PROSPECTUS
JULY 1, 1998
TREASURY PLUS FUND
This Prospectus offers Shares of Treasury Plus Fund (the "Fund"), a separate
diversified money market portfolio of Norwest Advantage Funds (the "Trust"), a
registered, open-end, management investment company.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor should know before investing. The Trust has
filed with the Securities and Exchange Commission (the "SEC") a Statement of
Additional Information ("SAI") with respect to the Fund dated July 1, 1998, as
may be further amended from time to time. The SAI is available for reference on
the SEC's Web Site (http://www.sec.gov) and contains more detailed information
about the Trust and the Fund. The SAI 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.
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 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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TABLE OF CONTENTS
PAGE
1. SUMMARY................................................................................................. 3
2. INVESTMENT OBJECTIVES AND POLICIES...................................................................... 5
3. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS.................................................. 5
General Information..................................................................................... 5
4. MANAGEMENT OF THE FUND.................................................................................. 8
Investment Advisory Services............................................................................ 8
Management, Administration and Distribution Services.................................................... 9
Shareholder Servicing and Custody....................................................................... 9
Expenses of the Fund.................................................................................... 9
5. PURCHASES AND REDEMPTIONS OF SHARES..................................................................... 10
General Purchase Information............................................................................ 10
Purchase Procedures..................................................................................... 11
General Redemption Information.......................................................................... 12
Redemption Procedures................................................................................... 13
Exchanges............................................................................................... 13
Shareholder Services.................................................................................... 14
6. DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS................................................................ 15
Dividends............................................................................................... 15
Tax Matters............................................................................................. 15
7. OTHER INFORMATION....................................................................................... 16
Banking Law Matters..................................................................................... 16
Determination of Net Asset Value........................................................................ 16
Performance Information................................................................................. 17
The Trust and Its Shares................................................................................ 17
APPENDIX A.............................................................................................. A-1
Investments, Investment Strategies and Risk Considerations
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1. SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
WHO SHOULD INVEST
The single class of shares offered by Treasury Plus Fund is designed primarily
for institutional clients. The Fund is not intended to provide a complete or
balanced investment program, but can serve as a component of an investor's
investment program.
THE FUND
The Fund seeks to provide high current income to the extent consistent with the
preservation of capital and the maintenance of liquidity. The Fund pursues its
investment objective by investing primarily in obligations that are issued or
guaranteed by the United States Treasury and repurchase agreements supported by
such obligations. The Fund also may invest in obligations that are issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
MANAGEMENT OF THE FUND
ADVISORY SERVICES
NORWEST INVESTMENT MANAGEMENT, INC. ("Norwest"), a subsidiary of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), is the Fund's investment adviser ("Adviser").
Norwest is paid an investment advisory fee by Treasury Plus Fund. Norwest
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 of the Fund -- Investment Advisory Services.")
FUND MANAGEMENT AND ADMINISTRATION
The business of the Trust is managed under the direction of the Board of
Trustees of the Trust (the "Board"). 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 ("FAS") provides administrative services for
the Fund (See "Management -- Management, Administration and Distribution
Services.") Norwest Bank serves as transfer agent, dividend disbursing agent and
custodian of the Trust (See "Management of the Fund -- Shareholder Servicing and
Custody" and "-- Management, Administration and Distribution Services.")
PURCHASE AND REDEMPTION OF SHARES
Shares may be purchased or redeemed without a sales or other charge. The minimum
initial investment is $100,000. There is no minimum subsequent investment. (See
"Purchases and Redemptions of Shares.")
EXCHANGES
Holders of shares of Treasury Plus Fund may exchange their shares among certain
other funds of the Trust. ("See Purchases and Redemptions of Shares --
Exchanges.")
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DIVIDENDS AND DISTRIBUTIONS
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,
Distributions and Tax Matters."
CERTAIN RISK FACTORS
There can be no assurance that the Fund will achieve its investment objective or
maintain a stable net asset value of $1.00 per share. Upon redemption, an
investment in the Fund may be worth more or less than its original value.
All investments made by the Fund entail some risk. The amount of income earned
by the Fund will tend to vary with changes in prevailing interest rates. Certain
investments and investment techniques, however, entail additional risks, such as
the potential use of leverage by the Fund through borrowings, reverse repurchase
agreements, securities lending and other investment techniques. (See "Appendix A
- -- Investments, Investment Strategies and Risk Considerations.")
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in understanding the
expenses that an investor in the Fund will bear directly or indirectly. There
are no transaction charges in connection with purchases, redemptions or
exchanges. The Fund has not adopted a Rule 12b-1 plan and, accordingly, does not
incur distribution expenses.
ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS AFTER APPLICABLE FEE WAIVERS AND
EXPENSE REIMBURSEMENTS)
Total Operating
Other Expenses Expenses
Investment (after (after expense
Advisory Fees reimbursements)(2) reimbursements)(2)
------------- ------------------ ------------------
Treasury Plus Fund 0.20% 0.30% 0.50%
(1) For a further description of the various expenses associated with
investing in the Fund, see "Management." The expenses are based on
estimated expenses for the Fund's first fiscal period of operations
ending May 31, 1999.
(2) Absent expense reimbursements and fee waivers the expenses of the Fund
would be: "Other Expenses," 0.40%; and "Total Operating Expenses,"
0.60%. 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, the expenses
listed in the "Annual Fund Operating Expenses" table, a 5% annual return and
reinvestment of all dividends and distributions. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED. The 5% annual return
is not predictive of and does not represent the Fund's projected returns;
rather, it is required by government regulation.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
5 16 28 63
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2. INVESTMENT OBJECTIVE AND POLICIES
There can be no assurance that the Fund will achieve its investment objective or
that it will maintain a stable net asset value.
The investment objective, policies and risk considerations of the Fund are
described below. For a further description of the Fund's investments and
investment techniques and additional risk considerations associated with those
investments and techniques, see "Additional Investment Policies and Risk
Considerations," "Appendix A -- Investments, Investment Strategies and Risk
Considerations" and the SAI.
TREASURY PLUS FUND
INVESTMENT OBJECTIVE. The investment objective of Treasury Plus 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 seeks to attain its investment objective by
investing in obligations that are issued or guaranteed by the U.S. Treasury
("U.S. Treasury Securities") and repurchase agreements on those obligations.
Under normal circumstances, the Fund intends to invest at least 80 percent of
its assets in U.S. Treasury Securities and repurchase agreements secured by U.S.
Treasury Securities. U.S. Treasury Securities include U.S. Treasury bills, bonds
and notes and may include certain in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury. (See
"Appendix A -- U.S. Government Securities.") The Fund may also invest in
obligations issued or guaranteed as to principal and interest by the United
States Government or by any of its agencies and instrumentalities ("U.S.
