdS waive their fees payable by the Fund under the
Management and Administration Agreements to the extent the Fund incurs
indirectly management fees charged by Forum to the Portfolio.
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 Institutional Shares of
the Fund 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 the 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 the 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.
30
<PAGE>
The Distribution Services Agreement terminates automatically if assigned. With
respect to the Fund, the Distribution Services Agreement may be terminated at
any time without the payment of any penalty: (1) by the Board or by a vote of
the Fund's shareholders, on 60 days' written notice to Forum; or (2) by Forum on
60 days' written notice to the Trust.
TRANSFER AGENT
Norwest Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as
Transfer Agent of the Trust pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Transfer Agency Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.
The responsibilities of the Transfer Agent include: (1) answering customer
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares of the Fund may be effected and certain other matters
pertaining to the Fund; (2) assisting shareholders in initiating and changing
account designations and addresses; (3) providing necessary personnel and
facilities to establish and maintain shareholder accounts and records; (4)
assisting in processing purchase and redemption transactions and receiving wired
funds; (5) transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; (6) verifying shareholder signatures in connection
with changes in the registration of shareholder accounts; (7) furnishing
periodic statements and confirmations of purchases and redemptions; (8)
transmitting proxy statements, annual reports, prospectuses and other
communications from the Trust to its shareholders; (9) receiving, tabulating and
transmitting to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and (10) providing such other related
services as the Trust or a shareholder may request.
For its services, the Transfer Agent receives a fee computed daily and paid
monthly from the Trust, at an annual rate of 0.10% of the Fund's average daily
net assets, attributable to Public Entities Shares.
CUSTODIAN
Pursuant to a Custodian Agreement, Norwest Bank, Sixth Street and Marquette,
Minneapolis, Minnesota 55479 serves as the Fund's custodian (in this capacity
the "Custodian"). Norwest Bank also serves as custodian to the Portfolio under a
separate agreement with Core Trust. The Custodian's responsibilities include
safeguarding and controlling the Trust's cash and securities, determining income
and collecting interest on Fund investments. The fee is computed and paid
monthly, based on the average daily net assets of the Fund, the number of
portfolio transactions of the Fund and the number of securities in the Fund's
portfolio.
Pursuant to rules adopted under the 1940 Act, a Fund may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board upon consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the Fund;
the reputation of the institution in its national market; the political and
economic stability of the country in which the institution is located; and
possible risks of potential nationalization or expropriation of Fund assets. The
Custodian employs qualified foreign subcustodians to provide custody of the
Fund's foreign assets in accordance with applicable regulations.
The Fund will not pay custodian fees to the extent the Fund invests in the
Portfolio or in another registered investment company. The Fund, however, incurs
its proportionate share of the custodial fees of the Portfolio.
PORTFOLIO ACCOUNTING
FAcS, an affiliate of Forum, performs portfolio accounting services for the Fund
pursuant to a Fund Accounting Agreement with the Trust. The Fund Accounting
Agreement will continue in effect only if such continuance is
31
<PAGE>
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, FAcS prepares and maintains books and
records of the Fund on behalf of the Trust that are required to be maintained
under the 1940 Act, calculates the net asset value per share of the Fund (and
each class thereof) and dividends and capital gain distributions and prepares
periodic reports to shareholders and the SEC. For its services, FAcS receives
from the Trust standard fee of $1,000 per month plus $1,000/month for each
additional class of the Fund above one. FAcS also receives a fee of $2,000 per
month for the Fund if the Fund invests in a master-feeder structure pursuant to
Section 12(d)(1)(E) of the 1940 Act and invests in more than one security. In
addition to these fees, FAcS is entitled to receive from the Trust with respect
to the Fund, to the extent that it invests in a fund-of-funds structure pursuant
to Section 12(d)(1)(H) of the 1940 Act additional surcharges as described below
if the Fund invests in securities other than investment companies (calculated as
if the securities were the Fund's only assets).
To the extent that the Fund is not invested in a master-feeder or fund-of-funds
structure, FAcS receives from the Trust with respect to the Fund, a fee of
$3,000 per month. In addition, FAcS is paid additional surcharges for each of
the following: (1) if the Fund has asset levels exceeding $100 million -
$500/month, if the Fund has asset levels exceeding $250 million - $1,000/month,
if the Fund has asset levels exceeding $500 million - $1,500/month, if the Fund
has asset levels exceeding $1,000 million - $2,000/month; (2) if the Fund
requires international custody - $1,000/month; (3) if the Fund has more than 30
international positions - $1,000/month; (4) if the Fund has more than 25% of its
assets invested in asset-backed securities - $1,000/month, if the Fund has more
than 50% of its assets invested in asset-backed securities - $2,000/month; (6)
if the Fund has more than 100 security positions - $1,000/month; and (7) if the
Fund has a monthly portfolio turnover rate of 10% or greater - $1,000/month.