Government Securities"). Additionally, the Fund may invest in certain
zero-coupon securities and in repurchase agreements secured by U.S. Government
Securities.
The U.S. Government Securities in which the Fund may invest include 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 Fund may invest include securities supported primarily or solely by
the creditworthiness of the issuer, such as securities of the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation and the
Tennessee Valley Authority. There is no guarantee that the U.S. Government will
support securities not backed by its full faith and credit. Accordingly,
although these securities have historically involved little risk of loss of
principal if held to maturity, they may involve more risk than securities backed
by the U.S. Government's full faith and credit. (See "Appendix A --U.S.
Government Securities.")
The Fund 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 Fund may invest in other types of related zero-coupon
securities. (See "Appendix A -- U.S. Government Securities -- Zero Coupon
Securities.")
3. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
GENERAL INFORMATION
The Fund's investment objective and all investment policies that are designated
as fundamental may not be changed without approval of the holders of a majority
of the outstanding voting securities of the Fund. A majority of outstanding
voting securities means the lesser of 67% of the shares present or represented
at a shareholders meeting at which the holders of more than 50% of the
outstanding shares are present or represented, or more than 50% of the
outstanding shares. Except as otherwise indicated, investment policies of the
Fund are not deemed to be fundamental and may be changed by the Board without
shareholder approval. A further description of the Fund's investment policies,
including additional fundamental policies, is contained in the SAI.
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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 Fund to hold or
acquire the securities of issuers which are also lending clients of Norwest
Bank. A lending relationship will not be a factor in the selection of portfolio
securities for the Fund.
BORROWING
As a fundamental policy, the Fund may borrow money from banks or by entering
into reverse repurchase agreements and will limit borrowings to amounts not in
excess of 33 1/3% of the value of the Fund's total assets. The Fund's borrowing
for other than temporary or emergency purposes or meeting redemption requests
may not exceed 5% of the value of the Fund's assets. The Fund may enter into
reverse repurchase agreements. When the Fund establishes a segregated account to
limit the amount of leveraging of the Fund with respect to certain investment
techniques, such as reverse repurchase agreements, the Fund does not treat those
techniques as involving borrowings although they may have characteristics and
risks similar to borrowings and result in the Fund's assets being leveraged.
(See "Appendix A -- Borrowing and Techniques Involving Leverage.")
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES
The Fund may enter into repurchase agreements and may lend securities from its
portfolio to brokers, dealers and other financial institutions. These
investments may entail certain risks not associated with direct investments in
securities. For instance, in the event that bankruptcy or similar proceedings
were commenced against a counterparty in these transactions or a counterparty
defaulted on its obligations, the Fund may have difficulties in exercising its
rights to the underlying securities, may incur costs and experience time delays
in disposing of them and may suffer a loss.
Repurchase agreements are transactions in which the Fund purchases a security
and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not related
to the coupon rate or maturity of the purchased security. When the Fund lends a
security it receives interest from the borrower or from investing cash
collateral. The Trust maintains possession of the purchased securities and any
underlying collateral in these transactions, the total market value of which on
a continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Fund may pay fees to arrange
securities loans and the Fund will limit securities lending to not more than 33
1/3% of the value of its total assets, as determined by SEC guidelines.
DIVERSIFICATION AND CONCENTRATION
The Fund is diversified as that term is defined in the Investment Company Act of
1940 (the "1940 Act"). As a fundamental policy, with respect to 75% of its
assets, a diversified fund may not purchase a security (other than a U.S.
Government Security or shares of investment companies) 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. The Fund is prohibited from concentrating its
assets in the securities of issuers in any industry. As a fundamental policy,
the Fund may not purchase securities if, immediately after the purchase, more
than 25% of the value of the Fund's total assets would be invested in the
securities of issuers conducting their principal business activities in the same
industry. The Fund reserves the right to invest up to 100% of its investable
assets in one or more investment companies.
ILLIQUID SECURITIES
The Fund may not knowingly acquire securities or invest in repurchase agreements
with respect to any securities if, as a result, more than 10 percent of the
Fund's net assets taken at current value would be invested in illiquid
securities. Illiquid securities are securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which the Fund has valued the securities and include, among other things,
repurchase agreements not entitling the holder to payment within seven days and
restricted securities (other than those determined to be liquid pursuant to
guidelines established by the Board). The Adviser determines and monitors the
liquidity of the portfolio securities under the supervision of the Board.
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FIXED INCOME INVESTMENTS AND THEIR CHARACTERISTICS
Although the Fund only invests in investment grade fixed income securities an
investment in the Fund is subject to risk even if all fixed income securities in
the Fund's portfolio are paid in full at maturity. All fixed income securities,
including U.S. Government Securities, can change in value when there is a change
in interest rates or the issuers actual or perceived creditworthiness or ability
to meet its obligations.
The market value of the interest-bearing debt securities held by the Fund will
be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an increase
in interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity (and duration) of a security, the greater will be the effect
of interest rate changes on the market value of that security. Changes in the
ability of an issuer to make payments of interest and principal and in the
markets' 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 are also subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors which may restrict the
ability of any issuer to pay, when due, the principal of and interest on its
debt securities. The possibility exists that the ability of any issuer to pay,
when due, the principal of and interest on its debt securities may become
impaired.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Fund 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
"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. Variable and floating rate instruments are, however, 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.
There may not be an active secondary market for certain floating or variable
rate instruments which could make it difficult for the Fund to dispose of the
instrument during periods that the Fund is not entitled to exercise any demand
rights (such as puts) it may have. The Fund could, for this or other reasons,
suffer a loss with respect to those instruments. Norwest monitors the liquidity
of the Fund's investment in variable and floating rate instruments, but there
can be no guarantee that an active secondary market will exist.
RATING MATTERS
The Fund's investments are subject to credit risk relating to the financial
condition of the issuers of the securities that the Fund holds. To limit credit
risk, the Fund will buy debt securities that are rated in the top two rating
categories by an NRSRO.
The Fund also may purchase unrated securities if the securities are of
comparable quality to other rated securities of the issues eligible for purchase
by the Fund. Unrated securities may not be as actively traded as rated
securities. The Fund may retain a security whose rating has been lowered below
the Fund's lowest permissible rating category (or that is unrated and determined
by Norwest to be of comparable quality to a security whose rating has been
lowered below the Fund's lowest permissible rating category) if Norwest
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
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PORTFOLIO TRANSACTIONS
Norwest monitors the creditworthiness of counterparties to the Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal credit risks and the benefits from the
transaction justify the attendant risks.
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. An annual portfolio
turnover rate of 100% would occur if all of the securities in the Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses.
YEAR 2000. Like other mutual funds, financial and other business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and other service providers to the Fund do
not properly process and calculate date-related information and data from and
after January 1, 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 being taken by the Fund's
other major service providers. There can be no assurance, however, that these
steps will be sufficient to avoid any adverse impact on the Fund from this
problem.
4. MANAGEMENT OF THE FUND
The business of the Trust is managed under the direction of the 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, INC. 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, 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 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 Fund. The following persons, however,
are primarily responsible for day-to-day management and, unless otherwise noted,
have been since the inception of the Fund. In addition to their responsibilities
as listed below, each of the portfolio managers associated with Norwest may
perform portfolio management and other duties for Norwest Bank.
David D. Sylvester, Laurie R. White and Robert G. Leuty. Mr. Sylvester has
been associated with Norwest and Norwest Bank since 1979, and as 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 or Norwest Bank since
1991; from 1989 to 1991, she was a Portfolio Manager at Richfield Bank and
Trust. Mr. Leuty has been associated with Norwest or Norwest Bank since
1992, in various investment management capacities since 1993, and in his
present capacity of Senior Portfolio Manager since 1998. Prior to 1992 he
was an In-Charge Accountant with Price Waterhouse.
ADVISORY FEES. For its services, Norwest receives investment advisory fees from
the Fund at an annual rate of 0.20% of the first $300 million of the Fund's
average daily net assets, 0.16% of the next $400 million of the Fund's average
daily net assets and 0.12% of the Fund's remaining average daily net assets.
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MANAGEMENT, ADMINISTRATION AND DISTRIBUTION SERVICES
As manager Forum supervises the overall management of the Trust (including the
Trust's receipt of services for which the Trust is obligated to pay) other than
investment advisory services. In this capacity Forum provides the Trust with
general office facilities, provides persons satisfactory to the Board to serve
as officers of the Trust and oversees the performance of administrative and
professional services rendered to the Fund by others. As administrator, FAS is
responsible for performing certain administrative services necessary for the
Trust's operations with respect to each Fund including, but not limited to: (1)
preparing and printing updates of the Trust's registration statement and
prospectuses, 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) supervising the declaration of dividends and
distributions to shareholders.
As of March 31, 1998, Forum and FAS provided management and administrative
services to registered investment companies and collective investment funds with
assets of approximately $37 billion. Forum is a member of the National
Association of Securities Dealers, Inc. For their services, Forum and FAS each
receives a fee with respect to Treasury Plus Fund at an annual rate of 0.05% of
the Fund's average daily net assets.
Forum also acts as the distributor of the Shares but receives no fees for these
services. From its own resources, Forum may pay fees to broker-dealers or other
persons for distribution or other services related to the Fund. The Fund has not
adopted a plan of distribution applicable to the Shares.
Pursuant to a separate agreement, Forum Accounting Services, LLC ("Forum
Accounting") provides portfolio accounting services to the Fund. Forum, FAS, and
Forum Accounting are members of the Forum Financial Group of companies which
together provide a full range of services to the investment company and
financial services industry. As of July 1, 1998, Forum, FAS and Forum Accounting
were controlled by John Y. Keffer, President and Chairman of the Trust.
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 Trust to the Transfer Agent. For its services, the Transfer Agent receives a
fee with respect to the Fund at an annual rate of 0.25% of the Fund's average
daily net assets attributable to each class of the Fund.
Norwest Bank also serves as the Fund's custodian and may appoint subcustodians
for the foreign securities and other assets held in foreign countries. For its
custodial services, Norwest Bank receives a fee with respect to the Fund at an
annual rate of 0.02% of the first $100 million of the Fund's average daily net
assets, 0.015% of the next $100 million of the Fund's average daily net assets
and 0.01% of the Fund's remaining average daily net assets.
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 any fund of the Trust, 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 elect to waive (or continue to waive) all or a portion
of its fees, which are accrued daily and paid monthly.
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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.
The Fund bears all costs of its operations. The costs borne by the Fund include
a pro rata portion of the following: legal and accounting expenses; Trustees'
fees and expenses; insurance premiums, custodian and transfer agent fees and
expenses; brokerage fees and expenses; expenses of registering and qualifying
the Fund's shares for sale with the SEC and with various state securities
commissions; expenses of obtaining quotations on fund securities and pricing of
the Fund's shares; a portion of the expenses of maintaining the Fund's legal
existence and of shareholders' meetings; and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses.
Trust expenses directly attributed to the Fund are charged to the Fund; other
expenses are allocated proportionately among all the series of the Trust in
relation to the n0et assets of each series.
Each service provider to the Trust or their agents and affiliates also may 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 the Fund.
5. PURCHASES AND REDEMPTIONS OF SHARES
Treasury Plus Fund is designed primarily for institutional clients. Shares are
continuously sold and redeemed at a price equal to their net asset value
next-determined after receipt of an order or 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. Shares must
be paid for 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 amount in Shares of Treasury Plus Fund is
$100,000. There is no minimum amount for subsequent investments.
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 the times indicated below.
ORDER MUST BE RECEIVED BY PAYMENT MUST BE RECEIVED BY
------------------------- ---------------------------
5:00 P.M. 5:00 P.M.
All times referenced in the above table are Eastern Time. 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.
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The Fund reserves the right to reject any subscription for the purchase of its
shares. Share certificates are issued only to shareholders of record upon their
written request and no certificates are issued for fractional shares.
PURCHASE PROCEDURES
Investors may obtain the account application form necessary to open an account
by writing the Trust at the following address:
Norwest Advantage Funds
Treasury Plus Fund
Norwest Bank Minnesota, N.A.
Transfer Agent
733 Marquette Avenue
Minneapolis, MN 55479-0040
To participate in shareholder services not referenced on the account application
form and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should contact the Trust. The Trust reserves
the right in the future to modify, limit or terminate any shareholder privilege
upon appropriate notice to shareholders and to charge a fee for certain
shareholder services, although no such fees are currently contemplated. Any
privilege and participation in any program may be terminated by the shareholder
at any time by writing to the Trust.
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 a 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.
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:
Norwest Bank Minnesota, N.A.
A091 000 019
For Credit to: Norwest Funds 0844-131
Re: Treasury Plus Fund
Account No.:
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.
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.