Surcharges are determined based upon the total assets, security positions or
other factors as of the end of the prior month and on the portfolio turnover
rate for the prior month. The rates set forth above shall remain fixed through
December 31, 1998. On January 1, 1999, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the Trust to
reflect changes in the Consumer Price Index for the preceding calendar year, as
published by the U.S. Department of Labor, Bureau of Labor Statistics. Forum
shall notify the Trust each year of the new rates, if applicable
FAcS 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. FAcS 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 FAcS, 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 FAcS'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 FAcS by an officer of the Trust duly authorized. This indemnification does
not apply to FAcS's actions taken or failures to act in cases of FAcS's own bad
faith, willful misconduct or gross negligence.
FAcS performs similar services for the Portfolios and, in addition, acts as the
Portfolios' transfer agent.
The following table shows the dollar amount of fees payable to FAcS (formerly
Forum Accounting) for its accounting services with respect to the Fund, the
amount of fee that was waived by FAcS, if any, and the actual fee received by
FAcS. The data is for the past three fiscal years.
32
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE FEE FEE
PAYABLE WAIVED RETAINED
READY CASH INVESTMENT FUND ------- ------ --------
Year Ended May 31, 1997 86,000 0 86,000
Year Ended May 31, 1996 63,000 0 63,000
Year Ended May 31, 199 548,000 0 48,000
</TABLE>
EXPENSES
Subject to the obligation of Norwest to reimburse the Trust for certain excess
expenses, the Trust has, under its Investment Advisory Agreement, confirmed its
obligation to pay all its other expenses, including: (1) interest charges,
taxes, brokerage fees and commissions; (2) certain insurance premiums; (3) fees,
interest charges and expenses of the Trust's custodian, transfer agent and
dividend disbursing agent; (4) telecommunications expenses; (5) auditing, legal
and compliance expenses; (6) costs of the Trust's formation and maintaining its
existence; (7) 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; (8) 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; (9) costs of reproduction, stationery and supplies; (10)
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; (11) costs of corporate
meetings; (12) 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; (13) state securities law registration fees and related
expenses; (14) fees and out-of-pocket expenses payable to Forum Financial
Services, Inc. under any distribution, management or similar agreement; (15) 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.
5. PORTFOLIO TRANSACTIONS
The following discussion of portfolio transactions, while referring to the Fund,
also applies to the Portfolio.
Purchases and sales of portfolio securities for the Fund usually are principal
transactions. Debt instruments are normally purchased directly from the issuer
or from an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases. Purchases of 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 securities traded in the foreign and domestic over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup. In transactions on exchanges in the United
States, commissions are negotiated, whereas on foreign exchanges commissions are
generally fixed. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the 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.
The Fund may effect purchases and sales through brokers who charge commissions,
although the Trust does not anticipate that the Fund will do so.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized Norwest to employ its respective
affiliates to effect securities transactions of the Fund, provided certain other
conditions are satisfied. Payment of brokerage commissions to an affiliate of
Norwest for effecting such transactions is subject to Section 17(e) of the 1940
Act, which requires, among other things, that commissions for transactions on
securities exchanges paid by a registered investment company to a broker which
is an affiliated person of such investment company, or an affiliated person of
another person so affiliated, not exceed the usual and customary brokers'
commissions for such transactions. It is the Fund's policy that commissions paid
to Norwest Investment Services, Inc. ("NISI") and other affiliates of Norwest
will, in the judgment of Norwest, be: (1) at least
33
<PAGE>
as favorable as commissions contemporaneously charged by the affiliate on
comparable transactions for its most favored unaffiliated customers and (2) at
least as favorable as those which would be charged on comparable transactions by
other qualified brokers having comparable execution capability. The Board,
including a majority of the disinterested Trustees, has adopted procedures to
ensure that commissions paid to affiliates of Norwest by the Fund satisfy the
foregoing standards.
The Fund does not have an understanding or arrangement to direct any specific
portion of its brokerage to an affiliate of Norwest, and will not direct
brokerage to an affiliate of Norwest in recognition of research services.
From time to time, the Fund may purchase securities of a broker or dealer
through which it regularly engages in securities transactions.
The Fund 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, Norwest takes into account factors
such as size of the order, difficulty of execution, efficiency of the executing
broker's facilities (including the services described below) and any risk
assumed by the executing broker. Norwest may also take into account payments
made by brokers effecting transactions for the Fund: (1) to the Fund; or (2) to
other persons on behalf of the Fund for services provided to the Fund for which
it would be obligated to pay.
In addition, Norwest may give consideration to research services furnished by
brokers to Norwest for its use and may cause the Fund to pay these brokers a
higher amount of commission than may be charged by other brokers. Such research
and analysis is of the types described in Section 28(e)(3) of the Securities
Exchange Act of 1934, as amended, and is designed to augment Norwest's own
internal research and investment strategy capabilities. Such research and
analysis may be used by Norwest in connection with services to clients other
than the Fund, and not all such services may be used by Norwest in connection
with the Fund. The Fund's fees are not reduced by reason of Norwest's receipt of
the research services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to the obligation to seek the most
favorable price and execution available and such other policies as the Board may
determine, Norwest may consider sales of shares of the Fund as a factor in the
selection of broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by Norwest or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as is possible, averaged
as to price and allocated between such clients in a manner which, in Norwest'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 the Fund and other client accounts managed by Norwest
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, the Fund acquired securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers.