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Investors who purchase shares through a Processing Organization will be subject
to the procedures of their Processing Organization, which may include 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 the time indicated
under "Purchases and Redemptions of Shares --General Purchase Information." The
Trust reserves the right to close early and to advance the times by which the
Fund must receive 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 receipt of a redemption order. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check to purchase
the shares being redeemed has been cleared by the shareholder's bank, which may
take up to 15 days. This delay may be avoided by paying for shares through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days after
the tender of the shares to the Fund except when the New York Stock Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings, for any period during which an emergency
exists as a result of which disposal by the Fund of its portfolio securities or
determination by the Fund of the value of its net assets is not reasonably
practicable and for such other periods as the SEC may permit.
To protect 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 election; (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.
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Signature guarantees may be provided by any bank, broker-dealer, national
securities exchange, credit union, savings association or other eligible
institution that is authorized to guarantee signatures and is acceptable to the
Transfer Agent. Whenever a signature guarantee is required, the signature of
each person required to sign for the account must be guaranteed. Shareholders
who want telephone redemption or exchange privileges must elect those
privileges. The Trust and Transfer Agent will employ reasonable procedures in
order to verify that telephone requests are genuine, including recording
telephone instructions and causing written confirmations of the resulting
transactions to be sent to shareholders. If the Trust and Transfer Agent did not
employ such procedures, they could be liable for losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach the Transfer Agent by telephone, requests may be
mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account whose aggregate net asset value is less than $1,000 immediately
following any redemption.
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 who wish to redeem shares by
telephone or receive redemption proceeds by bank wire must elect these options
by properly completing the appropriate sections of their account application
form. These privileges may not be available until several weeks after a
shareholder's application is received. Shares for which certificates have been
issued may not be redeemed by telephone.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Transfer Agent accompanied by any share certificate that may have been issued to
the shareholder to evidence the shares being redeemed. All written requests for
redemption must be signed by the shareholder with signature guaranteed, and all
certificates submitted for redemption must be endorsed by the shareholder with
signature guaranteed. (See "Purchases and Redemptions of Shares -- General
Redemption Information.")
BY TELEPHONE. A shareholder who has elected telephone redemption privileges may
make a telephone redemption request by calling the Transfer Agent at (800)
338-1348 or (612) 667-8833 and providing the shareholder's account number, the
exact name in which the shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Trust will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds.
(See "Purchases and Redemptions of Shares -- General Redemption Information.")
BY BANK WIRE. For redemptions of more than $5,000, a shareholder who has elected
wire redemption privileges may request 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
Shareholders of Treasury Plus Fund may exchange their shares for shares of the
following funds of the Trust: Shares of Cash Investment Fund, U.S. Government
Fund, Treasury Fund, Investor Shares of Ready Cash Investment Fund,
Institutional and Investor Shares of Municipal Money Market Fund; 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
(FORMERLY CONSERVATIVE BALANCED FUND), Moderate Balanced Fund, Growth Balanced
Fund, Aggressive Balanced-Equity Fund; Index Fund, Income
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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. 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 that fund's shares may
legally be sold in the shareholder's state of residence.
The Fund and federal tax law treat an exchange as a redemption and a 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 SAIs.)
BY MAIL. Exchanges may be made by sending a written request to the Transfer
Agent accompanied by any share certificates for the shares to be exchanged. All
written requests for exchanges must be signed by the shareholder, and all
certificates submitted for exchange must be endorsed by the shareholder with
signature guaranteed. (See "Purchases and Redemptions of Shares -- General
Redemption Information.")
BY TELEPHONE. A shareholder who has elected telephone exchange privileges may
make a telephone exchange by calling the Transfer Agent at (800) 338-1348 or
(612) 667-8833 and providing the shareholder's account number, the exact name in
which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number. (See "Purchases and Redemptions of
Shares -- General Redemption Information.")
SHAREHOLDER SERVICES
RETIREMENT ACCOUNTS
The Fund may be a suitable investment vehicle for part or all of the assets held
in Traditional or Roth individual retirement accounts (collectively "IRAs"). An
IRA account application form may be obtained by contacting the Trust at (800)
338-1348 or (612) 667-8833. Generally, all contributions and investment earnings
in an IRA will be tax-deferred until withdrawn. In the case of a Roth IRA, if
certain requirements are met, investment earnings will not be taxed even when
withdrawn. Individuals may make IRA contributions of up to a maximum of $2,000
annually. Only contributions to Traditional IRAs are tax-deductible. However,
the deduction will be reduced if the individual or, in the case of a married
individual, either the individual or the individual's spouse is an active
participant in an employer-sponsored retirement plan and has adjusted gross
income above certain levels. The ability of an individual to make contributions
to a Roth IRA is restricted if the individual (or, in some cases, a married
couple) has adjusted gross income above certain levels.
An employer may also contribute to an individual's IRA as part of a Savings
Incentive Match Plan for Employees, or "SIMPLE plan," established after December
31, 1996. Under a SIMPLE plan, an employee may contribute up to $6,000 annually
to the employee's IRA, and the employer must generally match such contributions
up to 3% of the employee's annual salary. Alternatively, the employer may elect
to contribute to the employee's IRA 2% of the lesser of the employee's earned
income or $160,000.
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The foregoing discussion regarding IRAs is based on regulations in effect as of
January 1, 1998 and summarizes only some of the important federal tax
considerations generally affecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for tax planning. Investors
should consult their tax advisors with respect to their specific tax situations
as well as with respect to state and local taxes.
CHECKWRITING
Shareholders of the Fund wishing to establish checkwriting privileges may do so
by completing an application, which may be obtained by writing or calling the
Fund or the Transfer Agent. After the application is properly completed and
returned to the Fund, the shareholder will be supplied with checks which may be
made payable to any person in any amount of $500.00 or more. When a check is
presented for payment, the number of full and fractional shares required to
cover the amount of the check will be redeemed from the shareholder's account by
the Transfer Agent as agent for the shareholder. Any shares for which
certificates have been issued may not be redeemed by check. If the amount of a
check is greater than the value of the uncertificated shares held in the
shareholder's account, the check will not be honored. Fund shares may not be
redeemed until the check used to purchase the shares has cleared (which may take
15 or more days). A shareholder may not liquidate the shareholder's entire
account by means of a check. Shareholders will be subject to the rules and
regulations of the Transfer Agent pertaining to the checkwriting privilege as
amended from time to time. Checkwriting procedures may be changed, modified or
terminated at any time by the Trust or the Transfer Agent upon written
notification to the shareholder.
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.
6. DIVIDENDS, DISTRIBUTIONS AND
TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are declared daily and paid
monthly. Distributions of net capital gain, if any, realized by the Fund are
distributed annually.
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 the 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 $10,000 or more may elect to have all dividends and
distributions reinvested in shares of another fund of the Trust, provided that
those shares are eligible for sale in the shareholder's state of residence. For
further information concerning the Directed Dividend Option, shareholders should
contact the Transfer Agent.
TAX MATTERS
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
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<PAGE>
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. Two different tax rates apply to net capital gain - that is, the excess
of 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 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. Distributions reduce the net asset value of the Fund paying
the dividend or distribution by the amount of the distribution. Furthermore, a
distribution made shortly after the purchase of Shares by a shareholder,
although in effect a return of capital to that particular shareholder, will be
taxable to the shareholder.
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.
7. 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 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 5:00 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 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.
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PERFORMANCE INFORMATION
The Fund's performance may be quoted in terms of yield or 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 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. Published yield quotations are, and total return figures
may be, based on amounts invested in the Fund net of sales charges that may be
paid by an investor. A computation of yield or total return that does not take
into account sales charges paid by an investor will be higher than a similar
computation that takes into account payment of sales charges.
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 Financial Data, 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 Fund. Indices are not used in the management of
the Fund but rather are standards by which the Adviser 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. 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; the costs of doing so will
be borne by the Trust. Currently the authorized shares of the Trust are divided
into forty separate series.
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, subject to any contingent
deferred sales charge that may apply. A shareholder in a series is entitled to
the shareholder's pro rata share of all dividends and distributions arising from
that series' assets and, upon redeeming shares, will receive the portion of the
series' net assets represented by the redeemed shares.
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From time to time, certain shareholders may own a large percentage of the Shares
of a Fund and, accordingly, may be able to greatly affect (if not determine) the
outcome of a shareholder vote. Due to its ownership of the initial shares of the
Fund, Forum Financing, Inc. may be deemed to control the Fund prior to the
public offering of the Fund's shares.
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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APPENDIX A
INVESTMENTS, INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
U.S. GOVERNMENT SECURITIES
As used in this Prospectus, the term U.S. Government Securities means
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. The U.S. Government Securities in
which the Fund may invest include U.S. Treasury Securities and obligations
issued or guaranteed by U.S. Government agencies and instrumentalities and
backed by the full faith and credit of the U.S. Government, such as those
guaranteed by the Small Business Administration or issued by the Government
National Mortgage Association. In addition, the U.S. Government Securities in
which the Fund may invest include securities supported primarily or solely by
the creditworthiness of the issuer, such as securities of the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation and the
Tennessee Valley Authority. There is no guarantee that the U.S. Government will
support securities not backed by its full faith and credit. Accordingly,
although these securities have historically involved little risk of loss of
principal if held to maturity, they may involve more risk than securities backed
by the U.S. Government's full faith and credit.
ZERO-COUPON SECURITIES
The Fund may invest in separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. These components are
traded independently under the Treasury's Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") program or as Coupons Under Book
Entry Safekeeping ("CUBES").
The Fund may invest in other types of related zero-coupon securities.
Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but the Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Fund may invest. The Fund
distributes all of its net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when an
Norwest would not have chosen to sell such securities and which may result in a
taxable gain or loss.
ILLIQUID SECURITIES 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 Securities Act of 1933 ("restricted
securities"), securities which are otherwise not readily marketable, such as
over-the-counter options, and repurchase agreements not entitling the holder to
payment of principal in 7 days. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and 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 Securities Act of 1933, including repurchase agreements.
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 Securities Act of 1933 or other exemptions, the Adviser may determine that
such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board. These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular Rule
144A security, the Fund's holdings of that security may be illiquid.
A-1
<PAGE>
BORROWING
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales. The Fund may not purchase securities for investment while
any borrowing equal to 5 percent or more of the Fund's total assets is
outstanding or borrow for purposes other than meeting redemptions in an amount
exceeding 5 percent of the value of the Fund's total assets. 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; the use of these
techniques in connection with a segregated account may result in a Fund's assets
being 100 percent leveraged. (See "Appendix A -- Techniques Involving
Leverage.")
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 involves 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 Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as the Fund is able to realize a net return on its investment portfolio
that is higher than interest expense incurred, if any, leverage will result in
higher current net investment income being realized by the Fund than if the Fund
were not leveraged. On the other hand, interest rates change from time to time
as does their relationship to each other depending upon such factors as supply
and demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
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 securities in accordance with SEC guidelines. The account's value, which is
marked to market daily, will be at least equal to the Fund's commitments under
these transactions.
A-2
<PAGE>
REPURCHASE AGREEMENTS, SECURITIES LENDING, REVERSE REPURCHASE AGREEMENTS,
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLL TRANSACTIONS.
The Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements 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 while these
transactions remained open or a counterparty defaulted on its obligations, the
Fund might suffer a loss. Failure by the other party to deliver a security
purchased by the Fund may result in a missed opportunity to make an alternative
investment. The Adviser monitors the creditworthiness of counterparties to these
transactions and intend to enter into these transactions only when they believe
the counterparties present minimal credit risks and the income to be earned from
the transaction justifies the attendant risks. Counterparty insolvency risk with
respect to repurchase agreements is reduced by favorable insolvency laws that
allow the Fund, among other things, to liquidate the collateral held in the
event of the bankruptcy of the counterparty. Those laws do not apply to
securities lending and, accordingly, securities lending involves more risk than
does the use of repurchase agreements. As a result of entering forward
commitments and reverse repurchase agreements, as well as lending its
securities, a Fund may be exposed to greater potential fluctuations in the value
of its assets and net asset value per share. (See "Appendix A -- Techniques
Involving Leverage.")
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements,
transactions in which the Fund purchases a security and simultaneously commits
to resell that security to the seller at an agreed-upon price on an agreed-upon
future date, normally 1 to 7 days later. The resale price of a repurchase
agreement reflects a market rate of interest that is not related to the coupon
rate or maturity of the purchased security. The Trust's custodian maintains
possession of the collateral underlying a repurchase agreement, which has a
market value, determined daily, at least equal to the repurchase price, and
which consists of the types of securities in which the Fund may invest directly.