Regular brokers and dealers are the 10 brokers or dealers that: (1) received the
greatest amount of brokerage commissions during the Fund's last fiscal year; (2)
engaged in the largest amount of principal transactions for portfolio
transactions of the Fund during the Fund's last fiscal year; or (3) 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 Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of May 31, 1997.
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<TABLE>
<S> <C> <C>
REGULAR BROKER VALUE OF
OR DEALER SECURITIES HELD
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
</TABLE>
6. ADDITIONAL PURCHASE, REDEMPTION AND
EXCHANGE INFORMATION
GENERAL
Shares of the Fund are sold on a continuous basis by the distributor.
The per share net asset values of each class of shares of the Fund are expected
to be substantially the same. Under certain circumstances, however, the per
share net asset value of each class may vary. The per share net asset value of
each class of the 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.
As described in the Prospectus, under certain circumstances the 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.
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 Public Entities Shares of Ready Cash Investment Fund may
purchase, with the proceeds from a redemption of all or part of their shares,
shares of the following funds of the Trust: Shares of Cash Investment Fund, U.S.
Government Fund and Treasury Fund, Institutional Shares of Municipal Money
Market Fund and I Shares of Stable Income Fund, Limited Term Government Income
Fund, Intermediate Government Income Fund, Diversified Bond Fund, Income Fund,
Total Return Bond Fund, Limited Term Tax-Free Fund, Tax-Free Income Fund,
Colorado Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free
Fund, Strategic Income Fund, Moderate Balanced Fund, Growth Balanced Fund,
Aggressive Balanced-Equity Fund, Index Fund, Income Equity Fund, ValuGrowth
Stock Fund, Diversified Equity Fund, Growth Equity Fund, Large Company Growth
Fund, Diversified Small Cap Fund, Small Company Stock Fund, Small Company Growth
Fund, Small Cap Opportunities Fund, Contrarian Stock Fund and International
Fund.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse
the Fund for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to the Fund's shares as provided in the Prospectus from time to
time.
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Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting the securities to cash.
The Trust has filed a formal election with the SEC pursuant to which the 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.
7. TAXATION
The 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 the Fund must meet to qualify for such
treatment, and of the application of state and local tax laws to his or her
particular situation.
Since the 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 the Fund's dividends or distributions will qualify for the
dividends-received deduction for corporations.
For federal income tax purposes, gains and losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of foreign currencies, from the disposition of debt
securities denominated in a foreign currency, or from the disposition of a
forward contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
The Fund's (or Portfolio's) investments in zero coupon securities will be
subject to special provisions of the Code which may cause the Fund (or
Portfolio) 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 (or Portfolio) may be forced to sell
other portfolio securities.
8. ADDITIONAL INFORMATION ABOUT THE TRUST AND
THE SHAREHOLDERS OF THE FUND
DETERMINATION OF NET ASSET VALUE
Pursuant to the rules of the SEC, the Board has established procedures to
stabilize the Fund's 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.
The 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 Fund's high quality criteria.
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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, 1994 and thereafter. For the prior fiscal periods another audit firm acted
as independent auditors of the Trust's predecessor corporation.
GENERAL INFORMATION
The Trust's shares are divided into forty separate series. 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 Fund's separate classes of shares
under the provisions of 1940 Act.
The Board has determined that currently no conflict of interest exists between
or among the Fund's Institutional, Investor, Public Entities and Exchange
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: (1) a court refuses
to apply Delaware law; (2) no contractual limitation of liability is in effect;
and (3) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
In order to adopt the name Norwest Advantage Funds, the Trust agreed in the
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.
FINANCIAL STATEMENTS
The financial statements of the Fund for the semi-annual period ended November
30, 1997 (which include a statement of assets and liabilities, a statement of
operations, a statement of changes in net assets, notes to financial statements,
financial highlights and a portfolio 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 the Fund
for the year ended May 31, 1997 (which include a statement of assets and
liabilities, a
37
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statement of operations, a statement of changes in net assets, notes to
financial statements, financial highlights, a portfolio 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.
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.
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 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
SHORT-TERM DEBT
MOODY'S INVESTORS SERVICE
Moody's two highest ratings for short-term debt are "Prime-1" and "Prime-2".
Both are judged investment grade, to indicate the relative repayment ability of
rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. "Prime-1" repayment ability will often be evidenced by many of
the following characteristics: Leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "Prime-2" by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated "Prime-1" but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S
S&P's two highest commercial paper ratings are "A-1" and "A-2". Issues assigned
an "A" rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. An "A-1" designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an "A-2" designation is strong. However, the relative degree of safety is not as
high as for issues designated "A-1". "A-3" issues have a satisfactory capacity
for timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated "A-2" are regarded as having only an adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
FITCH IBCA, 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+".
A-1
<PAGE>