SECURITIES LENDING. The Fund may lend securities from its portfolios to brokers,
dealers and other financial institutions. Securities loans must be continuously
secured by cash or U.S. Government Securities with a market value, determined
daily, at least equal to the value of the Fund's securities loaned, including
accrued interest. The Fund receives interest in respect of securities loans from
the borrower or from investing cash collateral. The Fund may pay fees to arrange
the loans. The Fund will not lend portfolio securities in excess of 33 1/3
percent of the value of the Fund's total assets, as determined by SEC
guidelines.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements, transactions in which the Fund sells a security and simultaneously
commits to repurchase that security from the buyer at an agreed upon price on an
agreed upon future date. The resale price in a reverse repurchase agreement
reflects a market rate of interest that is not related to the coupon rate or
maturity of the sold security. For certain demand agreements, there is no agreed
upon repurchase date and interest payments are calculated daily, often based
upon the prevailing overnight repurchase rate. Because certain of the incidents
of ownership of the security are retained by the Fund, reverse repurchase
agreements may be viewed as a form of borrowing by the Fund from the buyer,
collateralized by the security sold by the Fund. A Fund will use the proceeds of
reverse repurchase agreements to fund redemptions or to make investments. In
most cases these investments either mature or have a demand feature to resell to
the issuer on a date not later than the expiration of the agreement. Interest
costs on the money received in a reverse repurchase agreement may exceed the
return received on the investments made by the Fund with those monies. Any
significant commitment of the Fund's assets to the reverse repurchase agreements
will tend to increase the volatility of the Fund's net asset value per share.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase fixed
income securities on a "when-issued" or "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within 3 months after the transaction. During the period between a commitment
and settlement, no payment is made for the securities purchased and no interest
on the security accrues to the purchaser. At the time the Fund makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by the Fund may result in a loss or a missed
opportunity to make an alternative investment. 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
A-3
<PAGE>
might be required to complete these transactions when the value of the security
is lower than the price paid by the Fund. The Fund will not purchase securities
on a when-issued or forward commitment basis if, as a result, more than 15
percent of the value of the Fund's total assets would be committed to such
transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund purchases securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
When-issued securities may include bonds purchased on a "when, and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Commitment of the Fund's assets to the purchase of
securities on a when-issued or forward commitment basis will tend to increase
the volatility of the Fund's net asset value per share.
A-4
<PAGE>
NORWEST ADVANTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1998
TREASURY PLUS FUND
<PAGE>
TREASURY PLUS FUND
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 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
Treasury Plus 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 July
1, 1998, as may be amended from time to time, offering shares of Treasury Plus
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.
<PAGE>
TABLE OF CONTENTS
Page
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Introduction
1. Investment Policies ..................................... 2
Security Ratings Information ....................... 2
Money Market Fund Matters .......................... 2
U.S. Government Securities ......................... 3
Zero Coupon Securities ............................. 3
Variable and Floating Rate Securities .............. 3
Interest Only and Principal Only Securities ........ 4
Illiquid and Restricted Securities ................. 4
Loans of Portfolio Securities ...................... 5
Borrowing And Transactions Involving Leverage ...... 5
Repurchase Agreements .............................. 8
2. Investment Limitations .................................. 8
Fundamental Limitations ............................ 8
Non-Fundamental Limitations ........................10
3. Performance and Advertising Data ........................11
SEC Yield Calculations .............................12
Other Advertisement Matters ........................12
4. Management ..............................................13
Trustees and Officers ..............................13
Compensation of Trustees and Officers of the Trust..15
Investment Advisory Services .......................16
Management and Administrative Services .............17
Distribution .......................................18
Transfer Agent .....................................19
Custodian ..........................................19
Portfolio Accounting ...............................19
Expenses ...........................................20
5. Portfolio Transactions ..................................20
6. Additional Purchase, Redemption and Exchange Information.22
General ............................................22
Exchanges ..........................................22
Redemptions ........................................22
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TABLE OF CONTENTS
Page
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7. Taxation ................................................23
8. Additional Information About the Trust
and the Shareholders of the Fund ........................23
Determination of Net Asset Value ...................23
Counsel and Auditors ...............................23
General Information ................................23
Registration Statement .............................24
Appendix A - Description of Securities Ratings A-1
ii
<PAGE>
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'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, Limited Liability Company ("FAS") serves as the Fund's
administrator.
Treasury Plus Fund invests directly in portfolio securities.
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.
"Custodian" shall mean Norwest acting in its capacity as custodian of
the Fund.
"FAS" shall mean Forum Administrative Services, Limited Liability
Company, 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.
"Forum Accounting" shall mean Forum Accounting Services, Limited
Liability Company, 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" shallv mean Norwest Bank Minnesota, N.A., a subsidiary
of Norwest Corporation.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"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.
<PAGE>
"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 investments, investment techniques and
strategies and the risks associated therewith. 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.
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 (i) is denominated in U.S. Dollars and has a remaining
maturity of 397 days or less; (ii) is rated, or is issued by an issuer with
short-term debt outstanding that is rated, in one of the two highest rating
categories by two NRSROs or, if only one NRSRO has issued a rating, by that
NRSRO; and (iii) has been determined by 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 a single issuer for a period of up to three business days. 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
2
<PAGE>
more than (A) the greater of one percent of its total assets or one million
dollars in securities issued by that issuer which are second tier securities, or
(B) five percent of its total assets in second tier securities.
Immediately after the acquisition of any put, demand feature or guarantee, no
more than five percent of the Fund's total assets may be invested in securities
issued by or subject to conditional puts from the same institution and no more
than ten percent of the Fund's total assets may be invested in securities issued
by or subject to unconditional puts (including guarantees) from the same
institution.
U.S. GOVERNMENT SECURITIES
In addition to obligations of the U.S. Treasury, the Fund may invest in certain
other U.S. Government Securities. Agencies and instrumentalities which issue or
guarantee debt securities and which have been established or sponsored by the
United States government include the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal
Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association, the Small
Business Administration, the Government National Mortgage Association and the
Student Loan Marketing Association. Others 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 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.
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").
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Fund invests 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
3
<PAGE>
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 the
instrument if the issuer defaulted on its repayment obligation during periods
that the Fund is not entitled to exercise any demand rights it may have. The
Fund could, for this or other reasons, suffer a loss with respect to an
instrument. 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.
INTEREST-ONLY AND PRINCIPAL-ONLY SECURITIES
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 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. (See "Investment Policies - Zero Coupon Securities".)
Interest-only securities ("IOs") result from the creation of POs. IOs sell at a
steep discount from their "notional" principal amount, namely, the principal
balance used to calculate the interest due. They have no face or par value and,
as the notional principal amortizes and prepays, the IO cash flow declines.
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. Illiquid securities include securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and which
are otherwise not readily marketable and 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.
4
<PAGE>
A institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements. 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.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities subject to the restrictions stated in
theProspectus. Under applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, at least equal the
market value of the loaned securities and must consist of cash, bank letters of
credit, U.S. Government securities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. In a portfolio securities lending transaction, the Fund receives from the
borrower an amount equal to the interest paid or the dividends declared on the
loaned securities during the term of the loan as well as the interest on the
collateral securities, less any finders' or administrative fees the Fund pays in
arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower as long as it realizes at least a
minimum amount of interest required by the lending guidelines established by the
Trust's Board of Trustees. The Fund will not lend its portfolio securities to
any officer, director, employee or affiliate of the Fund or 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).
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The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as the Fund is able to realize a net return on its investment portfolio
that is higher than interest expense incurred, if any, leverage will result in
higher current net investment income being realized by the Fund than if the Fund
were not leveraged. On the other hand, interest rates change from time to time
as does their relationship to each other depending upon such factors as supply
and demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
SEGREGATED ACCOUNT
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set aside and maintain in a segregated account cash
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.
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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 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.
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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.
Counterparties to the Fund's repurchase agreements must be a primary dealer that
reports to the Federal Reserve Bank of New York ("primary dealers") or one of
the largest 100 commercial banks in the United States.
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: (1) 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.
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.
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<PAGE>
(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. For purposes of this
limitation, there is no limit on (i) investments in U.S.
Government securities, in repurchase agreements covering U.S.
Government securities, in securities issued by the states,
territories and possessions of the United States ("municipal
securities") or in foreign government securities or (ii)
investment in issuers domiciled in a single jurisdiction.
Notwithstanding anything to the contrary, to the extent
permitted by the 1940 Act, the Fund may invest in one or more
investment companies; provided that, except to the extent the
Fund invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Fund treats the assets of the
investment companies in which it invests as its own for
purposes of this policy. For purposes of this policy (i)
"mortgage related securities," as that term is defined in the
1934 Act are treated as securities of an issuer in the
industry of the primary type of asset backing the security,
(ii) financial service companies are classified according to
the end users of their services (for example, automobile
finance, bank finance and diversified finance) and (iii)
utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas,
electric and telephone).
(3) BORROWING
The Fund may not borrow money if, as a result, outstanding
borrowings would exceed an amount equal to 33 1/3% of the
Fund's total assets. For purposes of this limitation, the
following are not treated as borrowings to the extent they are
fully collateralized: (i) the delayed delivery of purchased
securities (such as the purchase of when-issued securities),
(ii) reverse repurchase agreements; (iii) dollar roll
transactions; and (iv) the lending of securities.
(4) ISSUANCE OF SENIOR SECURITIES
The Fund may issue senior securities except to the extent
permitted by the 1940 Act.
(5) UNDERWRITING ACTIVITIES
The Fund may not underwrite (as that term is defined by the
1933 Act) securities issued by other persons except, to the
extent that in connection with the disposition of the Fund's
assets, the Fund may be considered to be an underwriter.
(6) MAKING LOANS
The Fund may not make loans to other parties. For purposes of
this limitation, entering into repurchase agreements, lending
securities and acquiring any debt security are not deemed to
be the making of loans.
(7) PURCHASES AND SALES OF REAL ESTATE
The Fund may not purchase or sell real estate, unless acquired
as a result of ownership of securities or other investments
(but this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
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<PAGE>
(8) PURCHASES AND SALES OF COMMODITIES
The Fund may not purchase or sell physical commodities unless
acquired as a result of the ownership of securities or other
instruments (but this shall not prevent the Fund from
purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by
physical commodities).
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 may not borrow money or enter into leverage
transactions if, as a result, the total of borrowings and
liabilities under leverage transactions (other than for
temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or
otherwise acquire any security if the total of borrowings and
liabilities under leverage transactions would exceed an amount
equal to 5% of the Fund's total assets.
(2) ILLIQUID SECURITIES
The Fund may not invest more than 10% of its net assets in
illiquid assets such as: (I) securities that cannot be
disposed of within seven days at their then-current value,
(ii) repurchase agreements not entitling the holder to payment
of principal within seven days and (iii) securities subject to
restrictions on the sale of the securities to the public
without registration under the 1933 Act ("restricted
securities") that are not readily marketable. The Fund may
treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board of Trustees.
(3) OTHER INVESTMENT COMPANIES
The Fund may not invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
(4) MARGIN AND SHORT SALES
The Fund may not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount
to the securities sold short (short sales "against the box"),
and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
The Fund may not purchase securities on margin, except that
the Fund may use short-term credit for clearance of the Fund's
transactions, and provided that the initial and variation
margin payments in connection with futures contracts and
options on futures contracts shall not constitute purchasing
securities on margin.
(6) 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.
(7) 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
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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.
(8) LENDING OF PORTFOLIO SECURITIES
The Fund may not lend a security if, as a result, the amount
of loaned securites would exceed an amount equal to 33 1/3% of
the Fund's total assets, as determined by SEC guidelines.
(9) EXERCISING CONTROL OF ISSUERS
The Fund may not make investments for the purpose of
exercising control of an issuer. Investments by the Fund in
entities created under the laws of foreign countries solely to
facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of
exercising control.
(10) OPTIONS AND FUTURES CONTRACTS
The Fund may not invest in options, futures contracts or
options on futures contracts.
(11) WARRANTS
The Fund may not invest in warrants if: (1) more than 5% of
the value of the Fund's net assets would will be invested in
warrants (valued at the lower of cost or market) or (2) more
than 2% of the value of the Fund's net assets would be
invested in warrants which are not listed on the New York
Stock Exchange or the American Stock Exchange; provided, that
warrants acquired by the Fund attached to securities are
deemed to have no value.
(12) 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.
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 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
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<PAGE>
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.
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 Federally and, if applicable, state
tax-exempt income from the Fund or investing in a tax-deferred account, such as
an individual retirement account or Section 401(k) pension plan; and (9) the net
asset value, net assets or number of shareholders of the Fund as of one or more
dates.
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As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
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 July 1, 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 54.
President and Owner, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, Limited Liability
Company (a mutual fund administrator), Forum Financial Corp. (a
registered transfer agent), and other companies within the Forum
Financial Group of companies. Mr. Keffer is a Director, Trustee and/or
officer of various registered investment companies for which Forum
Financial Services, Inc. or its affiliates serves as manager,
administrator or distributor. His address is Two Portland Square,
Portland, Maine 04101.
ROBERT C. BROWN, Trustee,* Age 65.
Director, Federal Farm Credit Banks Funding Corporation and Farm Credit
System Financial Assistance Corporation since February 1993. Prior
thereto, he was Manager of Capital Markets Group, Norwest Corporation
(a multi-bank holding company and parent of Norwest), until 1991. His
address is 1431 Landings Place, Sarasota, Florida 34231.
DONALD H. BURKHARDT, Trustee, Age 70.
Principal of The Burkhardt Law Firm. His address is 777 South Steele
Street, Denver, Colorado 80209.
JAMES C. HARRIS, Trustee, Age 76.
President and sole Director of James C. Harris & Co., Inc. (a
financial consulting firm). Mr. Harris is also a liquidating trustee
and former Director of First Midwest Corporation (a small business
investment company). His address is 6950 France Avenue South,
Minneapolis, Minnesota 55435.
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RICHARD M. LEACH, Trustee, Age 63.
President of Richard M. Leach Associates (a financial consulting firm)
since 1992. Prior thereto, Mr. Leach was Senior Adviser of Taylor
Investments (a registered investment adviser), a Director of
Mountainview Broadcasting (a radio station) and Managing Director of
Digital Techniques, Inc. (an interactive video design and
manufacturing company). His address is P.O. Box 1888, New London, New
Hampshire 03257.
JOHN S. MCCUNE,* Trustee, Age 46.
President, Norwest Investment Services, Inc. (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 35.
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 42.
Managing Director and Counsel, Forum Financial Services, Inc., with
which he has been associated since 1993. Prior thereto, Mr. Sheehan
was Special Counsel to the Division of Investment Management of the
SEC. Mr. Sheehan is also an officer of various registered investment
companies for which Forum 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
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Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. Her address is Two
Portland Square, Portland, Maine 04101.
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
have a December 31 fiscal year end. Information is presented for the twelve
month period ended May 31, 1998, 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 $32,870 $33,000
Mr. Burkhardt $39,344 $39,500
Mr. Harris $32,870 $33,000
Mr. Leach $32,870 $33,000
Mr. Penny $32,870 $33,000
Mr. Willeke $32,870 $33,000
Mr. McCune $32,870 $33,000
</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,
1998 total expenses of the Trustees (other than Mr. Keffer) was $20,869 and
total expenses of the trustees of Norwest Select Funds was $77.
As of July 1, 1998, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Fund.
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. All investment
advisory fees are accrued daily and paid monthly. The Adviser, in its sole
discretion, may waive or continue to waive all or any portion of its investment
advisory fees.
In addition to receiving its advisory fee from the Fund, 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
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 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 on 60 days' written notice 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.
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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
internationally.
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 FAS 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: (1) 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.
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.
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<PAGE>
FAS 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, Forum has entered into a Administrative Agreement that will continue
in effect only if such continuance is specifically approved at least annually by
the Board or by the shareholders and, in either case, by a majority of the
Trustees who are not interested persons of any party to the Administration
Agreement.
On behalf of the Trust and with respect to the Fund, FAS: (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 Advisers 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 FAS nor
its personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of FAS's
or their duties or by reason of reckless disregard of their obligations and
duties under the Administrative Agreement.
Pursuant to their agreements with the Trust, Forum and FAS may subcontract any
or all of their duties to one or more qualified subadministrators who agree to
comply with the terms of Forum's Management Agreement or FAS's Administration
Agreement, respectively. Forum and FAS may compensate those agents for their
services; however, no such compensation may increase the aggregate amount of
payments by the Trust to Forum or FAS pursuant to their Management and
Administration Agreements with the Trust.
DISTRIBUTION
Forum also acts as distributor of the shares of the Fund. Forum acts as the
agent of the Trust in connection with the offering of shares of the 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
18
<PAGE>
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.
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, with respect to the Fund, at an annual rate of 0.25% of
the Fund's average daily net assets.
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"). 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.
The Fund will not pay custodian fees to the extent the Fund invests in shares of
another registered investment company. If the Fund were to so invest, it would
incur its proportionate share of the custodial fees of the investment company or
companies in which it invests.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of Forum, performs portfolio accounting services
for the Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund
Accounting Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board or by a vote of the
shareholders of the Trust and in either case by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement.
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<PAGE>
Under the Fund Accounting Agreement, Forum Accounting 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 dividends and capital gain distributions and prepares periodic reports
to shareholders and the SEC. For its services, Forum Accounting receives from
the Trust with respect to the Fund a fee of $3,000 per month. In addition, Forum
Accounting 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 - $1000/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 has more than 100 security
positions - $1,000/month; and (3) 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
Forum Accounting is required to use its best judgment and efforts in rendering
fund accounting services and is not liable to the Trust for any action or
inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control and the
Trust has agreed to indemnify and hold harmless Forum Accounting, its employees,
agents, officers and directors against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising out of or in any
way related to Forum Accounting's actions taken or failures to act with respect
to the Fund or based, if applicable, upon information, instructions or requests
with respect to the Fund given or made to Forum Accounting by an officer of the
Trust duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
EXPENSES
Subject to the obligations of Norwest to reimburse the Trust for its excess
expenses as described above, the Trust has, under its Investment Advisory
Agreements, confirmed its obligation to pay all its other expenses, including:
(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
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 debt and equity
securities from
20
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underwriters of the securities include a disclosed fixed commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked price. In
the case of debt securities and equity securities traded in the foreign and
domestic over-the-counter markets, there is generally no stated commission, but
the price usually includes an undisclosed commission or markup. Allocations of
transactions to brokers and dealers and the frequency of transactions are
determined by the 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 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
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<PAGE>
product of many factors, including basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the respective investment adviser's opinion, is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for 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.
6. ADDITIONAL PURCHASE, REDEMPTION AND
EXCHANGE INFORMATION
GENERAL
Shares of the Fund are sold on a continuous basis by the distributor.
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 the 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, Treasury Fund, Investor Shares of
Ready Cash Investment Fund, Institutional and Investor Shares of Municipal Money
Market Fund; 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 (FORMERLY CONSERVATIVE BALANCED 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. 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.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse
the Fund for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to the Fund's shares as provided in the Prospectus from time to
time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting 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. of the original B Shares.
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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.
The Fund's investments in zero coupon securities will be subject to special
provisions of the Code which may cause the Fund to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the Fund
may be forced to sell other portfolio securities.
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.
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'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
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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 each
Investment Advisory Agreement with Norwest that if Norwest ceases to act as
investment adviser to the Trust or any Fund whose name includes the word
"Norwest," or if Norwest requests in writing, the Trust shall take prompt action
to change the name of the Trust and any such Fund to a name that does not
include the word "Norwest." Norwest may from time to time make available without
charge to the Trust for the Trust's use any marks or symbols owned by Norwest,
including marks or symbols containing the word "Norwest" or any variation
thereof, as Norwest deems appropriate. Upon Norwest's request in writing, the
Trust shall cease to use any such mark or symbol at any time. The Trust has
acknowledged that any rights in or to the word "Norwest" and any such marks or
symbols which exist or may exist, and under any and all circumstances, shall
continue to be, the sole property of Norwest. Norwest may permit other parties,
including other investment companies, to use the word "Norwest" in their names
without the consent of the Trust. The Trust shall not use the word "Norwest" in
conducting any business other than that of an investment company registered
under the Act without the permission of Norwest.
Prior to the public offering of the Fund's shares, Forum Financing, Inc., the
holder of the initial shares of the Fund, may be deemed to control the Fund.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
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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
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